TIDMENV TIDMENVS
RNS Number : 8423R
Enova Systems, Inc.
10 November 2011
For Immediate release 10th of November 2011
Enova Systems, Inc., (NYSE Amex: ENA and AIM: ENV and ENVS), a
leading developer and manufacturer of electric, hybrid and fuel
cell digital power management systems, announces results for the
three and nine month periods ended September 30, 2011.
Inquires:
Enova Systems
Michael Staran, Chief Executive Officer +1(310) 527-2800 x137
John Micek, Chief Financial Officer +1(310) 527-2800 x103
Daniel Stewart & Company Plc
Oliver Rigby +44 (0) 20 7776 6550
HIGHLIGHTS
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenues $ 508,000 $ 1,904,000 $ 5,984,000 $ 4,887,000
Cost of revenues 434,000 1,615,000 5,108,000 4,225,000
Gross income 74,000 289,000 876,000 662,000
Operating expenses
Research and development 528,000 483,000 1,532,000 1,166,000
Selling, general &
administrative 1,172,000 1,520,000 4,034,000 4,548,000
Total operating expenses 1,700,000 2,003,000 5,566,000 5,714,000
Operating loss (1,626,000) (1,714,000) (4,690,000) (5,052,000)
Other income and (expense)
Interest and other income
(expense) (20,000) (36,000) (113,000) (41,000)
Total other income and
(expense) (20,000) (36,000) (113,000) (41,000)
Net loss (1,646,000) $ (1,750,000) $ (4,803,000) $ (5,093,000)
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2011 compared to Three
and Nine Months Ended September 30, 2010
Revenues. Revenues in 2011 benefited from U.S. government grant
programs, resulting in increased sales for fulfillment of orders
from Smith Electric Vehicles as well as Navistar Inc. The increase
in revenue for the nine months ended September 30, 2011 compared to
the same period in 2010 was mainly due to the delivery of drive
systems to Smith Electric Vehicles and Navistar. Revenues were also
attributed to continued shipments to First Auto Works and HCATT in
2011. Revenues decreased in the third quarter of 2011 compared to
the same period in 2010 mainly due to a decrease in deliveries to
Smith Electric Vehicles and Navistar. We will have fluctuations in
revenue from quarter to quarter. Although we have seen indications
for future production growth, there can be no assurance there will
be continuing demand for our products and services.
Cost of Revenues. Cost of revenues consists of component and
material costs, direct labor costs, integration costs and overhead
related to manufacturing our products as well as inventory
valuation reserve amounts. Cost of revenues for the nine months
ended September 30, 2011 increased primarily due to the increase in
revenue for the nine months ended September 30, 2011 compared to
the same period in the prior year. The decrease in cost of revenues
in the three months ended September 30, 2011 compared to the same
period in 2010 was primarily attributable to the decrease in
revenues.
Gross Profit. The increase in gross profit for the nine months
ended September 30, 2011 compared to the same period in the prior
year is primarily attributable to manufacturing efficiencies from
higher production volumes in the second quarter and improved
product mix, which were partially offset by an increase in warranty
expense in 2011. The decrease in gross profit for the three months
ended September 30, 2011 compared to the same period in the prior
year is primarily attributable to the decrease in revenues. We
continue to focus on key customer production contracts, maturity of
our supply chain, and efficiencies gained through improved
processes over in-house manufacturing and inventory that have
resulted in tighter controls over production costs. As we make
deliveries on production contracts in 2011 and 2012, we expect to
achieve continued benefit from these initiatives, although we may
continue to experience variability in our gross margin.
Research and Development ("R&D"). R&D costs increased
for the three and nine months ended September 30, 2011 compared to
the same periods in the prior year as we devoted increased
engineering personnel resources to the development of our next
generation Omni-series motor control unit, 10kW charger and DC/DC
converter, as well as the continued testing of our EV vehicles, new
battery technologies and electric motors. We also continued to
allocate necessary resources to the development and testing of
upgraded proprietary control software for customer
applications.
Selling, General, and Administrative Expenses ("S, G & A").
S, G & A is comprised of activities in the executive, finance,
marketing, field service and quality departments' compensation as
well as related payroll benefits, and non-cash charges for
depreciation and options expense. The decrease in S, G & A for
the three and nine months ended September 30, 2011 compared to the
same period in the prior year is attributable the Company's
implementation of cost savings measures that will continue to be
sustained in our cost structure. We constantly monitor S, G & A
in light of our business outlook.
Interest and Other Income (Expense). Interest and other expense
increased in the nine months ended September 30, 2011 compared to
the same period in the prior year due to a net loss on a litigation
settlement and the disposal of a fixed asset. Interest and other
expense decreased in the three months ended September 30 30, 2011
compared to the same period in the prior year due to write-off of a
vendor deposit in 2010.
Net Loss. The decrease in the net loss for the three and nine
months ended September 30, 2011 compared to the same periods in the
prior year was mainly due to improved gross margins resulting in an
increase in gross profit and our continued efforts to control
administrative costs.
Comparability of Quarterly Results. Our quarterly results have
fluctuated in the past and we believe they will continue to do so
in the future. Certain factors that could affect our quarterly
operating results are described in Part I, Item 1A-Risk Factors
contained in our Form 10-K for 2010, as updated by the disclosure
contained in Item 1A of Part II of this Form 10-Q. Due to these and
other factors, we believe that quarter-to-quarter comparisons of
our results of operations are not meaningful indicators of future
performance.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced losses primarily attributable to research,
development, marketing and other costs associated with our
strategic plan as an international developer and supplier of
electric drive and power management systems and components.
Historically cash flows from operations have not been sufficient to
meet our obligations and 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. Our operations during the
nine months ended September 30, 2011 were financed by product sales
as well as from working capital reserves.
On June 30, 2010, the Company entered into a secured a revolving
credit facility with a financial institution for $200,000 which was
secured by a $200,000 certificate of deposit. The facility is for a
period of 3 years and 6 months from July 1, 2010 to December 31,
2013. The interest rate on a drawdown from the facility is the
certificate of deposit rate plus 1.25% with interest payable
monthly and the principal due at maturity. The financial
institution also renewed the $200,000 irrevocable letter of credit
for the full amount of the credit facility in favor of Sunshine
Distribution LP, with respect to the lease of the Company's
corporate headquarters at 1560 West 190th Street, Torrance,
California.
