Beam Global (formerly Envision Solar International, Inc.) — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2019. The financial statements are unaudited. The company designs, manufactures and sells solar-powered products for electric-vehicle charging, outdoor media and energy-security applications, including EV ARC and Solar Tree products.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1.64 million | $0.84 million | $2.83 million | $3.72 million |
| Gross profit | $61,545 | $18,734 | $8,443 | $53,034 |
| Gross margin | 3.8% | 2.2% | 0.3% | 1.4% |
| Operating loss | $678,968 | $554,417 | $1.25 million | $1.13 million |
| Net loss | $983,874 | $774,271 | $1.93 million | $1.79 million |
| Net loss per share | $0.21 | $0.27 | $0.51 | $0.62 |
| Operating cash flow | Not separately provided | Not separately provided | $(2.85) million | $0.35 million |
- Q2 revenue increased 94%, primarily from delivering the remaining 16 EV ARC units under New York City’s 50-unit order. Six-month revenue decreased 24% because the public offering closed later than anticipated, delaying product development and deliveries.
- Q2 gross margin improved but remained low. Management attributed low margins to low production volumes; the quarter also benefited from a $30,611 release of a prior contract-loss accrual. Six-month gross profit included a $68,593 benefit from the same accrual release.
- Operating expenses increased 29% in Q2 and 7% for the six-month period. Increases included Nasdaq fees, consulting, investor-relations, legal, travel and trade-show costs.
- Interest expense increased to $326,760 in Q2 and $701,966 for the six months. The Q2 amount included a $75,000 Gemini note extension fee and debt-discount amortization on debt repaid during the quarter.
- At June 30, 2019, cash was $5.92 million, compared with $244,024 at December 31, 2018. Total assets were $10.09 million, total liabilities were $2.61 million and stockholders’ equity was $7.49 million.
- Current assets were $9.22 million versus current liabilities of $2.31 million. Accounts receivable were $1.37 million and inventory was $1.50 million.
- Cash used in operating activities was $2.85 million, while investing activities used $27,785. Financing activities provided $8.55 million, including $13.20 million of public-offering proceeds, partly offset by debt repayments and offering costs.
Material changes versus the prior comparable period
- The company completed a public offering of common stock and warrants in April and May 2019, receiving approximately $13.20 million of gross proceeds and approximately $8.5 million net of offering costs and debt repayments. It issued 2.2 million common shares and approximately 2.3 million warrants in connection with the offering and underwriting arrangements.
- Proceeds were used to repay the convertible line of credit, the Lender convertible note, the Gemini note and other convertible notes. At June 30, 2019, remaining significant debt included the related-party convertible note of $201,015, an auto loan of $14,606 in total, and lease liabilities.
- Common shares outstanding increased to 5,114,296 from 2,906,630 at December 31, 2018. The company also completed a one-for-fifty reverse stock split in April 2019.
- The company began trading common stock and warrants on the Nasdaq Capital Market under EVSI and EVSIW in April 2019.
- The company adopted the new lease standard on January 1, 2019, recording a right-of-use asset of $557,575 and related lease liability of $611,028 at June 30, 2019.
- Contracted backlog was approximately $2.5 million at June 30, 2019. Deferred revenue was $835,110, including $791,913 of product deposits expected to be delivered within six months.
Outlook, risks and unusual items
- Management believes the company’s cash is sufficient to fund liabilities and operations for twelve months from the report date, but states that losses are expected to continue and that it cannot predict when, or whether, positive cash flow will be achieved.
- Management expects margins to improve through higher production volumes, fixed-cost absorption, supplier negotiations, production efficiencies and product-cost reductions. No formal revenue or earnings guidance was provided.
- Revenue is concentrated: one customer represented 79% of six-month 2019 revenue, and one customer represented 77% of accounts receivable at June 30, 2019. Two customers represented 74% of Q2 revenue.
- The company relies on a single battery supplier, although it is qualifying additional suppliers. Customer order timing and production volumes may cause significant quarterly fluctuations.
- The company has incurred significant cumulative losses, with an accumulated deficit of $43.81 million. Future financing may be required if operating cash flow does not improve, creating potential dilution or financing risk.
- Outstanding potentially dilutive securities at June 30, 2019 included 276,229 options, 2,540,892 warrants and convertible debt convertible into 33,062 common shares.
- Management reported that disclosure controls and procedures were not sufficiently effective as of June 30, 2019. A material weakness related to limited administrative staff, segregation of duties and communication and disclosure processes remained outstanding.
- The headquarters and manufacturing lease expires in August 2020, with monthly payments ranging from approximately $48,672 to $50,619.
- A new CFO joined on July 23, 2019 and received options to purchase 49,104 shares at an exercise price of $5.78 per share.
- The filing identifies risks relating to competition, commercialization, customer financing, demand, regulation, raw-material costs, litigation, liquidity, stock-price volatility and further dilution. No material pending litigation was reported.
Investor verification points
- Verify the sustainability of the Q2 revenue increase and the approximately $2.5 million backlog, including customer concentration and delivery timing.
- Assess whether production volumes and cost reductions can improve the exceptionally low gross margins.
- Monitor operating cash burn, remaining cash runway and the possibility of additional equity or debt financing.
- Review the effect of the 2.2 million-share issuance, reverse split and more than 2.5 million outstanding warrants and options on future dilution.
- Evaluate the company’s remediation of its material weakness in disclosure controls and internal financial reporting.
- Confirm repayment terms and remaining obligations for the related-party convertible note, lease liabilities and other commitments.