Enova Systems, Inc. (PINK:ENVS) Kick It Into High Gear

A few minutes after yesterday’s trading session began, Darth Trader sent out an email in which they explain how great the future for electric and hybrid vehicles is. They also talk at length about the opportunities and the solidity of a company called Enova Systems, Inc. (PINK:ENVS). We decided to see whether there’s any truth to those claims.

Every day we receive quite a few emails in which we read about potential revenue and about future growth of companies that, more often than not, are wasting the bigger part of their time pumping out optimistic press-releases rather than actually making an effort to begin some sort of operations. ENVS is a bit different.

They have been in the business of producing drivetrain systems and a host of other components for electric and hybrid vehicles for a couple of years now. Although this is still a relatively narrow niche, a lot of people argue that electricity is the future of transportation, which means that there are quite a lot of money to be made from the development of this technology. The components ENVS produce are also quite big and complex pieces of equipment which means that if they have registered some sales, the revenues should be quite substantial. We opened the latest 10-Q covering third quarter of 2012 and here’s what we found:

• cash: $108 thousand
• current assets: $3.6 million ($2.8 million of which comprise of inventory)
• current liabilities: $822 thousand
• revenue (first three quarters of 2012): $1 million

At this point some of you might be thinking: “It’s not everyday that you see a penny stock company with $1 million worth of revenue. These people must really know what they are doing.”. It is true, millions in revenue is a rare sight in Pennyland, but that’s not the end of the story. The operating expenses were so huge during the months covered, that when you draw the line, you’ll see that the total net loss for the period between January 2012 and September 2012 is a whopping $4 million.

If you read further down, the report will reveal that because of the continuous losses and the accumulated deficit that now amounts to over $155 million, ENVS were delisted from NYSE last year and although they file constant appeals, they are still forced to trade their shares on the OTC Markets. You will also notice that there is a legal proceeding against ENVS in which a company called Arens Controls Company alleges them of a breach of contract among other violations. While they have reached an agreement of most of the charges, there are still a couple of counts, which might affect ENVS adversely.

Apparently, a lot of investors overlooked these facts and yesterday’s trading was absolutely berserk – a total of 38 million shares changed hands and the price skyrocketed to $0.089 – an increase of 584%. Impressive as this is, the facts listed above raise some doubt as to whether they will be able to maintain this price in the long run.

If they don’t, in a couple of days’ time, their chart will look a lot like the one for CoroWare Inc (PINK:COWI) who, by the way, were the star of a Darth Trader promotion that that took place in January. As you can see, COWI gained some impressive figures after which it fell down like a rock, causing a lot of people to lose their money.

That’s why despite Darth Trader’s promises and the impressive revenues, we would advise you to think twice about the risks before jumping in on ENVS.