ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Envision Solar International, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
128,675
|
|
|
$
|
403,475
|
|
Accounts Receivable, net
|
|
|
689,359
|
|
|
|
5,946
|
|
Prepaid and Other Current Assets
|
|
|
77,403
|
|
|
|
55,674
|
|
Inventory, net
|
|
|
891,990
|
|
|
|
2,319,500
|
|
Total Current Assets
|
|
|
1,787,427
|
|
|
|
2,784,595
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
179,234
|
|
|
|
226,112
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Patents, net
|
|
|
119,645
|
|
|
|
75,279
|
|
Deposits
|
|
|
106,998
|
|
|
|
156,588
|
|
Deferred Equity Offering Costs
|
|
|
40,416
|
|
|
|
–
|
|
Total Other Assets
|
|
|
267,059
|
|
|
|
231,867
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,233,720
|
|
|
$
|
3,242,574
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
972,662
|
|
|
$
|
486,690
|
|
Accrued Expenses
|
|
|
477,687
|
|
|
|
451,924
|
|
Sales Tax Payable
|
|
|
53,241
|
|
|
|
46
|
|
Deferred Revenue
|
|
|
70,724
|
|
|
|
77,514
|
|
Convertible Line of Credit - net of discount amounting to $0 and $226,768 at June 30, 2018 and December 31, 2017, respectively
|
|
|
339,233
|
|
|
|
923,232
|
|
Convertible Note Payable - Related Party
|
|
|
160,000
|
|
|
|
135,000
|
|
Convertible Notes Payable - Current Portion - net of
discount amounting to $84,916 and $175,668 at June 30, 2018 and December 31, 2017, respectively
|
|
|
1,471,700
|
|
|
|
1,486,948
|
|
Auto Loan - Current Portion
|
|
|
7,602
|
|
|
|
9,862
|
|
Total Current Liabilities
|
|
|
3,552,849
|
|
|
|
3,571,216
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable - Long Term Portion
|
|
|
100,000
|
|
|
|
–
|
|
Auto Loan - Long Term Portion
|
|
|
17,196
|
|
|
|
20,620
|
|
Total Long Term Liabilities
|
|
|
117,196
|
|
|
|
20,620
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,670,045
|
|
|
|
3,591,836
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 0 shares outstanding at June 30, 2018 and December 31, 2017, respectively
|
|
|
–
|
|
|
|
–
|
|
Common Stock, $0.001 par value, 490,000,000 shares authorized, 144,893,995 and 141,835,662 shares issued or issuable and outstanding at June 30, 2018 and December 31, 2017, respectively
|
|
|
144,894
|
|
|
|
141,836
|
|
Additional Paid-in-Capital
|
|
|
38,481,538
|
|
|
|
37,785,781
|
|
Accumulated Deficit
|
|
|
(40,062,757
|
)
|
|
|
(38,276,879
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(1,436,325
|
)
|
|
|
(349,262
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
2,233,720
|
|
|
$
|
3,242,574
|
|
The accompanying unaudited notes are an integral part of these unaudited Condensed Consolidated Financial Statements
Envision Solar International, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
Unaudited
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
$
|
844,495
|
|
|
$
|
507,730
|
|
|
$
|
3,720,467
|
|
|
$
|
878,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
825,761
|
|
|
|
520,836
|
|
|
|
3,667,433
|
|
|
|
895,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (Loss)
|
|
|
18,734
|
|
|
|
(13,106
|
)
|
|
|
53,034
|
|
|
|
(16,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock based expense of $177,434 and $191,146 for the six months
ended June 30, 2018 and 2017, respectively)
|
|
|
573,151
|
|
|
|
545,292
|
|
|
|
1,182,320
|
|
|
|
1,214,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(554,417
|
)
|
|
|
(558,398
|
)
|
|
|
(1,129,286
|
)
|
|
|
(1,231,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
614
|
|
|
|
136
|
|
|
|
1,422
|
|
|
|
306
|
|
Gain on Debt Settlement, net
|
|
|
–
|
|
|
|
2,355
|
|
|
|
–
|
|
|
|
2,355
|
|
Interest Expense
|
|
|
(220,468
|
)
|
|
|
(47,625
|
)
|
|
|
(658,014
|
)
|
|
|
(101,606
|
)
|
Gain on Debt Extinguishment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
107,081
|
|
Total Other (Expense) Income
|
|
|
(219,854
|
)
|
|
|
(45,134
|
