Business Context and Reporting Period
This unaudited Form 10-Q was filed by Envision Solar International, Inc. for the quarter and nine months ended September 30, 2012. The filing identifies the registrant as a developer of solar products and proprietary technology for shaded solar parking solutions, including Solar Tree and EnvisionTrak products. The metadata references Beam Global, but the filing itself names Envision Solar International, Inc.
The company operated in one segment and used percentage-of-completion accounting for qualifying construction projects. Results are interim and are not necessarily indicative of full-year performance.
Financial Performance and Position
| Metric | Three Months Ended September 30, 2012 | Three Months Ended September 30, 2011 | Nine Months Ended September 30, 2012 | Nine Months Ended September 30, 2011 |
|---|---|---|---|---|
| Revenue | $197,319 | $499,314 | $617,827 | $1,067,698 |
| Gross profit | $21,842 | $121,291 | $204,552 | $215,821 |
| Gross margin | 11% | 24% | 33% | 20% |
| Operating expenses | $648,715 | $1,504,539 | $1,825,080 | $2,559,129 |
| Loss from operations | $(626,873) | $(1,383,248) | $(1,620,528) | $(2,343,308) |
| Net loss | $(600,606) | $(1,171,559) | $(1,819,970) | $(2,118,096) |
| Basic and diluted loss per share | $(0.01) | $(0.02) | $(0.03) | $(0.05) |
- Cash was $666,035 at September 30, 2012, compared with $468,776 at December 31, 2011.
- Operating activities used $759,173 during the first nine months of 2012, versus $1,641,304 in the comparable 2011 period.
- Investing activities used $9,568 for equipment purchases.
- Financing activities provided $966,000, primarily from a $1,050,000 common-stock private placement, less $84,000 of offering costs.
- Current assets were $996,962 and current liabilities were $2,726,447, producing a working-capital deficit of approximately $1.73 million.
- Total assets were $1.11 million, while stockholders’ deficit was $1.62 million. Accumulated deficit was $24.16 million.
- Convertible notes payable, net of discount, totaled $1.19 million, and the embedded conversion-option liability was $108,999.
Material Changes Versus the Prior Comparable Period
- Revenue declined 60% in the third quarter and 42% for the first nine months, primarily because larger 2011 projects were not replaced and 2012 sales cycles were longer.
- Third-quarter gross margin fell to 11% from 24%, reflecting lower project scale and costs associated with product and installation design changes. Nine-month gross margin improved to 33% from 20%, aided by better pricing, cost control, and a higher-margin service contract.
- Operating expenses decreased 57% in the quarter and 29% year to date, largely because of lower stock-option compensation, consulting, legal, travel, and business-development costs.
- Interest expense increased to $766,273 for the nine-month period from $536,677, primarily due to amortization of debt discounts and costs related to debt modifications and conversion.
- A $1.0 million convertible note, plus accrued interest, was converted into 3,647,591 common shares in March 2012. The company also issued 4.2 million shares for $1.05 million in private-placement proceeds.
- Accounts receivable decreased to $151,397 from $1.44 million at year-end, while accounts payable decreased to $702,606 from $1.51 million, reflecting collections and payments related to prior projects.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management did not provide formal numeric revenue or earnings guidance. It expects potential growth from strategic, multi-property customer relationships, expanded sales channels, product standardization, and longer-cycle opportunities.
- The company stated that it was pursuing at least $2.0 million of additional capital and intended to renegotiate debt instruments due in December 2012. Management acknowledged there was no assurance that financing or renegotiations would be successful.
- The financial statements include a going-concern warning. Substantial doubt arises from continuing losses, a working-capital deficit, accumulated deficit, stockholders’ deficit, insufficient capital, and debt maturities.
- Management identified material weaknesses in disclosure controls and internal control over financial reporting, including the absence of an audit committee financial expert, inadequate segregation of duties, and the absence of a formal written code of conduct.
- The company is exposed to customer concentration: two customers represented 100% of accounts receivable at September 30, 2012, and five customers represented 99% of nine-month revenue.
- Cash exceeding federally insured limits was $354,450 at September 30, 2012.
- Significant contingencies included $120,067 of accrued rent-related obligations and $152,667 owed under a settlement with a former vendor.
- Non-cash and valuation-sensitive items materially affected results, including $623,761 of stock-option compensation, $512,259 of debt-discount amortization, and a $538,978 gain from the decline in the fair value of the embedded conversion-option liability.
- Subsequent to quarter-end, the company issued 150,000 shares to partially settle debt and 562,500 shares for professional services.
Most Important Facts for Investors to Verify
- Confirm the registrant identity, because the supplied metadata names Beam Global while the filing names Envision Solar International, Inc.
- Assess the company’s ability to raise at least $2.0 million and refinance or renegotiate debt due in December 2012.
- Review the going-concern qualification, $1.73 million working-capital deficit, negative stockholders’ equity, and recurring operating cash burn.
- Evaluate customer and revenue concentration and the effect of elongated sales cycles on backlog and future deployments.
- Reconcile reported gross-margin improvement for the nine-month period with the sharp third-quarter margin decline.
- Consider potential dilution from convertible debt, options for approximately 23.4 million shares, warrants for approximately 9.1 million shares, and additional equity financing.
- Monitor remediation of the disclosed material weaknesses in internal controls and disclosure controls.