Net cash used in operating activities was $7,219,000 for the
nine months ended September 30, 2011, an increase of $3,911,000
compared to $3,308,000 for the nine months ended September 30,
2010. The increase in cash used in 2011 was primarily due to a net
decrease of total liabilities of $2,649,000, of which the major
factors were payments made for the partial litigation settlement
with Arens Controls L.L.C., inventory purchases utilized in the
fourth quarter of fiscal 2010 and the first quarter of fiscal 2011
sales and employee incentive bonus accruals. Non-cash items include
expense for stock-based compensation, depreciation and
amortization, issuance of common stock for employee services and
other losses. These non-cash items decreased by $50,000 for the
nine months ended September 30, 2011 as compared to the same period
in the prior year primarily due to a decrease in options expense
due to the full vesting of option tranches issued in prior years.
The decrease in net loss was primarily due to the increase in gross
margin and a decrease in administrative expenses when comparing the
nine months ended 2011 and 2010. We continued to conserve cash
resources by restricting administrative and general expenditures.
As of September 30, 2011, the Company had $978,000 of cash and cash
equivalents compared to $8,431,000 as of December 31, 2010.
Net cash used in investing activities for capital expenditures
was $237,000 for the nine months ended September 30, 2011 compared
to $277,000 for the nine months ended September 30, 2010. The
decrease was primarily attributable to acquisitions of testing
equipment in 2010.
Net cash provided by financing activities was $3,000 for the
nine months ended September 30, 2011, compared to net cash used in
financing activities of $15,000 for the nine months ended September
30, 2010. This increase was primarily attributable to proceeds from
the exercise of stock options.
Net accounts receivable decreased by $226,000, or 8%, to
$2,624,000 at September 30, 2011 compared to a balance of
$2,850,000 at December 31, 2010. The decrease in the receivable
balance was due to a decrease in the volume of sales in the third
quarter in 2011 compared to the last quarter of 2010 offset by cash
collections in the current period. As of September 30, 2011 and
December 31, 2010, the Company maintained a reserve for doubtful
accounts receivable of $58,000 and $29,000, respectively.
Net inventory and supplies increased by $586,000, or 13%, to
$5,041,000 at September 30, 2011 compared to a balance of
$4,455,000 at December 31, 2010. The increase resulted from net
inventory activity including receipts totaling $4,199,000,
consumption of $3,294,000 and an inventory reserve charge of
$319,000. The primary reason for the net increase in inventory
activity was attributable to materials received in connection with
a litigation settlement in the first quarter 2011 and an increase
in finished goods produced in anticipation of fulfillment of open
orders.. These materials will be used to satisfy future production
schedule requirements through the remainder of 2011.
Prepaid expenses and other current assets decreased by $175,000,
or 36%, to $307,000 at September 30, 2011 compared to a balance of
$482,000 at December 31, 2010. The decrease was due to receipts of
inventory related to deposits on purchase orders and a decrease in
prepaid insurance.
Long term accounts receivable decreased by $19,000, or 19%, to
$81,000 at September 30, 2011 compared to a balance of $100,000 at
December 31, 2010. The decrease is primarily due to the
reclassification of $63,000 that will be due within one year to
current accounts receivable. The Company agreed to defer collection
of certain accounts receivable as requested by a customer for the
term of the Company's warranty guarantee. The Company continues to
remedy all warranty claims and therefore anticipates collection of
the receivable.
Property and equipment, net of depreciation, decreased by
$160,000, or 14%, to $1,012,000 at September 30, 2011 compared to a
balance of $1,172,000 at December 31, 2010. The decrease is
primarily due to the disposal of a fixed asset and depreciation
expense of $373,000, which was partially offset by additions to
fixed assets totaling $237,000 in the first nine months of
2011.
Accounts payable decreased by $1,448,000, or 78%, to $399,000 at
September 30, 2011 compared to a balance of $1,847,000 at December
31, 2010. The decrease was primarily due to payments in 2011 for
inventory purchases made in 2010 in support of customer sales in
the fourth quarter of 2010 and first quarter of 2011.
Deferred revenues increased by $29,000, or 94%, to $60,000 at
September 30, 2011 compared to a balance of $31,000 at December 31,
2010. The balance at September 30, 2011 is anticipated to be
realized into revenue in the fourth quarter of 2011 and is
associated with prepayments on purchase orders from certain
customers.
Accrued payroll and related expenses decreased by $387,000, or
42%, to $535,000 at September 30, 2011 compared to a balance of
$922,000 at December 31, 2010. The decrease was primarily due to
2011 payments of accrued 2010 executive and employee incentive
bonuses.
Other accrued liabilities decreased by $1,209,000, or 70%, to
$530,000 at September 30, 2011 compared to a balance of $1,739,000
at December 31, 2010. The decrease was primarily due to payments
for accrued losses on the partial litigation settlement with Arens
Controls Company L.L.C. in January 2011 and 2011 payments for
accrued professional services. In addition, the accrued warranty
balance at September 30, 2011 compared to December 31, 2010
decreased as costs for warranty repairs were greater than warranty
accruals for sales during the first nine months of 2011.
Accrued interest payable increased by $61,000, or 5%, to
$1,217,000 at September 30, 2011 compared to a balance of
$1,156,000 at December 31, 2010. The increase was due to interest
related to our debt instruments, primarily the secured note payable
in the amount of $1,238,000 to the Credit Managers Association of
California.
Going concern
Our ongoing operations and anticipated growth will require us to
make necessary investments in human and production resources,
regulatory compliance, as well as sales and marketing efforts. We
do not currently have adequate internal liquidity to meet these
objectives in the long term. To do so, we will need to continue to
look for partnering opportunities and other external sources of
liquidity, including the public and private financial markets and
strategic partners. We may not be able to obtain financing
arrangements in amounts or on terms acceptable to us in the future.