)
|
|
|
(656,592
|
)
|
|
|
8,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Tax
|
|
|
(774,271
|
)
|
|
|
(603,532
|
)
|
|
|
(1,785,878
|
)
|
|
|
(1,223,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
|
–
|
|
|
|
800
|
|
|
|
–
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(774,271
|
)
|
|
$
|
(604,332
|
)
|
|
$
|
(1,785,878
|
)
|
|
$
|
(1,223,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share- Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding- Basic and Diluted
|
|
|
144,706,495
|
|
|
|
125,647,287
|
|
|
|
144,101,477
|
|
|
|
124,039,447
|
|
The accompanying unaudited notes are
an integral part of these unaudited Condensed Consolidated Financial Statements
Envision Solar International, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
Unaudited
|
|
For the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,785,878
|
)
|
|
$
|
(1,223,905
|
)
|
Adjustments to Reconcile Net loss to Net Cash Provided by (Used in) Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36,355
|
|
|
|
34,781
|
|
Common Stock issued for services
|
|
|
168,750
|
|
|
|
85,500
|
|
Common stock issued for loan guaranty
|
|
|
–
|
|
|
|
26,755
|
|
Gain on debt settlement
|
|
|
–
|
|
|
|
(2,355
|
)
|
Compensation expense related to grant of stock options
|
|
|
8,684
|
|
|
|
78,891
|
|
Gain on debt extinguishment
|
|
|
–
|
|
|
|
(107,081
|
)
|
Amortization of debt issue costs
|
|
|
–
|
|
|
|
800
|
|
Amortization of debt discount
|
|
|
560,900
|
|
|
|
805
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(683,413
|
)
|
|
|
730,749
|
|
Prepaid expenses and other current assets
|
|
|
(52,001
|
)
|
|
|
6,932
|
|
Inventory, net
|
|
|
1,468,797
|
|
|
|
(389,936
|
)
|
Deposits
|
|
|
49,590
|
|
|
|
(1,810
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
485,973
|
|
|
|
96,190
|
|
Accrued expenses
|
|
|
25,763
|
|
|
|
172,232
|
|
Convertible note payable issued in lieu of salary - related party
|
|
|
25,000
|
|
|
|
60,000
|
|
Sales tax payable
|
|
|
53,195
|
|
|
|
(36,134
|
)
|
Deferred revenue
|
|
|
(6,790
|
)
|
|
|
14,844
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
354,925
|
|
|
|
(452,742
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
–
|
|
|
|
(3,220
|
)
|
Funding of patent costs
|
|
|
(44,858
|
)
|
|
|
(1,837
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(44,858
|
)
|
|
|
(5,057
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
290,000
|
|
|
|
245,000
|
|
Payments of offering costs related to sale of common stock
|
|
|
(12,000
|
)
|
|
|
(3,600
|
)
|
Borrowings (Repayments) on line of credit, net
|
|
|
(810,767
|
)
|
|
|
500,000
|
|
Payments of loan offering costs
|
|
|
–
|
|
|
|
(9,655
|
)
|
Payments of deferred equity offering costs
|
|
|
(40,416
|
)
|
|
|
–
|
|
Repayments on notes payable
|
|
|
(6,000
|
)
|
|
|
(6,000
|
)
|
Repayments of auto loan
|
|
|
(5,684
|
)
|
|
|
(4,608
|
)
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
|
(584,867
|
)
|
|
|
721,137
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(274,800
|
)
|
|
|
263,338
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
403,475
|
|
|
|
8,568
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
128,675
|
|
|
$
|
271,906
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
98,561
|
|
|
$
|
30,444
|
|
Cash paid for income tax
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Transfer of prepaid asset to inventory
|
|
$
|
30,272
|
|
|
$
|
21,168
|
|
Depreciation capitalized into inventory
|
|
$
|
11,015
|
|
|
$
|
10,989
|
|
Prepaid insurance financed by third party
|
|
$
|
–
|
|
|
$
|
16,335
|
|
Shares issued for debt conversion
|
|
$
|
–
|
|
|
$
|
704,709
|
|
Recording of debt discount
|
|
$
|
243,380
|
|
|
$
|
–
|
|
The accompanying
unaudited notes are an integral part of these unaudited Condensed Consolidated Financial Statements
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
1.
