Beam Global (filed as Envision Solar International, Inc.) — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017; unaudited. The filing was signed November 14, 2017. The company develops and manufactures solar-powered EV charging, media/advertising, and energy-security products, including EV ARC and Solar Tree systems.
Financial Results and Position
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Revenue | $225,524 | $522,412 | $1,103,943 | $1,207,226 |
| Gross profit (loss) | $(9,308) | $(3,532) | $(26,268) | $(78,632) |
| Operating expenses | $489,540 | $614,586 | $1,703,821 | $1,634,861 |
| Net loss | $(566,199) | $(609,564) | $(1,790,104) | $(1,961,316) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(1,446,699) | $(1,439,269) |
Margins: Q3 gross margin was approximately negative 4.1%, compared with approximately negative 0.7% in Q3 2016. Nine-month gross margin improved to approximately negative 2.4% from approximately negative 6.5%. The company remained loss-making and did not report positive operating or net margins.
- Cash was $131,508 at September 30, 2017, compared with $8,568 at December 31, 2016.
- Working capital deficit was $1,877,966; stockholders’ deficit was $1,437,735; accumulated deficit was $37,025,553.
- Total liabilities were $3,573,443, including $3,551,234 of current liabilities.
- Inventory increased to $1,218,631 from $271,802 at year-end 2016, primarily reflecting work in process and finished goods.
- Cash provided by financing activities was $1,577,485, including $260,000 from equity sales, $1.5 million of convertible-note borrowings, and $850,000 of convertible-line borrowings, partly offset by repayment of the prior $1 million line of credit.
- Investing cash use was $7,846, principally for equipment and patent costs.
Material Changes Versus Prior Comparable Period
- Q3 revenue declined 57% year over year, while nine-month revenue declined 9%. Management attributed the quarterly decline partly to financing constraints that reduced production.
- Q3 net loss improved by $43,365, and nine-month net loss improved by $171,212, despite higher nine-month operating expenses.
- Nine-month operating expenses increased $68,960, driven mainly by higher labor, rent, utilities, and stock-option expense; lower director fees and consulting costs partly offset the increases.
- The company converted approximately $600,000 of principal and $104,709 of accrued interest on a convertible note into 4,698,060 common shares in February 2017, eliminating the related embedded conversion-option liability.
- Silicon Valley Bank debt was repaid in full on September 25, 2017 using proceeds from new lender financing.
- On September 18, 2017, the company entered into a $1.5 million secured convertible note and a purchase-order-backed revolving convertible facility of up to $3 million; $850,000 was drawn by September 30. These facilities included warrants and substantial debt discounts.
- Shares issued or issuable and outstanding increased to 127,748,168 at September 30, 2017 from 120,105,418 at December 31, 2016. Convertible notes, options, and warrants represented potential additional dilution.
Guidance, Outlook, Risks, and Unusual Items
- Contracted backlog was approximately $2.8 million at September 30, 2017. Management expected most of it to be delivered during the remaining months of 2017, but backlog conversion and timing were not guaranteed.
- Management expected higher production volumes, process improvements, and component-cost reductions to reduce per-unit costs and potentially produce future gross profits. The company did not provide quantitative revenue, earnings, or cash-flow guidance.
- The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern for twelve months after filing. Management expected continuing losses and planned to seek additional equity and debt financing and renegotiate maturing debt.
- Management stated that existing capital was insufficient to meet current cash needs, including ongoing reporting obligations, and that additional financing might not be available or available on acceptable terms.
- Key operating risks include long sales cycles, dependence on a limited customer base, production-scale-up risk, competition, uncertain demand and incentives for solar and EV products, inability to commercialize products, and persistent operating losses.
- Customer concentration was significant: one customer represented 96% of accounts receivable, while three customers represented 36%, 16%, and 12% of nine-month revenue.
- The company leased its headquarters and manufacturing facility through August 2020, with monthly rent ranging from $46,800 to $50,619.
- Subsequent to quarter-end, the company sold 5,566,667 shares for $835,000 in a private placement, paid $34,800 of offering costs, and became obligated to issue 145,000 warrants.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2017. Material weaknesses included inadequate control environment, lack of an audit committee financial expert, insufficient segregation and communication controls, and no formally adopted code of conduct.
- No material pending or threatened litigation was reported, and no material off-balance-sheet arrangements were disclosed.
Most Important Facts for Investors to Verify
- Whether the approximately $2.8 million backlog was converted into shipments and revenue after September 30, 2017.
- Cash balances, operating cash burn, financing availability, and the status of the going-concern uncertainty.
- Terms, maturity dates, collateral, conversion provisions, interest rates, and draw availability under the new convertible note and revolving facility.
- The extent of dilution from outstanding convertible debt, options, warrants, and subsequent equity issuances.
- Whether production volumes and cost reductions actually resulted in positive gross margins.
- Collection risk associated with the customer representing 96% of accounts receivable and the customers representing the majority of revenue.
- Whether management remediated the identified disclosure-control and internal-control material weaknesses.