In the event we are unable to obtain additional financing when
needed, and without substantial reductions in development programs
and strategic initiatives, we do not expect that our cash and cash
equivalents and short-term investments will be sufficient to fund
our operating and capital needs for the twelve months following
September 30, 2011. As of September 30, 2011, we had an accumulated
deficit of approximately $148.9 million, working capital of
approximately $7.6 million and total shareholders' equity of
approximately $6.1 million.
In October 2011, we launched an expense reduction program
designed to improve our cost structure and to deliver improved
operational growth, which included reductions in our employee
headcount. We do not expect to incur any significant restructuring
charges as a result of this cost reduction program, most of which
is expected to complete by the end of 2011. These charges (if any)
have been or will be recorded as the specific actions required to
execute on these initiatives are identified and approved. As of
September 30, 2011, we incurred no restructuring charges under this
program, as it commenced in October 2011.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Overview
Enova believes it is a leader in the development, design and
production of proprietary, power train systems and related
components for electric and hybrid electric buses and medium and
heavy duty commercial vehicles. Electric drive systems are
comprised of an electric motor, electronics control unit and a gear
unit which power a vehicle. Hybrid electric systems, which are
similar to pure electric drive systems, contain an internal
combustion engine in addition to the electric motor, and may
eliminate 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.
A fundamental element of Enova's strategy is to develop and
produce advanced proprietary software and hardware for applications
in these alternative power markets. Our focus is powertrain systems
including digital power conversion, power management and system
integration, focusing chiefly on vehicle power generation.
Specifically, we develop, design and produce drive systems and
related components for electric, hybrid electric and fuel cell
powered vehicles in both the new and retrofit markets. We also
perform internal research and development ("R&D") and funded
third party R&D to augment our product development and support
our customers.
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 aligning ourselves with
key customers and integrating with original equipment manufacturers
("OEMs") in our target markets. We believe that alliances will
result in the latest technology being implemented and customer
requirements being met, with an optimized level of additional time
and expense. As we penetrate new market areas, we are continually
refining both our market strategy and our product line to maintain
our leading edge in power management and conversion systems for
vehicle applications.
Our website, www.enovasystems.com, contains up-to-date
information on our company, our products, programs and current
events. Our website is a prime focal point for current and
prospective customers, investors and other affiliated parties
seeking additional information on our business.
Enova has incurred significant operating losses in the past. As
of September 30, 2011, we had an accumulated deficit of
approximately $148.9 million. We expect to incur additional
operating losses until we achieve a level of product sales
sufficient to cover our operating and other expenses. However, the
Company believes that its business outlook will improve as our new
product initiatives improve penetration into key markets and
government policies being implemented in the United States, China
and the United Kingdom regarding the curbing of greenhouse
emissions that may induce consumption of our products and
services.
Customer Highlights
SMITH ELECTRIC VEHICLES (SEV) - Enova continues shipments of
drive systems to both Smith US and UK manufacturing facilities.
CSR CORPORATION LIMITED (CSR) - Enova continues work with CSR to
integrate our all electric drive systems into commercial bus
applications. CSR is approved by the State-owned Assets Supervision
and Administration Commission of the State Council, was co-founded
by China South Locomotive and Rolling Stock Industry Group
Corporation and Beijing Railway Industry Economic and Trade Company
with a total equity capital of $7 billion USD. The company was
established in December 2007 with sixteen (16) fully funded holding
companies and over 80,000 employees distributed in 10 provinces and
cities around the country.
US AIR FORCE - The Company was invited to participate in the US
Air Force Industry Event at the Los Angeles Air Force Base on
October 3, 2011. Enova and its partner, Daimler Freightliner Custom
Chassis ("Freightliner"), displayed its 120kW all-electric drive
system technology integrated with a Freightliner MT-45 walk-in van
chassis. The Los Angeles Air Force base has been targeted to be the
first federal facility to replace 100% of its general purpose fleet
with electric vehicles. Enova and Freightliner have had numerous
discussions with the US Government and plan to participate in all
related opportunities. Government officials expected at the event
included the Deputy Assistant Secretary of the Air Force for
Energy, the Commander of the USAF Space & Missile Systems
Center, GSA Leadership, the Commander of the 61st Air Base Group
and the Special Assistant to the Assistant Secretary for
Installations, Environment and Logistics.
US GOVERNMENT and Enova have had recent comprehensive
discussions regarding government interest in deployment of
alternate fuel vehicles. Enova has met with executive levels at the
Pentagon to further penetrate the available volume of government
sourced vehicles.
Technology Highlights
OMNI INVERTER. Power-source and motor design agnostic, Enova's
new Omni-series inverter/vehicle controller offers increased
flexibility and ease-of-integration. With plug-and-play
connectivity, it is compatible with a wide range of vehicle drive
systems and motors, and can be configured for HEV, PHEV and EV
applications. The inverter is fully production validated and Enova
is currently coordinating introduction of the Omni inverter with
various customers.
OMNI CHARGER. Enova is finalizing design and validation test
plans for the new Omni-series 10kW on-board battery charger for
plug-in hybrid-electric and all-electric vehicles. CAN control
based, the new Omni charger offers increased flexibility,
ease-of-integration and compatibility with a wide range of vehicle
platforms. Production availability is planned for early 2012 and
Enova is coordinating the introduction of the new charger with
various customers.
OMNI DC/DC CONVERTER. Design is progressed on a stand-alone
Omni-series DC/DC converter operating at the higher power levels
required for large electric vehicles. The new converter will be
available in 12V or 24V output configurations. Final validation
testing is planned through Q1-2012 and with production availability
soon after. Introductory discussions for the new DC/DC converter
are underway with various customers.
Enova continues to mature its long-standing relationship with
Valence on energy-oriented battery packs, as well as evaluate
technologies offered by A123, Samsung/Bosch and other
manufacturers.
We continue to receive greater recognition from both
governmental and private industry with regards to both commercial
and military application of our hybrid drive systems and fuel cell
power management technologies. Although we believe that current
negotiations with above named parties may result in additional
production contracts during 2011 and beyond, there are no
assurances that such additional agreements will be realized.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENOVA SYSTEMS, INC.
