Beam Global / Envision Solar International, Inc. — Form 10-Q Summary
Business context and reporting period
The filing is for Envision Solar International, Inc. and its wholly owned subsidiary, not a registrant identified as Beam Global in the filing text. It covers the three and nine months ended September 30, 2014, and was filed November 14, 2014. The company develops solar products and technology solutions for electric-vehicle charging, out-of-home advertising, renewable energy production, and disaster preparedness, including Solar Tree and EV ARC products.
Financial condition and results
| Metric | Three months ended September 30, 2014 | Three months ended September 30, 2013 | Nine months ended September 30, 2014 | Nine months ended September 30, 2013 |
|---|---|---|---|---|
| Revenue | $237,604 | $80,000 | $862,008 | $237,810 |
| Gross loss | $(49,921) | $(54,634) | $(86,325) | $(117,444) |
| Gross margin | (21.0%) | (68.3%) | (10.0%) | (49.4%) |
| Operating expenses | $559,153 | $539,539 | $1,742,527 | $1,557,388 |
| Net loss | $(555,864) | $(323,986) | $(2,473,110) | $(2,078,745) |
| Net loss per share | $(0.01) | — | $(0.03) | $(0.03) |
- Cash was $605,286 at September 30, 2014, compared with $392,098 at December 31, 2013.
- Operating activities used $1,744,632 during the first nine months of 2014, versus $1,098,801 in the comparable 2013 period. Financing activities provided $1,958,070, primarily from private equity offerings.
- Current assets were $1,261,167 and current liabilities were $2,391,019, producing a working-capital deficit of $1,129,852. Stockholders’ deficit was $1,032,942 and accumulated deficit was $30,089,208.
- Convertible notes payable, net of discount, totaled $578,220. Other current debt included a $101,616 related-party convertible note, $100,000 of principal under the Pegasus note, and $43,033 of notes payable.
- The embedded conversion option liability was $509,379, compared with $281,265 at December 31, 2013. The liability is a Level 3 fair-value measurement and generated a $250,447 gain in the first nine months.
- Accounts receivable increased to $371,548 from $179,459, while inventory increased to $220,022 from $19,472, principally reflecting project timing and EV ARC production activity.
Material changes versus the prior comparable period
- Nine-month revenue increased approximately 262.4% to $862,008, driven primarily by two Solar Tree installation projects and delivery of two EV ARC units.
- Despite higher revenue, the company remained unprofitable. The nine-month net loss increased approximately 19.0% to $2.47 million, mainly because of higher operating expenses and interest-related costs.
- The nine-month gross loss improved from $117,444 to $86,325, although the company continued to sell EV ARC units below current production costs and incurred Solar Tree project cost overruns.
- Operating expenses rose approximately 11.9% to $1.74 million. Stock-based compensation and director-related consulting costs were significant contributors.
- Interest expense increased to $878,570 from $484,938, including a $482,300 expense for warrants issued as an inducement to convert convertible debt.
- In February 2014, $550,000 of convertible debt and $175,850 of accrued interest were converted into common stock. The company also issued substantial warrants in connection with the debt amendment and conversion.
- The company issued 13,586,724 shares for $2,038,010 in private placements during the first nine months, increasing dilution. At September 30, 2014, 91,497,422 shares were issued or issuable and outstanding, compared with 71,702,942 at December 31, 2013.
Guidance, outlook, risks, contingencies, and unusual items
- Contracted backlog was approximately $2.0 million at September 30, 2014, including orders for 22 EV ARC units. Management expected production efficiencies, component-cost reductions, design improvements, and a limited fabrication facility opened in October 2014 to reduce EV ARC costs and improve margins.
- Management stated that the company had not earned a gross profit on product and service sales during the prior two years and could not predict when, or if, positive cash flow would be achieved.
- The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern. Management planned to seek additional private or debt financing, increase sales, and renegotiate debt maturities, but disclosed no assurance that financing would be available or sufficient.
- Debt maturities and minimum liability payments could exceed available resources. The company specifically expected to renegotiate debt instruments becoming due in 2014 and 2015.
- Revenue recognition depends partly on percentage-of-completion estimates for construction projects, including estimated costs to complete. Revisions to those estimates could materially affect reported revenue and profit.
- Customer concentration was significant: two customers represented 93% of accounts receivable at September 30, 2014, and three customers represented 100% of nine-month revenue.
- Management concluded that disclosure controls and procedures were ineffective. Material weaknesses included the absence of an audit committee financial expert, inadequate segregation of duties, and the absence of a formal code of business conduct and ethics.
- Subsequent to September 30, 2014, the company issued 3,699,999 shares and warrants for $555,000 before offering costs.
- No material pending or threatened litigation was reported, and the company reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Confirm the registrant identity and whether the filing relates to Beam Global or the historical Envision Solar entity.
- Assess the going-concern risk, projected cash burn, financing availability, and the company’s ability to meet debt maturities and operating obligations.
- Verify the quality and collectability of receivables, given the concentration of customers and the increase in accounts receivable.
- Evaluate whether EV ARC and Solar Tree projects can achieve positive gross margins after production, labor, installation, and battery costs.
- Review the full capitalization table, including convertible debt, conversion terms, options, warrants, and potential dilution.
- Monitor the material internal-control weaknesses and any remediation progress.
- Reconcile backlog, customer contracts, project-completion estimates, and subsequent financing proceeds to later filings.