Business Context and Reporting Period
This filing is Envision Solar International, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, filed March 29, 2013. The request metadata identifies Beam Global, but the filing text identifies the registrant as Envision Solar International, Inc.; this entity-name discrepancy should be verified.
The company develops solar parking products and proprietary technologies, including Solar Tree, Solar Socket, EnvisionTrak tracking, SunCharge EV charging integration, and the newly developed EV ARC autonomous solar-powered EV charging system. The company operated in one reportable segment.
Financial Results and Key Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Revenue | $721,835 | $2,303,142 | Down 68.7% |
| Gross profit | $168,607 | $560,351 | Down 69.9% |
| Gross margin | 23.4% | 24.3% | Down 0.9 percentage points |
| Operating expenses | $2,368,793 | $3,571,558 | Down 33.7% |
| Loss from operations | $(2,200,186) | $(3,011,207) | Improved |
| Interest expense | $972,027 | $754,126 | Up 28.9% |
| Net loss | $(2,481,728) | $(2,547,493) | Improved 2.6% |
| Basic and diluted loss per share | $(0.04) | $(0.05) | Improved |
| Cash used in operations | $(1,162,812) | $(1,970,831) | Improved |
| Cash balance at year-end | $257,396 | $468,776 | Down 45.1% |
At December 31, 2012, total assets were $812,101, current assets were $706,418, current liabilities were $2,860,197, and stockholders’ deficit was $2,048,096. Working-capital deficit was $2,153,779, compared with $2,657,976 in 2011.
Short-term borrowings of approximately $1.726 million, generally bearing 10% interest, were scheduled to mature on December 31, 2013. Convertible notes payable, net of discount, totaled $1,050,253, and the related embedded conversion-option liability was $456,073.
Financing activities provided $961,000 in 2012, primarily from the issuance of common stock. Capital expenditures were $9,568. The company had no material off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Revenue declined substantially because two significant 2011 contracts were completed in 2012, while efforts to secure larger customers produced longer-than-expected sales cycles.
- Gross margin decreased modestly, partly because the company recorded approximately $30,000 of losses on design elements for a Cadillac customer and approximately $20,000 of losses on initial EV ARC units.
- Operating expenses declined primarily because stock-option expense decreased to $766,732 from $1,305,716, investor-relations and advisory costs declined by approximately $340,000, payroll costs declined by approximately $120,000, and marketing costs declined by approximately $110,000.
- Interest expense increased due principally to $674,254 of non-cash debt-discount amortization and approximately $70,000 of additional convertible-debt conversion fees.
- The company converted a $1.0 million convertible note and accrued interest into 3,647,591 shares, reducing debt but increasing equity dilution.
- Shares issued or issuable and outstanding increased to 58,097,609 at year-end from 49,405,732. Subsequent to year-end and through the filing date, the company issued 12,291,333 additional shares for $1,843,700 and related warrants.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management expected to launch EV ARC near the end of the first quarter or during the second quarter of 2013 and believed the product could materially expand the company’s addressable market. Two EV ARC units had been sold to a major western U.S. city, subject to performance and potential follow-on orders.
Management cited a non-binding General Motors letter of intent covering potential availability of Solar Tree structures to 952 Cadillac dealerships. The company also signed a memorandum of understanding and teaming agreement relating to a potential deployment of up to 2,300 Solar Tree structures in North Carolina, expected to begin in the second quarter of 2013. These opportunities were not firm revenue commitments and were subject to execution, financing, customer decisions, and other conditions.
The company stated that it did not have sufficient capital to meet current cash needs, including ongoing reporting costs, and expected to seek additional equity and debt financing. Management disclosed substantial doubt about the company’s ability to continue as a going concern. The independent auditor included a going-concern emphasis, citing recurring losses, operating cash outflows, working-capital deficiency, stockholders’ deficit, and accumulated deficit of $24,822,188.
- Key risks include insufficient capital, inability to raise financing, persistent operating losses, inability to commercialize products, long customer sales cycles, customer financing constraints, competition, declining or changing government incentives, regulatory and permitting requirements, litigation, and further shareholder dilution.
- Customer concentration was significant: four customers each exceeded 10% of 2012 revenue, and three customers accounted for 46%, 31%, and 18% of year-end accounts receivable.
- The company relied on outsourced fabrication and installation and identified manufacturing capacity, deployment delays, and cost control as important growth constraints.
- Outstanding potential dilution included approximately 23.05 million stock options, 7.81 million warrants, and convertible debt convertible into approximately 8.04 million shares at year-end.
- Disclosure controls and internal control over financial reporting were deemed ineffective because of material weaknesses involving the control environment, lack of an audit committee financial expert, limited segregation of duties, and incomplete IT and ethics infrastructure.
- Legal and contingent obligations included a $122,421 accrued landlord judgment and $152,667 accrued payable related to a former vendor settlement. The company had a remaining lease obligation of approximately $107,168.
Important Facts for Investors to Verify
- Confirm whether this filing belongs to Beam Global or to Envision Solar International, Inc., as stated throughout the filing.
- Assess the going-concern qualification and the company’s ability to fund operations, meet 2013 debt maturities, and obtain additional financing.
- Verify the status, binding nature, financing, timing, and expected economics of the General Motors and Horizon Energy opportunities.
- Review the extent of dilution from post-year-end equity offerings, warrants, options, and convertible instruments.
- Evaluate customer concentration and whether 2012 revenue declines reflect temporary project timing or a sustained weakness in demand.
- Review the material weaknesses in internal controls and management’s remediation progress.
- Reconcile reported non-cash debt charges, embedded derivative valuations, debt conversions, and settlement gains when assessing underlying cash economics.