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, 2013. The request metadata identifies Beam Global, but the filing text identifies the registrant as Envision Solar International, Inc. The company develops and deploys solar parking structures, solar-powered electric-vehicle charging products and related proprietary technology. It operated in one segment.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $2,282, versus $111,793 | $157,810, versus $420,508 |
| Gross profit/(loss) | $(22,592), versus $36,739 | $(62,810), versus $182,710 |
| Operating expenses | $504,949, versus $599,692 | $1,017,849, versus $1,176,365 |
| Net loss | $(708,992), versus $(235,405) | $(1,754,759), versus $(1,219,364) |
| Net loss per share | $(0.01), versus approximately $0.00 | $(0.02), versus $(0.02) |
| Operating cash flow | Not separately provided | $(690,015), versus $(381,708) |
At June 30, 2013, cash was $1.34 million, total current assets were $1.50 million and total current liabilities were $3.39 million, producing a working-capital deficit of approximately $1.89 million. Stockholders’ deficit was $1.81 million and accumulated deficit was $26.58 million.
Debt included $1.28 million of convertible notes payable, net of discount; a $919,734 embedded conversion-option liability; $116,616 owed under a related-party convertible note; and $97,000 of other notes payable. Substantially all current debt maturities had been extended to December 31, 2013.
Financing activities provided $1.77 million during the first six months, primarily from private equity placements. The company issued 12.90 million shares for $1.94 million in cash and incurred $154,816 of offering costs. It also issued warrants, including 6.45 million warrants exercisable at $0.20 per share and 645,067 placement-agent warrants exercisable at $0.25 per share.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined approximately 98% year over year; six-month revenue declined approximately 62%.
- The company moved from gross profit to gross loss in both the quarter and six-month period, primarily due to cost overruns on initial Cadillac-branded Solar Tree and EV ARC units.
- Six-month net loss increased by approximately $535,000, despite lower operating expenses, largely because the prior-year period benefited from a $306,340 gain in the fair value of the embedded conversion option while 2013 recorded a $463,661 expense.
- Operating cash use increased by approximately $308,000 year over year.
- Cash increased from $257,396 at December 31, 2012 to $1.34 million at June 30, 2013, primarily due to equity financing rather than operating cash generation.
- Shares issued or issuable and outstanding increased from 58.10 million at December 31, 2012 to 71.25 million at June 30, 2013, creating dilution risk.
- The embedded conversion-option liability increased from $456,073 to $919,734, reflecting changes in the company’s stock price and conversion terms.
Guidance, Outlook, Risks and Unusual Items
Management expected to launch the EV ARC product in the third quarter of 2013, with initial shipments to a major U.S. city, but acknowledged that the launch had been delayed. Management also pursued lower-cost Solar Tree products and media-enabled structures intended to reduce customer purchase barriers and shorten sales cycles.
The company stated that sales cycles were longer and sales slower than expected, particularly for larger customer programs such as the Cadillac dealership initiative. One customer represented 100% of six-month net revenue.
Management disclosed substantial doubt about the company’s ability to continue as a going concern. The company had significant losses, a working-capital deficit, accumulated deficit and stockholders’ deficit. Management planned to raise additional capital, obtain long-term debt financing, increase sales and renegotiate debt maturities, but stated that there was no assurance these efforts would succeed.
Additional risks included insufficient capital, inability to pay liabilities, continuing operating losses, dependence on new contracts, customer financing constraints, competition, loss of solar incentives, technology obsolescence, reliance on outsourced fabrication and installation, and future dilution from shares, warrants and options.
The company reported that disclosure controls and internal control over financial reporting were not effective as of June 30, 2013. Material weaknesses included the absence of an audit committee financial expert, inadequate segregation of duties due to limited staff and financial constraints, and the absence of a formally adopted written code of business conduct and ethics.
There were no material pending or threatened lawsuits identified and no material off-balance-sheet arrangements. Cash held above federally insured limits was $1.11 million.
Important Facts for Investors to Verify
- Confirm the registrant identity, since the filing names Envision Solar International, Inc., while the request metadata names Beam Global.
- Assess whether additional financing was obtained and whether debt maturities due December 31, 2013 were successfully renegotiated.
- Verify the timing, commercial acceptance and unit economics of the EV ARC launch.
- Evaluate customer concentration, backlog and the status of the Cadillac dealership program.
- Reconcile the company’s going-concern disclosure with subsequent liquidity, revenue and operating cash flow.
- Assess dilution from outstanding convertible debt, 23.05 million options, 9.85 million warrants and additional securities issued after the reporting date.
- Review remediation of the disclosed material weaknesses in disclosure controls and internal control over financial reporting.