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, 2004


                           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. [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the  registrant as of June 30, 2004 (the last business day of
the registrant's  more recently  completed  second quarter) was $7,958,000.  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 $0.06 per share,
and the Series B Preferred  Stock is deemed to have a market  value of $0.12 per
share,  based on the  average of the bid and ask  prices of the Common  Stock on
June 30, 2004, 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 30,  2005 was
415,601,000.

<PAGE>
<TABLE>

                                             ENOVA SYSTEMS, INC.

                                        2004 FORM 10-K ANNUAL REPORT

                                              TABLE OF CONTENTS
<CAPTION>

                                                   PART I
<S>      <C>                                                                                              <C>
Item 1.  Business.................................................................................        3

Item 2.  Properties................................................................................       15

Item 3.  Legal Proceedings.........................................................................       16

Item 4.  Submission of Matters to a Vote of Security Holders.......................................       16

                                                   PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and
         Issuer Purchases of Equity Securities.......................................................     17

Item 6.  Selected Financial Data.....................................................................     18

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.......     19

Item 7A. Quantitative and Qualitative Disclosures about Market Risk..................................     27

Item 8.  Financial Statements and Supplementary Data.................................................     27

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........     27

Item 9A. Controls and Procedures.....................................................................     27

                                                  PART III

Item 10.  Directors and Executive Officers of the Registrant.........................................     29

Item 11.  Executive Compensation.....................................................................     32

Item 12.  Security Ownership of Certain Beneficial Owners and Management
            and Related Stockholder Matters..........................................................     35

Item 13.  Certain Relationships and Related Transactions.............................................     37

Item 14.  Principal Accountant Fees and Services.....................................................     37

                                                   PART IV

Item 15.  Exhibits and Financial Statement Schedules.................................................     38


SIGNATURES...........................................................................................     41

</TABLE>

                                        2
<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  believes it is a leader in the  development  and  production  of
proprietary,  commercial  digital power  management  systems for  transportation
vehicles and stationary  power  generation  systems.  Power  management  systems
control and monitor  electric  power in an automotive or commercial  application
such as an  automobile  or a  stand-alone  power  generator.  Drive  systems are
comprised  of an electric  motor,  an  electronics  control unit and a gear unit
which  power an  electric  vehicle.  Hybrid  systems,  which are similar to pure
electric drive systems, contain an internal combustion engine in addition to the
electric  motor,  eliminating  external  recharging  of the  battery  system.  A
hydrogen  fuel cell  based  system is similar to a hybrid  system,  except  that
instead of an internal  combustion  engine, a fuel cell is utilized as the power
source. A fuel cell is a system which combines hydrogen and oxygen in a chemical
process  to  produce  electricity.  Stationary  power  systems  utilize  similar
components  to those  which are in a mobile  drive  system in  addition to other
elements.  These  stationary  systems are effective as  power-assist  or back-up
systems,   alternative   power,  for  residential,   commercial  and  industrial
applications.

         A  fundamental  element of Enova's  strategy  is to develop and produce
advanced proprietary  software,  firmware and hardware for applications in these
alternative  power  markets.  Our  focus  is  digital  power  conversion,  power
management, and system integration,  for two broad market applications - vehicle
power generation and stationary power generation.

         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 distributed power generation systems. These
stationary  applications  can employ  hydrogen  fuel  cells,  microturbines,  or
advanced  batteries for power storage and generation.  Additionally,  we perform
research  and  development  to augment and  support  others' and our own related
product development efforts.

         Our product  development  strategy is to design and introduce to market
successively advanced products,  each based on our core technical  competencies.
In each of our product / market  segments,  we provide  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.

         Enova's  primary  market  focus  centers on both  series  and  parallel
heavy-duty  drive  systems  for  multiple  vehicle and marine  applications.  We
believe  series-hybrid  and parallel hybrid  heavy-duty drive system sales offer
Enova the  greatest  return  on  investment  in both the  short  and long  term.
Additionally,  Enova  management  believes  that this area will see  significant
growth over the next several years.  As we penetrate  more market areas,  we are
continually  refining and  optimizing  both our market  strategy and our product
line to maintain our leading edge in power management and conversion systems for
mobile applications.

         Our website,  www.enovasystems.com,  contains up-to-date information on
us, our products, programs and current events. We are implementing an aggressive
strategy  to utilize  our  website  and the  internet as a prime focal point for
current  and  prospective  customers,  investors  and other  affiliated  parties
seeking data on us.

         During  2004,  we  experienced  a slowdown  in sales due to a number of
internal  and  external  developments.  Internally,  we  reorganized  our senior
management by moving our vice president of marketing and sales, Edward Moore, to
the position of Chief  Operating  Officer,  which  resulted in an interim period
without a  dedicated  sales  executive.  During the fourth  quarter of 2004,  we
selected  Michael  Staran to head our  marketing  department.  Additionally,  we
appointed  Edwin  Riddell,  a director of Enova since 1994,  to the  position of
president  and Chief  Executive  Officer to replace  Carl Perry during the third
quarter of 2004.  Mr. Perry was appointed as our  Vice-Chairman.  We believe our
market focus is more defined with sales and market  potential  improving  during
2005. In 2004, we also  continued to see our current and  prospective  customers
seek more development  programs,  or evaluation systems,  than actual demand for
production  systems.  We believe this trend is the reason our current  customers
ordered  additional  drive  systems and  components in the first quarter of 2005
with  forecasts to order more during the next three fiscal  quarters of 2005. We
anticipate  potential  customers will use references  from our current  customer
base in their decision  process which may lessen order cycle timing and increase
sales volume.

                                       3
<PAGE>

         Our decreases in production  and  development  revenues are primarily a
result of an ongoing slowdown in heavy-duty  alternative fuel drive system sales
as  manufacturers  assess the various new types of systems on the market.  There
has been a greater shift to parallel hybrid type systems.  As yet,  however,  no
particular  type of systems has gained a major foothold in the  marketplaces  in
which we compete. Management's strategy in this regard is to provide a dual path
approach in offering both a series and parallel  hybrid drive  systems  solution
which we commenced  in 2004.  We have  developed or are  developing a variety of
heavy-duty  drive  system  solutions  including  our series  hybrid drive system
featuring our diesel generator set; a  post-transmission  parallel hybrid system
and two variations of a pre-transmission  parallel hybrid drive system.  Many of
these systems are currently  being utilized in our  customer's  trucks and buses
such as the Mack R-11  refueler  vehicle  which  utilizes our  post-transmission
parallel hybrid and WrightBus of the United Kingdom's 10m bus which utilizes our
series hybrid drive system.

         Additionally,  to offset this temporary decline in production sales, we
continue to pursue privately and governmental funded development programs.  This
allows us to increase our revenue base,  form new alliances  with major OEMs and
participate in the latest trends in alternative fuel technologies.  The decrease
in R&D  revenues  for the year  ended  December  31,  2004 is  primarily  due to
customer requirement slippage during the year, all of which, we believe, will be
realized in 2005. Research and development  revenues are a result of engineering
services for the Mack/Volvo  hybrid drive system,  the EDO minesweeper  project,
the First Auto Work (FAW) parallel  hybrid program and various Hawaii Center for
Advanced Transpiration Technologies (HCATT) programs.

         We continue to receive greater  recognition from both  governmental and
private industry with regards to both commercial and military application of its
hybrid drive systems and fuel cell power  management  technologies.  Although we
believe that current negotiations with several parties may result in development
and production  contracts  during 2005 and beyond,  there are no assurances that
such additional agreements will be realized.

         During 2004, we continued to advance its  technologies and products for
greater  market  penetration  for  2005  and  beyond.  We  continue  to  develop
independently  and in conjunction with the Hyundai-Enova  Innovative  Technology
Center's  (ITC)  progress on several  fronts to produce  commercially  available
heavy-duty,  series and  parallel  hybrid drive  systems.  Enova  continued  its
expansion  into the Chinese  hybrid  vehicle  markets by securing  contracts for
hybrid buses and trains in China and Singapore,  respectively.  In July of 2004,
we entered into an agreement  with Tomoe and Hyundai  Heavy  Industries of Korea
for the development and production of eight, 36-ton battery electric locomotives
for the Singapore Land Transport Authority for anticipated delivery in late 2005
to early 2006.

         During the year ended  December 31,  2004,  we continued to develop and
produce   electric  and  hybrid   electric  drive  systems  and  components  for
Mack/Volvo, First Auto Works of China, Ford Motor Company (Ford), Wright Bus and
Eneco of the United  Kingdom,  and Tomoe of Japan and several other domestic and
international vehicle and bus manufacturers.

         Our  various  electric  and   hybrid-electric   drive  systems,   power
management and power conversion systems are being used in applications including
Class 8 trucks, train locomotives, transit buses and industrial vehicles as well
as in  non-transportation  applications  such as fuel-cell  management and power
management  systems,  including  the  EDO  minesweeper.  We have  furthered  its
development  and production of systems for both mobile and stationary  fuel cell
powered systems with major companies such as Ford and  Hydrogenics,  a fuel cell
developer in Canada.

         Our potential in China is growing with the addition of two (2) more bus
manufacturers, First Auto Group (FAW) and Top-Electric. Our contract with FAW is
for the  development and evaluation of a parallel hybrid drive system for buses,
in  conjunction  with the  proposed/possible  production  of up to 1,000  hybrid
vehicles for the 2008 Summer Olympics in Beijing.  The  development  contract is
scheduled  to run  through  early/mid  2005 to  deliver  three  pre-transmission
parallel  hybrid  motors  and  controllers.  FAW has  discussed  ordering  three
additional  systems in mid 2005 upon completion of the evaluation of the initial
systems.  Successful  completion  of  this  project  could  lead  to  additional
development and production  contracts with FAW,  however,  we cannot assure that
such additional orders will be forthcoming.

         For the year ended December 31, 2004, the following customers accounted
for more than ten percent (10%) of our total revenues:

                 Customer                               Percent
                 ----------------------------------------------
                 Ford Motor Company                       16.0%
                 EDO New York                             13.0%
                 Hyundai Motor Company                    10.0%


Heavy-Duty  Drive Systems - Buses,  Trucks,  Vans and Other  Industrial  Vehicle
Applications
--------------------------------------------------------------------------------

         Enova's  primary  market  focus  centers on both  series  and  parallel
heavy-duty  drive  systems  for  multiple  vehicle and marine  applications.  We
believe  series-hybrid  and parallel hybrid  heavy-duty drive system sales offer


                                       4
<PAGE>

Enova the  greatest  return  on  investment  in both the  short  and long  term.
Although  this  market  sector  has  developed  more  slowly  than  anticipated,
management  believes  that this area will see  significant  growth over the next
several years.  As the Company  penetrates more market areas, we are continually
refining  and  optimizing  both our  market  strategy  and our  product  line to
maintain our leading edge in power management and conversion  systems for mobile
applications.

         During 2004, we introduced our latest hybrid,  the  HybridPower  Series
Hybrid, at the Electric Drive  Transportation  Association's annual symposium in
Orlando  Florida.  Enova's new diesel  generator set, the power component within
the hybrid  drive  system,  delivers 60  kilowatts  volts of  continuous  power,
enabling it to integrate seamlessly with Enova's 240kW or 120kW drive motors and
other digital power management components.  The series hybrid genset consists of
a 60kW electric motor, a motor controller and a diesel engine meeting  stringent
Euro 3 or Euro 4 emission  specifications.  The genset is distinctively designed
to allow end users to choose the engine best suited for their commercial  needs,
permitting a wide variety of engine choices.

         In early  2004,  we sold  three  HybridPower  120kW  drive  systems  to
Tsinghua University in China for fuel cell hybrid bus development. China intends
to use hybrid-electric  buses to shuttle athletes and guests at the 2008 Beijing
Summer  Olympics and the 2010  World's Expo in Shanghai.  China is seeking up to
1,000 full-size hybrid-electric buses to support these global events. We believe
Tsinghua is the premier research university in China. Its automotive engineering
department  selected Enova's drive systems for its government funded hybrid fuel
cell  bus  development.  In July  2004,  Enova  completed  negotiations  for two
development  and  production  contracts for Asian markets.  Enova  continued its
expansion  into the Chinese  hybrid  vehicle  markets by securing  contracts for
hybrid buses and trains in China and Singapore  respectively.  Enova's potential
in China is growing with the addition of two more bus manufacturers,  First Auto
Works (FAW) and Top-Electric.  FAW entered into an agreement with us to purchase
three  medium-duty,  parallel  hybrid  drive  systems,  the  first of which  was
delivered in late 2004.  Enova now sells its hybrid  drive  systems to three bus
developers in China, including Tsinghua University of China. Management believes
that these development and initial production programs will result in additional
production contracts during 2005 and beyond;  however at this time; there are no
assurances that such additional contracts will be consummated.

         In Japan, Tomoe Electro-Mechanical Engineering and Manufacturing,  Inc.
has entered into a  development  and  production  contract  with Enova for eight
battery-electric  locomotives  for the Singapore  Land  Transport  Authority for
service  vehicles for the Singapore  Mass Rapid  Transit  Circle Line system for
maintenance,  repair,  shunting and recovery of passenger trains.  Over the last
several years,  Enova  successfully  integrated its HybridPowerTM  drive systems
into Tomoe's heavy-duty Isuzu dump truck application,  three passenger trams and
a mine tunnel crawler.  It is anticipated that the hybrid drive train components
will begin being delivered in late 2005 at Tomoe's Japan-based facilities. Enova
anticipates  the total  contract  to exceed  US$3  million  over the life of the
contract.  This latest  market  penetration  in Asia  enhances  not only Enova's
alliances  with both Tomoe and HHI, but also  advances  Enova's  hybrid-electric
technologies  in  high  voltage  power  management  components.  As part of this
contract,  Enova  will  develop a high  voltage  charging  system to enable  the
locomotive to receive a direct battery charge from the high voltage rail.  Tomoe
and Enova continue to develop other  commercial and industrial  applications for
our drive systems, including potential light rail applications. During the first
quarter  of 2005,  Tomoe  issued a purchase  order for three  post  transmission
parallel hybrid drive systems for another train project in South Korea.  For the
year ended December 31, 2004 we billed approximately  $175,000 for these various
systems.  Although we anticipate additional orders for these systems in 2005 and
beyond, there are no assurances that such additional orders will be forthcoming.

         WrightBus, one of the largest low-floor bus manufacturers in the United
Kingdom,  continues to purchase our diesel genset-,powered,  series hybrid drive
systems for their medium and large bus  applications.  WrightBus ordered 4 120kW
drive  systems and one 240kW drive  system in 2004 for a total of  $166,000.  In
late 2004, we entered into an exclusive agreement with WrightBus for the sale of
certain Enova products for specific  vehicles in the United  Kingdom.  WrightBus
has issued  additional  purchase  orders for product in 2005 and  notified us of
their potential requirements for 2005 through 2007. At this time, however, there
are no assurances that such additional orders will be forthcoming.

         Eneco of the  United  Kingdom,  a  vehicle  integrator  which  utilizes
Enova's  HybridPower  120kW  drive  systems  in  its  hybrid  bus  applications,
purchased six 120kW systems in 2004 for a total of $170,000.  Eneco has notified
us of its plans to order  additional 120kw systems in 2005 for its bus programs.
At this time, however,  there are no assurances that such additional orders will
be forthcoming.

         EcoPower  Technology of Italy continues to purchase  components for its
hybrid electric drive systems during 2004 for service and maintenance  parts for
its fleet of buses  powered by  HybridPowerTM  120kw  drive  systems.  Since our
teaming with EcoPower,  we have sold 42 drive systems forming one of the largest
fleets of hybrid buses in the world.  EcoPower is one of the largest integrators
of medium size  transit  buses for the  European  shuttle  bus market,  with key
customers in five Italian  cities  namely  Turin,  Genoa,  Brescia,  Ferrara and
Vicenza.  EcoPower  notified  Enova of its  requirements  for  additional  drive
systems in 2005,  however,  there are no assurances that such additional  orders
will be forthcoming.

         MTrans of Malaysia has integrated two of our standard HybridPower 120kW
drive  system into a hybrid  10-meter  bus with a Capstone  microturbine  as its
power  source.  MTrans has  discussed  the  potential of  utilizing  Enova drive
systems for all of its hybrid and monorail  requirements in 2005 and beyond.  At
this time, however,  there are no assurances that such additional orders will be
forthcoming.

                                       5
<PAGE>

         Additionally,  we are in discussions with other bus  manufacturers  and
industrial, commercial and military vehicle manufacturers regarding the purchase
of our  heavy-duty,  high  performance,  120kW and 240kW drive  systems in 2005.
There are no  assurances,  however,  that these  discussions  will result in any
sales of the HybridPower 240kW or 120kW drive systems.

Light-Duty Drive Systems - Automobiles and Delivery vehicles
------------------------------------------------------------

         Our 90kW  controller,  motor and gear unit is  utilized  in light  duty
vehicles such as midsize automobiles and delivery vehicles. The topology of this
system is being  adapted  to also be  utilized  as a parallel  hybrid  motor and
controller  system.  We are beginning to receive more interest in our light-duty
systems from both European and Asian customers.

         Eneco of the  United  Kingdom,  a  vehicle  integrator  which  utilizes
Enova's  HybridPowerTM  120kW  drive  systems in its  hybrid  bus  applications,
purchased two  HybridPowerTM  90kW drive systems for  integration  into delivery
vans.

         Our 90kW motor controller is also utilized in the parallel hybrid drive
system designed for FAW. In conjunction  with the 90kW motor,  FAW and Enova are
evaluating this latest employ of our hybrid  technologies.  As noted earlier, we
anticipate additional demand for these systems. At this time, however, there are
no assurances that such additional orders will be forthcoming.

         We continue to cross-sell  our systems to new and current  customers in
the light and medium duty vehicle markets, both domestically and globally.

Fuel Cell Technologies
----------------------

         The High Voltage Energy Converter (HVEC) development  program with Ford
Motor  Company for their fuel cell  vehicle was  essentially  completed in 2003.
This  converter is a key component in Ford's Focus Fuel Cell Vehicle (FCV) which
utilizes the Ballard fuel cell system.  It converts  high voltage power from the
fuel  cell  into a lower  voltage  for use by the drive  system  and  electronic
accessories.  Enova delivered 8 additional  HVEC  production  systems to Ford in
2004 valued at approximately $100,000. These systems will be integrated into the
Ford Focus FCV which will be part of an evaluation  program being implemented by
Ford in 2005.  There is a potential for  additional  production  orders for HVEC
units  from  Ford in 2005  and  beyond;  however,  at this  time,  there  are no
assurances that such additional orders will be forthcoming.

         Furthermore, we are applying the technology and components derived from
this program to other applications. The HVEC is a critical component of our Fuel
Cell bus programs  and other fuel cell powered  systems such as the Hyundai fuel
cell vehicle.  Both of these  projects are further  detailed in the research and
development programs section.

         Enova's fuel cell enabling  components are part of the proposed  fleets
of fuel cell vehicles being utilized by both Ford Motor Company - the Ford Focus
FCV- and Hyundai  Motor Company - the Hyundai  Tucson fuel cell hybrid  electric
vehicle - in response to the U.S. Department of Energy's solicitation,  entitled
"Controlled  Hydrogen  Fleet and  Infrastructure  Demonstration  and  Validation
Project." This  government-funded  project,  which  commenced in late 2004, will
last over five years evaluating the economic and performance feasibility of fuel
cell vehicles and infrastructure across the U.S.

         The  Company  will  continue  to  explore  new  applications  for  this
versatile technology in both mobile and stationary systems.

Research and Development Programs
---------------------------------

         We  continue  to  aggressively   pursue   government  and  commercially
sponsored  development  programs  for both  ground and marine  heavy-duty  drive
system applications.

         Our program with Mack Truck, Inc.,  Powertrain division - a unit of The
Volvo Group,  Sweden, for the development and manufacture of a motor controller,
electric motor and battery  management  systems for a new parallel  hybrid drive
system continues on schedule. The new parallel hybrid vehicle program is part of
the Air  Force's  efforts to improve  efficiency,  reduce  fuel and  maintenance
costs,  provide  re-generative  brake energy and reduce emissions.  The refueler
fleet consists of approximately 300 vehicles and, upon successful completion and
evaluation  of the  refueler  vehicle,  there is the  potential  for  additional
upgrades to the parallel  hybrid  drive  system.  As part of the  program,  Mack
Trucks will also  evaluate the  applicability  of the drive system to commercial
vehicles  commencing  with its  Class 8 Refuse  Hauler.  Mack  Trucks  currently
produces  approximately 3,000 refuse vehicles per annum for major customers such
as Waste Management.  This development program is anticipated to be completed in
mid 2005 followed by an evaluation period of approximately three to nine months.
The program  generated  $150,000 in revenues  for us in 2004.  This  program has
opened  several  avenues  within  Mack  and  Volvo  for  Enova  to  develop  and
manufacture  advanced drive system components.  However, at this time, there are
no assurances that such additional orders will be forthcoming.

         Our  development  contract  with  EDO  Corporation  of New York for the
design and fabrication of a high voltage DC-DC power conversion system utilizing
a Capstone  microturbine  as the primary power source for the U.S. Navy unmanned
minesweeper project also continues to progress during the first quarter of 2004.


                                       6
<PAGE>

The electronics package will include Enova's advanced power components including
a new,  enhanced  50V,  700A DC-DC power  converter,  our Battery  Care Unit and
Hybrid Control Unit which will power the minesweeper's electromagnetic detection
system.  Our power  management  and  conversion  system  will be used to provide
on-board power to other  accessories on the platform.  During the second quarter
of 2004,  Enova  completed  and  presented  the  hardware  to EDO,  which is now
undergoing  functional  testing.  We  believe  that the  aggregate  value of the
program will be approximately  $420,000, of which $342,000 was received in 2004.
Although  this  program  also has the  potential  for  additional  system  sales
following the demonstration  phase, there are no assurances that such additional
orders will be forthcoming.

         The all-electric Hyundai Santa Fe SUV demonstration project in Honolulu
Hawaii  is  nearing  its  completion  in June  2005 for  three of the  vehicles.
Fast-charging  capabilities  and  performance  will be the primary focus of this
continued evaluation.  This is a continuation of the State of Hawaii and Hyundai
Motor Company's program for pure electric vehicle performance.

         Enova  continues its development for Hyundai Motor Company (HMC) of the
fuel cell power  management and conversion  components for Hyundai's latest fuel
cell hybrid electric vehicle,  the Tucson, which was unveiled at the Geneva Auto
Show in March  2004.  During the second  quarter of 2004,  Enova  completed  the
development of this next generation hybrid-electric motor and control unit based
on its prior development work on both light and heavy-duty power-trains for both
electric and  hybrid-electric  vehicle  platforms.  During 2004,  we delivered 8
systems to HMC for test,  evaluation and  integration  into  vehicles.  Enova is
working in conjunction with UTC Fuel Cells, part of the UTC Power unit of United
Technologies  Corporation,  to develop the power  electronics  for this vehicle.
During 2004, this program  generated  $250,000 in revenues from  development and
hardware sales. Although we believe there is potential for further production of
these drive system components and other development  programs in 2005, there can
be no assurances at this time that such orders will be realized.