BALANCE SHEETS
September December
30, 31,
2011 2010
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 978,000 $ 8,431,000
Certificate of deposit,
restricted 200,000 200,000
Accounts receivable, net 2,624,000 2,850,000
Inventories and
supplies, net 5,041,000 4,455,000
Prepaid expenses and other current assets 307,000 482,000
Total current
assets 9,150,000 16,418,000
Long term accounts
receivable 81,000 100,000
Property and equipment,
net 1,012,000 1,172,000
Total assets $ 10,243,000 $ 17,690,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 399,000 $ 1,847,000
Deferred revenues 60,000 31,000
Accrued payroll and related expenses 535,000 922,000
Other accrued liabilities 530,000 1,739,000
Current portion
of notes payable 62,000 63,000
Total current
liabilities 1,586,000 4,602,000
Accrued interest
payable 1,217,000 1,156,000
Notes payable, net of current portion 1,292,000 1,286,000
Total liabilities 4,095,000 7,044,000
Stockholders'
equity:
Series A convertible preferred stock
- no par value, 30,000,000 shares authorized;
2,642,000 and 2,652,000 shares issued
and outstanding; liquidating preference
at $0.60 per share as of September 30,
2011 and December 31, 2010, respectively 528,000 530,000
Series B convertible preferred stock
- no par value, 5,000,000 shares authorized;
546,000 shares issued and outstanding;
liquidating preference at $2 per share
as of September 30, 2011 and December
31, 2010 1,094,000 1,094,000
Common Stock - no par value, 750,000,000
shares authorized; 31,515,000 and 31,479,000
shares issued and outstanding as of
September 30, 2011 and December 31,
2010, respectively 144,135,000 144,110,000
Additional paid-in
capital 9,322,000 9,040,000
Accumulated
deficit (148,931,000) (144,128,000)
Total stockholders'
equity 6,148,000 10,646,000
Total liabilities and stockholders'
equity $ 10,243,000 $ 17,690,000
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenues $ 508,000 $ 1,904,000 $ 5,984,000 $ 4,887,000
Cost of revenues 434,000 1,615,000 5,108,000 4,225,000
Gross income 74,000 289,000 876,000 662,000
Operating expenses
Research and development 528,000 483,000 1,532,000 1,166,000
Selling, general &
administrative 1,172,000 1,520,000 4,034,000 4,548,000
Total operating expenses 1,700,000 2,003,000 5,566,000 5,714,000
Operating loss (1,626,000) (1,714,000) (4,690,000) (5,052,000)
Other income and (expense)
Interest and other income
(expense) (20,000) (36,000) (113,000) (41,000)
Total other income and
(expense) (20,000) (36,000) (113,000) (41,000)
Net loss (1,646,000) $ (1,750,000) $ (4,803,000) $ (5,093,000)
Basic and diluted loss
per share $ (0.05) $ (0.06) $ (0.15) $ (0.16)
Weighted average number
of common shares outstanding 31,515,000 31,430,000 31,503,000 31,417,000
See accompanying notes to these financial statements.
ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
Cash flows from operating activities: 2011 2010
Net loss $(4,803,000) $ (5,093,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Reserve for doubtful accounts 53,000 -
Inventory reserve 281,000 221,000
Depreciation and amortization 373,000 409,000
Loss on asset disposal 49,000 -
Loss on litigation settlement 41,000 -
Issuance of common stock for employee
services - 71,000
Stock option expense 282,000 428,000
(Increase) decrease in:
Accounts receivable 173,000 167,000
Inventory and supplies (867,000) 875,000
Prepaid expenses and other current assets 175,000 (88,000)
Long term accounts receivable 19,000 (215,000)
Increase (decrease) in:
Accounts payable (1,448,000) 1,000
Deferred revenues 29,000 (303,000)
Accrued payroll and related expense (387,000) 526,000
Other accrued liabilities (1,250,000) (368,000)
Accrued interest payable 61,000 61,000
Net cash used in operating activities (7,219,000) (3,308,000)
Cash flows from investing activities:
Purchases of property and equipment (237,000) (277,000)
Net cash used in investing activities (237,000) (277,000)
Cash flows from financing activities:
Payment on notes payable and capital
lease obligations (20,000) (24,000)
Net proceeds from the exercise of stock
options 23,000 9,000
Net cash provided by (used in) financing
activities 3,000 (15,000)
Net (decrease) in cash and cash equivalents (7,453,000) (3,600,000)
Cash and cash equivalents, beginning
of period 8,431,000 13,078,000
Cash and cash equivalents, end of period $ 978,000 $ 9,478,000
Supplemental disclosure of cash flow
information:
Interest paid $ 5,000 $ 5,000
Assets acquired through financing arrangements $ 25,000 $ 26,000
The accompanying notes are an integral part of these financial
statements.
ENOVA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Three and nine months ended September 30, 2011 and 2010
1. Description of the Company and its Business
Enova Systems, Inc., ("Enova", "We" or "the Company"), a
California corporation, was incorporated in July 1976, and trades
on the NYSE Amex Equities under the trading symbol "ENA" and on the
London Stock Exchange under the symbol "ENV" or "ENVS". The Company
is a globally recognized leader as a supplier of efficient,
environmentally-friendly digital power components and systems
products, in conjunction with associated engineering services. The
Company's core competencies are focused on the commercialization of
power management and conversion systems for mobile and stationary
applications.
2. Summary of Significant Accounting Policies
Basis of Presentation - Interim Financial Statements
The financial information as of September 30, 2011 and for the
three and nine months ended September 30, 2011 and 2010 is
unaudited but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a
fair statement of its financial position at such dates and the
operating results and cash flows for those periods. The year-end
balance sheet data was derived from audited financial statements,
and certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to SEC rules or regulations; however, the Company believes
the disclosures made are adequate to make the information presented
not misleading.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles 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 revenues and expenses during the reporting
period. Although management believes these estimates and
assumptions are adequate, actual results could differ from the
estimates and assumptions used.
The results of operations for the interim periods presented are
not necessarily indicative of the results of operations to be
expected for the fiscal year. These interim financial statements
should be read in conjunction with the audited financial statements
for the year ended December 31, 2010, which are included in the
Company's Annual Report on Form 10-K for the year then ended.
