Beam Global (filed as Envision Solar International, Inc.) — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and nine months ended September 30, 2018, filed November 14, 2018. The company designs and manufactures solar-powered products for electric-vehicle charging, outdoor advertising, energy security, and disaster preparedness. Its principal products were EV ARC and Solar Tree systems. The filing identifies the registrant as Envision Solar International, Inc.; the source does not explain the Beam Global name in the request metadata.
Financial Highlights
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $938,218, versus $225,524 in 2017 | $4,658,685, versus $1,103,943 in 2017 |
| Gross profit (loss) | $44,150, versus $(9,308) | $97,184, versus $(26,268) |
| Gross margin | Approximately 4.7%, versus negative 4.1% | Approximately 2.1%, versus negative 2.4% |
| Operating loss | $(475,318), versus $(498,848) | $(1,604,604), versus $(1,730,089) |
| Net loss | $(606,556), versus $(566,199) | $(2,392,434), versus $(1,790,104) |
| Interest expense | $148,316, versus $65,413 | $806,330, versus $167,019 |
| Cash used in operating activities | Not separately provided | $(409,135), versus $(1,446,699) |
- Nine-month product sales were $4,642,428, with maintenance fees of $5,682 and professional services revenue of $10,575.
- The company delivered 68 EV ARC units and an ARC Mobility trailer during the nine months, compared with 15 EV ARC units and an ARC Mobility trailer in the prior-year period.
- Cash at September 30, 2018 was $254,940, compared with $403,475 at December 31, 2017.
- Current assets were $2,145,787 and current liabilities were $4,393,222, producing a working-capital deficit of $2,247,435.
- Total liabilities were $4,505,153 and stockholders’ deficit was $1,885,518. Accumulated deficit was $40,669,313.
- Debt included $1,530,396 of current convertible notes, $100,000 of long-term convertible notes, $523,780 under a convertible line of credit, $658,521 under a note payable, and $172,500 owed under a related-party convertible note, in addition to an auto loan.
- Cash used in investing activities was $5,798. Financing activities provided $266,398, including $290,000 of common-stock proceeds and $750,000 of note borrowings, partially offset by debt repayments and offering costs.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased 322%, primarily due to substantially higher EV ARC deliveries. Third-quarter revenue increased 316%.
- Gross profitability improved from a loss to a profit as higher production and sales volumes absorbed manufacturing overhead; management attributed prior losses largely to low production volumes.
- Despite improved operations, the nine-month net loss increased 34% because interest expense rose 383% to $806,330. Approximately $651,638 of the increase reflected amortization of debt discounts related principally to conversion features and lender warrants.
- Operating cash use improved by 72%, primarily from the reduction of inventory associated with units built in 2017 and delivered in 2018. Accounts receivable increased by $787,746, consuming cash.
- Inventory declined to $756,467 from $2,319,500 at year-end 2017, while accounts receivable increased to $793,692 from $5,946.
- Shares issued or issuable and outstanding increased to 145,143,995 from 141,835,662 at December 31, 2017. Convertible notes, options, and warrants represented potential future dilution.
Guidance, Outlook, Risks, and Unusual Items
- Management reported contracted backlog of approximately $5.7 million at September 30, 2018. A September 2018 New York City order for 50 EV ARC units had a stated value of $3.3 million, with delivery expected in the fourth quarter of 2018 and first quarter of 2019.
- The California contract was renewed for up to four additional years and expanded to include more products, with a state-estimated value exceeding $20 million. These estimates are not presented as firm future revenue guidance.
- Management expects margins to improve with higher sales and production volumes, process improvements, vendor negotiations, and economies of scale, but stated that it cannot predict when or whether the company will achieve positive cash flow.
- The financial statements include a going-concern warning. Management stated that substantial doubt exists about the company’s ability to continue for twelve months from the issuance date because of recurring losses, limited working capital, a $2.25 million working-capital deficit, and negative stockholders’ equity.
- Management planned to seek additional public, private, and debt financing, increase product sales, and renegotiate debt maturities. There was no assurance that financing would be available on acceptable terms or that it would be sufficient.
- A $750,000 unsecured note issued in August 2018 bears 10% interest and was due February 28, 2019, with repayment premiums and 900,000 warrants issued to the lender.
- The $1.5 million secured convertible lender note was amended to mature December 31, 2018. The company also had a convertible line of credit balance of $523,780 at quarter-end; subsequent to September 30, it borrowed an additional net $36,220 under that line.
- The company filed a Form S-1 seeking approximately $10 million through a proposed public offering and planned a 75-for-1 reverse stock split in connection with the transaction. The filing does not establish that the offering closed.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2018. Management identified a material weakness involving segregation of duties and communication, dissemination, and disclosure processes.
- Additional risks included customer concentration, long sales cycles, competition, dependence on financing and government customers, inability to pay liabilities, potential loss of incentives, technological obsolescence, low trading liquidity, and dilution from future securities issuances.
- The company leased its 50,000-square-foot facility through August 2020, with monthly payments ranging from $46,800 to $50,619.
- No material pending or threatened legal proceedings were reported.
Most Important Facts for Investors to Verify
- Whether the New York City order, California contract opportunities, and reported $5.7 million backlog converted into recognized revenue and cash collections.
- The status and terms of the proposed $10 million public offering, reverse split, and any subsequent financing.
- Repayment, conversion, or renegotiation of the $1.5 million secured convertible note and the $750,000 note due in February 2019.
- Whether gross margins remained positive after the quarter and whether production scale reduced per-unit costs.
- The company’s ability to fund operating losses, meet debt obligations, and resolve the going-concern uncertainty.
- Accounts-receivable collectability and customer concentration, including customers representing 42%, 25%, and 13% of receivables and one customer representing 43% of nine-month revenue.
- Remediation of the material weakness in disclosure controls and internal control over financial reporting.
- Potential dilution from convertible notes convertible into 16,640,182 shares, options for 15,174,175 shares, and warrants for 6,717,950 shares as of September 30, 2018.