|
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
Envision Solar International
Inc. (along with its subsidiary, hereinafter the “Company”, “us”, “we”, “our” or
“Envision”), a Nevada corporation, invents, designs, and manufactures solar powered products and proprietary technology
solutions targeting three verticals: electric vehicle charging infrastructure, out of home advertising infrastructure, and energy
security and disaster preparedness. The Company focuses on creating renewably energized platforms for electric vehicle (“EV”)
charging, media and branding, and energy security which management believes are attractive, rapidly deployed, and of the highest
quality. Management believes that the Company’s chief differentiator is its ability to invent, design, engineer, and manufacture
solar products which are a complex integration of our own proprietary technology and other commonly available engineered components.
The resulting products are built to have the longest life expectancy in the industry while also delivering valuable amenities and
potentially highly attractive revenue opportunities for our customers. Management believes that Envision’s products deliver
multiple layers of value such as: impact free renewably energized EV charging; media, branding, and advertising platforms; sustainable
and secure energy production; architectural enhancement; reduced carbon footprint; high visibility "green halo" branding;
reduction of net operating costs through reduced utility bills; and revenue creation opportunities through the sales of digital
out of home (“DOOH”) media.
Basis of Presentation
The interim unaudited
condensed consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of the Company’s management, all adjustments (consisting of normal
recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations
and cash flows for the three and six months ended June 30, 2018 and 2017, and our financial position as of June 30, 2018, have
been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected
for the full year.
Certain information
and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from
these interim financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017. The December
31, 2017 consolidated balance sheet is derived from those statements.
Principals of Consolidation
The unaudited condensed
consolidated financial statements include the accounts of Envision Solar International, Inc. and its wholly-owned subsidiary, Envision
Solar Construction Company, Inc. All inter-company balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited condensed consolidated
financial statements include the allowance for doubtful accounts receivable, valuation of inventory and standard cost allocations,
depreciable lives of property and equipment, estimates of loss contingencies, valuation of derivatives, valuation of beneficial
conversion features in convertible debt, valuation of share-based payments, and the valuation allowance on deferred tax assets.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Concentrations
Concentration of Credit Risk
Financial instruments that potentially subject
us to concentrations of credit risk consist of cash and revenues.
The Company maintains
its cash in banks and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced
any losses in such accounts from inception through June 30, 2018. As of June 30, 2018, there were no amounts greater than the federally
insured limits.
Concentration of Accounts Receivable
As of June 30, 2018,
customers that each represented more than 10% of the Company’s net accounts receivable balance were as follows:
Customer A
|
48%
|
Customer B
|
22%
|
Customer C
|
21%
|
|
|
As of December 31, 2017, there was a single
customer that represented 94% of the Company’s net accounts receivable balance.