Liquidity and Going Concern
The Company has experienced and continues to experience
operating losses and negative cash flows from operations, as well
as an ongoing requirement for substantial additional capital
investment. At September 30, 2011, the Company had an accumulated
deficit of approximately $148.9 million, working capital of
approximately $7.6 million and shareholders' equity of
approximately $6.1 million. Over the past years, the Company has
been funded through a combination of debt, lease financing and
public equity offerings. As of September 30, 2011, the Company had
approximately $1.0 million in cash and cash equivalents.
The Company expects that it will need to raise additional
capital to fully pursue its business plan over the long term and is
currently pursuing a variety of funding options. There can be no
assurance as to the availability or terms upon which such financing
and capital might be available. If the Company is not successful in
its efforts to raise additional funds, the Company may be required
to delay, reduce the scope of, or eliminate one or more of its
development programs. Without substantial reductions or
eliminations of its development programs, the Company does not
expect that its cash and cash equivalents will be sufficient to
fund its operating and capital needs for the twelve months
following September 30, 2011. In October 2011, we launched an
expense reduction program designed to improve our cost structure
and to deliver improved operational growth, which included
reductions in our employee headcount. We do not expect to incur any
significant restructuring charges as a result of this cost
reduction program, most of which is expected to complete by the end
of 2011. These charges (if any) have been or will be recorded as
the specific actions required to execute on these initiatives are
identified and approved. As of September 30, 2011, we incurred no
restructuring charges under this program, as it commenced in
October 2011.
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of
business. The accompanying financial statements do not include any
adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Significant Accounting Policies
The accounting and reporting policies of the Company conform to
US GAAP. There have been no significant changes in the Company's
significant accounting policies during the three and nine months
ended September 30, 2011 compared to what was previously disclosed
in the Company's Annual Report on Form 10-K for the year ended
December 31, 2010.
Revenue Recognition
The Company manufactures proprietary products and other products
based on design specifications provided by its customers. The
Company recognizes revenue only when all of the following criteria
have been met:
-- Persuasive Evidence of an Arrangement - The Company documents
all terms of an arrangement in a written contract signed by the
customer prior to recognizing revenue.
-- Delivery Has Occurred or Services Have Been Rendered - The
Company performs all services or delivers all products prior to
recognizing revenue. Professional consulting and engineering
services are considered to be performed when the services are
complete. Equipment is considered delivered upon delivery to a
customer's designated location. In certain instances, the customer
elects to take title upon shipment.
-- The Fee for the Arrangement is Fixed or Determinable - Prior
to recognizing revenue, a customer's fee is either fixed or
determinable under the terms of the written contract. Fees for
professional consulting services, engineering services and
equipment sales are fixed under the terms of the written contract.
The customer's fee is negotiated at the outset of the arrangement
and is not subject to refund or adjustment during the initial term
of the arrangement.
-- Collectability is Reasonably Assured - The Company determines
that collectability is reasonably assured prior to recognizing
revenue. Collectability is assessed on a customer-by-customer basis
based on criteria outlined by management. New customers are subject
to a credit review process which evaluates the customer's financial
position and ultimately its ability to pay. The Company does not
enter into arrangements unless collectability is reasonably assured
at the outset. Existing customers are subject to ongoing credit
evaluations based on payment history and other factors. If it is
determined during the arrangement that collectability is not
reasonably assured, revenue is recognized on a cash basis. Amounts
received upfront for engineering or development fees under
multiple-element arrangements are deferred and recognized over the
period of committed services or performance, if such arrangements
require the Company to provide on-going services or performance.
All amounts received under collaborative research agreements or
research and development contracts are nonrefundable, regardless of
the success of the underlying research.
The Company recognizes revenue from milestone payments over the
remaining minimum period of performance obligations.
The Company also recognizes engineering and construction
contract revenues using the percentage-of-completion method, based
primarily on contract costs incurred to date compared with total
estimated contract costs. Customer-furnished materials, labor, and
equipment, and in certain cases subcontractor materials, labor, and
equipment, are included in revenues and cost of revenues when
management believes that the company is responsible for the
ultimate acceptability of the project. Contracts are segmented
between types of services, such as engineering and construction,
and accordingly, revenue and gross margin related to each activity
is recognized as those separate services are rendered.
Changes to total estimated contract costs or losses, if any, are
recognized in the period in which they are determined. Claims
against customers are recognized as revenue upon settlement.
Revenues recognized in excess of amounts received are classified as
current assets. Amounts billed to clients in excess of revenues
recognized to date are classified as current liabilities on
contracts.
Changes in project performance and conditions, estimated
profitability, and final contract settlements may result in future
revisions to engineering and development contract costs and
revenue.
These accounting policies were applied consistently for all
periods 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.
Several other factors related to the Company may have a
significant impact on our operating results from year to year. For
example, the accounting rules governing the timing of revenue
recognition related to product contracts are complex and it can be
difficult to estimate when we will recognize revenue generated by a
given transaction. Factors such as acceptance of services provided,
payment terms, creditworthiness of the customer, and timing of
delivery or acceptance of our products often cause revenues related
to sales generated in one period to be deferred and recognized in
later periods. For arrangements in which services revenue is
deferred, related direct and incremental costs may also be
deferred.
Deferred Revenues
The Company recognizes revenues as earned. Amounts billed in
advance of the period in which service is rendered are recorded as
a liability under deferred revenues. The Company has entered into
several production and development contracts with customers. The
Company has evaluated these contracts, ascertained the specific
revenue generating activities of each contract, and established the
units of accounting for each activity. Revenue on these units of
accounting is not recognized until a) there is persuasive evidence
of the existence of a contract, b) the service has been rendered
and delivery has occurred, c) there is a fixed and determinable
price, and d) collectability is reasonable assured.