         In  the  fourth  quarter  of  2004,  Enova  completed  the  design  and
integration  of its 120kw drive system with a Capstone  microturbine  into a MB4
tow tractor for the U.S. Air Force  through a contract  with the Volpe  National
Transportation  Systems  Center.  The  objectives  of this  program  include the
integration of  microturbine  technology  into the hybrid  electric tow tractor,
field  testing and  evaluation of the benefits of  microturbine  technology in a
hybrid  electric  vehicle,   integration  of  grid-charging  technology,   DC-DC
converter,  and a data  acquisition  system into an electric  tow  tractor,  and
validation  of the  technology  effect on the original  system and  performance.
During 2004, the program  generated  $165,000 in revenues for Enova.  There is a
potential for other  upgrades of this type and we anticipate  entering into more
of these  contracts in 2005 with the U.S. Air Force.  There can be no assurances
at this time, however, that such contracts will be realized.

         We also commenced a program with Hydrogenics to integrate a HybridPower
120kW hybrid drive system into a step-van for  Purolator as a hydrogen fuel cell
hybrid vehicle.  In integrating  this new system,  we utilized several new power
management  systems  including  our dual 8kW  inverter  and our Mobile Fuel Cell
Generator  that  utilizes  our High Voltage  Converters.  This fuel cell vehicle
application  utilized  a  Hydrogenics  20kW fuel cell  power  generation  module
underscoring our technologies ability to optimize fuel cell performance across a
range of fuel cell products. The program is in its final stage of evaluation. As
a result of this  program,  we have also  commenced a similar fuel cell step van
conversion program for HCATT and the U.S. Air Force.

         Also in the fourth quarter of 2004, we commenced  integration of a fuel
cell powered  step-van  similar to the  aforementioned  Hydrogenics  program for
HCATT and the U.S. Air Force.  The program is scheduled to continue  through the
third quarter of 2005 ending with an evaluation  phase.  We are  experiencing  a
notable increase in interest from both government and military organizations for
our products and integration services.  For the year ended December 31, 2004, we
billed approximately $96,000 for all of our HCATT programs.

         We intend to establish new development  programs with the Hawaii Center
for Advanced  Transportation  Technologies in mobile and marine  applications as
well  as  other  state  and  federal  government  agencies  as  funding  becomes
available.

Stationary Power Applications
-----------------------------

         Enova  continues to attract new 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 our Company.

         We believe  the  stationary  power  market  will play a key role in our
future. We continue to pursue alliances with leading manufacturers in this area.
There are,  however,  no assurances that this market will develop as anticipated
or that such alliances will occur.

Environmental Initiatives and Legislation

         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").  We believe 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) is continually modifying its


                                       7
<PAGE>

limits for low emission vehicles.  Recently, CARB proposed additional amendments
to the regulations. Furthermore, several car manufacturers have challenged these
mandates in court and have obtained  injunctions to delay these mandates.  There
can be no  assurance  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.

         Our products are subject to federal,  state, local and foreign laws and
regulations,  governing,  among other things, emissions as well as laws relating
to  occupational  health and  safety.  Regulatory  agencies  may impose  special
requirements   for   implementation   and  operation  of  our  products  or  may
significantly  impact or even eliminate some of our target markets. We may incur
material  costs or  liabilities in complying  with  government  regulations.  In
addition,  potentially  significant  expenditures  could be required in order to
comply with evolving  environmental and health and safety laws,  regulations and
requirements that may be adopted or imposed in the future.

Strategic Alliances, Partnering and Technology Developments

         Our  continuing  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 believe 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 fuel cell fields. For instance, the Hyundai
Group of Korea and Enova are partnering in the  development  of advanced  hybrid
and hydrogen fuel cell drive-train technology and related systems.

         Enova's  alliances  with other major OEMs in the  automotive,  transit,
commercial and energy  sectors  continue to expand.  In 2004,  Enova entered the
Chinese  hybrid vehicle market with alliances with First Auto Works and Tsinghua
University for heavy-duty hybrid drive systems and  technologies.  Additionally,
we expanded on our  alliances  with  Mack/Volvo,  Tomoe,  Hyundai  Motor Company
(HMC), MTrans of Malaysia,  Eneco, Hydrogenics of Canada, the Southwest Research
Institute, the U.S. Air Force and other commercial and industrial intermediaries
and OEMs to find new markets and applications for our products and technologies.
We continue our strategy as a "systems integrator" by establishing relationships
to utilize other independently  developed technologies such as those provided by
HHI, UTC Fuel Cells, Hydrogenics and national universities.  We have implemented
our plans to outsource manufacturing of our components to companies such as HHI,
Ricardo, and other Asian  manufacturers.  We believe that one of our competitive
advantages  is our  ability  to  identify,  attract  and  integrate  the  latest
technology available to produce state of the art products at competitive prices.

         Our joint venture  alliance with Hyundai  Heavy  Industries  (HHI) is a
prime example of our partnering  strategy to maximize the utilization of Enova's
knowledge and expertise in power  management  and control.  Teaming with HHI may
lead to other  additive  technologies  and  products  which  Enova can market to
current and prospective customers. The joint venture corporation,  Hyundai-Enova
Innovative  Technology Center (ITC),  commenced operations in the second quarter
of 2003. The advanced technology center focuses on leading-edge  technologies in
power  management and power conversion for industrial,  commercial,  residential
and vehicle  applications.  The ITC has been instrumental in bringing our diesel
genset system into commercialization.  Other projects slated for development for
the ITC include  commercial  inverters and other power management  systems which
build on Enova's  and HHI's  technology  base.  It is our intent to utilize  the
resources  provided through the ITC to optimize Enova's current product line for
greater  performance  and production  cost  efficiencies,  while we continue new
research and  development  for the next  generation of digital power  management
systems for mobile and stationary applications.

Products

         Our focus is digital power  management,  power  conversion,  and system
integration.  Our proprietary software, firmware and hardware manage and control
the power that drives a vehicle or device produced under the HybridPowerTM brand
name. 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.  Our 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. Enova, utilizing
our enabling technologies,  supplies these essential components.  We believe our
drive train systems will work with any kind of fuel/power source,  from electric
to  hybrid  to fuel  cell to  turbine.  They are  essential  components  for any
vehicle, system or device that uses power.

                                       8
<PAGE>

         We are moving to expand its product  base into new  markets  outside of
the traditional electric and hybrid-electric  automotive fields. Key areas which
we have begun to penetrate include energy  management in distributed  generation
in the utility industry,  and stand-by/backup power generation in the commercial
electronics  industry.  Both of these  markets can be served  with our  existing
energy management and power control  products.  We have entered into agreements,
or  commenced   negotiations,   with  various   alternative   power   generation
manufacturers such as Hydrogenics, Capstone Turbine and Ballard Power 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.

         We have embraced fuel cell technology and have 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.

HybridPowerTM Electric and Hybrid-Electric Drive Systems

         Enova's  HybridPower  drive system family,  along with its drive system
accessories  are designed to provide our customers  with a complete  solution to
their drive system needs for both light-duty through heavy-duty vehicle markets.
Enova's  HybridPower hybrid electric drive system provides all the functionality
one would find under the hood of an internal  combustion engine powered vehicle.
The HybridPower 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 which ensures
the desired  propulsion and performance.  The system is designed to be installed
as a "drop in," fully integrated turnkey fashion,  or on a modular,  "as-needed"
basis.  Regardless  of power source  (battery,  fuel cell,  diesel  generator or
turbine) the HybridPower electric motor is designed to meet the customer's drive
cycle requirements.

The  HybridPower  drive  system  family  is  targeted  to meet  the  demands  of
light-duty  through  heavy-duty  vehicle  markets.  Enova's family of light-duty
drive systems includes:

         o    30kilowatt (kW), 60kW, 90kW all-electric drives
         o    90kW series-hybrid drive
         o    combinations of these systems based on customer requirements.

Our family of heavy-duty electric drive systems includes:

         o    120kW all-electric drive
         o    120/60kW peak series hybrid system
         o    240/60kW peak series hybrid system
         o    90kW peak mild, pre-transmission parallel hybrid system
         o    100kW peak post-transmission parallel hybrid systems
         o    100kW peak pre-transmission parallel hybrid system.

         Enova's  drive  systems,   in  conjunction  with,  internal  combustion
engines, microturbines, fuel cells, flywheels, and generators sets provide state
of the art hybrid-electric propulsion systems.

         Hybrid  vehicles are those that utilize an electric motor and batteries
in  conjunction  with an internal  combustion  engine (ICE),  whether  piston or
turbine.  With a hybrid  system,  a small  piston or turbine  engine - fueled by
gasoline or diesel,  compressed  natural gas (CNG),  methane,  etc., in a tank -
supplements the electric motor and battery. These systems are self-charging,  in
that the operating ICE recharges the battery.

         There are two types of hybrid  systems:  series and parallel.  A series
hybrid system is one where only the electric  motor connects to the drive shaft;
a parallel  hybrid system is one where both the internal  combustion  engine and
the electric motor are connected to the drive shaft.  In a series hybrid system,
the ICE turns the  generator,  which  charges  the  battery,  which -- through a
control unit - powers the electric motor,  which turns the wheels. In a parallel
hybrid system, both the electric motor and the ICE can operate simultaneously to
drive  the  wheels.  In  both  hybrid  systems  and in  pure  electric  systems,
regenerative braking occurs, which assists in the charging of the batteries.

         The parallel hybrid system is ideally suited for conditions  where most
of the driving is done at constant speed cruising,  with a smaller amount of the
driving involving random  acceleration,  such as "up hill" or with "stop and go"
conditions.  For acceleration,  the controller causes the electric motor to kick
in to assist the ICE, both running  simultaneously.  When speed is steady or the
ground is flat, only the ICE runs. Additionally, when the batteries are low, the
controller  causes the ICE and motor to charge the batteries.  As a result,  the
series  hybrid  system is best  suited for  starts  and stops,  and is ideal for
applications such as urban transit buses and urban garbage trucks. The design of
the series hybrid  system is based on a driving cycle with a high  percentage of
random acceleration conditions.


                                       9
<PAGE>
<TABLE>
<CAPTION>
---------------------------- -------------------------- ----------------------------------------- ------------------------
System                       Applications               Advantages                                Disadvantages
---------------------------- -------------------------- ----------------------------------------- ------------------------
<S>                          <C>                        <C>                                       <C>
Series                       Driving with high          Optimally-sized IC engine                 Full size electric
Hybrid                       percentage stop and go     Advanced engine/turbine may be used       drive system required
                             and/or hilly terrain       Simplified transmission                   Generator and
                                                        Independent control                       converter required
---------------------------- -------------------------- ----------------------------------------- ------------------------
Parallel                     Driving with high          No generator and converter needed         Complex transmission
Hybrid                       percentage constant        The drive system may be smaller           and clutch system
                             speed cruising                                                       Complex control
                                                                                                  Limited to low speed
                                                                                                  engines
---------------------------- -------------------------- ----------------------------------------- ------------------------
</TABLE>

Hybrid Drive Configurations

         Enova has identified three primary  configurations  based upon how well
they meet market  needs  economic  requirements.  We have  developed  all of the
relevant  technology  required to produce  these drive  systems and is currently
introducing  the Hybrid Power  product  line  worldwide.  All of our  innovative
hybrid drive systems are  compatible  with wide range of fuel sources and engine
configurations.

Hybrid 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 revolutions per minute (rpm) go down,
the torque of the electric motor increases.

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

Hybrid 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  WindowsTM  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 hybrid drive family currently includes a 120/60kW peak series
hybrid  system,  a  240/60kW  peak  series  hybrid  system,  a 90kW  peak  mild,
pre-transmission parallel hybrid system, a 100kW peak post-transmission parallel
hybrid systems and our 100kW peak pre-transmission  parallel hybrid system to be
introduced later this year.

         The Enova  HybridPower  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 120/60 kW series hybrid
system uses the 120kW electric drive components to propel the vehicle,  and uses
a 60kW  diesel  generator  (genset)to  generate  power  while the  vehicle is in
operation.  This synergy of design  reduces the  development  cost of our hybrid
systems by taking  advantage  of existing  designs.  The diesel  genset has been
designed to take  advantage  of many  different  models of  internal  combustion


                                       10
<PAGE>

engines for greater  penetration into the burgeoning  heavy-duty  hybrid vehicle
markets.  Enova's  genset will accept any engine with an industry  standard bell
housing and flywheel. Enova's control protocols are designed to easily interface
with any standard engine controller with analog throttle inputs. Accessories for
these drives  include  battery  management  systems,  chargers and 12 or 24 volt
power supplies.

         Our 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 Hydrogenics or Ballard system, or many others. In all of
these examples,  Enova's battery management system provides the power management
to allow for proper power control.

Drive System Accessories

         Enova's drive system  accessories range from battery management systems
to hybrid controllers,  to rapid charging systems. These critical components are
designed to  complement  the  HybridPower  drive system  family by providing the
elements  necessary  to create a complete  technical  solution  for  alternative
energy drive systems.

         Enova's drive system  accessories  are not only integral,  but are also
the perfect  complement  to our drive  systems  and are  designed to provide our
customers with a complete solution to their drive system needs.

Battery Care Unit

         Enova's  Battery  Care Unit  (BCU)  monitors,  manages,  protects,  and
reports on the  condition of the vehicles  battery pack. 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.  The BCU
reports state-of-charge, amp hours and kilowatt-hours.

         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 device is approximately 7.1 inches by 4.3 inches by 1.6 inches.

         The BCU  directly  interfaces  with the  HybridPower  and  other  drive
systems,  and  controls  the  Safety  Disconnect  Unit  (SDU).  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 the errors commonly associated
with other types of sensors.

         The  non-volatile  RAM 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 -based diagnostic  software,  the BCU control
parameters  can  be  programmed   "live"   in-vehicle.   Additionally,   battery
performance  can be  monitored in  real-time.  Reports can be output to a laptop
computer for precise results and "customer friendly" usage.

Hybrid Control Unit

         Enova's 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. This innovative  control loop ensures that the entire system is optimized
to provide quick response to driver  commands while  providing the best possible
system efficiency.


                                       11
<PAGE>

Safety Disconnect Unit

         The Safety  Disconnect  Unit (SDU) is under the control of the BCU, and
allows vehicle  systems to easily 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 thus ensuring a safe  environment  for the vehicle and operator.  The
SDU is available in two  configurations  to match the  requirements of the drive
systems.

High Voltage Disconnect Unit

         The High Voltage Disconnect Unit (HVDU) is a reduced feature version of
the Safety Disconnect Unit. The pre-charge board has been eliminated in order to
provide a lower cost  method of safely  switching  high  voltage  systems on the
vehicle that do not require the soft start feature.



                                       12
<PAGE>
Wiring Harness Connector Kits

         Enova provides  complete mating  connector kits to help the vehicle OEM
with their  production  process.  By using the Enova  supplied  kit the  vehicle
manufacturer is ensuring that they will have all of the necessary  connectors to
complete the vehicle build.

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 intend to 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.

20kW bi-directional Fuel Cell Power Conditioning System

         Enova's  20kW  bi-directional  Fuel  Cell  Power  Conditioning  System,
originally  designed to meet the demands of an automotive  Fuel Cell  propulsion
system, is now being applied to the stationary market for distributed generation
applications.

         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.

         This unit is designed to interface  directly with the Master Controller
of the  Stationary  Generation  System  over  a CAN  bus.  Other  communications
protocols supported are SAE J-1850,  RS-232, and RS-485. Our proprietary package
diagnostic  software  allows all key  parameters of the Power  Conditioner to be
monitored and control boundaries to be adjusted.

Fuel Cell Management Unit

         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.  The FCU  monitors  the fuel cell  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 FCU has eight
(8)  user-programmable  outputs and four (4)  user-programmable  inputs to allow
full integration into the distributed  generation  system.  These can be used to
customize  input  and  output  parameters,  and  to  provide  for  other  custom
monitoring and battery pack control.

Research and Development Strategy

         Enova  maintains a strategy  of  continual  enhancement  of its current
product line and  development  of more  efficient and reliable  products for the
ever-changing  alternative  energy  sectors.  Management  believes  R&D  must be
continued in order to remain competitive,  minimize production cost and meet our
customers' specifications. Because microprocessors and other components continue
to  advance  in  speed,  miniaturization  and  reduction  of  cost,  Enova  must
re-examine its designs to take advantage of such  developments.  Enova endeavors
to fund its R&D through  customer  contracts where  applicable,  however it will
provide internal funding where technology developed is critical to its future.

         Enova's commitment to advancing technological  superiority is evidenced
by its  internal  efforts  as well as its  joint  venture  with  HHI for  future
technologies.

Manufacturing Strategy

         Our products are "production-engineered,"  meaning they are designed so
they can be commercially  produced without additional  development.  All formats
and files are designed with  manufacturability  in mind from the start.  For the
automotive  market,  Enova  designs its products to ISO 900X  manufacturing  and
quality  standards.  We believe that our  redundancy  of systems,  robustness of
design,  and rigorous quality standards result in higher 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.

         We have developed a multi-tiered manufacturing strategy that allows the
company to meet the  market's  demand for high  quality  production  goods while
optimizing cost of goods sold across the spectrum of low to high volumes. At the
core of this  strategy is a strong  reliance on  pre-selected  highly  qualified
outside   manufacturing  houses  that  specialize  in  various  aspects  of  the
manufacturing  process. It is through this closely managed outsourcing  strategy
that Enova is able to achieve  improved  gross  margins while  minimizing  fixed
costs within the organization.


                                       13
<PAGE>

         All  tiers of  manufacturing  of  electronic  components  begin  with a
complete  engineering  design  package  that  includes a drawing  tree,  bill of
material,  electrical  and  mechanical  drawings,  and  control  software  where
appropriate.  The  control  software  and  the  design  package  are  internally
reviewed, validated, and released through our configuration management process.

         For low  volume  manufacturing,  where  volumes  are less than 10 to 20
units, the process is similar to that for prototyping.  Low volume manufacturing
and testing is performed in-house.

         For  higher  volume  manufacturing,  Enova  has  established  strategic
alliances with ISO-900X certified  manufacturers that can take on all aspects of
the process from  component  sourcing,  to circuit card  assembly,  to component
assembly,  to final unit assembly and test. These completed components and units
are  shipped  to our  facility  where  complete  drive  systems  that  meet  the
customer's unique requirements are packaged and shipped.

         As our market continues to grow and individual customers begin to order
higher quantities of fixed drive system configurations,  we will transition to a
system where the final  assembly is drop shipped  directly to the end  customer.
This   critical   concept  has  already  been   discussed   with  our  strategic
manufacturing partners.

Competitive Conditions

         Competition  within the mobile and  stationary  hybrid  power sector is
still somewhat fragmented,  although there are indications of some consolidation
at this  time.  The market is still  divided  into very  large  players  such as
Allison,  Siemens,  BAE and Eaton; or smaller  competitors such as ISE Research,
Azure Dynamics/Solectria;  PEI, Unique Mobility and others. The larger companies
tend to still focus on single solutions but maintain the capital and wherewithal
to aggressively  market such. The smaller  competitors  offer a more diversified
product  line,  but do not have the  market  presence  to  generate  significant
penetration at this juncture.

         Our  research  and  experience  has  indicated  that our target  market
segments  certainly  focus  on  price,  but  would  buy  based  on  reliability,
performance and quality support when presented the life-cycle business model for
hybrid technologies for their application.  Enova has good indications that many
would pay a 10-20% premium for hybrids from a secure vendor providing warrantied
performance, quality service and support.

         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
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 Buses; Trucks, Industrial,
              Military and Marine applications
         *    Fuel Cell Generation system power management and process control
         *    Systems Integration of these technologies;
         *    Technical and product  development  under  DOE/DOT/DOD and Hyundai
              Group Contracts
         *    OEM Technical and Product development.

                                       14
<PAGE>

         For the  years  ended  December  31,  2004,  2003  and  2002,  we spent
$935,000,  $799,000,  and  $1,152,000,  respectively,  on internal  research and
development  activities.  Enova  is  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 four U.S. patents and has one patent pending,  in
power  management  and control,  with an additional  patent in crash  management
safety,  which was originally issued in 1997. We also have trademarks or service
marks in the United  States and have been  filing for  international  patents as
well. We continually review and append our protection of proprietary technology.
We continue to place emphasis on the  development  and acquisition of patentable
technology, however, a majority of our intellectual property is contained within
our software which is best protected under trade secret provision of U.S. patent
law. Under such provisions,  Enova does not have to publish its proprietary code
in order to maintain protection.


         We maintain an internal  review and  compensation  process to encourage
our  employees  to create  new  patentable  technologies.  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.


         Enova's  success  depends  in  part  on  its  ability  to  protect  its
proprietary technologies.  Enova's pending or future patent applications may not
be approved  and the claims  covered by such  applications  may be  reduced.  If
allowed,  patents  may  not be of  sufficient  scope  or  strength,  others  may
independently develop similar technologies or products, duplicate any of Enova's
products or design  around its  patents,  and the patents may not provide  Enova
with competitive advantages.  Further, patents held by third parties may prevent
the  commercialization of products  incorporating  Enova's technologies or third
parties may challenge or seek to narrow, invalidate or circumvent any of Enova's
pending  or future  patents.  Enova  also  believes  that  foreign  patents,  if
obtained,  and the  protection  afforded  by such  foreign  patents  and foreign
intellectual  property laws, may be more limited than that provided under United
States patents and intellectual property laws. Litigation, which could result in
substantial  costs and  diversion  of effort by Enova,  may also be necessary to
enforce any patents  issued or licensed to Enova or to  determine  the scope and
validity of third-party  proprietary rights. Any such litigation,  regardless of
outcome,  could be expensive and time-consuming,  and adverse  determinations in
any such litigation could seriously harm Enova's business.

         Enova relies on unpatented  trade secrets and know-how and  proprietary
technological   innovation  and  expertise   which  are  protected  in  part  by
confidentiality and invention assignment agreements with its employees, advisors
and consultants and non-disclosure  agreements with certain of its suppliers and
distributors.  These  agreements  may be breached,  Enova may not have  adequate
remedies for any breach or Enova's unpatented proprietary  intellectual property
may otherwise become known or independently discovered by competitors.  Further,
the laws of certain  foreign  countries  may not  protect  Enova's  products  or
intellectual  property  rights to the same  extent as do the laws of the  United
States.

Employees


         As of December 31, 2004, we had 28 full time  employees.  Additionally,
we employ three  individuals  as independent  contractors,  engaged on an hourly
basis, one of whom is domiciled in South Korea.  The  departmental  breakdown of
these individuals  includes 4 in  administration,  1 in sales, 11 in engineering
and research and development, and 12 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  2008.  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  and an  office  in South  Korea  which is also  rented  on a
month-to-month  basis at $500 per month.  We  believe  that  these  offices  are
suitable and adequate for our current and readily foreseeable needs.


                                       15
<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.  At December 31, 2004,  the Company
had no known current, pending or threatened litigation.


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


         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of fiscal 2004.


                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       16
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity,  Related Shareholder Matters and
         Issuer Purchases of Equity Securities

         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 2003
First Quarter ....................       $   0.09      $   0.06       172,237
Second Quarter ...................       $   0.09      $   0.06       119,057
Third Quarter ....................       $   0.10      $   0.05       465,683
Fourth Quarter ...................       $   0.14      $   0.07       463,240

Calendar 2004
First Quarter ....................       $   0.21      $   0.09     1,000,685
Second Quarter ...................       $   0.19      $   0.09       479,857
Third Quarter ....................       $   0.15      $   0.12       293,817
Fourth Quarter ...................       $   0.15      $   0.09       308,098


         On March 30, 2005, the last reported high bid price of the Common Stock
was $0.10 and the last  reported  low asking  price was $0.095.  As of March 30,
2005, there were  approximately  9,750 holders of record of our Common Stock. As
of March 30, 2005,  approximately 106 shareholders,  many of who are also Common
Stock  shareholders,  held  our  Series  A  Preferred  Stock.  Approximately  34
shareholders as of March 30, 2005 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.

