Business Context and Reporting Period
This Form 10-K was filed by Envision Solar International, Inc. (now associated with Beam Global in the request metadata) for the fiscal year ended December 31, 2019. The company designs, manufactures, and sells solar-powered infrastructure for electric-vehicle charging, outdoor media, and energy security. Its principal products included EV ARC, EV ARC 2020, EV ARC DC Fast Charging, and Solar Tree systems.
Revenue was generated primarily from product sales to government and commercial customers. The City of New York and Monterey Bay Air Resources District represented 44% and 22% of 2019 revenue, respectively. The company operated from a leased 50,000-square-foot San Diego facility and reported 26 employees plus nine temporary employees.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $5.11 million | $6.16 million | Down 17% |
| Gross profit/(loss) | $(153,774) | $(192,100) | Loss improved 20% |
| Gross margin | Approximately (3.0%) | Approximately (3.1%) | Improved modestly |
| Operating expenses | $3.12 million | $2.34 million | Up 33% |
| Loss from operations | $(3.27 million) | $(2.53 million) | Loss increased |
| Net loss | $(3.93 million) | $(3.60 million) | Loss increased 9% |
| Net loss per share | $(0.88) | $(1.24) | Improved on higher share count |
| Net cash used in operating activities | $(4.83 million) | $(712,456) | Use increased substantially |
| Cash balance | $3.85 million | $244,024 | Increased $3.61 million |
| Working capital | $5.14 million | $(2.76 million) | Improved by $7.90 million |
| Total liabilities | $1.46 million | $5.97 million | Down 75% |
| Accumulated deficit | $(45.81 million) | $(41.88 million) | Deficit increased |
Product sales were $5.09 million, maintenance fees were $13,055, and professional services revenue was $6,919. The company delivered 65 EV ARC units in 2019 compared with 90 units in 2018.
Financing activities provided $8.54 million of cash in 2019, primarily reflecting $13.20 million of gross proceeds from a public offering, partially offset by offering costs and debt repayments. The company used $109,586 in investing activities, including patent and equipment expenditures.
All major borrowings were repaid in 2019 using public-offering proceeds, except for a $214,427 related-party convertible note payable to the CEO, which was subsequently paid in February 2020 together with $52,326 of interest. The company also had a $9,294 current portion of an auto loan at December 31, 2019.
Material Changes Versus the Prior Comparable Period
- Revenue declined $1.05 million, or 17%, primarily because fewer EV ARC units were delivered and municipal order approvals and delivery schedules were delayed.
- Gross loss improved by $38,326 despite lower revenue, reflecting manufacturing cost reductions and labor efficiencies. Initial production of EV ARC 2020 and DC Fast Charging units caused start-up inefficiencies, scrap, and additional warranty-related costs.
- Operating expenses increased $780,347, driven by higher research and development, CFO severance and recruiting costs, investor and public relations, Nasdaq and filing fees, consulting, bonuses, and stock-based compensation.
- Interest expense declined 34% to $716,337 after debt repayments funded by the public offering.
- Cash increased materially, while current liabilities and total debt declined. Working capital shifted from a deficit of $2.76 million to positive working capital of $5.14 million.
- The company completed a one-for-fifty reverse stock split in April 2019 and issued 2.2 million shares for aggregate public-offering proceeds of $13.20 million before offering costs. The offering also created substantial potential dilution through warrants.
- Backlog was approximately $2.0 million at December 31, 2019, including 11 California-contract EV ARC units valued at approximately $1.18 million.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide quantitative revenue or earnings guidance. Management expected to continue investing in sales and marketing, expand customer and geographic coverage, improve manufacturing efficiency, increase fixed-cost absorption, negotiate lower component costs, and develop recurring revenue and outdoor-media opportunities. Management stated that it could not predict when, or whether, the company would achieve positive cash flow or profitability.
- The company has incurred recurring losses since inception and expects additional losses. It reported a $45.81 million accumulated deficit at year-end.
- Operating cash burn increased sharply in 2019. Although management expected existing proceeds to fund operations for at least the next twelve months, additional capital may be required if positive cash flow is delayed.
- Revenue is highly concentrated and orders are irregular. The City of New York contract extended through April 2021; the California contract was described as expiring in 2020 with renewal options. Neither customer was obligated to purchase additional units.
- COVID-19 was identified as a material risk to manufacturing, suppliers, employees, deliveries, customer demand, financial markets, and cash flows.
- The company faces competition from grid-connected charging infrastructure, utilities, charging hardware providers, and larger renewable-energy companies. Demand also depends on EV adoption, solar economics, government incentives, and permitting.
- Potential tariff increases, supply-chain disruption, component shortages, product defects, warranty or liability claims, intellectual-property disputes, and technological obsolescence could adversely affect results.
- The company reported material weaknesses in internal control over financial reporting. Duties were not sufficiently segregated, and inventory, purchasing, manufacturing, and product-costing systems were largely manual. Management planned to add accounting staff and implement an ERP or manufacturing system.
- The financial statement audit opined that the financial statements were fairly presented, but the auditors did not audit internal control effectiveness because the company qualified as a smaller reporting company.
- Cash deposits of approximately $3.68 million exceeded federally insured limits at December 31, 2019. The company reported no pending or threatened litigation expected to have a material effect.
Most Important Facts for Investors to Verify
- Whether revenue growth and positive gross margins materialized after 2019, particularly following the decline in EV ARC deliveries.
- Current cash, operating cash burn, financing needs, and whether the company remains dependent on equity or debt financing.
- Status, renewal, and order activity under the New York and California contracts, as well as customer concentration.
- Progress in correcting the disclosed material weaknesses and implementing automated inventory, purchasing, and manufacturing controls.
- Potential dilution from approximately 2.54 million outstanding warrants and 239,704 stock options at December 31, 2019.
- Actual impact of COVID-19, supply-chain conditions, tariffs, permitting, and government incentives on production and demand.
- Whether the $2.0 million reported backlog converted into revenue and cash, and whether the outdoor-media, EV-Standard, and UAV ARC initiatives generated meaningful sales.