Warranty Costs
The Company provides product warranties for specific product
lines and accrues for estimated future warranty costs in the period
in which revenue is recognized. Our products are generally
warranted to be free of defects in materials and workmanship for a
period of 12 to 24 months from the date of installation, subject to
standard limitations for equipment that has been altered by other
than Enova Systems personnel and equipment which has been subject
to negligent use. Warranty provisions are based on past experience
of product returns, number of units repaired and our historical
warranty incidence over the past twenty-four month period. The
warranty liability is evaluated on an ongoing basis for adequacy
and may be adjusted as additional information regarding expected
warranty costs becomes known.
Stock Based Compensation
We measure the compensation cost for stock-based awards
classified as equity at their fair value on the date of grant and
recognize compensation expense over the service period for awards
expected to vest, net of estimated forfeitures.
See Note 10 Stock Options for further information on stock-based
compensation expense.
3. Inventory
Inventory, consisting of materials, labor and manufacturing
overhead, is stated at the lower of cost (first-in, first-out) or
market and consisted of the following at:
September 30, December 31,
2011 2010
Raw Materials $ 4,591,000 $ 3,898,000
Work In Progress 260,000 872,000
Finished Goods 908,000 314,000
Reserve for Obsolescence (718,000) (629,000)
Total $ 5,041,000 $ 4,455,000
Inventory write-offs were $203,000 and $198,000 for the nine
months ended September 30, 2011 and 2010, respectively.
4. Property and Equipment
Property and equipment consisted of the following at:
September
30, December
2011 31, 2010
------------------------
Computers and
software $ 618,000 $ 601,000
Machinery and
equipment 885,000 958,000
Furniture and
office equipment 98,000 98,000
Demonstration
vehicles and
buses 774,000 650,000
Leasehold improvements 1,348,000 1,348,000
8,000 -
Less accumulated
depreciation 3,731,000 3,655,000
Total (2,719,000) (2,483,000)
Depreciation and amortization expense was $373,000 and $406,000
for the nine months ended September 30, 2011 and 2010,
respectively, and within those total expenses, the amortization of
leasehold improvements was $196,000 and $201,000 for the nine
months ended September 30, 2011 and 2010, respectively.
Depreciation and amortization expense was $120,000 and $135,000 for
the three months ended September 30, 2011 and 2010, respectively,
and within those total expenses, the amortization of leasehold
improvements was $66,000 and $67,000 for the three months ended
September 30, 2011 and 2010.
5. Other Accrued Liabilities
Other accrued liabilities consisted of the following at:
September December
30, 2011 31, 2010
Accrued inventory
received.............................................................................
........................... $ 8,000 $ 54,000
Accrued professional
services.............................................................................
...................... 225,000 540,000
Accrued
warranty.............................................................................
............................................. 292,000 510,000
Accrued litigation
settlement...........................................................................
............................ - 525,000
Other................................................................................
................................................................ 5,000 110,000
Total...............................................................................
................................................................ $ 530,000 $ 1,739,000
Accrued warranty consisted of the following activities during
the nine months ended September 30:
2011 2010
Balance at beginning of
year.....................................................................
................................ $ 510,000 $ 558,000
Accruals for warranties issued during the
period................................................................. 392,000 346,000
Warranty
claims...................................................................
....................................................... (610,000) (392,000)
Balance at end of
quarter..................................................................
......................................... $ 292,000 $ 512,000
Accrued warranty consisted of the following activities during
the three months ended September 30:
2011 2010
Balance at beginning of
quarter..................................................................
...................................... $ 408,000 $ 493,000
Accruals for warranties issued during the
period...................................................................
....... 107,000 139,000
Warranty
claims...................................................................
................................................................ (223,000) (120,000)
Balance at end of
quarter..................................................................
.................................................. $ 292,000 $ 512,000
6. Intangible Assets
Intangible assets consisted of legal fees directly associated
with patent licensing. The Company has been granted three patents
and in 2010, made an immaterial adjustment to value them at a zero
balance. These patents were capitalized and were being amortized on
a straight-line basis over a period of 20 years. Amortization
expense charged to operations was zero and $3,000 for the nine
months ended September 30, 2011 and 2010, respectively, and zero
and $1,000 for the three months ended September 30, 2011 and 2010,
respectively.
7. Notes Payable, Long-Term Debt and Other Financing
Notes payable consisted of the following at:
June 30, December
2011 31, 2010
Secured note payable to Credit Managers Association
of California, bearing interest at prime plus 3%
(6.25% as of September 30, 2011), and is adjusted
annually in April through maturity. Principal and
unpaid interest due in April 2016. A sinking fund
escrow may be funded with 10% of future equity financing,
as defined in the Agreement............................... $ 1,238,000 $ 1,238,000
Secured note payable to a Coca Cola Enterprises in
the original amount of $40,000, bearing interest
at 10% per annum. Principal and unpaid interest due
on demand................................ 40,000 40,000
Secured note payable to a financial institution in
the original amount of $39,000, bearing interest
at 4.99% per annum, payable in 48 equal monthly installments
of principal and interest through September 1,
2011.................................................................................................. -- 8,000
Secured note payable to a financial institution in
the original amount of $38,000, bearing interest
at 8.25% per annum, payable in 60 equal monthly installments
of principal and interest through February 19,
2014................................................................................................... 20,000 25,000
Secured note payable to a financial institution in
the original amount of $19,000, bearing interest
at 10.50% per annum, payable in 60 equal monthly
installments of principal and interest through August
25, 2014..................................................................................................... 13,000 15,000
Secured note payable to a financial institution in
the original amount of $26,000, bearing interest
at 7.91% per annum, payable in 60 equal monthly installments
of principal and interest through April 9,
2015............................................................................................................ 20,000 23,000
Secured note payable to a financial institution in
the original amount of $25,000, bearing interest
at 7.24% per annum, payable in 60 equal monthly installments
of principal and interest through March 10,
2016....................................................................................................... 23,000 --
1,354,000 1,349,000
Less current portion of notes
payable............................................................................................... (62,000) (63,000)
Notes payable, net of current
portion............................................................................................... $ 1,292,000 $ 1,286,000
As of September 30, 2011 and December 31, 2010, the balance of
long term interest payable with respect to the Credit Managers
Association of California note amounted to $1,189,000 and
$1,132,000, respectively. Interest expense on notes payable
amounted to $66,000 and $65,000 during the nine months ended
September 30, 2011 and 2010, respectively. Interest expense on
notes payable amounted to $22,000 during each of the three months
ended September 30, 2011 and 2010, respectively.