Stock Issuances

           In the first  quarter  of 2004,  Enova  entered  into  several  stock
purchase  agreements  to issue  16,250,000  shares of our common stock through a
private  placement  offering  at $0.12 per share for a total  cash  purchase  of
$1,950,000.  The funds were  received  and the shares were issued in April 2004.
These investors  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.  Enova
continues  to  seek  additional  investment  capital  to  fund  its  operations,
development  and  expansion  plans.  Additionally,   we  received  approximately
$783,000  in  equity  capital  during  the  year as a  result  of our  employees
exercising incentive stock options, a majority of which expired in July 2004.

         In September 2004, the Company issued  11,335,315  restricted shares of
common stock to Hyundai Heavy Industries Co., Ltd. in exchange for $1,500,000 in
cash.  $1,000,000  of the proceeds  from this  issuance was used to fund Enova's
joint venture  interest in the  Hyundai-Enova  Innovative  Technology  Center as
previously  noted,  with the $500,000 balance of proceeds to be used for general
operations and working  capital.  The Company relied upon Regulation D, Rule 506
promulgated by the  Securities  and Exchange  Commission and Section 4(2) of the
Securities Act of 1933, as amended,  as the exemption from  registration for the
issuance of these shares.

         During  2004,  we issued,  or accrued for  issuance,  an  aggregate  of
701,255  shares  of  common  stock  to  the  non-executive  board  directors  in
accordance with the September 1999 Board of Directors  compensation  package for
outside directors, as amended to date. For each meeting attended in person, each
outside  director  is  entitled  to  receive  $2,000 in cash and $4,000 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 entitled 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;  and for each  meeting of a Board
committee  attended in person,  a committee member is entitled to receive $1,000
in cash and $1,000 of stock  valued on the date of the meeting at the average of
the  closing  ask  and  bid  prices.  All  Directors  are  also  reimbursed  for
out-of-pocket expenses incurred in connection with attending Board and committee
meetings.

         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.  As of December 31, 2004, an aggregate of 3,539,784  shares
had been issued, or accrued for issuance,  under the above compensation plan for
Directors.


                                       17
<PAGE>

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 do 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,  2004,   Enova  had  an  accumulated   deficit  of   approximately
$100,459,000  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.

Item 6.  Selected Financial Data

         The  following  selected  financial  data  tables  set  forth  selected
financial data for the years ended December 31, 2004, 2003, 2002, 2001 and 2000.
The statement of income data and balance sheet data for and as of the end of the
years ended December 31, 2004,  2003,  2002,  2001 and 2000 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, except per share data),

                                                             2004            2003            2002            2001            2000
                                                          -------------------------------------------------------------------------
<S>                                                       <C>             <C>             <C>             <C>             <C>
NET SALES                                                 $   2,554       $   4,310       $   4,455       $   3,780       $   2,883
COST OF SALES                                                 2,239           3,304           3,784           2,783           2,013
                                                          -------------------------------------------------------------------------
GROSS MARGIN                                                    315           1,006             671             997             870
                                                          -------------------------------------------------------------------------
OTHER COSTS AND EXPENSES
     Research and development                                   925             799           1,152             879             626
     Selling, general and administrative                      2,325           2,919           2,837           2,894           1,999
     Interest and financing fees                                255             234             199             113             174
     Other expenses (income)                                   --               200            --                (7)              6
     Equity in losses of equity method investee                 192              40            --              --              --
     Legal settlements                                         --              --                81             900              75
                                                          -------------------------------------------------------------------------
     Total other costs and expenses                           3,697           4,192           4,269           4,779           2,880
                                                          -------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS                              (3,382)         (3,186)         (3,598)         (3,782)         (2,010)
GAIN ON DEBT RESTRUCTURING                                     --              --              --               354           1,551
                                                          -------------------------------------------------------------------------
NET LOSS                                                  $  (3,382)      $  (3,186)      $  (3,598)      $  (3,428)      $    (459)
                                                          =========================================================================
PER COMMON SHARE:
     Loss from continuing operations                      $   (0.01)      $   (0.01)      $   (0.01)      $   (0.01)      $   (0.01)
     Gain on debt restructuring                                --              --              --              --              0.01
                                                          -------------------------------------------------------------------------
     Net loss per common share                            $   (0.01)      $   (0.01)      $   (0.01)      $   (0.01)      $    0.00
                                                          =========================================================================
WEIGHTED AVERAGE NUMBER
COMMON SHARES OUTSTANDING                                   397,685         334,840         326,390         275,189         235,199
                                                          =========================================================================
     Total Assets                                         $   5,887       $   4,870       $   6,224       $   4,340       $   3,094
                                                          =========================================================================
     Long-term debt                                       $   3,335       $   3,347       $   3,332       $   3,332       $   3,332
                                                          =========================================================================
     Shareholder's equity (deficit)                       $     103       $    (864)      $     287       $    (232)      $  (1,648)
                                                          =========================================================================
</TABLE>

                                       18
<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 2004  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.

Cautionary Note on Forward-looking Statements

         Some  of  the  matters   discussed  under  the  caption   "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations,"
"Business" and elsewhere in this Form 10-K include  forward-looking  statements.
We have based these  forward-looking  statements on our current expectations and
projections about future events.

         In  some  cases,  you  can  identify   forward-looking   statements  by
terminology such as "may," "will," "should," "could,"  "predicts,"  "potential,"
"continue," "expects,"  "anticipates," "future," "intends," "plans," "believes,"
"estimates" and similar  expressions.  These statements are based on our current
beliefs,  expectations  and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events  may  vary  significantly  from  those  implied  by  the  forward-looking
statements.  These  forward-looking  statements  are made as of the date of this
Form 10-K, and, except as required under applicable securities law, we assume no
obligation  to update  them or to explain  the  reasons  why actual  results may
differ.

OVERVIEW

         Enova  Systems   believes  it  is  a  leading  supplier  of  efficient,
environmentally-friendly  digital  power  components  and  systems  products  in
conjunction with our associated  engineering services. Our core competencies are
focused  on the  development  and  commercialization  of  power  management  and
conversion systems for mobile and stationary applications.  Enova applies unique
`enabling  technologies' in the areas of alternative  energy propulsion  systems
for light and heavy-duty  vehicles as well as power  conditioning and management
systems for  distributed  generation  systems.  Our  products  can be found in a
variety of OEM  vehicles  including  those from Hyundai  Motor  Company and Ford
Motor  Company,  trucks  and buses for First Auto  Works of China,  Mack  Truck,
WrightBus of the U.K. and the U.S.  Military,  as well as digital  power systems
for EDO, Hydrogenics and UTC Fuel Cells, a division United Technologies.

         Enova's product focus is digital power  management and power conversion
systems. Its software,  firmware, and hardware manage and control the power that
drives either a vehicle or stationary device(s). They convert the power into the
appropriate  forms required by the vehicle or device and manage the flow of this
energy to optimize efficiency and provide protection for both the system and its
users. Our products and systems are the enabling technologies for power systems.

         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.  Enova Systems
supplies these  essential  components.  Enova drive systems are  'fuel-neutral,'
meaning that they have the ability to utilize any type of fuel including diesel,
liquid  natural  gas (LNG) or  bio-diesel  fuels.  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 products are "production-engineered."  This means they are designed
so they can be commercially  produced (i.e.,  all formats and files are designed
with  manufacturability  in mind,  from the start).  For the automotive  market,
Enova  designs its products to ISO 9000X  manufacturing  and quality  standards.
Enova's  redundancy  of systems 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  and  confirms the value of the
systems to OEM customers.  Our engineering  services focus on system integration
support for product sales and custom product design.

         The  financial  statements  present  the  financial  position  of Enova
Systems, Inc. as of December 31, 2004 and 2003 and the results of operations and
cash flows for the year ended December 31, 2004, 2003 and 2002.

                                       19
<PAGE>
Critical Accounting Policies

         Financial  Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the notes to the financial statements includes a
summary  of  the  significant  accounting  policies  and  methods  used  in  the
preparation of our financial statements.  The following is a brief discussion of
the more significant accounting policies and methods that we use.

          Our discussion  and analysis of our financial  condition and result of
operations  are based on our financial  statements,  which have been prepared in
conformity with accounting principles generally accepted in the United States of
America.  Our  preparation  of these  financial  statements  requires us to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities, the disclosure of contingent assets and liabilities at the dates of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  periods.  We based our estimates on historical  experience
and on various  other  assumptions  that we believe to be  reasonable  under the
circumstances.  The most significant estimates and assumptions relate to revenue
recognition and potential  allowances for doubtful accounts.  Actual amounts may
differ from such  estimates  under  different  assumptions  or  conditions.  The
following summarizes our critical accounting policies and significant  estimates
used in preparing our consolidated financial statements:

     o   Inventories  are priced at the lower of cost or market  using  standard
         costs, which approximate  actual costs on a first-in,  first-out (FIFO)
         basis. We maintain a perpetual inventory system and continuously record
         the quantity  on-hand and  standard  cost for each  product,  including
         purchased components, subassemblies and finished goods. We maintain the
         integrity of perpetual  inventory  records  through  periodic  physical
         counts  of  quantities  on  hand.   Finished   goods  are  reported  as
         inventories  until the point of  transfer to the  customer.  Generally,
         title transfer is documented in the terms of sale.

         Standard costs are generally  re-assessed at least annually and reflect
         achievable acquisition costs, generally the most recent vendor contract
         prices for  purchased  parts,  currently  obtainable  assembly and test
         labor, and overhead for internally manufactured products. Manufacturing
         labor and overhead costs are attributed to individual  product standard
         costs at a level  planned to absorb  spending  at  average  utilization
         volumes.

         We maintain an allowance  against  inventory for the  potential  future
         obsolescence  or  excess  inventory  that is based on our  estimate  of
         future  sales.  A  substantial  decrease  in  expected  demand  for our
         products,  or decreases  in our selling  prices could lead to excess or
         overvalued  inventories and could require us to substantially  increase
         its allowance for excess inventory. If future customer demand or market
         conditions  are  less  favorable  than  our   projections,   additional
         inventory  write-downs may be required,  and would be reflected in cost
         of sales in the period the revision is made.

     o   Stock based  compensation - we periodically issue common stock or stock
         options to  employees  and  non-employees  for services  rendered.  For
         common stock  issuances,  the cost of these  services is recorded based
         upon the fair value of our common stock on the date of  issuance.  SFAS
         No. 123,  "Accounting  for Stock-Based  Compensation,"  establishes and
         encourages  the use of the fair value based  method of  accounting  for
         stock-based compensation  arrangements under which compensation cost is
         determined using the fair value of stock-based  compensation determined
         as of the date of grant and is recognized over the periods in which the
         related services are rendered.  The statement also permits companies to
         elect to continue using the current  implicit value  accounting  method
         specified  in  Accounting  Principles  Board  ("APB")  Opinion  No. 25,
         "Accounting  for Stock Issued to Employees," to account for stock-based
         compensation.  We have elected to use the intrinsic  value based method
         and has  disclosed  the pro forma  effect of using the fair value based
         method to account for its  stock-based  compensation.  For issuances of
         stock options to employees and directors we measure  compensation costs
         using the intrinsic value method, or APB Opinion No. 25.  Stock options
         granted to non-employees are accounted for under the fair value method.
         The fair value of stock options  granted is calculated  using the Black
         Scholes option pricing model based on the weighted average  assumptions
         as detailed in the notes to our financial statements.

     o   Allowance for Doubtful  Accounts - we maintain  allowances for doubtful
         accounts  for  estimated  losses  resulting  from the  inability of its
         customers to make required payments.  A considerable amount of judgment
         is  required  in  assessing  the  ultimate   realization   of  accounts
         receivable including the current credit-worthiness of each customer. If
         the financial condition of the Company's customers were to deteriorate,
         resulting  in  an  impairment  of  their  ability  to  make   payments,
         additional allowances may be required.

     o   Contract  Services  Revenue  and  Cost  Recognition  - The  Company  is
         required to make  judgments  based on historical  experience and future
         expectations, as to the reliability of shipments made to its customers.
         These judgments are required to assess the propriety of the recognition
         of revenue based on Staff Accounting  Bulletin ("SAB") No. 101 and 104,
         "Revenue  Recognition," and related  guidance.  The Company makes these
         assessments  based  on  the  following  factors:  i)  customer-specific
         information,  ii) return policies,  and iii) historical  experience for
         issues not yet  identified.  Under FAS Concepts No. 5, revenues are not
         recognized until earned.

                                       20
<PAGE>

         The Company manufactures  proprietary products and other products based
         on design specifications provided by its customers.  Revenue from sales
         of products are generally recognized at the time title to the goods and
         the  benefits and risks of  ownership  passes to the customer  which is
         typically  when products are shipped based on the terms of the customer
         purchase agreement. Revenue relating to long-term fixed price contracts
         is recognized  using the  percentage of  completion  method.  Under the
         percentage of completion  method,  contract  revenues and related costs
         are recognized based on the percentage that costs incurred to date bear
         to  total  estimated  costs.  Changes  in  job  performance,  estimated
         profitability and final contract settlements may result in revisions to
         cost and  revenue,  and are  recognized  in the  period  in  which  the
         revisions are determined.  Contract costs include all direct materials,
         subcontract  and labor  costs and other  indirect  costs.  General  and
         administrative costs are charged to expense as incurred.  At the time a
         loss on a contract  becomes  known,  the entire amount of the estimated
         loss is accrued. The aggregate of costs incurred and estimated earnings
         recognized on  uncompleted  contracts in excess of related  billings is
         shown as a current  asset,  and  billings on  uncompleted  contracts in
         excess of costs  incurred and estimated  earnings is shown as a current
         liability.

         These  accounting  policies  are  applied  consistently  for all  years
presented.  Our operating  results would be affected if other  alternatives were
used.  Information  about the impact on our operating results is included in the
footnotes to our financial statements.

LIQUIDITY AND CAPITAL RESOURCES

         The  accompanying  financial  statements  have been prepared on a going
concern basis which  contemplates  the realization of assets and satisfaction of
liabilities in the normal course of business. Over the next few years, we expect
to incur losses from  operations as we continue to develop  future  products and
market our current  products.  We will need to raise additional  capital through
debt or equity  financings or collaborative  arrangements with industry partners
to continue its business operations.

         Our ability to continue as a going  concern is dependent on its success
at obtaining  additional  capital sufficient to meet its obligations on a timely
basis, and to ultimately attain profitability. Management is actively engaged in
seeking to raise capital through product licensing,  co-development programs, or
public or private equity financing.  We believe we have demonstrated the ability
to raise the necessary funds for our growth and development activities. However,
there is no  assurance  that we will raise  capital  sufficient  to enable us to
continue its operations through the end of the fiscal year.

         In the event we are unable to successfully  obtain additional  capital,
it is unlikely that we will have  sufficient cash flows and liquidity to finance
our business  operations as currently  contemplated.  Accordingly,  in the event
additional  capital  is not  obtained,  we  will  likely  further  downsize  the
organization,  defer  marketing  programs,  reduce  general  and  administrative
expenses  and delay or reduce the scope of  research  and  development  projects
until we are able to obtain sufficient financing to do so.

         These  factors could  significantly  limit our ability to continue as a
going  concern.  The balance sheets do not include any  adjustments  relating to
recoverability  and  classification  of recorded asset amounts or the amounts of
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue in existence.

         We  have  experienced  cash  flow  shortages  due to  operating  losses
primarily  attributable  to  research,  development,  marketing  and other costs
associated with our strategic plan as an international developer and supplier of
electric propulsion and power management systems and components. Cash flows from
operations have not been sufficient to meet our obligations.  Therefore, we have
had to raise funds through  several  financing  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 sources.

         We are 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.  However,  our
current  sources of funds are not sufficient to provide the working  capital for
material growth,  and we will need to obtain additional debt or equity financing
to support  such  growth.  As of March 30,  2005,  we continue  to seek  private
accredited investors to purchase Enova common stock. We have been in discussions
with  several  private   institutions  and  investment  banks  to  acquire  such
financings.  As of March 30, 2005, there were no other firm commitments for such
funds. Currently, we are seeking up to $10 million in new investment funding.

         Our operations during the year ended December 31, 2004 were financed by
development  contracts  and  product  sales,  as well as  from  working  capital
reserves.

         During  the year ended  December  31,  2004,  our  operations  required
$2,156,000  more in  cash  than  was  generated.  Enova  continues  to  increase
marketing and development spending as well as administrative  expenses necessary
for expansion to meet customer demand. Accounts receivable decreased by $281,000
from $803,000,  or approximately  35% from the balance at December 31, 2003 (net
of  write-offs).  The  decrease is due to a  continued  delay in  acquiring  new
business in the third and fourth  quarters of 2004.  We are beginning to observe
an increase in sales activity for our drive systems,  components and development
services which commenced in the fourth quarter of 2004, which we anticipate will


                                       21
<PAGE>

increase  receivables  in  future  quarters.  Inventory  decreased  slightly  by
$570,000 from  $1,606,000 or 36% from December 31, 2003  balances.  The decrease
was due to  utilization  of inventory  stock for sales as well as write-offs for
obsolete and slow-moving  inventory.  We charged off  approximately  $113,000 of
this reduction of our inventory  relating to raw materials for the  Ballard/Ford
Th!nk city program which was terminated in 2003. This was inventory  specific to
that program which we believed may be useable in other  components,  or would be
purchased  by  third  parties,  but was not due to our  increased  focus  on the
heavy-duty  hybrid  markets.  We also  charged  off an  additional  $162,000  in
obsolete or slow moving inventory during 2004.

         Prepaid  expenses  increased  by net  $226,000  during  2004  from  the
December 31, 2003 balance of $78,000 or almost 300% due to two customer deposits
from Tomoe  Engineering  totaling  $220,000 as an element of the Singapore  Land
Transit Authority program.  These deposits are against component sales which are
anticipated to be completed in late 2005 and early 2006.

         Fixed assets increased by $175,000 or 11%, before depreciation, for the
year ended December 31, 2004 from the prior year balance of $1,579,000 primarily
due to the purchase of our heavy-duty diesel  series-hybrid  demonstration truck
and a company  vehicle  which  accounted  for $160,000 of the total.  Additional
purchases of computer equipment and software accounted for the balance.

         Investments  increased  by $808,000  during  2004,  net of our pro-rata
share of losses attributable to the investment, which reflects our forty percent
(40%)  interest  in the  Hyundai-Enova  Innovative  Technology  Center  as noted
elsewhere  in this Form 10-K.  For the year ended  December  31,  2004,  the ITC
generated a net loss of approximately  $481,000,  resulting in a charge to Enova
of $192,000  utilizing the equity  method of accounting  for our interest in the
ITC.  Based on  contractual  obligations  of our Joint  Venture  Agreement  with
Hyundai Heavy Industries Co., we made an additional  investment of $1,000,000 in
2004 which was funded by HHI through a stock purchase in September 2004 as noted
in Part II, Item 5 of this Form 10-K.

         Other assets decreased by $108,000 during 2004 from $404,000 in 2003 as
we  continued  to amortize  the asset  relating to the Ford Value  Participation
Agreement.  Intellectual  property  assets,  including  patents  and  trademarks
remained unchanged at $92,000 at December 31, 2004.

         Accounts  payable  decreased  in 2004  by over  88%  from  $768,000  at
December 31, 2003 to $66,000 at December 31,  2004.  We paid down the  remaining
HHI payables as well as other payables during the year from both cash flows from
operations,  invested  capital  and our bank line of credit.  Our line of credit
balance increased to $229,000 at December 31, 2004 from $120,000 at December 31,
2003 as we utilized such to reduce other liabilities with higher interest rates.
Deferred revenue increased to $392,000 during 2004 in conjunction with the Tomoe
Singapore project.  These revenues will be recognized  throughout 2005 and early
2006 as we progress on the development  and production  phases of that contract.
Accrued  salaries  and wages  increased  by a net of  $74,000  including  monies
payable to Carl Perry,  our former CEO, in  conjunction  with his agreement with
us.

         Accrued interest  increased by $256,000 for the year ended December 31,
2004,  an increase of 23%.  The increase was due to interest on the Note due the
Credit Managers  Association of California for $3.2 million per the terms of the
Note as well as the Schulz note  payable.  Other  accrued  expenses and payables
decreased  by $85,000  during 2004 from  $98,000 at December 31, 2003 as we paid
off the liabilities comprising these amounts during the year.

         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

Years Ended December 31, 2004 and 2003

         Net sales of $2,554,000  for the twelve months ended  December 31, 2004
decreased  $1,756,000 or 41% from $4,310,000 during the same period in 2003. The
decrease in sales was  attributable  primarily to those factors listed elsewhere
in this Form 10-K.  During  2004,  we  experienced  a slowdown in sales due to a
number of internal and external  developments  including personnel changes,  and
customer  delays in ordering  caused by continued  evaluation  of our systems or
awaiting orders for their products.

           Our sources of revenue for 2004 came relatively  equally from product
sales and development contracts. Product sales as a percentage of total revenues
of 57% in 2004 were  consistent  with the 2003 product  sales to total  revenues
percentage of 56%. Sales of our HybridPower  120kW drive systems accounted for a
majority of our product  sales in 2004. We believe this trend will continue over
the next  several  years.  However we continue to seek out and  contract for new
development  programs with both our current  partners such as Ford,  Mack/Volvo,
FAW, Tomoe, Hyundai and our other U.S., Asian and European alliance partners, as
well  as  with  new  alliances  with  other  vehicle  manufacturers  and  energy
companies.

         Cost of sales  consists of component and material  costs,  direct labor
costs,  integration  costs and overhead related to  manufacturing  our products.
Product development costs incurred in the performance of engineering development


                                       22
<PAGE>

contracts for the U.S.  Government and private  companies are charged to cost of
sales for this contract  revenue.  During 2004,  our trend of  establishing  new
customers and strengthening current alliances with customers,  such as Tomoe and
MTrans in the  heavy-duty  drive  system  market  continued.  Our new  customers
continue to require  additional  integration and support  services to customize,
integrate  and  evaluate  our  products.  We believe  these costs to be initial,
one-time costs for these  customers and anticipate  similar costs to be incurred
with respect to new customers as we gain additional market share.  Customers who
have been  using our  products  over one year do not incur  these  same types of
initial  costs.  Cost of sales for the year ended  December  31, 2004  decreased
$1,065,000,  or 32%, from  $3,304,000 for the year ended December 31, 2003. This
decrease  is  primarily  attributable  to the  decrease  in sales  for the year,
although we are  experiencing  a reduction  in  integration  support  costs.  We
anticipate there may be an increase in cost of sales for products in 2005 due to
foreign exchange rate fluctuations of the U.S. dollar versus those currencies of
our primary  manufacturers.  We  anticipate  this to be offset by a reduction in
costs associated with manufacturing these products due to increasing  purchases,
improving our gross margins.  Cost of sales, as a percentage of gross sales were
higher than in prior years due to the  aforementioned  write downs of  inventory
for the Ford Th!nk program and due to obsolescence.  Additionally,  during 2004,
we modified the method to account for cost of sales to a more accurate  approach
which  includes  more  detailed  analysis of costs  associated  with the various
projects and components we sell.