Concentration of Revenues
For the six months ended June 30, 2018,
customers that each represented more than 10% of our net revenues were as follows:
Customer A
|
53%
|
Customer B
|
11%
|
Customer C
|
11%
|
For the six months ended June 30, 2017,
customers that each represented more than 10% of our net revenues were as follows:
Customer A
|
30%
|
Customer D
|
20%
|
Customer E
|
15%
|
Customer F
|
10%
|
Cash and Cash Equivalents
For the purposes of
the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at June 30, 2018 and December
31, 2017 respectively.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Fair Value of Financial Instruments
The Company’s
financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, and short term loans, are carried
at historical cost basis. At June 30, 2018, the carrying amounts of these instruments approximated their fair values because of
the short-term nature of these instruments.
Accounting for Derivatives
The Company evaluates
its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The
result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded
as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement
of operations as other income (expense). Upon conversion of a note where the embedded conversion option has been bifurcated and
accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives,
and debt discounts, and recognizes a net gain or loss on extinguishment. Equity instruments that are initially classified as equity
that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument
on the reclassification date.
Revenue Recognition
As of January 1, 2018,
Envision adopted the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts
with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following
five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the
transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy
a performance obligation.
Revenues are primarily
derived from the direct sales of manufactured products. Revenues may also consist of maintenance fees for the maintenance of previously
sold products, and revenues from sales of professional services.
Revenues from inventoried
product sales are recognized upon the final delivery of such product to the customer or when legal transfer of ownership takes
place. Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into. The
customer is typically obligated to make payment for such products within a 15-45 day period after delivery.
Revenues from maintenance
fees are recognized equally over the period of the maintenance term. Revenue values are fixed price arrangements determined at
the time an order is placed or a contract is entered into. The customer is typically obligated to make payment for the service
in advance of the maintenance period.
Revenues from professional
services are recognized as services are performed. Revenue values are based upon fixed fee arrangements or hourly fee-based arrangements
with agreed to hourly rates of service categories in line with expertise requirements. These services are billed to a customer
as such services are provided and the customer will be obligated to make payments for such services typically within a 15-45 day
period.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Any deposits received
from a customer prior to delivery of the purchased product or monies paid prior to the period for which a service is provided are
accounted for as deferred revenue on the balance sheet.
Sales tax
is recorded on a net basis and excluded from revenue.
The
Company generally provides a standard one year warranty on its products for materials and workmanship but will pass on the
warranties from its vendors, if any, which generally cover at least such period. In accordance with ASC 450-20-25, the
Company accrues for product warranties when the loss is probable and can be reasonably estimated. At June 30, 2018, the
Company has no product warranty accrual given the Company’s de minimis historical financial warranty experience.
Cost of Revenues
The Company
records direct material and component costs, direct labor and associated benefits, and manufacturing overhead costs such as supervision,
manufacturing equipment depreciation, rent, and utility costs as costs of revenues. The Company further includes shipping and
handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues.
Patents
The company believes
it is in a position to achieve future economic value benefits for its various patents and patent ideas. All administrative costs
for obtaining patents are accumulated on the balance sheet as a Patent asset until such time as a patent is issued at which point
amortization begins. The costs of these intangible assets are classified as a long term asset and amortized on a straight line
basis over the legal life of such asset, which is typically 20 years. In the event a patent is denied or abandoned, all accumulated
administrative costs will be expensed in the period in which the patent was denied or abandoned. Patent amortization expense was
$492 and $280 in the six-month periods ended June 30, 2018 and 2017, respectively.
Stock-Based Compensation
The Company follows
ASC 718, “Compensation – Stock Compensation.” ASC 718 requires companies to estimate and recognize the fair value
of stock-based awards to employees and directors. The fair value of the portion of an award that is ultimately expected to vest
is recognized as an expense over the requisite service periods using the straight-line attribution method.
The Company accounts
for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based
Payments to Non Employees.”
The Company estimates
the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.
Net Loss Per Share
Basic net loss per
share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods
presented. Diluted net loss per common share is computed using the weighted average number of common shares outstanding for the
period, and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental
common shares issuable upon the exercise of stock options, stock warrants, convertible debt instruments or other common stock equivalents.
Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Convertible notes payable
that are convertible into 12,274,762 common shares, options to purchase 15,174,175 common shares and warrants to purchase 5,817,950
common shares were outstanding at June 30, 2018. These shares were not included in the computation of diluted loss per share for
the three or six months ended June 30, 2018 because the effects would have been anti-dilutive. These options and warrants may dilute
future earnings per share.
Segments
The Company follows
ASC 280-10 for, "Disclosures about Segments of an Enterprise and Related Information." During 2018 and 2017, the Company
only operated in one segment; therefore, segment information has not been presented.
Reclassifications
Certain reclassifications have been made
on prior period balances to conform to the current year presentation. At June 30, 2018, $25,656, net of $30,960 of discount, and
$62,616 at December 31, 2017, was reclassified from Convertible Notes Payable – Related Parties to Convertible Notes Payable
as the lender is no longer a related party. This reclassification had no impact on net loss, shareholders’ equity or cash
flows as previously reported.
New Accounting Pronouncements
ASU 2018-05
In March 2018, the
Financial Accounting Standards Board issued Accounting Standards Update No. 2018-05:
"Income Taxes (Topic 805)”
to provide accounting and disclosure guidance on accounting for income taxes under generally accepted accounting principles (“U.S.
GAAP”). This guidance addresses the recognition of taxes payable or refundable for the current year and the recognition of
deferred tax liabilities and deferred tax assets for the future tax consequences of events that have been recognized in an entity’s
financial statements or tax returns. ASC Topic 740 also addresses the accounting for income taxes upon a change in tax laws or
tax rates. The income tax accounting effect of a change in tax laws or tax rates includes, for example, adjusting (or re-measuring)
deferred tax liabilities and deferred tax assets, as well as evaluating whether a valuation allowance is needed for deferred tax
assets. The Company has accounted for the changes related to the Tax Cuts and Jobs act passed by Congress in 2017.
ASU 2016-02
In February 2016, the
Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees
will need to recognize almost all leases on their balance sheet as a right of use asset and a lease liability. This guidance is
effective for interim and annual reporting periods beginning after December 15, 2018. The Company expects this ASU will increase
its current assets and current liabilities but have no net material impact on its consolidated financial statements.
As reflected in the
accompanying unaudited condensed consolidated financial statements for the six months ended June 30, 2018, the Company had a net
loss of $1,785,878. Additionally, at June 30, 2018, the Company had a working capital deficit of $1,765,422, an accumulated deficit
of $40,062,757 and a stockholders’ deficit of $1,436,325. It is Management’s opinion that these factors raise substantial
doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of
this report.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
The Company has incurred
significant losses from operations, and such losses are expected to continue. In addition, the Company has limited working
capital. In the upcoming months, Management's plans include seeking additional operating and working capital through a combination
of public, private and debt financings. There is no guarantee that additional capital or debt financing will be available when
and to the extent required, or that if available, it will be on terms acceptable to the Company. Further, the Company continues
to seek out sales contracts for new product sales that should provide additional revenues and, in the long term, gross profits.
Additionally, Envision intends to renegotiate the debt instruments that become due later in 2018. All such actions and funds,
if successful, may not be sufficient to cover monthly operating expenses or meet minimum payments with respect to the Company’s
liabilities over the next twelve months.
The unaudited condensed
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Inventories are stated at the lower of cost
or net realizable value. Costs are determined using the first in- first out (FIFO) method. Inventory consists approximately of
the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Finished Goods
|
|
$
|
–
|
|
|
$
|
1,716,141
|
|
Work in Process
|
|
|
559,013
|
|
|
|
311,481
|
|
Raw Materials
|
|
|
341,578
|
|
|
|
300,479
|
|
Inventory Allowance
|
|
|
(8,601
|
)
|
|
|
(8,601
|
)
|
Total Inventory
|
|
$
|
891,990
|
|
|
$
|
2,319,500
|
|
The major components of accrued expenses
are summarized as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Accrued vacation
|
|
$
|
151,843
|
|
|
$
|
152,051
|
|
Accrued interest
|
|
|
174,506
|
|
|
|
175,953
|
|
Accrued rent
|
|
|
75,501
|
|
|
|
77,164
|
|
Accrued loss contingency
|
|
|
–
|
|
|
|
44,423
|
|
Other accrued expense
|
|
|
75,837
|
|
|
|
2,333
|
|
Total accrued expenses
|
|
$
|
477,687
|
|
|
$
|
451,924
|
|
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
5.
