Beam Global (filed as Envision Solar International, Inc.) — Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2013, with comparative results for 2012. The registrant was then named Envision Solar International, Inc.; the provided company metadata identifies Beam Global. The company designed, engineered, fabricated and installed solar parking structures, electric-vehicle charging systems, energy-storage solutions and related media or branding products.
Key products included Solar Tree structures, EnvisionTrak tracking technology, SunCharge charging systems, ARC energy storage and the newly launched EV ARC portable solar-powered EV charger. The first three EV ARC units were delivered during 2013.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $281,014 | $721,835 | Down 61.1% |
| Gross profit (loss) | $(244,538) | $168,607 | Declined $413,145 |
| Gross margin | (87.0%) | 23.4% | Down 110.4 percentage points |
| Operating expenses | $2,190,133 | $2,368,793 | Down 7.5% |
| Loss from operations | $(2,434,671) | $(2,200,186) | Loss increased $234,485 |
| Net loss | $(2,793,910) | $(2,481,728) | Loss increased $312,182 |
| Net loss per share | $(0.04) | $(0.04) | No change reported |
| Cash used in operating activities | $(1,591,667) | $(1,162,812) | Use increased $428,855 |
| Cash balance at year-end | $392,098 | $257,396 | Up $134,702 |
Interest expense was $647,854, compared with $972,027 in 2012. The 2013 loss included $557,967 of stock-based and other noncash expenses, including $435,028 of stock-option compensation and $456,073 of debt-discount amortization, partly offset by $174,808 of noncash income from the change in fair value of the embedded conversion-option liability.
At December 31, 2013, total assets were $727,556 and total current assets were $629,284. Current liabilities were $3,233,430, producing a working-capital deficit of $2,604,146. Stockholders’ deficit was $2,505,874 and accumulated deficit was $27,616,098.
Short-term borrowings totaled $1,689,975, of which $1,406,326 was past due. Borrowings generally carried 10% interest, and one arrangement was secured by substantially all company and subsidiary assets. The filing does not provide a single consolidated total-debt figure that includes all accrued interest and derivative liabilities.
Material changes versus the prior comparable period
- Revenue fell substantially because larger multi-array projects completed in 2012 were not replaced by comparable 2013 deployments. Management also cited longer sales cycles associated with pursuing larger customers.
- Gross profitability reversed to a significant loss. Cost overruns affected the first Cadillac-branded Solar Tree deployment, initial EV ARC units and the first HVLC array; management also recorded estimated losses on certain future production commitments.
- Operating expenses declined modestly, primarily because stock-option expense decreased from approximately $766,732 to $435,028. Marketing and sales expenses increased.
- Operating cash use increased despite lower operating expenses, reflecting the larger net loss and working-capital requirements.
- The company raised $1,935,200 through the issuance of 12,901,333 common shares at $0.15 per share, incurred $154,816 of offering costs and issued related warrants.
- Shares issued or issuable and outstanding increased to 71,702,942 at year-end from 58,097,609. Outstanding options and warrants totaled 24,049,862 and 9,851,540, respectively, creating substantial potential dilution.
Outlook, commentary, risks and unusual items
Management expected EV ARC, lower-cost HVLC structures, media-enabled Solar Tree products, improved standardization and longer-cycle corporate or government opportunities to support future growth. Management believed production scale, lower battery and component costs and design changes could allow EV ARC sales to generate gross profit later in 2014. No quantified revenue, earnings or margin guidance was provided.
The company stated that it did not have sufficient capital to meet estimated 2014 cash needs of approximately $1.5 million, including public-company compliance costs. It intended to raise at least $2 million through equity and warrant offerings and pursue additional debt financing and product sales. Through the filing date, it reported raising $907,500 gross in a 2014 private placement, or approximately $883,500 net of placement fees.
The independent auditor included a going-concern qualification, citing recurring losses, operating cash outflows, limited working capital, stockholders’ deficit and dependence on additional financing. The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern and that the financial statements contain no related adjustments.
- Customer concentration was significant: three customers represented 56%, 28% and 14% of 2013 revenue.
- The business faced intense competition, permitting and regulatory requirements, long sales cycles, reliance on outsourced fabrication and installation, possible loss of solar incentives, technology changes and dependence on customer financing.
- The company had a $101,839 accrued obligation related to a former landlord judgment, payable at $10,000 per month until satisfied.
- A specific warranty reserve of $13,000 was recorded; there was limited historical warranty experience.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to material weaknesses, including lack of an audit committee financial expert, inadequate segregation of duties and limited IT controls.
- Subsequent events included additional equity and warrant issuance, appointment of Paul Feller as a director, extensions and conversions of Gemini convertible debt, and additional warrants and shares issued in connection with the debt restructuring.
Important facts an investor should verify
- Confirm the registrant’s name and corporate history, since the filing is for Envision Solar International, Inc. while the request identifies Beam Global.
- Review the full debt maturity schedule, including past-due borrowings, accrued interest, secured obligations, convertible debt and the embedded conversion-option liability.
- Assess the probability and terms of additional financing, including dilution from shares, warrants and options and the impact of the going-concern qualification.
- Validate whether EV ARC and other new products achieved the expected production-cost reductions and positive gross margins after 2013.
- Examine customer concentration, backlog, contract-loss accruals and the timing of large customer or government orders.
- Monitor remediation of the identified internal-control material weaknesses and the establishment of an effective audit committee.
- Consider the effect of the 2014 Gemini restructuring and related equity and warrant issuances on debt balances, interest expense and ownership dilution.