         Research and  development  expenses  consist  primarily  of  personnel,
facilities,  equipment and supplies for our research and development activities.
Non-funded  development costs are reported as research and development  expense.
Research and development expense increased in 2004 to $925,000 from $799,000 for
the same  period  in  2003,  an  increase  of  $126,000,  or 16%.  During  2004,
externally   funded  research  and  development   from  partners  such  as  FAW,
Mack/Volvo, Hyundai, and the U.S. Government offset certain costs of development
for new  products in the areas of mobile and  stationary  power  management  and
conversion,  thereby reducing the need for internal  funding.  Programs included
our new parallel hybrid drive systems, our diesel generation engine/motor system
for our heavy-duty  drive systems,  and upgrades and improvements to our current
power  conversion  and  management  components.  Additionally,  we  continued to
enhance our technologies to be more universally adaptable to the requirements of
our current and prospective  customers.  By modifying our software and firmware,
we  believe  we should be able to  provide a more  comprehensive,  adaptive  and
effective  solution  to a larger base of  customers  and  applications.  We will
continue to research and develop new technologies and products,  both internally
and in conjunction with our alliance partners and other manufacturers as we deem
beneficial to our global growth strategy.

         Selling,  general and  administrative  expenses  consist  primarily  of
personnel and related costs of sales and marketing  employees,  consulting  fees
and expenses for travel,  trade shows and  promotional  activities and personnel
and  related  costs  for  general  corporate   functions,   including   finance,
accounting,  strategic  and business  development,  human  resources  and legal.
Selling,  general and administrative expenses decreased in 2004 from 2003 levels
due to lower  consulting,  legal,  and accounting  costs and expenses as well as
continued  efforts to maintain a  reduction  in overall  non-revenue  generating
expenditures.  For the year ended  December 31,  2004,  these  expenses  totaled
$2,325,000  from  $2,919,000 for the similar period in 2003.  This  represents a
$594,000  decrease,  or 20%, in these  expenses.  We are  continually  reviewing
operations to lower overhead costs and increase operational efficiencies

         For the year ended  December 31,  2004,  interest  and  financing  fees
increased by $21,000 to $255,000, an increase of 8%. The increase was due solely
to an increase in 2004 in the interest rate on the Note due the Credit  Managers
Association of California for $3.2 million per the terms of the Note.

         In 2004,  we charged off  approximately  $275,000 in obsolete  and slow
moving  inventory  from our books.  Approximately  40% of this  consisted of raw
materials  associated  with the Ford Th!nk city program which was  terminated in
2002. We do not anticipate further material write downs of our inventory.

         Our  $3,382,000  net loss  for the  year  ended  December  31,  2004 is
$196,000 more than the loss incurred in 2003 of  $3,186,000,  an increase of 6%.
The  increase  is due  primarily  to  write-offs  of  obsolete  and  slow-moving
inventory  during the year increased  internal  development for new products and
costs  associated  with the  annual  meeting  and other  regulatory  compliance.
Management will continue to seek operational  efficiencies and methods to reduce
manufacturing  and  overhead  costs as well as increase  revenues to enhance our
goal of profitability.

During the fourth quarter of fiscal 2004, we:

     o   wrote-down  inventory by a net of $275,000 for obsolete and slow-moving
         inventory.  We charged off approximately  $113,000 of this reduction of
         our inventory relating to raw materials for the Ballard/Ford Th!nk city
         program which was  terminated in 2002.  This was inventory  specific to
         that program which we believed may be useable in other  components,  or
         would be purchased by third  parties,  but was not due to our increased
         focus  on  the  heavy-duty  hybrid  markets.  We  also  charged  off an
         additional  $162,000 in obsolete or slow moving  inventory during 2004.
         This resulted in an increase of cost of sales by $275,000 for the year.

     o   allocated certain expenses to cost of sales,  which had been charged to
         general and  administrative  expense,  based on our improved  method of
         apportioning  such costs. This resulted in an increase in cost of sales
         of approximately $147,000 in the fourth quarter, a portion of which may
         have  been  attributable  to prior  quarters  in 2004 but none  that we
         believe  would  have a  material  impact on the  presentation  of those
         quarters.

                                       23
<PAGE>

    The above two  adjustments  (i)  increased  cost of sales by $422,000 in the
fourth quarter, (ii) reduced gross profit by $422,000, (iii) increased loss from
operations by $275,000 and (iv) reduced net loss by $275,000.

Years Ended December 31, 2003 and 2002

         Net sales of $4,310,000  for the twelve months ended  December 31, 2003
decreased  $145,000 or 3% from  $4,455,000  during the same period in 2002.  Our
sources of revenue for 2003 came primarily from product sales.  Product sales as
a  percentage  of total  revenues  of 56% in 2003  were  consistent  to the 2002
product  sales to total  revenues  percentage of 59%.  Sales of our  HybridPower
120kW drive systems accounted for a majority of our product sales in 2003.

         Cost of sales  consists of component and material  costs,  direct labor
costs,  integration  costs and overhead related to  manufacturing  our products.
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.  Cost of sales for the year ended December 31,
2003 decreased $480,000, or 12%, from $3,784,000 for the year ended December 31,
2002. This decrease was attributable to follow-on orders from existing customers
such as EPT and MTrans, which no longer require as much integration support, and
from decreased  pricing from our contract  manufacturers as our order quantities
rise.

         Research and  development  expense  decreased in 2003 to $799,000  from
$1,152,000 for the same period in 2002, a decrease of $353,000,  or 31%.  During
2003, we reduced  non-essential  expenses for internal  research and development
without sacrificing that development  necessary to maintain our competitive edge
in our markets.  We supplemented  this reduction by teaming with other companies
in our sector such as Mack/Volvo, Hyundai, and the U.S. Government to offset the
costs of  development  for new  products  in the areas of mobile and  stationary
power management and conversion. Programs included our advanced power management
systems  for fuel  cells,  our  diesel  generation  engine/motor  system for our
heavy-duty drive systems, a dual 8kW inverter,  and upgrades and improvements to
our  current  power  conversion  and  management  components.  Additionally,  we
continued to enhance our  technologies to be more  universally  adaptable to the
requirements of our current and prospective customers.

         Selling,  general and  administrative  expenses were further reduced in
2003 from 2002 levels  continuing a trend from prior years.  Net of the $595,000
AVS bad  debt  write-off,  our  selling,  general  and  administrative  expenses
decreased  $513,000 in the year ended  December 31,  2003,  to  $2,324,000  from
$2,837,000 for the similar period in 2002.  This  represents an 18% reduction in
these expenses as a result of management's cost reduction  programs  implemented
throughout  2003 including  workforce  cutbacks,  elimination  of  non-essential
expenses and exercising tighter constraint over overhead costs in general.

         For the year ended  December 31,  2003,  interest  and  financing  fees
increased  by $22,000 to  $242,000,  an increase of 10%.  The  increase  was due
solely to an  increase in 2003 in the  interest  rate on the Note due the Credit
Managers Association of California for $3.2 million per the terms of the Note.

         Our  $3,186,000  net loss  for the  year  ended  December  31,  2003 is
$412,000 less than the loss incurred in 2002 of  $3,598,000,  a decrease of 11%.
Excluding  the bad  debt  charge  of  $595,000  for the AVS  bankruptcy  and the
write-down of the Hawaii tram of $200,000, our loss for the year would have been
$1,207,000  less, or $2,391,000 for the year ended  December 31, 2003,  over 34%
lower than that incurred in 2002.

Hyundai-Enova Innovative Technology Center
------------------------------------------

         In September  2003,  Hyundai Heavy  Industries,  Co. Ltd.  (HHI) and we
funded the Hyundai-Enova  Innovative  Technology Center (HEITC) to be located at
Enova's Torrance  headquarters.  In connection with the Joint Venture  Agreement
entered into between the two parties in March 2003, HHI purchased  $1,500,000 of
common stock of Enova Systems, Inc. HHI purchased 23,076,923 shares representing
a 6.2% ownership in Enova. Of this amount,  we invested  $1,000,000 in the HEITC
for a forty  percent  (40%)  ownership  interest.  HHI  invested  an  additional
$1,500,000  for a sixty  percent  (60%)  ownership  interest  in the  HEITC.  In
September 2004, HHI invested an additional $1,500,000 in Enova and $1,500,000 in
the  HEITC  under  the same  terms as the  initial  investment.  In this  second
tranche,  HHI  purchased  11,335,315   restricted  shares  of  common  stock  in
accordance with the Joint Venture  Agreement  increasing HHI's ownership to 8.0%
in Enova. The joint venture company officially opened in November 2003 to pursue
advanced   research  and   development  in  hybrid   automotive  and  stationary
applications for fuel cell technologies.

Recent accounting pronouncements

         In November 2004, the FASB issued SFAS No. 151,"Inventory  Costs". SFAS
No. 151 amends the  accounting  for abnormal  amounts of idle facility  expense,
freight,  handling costs,  and wasted material  (spoilage) under the guidance in
ARB No. 43, Chapter 4, "Inventory  Pricing".  Paragraph 5 of ARB No. 43, Chapter
4, previously  stated that ". . . under some  circumstances,  items such as idle
facility expense,  excessive spoilage,  double freight, and rehandling costs may
be so abnormal as to require  treatment as current period  charges.  . . ." This

                                       24
<PAGE>

statement  requires  that those items be recognized  as  current-period  charges
regardless  of whether they meet the  criterion of "so  abnormal."  In addition,
this statement  requires that  allocation of fixed  production  overheads to the
costs  of  conversion  be  based  on  the  normal  capacity  of  the  production
facilities.  This  statement is effective for inventory  costs  incurred  during
fiscal years beginning after June 15, 2005.  Management does not expect adoption
of SFAS No. 151 to have a material impact, if any, on our financial  position or
results of operations.

         In December  2004, the FASB issued SFAS No. 152,  "Accounting  for Real
Estate Time-Sharing Transactions". The FASB issued this statement as a result of
the guidance provided in AICPA Statement of Position (SOP) 04-2, "Accounting for
Real  Estate  Time-Sharing  Transactions".  SOP 04-2  applies to all real estate
time-sharing  transactions.  Among other items, the SOP provides guidance on the
recording  of credit  losses and the  treatment of selling  costs,  but does not
change the revenue recognition guidance in SFAS No. 66, "Accounting for Sales of
Real Estate",  for real estate  time-sharing  transactions.  SFAS No. 152 amends
Statement  No. 66 to reference the guidance  provided in SOP 04-2.  SFAS No. 152
also amends SFAS No. 67,  "Accounting for Costs and Initial Rental Operations of
Real Estate Projects",  to state that SOP 04-2 provides the relevant guidance on
accounting  for  incidental  operations  and costs  related  to the sale of real
estate time-sharing transactions.  SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited.  Management  does not  expect  adoption  of SFAS  No.  152 to have a
material impact, if any, on our financial position or results of operations.

         In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges  of
Nonmonetary Assets," an amendment to Opinion No. 29, "Accounting for Nonmonetary
Transactions".  SFAS No. 153 eliminates  certain  differences in the guidance in
Opinion No. 29 as compared to the guidance  contained in standards issued by the
International  Accounting  Standards  Board.  The  amendment  to Opinion  No. 29
eliminates  the fair  value  exception  for  nonmonetary  exchanges  of  similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  Such an exchange has
commercial  substance  if the future  cash flows of the entity are  expected  to
change significantly as a result of the exchange.  SFAS No. 153 is effective for
nonmonetary asset exchanges  occurring in periods beginning after June 15, 2005.
Earlier  application is permitted for nonmonetary  asset exchanges  occurring in
periods  beginning after December 16, 2004.  Management does not expect adoption
of SFAS No. 153 to have a material impact, if any, on our financial  position or
results of operations.

         In  December  2004,  the  FASB  issued  SFAS No.  123(R),  "Share-Based
Payment".   SFAS  123(R)  amends  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation",  and  APB  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees".  SFAS  No.123(R)  requires  that  the  cost of  share-based  payment
transactions (including those with employees and non-employees) be recognized in
the financial  statements.  SFAS No. 123(R) applies to all  share-based  payment
transactions  in which an entity  acquires  goods or  services  by  issuing  (or
offering  to issue) its  shares,  share  options,  or other  equity  instruments
(except for those held by an ESOP) or by  incurring  liabilities  (1) in amounts
based (even in part) on the price of our shares or other equity instruments,  or
(2) that  require (or may  require)  settlement  by the  issuance of a company's
shares or other equity  instruments.  This statement is effective (1) for public
companies  qualifying  as SEC small  business  issuers,  as of the first interim
period or fiscal year  beginning  after  December 15, 2005, or (2) for all other
public companies,  as of the first interim period or fiscal year beginning after
June 15, 2005,  or (3) for all nonpublic  entities,  as of the first fiscal year
beginning after December 15, 2005.  Management is currently assessing the impact
of this statement on its financial position and results of operations.

RISK 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  $100,459,000  at December 31, 2004.  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, 2004,  2003 and 2002, we had
net losses of $3,382,000,  $3,186,000 and $3,598,000,  respectively, on sales of
$2,554,000, $4,310,000, and $4,455,000, respectively.

Our independent auditors' opinion on our audited financial statements includes a
going concern qualification.

Our independent  auditors have included an explanatory  paragraph in their audit
report issued in connection with our financial  statements which states that our
recurring operating losses raise substantial doubt about our ability to continue
as a going concern.  Our financial  statements do not include any adjustments to
the amounts and  classification  of assets and liabilities that may be necessary
should we be unable to continue as a going concern. Our ability to continue as a
going concern is dependent upon our ability to generate profitable operations in
the future and/or to obtain the necessary  financing to meet our obligations and
repay our  liabilities  arising from normal  business  operations when they come
due. The outcome of these  matters  cannot be  predicated  with any certainty at
this time.

The Company's ability to continue as a going concern is dependent on its success
at obtaining  additional  capital sufficient to meet its obligations on a timely
basis, and to ultimately attain profitability. Management is actively engaged in
seeking to raise capital through product licensing, co-promotional arrangements,
or public or private equity financing.  The Company believes it has demonstrated
the  ability  to  raise  the  necessary  funds  for  the  Company's  growth  and
development  activities.  However,  there is no assurance  that the Company will
raise  capital  sufficient  to enable the  Company to  continue  its  operations
through the end of the fiscal year.

In the event the Company is unable to successfully obtain additional capital, it
is unlikely  that the Company will have  sufficient  cash flows and liquidity to
finance its business operations as currently contemplated.  Accordingly,  in the
event  additional  capital is not  obtained,  the Company  will  likely  further
downsize  the  organization,   defer  marketing  programs,  reduce  general  and
administrative   expenses  and  delay  or  reduce  the  scope  of  research  and
development projects until it is able to obtain sufficient financing to do so.

Nature of Industry. The mobile and stationary power markets,  including electric
vehicle  and  hybrid  electric  vehicles,   continue  to  be  subject  to  rapid
technological  change.  Most  of  the  major  domestic  and  foreign  automobile
manufacturers:  (1) have already 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, while continuing to
improve  technology or incorporate newer technology.  Various companies are also
developing  improved  electric  storage,  propulsion  and  control  systems.  In
addition,  the  stationary  power  market is still in its  infancy.  A number of
established  energy  companies are developing new  technologies.  Cost-effective
methods  to  reduce  price  per  kilowatt  have  yet to be  established  and the
stationary power market is not yet viable.

                                       25
<PAGE>

Our current products are designed for use with, and are dependent upon, existing
technology.  As  technologies  change,  and  subject  to our  limited  available
resources,  we plan to upgrade or adapt our  products  in order to  continue  to
provide products with the latest technology. We cannot assure you, however, that
we will be able to avoid  technological  obsolescence,  that the  market for our
products will not  ultimately be dominated by  technologies  other than ours, or
that we will be able to adapt to changes in or create "leading-edge" technology.
In  addition,  further  proprietary  technological  development  by others could
prohibit us from using our own technology.

Our industry is affected by political and legislative  changes.  In recent years
there has been  significant  public pressure to enact  legislation in the United
States and abroad to reduce or eliminate automobile  pollution.  Although states
such as  California  have enacted such  legislation,  we cannot  assure you that
there will not be further legislation  enacted changing current  requirements 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 or hybrid electric vehicles. Extensions, modifications or reductions of
current  federal and state  legislation,  mandates and potential tax  incentives
could also adversely affect our business prospects if implemented.

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) is continuing to modify its
regulations  regarding its  mandatory  limits for zero emission and low emission
vehicles. Furthermore,  several car manufacturers have challenged these mandates
in court and have obtained injunctions to delay these mandates.

There are substantial risks involved in the development of unproven products. In
order to remain competitive,  we must adapt existing products as well as develop
new products and  technologies.  In fiscal years 2004,  2003 and 2002,  we spent
collectively in excess of $2,850,000 on research and development of new products
and  technology.  Despite our best efforts a new product or technology may prove
to be unworkable, not cost effective, or otherwise unmarketable. We can give you
no  assurance  that  any  new  product  or  technology  we may  develop  will be
successful or that an adequate  market for such product or technology  will ever
develop.

We  may  be  unable  to  effectively  compete  with  other  companies  who  have
significantly  greater  resources than we have. Many of our competitors,  in the
automotive,  electronic  and other  industries,  are  larger,  more  established
companies  that  have  substantially  greater  financial,  personnel,  and other
resources  than we do. These  companies may be actively  engaged in the research
and  development of power  management and conversion  systems.  Because of their
greater resources,  some of our competitors may be able to adapt more quickly to
new or emerging technologies and changes in customer requirements,  or to devote
greater  resources to the promotion and sales of their  products than we can. We
believe that  developing  and  maintaining a competitive  advantage will require
continued investment in product development,  manufacturing capability and sales
and  marketing.  We cannot  assure  you  however  that we will  have  sufficient
resources to make the necessary  investments to do so. In addition,  current and
potential competitors may establish collaborative relationships among themselves
or with third parties,  including third parties with whom we have relationships.
Accordingly,  new  competitors  or  alliances  may  emerge and  rapidly  acquire
significant market share.

Future equity  financings  may dilute your  holdings in our company.  We need to
obtain  additional  funding  through public or private equity or debt financing,
collaborative  agreements or from other sources. If we raise additional funds by
issuing equity  securities,  current  shareholders  may  experience  significant
dilution of their  holdings.  We may be unable to obtain  adequate  financing on
acceptable  terms,  if at all. If we are unable to obtain adequate funds, we may
be  required  to reduce  significantly  our  spending  and delay,  scale back or
eliminate  research,  development  or marketing  programs,  or cease  operations
altogether.

Potential intellectual property, shareholder or other litigation could adversely
impact  our  business.  Because  of the  nature  of our  business,  we may  face
litigation  relating to intellectual  property matters,  labor matters,  product
liability  or  shareholder  disputes.  Any  litigation  could be costly,  divert
management attention or result in increased costs of doing business. Although we
intend to vigorously  defend any future  lawsuits,  we cannot assure you that we
would ultimately prevail in these efforts.  An adverse judgment could negatively
impact the price of our common stock and our ability to obtain future  financing
on favorable terms or at all.

We may be exposed to product  liability  or tort  claims if our  products  fail,
which could  adversely  impact our results of  operations.  A malfunction or the
inadequate  design of our products  could  result in product  liability or other
tort claims.  Accidents  involving our products could lead to personal injury or
physical damage.  Any liability for damages resulting from malfunctions could be
substantial and could  materially  adversely  affect our business and results of
operations.  In addition,  a  well-publicized  actual or perceived problem could
adversely affect the market's perception of our products. This could result in a
decline in demand for our products,  which would materially adversely affect our
financial condition and results of operations.

                                       26
<PAGE>

We are highly subject to general economic  conditions.  The financial success of
our company is sensitive to adverse changes in general economic conditions, such
as inflation,  unemployment, and consumer demand for our products. These changes
could cause the cost of supplies,  labor, and other expenses to rise faster than
we can raise prices. Such changing  conditions also could  significantly  reduce
demand in the marketplace for our products. We have no control over any of these
changes.

We are an early  growth  stage  company.  Although  our Company  was  originally
founded in 1976,  many  aspects of our  business  are still in the early  growth
stage development,  and our proposed  operations are subject to all of the risks
inherent in a start-up or growing business enterprise,  including the likelihood
of continued  operating losses.  Enova is relatively new in focusing its efforts
on electric  systems,  hybrid  systems  and fuel cell  management  systems.  The
likelihood of our success must be considered in light of the problems, expenses,
difficulties,  complications,  and delays  frequently  encountered in connection
with the growth of an existing  business,  the  development  of new products and
channels of  distribution,  and current  and future  development  in several key
technical fields, as well as the competitive and regulatory environment in which
we operate.

We operate in a highly regulated business  environment and changes in regulation
could impose costs on us or make our products less economical.  Our products are
subject to federal,  state,  local and foreign laws and regulations,  governing,
among other things,  emissions as well as laws relating to  occupational  health
and  safety.   Regulatory   agencies  may  impose   special   requirements   for
implementation and operation of our products or may significantly impact or even
eliminate some of our target markets. We may incur material costs or liabilities
in complying with government regulations.  In addition,  potentially significant
expenditures  could be required in order to comply with  evolving  environmental
and health and safety laws,  regulations and requirements that may be adopted or
imposed in the future.

We are  highly  dependent  on a few key  personnel  and will need to retain  and
attract such  personnel in a labor  competitive  market.  Our success is largely
dependent on the  performance  of our key  management  and technical  personnel,
including Edwin Riddell,  our Chief Executive Officer,  Larry Lombard, our Chief
Financial  Officer,  Edward Moore, our Chief Operating Officer and Don Kang, our
Vice President of  Engineering,  the loss of one or more of whom could adversely
affect  our  business.  Additionally,  in order to  successfully  implement  our
anticipated  growth,  we will be  dependent  on our  ability to hire  additional
qualified personnel. There can be no assurance that we will be able to retain or
hire other necessary personnel. We do not maintain key man life insurance on any
of our key  personnel.  We believe  that our future  success will depend in part
upon our continued ability to attract,  retain,  and motivate  additional highly
skilled personnel in an increasingly competitive market.

There are minimal barriers to entry in our market.  We presently  license or own
only certain proprietary  technology and,  therefore,  have created little or no
barrier to entry for  competitors  other than the time and  significant  expense
required to assemble and develop similar production and design capabilities. Our
competitors may enter into exclusive  arrangements with our current or potential
suppliers,  thereby  giving them a competitive  edge which we may not be able to
overcome, and which may exclude us from similar relationships.

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 15.

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

None.

Item 9A.   Controls and Procedures

         We  conducted  an  evaluation  of the  effectiveness  of the design and
operation of our "disclosure controls and procedures"  (Disclosure  Controls) as
of the end of the period covered by this Annual Report. The controls  evaluation
was  done  under  the  supervision  and with the  participation  of  management,
including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO).


         Attached as exhibits to this Annual  Report are  certifications  of the
CEO and the CFO,  which are  required  in  accord  with  Rule  13a-15(e)  of the
Exchange Act.  This Controls and  Procedures  section  includes the  information
concerning  the controls  evaluation  referred to in the  certifications  and it
should  be read in  conjunction  with  the  certifications  for a more  complete
understanding of the topics presented.


                                       27
<PAGE>
Definition of Disclosure Controls

         Disclosure  Controls are controls and procedures designed to reasonably
assure that information  required to be disclosed in our reports filed under the
Exchange Act, such as this Annual Report, is recorded, processed, summarized and
reported  within  the time  periods  specified  in the SEC's  rules  and  forms.
Disclosure Controls are also designed to reasonably assure that such information
is accumulated and communicated to our management, including the CEO and CFO, as
appropriate  to  allow  timely  decisions  regarding  required  disclosure.  Our
Disclosure  Controls  include  components of our internal control over financial
reporting,  which consists of control processes  designed to provide  reasonable
assurance   regarding  the  reliability  of  our  financial  reporting  and  the
preparation  of financial  statements in accordance  with US generally  accepted
accounting  principles.  To the extent that  components of our internal  control
over financial reporting are included within our Disclosure  Controls,  they are
included in the scope of our periodic controls evaluation.


