Enova Systems Announces Results for the First Quarter 2006
TORRANCE, Calif.--May 9, 2006--Enova Systems, Inc. today announced its results for the first quarter ended March 31, 2006.HIGHLIGHTS
FINANCIAL SUMMARY TABLE
(US Dollars, in thousands, except per share data)
For the quarter ended March 31,
2006 2005
---------- ----------
Revenue 309 692
Gross profit (loss) (151) 122
Operating expenses 1,249 825
(Loss) from operations (1,400) (703)
Other income (expense) 1,545 (109)
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Net income (loss) 145 (821)
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Basic and diluted net income (loss) per share $0.01 $(0.09)
Weighted-average number of shares outstanding 14,783,000 9,238,000
Edwin Riddell, the Company's President and CEO, said, "During the first quarter of 2006, we have continued to gain exposure in the marketplace, which we expect will grow further with the advancements we are making in areas such as transit and school buses.
"We have strengthened our management team with the addition of key personnel, such as Corinne Bertrand and John Dexter. Strengthening our management team is a crucial part of our growth, and we are already seeing benefits that will certainly aid in the company's growth and success."
REVIEW OF OPERATIONS
We believe we are 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.
Our HybridPower(TM) hybrid electric drive system provides all the functionality of an internal combustion engine powered vehicle. The HybridPower(TM) 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 may include 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.
Regardless of power source (battery, fuel cell, diesel generator or turbine) the HybridPower(TM) electric motor is designed to meet the customer's drive cycle requirements.
Our light-duty drive systems include:
-- 30kW, 60kW, 90kW all-electric drives
-- 90kW series-hybrid drive
-- any combination of these systems based on customer requirements.
Our medium/heavy-duty electric drive systems include:
-- 120kW all-electric drive
-- 120/60kW peak series hybrid system
-- 240/60kW peak series hybrid system
-- 90kW peak mild, pre-transmission parallel hybrid system
-- 100kW peak post-transmission parallel hybrid systems
-- 100kW peak pre-transmission parallel hybrid system.
Our 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, 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.
During the quarter ended March 31, 2006, we continued to develop and/or produce electric and hybrid electric drive systems and components for such customers as First Auto Works of China, Ford Motor Company (Ford), Hyundai Motor Car, US Military, International Truck and Engine, IC Corp., Wright Bus, Tomoe of Japan and several other domestic and international vehicle and bus manufacturers. We also continue to advance our technologies and products for greater market penetration for 2006, and beyond. In addition, we continue to develop independently and in conjunction with the Hyundai-Enova Innovative Technology Center (ITC) progress on several fronts to produce commercially available heavy-duty, series and parallel hybrid drive systems.
In January of 2006, we delivered what we understand to be the Nation's first functional Hybrid Drive school bus to International Truck and Engine Corporation (International). This is in addition to the Post Transmission 120kW Hybrid Drive series truck that was delivered to International in November 2005. Both the truck and bus are currently being evaluated at International's Fort Wayne Technical Center. International and IC Corporation claims to be a leading manufacturer of medium duty trucks and school buses, with approximately 40% of the medium duty truck build and approximately 60% of the school bus build in North America.
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. Six of our systems provided to Wrightbus have been integrated into six Hybrid Buses, which were introduced into London's public bus fleet in early February 2006.
On February 6, 2006, we confirmed that our components are currently being used in thirty (30) Ford Focus Hydrogen Fuel Cell Vehicles being evaluated in three (3) countries.
On February 28, 2006, we announced that we were working with and evaluating Hybrid Drive Systems for International Truck and Engine Corporation (International). We confirmed we have delivered a Post Transmission 120 kW Hybrid Drive 4200 series Truck to International in November 2005. The delivery of the truck is in addition to a Hybrid Drive School Bus that was delivered to IC Corp in January 2006.
Additionally, in Japan, Tomoe Electro-Mechanical Engineering and Manufacturing, Inc. has entered into a development and production contract with us for eight battery-electric locomotives for the Singapore Land Transport Authority (LTA) for service vehicles for the Seoul Mass Rapid Transit (SMRT) Circle Line system for maintenance, repair, shunting and recovery of passenger trains. Over the last several years, we successfully integrated our HybridPower(TM) drive systems into Tomoe's heavy-duty Isuzu dump truck application, three passenger trams and a mine tunnel crawler. The hybrid drive train components were delivered in late 2005 and early 2006 at Tomoe's Japan-based facilities. We believe that this latest market penetration in Asia enhances not only our alliances with both Tomoe and HHI, but also advances our hybrid-electric technologies in high voltage power management components. As part of this contract, we will develop a high voltage charging system to enable the locomotive to receive a direct battery charge from the high voltage rail. We will continue to work with Tomoe to develop other commercial and industrial applications for our drive systems including potential light rail applications.
