Beam Global / Envision Solar International, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2011; filed November 11, 2011. The filing identifies the registrant as Envision Solar International, Inc., not Beam Global. Financial statements are unaudited.
Business Context
The company develops solar products, projects and technology, including solar parking arrays, electric-vehicle charging integrations, solar building systems, professional services, and turnkey project and construction management. It operated in one reportable segment and reported approximately $1.6 million of contracted backlog expected to be recognized over the following three to six months.
Financial Highlights
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $499,314 versus $0 | $1,067,698 versus $169,082 |
| Gross profit | $121,291; approximately 24.3% margin | $215,821; approximately 20.2% margin |
| Operating loss | $(1,383,248) versus $(428,259) | $(2,343,308) versus $(1,280,041) |
| Net loss | $(1,171,559) versus $(727,674) | $(2,118,096) versus $(1,637,545) |
| Net loss per share | $(0.02) versus $(0.02) | $(0.05) versus $(0.04) |
- Operating expenses were $1.50 million in the quarter and $2.56 million for the nine months. Nine-month stock-based compensation was $929,937, including $909,057 recognized in the third quarter.
- Interest expense was $186,651 for the quarter and $536,677 for the nine months.
- A noncash gain from the change in fair value of the embedded conversion option liability was $398,602 for the quarter and $729,738 for the nine months. The liability declined from $963,931 at December 31, 2010 to $234,193 at September 30, 2011.
- Cash used in operating activities was $1,641,304 for the nine months, compared with $736,336 in the prior-year period.
- Financing activities provided $2,422,736, including $1.72 million from common-stock sales and $1.0 million from a convertible note, partially offset by offering and debt-issuance costs.
- Cash increased to $845,506 from $64,074 at December 31, 2010. Accounts receivable were $333,657, and costs and estimated earnings in excess of billings were $305,538.
- Current assets were $1,789,489 versus current liabilities of $3,666,731, producing a working-capital deficit of approximately $1.88 million. Total liabilities were $4,633,832, compared with a stockholders’ deficit of $2,657,590.
- Debt included approximately $1.04 million of short-term convertible notes, $967,101 net of discount of long-term convertible debt, $236,562 of other notes payable, and $109,721 net of discount owed to a related party. Several debt obligations mature December 31, 2011.
Material Changes Versus Prior Comparable Period
- Revenue increased substantially as the company moved from restructuring in 2010 to executing on contracted projects in 2011.
- Nine-month gross profit increased to $215,821 from $119,179, although the company remained significantly unprofitable.
- Nine-month operating expenses increased by $1.16 million, primarily because of stock-based compensation, higher labor costs, consulting-related amortization, research and development, and marketing expenses.
- Nine-month net loss increased by $480,551 despite higher revenue and a larger derivative-liability gain.
- Operating cash burn increased by $904,968 year over year, requiring substantial equity and debt financing.
- Common shares issued or issuable increased to 49,318,775 from 42,870,814 at December 31, 2010. The company also had convertible debt convertible into 8,353,363 shares, options for 22,755,292 shares, and warrants for 9,398,883 shares outstanding at September 30, 2011.
Outlook, Risks, Contingencies and Unusual Items
- Management stated that it intended to raise an additional $3 million to $5 million during the following twelve months and renegotiate debt maturing in December 2011. There is no assurance these efforts will succeed.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern, citing recurring losses, $1.64 million of operating cash outflow, a working-capital deficit, accumulated deficit of $21.91 million, stockholders’ deficit, and a note in default.
- The company’s financial statements do not include adjustments that might be required if it cannot continue as a going concern.
- A former vendor sought in October 2011 to extend liability for an accrued $180,676 settlement obligation to the parent company. The outcome is not clear from the filing.
- The company settled another shareholder-related lawsuit through cash and stock; it issued 413,564 shares during the nine months and reported no remaining liability for that settlement.
- Management disclosed material weaknesses in disclosure controls and internal control over financial reporting. The company lacked an audit committee financial expert, had inadequate segregation of duties, and had not formally adopted a written code of business conduct and ethics.
- Customer concentration was significant: four customers represented 84% of nine-month revenue, and three customers represented 92% of accounts receivable at September 30, 2011.
- Cash balances exceeded federally insured limits by $551,638 at September 30, 2011.
- Future results depend on project execution, collection of receivables, access to financing, debt extensions, customer demand, solar-market conditions, tax incentives, competition, and the company’s ability to commercialize its technology.
Important Facts for Investors to Verify
- Confirm the issuer identity and whether this filing is properly associated with Beam Global, because the filing names Envision Solar International, Inc.
- Verify the status, timing and collectability of the reported $1.6 million backlog and the concentration of revenue and receivables among major customers.
- Assess whether the planned $3 million to $5 million capital raise occurred and whether December 2011 maturities were renegotiated or paid.
- Review the going-concern qualification, defaulted note, working-capital deficit, and the company’s ability to fund continuing operations.
- Quantify potential dilution from convertible debt, options, warrants and additional financing.
- Monitor the vendor lawsuit and the $180,676 accrued settlement obligation.
- Evaluate remediation of the disclosed material weaknesses in internal controls and disclosure controls.
- Separate recurring operating performance from material noncash items, particularly stock-based compensation, debt-discount amortization and derivative fair-value gains.