Limitations on the Effectiveness of Controls

         Our  management,  including  the CEO and CFO,  does not expect that our
Disclosure  Controls or our  internal  control  over  financial  reporting  will
prevent all error and all fraud. A control  system,  no matter how well designed
and operated,  can provide only  reasonable,  not absolute,  assurance  that the
control system's objectives will be met. Further, the design of a control system
must reflect the fact that there are resource  constraints,  and the benefits of
controls  must be  considered  relative to their costs.  Because of the inherent
limitations  in all control  systems,  no  evaluation  of  controls  can provide
absolute  assurance  that all control  issues and  instances  of fraud,  if any,
within the Company have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can  occur  because  of  a  simple  error  or  mistake.  Controls  can  also  be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management  override of the controls.  The design of any system of
controls  is based in part upon  certain  assumptions  about the  likelihood  of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated goals under all  potential  future  conditions.  Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective  control system,  misstatements  due to error or
fraud may occur and not be detected.


Scope of the Controls Evaluation

         The  evaluation  of our  Disclosure  Controls  included a review of the
controls'  objectives  and design,  our  implementation  of the controls and the
effect of the  controls  on the  information  generated  for use in this  Annual
Report.  In the course of the controls  evaluation,  we sought to identify  data
errors,  controls  problems  or acts  of  fraud  and  confirm  that  appropriate
corrective action, including process improvements,  were being undertaken.  This
type of evaluation is performed on a quarterly  basis so that the conclusions of
management,  including the CEO and CFO, concerning controls effectiveness can be
reported in our Quarterly  Reports on Form 10-Q and in our Annual Report on Form
10-K. Many of the components of our Disclosure Controls are also evaluated on an
ongoing  basis  by  personnel  in  our  Finance  organization,  as  well  as our
independent  auditors who evaluate them in  connection  with  determining  their
auditing  procedures related to their report on our annual financial  statements
and not to provide assurance on our controls. The overall goals of these various
evaluation activities are to monitor our Disclosure Controls, and to modify them
as necessary.

         Among  other  matters,   we  also  considered  whether  our  evaluation
identified  any  "significant  deficiencies"  or  "material  weaknesses"  in our
internal  control  over  financial  reporting,   and  whether  the  Company  had
identified any acts of fraud involving  personnel with a significant role in our
internal control over financial  reporting.  This information was important both
for the controls evaluation generally,  and because item 5 in the certifications
of the CEO and CFO require that the CEO and CFO disclose that information to our
Board's Audit Committee and to our  independent  auditors.  In the  professional
auditing literature,  "significant  deficiencies" are referred to as "reportable
conditions,"  which are deficiencies in the design or operation of controls that
could  adversely  affect our ability to record,  process,  summarize  and report
financial  data  in  the  financial  statements.   Auditing  literature  defines
"material  weakness" as a particularly  serious  reportable  condition where the
internal  control  does not  reduce  to a  relatively  low  level  the risk that
misstatements  caused  by error or fraud  may  occur in  amounts  that  would be
material  in  relation  to the  financial  statements  and the  risk  that  such
misstatements  would not be detected  within a timely period by employees in the
normal course of performing their assigned functions.


Conclusions

         Based  upon the  controls  evaluation,  our CEO and CFO have  concluded
that,  subject  to the  limitations  noted  above,  as of the end of the  period
covered by this Annual Report, our Disclosure Controls were effective to provide
reasonable  assurance that material  information relating to the Company is made
known to management, including the CEO and CFO.

                                       28
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

          Our  directors  and  executive  officers  hold office  until the first
meeting of the Board of Directors  following the annual meeting of  stockholders
and until their  successors are duly chosen and qualified,  or until they resign
or are removed from office in accordance  with our By-laws.  The following table
sets forth  certain  information  with  respect  to the  current  Directors  and
executive officers of Enova:


Name                                   Age         Position
----                                   ---         --------
Anthony N. Rawlinson                   49          Chairman of the Board

Edwin O. Riddell                       62          Chief Executive Officer,
                                                   President and Director

Carl D. Perry                          72          Vice chairman

Bjorn Ahlstrom (1)                     70          Director

Dr. Malcolm Currie (1)                 77          Director

John J. Micek, III (2) (3)             52          Director

Donald H. Dreyer (2)                   67          Director

John Wallace                           56          Director

Larry B. Lombard                       44          Chief Financial Officer

Edward M. Moore                        43          Chief Operating Officer

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


         Anthony  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 from 1996 to the present.  Mr.  Rawlinson is
also a director of Calvalley  Petroleum.  a Canadian  listed public company with
Yemen oil  interests  and chairman of Cardsoft  Inc., a  privately-held  company
which  supplies  software  for a secure Java  environment  that meets  financial
standards.

         Edwin  O.  Riddell,  President,  CEO  and  Director.  Mr.  Riddell  was
appointed  President and Chief Executive Officer on August 20, 2004. Mr. Riddell
has been a Director of the Company 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.

         Carl D. Perry,  Director,  Vice Chairman of the Board. Mr. Perry served
as Chief Executive Officer, President and a Director of the Company until August
2004 when he stepped  down from his  positions  to accept the  position  of vice
chairman of the Board.  Mr. Perry served as a Director and as an Executive  Vice
President of the Company from 1993 until 1997. In 1997, Mr. Perry was elected as
Chairman  of the Board and  Chief  Executive  Officer  of the  Company,  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.

         Bjorn  Ahlstrom,  Director.  Mr.  Ahlstrom  was elected to the Board of
Directors in June 2004. Mr. Ahlstrom currently is a consultant in the heavy-duty
vehicle industry. Mr. Ahlstrom retired as Chairman of Volvo Group North America,
Inc. on April 1, 2004.  Prior to that,  Mr.  Ahlstrom  was  President  and Chief
Executive  Officer of Volvo  North  America  Corporation  from 1971 until  1994.
During this term,  Volvo North America  Corporation  owned and operated  Volvo's
businesses in the United  States and Canada.  Under Mr.  Ahlstrom's  leadership,


                                       29
<PAGE>

VNAC grew from a $50  million  car  importer  in the early 1970s to a $6 billion
company with  manufacturing and marketing  operations for cars,  trucks,  marine
engines, and financial services.  In 1981, Mr. Ahlstrom received the Royal Order
of the North  Star  from King Carl XVI  Gustaf  of  Sweden.  The  United  States
Government  awarded him the Medal of Peace and Commerce in 1983. He received the
Ellis Island  Medal of Honor in 1990.  Mr.  Ahlstrom  has been awarded  honorary
Doctor of Law degree from St John's  University,  NY, and Ramapo  College of New
Jersey.

         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 the Company
from 1995 through 1997.  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 LSI Logic,  Inamed Corp.,  Innovative Micro Technology,  Regal One,
and Currie  Technologies.  He is past  president  of the  American  Institute of
Aeronautics  and  Astronautics,  and is a Member of the Board of Trustees of the
University of Southern California.

         John R. Wallace, Director. Mr. Wallace was elected as a Director of the
Company in 2002. Mr. Wallace  retired from the Ford Motor Company in 2002.  From
2002 to the present,  he has been working  independently  as a consultant in the
alternative energy sector Prior to his retirement,  he was executive director of
TH!NK Group. He has been active in Ford Motor Company's alternative fuel vehicle
programs  since  1990,  serving  first  as:  Director,   Technology  Development
Programs;  then as Director,  Electric Vehicle Programs;  Director,  Alternative
Fuel Vehicles and finally Director,  Environmental Vehicles. He is past Chairman
of the Board of Directors  of TH!NK  Nordic;  he is past  chairman of the United
States  Advanced  Battery  Consortium;   Co-Chairman  of  the  Electric  Vehicle
Association  of the  Americas,  and past  Chairman of the  California  Fuel Cell
Partnership.  He  served  as  Director  of Ford's  Electronic  Systems  Research
Laboratory,  Research  Staff,  from 1988  through  1990.  Prior to joining  Ford
Research  Staff,  he was president of Ford  Microelectronics,  Inc., in Colorado
Springs.  His other  experience  includes  work as  program  manager  with Intel
Corporation.  He also  served  as  Director,  Western  Development  Center,  for
Perkin-Elmer Corporation and as President of Precision Microdesign, Inc.

         Donald H. Dreyer,  Director.  Mr.  Dreyer was elected a Director of the
Company in January  1997.  Mr.  Dreyer is President and CEO of Dreyer & Company,
Inc., a consultancy in credit,  accounts  receivable  and  insolvency  services,
which he founded in 1990.  Mr.  Dreyer  has served as  Chairman  of the Board of
Credit  Managers  Association  of  California  during  the 1994 to 1995 term and
remains a current member. Mr. Dreyer is also a member of the American Bankruptcy
Institute and the National Advisory Committee of Dun & Bradstreet, Inc.

         John J. Micek III,  Director.  Mr.  Micek was elected a Director of the
Company in April 1999. Mr. Micek has been Managing  Director of Silicon  Prairie
Partners, LP from August 1998 to the present. From June 1997 to August 1998, Mr.
Micek was COO of Pelion  Systems,  Inc. Mr. Micek served as our Vice  President,
General  Counsel  and  Secretary  from  March 1994 to March  1997.  He also is a
practicing attorney  specializing in corporate finance and business  development
in Palo Alto,  CA. He is a Board Member of  Universal  Warranty and also sits on
the boards of UTEK Corp., Pelion Systems, Inc., Universal Assurors Agency, Inc.,
and Armanino Foods.

         Larry B. Lombard,  Chief Financial  Officer.  Mr. Lombard was appointed
Chief  Financial  Officer in November 2004. He was appointed was appointed Chief
Financial  Officer in  November  2004.  He has served as Director of Finance and
Administration  at Enova  Systems,  Inc. since 1998. Mr. Lombard has over twenty
years  experience  in  management  and  finance  for a wide  range of  companies
including software  development,  insurance,  petroleum and banking. He received
his BA in Business  Economics,  University  of California at Los Angeles and his
MBA in Global Management from the University of Phoenix.

         Edward M. Moore, Chief Operating Officer. Mr. Moore was appointed Chief
Operating Officer in March 2004. He has served as Vice President,  Marketing and
Sales at Enova Systems, Inc. since 2000. Mr. Moore was vice president, sales for
E-Bus from 1999 to 2000. Mr. Moore has  experience in creating and  implementing
strategic marketing plans for both domestic and international markets. He has an
extensive background in the alternative fuels and drive system industry,  having
worked  with GM Hughes,  AeroEnvironment  and E-Bus in both the  technology  and
marketing  fields.  He received his BS,  Occupational  Education  from  Southern
Illinois University and his MBA from the University of Phoenix.

Audit Committee

            We have a standing Audit  Committee  established in accordance  with
section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, which is
composed of Donald H. Dreyer and John J. Micek,  III.  The Audit  Committee  has
adopted  an  Audit  Committee  Charter,  which  is  on  file  at  our  corporate
headquarters in Torrance California.



                                       30
<PAGE>

Audit Committee Financial Expert

            As  required  by  the  Sarbanes-Oxley  Act of  2002,  our  Board  of
Directors has determined that one member of our Audit  Committee,  John J. Micek
III, is qualified to be an "audit committee financial expert" within the meaning
of SEC regulations. The Board reached its conclusion as to the qualifications of
Mr.  Micek  based  on  his  education  and  experience  in  analyzing  financial
statements of a variety of companies.

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  Securities  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 each of
Messrs. Rawlinson, Riddell, Currie, Micek, Wallace and Dreyer, each of whom is a
Director  of Enova,  failed to file on a timely  basis one Form 4, each of which
Form 4 reported one  transaction,  namely the issuance of shares of Common Stock
in partial payment of directors' fees for August 2004.

Code of Ethics

         Enova has  adopted  a code of  ethics  that  applies  to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller and all persons performing similar functions, if any. We will provide
to any  person  without  charge,  upon  request,  a copy of such code of ethics.
Requests should be made in writing to:

         Enova Systems, Inc.
         Larry Lombard, Chief Financial Officer
         19850 S. Magellan Drive
         Torrance, CA  90502



                                       31
<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, 2004,  2003 and 2002  (collectively,  the "Named  Executive
Officers").  Mr.  Carl D. Perry was the sole  executive  officer of Enova  whose
salary currently exceeded $100,000 prior to December 31, 2003.

<TABLE>
<CAPTION>
Name and Principal Position
---------------------------
                                                           SUMMARY COMPENSATION TABLE
                                                             ANNUAL COMPENSATION
                                                ----------------------------------------------------
                                                Year         Salary                 Bonus
                                                ----         ------                 -----
<S>                                             <C>         <C>            <C>
Edwin O. Riddell (1)                            2004        $114,000                  --
  Chief Executive Officer and President         2003           --                     --
                                                2002           --                     --

Larry B. Lombard (2)                            2004        $127,000                  --
   Chief Financial Officer                      2003           --                     --
                                                2002           --                     --


Edward M. Moore (3)                             2004        $147,000       $30,000 (earned in 2003)
   Chief Operating Officer                      2003           --                     --
                                                2002           --                     --


Carl D. Perry (4)                               2004        $195,000                  --
   Former Chief Executive Officer and           2003        $140,000                  --
  President                                     2002        $150,000       $30,000 (earned in 2000)
<FN>
(1)  Mr.  Riddell was elected  Chief  Executive  Officer and president in August
     2004. Mr. Riddell commenced  employment as a full-time  employee in January
     2005 at a salary of $208,000  per year.  For the period from August 2004 to
     December 2004, Mr.  Riddell was  compensated  for services on a contractual
     basis at the rate of $4,000 per week  totaling  $99,000 in cash during 2004
     and  $15,000 in  director's  fees for his  service  as a director  prior to
     becoming an officer of the company.

(2)  Mr.  Lombard was elected Chief  Financial  Officer in November 2004. He was
     elected Acting Chief Financial  Officer in March 2004. Mr. Lombard's annual
     salary is $145,000 per year.  Prior to 2004, Mr. Lombard was not an officer
     of the Company.

(3)  Mr. Moore was elected Chief  Operating  Officer in March 2004.  Mr. Moore's
     annual  salary is $150,000  per year.  Prior to 2004,  Mr. Moore was not an
     officer of the Company.

(4)  Mr. Perry was elected  Chief  Executive  Officer and  president in November
     1997 and  resigned  those  positions in August 2004.  Mr.  Perry's  current
     salary was $120,000 per year which terminated per agreement at December 31,
     2004. Upon termination,  Mr. Perry is entitled to approximately  $75,000 in
     deferred  salary,  bonus and vacation  pay which will be paid in 2005.  Mr.
     Perry served as Acting Chief Financial Officer during the periods reflected
     in the above chart through March 6, 2004.

</FN>
</TABLE>

                                       32
<PAGE>

Option/SAR Grants

         The  following  grants of stock  options or stock  appreciation  rights
("SARs") were made during 2004 to the Named Executive Officers.
<TABLE>
<CAPTION>

                                                Option Grants During Fiscal 2004

                               Number of
                               Securities     Percentage of Total                                   Potential Realizable Value of
                              Underlying     Options Granted to      Exercise                   Assumed Annual Rates of Stock Price
   Name of Individual           Options           Employee in          Price      Expiration        Appreciation for the Option
      and Position              Granted           Fiscal 2004        Per Share      Date                     Term  (1)
      ------------              -------           -----------        ---------      ----        ------------------------------------
                                                                                                        5%               10%
                                                                                                        --               ---
<S>                           <C>                      <C>              <C>        <C>                <C>              <C>
Larry B. Lombard, Chief
Financial Officer             1,000,000                50.0%            $0.115     1-25-06            $ 5,750          $ 11,500
Edward M. Moore, Chief
Operating Officer             1,000,000                50.0%            $0.115     1-25-06            $ 5,750          $ 11,500

<FN>
(1)  Calculated on the basis of $0.115  representing the average of the high bid
     and low ask prices of the Common Stock on December 31, 2004
</FN>
</TABLE>

Option Exercises and Option Values

         The following table sets forth information  concerning option exercises
during 2004, and the aggregate  value of unexercised  options as of December 31,
2004, held by each of the Named Executive Officers:

<TABLE>
<CAPTION>
                                           Aggregated Option/SAR Exercises in 2004
                                           and Option Values at December 31, 2004

                                                                  Number of Securities
                                       Aggregate                 Underlying Unexercised         Value of Unexercised
                                        Option                         Options at             In-the-Money Options at
                                   Exercises in 2004             December 31, 2004 (#)        December 31, 2004 ($) (1)
                              ----------------------------     --------------------------   ---------------------------
                               Shares
                              Acquired on         Value
Name                          Exercise (#)    Realized ($)     Exercisable  Unexercisable   Exercisable    Unexercisable
----                          ------------    ------------     -----------  -------------   -----------    -------------
<S>                             <C>              <C>              <C>            <C>             <C>            <C>
Edwin O. Riddell                   --               --             --              --            --(1)          N/A

Larry B. Lombard                   --               --            2,000,000        --            --(1)          N/A

Edward M. Moore                 1,133,234        $110,800         2,000,000        --            --(1)          N/A

<FN>
(1)  Calculated on the basis of $0.00  representing  the average of the high bid
     and low ask prices of the Common  Stock on December  31, 2004 of $0.115 per
     share, minus the exercise price.
</FN>
</TABLE>

Compensation of Directors

         During  2004,  we issued,  or accrued for  issuance,  an  aggregate  of
701,255 shares of common stock to the non-executive  board members in accordance
with the  September  1999 Board of  Directors  compensation  package for outside
directors, as amended to date. For each meeting attended in person, each outside
director is entitled to receive $2,000 in cash and $4,000 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 entitled 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;  and for each meeting of a Board committee  attended
in person,  a committee  member is entitled to receive $1,000 in cash and $1,000
of stock valued on the date of the meeting at the average of the closing ask and
bid  prices.  All  Directors  are also  reimbursed  for  out-of-pocket  expenses
incurred in connection with attending Board and committee meetings.

         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.  As of December 31, 2004, an aggregate of 3,539,784  shares
had been issued, or accrued for issuance,  under the above compensation plan for
Directors.

                                       33
<PAGE>

Edwin O. Riddell

         The Company  entered into a consulting  agreement  with Edwin  Riddell,
 doing business as CR Transportation  Services,  wherein the Company compensates
 CR Transportation  at the rate of $4,000 per week plus reasonable  expenses for
 consulting services rendered. Upon Mr. Riddell becoming an employee of Enova in
 January 2005, this agreement was terminated. Mr. Riddell is not compensated per
 this agreement when acting in the capacity of a director of the Company. During
 2004, the Company paid Mr. Riddell $99,000 in cash for consulting  services and
 expenses and $15,000 for directors fees (which latter amount  includes the cash
 paid  and  the  value  of the  stock  issued  to him  pursuant  to the  outside
 directors' compensation package described above).

Donald Dreyer

         The Company  utilizes the  consulting  service of Donald Dreyer wherein
 the Company compensates Mr. Dreyer at the rate of $150 per hour plus reasonable
 expenses for consulting  services rendered.  Mr. Dreyer is not compensated when
 acting in the  capacity of a director of the Company  other than the fees noted
 above.  During 2004,  the Company paid Mr. Dreyer $2,000 in cash for consulting
 services and  expenses  and $29,000 for  directors  fees (which  latter  amount
 includes the cash paid and the value of the stock issued to him pursuant to the
 outside directors' compensation package described above).

 Compensation Committee Interlocks and Insider Participation

         The Compensation Committee held two meetings in the year ended December
31, 2004. The Compensation  Committee  currently  consists of Mr. Bjorn Ahlstrom
and Dr. Malcolm Currie,  neither of who have been officers of the Company. Prior
to August 2004,  Mr. Edwin Riddell was a member of the  Compensation  Committee.
Mr. .Riddell resigned from the committee upon his appointment as Chief Executive
Officer. The Compensation  Committee's  functions are to establish and apply our
compensation policies with respect to our Executive Officers,  and to administer
our stock option plans.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


                                       34
<PAGE>

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters

The  following  table sets forth certain  information  known to the Company with
respect to beneficial ownership of our Common Stock as of March 30, 2005, by (i)
each shareholder  known to the Company to own  beneficially  more than 5% of our
Common Stock; (ii) each of our Directors; (iii) the Named Executive Officer; and
(iv) all Executive Officers and Directors 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 Common  Stock
shown as beneficially owned by them.

<TABLE>
<CAPTION>

                                                          Shares                   Percentage of Shares            Voting
                Name                              Beneficially Owned (1)          Beneficially Owned (2)       Percentage (3)
                ----                              ----------------------          ----------------------       --------------
<S>                                                     <C>                              <C>                       <C>
Jagen, Pty., Ltd.                                       145,000,000                      33.53%                    34.41%
9 Oxford Street, South Ybarra 3141
Melbourne, Victoria Australia

Hyundai Heavy Industries, Co.                            34,412,238                       7.96%                     8.17%
1 Cheona-Dong, Dong-Ku
Ulsan, Korea

Citibank N.A                                             29,405,754                       6.80%                     6.98%
111 Wall Street, 8th Floor
New York, NY 10043

Anthony N. Rawlinson                                     25,545,001                       5.91%                     6.06%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502

Edwin O. Riddell                                          1,712,119(4)                   *                         *
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502

Carl D. Perry                                            10,045,045                       2.32%                     2.38%

John J. Micek III                                         1,644,267(5)                   *                         *

Bjorn Ahlstrom                                              114,242                      *                         *

Dr. Malcolm Currie                                          679,369                      *                         *

Donald H. Dreyer                                            620,287                      *                         *

John R. Wallace                                             200,433                      *                         *

Delphi Delco Electronics                                  1,278,720(6)                   *                         *

Jean Schulz                                               1,329,111(7)                   *                         *

Larry B. Lombard                                          2,800,000(8)                   *                         *

Edward M. Moore                                           2,030,000(9)                   *                         *

All directors and executive officers                     45,390,763(10)                  10.50%                     9.70%
as a group (10 persons)
<FN>

*        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 March 30, 2005.

                                       35
<PAGE>

(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 March 30, 2005.

(3)      The  percentages  are based on the  number  of shares of Common  Stock,
         Series A Preferred  Stock and/or Series B Preferred  Stock owned by the
         shareholder  divided  by  the  sum  of:  (i)  the  total  Common  Stock
         outstanding,  (ii) the total Series A Preferred  Stock  outstanding and
         (iii) the total Series B Preferred Stock  outstanding.  This percentage
         calculation has been included to show more accurately the actual voting
         power of each of the  shareholders,  since the  calculation  takes into
         account  the fact that the  outstanding  Series A  Preferred  Stock and
         Series B Preferred  Stock are entitled to vote together with the Common
         Stock as a single  class on  certain  matters  to be voted  upon by the
         shareholders.

(4)      Includes  1,000,000  shares of Common Stock issuable  pursuant to stock
         options exercisable at a price of $.115.

(5)      Includes  1,000,000  shares of Common Stock  issued to Silicon  Prairie
         Partners,  LP, a limited  partnership in which John J. Micek III is the
         general partner.