8. Revolving Credit Agreement
On June 30, 2010, the Company entered into a secured a revolving
credit facility with a financial institution for $200,000 which was
secured by a $200,000 certificate of deposit. The facility is for a
period of 3 years and 6 months from July 1, 2010 to December 31,
2013. The interest rate on a drawdown from the facility is the
certificate of deposit rate plus 1.25% with interest payable
monthly and the principal due at maturity. The financial
institution also renewed the $200,000 irrevocable letter of credit
for the full amount of the credit facility in favor of Sunshine
Distribution LP, with respect to the lease of the Company's
corporate headquarters at 1560 West 190th Street, Torrance,
California.
9. Stockholders' Equity
During the three and nine months ended September 30, 2011, the
Company did not issue any shares of common stock to directors or
employees as compensation. During the three and nine months ended
September 30, 2010, the Company issued shares of common stock
valued at $24,000 and $71,000, respectively, to directors and
employees as compensation based upon the trading value of the
common stock on the date of issuance. During the nine months ended
September 30, 2011, 10,000 shares of the Company's Series A
Preferred Stock were converted into 222 shares of its common stock.
There were no conversions of the Company's Series A Preferred Stock
for the comparable period in 2010.
10. Stock Options
Stock Option Program Description
As of September 30, 2011, the Company had two equity
compensation plans, the 1996 Stock Option Plan (the "1996 Plan")
and the 2006 equity compensation plan (the "2006 Plan"). The 1996
Plan has expired for the purposes of issuing new grants. However,
the 1996 Plan will continue to govern awards previously granted
under that plan. The 2006 Plan has been approved by the Company's
Shareholders. Equity compensation grants are designed to reward
employees and executives for their long term contributions to the
Company and to provide incentives for them to remain with the
Company. The number and frequency of equity compensation grants are
based on competitive practices, operating results of the company,
and government regulations.
The 2006 Plan has a total of 3,000,000 shares reserved for
issuance, of which 1,651,000 shares were available for grant as of
September 30, 2011. All stock options have terms of between five
and ten years and generally vest and become fully exercisable from
one to three years from the date of grant.
As of September 30, 2011, the total compensation cost related to
non-vested awards not yet recognized is $246,000. The weighted
average period over which the future compensation cost is expected
to be recognized is 17 months.
The following table summarizes information about stock options
outstanding and exercisable at September 30, 2011:
Weighted
Average
Remaining
Number of Weighted Average Contractual Aggregate
Share Exercise Term in Intrinsic
Options Price Years Value(1)
Outstanding at December
31, 2010 1,393,000 $ 2.06 6.92 $ -
Granted 190,000 $ 0.95 9.42 $ -
Exercised (36,000) $ 0.63 - $ 25,000
Forfeited or Cancelled (233,000) $ 2.36 - $ -
Outstanding at September
30, 2011 1,314,000 $ 1.89 6.74 $ 15,000
Exercisable at September
30, 2011 1,023,000 $ 2.13 6.30 $ 15,000
Vested and expected
to vest (2) 1,314,000 $ 1.89 6.74 $ 15,000
(1) Aggregate intrinsic value represents the value of the closing price per share of our common
stock on the last trading day of the fiscal period in excess of the exercise price multiplied
by the number of options outstanding or exercisable, except for the "Exercised" line, which
uses the closing price on the date exercised.
(2) Number of shares includes options vested and those expected to vest net of estimated forfeitures.
The exercise prices of the options outstanding at September 30,
2011 ranged from $0.21 to $4.35. The weighted average grant-date
fair value of option s granted during the nine months ended
September 30, 2011 was $0.79. There were no options granted during
the nine months ended September 30, 2010. The Company's policy is
to issue shares from its authorized shares upon the exercise of
stock options.
Unvested share activity for the six months ended September 30,
2011 is summarized below:
Weighted-
Unvested Average
Number Grant Date
of Fair
Options Value
Unvested balance at December 31, 2010.......................................... 435,000 $ 0.93
Granted...............................................................................
.................. 190,000 $ 0.79
Vested................................................................................
................... (241,000) $ 1.01
Forfeited.............................................................................
................... (93,000) $ 0.91
Unvested balance at September 30, 2011.......................................... 291,000 $ 0.87
The fair values of all stock options granted during the nine
months ended September 30, 2011 were estimated on the date of grant
using the Black-Scholes option-pricing model with the following
range of assumptions:
For the nine months
ended
September September
30, 30,
2011 2010
Expected life (in years) 2.5 - 6.5 -
Average risk-free interest rate 2.00% -
Expected volatility 107 - 132% -
Expected dividend yield 0% -
Forfeiture rate 3% -
The estimated fair value of grants of stock options to
nonemployees of the Company is charged to expense in the financial
statements. These options vest in the same manner as the employee
options granted under each of the option plans as described
above.
11. Concentrations
The Company's trade receivables are concentrated with few
customers. The Company performs credit evaluations on its
customers' financial condition. Concentrations of credit risk, with
respect to accounts receivable, exist to the extent of amounts
presented in the financial statements. Two customers represented
68% and 18%, respectively, of total gross accounts receivable at
September 30, 2011, and three customers represented 42%, 21% and
20%, respectively, of total gross accounts receivable at December
31, 2010.
The Company's revenues are concentrated with few customers. For
the three and nine months ended September 30, 2011, two customers
represented 58% and 39% of gross revenues and four customers
represented 55%, 17%, 10% and 10% of gross revenues, respectively.
For the three and nine months ended September 30, 2010, two
customers represented 51% and 32% of gross revenues and three
customers represented 39%, 33% and 14% of gross revenues,
respectively.
12. Recent Accounting Pronouncements
In June of 2011, the Financial Accounting Standards Board
("FASB") issued ASU No. 2011-05, "Comprehensive Income (Topic 220):
Presentation of Comprehensive Income." The amendments in this ASU
require an entity to present the total of comprehensive income, the
components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. ASU 2011-05
eliminates the option to present the components of other
comprehensive income as part of the statement of equity. ASU
2011-05 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2011, with
early adoption permitted. The Company has not chosen to early adopt
the provisions of this update. The future adoption of this update
is not expected to have a material impact on the Company's
consolidated financial statements.