|
CONVERTIBLE LINE OF CREDIT
|
On September 18, 2017,
in addition to a convertible “Lender” note (See Note 7), the Company entered into a revolving secured convertible promissory
note (the “Revolver”) with an unaffiliated lender (the “Lender”). Pursuant to the Revolver, the Company
has the right to make borrowings from the Lender in amounts of up to 70% of the value of any specific purchase order (each a “PO”)
received by the Company from a credit worthy customer (each a “Draw Down”), up to a maximum of $3,000,000, commencing
on the date of the Revolver and terminating 300 days after the date of the Revolver. The Revolver bears simple interest at the
floating rate per annum equal to the 12 month USD LIBOR index rate quoted from time to time in New York, New York by the Bloomberg
Service plus 600 basis points (the “Interest Rate”). The Interest Rate will be adjusted on the first day of each calendar
month during the term of this Note to reflect any changes in the 12 month LIBOR rate as quoted on that day, or if that day is not
a business day, on the next business day thereafter. The principal and accrued unpaid interest with respect to each Draw Down is
due and payable within five (5) business days of receipt from the Customer by the Company of a payment due under the applicable
PO (with respect to each Draw Down, the “Maturity Date”). Each Draw Down is secured by a perfected recorded second
priority security interest in all of the Company’s assets, as set forth in that certain Security Agreement by and between
the Company and the Lender. The Lender will have the right at any time until the Maturity Date of a Draw Down, provided the Lender
gives the Company written notice of the Lender’s election to convert prior to any prepayment of such Draw Down by the Company
with respect to converting that portion of such Draw Down covered by the prepayment, to convert all or any portion of the outstanding
principal and accrued unpaid interest (the “Conversion Amount”), into such number of fully paid and nonassessable shares
of the Company’s common stock as is determined by dividing the Conversion Amount by the greater of (i) fifteen cents ($0.15)
or (ii) 75% of the Volume Weighted Average Price of the Company’s common stock that is quoted on a public securities trading
market (if more than one, the one with the then highest trading volume), during the five (5) consecutive trading days immediately
prior to the date of the Lender’s written notice of the Lender’s election to convert.
As additional consideration
for any Draw Downs made by the Company as evidenced by the Revolver, the Company agreed to issue to the Lender common stock purchase
warrants exercisable for a period of three years from the date of issuance with an exercise price equal to the greater of (i) $0.15
per share or (ii) 75% of the Volume Weighted Average Price of the Company’s common stock that is quoted on a public securities
trading market (if more than one, the one with the then highest trading volume), during the five (5) consecutive trading days immediately
prior to the date of the applicable Draw Down. The number of warrants issuable to the Lender will equal 25% of the increase over
the highest dollar amount previously drawn down by the Company on the Revolver divided by the greater of (i) fifteen cents ($0.15)
or (ii) 75% of the Volume Weighted Average Price of the Company’s common stock that is quoted on a public securities trading
market (if more than one, the one with the then highest trading volume), during the five (5) consecutive trading days immediately
prior to the date of the applicable Draw Down which causes the increase over the previous highest amount borrowed.
The Company received
funds for an initial Draw Down on September 26, 2017 in the amount of $850,000. As a result of this Draw Down, the Company issued
1,416,667 common stock purchase warrants having a value of $122,992 using the Black-Scholes valuation methodology, and each with
a $0.15 exercise price and three year term. As a result of this transaction and including the relative fair value of the issued
warrants, the Company recorded $243,223 of value of beneficial conversion features and warrants, which was recorded as debt discount
on the accompanying balance sheet and was amortized to interest expense over the term of the Draw Down. This Draw Down was paid
back to the Lender during the three month period ended March 31, 2018.