(6)      The number of shares shown  represents  the ownership of 639,360 shares
         of Series B  Preferred  Stock,  each of which is  convertible  into two
         shares of Common Stock.  These 639,360 shares represent more than 5% of
         the outstanding shares of Series B Preferred Stock.

(7)      The number of shares shown represents the ownership of 1,329,111 shares
         of Series A  Preferred  Stock,  each of which is  convertible  into one
         share of Common Stock. These 1,329,111 shares represent more than 5% of
         the outstanding shares of Series A Preferred Stock.

(8)      Includes  2,000,000  shares of Common Stock issuable  pursuant to stock
         options exercisable at a price from $.115 to $.16.

(9)      Includes  2,000,000  shares of Common Stock issuable  pursuant to stock
         options exercisable at prices from $.0115 to $.20.

(10)     Includes  5,000,000  shares of Common Stock issuable  pursuant to stock
         options  exercisable  at  prices  from  $.115  to $.20  per  share  and
         1,000,000  shares of Common Stock issued to Silicon  Prairie  Partners,
         LP, a limited  partnership  in which John J.  Micek III is the  general
         partner.
</FN>
</TABLE>

Equity Compensation Plan Information

The following table provides information regarding our equity compensation plans
as of December 31, 2004:

<TABLE>
<CAPTION>
                                            Equity Compensation Plan Information

                                                                                                           Number of securities
                                                                                                           remaining available
                                                                                                                   for
                                                                                                           future issuance under
                                                       Number of securities to      Weighted-average       equity compensation
                                                       be issued upon exercise      exercise price of        plans (excluding
                                                       of outstanding options,     outstanding options,     securities reflected
                                                         warrants and rights       warrants and rights        in column (a))
         Plan category                                           (a)                       (b)                      (c)
         -------------                                           ---                       ---                      ---
<S>                                                           <C>                         <C>                  <C>
         Equity compensation plans approved
         by security holders                                  9,984,167                   $0.14                41,844,000

         Equity compensation plans not
         approved by security holders                              --                       --                         --

           Total                                              9,984,167                   $0.14                41,844,000
</TABLE>

         Our board of directors  adopted the 1996 Employee and Consultant  Stock
Option Plan in October 1996 which was subsequently  approved by our shareholders
in May 1997. A total of 15,000,000  shares were reserved for issuance  under the
1996 Plan.  Options  granted under the 1996 Plan may be either  incentive  stock


                                       36
<PAGE>

options,  as defined in Section 422 of the  Internal  Revenue  Code of 1986,  or
nonstatutory  stock options.  The 1996 Plan provides that options may be granted
to  employees  (including  officers  and  directors  who  are  also  employees),
directors  and  consultants.  Incentive  stock  options  may only be  granted to
employees.  In 1999,  our  board  of  directors  and  shareholders  approved  an
amendment  to the 1996 Plan to  increase  the  number of shares of common  stock
reserved for issuance  thereunder by 30,000,000 shares and in 2004, our board of
directors  and  shareholders  approved an amendment to the 1996 Plan to increase
the  number of shares  of common  stock  reserved  for  issuance  thereunder  by
20,000,000  shares,  bringing the total number of shares issuable under the 1996
Plan to  65,000,000.  The  share  increases  to the  1996  Plan  assured  that a
sufficient  reserve  of  common  stock  are  available  to  provide  us with the
continuing  opportunity to utilize  equity  incentives to attract and retain the
services of employees essential to our long-term growth and financial success. A
copy of the actual 1996 Plan document was  previously  filed with the Securities
and Exchange Commission.

         Options granted under the amended 1996 Plan will vest over such periods
as may be  determined  by the  board of  directors  and will  generally  have an
exercise  price  equal to the  closing  price  for our stock on the  NASDAQ  OTC
Bulletin Board on the last trading day  immediately  prior to the date of grant.
As of December 31, 2004, the Company had reserved  41,844,000  common shares for
issuance under the 1996 Plan, as amended.  Options to purchase  2,000,000 shares
of Enova common stock were granted to employees in 2004.

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, 2004.

         During 2004, Hyundai Heavy Industries,  Co. (HHI) purchased  11,335,315
shares increasing their ownership in Enova Systems, Inc. to 7.96%. Additionally,
during  2004,  we  purchased  from HHI  approximately  $246,000  in  components,
materials and services for manufacture of our drive systems and power management
systems.  These  purchases were made on terms and conditions  equal to or better
than our  standard  commercial  terms  with  other  vendors.  At the year  ended
December 31, 2004, our outstanding  payables  balance due HHI was  approximately
$2,000.

         The Company  entered into a consulting  agreement  with Edwin  Riddell,
 doing business as CR Transportation  Services,  wherein the Company compensates
 CR Transportation  at the rate of $4,000 per week plus reasonable  expenses for
 consulting services rendered. Upon Mr. Riddell becoming an employee of Enova in
 January 2005, this agreement was terminated. Mr. Riddell is not compensated per
 this agreement when acting in the capacity of a director of the Company. During
 2004, the Company paid Mr. Riddell $99,000 in cash for consulting  services and
 expenses and $15,000 for directors fees (which latter amount  includes the cash
 paid  and  the  value  of the  stock  issued  to him  pursuant  to the  outside
 directors' compensation package described above).

         Pursuant to a written agreement  approved by the Board of Directors and
its Audit Committee,  a finder's fee of $92,500 was accrued to be paid,  through
the issuance of  restricted  shares of common stock in Enova,  totaling  608,553
shares at a price of $0.15 per share,  in conjunction  with a private  placement
funding in the first  quarter of 2004 to The Global Value  Investment  Portfolio
Management  Pte Ltd, a Singapore  Company  which is  substantially  owned by two
affiliated parties: Anthony Rawlinson,  Chairman of the Board of our Company and
Borl  partnership,  owned  by  Boris  Liberman  Family  Trusts,  which  is  also
affiliated  with Jagen Pty Ltd., a large  affiliate  shareholder in Enova.  Said
shares were subsequently issued in the first quarter of 2005.

Item 14. Principal Accountant Fees and Services

         Singer  Lewak  Greenbaum & Goldstein  LLP were  engaged on November 21,
2003 to audit our financial  statements  for the fiscal year ended  December 31,
2004 and 2003. Moss Adams, LLP served as our auditors prior to November 21, 2003
and audited our  financial  statements  for the fiscal year ended  December  31,
2002.

Audit Fees
----------

         The  aggregate  fees  billed  during  the last  two  fiscal  years  for
professional services rendered by Singer Lewak Greenbaum & Goldstein LLP for the
audit of Enova's  financial  statements  for the fiscal year ended  December 31,
2004 and for its review of financial  statements included in Enova's Form 10-Q-s
during the last two fiscal years and other  services that are normally  provided
by an  accountant  in  connection  with  statutory  and  regulatory  filings  or
engagements during such fiscal years were $73,970 for fiscal 2004 and $7,500 for
fiscal 2003.

         The  aggregate  fees  billed  during  the last  two  fiscal  years  for
professional  services  rendered by Moss Adams,  LLP for its review of financial
statements  included in Enova's Form 10-Q-s and other services that are normally
provided by an accountant in connection with statutory and regulatory filings or
engagements  during such fiscal  years were  $31,050 for fiscal 2003 and $87,210
for fiscal 2002.

                                       37
<PAGE>

Audit-Related Fees
------------------

         Singer  Lewak  Greenbaum & Goldstein  LLP did not perform for Enova any
assurance and related  services that were reasonably  related to the performance
of the audit of our financial  statements for the fiscal year ended December 31,
2004.

         Moss  Adams,  did not  perform  for Enova  any  assurance  and  related
services that were  reasonably  related to the  performance  of the audit of our
financial statements for the fiscal year ended December 31, 2004.

Tax Fees
--------

         Singer  Lewak  Greenbaum & Goldstein  LLP did not perform for Enova any
tax  compliance,  tax advice and tax planning  services in fiscal 2003 or fiscal
2004.

         Moss  Adams,  LLP did not  perform  for Enova any tax  compliance,  tax
advice and tax planning services in fiscal 2003.

All Other Fees
--------------

         Neither  Singer  Lewak  Greenbaum & Goldstein  LLP nor Moss Adams,  LLP
performed  any other  services  for fees other than audit fees in fiscal 2004 or
2003.

                                     PART IV

Item 15.          Exhibits and Financial Statement Schedules

(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 15 (c) for Index of Exhibits.

(b)        Reports on Form 8-K

           On  February  2,  2005,  Registrant  filed a Form  8-K,  with date of
           earliest event reported of September 20, 2004,  reporting under items
           1 and 3.

(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).



                                       38
<PAGE>

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  10-Q for the
           quarter  ended  April  30,  1996,  as  filed on June  14,  1996,  and
           incorporated herein by reference).

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       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).

10.10      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).

10.11      Agreement (redacted) between the Registrant and a customer dated June
           14, 2001, to develop and produce power management systems.  (filed as
           Exhibit 10.1 to the  Registrant's  Quarterly  Report on Form 10-Q for
           Six Months ended June 30, 2001 and incorporated herein by reference).

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

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

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

10.15      Form  of  Stock  Purchase   Agreement  dated  June  7,  2002  between
           Registrant  and  each  of  the  selling   shareholders  listed  in  a
           Prospectus  dated July 26, 2002 (filed as Exhibit  10.22 to Amendment
           No. 1 to the  Registrant's  Registration  Statement  on Form S-1, No.
           333-96829, and incorporated herein by reference).

10.16      Form of  Registration  Rights  Agreement  dated June 7, 2002  between
           Registrant  and  each  of  the  selling   shareholders  listed  in  a
           Prospectus  dated July 26, 2002 (filed as Exhibit  10.23 to Amendment
           No. 1 to the  Registrant's  Registration  Statement  on Form S-1, No.
           333-96829, and incorporated herein by reference).

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



                                       39
<PAGE>

10.18      Securities  Purchase  Agreement  dated as of March 18,  2003,  by and
           between the Registrant and Hyundai Heavy  Industries Co. Ltd.  (filed
           as Exhibit 10.25 to the  Registrant's  Quarterly  Report on Form 10-Q
           for Three  Months  ended  March 31, 2003 and  incorporated  herein by
           reference).

10.19      Form of  Stock  Purchase  Agreement  dated  March  30,  2004  between
           Registrant  and  various  investors.  (filed as Exhibit  10.19 to the
           Registrant's  Quarterly  Report on Form 10-Q for Three  Months  ended
           March 31, 2004 and incorporated herein by reference).

10.20      Form of  Registration  Rights  Agreement dated March 30, 2004 between
           Registrant  and  various  investors.  (filed as Exhibit  10.20 to the
           Registrant's  Quarterly  Report on Form 10-Q for Three  Months  ended
           March 31, 2004 and incorporated herein by reference).

10.21      Form of Finder's Fee agreement dated April 1, 2004 between Registrant
           and The  Global  Value  Investment  Portfolio  Management  Pte Ltd as
           disclosed  in our Form 10-Q for the  quarter  ended  March 31,  2004.
           (filed as Exhibit 10.21 to the Registrant's  Quarterly Report on Form
           10-Q for Six Months  ended June 30, 2004 and  incorporated  herein by
           reference).

23.1*      Consent  of Singer  Lewak  Greenbaum  &  Goldstein  LLP,  Independent
           Registered Public Accounting Firm

23.2*      Consent of Moss Adams, LLP, Independent  Registered Public Accounting
           Firm

24*        Power of Attorney (included on signature page)

31.1*      Certification  of Chief Executive  Officer Pursuant to Section 302 of
           the Sarbanes-Oxley Act Of 2002

31.2*      Certification  of Chief Financial  Officer Pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002

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


                                       40
<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 by the undersigned, thereunto duly authorized.

ENOVA SYSTEMS, INC.


By:      /s/   Larry B. Lombard
   --------------------------------
Larry B. Lombard, Chief Financial Officer

Dated: March 31, 2005

                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below constitutes and appoints Larry B. Lombard,  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.
<TABLE>
<CAPTION>
Signature                                                Title                           Date
---------                                                -----                           ----
<S>                                          <C>                                    <C>
/s/   Larry B. Lombard                       Chief Financial Officer
-------------------------------------        (Principal Financial Officer)          March 31, 2005
Larry B. Lombard


  /s/   Edwin O. Riddell                     Chief Executive Officer                March 31, 2005
-------------------------------------        and Director
Edwin O. Riddell                             (Principal Executive Officer)


  /s/   Anthony N. Rawlinson                 Chairman                               March 31, 2005
------------------------------------
Anthony N. Rawlinson

   /s/   Carl D. Perry                       Vice Chairman                          March 31, 2005
-------------------------------------
Carl D. Perry

  /s/ Malcolm Currie                         Director                               March 31, 2005
-------------------------------------
Malcolm Currie

  /s/   Bjorn Ahlstrom                       Director                               March 31, 2005
-------------------------------------
Bjorn Ahlstrom

  /s/   John J. Micek, III                   Director                               March 31, 2005
-------------------------------------
John J. Micek, III

  /s/   Donald H. Dreyer                     Director                               March 31, 2005
-------------------------------------
Donald H. Dreyer

  /s/   John R. Wallace                      Director                               March 31, 2005
-------------------------------------
John R. Wallace

</TABLE>

                                       41


<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                            FINANCIAL STATEMENTS
                                                             FOR THE YEARS ENDED
                                               DECEMBER 31, 2004, 2003, AND 2002




<PAGE>


                                                             ENOVA SYSTEMS, INC.
                                                                        CONTENTS
                                                               December 31, 2004

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


                                                                         Page

REPORT OF INDEPENDENT REGISTERED
           PUBLIC ACCOUNTING FIRM                                       F1 - F2

FINANCIAL STATEMENTS

       Balance Sheets                                                   F3 - F5

       Statements of Operations                                            F6

       Statements of Stockholders' Equity (Deficit)                     F7 - F8

       Statements of Cash Flows                                         F9 - F10

       Notes to Financial Statements                                   F11 - F28

SUPPLEMENTAL INFORMATION

       Report of Independent Registered Public
           Accounting Firm on Financial Statement Schedule                F30

       Valuation and Qualifying Accounts - Schedule II                    F31



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Enova Systems, Inc.
Torrance, California

We have  audited the balance  sheets of Enova  Systems,  Inc. as of December 31,
2004  and  2003,  and  the  related  statements  of  operations,   stockholders'
equity/(deficit),  and cash flows for each of the two years in the period  ended
December 31, 2004.  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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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  that  our  audits  provided  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, 2004 and 2003, and the results of its operations and its cash flows
for each of the two years in the period ended  December 31, 2004,  in conformity
with accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and negative cash flows from  operations.  These  factors,  among others,  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
March 10, 2005


                                       1
<PAGE>
         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the statements of  operations,  stockholders'  equity,  and cash
flows of Enova  Systems,  Inc.,  for the year ended  December  31,  2002.  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 audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit  provides a reasonable
basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the results of Enova Systems, Inc.'s, operations and cash
flows for the year ended  December  31,  2002,  in  conformity  with  accounting
principles generally accepted in the United States of America.


                                                              /s/ MOSS ADAMS LLP

Santa Rosa, California
February 24, 2003



                                       2
<PAGE>

                                                             ENOVA SYSTEMS, INC.
                                                                  BALANCE SHEETS
                                                                    December 31,
--------------------------------------------------------------------------------

                                     ASSETS

                                                           2004          2003
                                                        ----------    ----------

Current assets
      Cash and cash equivalents                         $1,575,000    $  530,000
      Accounts receivable                                  522,000       803,000
      Inventories and supplies                           1,036,000     1,606,000
      Note receivable - related party                         --           8,000
      Prepaid expenses and other current assets            304,000        78,000
                                                        ----------    ----------

              Total Current Assets                       3,437,000     3,025,000

Property and equipment, net                                387,000       481,000
Equity method investment                                 1,768,000       960,000
Other assets                                               296,000       404,000
                                                        ----------    ----------
Total assets                                            $5,888,000    $4,870,000
                                                        ==========    ==========

   The accompanying notes are an integral part of these financial statements.

                                       3

<PAGE>

                                                             ENOVA SYSTEMS, INC.
                                                                  BALANCE SHEETS
                                                                    December 31,
--------------------------------------------------------------------------------


               LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



                                                            2004         2003
                                                         ----------   ----------

Current liabilities
      Accounts payable                                   $   66,000   $  768,000
      Deferred revenues                                     392,000         --
      Line of credit                                        229,000      120,000
      Accrued payroll and related expense                   194,000      120,000
      Other accrued expenses                                 13,000       98,000
      Current portion of notes payable                      166,000      131,000
      Current portion of capital lease obligations            6,000       23,000
                                                         ----------   ----------

              Total current liabilities                   1,066,000    1,260,000

Accrued interest payable                                  1,378,000    1,122,000
Capital lease obligations, net of current portion              --          5,000
Notes payable, net of current portion                     3,341,000    3,347,000
                                                         ----------   ----------

              Total liabilities                          $5,785,000   $5,734,000
                                                         ----------   ----------

Commitments and contingencies


   The accompanying notes are an integral part of these financial statements.

                                       4

<PAGE>

                                                             ENOVA SYSTEMS, INC.
                                                                  BALANCE SHEETS
                                                                    December 31,
--------------------------------------------------------------------------------

         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (continued)

<TABLE>
<CAPTION>

                                                                             2004             2003
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
Stockholders' equity (deficit)
      Series A convertible preferred stock - no par value
        30,000,000 shares authorized
        2,748,000 and 2,820,000 shares issued and
        outstanding
        Liquidating preference at $0.60 per share, aggregating
        $1,648,507 and $1,692,000                                       $   1,774,000    $   1,837,000
      Series B convertible preferred stock - no par value
        5,000,000 shares authorized
        1,217,000 and 1,217,000 shares issued and outstanding
        Liquidating preference at $2 per share aggregating $2,434,000       2,434,000        2,434,000
      Common Stock, no par value
        500,000,000 shares authorized
        415,265,000 and 378,341,000 shares issued and
        outstanding                                                        90,465,000       86,054,000
      Common stock subscribed                                                 165,000           60,000
      Stock notes receivable                                               (1,176,000)      (1,203,000)
      Additional paid-in capital                                            6,900,000        7,031,000
      Accumulated deficit                                                (100,459,000)     (97,077,000)
                                                                        -------------    -------------
              Total stockholders' equity (deficit)                            103,000         (864,000)
                                                                        -------------    -------------
Total liabilities and stockholders' equity (deficit)                    $   5,888,000    $   4,870,000
                                                                        =============    =============
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                       5

<PAGE>
<TABLE>

                                                                                                                 ENOVA SYSTEMS, INC.
                                                                                                            STATEMENTS OF OPERATIONS
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                            2004                   2003                   2002
                                                                        -------------          -------------          -------------
<S>                                                                     <C>                    <C>                    <C>
Net revenues
      Research and development contracts                                $   1,070,000          $   1,889,000          $   1,843,000
      Production                                                            1,484,000              2,421,000              2,612,000
                                                                        -------------          -------------          -------------
            Total net revenues                                              2,554,000              4,310,000              4,455,000
                                                                        -------------          -------------          -------------

Cost of revenues
      Research and development contracts                                      499,000              1,326,000              1,288,000
      Production                                                            1,627,000              1,978,000              2,496,000
      Writedown Ford Think program inventory                                  113,000                   --                     --
                                                                        -------------          -------------          -------------
            Total cost of revenues                                          2,239,000              3,304,000              3,784,000
                                                                        -------------          -------------          -------------
Gross profit                                                                  315,000              1,006,000                671,000
                                                                        -------------          -------------          -------------

Other costs and expenses
      Research & development                                                  925,000                799,000              1,152,000
      Selling, general & administrative                                     2,325,000              2,919,000              2,837,000
      Interest and financing fees, net                                        255,000                234,000                199,000
      Equity in losses of equity method investee                              192,000                 40,000                   --
      Asset impairment                                                           --                  200,000                   --
      Legal settlements                                                          --                     --                   81,000
                                                                        -------------          -------------          -------------
            Total other costs and expenses                                  3,697,000              4,192,000              4,269,000
                                                                        -------------          -------------          -------------

Net loss                                                                $  (3,382,000)         $  (3,186,000)         $  (3,598,000)
                                                                        =============          =============          =============


Basic loss and diluted loss per share                                   $       (0.01)         $       (0.01)         $       (0.01)
                                                                        =============          =============          =============

Weighted-average number of
    shares outstanding                                                    397,435,175            334,839,700            326,390,422
                                                                        =============          =============          =============

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                       6

<PAGE>

<TABLE>

                                                                                                                 ENOVA SYSTEMS, INC.

                                                                                                  STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                      Convertible Preferred Stock
                                   ---------------------------------------------------------------
                                              Series A                       Series B                           Common Stock
                                   -----------------------------     -----------------------------      ----------------------------
                                       Shares           Amount           Shares           Amount          Shares            Amount
                                   ------------    -------------     ------------    -------------      -----------    -------------
<S>                                 <C>            <C>                  <C>          <C>                <C>            <C>
Balance, December 31, 2000            2,844,000    $   1,867,000        1,217,000    $   2,434,000      244,249,000    $  75,680,000
Issuance of common stock for
         Exercise of warrants                                                                            50,000,000        3,000,000
         Exercise of options                                                                              1,805,000          181,000
         Services                                                                                           448,000           98,000
         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
Conversion of Series
     A preferred stock                  (20,000)         (25,000)                                            20,000           25,000
Issuance of common
     stock for
         Cash, net of offering
              costs of $206,000                                                                          41,100,000        3,904,000
         Exercise of options                                                                                 30,000            3,000
         Services                                                                                         1,242,000          190,000
         Legal settlement                                                                                   300,000           45,000
Stock notes receivable
Net loss
                                   ------------    -------------     ------------    -------------      -----------    -------------
</TABLE>

<TABLE>
<CAPTION>

                                                         Common Stock

                                            Subscribed               Stock          Additional
                                   ----------------------------       Notes          Paid-In        Accumulated
                                      Shares          Amount       Receivable        Capital          Deficit          Total
                                   ------------   -------------   -------------    -------------   -------------    -------------
<S>                                   <C>         <C>             <C>              <C>             <C>              <C>
Balance, December 31, 2000               45,000   $      13,000   $  (1,149,000)   $   6,372,000   $ (86,865,000)   $  (1,648,000)
Issuance of common stock for
         Exercise of warrants                                                                                           3,000,000
         Exercise of options                                            (59,000)                                          122,000
         Services                       955,000         147,000                                                           245,000
         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      (1,208,000)       6,949,000     (90,293,000)        (232,000)
Conversion of Series
     A preferred stock                                                                                                        --
Issuance of common
     stock for
         Cash, net of offering
              costs of $206,000       1,000,000          100,000                                                        4,004,000
         Exercise of options                                                                                                3,000
         Services                      (628,000)        (130,000)                                                          60,000
         Legal settlement                                                                                                  45,000
Stock notes receivable                                                                     5,000                            5,000
Net loss                                                                                              (3,598,000)      (3,598,000)
                                   ------------   -------------   -------------    -------------   -------------    -------------

</TABLE>

                                                                 7

<PAGE>

<TABLE>

                                                                                                                 ENOVA SYSTEMS, INC.

