Beam Global (filed as Envision Solar International, Inc.) — Q3 2013 Form 10-Q Summary
Business Context and Reporting Period
The filing covers the three and nine months ended September 30, 2013, and was filed November 13, 2013. The company develops, designs, fabricates and installs solar parking structures, solar power systems and electric-vehicle charging solutions, including Solar Tree, EnvisionTrak and the newly introduced EV ARC product. The filing identifies the registrant as Envision Solar International, Inc.; the request metadata identifies Beam Global.
Financial Performance and Position
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Revenue | $80,000 | $197,319 | $237,810 | $617,827 |
| Gross profit (loss) | ($54,634) | $21,842 | ($117,444) | $204,552 |
| Operating loss | ($594,173) | ($626,873) | ($1,674,832) | ($1,620,528) |
| Net loss | ($323,986) | ($600,606) | ($2,078,745) | ($1,819,970) |
| Net loss per share | — | ($0.01) | ($0.03) | ($0.03) |
- Gross margin was approximately negative 68% in Q3 2013 versus approximately 11% in Q3 2012. For the nine months, gross margin was approximately negative 49% versus 33% in the prior-year period.
- Operating expenses were $539,539 in Q3 and $1.56 million for nine months, down from $648,715 and $1.83 million, respectively. The reduction primarily reflected lower non-cash stock-option compensation.
- Q3 net loss improved year over year because of a $431,017 gain from remeasurement of the embedded conversion option liability and lower interest expense. For the nine-month period, the net loss increased because the prior-year period benefited from a much larger derivative-liability gain.
- Cash was $889,912 at September 30, 2013, compared with $257,396 at December 31, 2012. Operating activities used $1.10 million during the first nine months, while financing activities provided $1.77 million, primarily from private equity offerings.
- Current assets were $1.03 million and current liabilities were $3.10 million, resulting in a working-capital deficit of approximately $2.07 million. Total assets were $1.14 million, compared with a stockholders’ deficit of $1.96 million.
- Current obligations included $1.39 million of convertible notes net of discount, $488,717 of embedded conversion-option liability, $113,616 owed under a related-party convertible note, and $73,033 of other notes payable. The company reported $484,938 of interest expense for the first nine months.
Material Changes Versus the Prior Comparable Period
- Revenue declined 59.4% in Q3 and 61.5% for the first nine months, primarily because the prior-year periods included more Solar Tree installation activity.
- The company delivered its first two EV ARC units in Q3 2013. Initial production costs and cost overruns caused the quarterly gross loss; management stated that production efficiencies and higher volumes could support gross profitability on future units.
- Nine-month operating cash use increased from $759,173 to $1.10 million, although financing proceeds increased from $966,000 to $1.77 million.
- The company raised $1.94 million through private placements, issuing 12,901,333 shares at $0.15 per share, and incurred $154,816 of offering costs. Shares outstanding or issuable increased to 71,702,942 from 58,098,609 at year-end 2012.
- The company issued 150,000 shares to partially settle notes payable and 304,000 shares for professional services during September 2013. It also issued 6,450,667 investor warrants and 645,067 placement-agent warrants in connection with the private placement.
Guidance, Outlook, Risks and Unusual Items
- No formal financial guidance was provided. Management expected EV ARC production efficiencies, component-cost reductions, design improvements and scale to support gross profitability on the product later in 2014.
- Management planned to raise additional working capital through private financing, seek long-term debt financing, increase product sales and renegotiate debt maturities scheduled for December 2013. The filing states there is no assurance these efforts will succeed.
- The filing includes a going-concern qualification. Management reported substantial doubt about the company’s ability to continue as a going concern because of recurring losses, the working-capital deficit, accumulated deficit of $26.90 million and stockholders’ deficit of $1.96 million.
- Customer concentration was significant: two customers represented 66% and 34% of nine-month revenue, respectively. Cash exceeding federally insured limits was $668,999 at September 30, 2013.
- Management identified material weaknesses in disclosure and internal financial-reporting controls, including the absence of an audit committee financial expert, inadequate segregation of duties and the lack of a formally adopted code of conduct.
- Key risks include insufficient capital, inability to pay liabilities, dependence on new contracts, customer and market adoption, competition, product commercialization, outsourced fabrication and installation, stock-price volatility, and substantial potential dilution from convertible debt, options and warrants.
- The Q3 gain from the embedded conversion option liability was non-cash and valuation-sensitive. The liability was measured using a Level 3 Black-Scholes valuation and increased to $488,717 from $456,073 at December 31, 2012.
- The filing reported no pending or threatened litigation expected to have a material effect and no material off-balance-sheet arrangements.
Investor Verification Checklist
- Verify the company’s current corporate name and ticker, given that the filing is under Envision Solar International, Inc. while the request identifies Beam Global.
- Confirm whether the company obtained the planned additional financing and whether debt maturities due in December 2013 were extended, converted or repaid.
- Assess whether EV ARC and other newer products achieved positive gross margins and meaningful revenue growth after the initial loss-making units.
- Review subsequent filings for resolution of the going-concern uncertainty, the $2.07 million working-capital deficit and the material control weaknesses.
- Track dilution from the 71.7 million shares outstanding or issuable, convertible notes convertible into 4.73 million shares, 23.45 million options and 9.85 million warrants reported at September 30, 2013.
- Evaluate the concentration and collectability of revenue, particularly the dependence on two customers and the company’s reliance on project milestones and financing proceeds.