Beam Global (formerly Envision Solar International, Inc.) — Q2 2020 Form 10-Q Summary
Business context and reporting period
The filing is Envision Solar International, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company designs, manufactures and sells renewably energized infrastructure for electric-vehicle charging, outdoor media and energy security. Its principal products include EV ARC and Solar Tree systems. The filing identifies the registrant as Envision Solar International, Inc.; the requested company name is Beam Global.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $1.455 million | $1.640 million | $2.772 million | $2.830 million |
| Gross profit | $55,336 | $61,545 | $15,695 | $8,443 |
| Gross margin | 3.8% | 3.8% | 0.6% | 0.3% |
| Operating loss | $(833,119) | $(678,968) | $(1.775) million | $(1.255) million |
| Net loss | $(833,957) | $(983,874) | $(1.776) million | $(1.934) million |
| Basic and diluted loss per share | $(0.16) | $(0.21) | $(0.34) | $(0.51) |
At June 30, 2020, cash was $1.952 million, working capital was $3.989 million, total assets were $5.952 million and total liabilities were $1.365 million. Inventory was $2.278 million and accounts receivable were $829,478. The accumulated deficit was $47.586 million.
Six-month operating cash use was $2.357 million, investing cash use was $184,323 and financing activities provided $643,988. Cash declined by $1.897 million from $3.849 million at December 31, 2019. Financing inflows included a $339,262 Paycheck Protection Program loan and $317,185 from warrant exercises. The company had $339,262 of note payable debt, a $3,821 current auto-loan balance and lease-related liabilities included in accrued expenses.
Material changes versus the prior comparable period
- Second-quarter revenue declined 11% year over year, while six-month revenue declined 2%.
- Six-month gross profit improved to $15,695 from $8,443, but margins remained approximately 1% or less.
- Six-month operating expenses increased 42% to $1.790 million, driven by sales and marketing investments, higher compensation and non-cash stock-based compensation.
- Net loss improved year over year primarily because interest expense fell to $10,437 from $701,966 after prior-period debt repayments; the benefit was partly offset by higher operating expenses.
- Revenue concentration decreased from the prior year: 79% of six-month 2019 revenue came from one customer, compared with no single customer exceeding 20% in the six months ended June 30, 2020. Customer concentration nevertheless remained material.
- Inventory increased from $1.844 million at December 31, 2019 to $2.278 million, while cash fell by $1.897 million.
- Shares outstanding increased to 5,277,849 at June 30, 2020 from 5,208,170 at year-end 2019. In addition, 288,808 options and 2,486,519 warrants were outstanding at quarter-end.
Guidance, outlook, commentary, risks and unusual items
- Contracted backlog was approximately $2.6 million at June 30, 2020, including a $2.0 million Electrify America order for 30 EV ARC charging stations.
- Management stated that COVID-19 caused delays and cancellations in the pipeline because of funding constraints, changing priorities and temporary business closures, although the company was permitted to continue operating as essential transportation and energy infrastructure.
- Management expects production efficiencies, higher volumes, supplier negotiations, sales expansion and cost reductions to improve gross profit, but stated that it cannot predict when, or whether, positive cash flow will be achieved.
- On July 7, 2020, after the reporting date, the company completed an underwritten offering of 1,393,900 shares at $8.25 per share and received approximately $10.6 million net proceeds for working capital and general corporate purposes. Management stated that this financing, together with existing resources, should fund liabilities and operations for the next twelve months from the report date.
- Management disclosed continuing material weaknesses in disclosure controls and internal control over financial reporting, including limited segregation of duties and manual inventory, purchasing and manufacturing systems. The company was implementing procedures, hiring personnel and evaluating an ERP system.
- The company entered a new facility lease beginning September 2020, with monthly payments ranging from $52,000 to $58,526 through August 2025, plus renewal options.
- There were no material pending legal proceedings reported and no material off-balance-sheet arrangements.
Investor verification points
- Verify the registrant’s subsequent name change to Beam Global and reconcile the filing identity with current SEC and exchange records.
- Assess whether the July 2020 equity financing and subsequent warrant exercises provide sufficient liquidity given recurring operating cash burn and accumulated losses.
- Evaluate backlog conversion, shipment timing and customer concentration, particularly the Electrify America order and government-related contracts.
- Monitor whether gross margins improve from the near-break-even six-month level and whether operating expense growth is supported by revenue growth.
- Review the remediation of disclosed material weaknesses and the implementation of manufacturing, purchasing and inventory controls.
- Consider dilution from outstanding options and warrants and the company’s stated risks concerning additional capital needs, competition, demand, raw-material costs and COVID-19 effects.