                                                                                                  STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                      Convertible Preferred Stock
                                   ---------------------------------------------------------------
                                              Series A                       Series B                           Common Stock
                                   -----------------------------     -----------------------------      ----------------------------
                                       Shares           Amount           Shares           Amount          Shares            Amount
                                   ------------    -------------     ------------    -------------      -----------    -------------
<S>                                 <C>            <C>                  <C>          <C>                <C>            <C>
Balance, December 31, 2002            2,824,000    $   1,842,000        1,217,000    $   2,434,000      345,194,000    $  84,026,000
Conversion of Series
     A preferred stock                   (4,000)          (5,000)                                             4,000            5,000
Issuance of common
     stock for
         Cash                                                                                            23,077,000        1,500,000
         Issuance of subscribed
              common stock                                                                                1,000,000          100,000
         Exercise of options                                                                              8,694,000          389,000
         Stock option
         Services                                                                                           372,000           34,000
Net loss
                                   ------------    -------------     ------------    -------------      -----------    -------------

Balance, December 31, 2003            2,820,000    $   1,837,000        1,217,000    $   2,434,000      378,341,000    $  86,054,000
Conversion of Series
     A preferred stock                  (73,000)         (63,000)                                            73,000           63,000
Issuance of common stock for
         Cash                                                                                            27,585,000        3,450,000
         Issuance of subscribed
              common stock                                                                                  367,000           60,000
         Exercise of options                                                                              8,464,000          783,000
         Stock option conversions                                                                           321,000           39,000
         Services                                                                                           114,000           16,000
Net loss
                                   ------------    -------------     ------------    -------------      -----------    -------------

Balance, December 31, 2004            2,747,000    $   1,774,000        1,217,000    $   2,434,000      415,265,000    $  90,465,000
                                   ============    =============     ============    =============      ===========    =============


</TABLE>
<TABLE>
<CAPTION>

                                                         Common Stock

                                            Subscribed               Stock          Additional
                                   ----------------------------       Notes          Paid-In        Accumulated
                                      Shares          Amount       Receivable        Capital          Deficit          Total
                                   ------------   -------------   -------------    -------------   -------------    -------------
<S>                                 <C>           <C>             <C>              <C>             <C>              <C>
Balance, December 31, 2002            1,372,000   $     130,000   $  (1,203,000)   $   6,949,000   $ (93,891,000)   $     287,000
Conversion of Series
     A preferred stock                                                                                                       --
Issuance of common
     stock for
         Cash                                                                                                           1,500,000
         Issuance of subscribed
              common stock           (1,000,000)        (100,000)                                                            --
         Exercise of options                                                                                              389,000
         Stock option                                                                     82,000                           82,000
         Services                       754,000           30,000                                                           64,000
Net loss                                                                                              (3,186,000)      (3,186,000)
                                   ------------   -------------   -------------    -------------   -------------    -------------

Balance, December 31, 2003            1,126,000   $      60,000   $  (1,203,000)   $   7,031,000   $ (97,077,000)   $    (864,000)
Conversion of Series
     A preferred stock                                                                                                        --
Issuance of common stock for
         Cash                                                            27,000                                         3,477,000
         Issuance of subscribed
              common stock           (1,126,000)         (60,000)                                                             --
         Exercise of options                                                                                              783,000
         Stock option conversions                                                        (39,000)                             --
         Services                     1,196,000          165,000                         (92,000)                          89,000
Net loss                                                                                              (3,382,000)      (3,382,000)
                                   ------------   -------------   -------------    -------------   -------------    -------------

Balance, December 31, 2004            1,196,000   $     165,000   $  (1,176,000)   $   6,900,000   $(100,459,000)   $     103,000
                                   ============   =============   =============    =============   =============    =============
</TABLE>


                                                                 8
<PAGE>
<TABLE>
                                                                                                                 ENOVA SYSTEMS, INC.
                                                                                                            STATEMENTS OF CASH FLOWS
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                                  2004                 2003                 2002
                                                                              -----------          -----------          -----------
<S>                                                                           <C>                  <C>                  <C>
Cash flows from operating activities
    Net loss                                                                  $(3,382,000)         $(3,186,000)         $(3,598,000)
    Adjustments to reconcile net loss
     to net cash used by operating activities
     Depreciation and amortization                                                377,000              351,000              134,000
     Provision for asset impairment                                                  --                200,000                 --
     Equity in losses                                                             192,000               40,000                 --
     Issuance of common stock for services                                         89,000               34,000               60,000
     Issuance of common stock for
       legal settlement                                                              --                   --                 45,000
     (Increase) decrease in
         Accounts receivable                                                      281,000              457,000              (19,000)
         Inventory  and supplies                                                  570,000               48,000             (727,000)
         Note receivable - related party                                            8,000               24,000               25,000
         Prepaid expenses and other current assets                               (226,000)              29,000              (20,000)
         Other assets                                                                --                (14,000)              76,000
     Increase (decrease) in
         Accounts payable                                                        (702,000)            (424,000)           1,025,000
         Accrued expenses                                                         (11,000)            (112,000)              87,000
         Deferred revenues                                                        392,000                 --                   --
         Accrued interest payable                                                 256,000              234,000              212,000
                                                                              -----------          -----------          -----------
Net cash used by operating activities                                          (2,156,000)          (2,319,000)          (2,700,000)
                                                                              -----------          -----------          -----------

Cash flows from investing activities
    Purchases of property and equipment                                       $  (175,000)         $  (113,000)         $  (613,000)
                                                                              -----------          -----------          -----------
Net cash used in investing activities                                            (175,000)            (113,000)            (613,000)
                                                                              -----------          -----------          -----------

Cash flows from financing activities
       Net increase from line of credit                                       $   109,000          $   106,000          $    14,000
       Payment on notes payable and
             capital lease obligations                                            (33,000)              (1,000)             (24,000)
       Proceeds from notes payable                                                 40,000                 --                   --
       Proceeds from sales of common stock                                      2,450,000              600,000            4,210,000
       Offering costs                                                                --                   --               (206,000)
       Proceeds from exercise of stock options                                    783,000              389,000                3,000
       Payments on stock notes receivable                                          27,000                 --                  5,000
                                                                              -----------          -----------          -----------
Net cash provided by financing activities                                       3,376,000            1,094,000            4,002,000
                                                                              -----------          -----------          -----------

Net increase (decrease) in cash and                                             1,045,000           (1,338,000)             689,000
       cash equivalents

Cash and cash equivalents,
       beginning of year                                                          530,000            1,868,000            1,179,000
                                                                              -----------          -----------          -----------

Cash and cash equivalents,
       end of year                                                            $ 1,575,000          $   530,000          $ 1,868,000
                                                                              ===========          ===========          ===========

</TABLE>
                                                                 9
<PAGE>

<TABLE>
                                                                                                                 ENOVA SYSTEMS, INC.
                                                                                                            STATEMENTS OF CASH FLOWS
                                                                                                    For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                  2004                 2003                 2002
                                                                              -----------          -----------          -----------
<S>                                                                           <C>                  <C>                  <C>

Supplemental disclosure of cash
flow information

       Interest paid                                                          $    10,000          $     9,000          $     8,000
                                                                              ===========          ===========          ===========

       Income taxes paid                                                      $      --            $      --            $      --
                                                                              ===========          ===========          ===========

Supplemental schedule of non- cash
investing and financing activities

       Equipment acquired under capital lease agreements                      $      --            $      --            $    52,000
                                                                              ===========          ===========          ===========

       Conversion of preferred stock to common stock                          $    63,000          $    (5,000)         $    25,000
                                                                              ===========          ===========          ===========

       Acquired investment under common stock purchase                        $ 1,000,000          $ 1,000,000          $      --
                                                                              ===========          ===========          ===========

       Offering costs on common stock purchases                               $    92,500          $      --            $      --
                                                                              ===========          ===========          ===========

       Common stock issued for purchase of options                            $    39,000          $      --            $      --
                                                                              ===========          ===========          ===========

<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                        10

<PAGE>

                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

         General
         -------
         Enova Systems,  Inc. (the "Company") 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  Company  develops  and  sells
         components  in the United  States  and Asia,  and sells  components  in
         Europe.

         Liquidity
         ---------
         At  December  31,  2004,  the  Company  had a net  working  capital  of
         approximately  $2,365,000  as compared to  $1,765,000  at December  31,
         2003,  representing  an  increase  of  $600,000.  This  increase is due
         primarily  to  capital  raised  during the year  offset by losses  from
         operations.  Operating  and  investing  activities  used  approximately
         $2,157,000  and  $175,000,  respectively,  while  financing  activities
         provided  $3,377,000.  During the year ended  December  31,  2004,  the
         Company increased its headcount minimally to control expenses and still
         maintain  its  competitive  edge  in  power  management  systems.   The
         Company's  business  plan  for 2005  provides  for  raising  additional
         capital in order to continue  with the  Company's  operations  until it
         becomes profitable.  The Company will also continue to search for areas
         in which to further reduce expenses and increase sales.

         Stock Purchase Agreement
         ------------------------

         The Company has entered into a joint venture  agreement (the Agreement)
         with  Hyundai  Heavy  Industries  of Korea  ("HHI")  to  create a joint
         venture corporation,  Hyundai-Enova  Innovative  Technology Center (the
         "ITC") to be domiciled in Torrance,  California.  In  conjunction  with
         this  Agreement,  HHI and the  Company  entered  into a stock  purchase
         agreement  in which HHI agreed to make a $3 million  investment  in the
         Company through the purchase of shares of the Company's  authorized and
         unissued common stock pursuant to Regulation D of the Securities Act of
         1933.  This  investment  was made in two  installments  of $1.5 million
         each. The first installment was made in June 2003 upon incorporation of
         the ITC and in consideration  for the issuance to HHI by the Company of
         23,076,923 shares of common stock at $0.065 per share.

         The second  installment was made in September 2004 in consideration for
         the issuance to HHI by the Company of 11,335,315 shares of common stock
         at $0.1323 per share.

         The  Company  invested $1 million of each  installment  into the ITC in
         consideration  for the issuance to the Company of a 40% equity interest
         in the ITC (the balance of the installments,  in the amount of $500,000
         each, is to be retained by Enova).  HHI acquired a 60% equity  interest
         in ITC by investing $3 million in the ITC in two  installments  of $1.5
         million each, to be made concurrently with the two installment payments
         to be paid by HHI for the Company's  common stock.  HHI and the Company
         have invested an aggregate of $5 million in the ITC.



                                       11
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Management's Plans Related to Liquidity and Capital Needs
         ---------------------------------------------------------
         The Company has incurred significant losses from operations. During the
         year  ended  December  31,  2004,  the  Company  incurred a net loss of
         $3,382,000,   and  it  had  negative  cash  flows  from  operations  of
         $2,156,000. At December 31, 2004 the Company had an accumulated deficit
         of  $100,460,000.  Such losses have resulted  principally from research
         and  development  costs,  sales and  marketing  costs and  general  and
         administrative  costs  associated with the development of the Company's
         technologies and products and expanding its level of operations.

         The  Company is subject to all of the many risks  inherent in growing a
         new  enterprise,  and  the  development  and  commercialization  of new
         products,  including changing technologies,  competition from companies
         offering  the same or  similar  products,  managing  growth and lack of
         financial  resources.  As with any growing enterprise,  there can be no
         assurance  that the Company  will achieve or sustain  profitability  or
         positive cash flow from operations.

         The  accompanying  financial  statements  have been prepared on a going
         concern  basis  which   contemplates  the  realization  of  assets  and
         satisfaction of liabilities in the normal course of business.  Over the
         next few years the Company  expects to incur losses from  operations as
         it  continues  to  develop  future  products  and  market  its  current
         products.  The Company will need to raise  additional  capital  through
         debt or equity  financings or collaborative  arrangements with industry
         partners to continue its business operations.

         The  Company's  ability to continue as a going  concern is dependent on
         its success at  obtaining  additional  capital  sufficient  to meet its
         obligations on a timely basis, and to ultimately attain  profitability.
         Management  is  actively  engaged in seeking to raise  capital  through
         product licensing,  co-promotional  arrangements,  or public or private
         equity financing.  The Company believes it has demonstrated the ability
         to raise the necessary  funds for the Company's  growth and development
         activities.  However, there is no assurance that the Company will raise
         capital  sufficient  to enable the Company to continue  its  operations
         through the end of the fiscal year.

         In the event the Company is unable to  successfully  obtain  additional
         capital,  it is unlikely  that the Company  will have  sufficient  cash
         flows and  liquidity  to finance its business  operations  as currently
         contemplated.  Accordingly,  in the  event  additional  capital  is not
         obtained,  the Company will likely further  downsize the  organization,
         defer marketing  programs,  reduce general and administrative  expenses
         and delay or reduce  the scope of  research  and  development  projects
         until it is able to obtain sufficient financing to do so.

         These  factors  could  significantly  limit the  Company's  ability  to
         continue  as a going  concern.  The  balance  sheets do not include any
         adjustments  relating to recoverability  and classification of recorded
         asset  amounts or the amounts of  classification  of  liabilities  that
         might be  necessary  should  the  Company  be  unable  to  continue  in
         existence.


                                       12
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Contract Services Revenue and Cost Recognition
         ----------------------------------------------

         The Company manufactures  proprietary products and other products based
         on design specifications provided by its customers.  Revenue from sales
         of products are generally recognized at the time title to the goods and
         the  benefits and risks of  ownership  passes to the customer  which is
         typically  when products are shipped based on the terms of the customer
         purchase agreement.

         Revenue relating to long-term fixed price contracts is recognized using
         the percentage of completion method. Under the percentage of completion
         method, contract revenues and related costs are recognized based on the
         percentage that costs incurred to date bear to total estimated costs.

         Changes in job performance,  estimated profitability and final contract
         settlements  may  result  in  revisions  to cost and  revenue,  and are
         recognized in the period in which the revisions are determined.

         Contract  costs  include all direct  materials,  subcontract  and labor
         costs and other indirect costs.  General and  administrative  costs are
         charged  to  expense  as  incurred.  At the  time a loss on a  contract
         becomes known, the entire amount of the estimated loss is accrued.

         The aggregate of costs  incurred and estimated  earnings  recognized on
         uncompleted  contracts  in excess  of  related  billings  is shown as a
         current asset, and billings on uncompleted contracts in excess of costs
         incurred and estimated earnings is shown as a current liability.

         Comprehensive Income
         --------------------

         The  Company  utilizes  Statement  of  Financial  Accounting  Standards
         ("SFAS") No. 130,  "Reporting  Comprehensive  Income."  This  statement
         establishes  standards  for  reporting  comprehensive  income  and  its
         components in a financial  statement.  Comprehensive  income as defined
         includes  all  changes  in equity  (net  assets)  during a period  from
         non-owner  sources.  Examples of items to be included in  comprehensive
         income,  which are excluded from net income,  include foreign  currency
         translation  adjustments,  minimum pension liability  adjustments,  and
         unrealized   gains  and   losses  on   available-for-sale   securities.
         Comprehensive  income  is  not  presented  in the  Company's  financial
         statements  since the  Company  did not have any changes in equity from
         non-owner sources.

         Cash and Cash Equivalents
         -------------------------

         Highly liquid  investments with an original maturity of three months or
         less are considered cash equivalents.

                                       13
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Accounts Receivable
         -------------------
         Receivables  are reported at net  realizable  value and are  considered
         past due when  payments have not been received for 90 days. In general,
         receivables  are  charged  off as  uncollectible  upon  exhausting  all
         avenues of collection.  Receivables older than 90 days totaled $165,000
         (without  reserve) and $678,000  (of which  $595,000 had been  reserved
         for) at December 31, 2004 and 2003, respectively.  The Company believes
         the  $165,000  will  be  collected  in its  entirety  in  2005  pending
         resolution of various customer requests.

         Allowance for Doubtful Accounts
         -------------------------------

         The Company  maintains  allowances for doubtful  accounts for estimated
         losses  resulting  from the inability of its customers to make required
         payments.  A  considerable  amount of judgment is required in assessing
         the ultimate  realization of accounts receivable  including the current
         credit-worthiness  of each customer.  If the financial condition of the
         Company's customers were to deteriorate,  resulting in an impairment of
         their ability to make payments,  additional allowances may be required.
         As of December  31, 2004,  the Company did not maintain any  allowances
         for doubtful  accounts as all prior  uncollectible  balances  have been
         charged to bad debt expense.

         Inventories and Supplies
         ------------------------
         Inventories  and supplies are comprised of materials used in the design
         and  development  of  electric,  hybrid  electric,  and fuel cell drive
         systems,  and other power and ongoing management and control components
         for production and ongoing development contracts,  and is stated at the
         lower of cost (first-in, first-out) or market. During 2004, the Company
         charged off $107,000 of inventory  related to a prior project with Ford
         Th!nk program which was terminated in 2003.  Additionally,  the Company
         charged-off   approximately   $167,000  for  obsolete  or   slow-moving
         inventory  for a total of $274,000  during the year ended  December 31,
         2004.

         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  commits to
         sell or abandon are  reported  at the lower of carrying  amount or fair
         value less cost to sell.

         Equity Method Investment
         ------------------------
         Investment in joint venture (see Note 1) is accounted for by the equity
         method.


                                       14
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Fair Value of Financial Instruments
         -----------------------------------

         The carrying amount of financial  instruments,  including cash and cash
         equivalents,   accounts   receivable,   accounts  payable  and  accrued
         expenses,  approximate  fair value due to the short  maturity  of these
         instruments.  The carrying value of all other financial  instruments is
         representative of their fair values.  The Company's short 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
         ------------------------

         SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  establishes
         and encourages the use of the fair value based method of accounting for
         stock-based compensation  arrangements under which compensation cost is
         determined using the fair value of stock-based  compensation determined
         as of the date of grant and is recognized over the periods in which the
         related services are rendered.  The statement also permits companies to
         elect to continue using the current  implicit value  accounting  method
         specified  in  Accounting  Principles  Board  ("APB")  Opinion  No. 25,
         "Accounting  for Stock Issued to Employees," to account for stock-based
         compensation. Summary of Statement

         SFAS No. 148 "Accounting for Stock-Based  Compensation--Transition  and
         Disclosure"  amends  SFAS No.  123 to  provide  alternative  methods of
         transition  for a voluntary  change to the fair value  based  method of
         accounting for stock-based  employee  compensation.  In addition,  this
         Statement  amends  the  disclosure  requirements  of  Statement  123 to
         require  prominent  disclosures  in both annual and  interim  financial
         statements  about the method of  accounting  for  stock-based  employee
         compensation and the effect of the method used on reported results.

         The Company has elected to use the intrinsic value based method and has
         disclosed  the pro forma effect of using the fair value based method to
         account for its stock-based compensation.  The Company has adopted only
         the  disclosure  provisions of SFAS No. 123. It applies APB Opinion No.
         25 and related interpretations in accounting for its plans and does not
         recognize  compensation expense for its stock-based  compensation plans
         other than for  restricted  stock and options  issued to outside  third
         parties.

         For  purposes of adjusted pro forma  disclosures,  the  estimated  fair
         value of the options is amortized to expense over the vesting period.


                                       15
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Stock-Based Compensation (continued)
         ------------------------------------

         If the Company had elected to recognize compensation expense based upon
         the fair value at the grant date for awards under this plan  consistent
         with the methodology prescribed by SFAS No. 123, the Company's net loss
         and loss per share would be reduced to the pro forma amounts  indicated
         below for the years ended December 31, 2004, 2003, and 2002:

<TABLE>
<CAPTION>
                                                      2004           2003             2002
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
         Loss applicable to common stockholders    $(3,382,000)   $(3,186,000)   $(3,598,000)

         Stock-based employee compensation
             expense determined under fair value
             presentation for all options              (76,000)      (315,000)      (197,000)

         Pro forma net loss                        $(3,458,000)   $(3,501,000)   $(3,795,000)

         Basic and diluted loss per
                common share
                    As reported                    $     (0.01)   $     (0.01)   $     (0.01)
                  Pro forma                        $     (0.01)   $     (0.01)   $     (0.01)
</TABLE>

         For purposes of computing  the pro forma  disclosures  required by SFAS
         No.  123,  the fair  value of each  option  granted  to  employees  and
         directors is estimated  using the  Black-Scholes  option-pricing  model
         with the  following  weighted-average  assumptions  for the years ended
         December 31, 2004,  2003, and 2002:  dividend yields of 0%, 0%, and 0%,
         respectively;  expected volatility of 73%, 88%, and 83%,  respectively;
         risk-free interest rates of 4%, 4%, and 4%, respectively;  and expected
         lives of one, three, and five years, respectively. The weighted-average
         fair value of options  granted  during the year ended December 31, 2004
         for which the exercise  price equals the market price on the grant date
         was $0, and the weighted-average exercise price was $0.115.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating the fair value of traded options,  which do not have vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly  subjective  assumptions,  including
         the expected  stock price  volatility.  Because the Company's  employee
         stock options have characteristics  significantly  different from those
         of  traded  options,  and  because  changes  in  the  subjective  input
         assumptions  can  materially   affect  the  fair  value  estimate,   in
         management's  opinion, the existing models do not necessarily provide a
         reliable  single  measure  of the  fair  value  of its  employee  stock
         options.

         Advertising Expense
         -------------------
         The Company expenses all advertising  costs,  including direct response
         advertising,  as they are incurred.  Advertising  expense for the years
         ended  December 31, 2004,  2003,  and 2002 was  $12,000,  $21,000,  and
         $20,000, respectively.

                                       16
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Research and Development
         ------------------------

         Costs of researching  and  developing  new technology or  significantly
         altering existing technology is expensed as incurred.

         Income Taxes
         ------------
         The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
         requires the recognition of deferred tax assets and liabilities for the
         expected  future tax  consequences of events that have been included in
         the financial  statements or tax returns.  Under this method,  deferred
         income taxes are recognized for the tax consequences in future years of
         differences  between the tax bases of assets and  liabilities and their
         financial  reporting amounts at each year-end based on enacted tax laws
         and  statutory  tax  rates  applicable  to the  periods  in  which  the
         differences are expected to affect taxable income. Valuation allowances
         are established,  when necessary,  to reduce deferred tax assets to the
         amount expected to be realized.

         Loss Per Share
         --------------
         The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
         share is computed by dividing loss available to common  stockholders by
         the weighted-average number of common shares outstanding.  Diluted loss
         per share is computed  similar to basic loss per share  except that the
         denominator  is  increased to include the number of  additional  common
         shares that would have been  outstanding if the potential common shares
         had been issued and if the  additional  common  shares  were  dilutive.
         Common  equivalent  shares are excluded from the  computation  if their
         effect is anti-dilutive. The Company's common share equivalents consist
         of stock options.

         Estimates
         ---------
         The  preparation of financial  statements  requires  management to make
         estimates and  assumptions  that affect the reported  amounts of assets
         and liabilities and disclosure of contingent  assets and liabilities at
         the  date of the  financial  statements  and the  reported  amounts  of
         revenue and expenses during the reporting period.  Actual results could
         differ from those estimates.

         Concentrations of Credit Risk
         -----------------------------
         Financial   instruments  which  potentially   subject  the  Company  to
         concentrations  of credit risk consist of cash and cash equivalents and
         accounts  receivable.  The Company places its cash and cash equivalents
         with high credit, quality financial  institutions.  At times, such cash
         and cash equivalents may be in excess of the Federal Deposit  Insurance
         Corporation   insurance   limit  of  $100,000.   The  Company  has  not
         experienced  any losses in such accounts and believes it is not exposed
         to any  significant  credit  risk on cash  and cash  equivalents.  With
         respect to accounts  receivable,  the Company  routinely  assesses  the
         financial  strength of its customers  and, as a  consequence,  believes
         that the receivable credit risk exposure is limited.


                                       17
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Major Customers
         ---------------

         During the year ended December 31, 2004, the Company conducted business
         with five customers  whose sales  comprised 16%, 13%, 10%, 9% and 8% of
         total revenues.  As of December 31, 2004, these customers accounted for
         0%, 9%, 33%, 0% and 13%, respectively, of total accounts receivable.

