Business Context and Reporting Period
Envision Solar International, Inc. (the filing entity identified in the source; request metadata refers to Beam Global) designs and manufactures solar-powered electric-vehicle charging, advertising, energy-security, and disaster-preparedness products, including EV ARC and Solar Tree systems. This unaudited Form 10-Q covers the three and six months ended June 30, 2016, filed August 15, 2016.
Financial Highlights
| Metric | Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|---|---|
| Revenue | $338,895 | $599,222 | $684,814 | $699,873 |
| Gross loss | $(29,339) | $(67,194) | $(75,100) | $(73,367) |
| Loss from operations | $(565,980) | $(398,753) | $(1,095,375) | $(908,120) |
| Net loss | $(614,460) | $(603,421) | $(1,351,752) | $(1,062,646) |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $(931,112) | $(1,153,842) |
- Approximate margins were negative: second-quarter gross margin of 8.7% negative, operating margin of 167% negative, and net margin of 181% negative. Six-month gross margin was 11.0% negative, operating margin 160% negative, and net margin 197% negative.
- Cash was $340,663 at June 30, 2016, compared with $32,451 at December 31, 2015. Current assets were $1.42 million versus current liabilities of $3.26 million, producing a working-capital deficit of $1.84 million.
- Total liabilities were $3.30 million and stockholders’ deficit was $1.43 million at June 30, 2016. The line of credit was fully drawn at $1.00 million, with no additional availability.
- Financing activities provided $1.32 million during the first six months, including $1.18 million from common-stock sales and $200,000 of additional line-of-credit borrowings.
- Inventory increased to $713,503 from $422,175 at year-end 2015, while accounts receivable declined to $212,486 from $831,617.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 43.4%, primarily reflecting delivery of five EV ARC units in 2016 versus eight units and a larger Solar Tree project in the prior-year quarter.
- Six-month revenue decreased 2.2%, while the six-month gross loss was broadly unchanged.
- Second-quarter gross loss improved by $37,855, but operating expenses increased 61.8% to $536,641, driven by added sales and other personnel, director compensation, consulting, and travel.
- Six-month operating expenses increased 22.2% to $1.02 million, including higher stock-option expense, director fees, consulting expense, and labor.
- Six-month net loss worsened 27.2%, largely because the prior-year period included a favorable $160,737 change in the fair value of the embedded conversion option liability, while 2016 recorded a $133,678 loss.
- Interest expense decreased to $122,963 from $315,498 because 2015 included substantial debt-discount amortization; 2016 included approximately $56,000 of amortization related to the line of credit.
- Operating cash usage improved from $1.15 million to $931,112, but remained substantial and exceeded reported cash on hand at the beginning of the period.
- The company issued 7,866,666 common shares for $1.18 million in private placements during the first six months. Shares issued or issuable and outstanding increased to 113,984,940 from 105,207,701 at December 31, 2015.
Guidance, Outlook, Risks, and Unusual Items
- Contracted backlog was approximately $495,000 at June 30, 2016. Subsequent to quarter-end, the company reported approximately $980,000 of additional awarded contracts for EV ARC and Solar Tree products.
- Management expects to pursue higher sales volumes, additional sales personnel and channels, manufacturing efficiencies, product standardization, and cost reductions. It stated that it cannot predict when, or whether, positive cash flow will be achieved.
- The California state contract was extended through June 2017, but management said it had not yet been as productive as expected. Sales cycles remain long, particularly with larger organizations and government customers.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management plans to seek private equity and debt financing, renegotiate maturing debt, and increase product sales, but provides no assurance that financing will be available on acceptable terms or in sufficient amounts.
- Debt includes $680,616 of convertible notes payable to related parties, a $100,000 convertible note, $43,033 of vendor notes, the fully drawn $1.00 million line of credit, and an embedded conversion-option liability of $221,670.
- Several obligations mature or require attention in 2016, including related-party notes, the vendor note, and the line of credit. The company is obligated to issue 147,493 shares valued at $25,000 to Keshif Ventures in October 2016 under the line-of-credit guarantee arrangement.
- At June 30, 2016, approximately 58% and 29% of accounts receivable were attributable to two customers. Three customers represented 18%, 18%, and 14% of six-month revenue.
- Disclosure controls and procedures were deemed ineffective. Material weaknesses included inadequate control environment, insufficient segregation and communication of duties, absence of an audit committee financial expert, and no formally adopted written code of conduct.
- There were no material pending lawsuits identified, although the filing references a workers’ compensation appeal by a former employee. The company reported no material off-balance-sheet arrangements.
Most Important Facts to Verify
- Confirm the applicable issuer name and ticker, because the source filing identifies Envision Solar International, Inc., while the request metadata identifies Beam Global.
- Verify the company’s ability to raise sufficient capital and refinance or extend debt obligations coming due in 2016.
- Assess whether the reported backlog and post-quarter-end awards convert into recognized revenue and positive gross margins.
- Review dilution exposure from outstanding convertible instruments, options, warrants, private placements, director compensation, and related-party share issuances.
- Evaluate customer concentration, inventory growth, contract-estimate risks, and the collectability of accounts receivable.
- Monitor remediation of the disclosed material weaknesses in internal control and disclosure controls.