Beam Global (then Envision Solar International, Inc.) — Q1 2019 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2019, compared with the three months ended March 31, 2018. The company designs and manufactures solar-powered EV charging, outdoor media, and energy-security products, principally the EV ARC and Solar Tree platforms. The company operated in one segment. A 1-for-50 reverse stock split was completed in April 2019, and historical share and per-share data were retroactively adjusted.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $1.190 million | $2.876 million | Down 59% |
| Gross profit (loss) | $(53,102) | $34,300 | Declined to a loss |
| Gross margin | (4.5%) | 1.2% | Down approximately 570 bps |
| Operating expenses | $522,667 | $609,169 | Down 14% |
| Loss from operations | $(575,769) | $(574,869) | Approximately flat |
| Interest expense | $375,206 | $437,546 | Down 14% |
| Net loss | $(949,631) | $(1.012 million) | Loss narrowed 6% |
| Basic and diluted loss per share | $(0.31) | $(0.35) | Improved |
| Cash from (used in) operations | $(222,177) | $466,138 | Shifted to use of cash |
Revenue was primarily generated from delivery of 18 EV ARC units to New York, versus 42 units delivered in the prior-year quarter. Product sales were $1.187 million; maintenance fees were $2,130; and professional services revenue was zero. The company reported approximately $3.7 million of contracted backlog at March 31, 2019.
Cash was $125,791 at March 31, 2019, down from $244,024 at December 31, 2018. Current assets were $2.864 million, while current liabilities were $7.080 million, producing a working-capital deficit of $4.215 million. Total assets were $4.099 million, total liabilities were $7.491 million, and stockholders’ deficit was $3.393 million.
Cash used in investing activities was $13,229, primarily for patent costs and equipment. Financing activities provided $117,173, principally from $158,442 of net convertible-line borrowings, partially offset by loan payments and deferred equity-offering costs.
Debt, liquidity, and material changes
- At March 31, 2019, the company had a $1.118 million convertible line of credit, $1.427 million of net convertible notes payable, an $862,500 note payable, related-party convertible debt of $187,017, and auto-loan obligations.
- The $1.5 million secured lender note had previously been in default after the company missed a December 2018 payment; an amendment extended repayment to June 30, 2019 or the closing of a public offering.
- The $750,000 note payable reached maturity on February 28, 2019 and was subject to an oral forbearance agreement, later confirmed in writing.
- The company adopted the new lease standard on January 1, 2019, recording a right-of-use asset of $872,897. At March 31, 2019, the related right-of-use asset was $682,062 and the lease liability was $741,963.
- Subsequent to quarter-end, the company completed an underwritten offering of 2.0 million units at $6.00 per unit and sold an additional 300,000 warrants under the over-allotment option. Gross proceeds were approximately $12.0 million and offering costs were approximately $1.35 million.
- Using the offering proceeds, the company subsequently paid approximately $3.946 million to retire the convertible notes, convertible line of credit, note payable, and accrued interest. It also paid a $75,000 extension fee to Gemini.
- Management stated that the post-quarter-end financing provided sufficient cash to fund liabilities and operations for the upcoming year, although the company had historically incurred recurring losses and negative operating cash flow.
Outlook, commentary, risks, and unusual items
Management expects to pursue higher production volumes, cost reductions, additional sales personnel and channels, vendor negotiations, greater market awareness, and maturation of long-cycle sales opportunities. Management did not provide a quantified revenue or earnings forecast and stated that it cannot predict when, or whether, positive cash flow will be achieved.
- All products delivered during the quarter generated losses, resulting in negative gross margin. Management attributed the result partly to pricing intended to build customer relationships and market share.
- One customer represented more than 99% of both net revenue and accounts receivable at March 31, 2019, creating significant customer-concentration and collection risk.
- The company disclosed substantial accumulated losses, a working-capital deficit, stockholders’ deficit, recurring operating losses, and dependence on external capital.
- Key stated risks include inadequate capital, inability to pay liabilities, fluctuations in quarterly results, failure to commercialize products, competition, demand reductions, raw-material cost changes, regulation, litigation, and future dilution from shares, warrants, and options.
- As of March 31, 2019, management concluded that disclosure controls were not sufficient. A material weakness related to segregation of duties, limited administrative staff, and communication and disclosure processes remained outstanding.
- No material pending or threatened litigation was reported, and the company reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the approximately $12.0 million April 2019 financing and subsequent debt repayment materially improved liquidity and eliminated the disclosed default and forbearance concerns.
- The company’s ability to convert the approximately $3.7 million backlog into timely deliveries, revenue, and positive gross margins.
- Customer concentration, collectability of the $1.190 million accounts-receivable balance, and dependence on a single customer.
- Whether production-cost reductions and higher volumes produce sustained positive gross margins and operating cash flow.
- The fully diluted share count, including the 2.0 million offering shares, 2.3 million offering and over-allotment warrants, representative warrants, and other convertible or exercisable securities.
- Remediation of the material weakness in disclosure controls and internal control over financial reporting.