We also anticipate continuing our work with Tsinghua University of China, and their fuel cell bus development program. We believe that 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 and that it is seeking up to 1,000 full-size hybrid-electric buses to support these global events. 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. This drive system is currently on demonstration in Hong Kong, PRC. Also, Hyundai Motor Company continues to evaluate our convertors in their fuel cell hybrid electric vehicles and we expect to deliver an additional 16 units in 2006.
RESEARCH AND DEVELOPMENT PROGRAMS
We continue to pursue government and commercially sponsored development programs for both ground and marine heavy-duty drive system applications.
In 2006, we continued the integration of a fuel cell powered step-van similar to the Hydrogenics program for HCATT and the U.S. Air Force. 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.
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 2006. The electronics package will include our 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.
CORPORATE MATTERS
On February 2, 2006, John Dexter joined us as Director of Planning and Operations. Mr. Dexter will be responsible for much of our operational activities as well as aiding in our resource and planning for its future growth. Mr. Dexter brings an extensive and impressive background to his position. He has more than 36 years of professional experience in Project Management and Systems Engineering. Mr. Dexter's experience has focused on the development and delivery of complex, innovative transportation projects with companies such as Port Authority of New York/New Jersey, Transit Systems Management and Seattle Monorail Services. Mr. Dexter's resume also includes work with General Motors, United Technologies and Martin Marietta. Additionally, Mr. Dexter brings a vast knowledge in the development of processes and systems throughout all phases of project design, manufacturing and delivery.
On April 3, 2006, Corinne Trott Bertrand, CPA joined us as Chief Financial Officer. Ms. Bertrand will be responsible for directing the overall plans of the accounting practices of the organization, as well as for overseeing treasury, accounting, budget, tax, and audit activities. Additionally, her responsibilities will include the oversight of the financial reporting function and the implementation of internal controls. She has over twenty four (24) years of experience in the financial sector, both in the public accounting field, and in private industry.
We previously reported in our 2005 Annual Report on Form 10-K a material weakness in internal control over inventory pricing, tracking, and the reserve analysis. In response to the material weakness, we have conducted a full review of inventory processes and procedures. Furthermore, we have begun to institute additional control procedures and monitoring to assure the effectiveness of the controls surrounding the inventory processes. However, for the quarter ended March 31, 2006, management has concluded that the Company's disclosure controls are not effective. Although management has begun the process of remediation, we cannot assure you that we will be successful in a timely manner, if at all.
FINANCIAL REVIEW
Net revenues for the three months ended March 31, 2006 were $309,000 as compared to $692,000 for the corresponding period in 2005. Net production sales for the quarter ended March 31, 2006 decreased to $264,000 from $492,000 in the same period in 2005. Research and development revenues decreased to $45,000 in the first quarter of 2006 from $200,000 during the same period in 2005. In the first quarter of 2006, our revenues derived mostly from production type contracts with Hyundai Motor Corporation and the State of Hawaii. Additionally, we recognized additional revenues from our project with Wrightbus and Tomoe.
Cost of revenues 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 revenues for the quarter ended March 31, 2006 decreased $110,000, or 19%, from $570,000 for the same period in 2005. This decrease is primarily attributable to the decrease in sales for the quarter, although we are also experiencing a reduction in integration support costs. We anticipate there may be an increase in cost of sales for products due to foreign exchange rate fluctuations of the U.S. dollar versus those currencies of our primary manufacturers.
Internal research, development and engineering expenses increased in the three months ended March 31, 2006 to $325,000 as compared with $217,000 in the same period in 2005. We continue to develop several new products such as our post transmission parallel hybrid drive system and enhancements to our diesel generator set which account for a majority of the increase. We continue to allocate increased resources to the development of our parallel hybrid drive systems, upgraded proprietary control software, enhanced DC-DC converters and advanced digital inverters and other power management firmware.
Selling, general and administrative expenses increased $316,000 to $924,000 for the three months ended March 31, 2006 from the previous year's comparable period. The increase is attributable to additional marketing, engineering and technical staff employed in the first quarter as well as increased expense due to stricter regulatory oversight in conjunction with the Sarbanes-Oxley Act of 2002. Management continues to implement cost reduction strategies in 2006 in its efforts to achieve profitability, although management cannot assure that profitability will be achieved.
Interest income/expense decreased by $248,000 for the first quarter of 2006, down from the same period in 2005, and shown net as interest income. The increase is illustrated as the net effect of interest income earned on cash and certificates of deposit, and regular interest expense recognized on the remaining debt outstanding.
We earned net income of $145,000 in the first quarter of 2006 compared to a loss of $812,000 in the first quarter of 2005. The increase was attributable primarily to the settlement of a portion of the debt outstanding to CMAC, resulting in a gain on settlement of $1,392,000.
ENOVA SYSTEMS, INC.