         In addition,  one of the Company's  stockholders accounted for 10%, 1%,
         and 16% of total  revenues  during the years ended  December  31, 2004,
         2003, and 2002,  respectively.  This stockholder  holds less than 5% of
         the total issued and  outstanding  common  stock.  Demand  deposits are
         placed with known, creditable financial institutions.

         Recently Issued Pronouncements
         ------------------------------

         In November 2004, the FASB issued SFAS No. 151,"Inventory  Costs". SFAS
         No. 151 amends the  accounting  for abnormal  amounts of idle  facility
         expense,  freight, handling costs, and wasted material (spoilage) under
         the guidance in ARB No. 43, Chapter 4, "Inventory Pricing". Paragraph 5
         of ARB No. 43,  Chapter  4,  previously  stated  that ". . . under some
         circumstances, items such as idle facility expense, excessive spoilage,
         double freight,  and rehandling  costs may be so abnormal as to require
         treatment as current period  charges.  . . ." This  statement  requires
         that those items be recognized as current-period  charges regardless of
         whether they meet the  criterion of "so  abnormal."  In addition,  this
         statement requires that allocation of fixed production overheads to the
         costs of conversion be based on the normal  capacity of the  production
         facilities.  This  statement is effective for inventory  costs incurred
         during fiscal years beginning after June 15, 2005.  Management does not
         expect adoption of SFAS No. 151 to have a material  impact,  if any, on
         the Company's financial position or results of operations.

         In December  2004, the FASB issued SFAS No. 152,  "Accounting  for Real
         Estate Time-Sharing Transactions".  The FASB issued this statement as a
         result of the guidance  provided in AICPA  Statement of Position  (SOP)
         04-2, "Accounting for Real Estate Time-Sharing Transactions".  SOP 04-2
         applies  to all real  estate  time-sharing  transactions.  Among  other
         items, the SOP provides  guidance on the recording of credit losses and
         the  treatment  of  selling  costs,  but does not  change  the  revenue
         recognition  guidance  in SFAS No.  66,  "Accounting  for Sales of Real
         Estate", for real estate time-sharing transactions. SFAS No. 152 amends
         Statement No. 66 to reference the guidance  provided in SOP 04-2.  SFAS
         No. 152 also  amends  SFAS No. 67,  "Accounting  for Costs and  Initial
         Rental  Operations  of Real  Estate  Projects",  to state that SOP 04-2
         provides the relevant guidance on accounting for incidental  operations
         and costs related to the sale of real estate time-sharing transactions.
         SFAS No. 152 is effective for years beginning after June 15, 2005, with
         restatements  of previously  issued  financial  statements  prohibited.
         Management  does not expect adoption of SFAS No. 152 to have a material
         impact,  if any,  on the  Company's  financial  position  or results of
         operations.


                                       18
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Recently Issued Pronouncements (continued)
         ------------------------------------------

         In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges  of
         Nonmonetary  Assets," an amendment to Opinion No. 29,  "Accounting  for
         Nonmonetary Transactions".  SFAS No. 153 eliminates certain differences
         in the guidance in Opinion No. 29 as compared to the guidance contained
         in standards issued by the  International  Accounting  Standards Board.
         The amendment to Opinion No. 29 eliminates the fair value exception for
         nonmonetary exchanges of similar productive assets and replaces it with
         a general  exception  for exchanges of  nonmonetary  assets that do not
         have commercial substance. Such an exchange has commercial substance if
         the  future   cash  flows  of  the  entity  are   expected   to  change
         significantly  as a result of the  exchange.  SFAS No. 153 is effective
         for nonmonetary  asset exchanges  occurring in periods  beginning after
         June 15, 2005.  Earlier  application is permitted for nonmonetary asset
         exchanges  occurring  in periods  beginning  after  December  16, 2004.
         Management  does not expect adoption of SFAS No. 153 to have a material
         impact,  if any,  on the  Company's  financial  position  or results of
         operations.

         In  December  2004,  the  FASB  issued  SFAS No.  123(R),  "Share-Based
         Payment".  SFAS 123(R) amends SFAS No. 123, "Accounting for Stock-Based
         Compensation",  and APB Opinion No. 25, "Accounting for Stock Issued to
         Employees".  SFAS  No.123(R)  requires  that  the  cost of  share-based
         payment transactions (including those with employees and non-employees)
         be recognized in the financial  statements.  SFAS No. 123(R) applies to
         all share-based payment  transactions in which an entity acquires goods
         or  services  by  issuing  (or  offering  to issue) its  shares,  share
         options, or other equity instruments (except for those held by an ESOP)
         or by incurring  liabilities (1) in amounts based (even in part) on the
         price of the company's shares or other equity instruments,  or (2) that
         require  (or may  require)  settlement  by the  issuance of a company's
         shares or other equity instruments. This statement is effective (1) for
         public companies  qualifying as SEC small business  issuers,  as of the
         first interim period or fiscal year beginning  after December 15, 2005,
         or (2) for all other public  companies,  as of the first interim period
         or fiscal year beginning  after June 15, 2005, or (3) for all nonpublic
         entities,  as of the first  fiscal year  beginning  after  December 15,
         2005. Management is currently assessing the impact of this statement on
         its financial position and results of operations.

         Fourth Quarter Adjustments
         --------------------------
         During the fourth quarter of fiscal 2004, the Company:

         o    wrote-down  inventory  by a  net  of  $275,000  for  obsolete  and
              slow-moving  inventory.  The  Company  charged  off  approximately
              $113,000 of this reduction for inventory relating to raw materials
              for the  Ballard/Ford  Th!nk city program which was  terminated in
              2003.  This was  inventory  specific  to that  program  which  the
              Company believed may be useable in other  components,  or would be
              purchased  by  third  parties,  but was  not due to the  Company's
              increased focus on the heavy-duty hybrid markets. The Company also
              charged  off an  additional  $162,000  in  obsolete or slow moving
              inventory  during  2004.  This  resulted in an increase of cost of
              sales by $275,000 for the year.

                                       19
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Fourth Quarter Adjustments (continued)
         --------------------------------------

         o    allocated  certain  expenses  to cost of  sales,  which  had  been
              charged  to  general  and  administrative  expense,  based  on the
              Company's   improved  method  of  apportioning  such  costs.  This
              resulted in an increase in cost of sales of approximately $147,000
              in  the  fourth  quarter,   a  portion  of  which  may  have  been
              attributable  to prior  quarters in 2004 but none that the Company
              believes would have a material impact on the presentation of those
              quarters.

              The above two  adjustments (i) increased cost of sales by $422,000
         in the fourth  quarter,  (ii) reduced  gross profit by $422,000,  (iii)
         increased loss from operations by $275,000 and (iv) reduced net loss by
         $275,000.

NOTE 3 - PROPERTY AND EQUIPMENT

         Property and  equipment at December 31, 2004 and 2003  consisted of the
following:
<TABLE>
<CAPTION>

                                                              2004         2003
                                                           ----------   ----------
<S>                                                        <C>          <C>
          Computers                                        $  229,000   $  213,000
          Machinery and equipment                             709,000      715,000
          Furniture and office equipment                      192,000      192,000
          Demonstration vehicles and buses                    461,000      297,000
          Equipment under capital lease obligations            94,000       94,000
          Leasehold improvements                               68,000       68,000
                                                           ----------   ----------
                                                            1,754,000    1,579,000
          Less accumulated depreciation and amortization    1,367,000    1,098,000
                                                           ----------   ----------

              Total                                        $  387,000   $  481,000
                                                           ==========   ==========
</TABLE>

        Depreciation  and  amortization  expense was  $377,000,  $351,000,  and
        $134,000  for the  years  ended  December  31,  2004,  2003,  and 2002,
        respectively.


                                       20
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 4 - EQUITY METHOD INVESTMENT

         During  the  year  ended  December  31,  2004,  the  Company   invested
         $1,000,000  of the proceeds  received  from sale of common stock to HHI
         into a  joint  venture  formed  with  HHI in 2003  (see  Note  1).  The
         Company's share of income and losses is 40% as stated in the agreement.
         During the year ended December 31, 2004, the Company recorded  $192,000
         as its proportionate share of losses in the joint venture.

         The  following  is the  condensed  financial  position  and  results of
         operations of ITC, as of and for the year ended December 31, 2004:

                  Financial position
                      Current assets                           $      4,406,000
                      Property and equipment, net                        15,000
                      Liabilities                                        (3,000)
                                                               ----------------

                           Equity                              $      4,418,000
                                                               ================

                  Operations
                      Net revenues                             $        -
                      Expenses                                         (481,000)
                                                               ----------------

                           Net loss                            $       (481,000)
                                                               ================

                  Companies proportionate share of net loss    $       (192,000)
                                                               ================

NOTE 5 - OTHER ASSETS

         During the year ended  December 31, 2002,  the Company  incurred  legal
         costs of $78,000  associated with two patents.  These patents have been
         capitalized and are being amortized over their estimated useful lives.

         In June 2001,  a  strategic  relationship  with Ford Motor  Company was
         entered  into 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 a
         five-year  agreement.  The  issuance of the  warrants was recorded as a
         non-current  asset (Value  Participation  Agreement) at its fair market
         value of $577,000,  which was determined using the Black-Scholes option
         pricing model, and is being amortized on a straight-line basis over the
         life of the contract.
                                                              2004       2003
                                                            --------   --------

                  Patents                                   $ 92,000   $ 92,000
                  Valuation Participation Agreement          577,000    577,000
                                                            --------   --------

                                                             669,000    669,000
                  Less accumulated amortization              373,000    265,000
                                                            --------   --------

                      Total                                 $296,000   $404,000
                                                            ========   ========


                                       21
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 6 - LINE OF CREDIT

         The Company has available $250,000 revolving line of credit from a bank
         with interest  payable monthly at 3.25%.  The line of credit is secured
         by $250,000  Certificate  of Deposit and its maturity has been extended
         until April 2005.

NOTE 7- DEFERRED REVENUES - Tomoe LTA Long-Term Contract

         The Company has entered into a development and production contract with
         Tomoe Electro-Mechanical Engineering and Manufacturing,  Inc. for eight
         battery-electric locomotives for the Singapore Land Transport Authority
         for service  vehicles for the Singapore  Mass Rapid Transit Circle Line
         system for  maintenance,  repair,  shunting  and  recovery of passenger
         trains.  The contract  commenced in August 2004 and  completion  of the
         contract  will  take  approximately  15-18  months  and  is  valued  at
         approximately  $3,100,000.  The Company is recording  revenues for this
         long-term,    fixed    price    contract    on   the   basis   of   the
         percentage-of-completion   method.   The  contract   contains   several
         deliverables  over its life and therefore the Company will divide these
         deliverables  into separate units of accounting  based on relative fair
         values.  Revenue  recognition  criteria will be assessed separately for
         each separate unit of accounting.  As of December 31, 2004, the Company
         recorded revenues of $68,000 related to the development portion of this
         contract.



                                       22
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------
NOTE 8- NOTES PAYABLE

         Notes payable at December 31, consisted of the following:
<TABLE>
<CAPTION>
                                                                                              2004               2003
                                                                                        ---------------    ----------------
<S>                                                                                     <C>                <C>
                Secured  note  payable  to  Credit   Managers   Association   of
                   California,  bearing interest at 6% per annum during 2003 and
                   at prime  plus 3% per  annum in 2004  and  through  maturity.
                   Principal  and unpaid  interest  due in April 2016. A sinking
                   fund  escrow  is  required  to be  funded  with 10% of future
                   equity financing, as defined in the agreement.                       $     3,332,000    $      3,332,000

                Unsecured note payable, bearing interest at 10%
                   per annum.  This note payable is in default.                                 120,000             120,000

                Secured note payable to a Coca Cola Enterprises
                   in the original amount of $40,000, bearing
                   interest at 5% per annum.  Principal and
                   unpaid interest due in July 2005.                                             40,000                   -

                Secured note payable to a financial  institution in the original
                   amount of $33,000,  bearing interest at 8% per annum, payable
                   in 36 equal monthly installments.                                             15,000              26,000
                                                                                        ---------------    ----------------

                                                                                              3,507,000           3,478,000
                Less current portion                                                            166,000             131,000
                                                                                        ---------------    ----------------

                         Long-term portion                                              $     3,341,000    $      3,347,000
                                                                                        ===============    ================
</TABLE>

         Future minimum principal payments of notes payable at December 31, 2004
         consisted of the following:

                   Year Ending
                  December 31,

                        2005                        $  166,000
                        2006                             9,000
                        2007                                 -
                        2008                                 -
                        2009                                 -
                        Thereafter                   3,332,000
                                                    ----------

                           Total                    $3,507,000
                                                    ==========

                                       23
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 9- COMMITMENTS AND CONTINGENCIES

         Leases
         ------
         The Company leases its facilities  under an operating lease  agreement,
         which  requires  monthly  payments  of $13,250  and expires in February
         2008. At March 2005, the monthly  payments will increase to $13,700 per
         the  terms of the lease  agreement.  In  addition,  the  Company  rents
         manufacturing   and  office   equipment  under  various  capital  lease
         agreements.

         Future minimum lease payments under these non-cancelable  operating and
         capital lease obligations at December 31, 2004 were as follows:

                Year Ending                           Operating        Capital
               December 31,                             Leases          Leases
               ------------                           ---------       --------

                   2005                                $ 164,000       $  6,000
                   2006                                  155,000            --
                   2007                                  166,000            --
                   2008                                   28,000            --
                                                       ---------       --------
                                                       $ 513,000          6,000
                                                       =========
               Less amount representing interest                             --
                                                                       --------

               Less current portion                                       6,000
                                                                       --------

                   Long-term portion                                   $     --
                                                                       ========

         Rent expense was $140,000,  $150,000,  and $206,000 for the years ended
         December 31, 2004, 2003, and 2002, respectively.

NOTE 10 - STOCKHOLDERS' EQUITY

         Common Stock
         ------------

         During the year ended December 31, 2004, the Company issued  27,585,000
         shares of common stock for cash totaling $3,450,000.  In addition,  the
         Company   issued  481,000  shares  of  common  stock  to  directors  as
         compensation totaling $47,000.

         Common Stock Subscribed
         -----------------------

         At December 31,  2004,  the Company was  committed  to issue  1,196,000
         shares  of  common  stock  totaling  $165,000  as  compensation  and as
         finder's fees to its directors.

         In the prior  year,  the  Company  incorrectly  reported  the number of
         subscribed  common stock.  The actual shares  subscribed as of December
         31, 2003 totaling 367,000 shares differed from the previously  reported
         number of shares by 760,000  shares,  totaling  $29,000.  The effect of
         this error was not material to the reported  results.  This  difference
         has been corrected in the current year's financial statements.

                                       24
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

         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.


                                       25
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 10 - STOCKHOLDERS' EQUITY (Continued)

         Stock Options and Warrants
         --------------------------

         During the year ended December 31, 2004,  the Company issued  8,464,000
         shares  of  common  stock  from the  exercise  of  options  by  certain
         employees in exchange for cash totaling $783,000.

         During 2004, the  stockholders  of the Company  approved an increase of
         20,000,000  shares for the 1996 Stock  Option  Plan for  incentive  and
         non-statutory  stock  options  during  the  period of the  Plan,  which
         expires in 2006.  The Plan now  reserves  65,000,000  shares  under the
         plan.  Options  under the 1996 Plan  expire over a period not to exceed
         ten years. The following summarizes common stock option activity:

<TABLE>
<CAPTION>
                                           1996 Plan                           1993 Plan                        Other
                                  ----------------------------       -----------------------------      ----------------------------
                                                     Weighted-                           Weighted-                        Weighted-
                                                      Average                            Average                            Average
                                                      Exercise                           Exercise                          Exercise
                                    Shares             Price           Shares             Price           Shares              Price
                                  ----------          --------       ----------          --------       ----------          --------
<S>                               <C>                 <C>            <C>                 <C>            <C>                 <C>
Outstanding,
  December 31, 2001               20,866,000          $   0.10        9,654,000          $   0.52        1,495,000          $   1.70

Granted                              900,000          $   0.10             --            $   --               --            $   --
Exercised                               --            $   --            (35,000)         $   0.10             --            $   --
Forfeited                           (439,000)         $   0.10       (2,565,000)         $   0.52             --            $   --
                                  ----------                         ----------                         ----------

Outstanding,
  December 31, 2002               21,327,000          $   0.11        7,054,000          $   0.52        1,495,000          $   1.70

Granted                            9,998,000          $   0.05             --            $   --                  --         $   --
Exercised                         (8,638,000)         $   0.05             --            $   --                  --         $   --
Forfeited                         (1,556,000)         $   0.11       (7,054,000)         $   0.52       (1,495,000)         $   1.70
                                  ----------                         ----------                         ----------

Outstanding,
  December 31, 2003               21,131,000          $   0.12             --            $   --              --             $   --

Granted                            2,000,000          $   0.12             --            $   --              --             $   --
Exercised                        (10,981,000)         $   0.10             --            $   --              --             $   --
Forfeited                         (4,795,000)         $   0.12             --            $   --              --             $   --
                                  ----------                         ----------                         ----------

Outstanding ,
  December 31, 2004                7,355,000          $   0.12             --            $   --              --             $   --
                                  ==========                         ==========                         ==========

Exercisable,
  December 31, 2004                6,418,000          $   0.12             --            $   --              --             $   --
                                  ==========                         ==========                         ==========
</TABLE>

         The  weighted-average   remaining   contractual  life  of  the  options
         outstanding at December 31, 2004 was 1.2 years. The exercise  prices of
         the  options  outstanding  at  December  31,  2004 ranged from $0.11 to
         $0.30.  Options exercisable were 6,418,000,  20,898,000,  28,304,228 at
         December 31, 2004, 2003 and 2002.


                                       26
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 10 - STOCKHOLDERS' EQUITY (Continued)

         Stock Options and Warrants (Continued)
         --------------------------

         The  agreement  with Ford Motor  Company (see Note 5) included  issuing
         warrants to Ford to purchase 4.6% of the fully diluted  common stock of
         the Company 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 requirements.

         The fair value of warrants  granted were estimated on the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         assumptions:  dividend  yield  of  0%,  expected  volatility  of  102%,
         risk-free  interest  rate of 4.76% and an expected life of the warrants
         of 66 months.  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.  No warrants  were vested under this program  during
         2004 and 2003.  As of June 30,  2004,  Ford is no longer  eligible  for
         further   vesting  of  its   warrants   per  the  terms  of  the  Value
         Participation Agreement.

NOTE 11 - INCOME TAXES

         Significant  components  of  the  Company's  deferred  tax  assets  and
         liabilities  for federal and state income taxes as of December 31, 2004
         and 2003 consisted of the following:

                                                       2004            2003
                                                    -----------    -----------
              Deferred tax assets
                  Federal tax loss carry-forward    $31,542,000    $31,286,000
                  State tax loss carry-forward          893,000        712,000
                  Basis difference                    1,610,000      1,610,000
                  Other, net                            555,000        555,000
                                                    -----------    -----------

                                                     36,027,000     34,163,000
              Less valuation allowance               36,027,000     34,163,000
                                                    -----------    -----------

                       Net deferred tax assets      $      --      $       --
                                                    ===========    ===========

         As of December  31,  2004,  the Company  had net  operating  loss carry
         forwards  for federal and state  income tax  purposes of  approximately
         $95,571,000 and $9,393,000,  respectively. The net operating loss carry
         forwards began expiring in 2003.

NOTE 12 - RELATED PARTY TRANSACTIONS

         During  2004,   the  Company   purchased   approximately   $246,000  in
         components,  materials and services from HHI. The  outstanding  balance
         owed to HHI at December 31, 2004 was approximately $2,000.

                                       27
<PAGE>
                                                             ENOVA SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2004
--------------------------------------------------------------------------------

NOTE 12 - RELATED PARTY TRANSACTIONS (continued)

         During  2004,  the  Company  paid a  total  of  $101,000  to two of its
         directors in consulting fees.

         During 2004,  pursuant to a written agreement  approved by the Board of
         Directors  and its Audit  Committee,  a  finder's  fee of  $92,500  was
         accrued to be paid, through the issuance of restricted shares of common
         stock in Enova,  totaling 608,553 shares at a price of $0.15 per share,
         in conjunction with a private placement funding in the first quarter of
         2004 to The Global Value  Investment  Portfolio  Management  Pte Ltd, a
         Singapore  Company  which  is  substantially  owned  by two  affiliated
         parties:  Anthony  Rawlinson,  Chairman of the Board of our Company and
         Borl partnership,  owned by Boris Liberman Family Trusts, which is also
         affiliated with Jagen Pty Ltd., a large affiliate shareholder in Enova.
         Said shares were subsequently issued in the first quarter of 2005.

NOTE  13 - EMPLOYEE BENEFIT PLAN

         The Company has a 401(k) profit sharing plan covering substantially all
         employees.  Eligible  employees may elect to contribute a percentage of
         their annual  compensation,  as defined,  to the plan.  The Company may
         also elect to make  discretionary  contributions.  For the years  ended
         December  31,  2004,  2003,  and  2002  the  Company  did not  make any
         contributions to the plan.


NOTE 14 - 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:

                                     2004              2003              2002
                                  ----------        ----------        ----------

              United States       $1,465,000        $2,672,000        $2,478,000
              Italy                   32,000           213,000         1,040,000
              Korea                  258,000           297,000           726,000
              Japan                 1760,000           146,000            87,000
              China                  256,000           738,000              --
              Malaysia                  --             184,000            65,000
              Ireland                166,000              --              59,000
              Canada                    --             738,000              --
              England                203,000            60,000              --
                                  ----------        ----------        ----------

                Total             $2,554,000        $4,310,000        $4,455,000
                                  ==========        ==========        ==========


                                       28
<PAGE>





                            SUPPLEMENTAL INFORMATION



                                       29
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
Enova Systems, Inc.
Torrance, California

Our audits were conducted in accordance with the standards of the Public Company
Accounting  Oversight  Board  (United  States)  and were made for the purpose of
forming an  opinion  on the basic  financial  statements  taken as a whole.  The
supplemental  schedule  II is  presented  for  purposes  of  complying  with the
Securities  and  Exchange  Commission's  rules  and is not a part  of the  basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in our audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
March 10, 2005


                                       30

<PAGE>

<TABLE>

                                                                              ENOVA SYSTEMS, INC.
                                                  VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II

-------------------------------------------------------------------------------------------------
<CAPTION>
                                       Balance,        Additions       Deductions       Balance,
                                      Beginning       Charged to         from            End
                                       of Year        Operations        Reserve         of Year
                                      --------        ---------        --------        --------
<S>                                   <C>             <C>              <C>             <C>

Allowance for doubtful accounts

   December 31, 2004                  $595,000        $    --          $595,000        $   --
                                      ========        =========        ========        ========

   December 31, 2003                  $   --          $ 595,000        $   --          $595,000
                                      ========        =========        ========        ========

   December 31, 2002                  $   --          $    --          $   --          $   --
                                      ========        =========        ========        ========

Reserve for obsolete inventories

   December 31, 2004                  $ 80,000        $    --          $   --          $ 80,000
                                      ========        =========        ========        ========

   December 31, 2003                  $ 80,000        $    --          $   --          $ 80,000
                                      ========        =========        ========        ========

   December 31, 2002                  $ 80,000        $    --          $   --          $ 80,000
                                      ========        =========        ========        ========


<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

                                        31