Beam Global (then Envision Solar International, Inc.) — Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2015, compared with the three months ended March 31, 2014. The registrant reported under the name Envision Solar International, Inc. and operated in one segment, designing and manufacturing solar products and renewable-energy technology for electric-vehicle charging, outdoor advertising, renewable energy production, and disaster preparedness. Its principal products were EV ARC and Solar Tree systems.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $100,651 | $202,659 |
| Gross loss | $(6,173) | $(16,706) |
| Operating expenses | $503,194 | $650,505 |
| Loss from operations | $(509,367) | $(667,211) |
| Net loss | $(459,225) | $(1,017,230) |
| Net loss per share | $(0.00) | $(0.01) |
| Cash used in operating activities | $(604,020) | $(458,583) |
| Cash at period end | $798,534 | $827,515 |
Revenue declined approximately 50.3% year over year. The reported gross margin was approximately negative 6.1%, compared with negative 8.2% in Q1 2014. Net margin improved to approximately negative 456.3% from negative 501.9%, primarily because of lower operating expenses, lower interest expense, and a gain from the fair-value remeasurement of the embedded conversion option liability.
At March 31, 2015, current assets were $1.94 million and current liabilities were $3.24 million, producing a working-capital deficit of $1.30 million. Total assets were $2.25 million, while stockholders’ deficit was $987,127. Cash declined by $582,020 during the quarter. Inventory increased to $739,248, principally from work in process for EV ARC units, and deferred revenue increased to $1.04 million from $717,291.
Short-term convertible notes totaled $956,325 before a $126,035 discount and $830,290 net of discount. The company also reported a $95,616 related-party convertible note, $43,033 of other notes payable, and a $148,200 embedded conversion option liability. The Gemini secured bridge note had a gross balance of $856,325 and accrued interest of $112,528.
Material changes versus the prior comparable period
- Revenue decreased by $102,008, or approximately 50.3%.
- Gross loss narrowed by $10,533, while operating expenses declined $147,311, or 22.6%.
- Net loss improved by $558,005, or approximately 54.8%.
- Interest expense fell to $157,453 from $564,802, largely because Q1 2014 included a $482,300 warrant inducement expense related to debt conversion.
- Operating cash use increased by $145,437, reflecting higher inventory investment, timing of receivables and payables, and other working-capital needs.
- Financing cash inflows fell to $22,000 from $894,000; no common-stock sale proceeds were reported in Q1 2015.
- Shares issued or issuable and outstanding increased to 98,824,070 from 98,482,611 at December 31, 2014.
Guidance, outlook, risks, contingencies, and unusual items
Management reported more than $2.3 million of contracted backlog and $1.04 million of deferred revenue, with a significant portion related to EV ARC units. From April 1 through May 10, 2015, the company stated that it delivered eight EV ARC units representing more than $400,000 of revenue and expected to deliver five to eight additional units before June 30, 2015. Management also cited potential opportunities involving California and New York City procurement initiatives.
Management stated that EV ARC pricing was below initial production costs at the company’s early production volumes. It expects scale efficiencies, lower component costs, manufacturing improvements, and process changes to support future gross profits, but provided no firm profitability timetable. The company expects to continue pursuing product sales, capital raises, and debt financing.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern. The company had continuing operating losses, a $1.30 million working-capital deficit, a $31.22 million accumulated deficit, and a $987,127 stockholders’ deficit. Management acknowledged that it did not have sufficient capital for current needs and that additional financing might not be available on acceptable terms.
- Customer concentration was significant: two customers represented 96% of Q1 revenue, and three customers represented 99% of accounts receivable.
- $673,645 of cash exceeded federally insured deposit limits.
- Convertible debt, potential conversion features, options, and warrants could materially dilute existing shareholders; the filing identified 7,538,279 shares underlying convertible notes, 15,387,007 shares underlying options, and 29,219,441 shares underlying warrants.
- Management concluded that disclosure controls were not effective as of March 31, 2015. Material weaknesses included the absence of an audit committee financial expert, inadequate segregation of duties, and the lack of a formal code of business conduct and ethics.
- The company reported no material pending litigation, other than a workers’ compensation appeals claim of a former employee, and no material off-balance-sheet arrangements.
- On April 7, 2015, the company granted 150,000 options to two non-executive employees with a $0.13 exercise price, four-year vesting, and a total valuation of $18,483.
Important facts for investors to verify
- Whether subsequent EV ARC deliveries and the reported backlog converted into recognized revenue and cash collections.
- The availability, timing, cost, and dilution effects of planned equity or debt financing.
- The maturity extensions, repayment requirements, accrued interest, security interests, and conversion terms of outstanding debt.
- Whether production volumes and manufacturing changes actually moved product gross margins from negative to positive.
- The impact of customer and accounts-receivable concentration on future revenue and liquidity.
- Whether management remediated the disclosed material weaknesses in internal control and disclosure controls.