BALANCE SHEETS
ASSETS
As of As of
March 31, December 31,
2006 2005
------------ ------------
(unaudited)
Current assets
Cash and cash equivalents $4,826,000 $16,187,000
Short term investment 10,000,000 -
Accounts receivable, net 774,000 2,173,000
Inventories and supplies, net 1,014,000 1,016,000
Prepaid expenses and other current assets 274,000 182,000
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Total current assets 16,888,000 19,558,000
Property and equipment, net 597,000 576,000
Equity method investment 1,623,000 1,649,000
Other assets 163,000 190,000
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Total assets $19,271,000 $21,973,000
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $160,000 $1,396,000
Accrued payroll and related expense 207,000 195,000
Other accrued expenses 199,000 302,000
Current portion of notes payable 40,000 42,000
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Total current liabilities 606,000 1,935,000
Accrued interest payable 634,000 1,113,000
Notes payable, net of current portion 1,238,000 2,321,000
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Total liabilities $2,478,000 $5,369,000
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Commitments and contingencies
Stockholders' equity (deficit)
Series A convertible preferred stock - no par value
30,000,000 shares authorized
2,674,000 and 2,674,000 shares issued and outstanding
Liquidating preference at $0.60 per share,
aggregating $1,604,000 $1,679,000 $1,679,000
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
750,000,000 shares authorized
14,783,000 shares issued and outstanding 109,323,000 109,323,000
Common stock subscribed 60,000 30,000
Stock notes receivable (1,176,000) (1,176,000)
Additional paid-in capital 6,914,000 6,900,000
Accumulated deficit (102,441,000)(102,586,000)
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Total stockholders' equity 16,793,000 16,604,000
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Total liabilities and stockholders' equity $19,271,000 $21,973,000
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ENOVA SYSTEMS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31,
2006 2005
----------- -----------
Net revenues
Research and development contracts $45,000 $200,000
Production 264,000 492,000
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Total net revenues 309,000 692,000
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Cost of revenues
Research and development contracts 170,000 119,000
Production 290,000 451,000
----------- -----------
Total cost of revenues 460,000 570,000
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Gross profit (loss) (151,000) 122,000
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Operating expenses
Research and development 325,000 217,000
Selling, general and administrative 924,000 608,000
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Loss from operations (1,400,000) (703,000)
----------- -----------
Other income (expense)
Interest and other income (expense), net 179,000 (69,000)
Equity in losses of equity method investee (26,000) (40,000)
Debt extinguishment 920,000 -
Interest extinguishment 472,000 -
----------- -----------
Total other income (expense) 1,545,000 (109,000)
----------- -----------
Net income (loss) $145,000 $(812,000)
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Basic earnings (loss) per share $0.01 $(0.09)
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Diluted earnings (loss) per share $0.01 $(0.09)
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Weighted-average number of
shares outstanding 14,783,000 9,238,000
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ENOVA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31,
2006 2005
----------- -----------
Cash flows from operating activities
Net income / (loss) $145,000 $(812,000)
Adjustments to reconcile net income/(loss)
to net cash used in operating activities
Debt extinguishment (920,000) -
Interest extinguishment (472,000) -
Bad Debt Expense - 23,000
Depreciation and amortization 90,000 72,000
Equity in losses of equity method investee 26,000 40,000
Issuance of subscribed common stock for
services 30,000 28,000
Stock based compensation expense 14,000
(Increase) decrease in
Accounts receivable 1,399,000 (170,000)
Inventory and supplies 2,000 (135,000)
Prepaid expenses and other current
assets (92,000) (60,000)
Increase (decrease) in
Accounts payable (1,236,000) 226,000
Accrued expenses (91,000) 61,000
Deferred revenues - (118,000)
Accrued interest payable (7,000) 73,000
----------- -----------
Net cash used in operating activities (1,112,000) (772,000)
----------- -----------
Cash flows from investing activities
Purchase of short term investments $(10,000,000) $-
Purchases of property and equipment (84,000) (46,000)
----------- -----------
Net cash used in investing activities (10,084,000) (46,000)
----------- -----------
Cash flows from financing activities
Net payments on line of credit $- $(1,000)
Payment on notes payable and
capital lease obligations - (6,000)
Payment to extinguish debt (165,000) -
----------- -----------
Net cash provided by (used in) financing
activities (165,000) (7,000)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (11,361,000) (825,000)
Cash and cash equivalents,
beginning of period 16,187,000 1,575,000
----------- -----------
Cash and cash equivalents,
end of period $4,826,000 $750,000
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Supplemental disclosure of cash
flow information
Interest paid $- $3,000
=========== ===========
Income taxes paid $- $-
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Supplemental schedule of non-cash
investing and financing activities
Conversion of preferred stock
to common stock $- $14,000
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About Enova Systems, Inc.
Enova Systems is a leading supplier of efficient, environmentally-friendly digital power components and systems products. The Company's 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. The Company develops, designs and produces drive systems and related components for electric, hybrid-electric, and fuel cell powered vehicles. For further information, contact Enova Systems directly, or visit its Web site at http://www.enovasystems.com.