In May of 2011, the FASB issued ASU 2011-04, "Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements
in U. S. GAAP & IFRS," which results in common fair value
measurement and disclosure requirements in U.S. GAAP and IFRS.
Consequently, the amendments change the wording used to describe
many of the requirements in U.S. GAAP for measuring fair value and
for disclosing information about fair value measurements. ASU
2011-04 is effective for interim and annual periods beginning after
December 15, 2011. The future adoption of ASU 2011-04 is not
expected to have a material impact on the Company's consolidated
financial statements.
There have been no other recent accounting pronouncements issued
applicable to Enova Systems, Inc. other than those disclosed in the
Company's Annual Report on Form 10-K for the year ended December
31, 2010.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
In the ordinary course of business, the Company has made a
number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation of
its financial statements in conformity with accounting principles
generally accepted in the United States of America. The Company
constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Estimates and
assumptions include, but are not limited to, customer receivables,
inventories, equity investments, fixed asset lives, contingencies
and litigation. There have been no material changes in estimates or
assumptions compared to our most recent Annual Report for the
fiscal year ended December 31, 2010.
The following represents a summary of our critical accounting
policies, defined as those policies that we believe: (a) are the
most important to the portrayal of our financial condition and
results of operations and (b) involve inherently uncertain issues
which require management's most difficult, subjective or complex
judgments.
Cash and cash equivalents - Cash consists of currency held at
reputable financial institutions.
Inventory - Inventories are priced at the lower of cost or
market utilizing first-in, first-out ("FIFO") cost flow assumption.
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.
Inventory reserve - We maintain an allowance against inventory
for the potential future obsolescence or excess inventory. 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 our
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 revenues in the period the revision is made.
Allowance for doubtful accounts - We maintain allowances for
doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. The assessment of the
ultimate realization of accounts receivable including the current
credit-worthiness of each customer is subject to a considerable
degree to the judgment of our management. 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.
Stock-based Compensation - The Company calculates stock-based
compensation expense in accordance with FASB ASC 718, "Share-Based
Payment" ("FASB ASC 718"). This pronouncement requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors,
including employee stock options to be based on estimated fair
values.
Revenue 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 ASC 605 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.
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 were applied consistently for all
periods 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.
Several other factors related to the Company may have a
significant impact on our operating results from year to year. For
example, the accounting rules governing the timing of revenue
recognition related to product contracts are complex and it can be
difficult to estimate when we will recognize revenue generated by a
given transaction. Factors such as acceptance of services provided,
payment terms, creditworthiness of the customer, and timing of
delivery or acceptance of our products often cause revenues related
to sales generated in one period to be deferred and recognized in
later periods. For arrangements in which services revenue is
deferred, related direct and incremental costs may also be
deferred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures which
are designed to provide reasonable assurance that information
required to be disclosed in the Company's periodic Securities and
Exchange Commission ("SEC") reports is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
As required by Rule 13a-15(b) under the Securities and Exchange
Act of 1934, as amended, the Company carried out an evaluation,
under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures for
the period covered by this report. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have
concluded that the Company's internal control over disclosure
controls and procedures was effective as of September 30, 2011.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the three months ended September 30, 2011 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As reported in our Form 10-Q for the first quarter of fiscal
2011, six of the eight counts in the litigation between Enova and
Arens Controls Company, L.L.C. were settled. The two counts that
were not settled remain outstanding and there have been no material
developments with respect thereto during the period covered by this
report. We intend to continue to contest the remaining unresolved
counts.
From time to time, we are subject to legal proceedings arising
out of the conduct of our business, including matters relating to
commercial transactions. We recognize a liability for any
contingency that is probable of occurrence and reasonably
estimable. We continually assess the likelihood of adverse outcomes
in these matters, as well as potential ranges of probable losses
(taking into consideration any insurance recoveries), based on a
careful analysis of each matter with the assistance of outside
legal counsel and, if applicable, other experts.
Given the uncertainty inherent in litigation, we do not believe
it is possible to develop estimates of the range of reasonably
possible loss for these matters. Considering our past experience,
we do not expect the outcome of these matters, either individually
or in the aggregate, to have a material adverse effect on our
consolidated financial position. Because most contingencies are
resolved over long periods of time, potential liabilities are
subject to change due to new developments, changes in settlement
strategy or the impact of evidentiary requirements, which could
cause us to pay damage awards or settlements (or become subject to
equitable remedies) that could have a material adverse effect on
our results of operations or operating cash flows in the periods
recognized or paid.
ITEM 1A. Risk Factors
The additional risk factors included below update the risk
factors previously discussed in our Annual Report on Form 10-K.
There have been no other material changes from the risk factors as
previously disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2010.
If we cannot raise adequate capital in the future, we may be
unable to continue our product development, marketing and business,
generally.
We anticipate investing significant resources to fund future
operations, including product development and marketing. We need to
obtain additional funding through public or private equity or debt
financing, collaborative agreements or from other sources. Such
funding, from any source, may not be available when needed or on
favorable terms, particularly in light of the recent tightening of
worldwide credit markets. If we raise additional funds by issuing
equity securities, current shareholders may experience significant
dilution of their holdings. If we cannot raise adequate funds to
satisfy our capital requirements, we may also have to limit, delay,
scale-back or eliminate product development programs, marketing or
other activities. Any of these actions could harm our business.
We are dependent on a limited number of vendors for primary
components of our products.
We have custom made components manufactured according to our
engineering specifications that would take time to reproduce with
other suppliers if a current vendor fails to delivery components
that perform according to our specifications and requirements in a
timely manner. Any disruption to our supply chain, either by our
vendors or the result of a natural disaster, could have a material
adverse effect on our results of operations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Enova (LSE:ENV)
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From Jun 2024 to Jul 2024
Enova (LSE:ENV)
Historical Stock Chart
From Jul 2023 to Jul 2024
