Beam Global (formerly Envision Solar International, Inc.) — Q1 2020 Form 10-Q Summary
Business Context and Reporting Period
The unaudited Form 10-Q covers the three months ended March 31, 2020, filed May 14, 2020. The company designs, manufactures and sells solar-powered products serving electric-vehicle charging infrastructure, outdoor media, and energy security/disaster preparedness markets. Its principal products included the EV ARC, EV ARC 2020, Solar Tree and related charging and emergency-power solutions.
The company remained exempt from California’s COVID-19 shelter-in-place order because it was classified within the transportation and energy infrastructure sector. It continued production and deliveries, although prospective-customer engagement, projects, travel and trade-show activity were disrupted.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $1.317 million | $1.190 million | 11% increase |
| Gross loss | $(39,641) | $(53,102) | 25% improvement |
| Gross margin | Approximately (3.0%) | Approximately (4.5%) | Improved |
| Operating expenses | $902,000 | $522,667 | 73% increase |
| Loss from operations | $(941,641) | $(575,769) | 64% larger loss |
| Net loss | $(942,521) | $(949,631) | Approximately flat |
| Net loss per share | $(0.18) | $(0.31) | Improved |
| Net cash used in operations | $(1.553 million) | $(222,177) | Higher cash use |
Revenue was primarily from product sales of $1.302 million, with smaller amounts from maintenance fees and professional services. Three customers represented 26%, 17% and 14% of revenue. The company reported approximately $3.6 million of contracted backlog at March 31, 2020, including a $2.0 million Electrify America order for 30 EV ARC charging stations.
Cash was $2.432 million at March 31, 2020, compared with $3.849 million at December 31, 2019. Working capital was $4.576 million. Current assets were $6.320 million and current liabilities were $1.745 million, implying a current ratio of approximately 3.6x. Inventory increased to $2.526 million from $1.844 million, primarily to support expected second-quarter deliveries.
Total liabilities were $1.745 million, compared with $1.463 million at year-end 2019. The related-party convertible note was paid in February 2020, including principal and accrued interest. Remaining disclosed debt consisted primarily of a $6,576 current portion of an auto loan. Stockholders’ equity was $5.270 million, and accumulated deficit was $46.752 million.
Cash used in investing activities was $143,512, including equipment purchases and patent costs. Financing activities provided $279,632, primarily from warrant exercises. Cash declined by $1.417 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Revenue increased 11%, reflecting a broader customer base compared with Q1 2019, when one City of New York delivery represented more than 99% of revenue.
- Gross loss narrowed, but the company remained below gross breakeven. Management attributed expected future improvement to higher production volumes, better overhead absorption, supplier negotiations and process efficiencies.
- Operating expenses increased 73%, largely due to expanded sales, marketing and investor-relations efforts, additional sales personnel and commissions, higher compensation, and stock-based compensation.
- Interest expense fell 97% because debt had largely been repaid following the 2019 public offering.
- Operating cash use increased substantially because of inventory purchases, vendor prepayments, higher accounts receivable and repayment of the related-party deferred-compensation note.
- Warrants for 43,993 shares were exercised for $282,350. At quarter-end, 2,491,797 warrants remained outstanding, with potential proceeds of approximately $15.978 million.
- The company granted an employee options to purchase 49,104 shares at $4.57 per share, vesting over four years.
- Management continued to report material weaknesses in internal controls, including insufficient segregation of duties and manual manufacturing and inventory systems.
Guidance, Outlook, Risks and Unusual Items
Management stated that it believed available cash was sufficient to fund liabilities and operations for the twelve months from the report date, but acknowledged continued historical losses and uncertainty regarding when positive cash flow may be achieved. The company may need additional equity or debt financing before reaching positive cash flow and planned to file a Form S-3 registration statement to facilitate future capital raising.
Three large projects delayed from 2019 were again moved to the quarter ending June 30, 2020. Quarterly shipments are expected to fluctuate based on order size and delivery timing. The City of New York contract was renewed through April 2021. The State of California contract expires June 23, 2020, with two one-year renewal options at the state’s discretion.
COVID-19 created uncertainty regarding customer funding, project timing, sales activity, travel and trade shows. The company could not determine the eventual effect on operations. Other material risks include recurring losses, insufficient capital, dependence on increased sales volumes, customer financing constraints, competition, raw-material cost changes, potential dilution, technology commercialization, and the ability to pay liabilities.
The company entered into a new facility lease beginning September 2020 and continuing through August 2025, with monthly payments ranging from $52,000 to $58,526 and two one-year renewal options. No material pending or threatened litigation was reported. No material off-balance-sheet arrangements were disclosed.
Important Facts for Investors to Verify
- Whether the approximately $3.6 million backlog, including the Electrify America order, converts to timely shipments and revenue.
- Whether the company achieves sustained positive gross margins and reduces operating cash burn.
- The effect of COVID-19 on project delays, customer funding, collections and future orders.
- Cash runway and the likelihood, timing and terms of future equity or debt financing.
- Potential dilution from 2.49 million outstanding warrants, 288,808 options and future capital raises.
- Progress in remediating the disclosed material weaknesses and implementing automated manufacturing, purchasing and inventory controls.
- Customer concentration, accounts-receivable collections and inventory recoverability.
- Lease obligations beginning in September 2020 and the company’s ability to support the higher facility payments.