Envision Solar International, Inc. (now identified in the request as Beam Global) — FY2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016; filed March 31, 2017. The filing issuer is Envision Solar International, Inc., a Nevada corporation, trading on OTC-QB under EVSI. The filing text does not identify the company as Beam Global.
Business Context
The company designs, manufactures, and sells solar-powered products serving electric-vehicle charging, digital out-of-home advertising, and energy-security markets. Principal products include the transportable EV ARC and fixed Solar Tree systems, incorporating solar generation, battery storage, and proprietary EnvisionTrak tracking technology.
During 2016, the company shifted toward selling Solar Tree products as engineered kits for third-party installation, expanded in-house manufacturing, leased a 50,000-square-foot San Diego facility, and increased sales and marketing efforts. It delivered 31 EV ARC units and 13 Solar Tree units, including 25 EV ARC units ordered under the State of California contract.
Financial Highlights
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $2.781 million | $2.642 million | Up 5.3% |
| Gross loss | $(145) thousand | $(78) thousand | Loss increased |
| Gross margin | Approximately (5.2%) | Approximately (3.0%) | Lower |
| Operating expenses | $2.644 million | $1.648 million | Up 60.5% |
| Operating loss | $(2.788) million | $(1.726) million | Loss increased |
| Net loss | $(2.634) million | $(1.840) million | Loss increased 43.2% |
| Net loss per share | $(0.02) | $(0.02) | Unchanged as reported |
| Cash used in operations | $(1.799) million | $(2.469) million | Use decreased |
| Cash used in investing | $(153) thousand | $(264) thousand | Use decreased |
| Cash provided by financing | $1.928 million | $1.385 million | Increased |
| Cash balance | $8.6 thousand | $32.5 thousand | Decreased |
Liquidity, Debt, and Capitalization
- Current assets were $1.536 million versus current liabilities of $3.413 million, producing a working-capital deficit of $1.877 million.
- Total liabilities were $3.443 million, including $1.877 million of short-term borrowings. The $1.0 million Silicon Valley Bank revolving line was fully drawn at year-end.
- The company raised $1.820 million through private placements, issuing 12.133 million common shares at $0.15 per share, and borrowed $200,000 under the line of credit.
- Stockholders’ deficit was $1.385 million; accumulated deficit was $35.235 million.
- Management stated that the company did not have sufficient capital to meet estimated 2017 cash needs of approximately $2.4 million, excluding debt burden, and expected to seek additional equity and debt financing.
- Subsequent to year-end, the Silicon Valley Bank facility was amended effective March 27, 2017: maturity was extended to March 1, 2020, the commitment increased to $1.5 million, and principal repayment was deferred until January 2018.
- In February 2017, $600,000 of convertible notes plus $104,709 of accrued interest was converted into 4,698,060 common shares.
Material Changes Versus 2015
- Revenue increased modestly, but gross loss widened because production volumes remained insufficient to absorb fixed manufacturing costs and facility expenses increased.
- Operating expenses rose substantially, primarily due to non-cash stock-based compensation, which increased to $911,087 from $121,915, including $442,871 of stock-option expense.
- Sales and commission expenses increased as the company expanded its sales organization and pursued broader government and commercial opportunities.
- Interest expense declined to $275,776 from $384,240, while a $450,927 gain on debt settlement materially reduced the reported loss; the gain primarily reflected reversal of aged liabilities whose statutes of limitation had expired.
- Inventory declined to $271,802 from $422,175, while accounts receivable increased to $1.161 million from $831,617, partly because of December deliveries collected in 2017.
- Common shares issued or issuable and outstanding increased to 120.1 million from 105.2 million. Options outstanding increased to 19.9 million from 15.3 million, and warrants outstanding were 28.2 million at year-end.
Guidance, Outlook, Risks, and Unusual Items
- Management reported approximately $665,000 of contracted backlog at December 31, 2016 and expected fulfillment during the following two quarters.
- Management expects higher production volumes, manufacturing efficiencies, component-cost reductions, and expanded sales efforts to support future positive gross margins, but provided no formal revenue or earnings guidance.
- Potential growth initiatives included California and New York government contracts, international expansion in Spain, the European Union, China, and the Caribbean, ARC Mobility trailers, and EV ARC Digital advertising deployments.
- The independent auditor included a going-concern qualification. Management stated that substantial doubt existed regarding the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, working-capital and stockholders’ deficits, and dependence on additional financing.
- Key risks include limited liquidity, debt maturities and repayment obligations, dependence on additional capital, customer concentration, gross-margin losses, intense competition, permitting and regulatory requirements, technology commercialization, dilution, and potential inability to collect receivables.
- Three customers each represented more than 10% of 2016 revenue. The filing does not identify those customers in the revenue concentration disclosure.
- Management reported material weaknesses in disclosure controls and internal control over financial reporting, including inadequate segregation of duties, insufficient information-technology controls, and the absence of an audit-committee financial expert and formal code of ethics.
- No material litigation was pending as of December 31, 2016, and the company reported no off-balance-sheet arrangements.
Investor Verification Checklist
- Verify the issuer’s corporate name and ticker because the supplied metadata references Beam Global while the filing identifies Envision Solar International, Inc. and EVSI.
- Reconcile the going-concern qualification with subsequent financing, debt conversions, and the March 2017 bank-facility amendment.
- Assess whether the company achieved positive gross margins and converted its reported backlog into cash after 2016.
- Review customer concentration, receivable collections, and the company’s dependence on government and a limited number of customers.
- Evaluate dilution from outstanding options, warrants, convertible instruments, restricted stock, and additional capital raises.
- Review remediation of the reported material weaknesses in internal control and disclosure controls.
- Confirm the commercial status and economics of the New York City, California, international, and EV ARC Digital opportunities, which remained partly prospective at filing.