The Company received
funds for a second Draw Down on October 24, 2017 in the amount of $300,000. As a result of this Draw Down, the Company issued 500,000
common stock purchase warrants having a value of $56,620 using the Black-Scholes valuation methodology, and each with a $0.15 exercise
price and three year term. As a result of this transaction and including the relative fair value of the issued warrants, the Company
recorded $175,261 of value of beneficial conversion features and warrants, which was recorded as debt discount on the accompanying
balance sheet and was amortized to interest expense over the term of the Draw Down. This Draw Down was paid back to the Lender
during the three month period ended March 31, 2018.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
The Company received
funds for a third Draw Down on February 20, 2018 in the amount of $290,000. As a result of this Draw Down, the Company issued 407,784
common stock purchase warrants having a fair value of $61,282 using the Black-Scholes valuation methodology, and each with a $0.1778
exercise price and three year term (See Note 11 and 13). As a result of this transaction, the Company recorded $212,420 of debt
discount consisting of the relative fair value of warrants of $50,591 and a beneficial conversion feature value of $161,829 which
was amortized to interest expense over the term of the Draw Down. This drawn down was paid back to the Lender during the three
month period ended June 30, 2018.
During the three months
ended June 30, 2018, the Company received funds on drawdowns totaling $339,233. No warrants were owed on these drawdowns.
As of June 30, 2018,
the convertible line of credit had a balance amounting to $339,233 with accrued interest amounting to $2,813 which is included
in accrued expenses (See Note 4).
6.
|
CONVERTIBLE NOTE PAYABLE - RELATED PARTY
|
On October 18, 2016,
the Company entered into a five year employment agreement, effective as of January 1, 2016, with Mr. Desmond Wheatley, the Chief
Executive Officer, President, and Chairman of the Company (the “Agreement”). Pursuant to the Agreement, Mr. Wheatley
will receive an annual deferred salary of $50,000 which Mr. Wheatley would have deferred until such time as Mr. Wheatley and the
Board of Directors agreed that payment of the deferred salary and/or cessation of the deferral was appropriate. In certain circumstances
upon the Company achieving specified milestones, which are described in the Agreement, Mr. Wheatley could have demanded payment
of all or any portion of the deferred amount, and the Company must comply with such demand. In August 2018 this agreement was amended
to where his salary shall defer until the earliest to occur of the following: (i) a permissable event specified in Section 409A
of the Code, or (ii) December 31, 2020, or (iii) an event specified below in Section 8.1(a) or 8.1(b) of this Agreement. In the
case of a cessation of the deferral, the Company’s Board of Directors may unilaterally affect such a result by a resolution
duly adopted by it without the agreement or participation of the Employee and with Employee recusing himself from the vote. Employee
will be paid all of the deferred amount upon the occurrence of (a) if and when the Company experiences a “change of control”
whereby more than 50% of the outstanding equity of the Company changes ownership in a single transaction or series of related transactions,
or otherwise as defined in Section 15.6 of the Original Agreement, (b) a sale of all or substantially all of the assets of the
Company, (c) a permissible event specified in Section 409A of the Code, or (d) on December 31, 2020.
All deferred amounts
are evidenced by an unsecured convertible promissory note payable by the Company to Mr. Wheatley, bearing simple interest at the
rate of 10% per annum, accruing until paid, convertible into shares of the Company’s common stock at $0.15 per share at
any time in whole or in part at Mr. Wheatley’s discretion, with a maturity date of December 31, 2020. As the conversion
price was equivalent to the market price at the time of issuance, there was no beneficial conversion feature to this note.
Additionally,
on March 29, 2017 the board of directors granted Mr. Wheatley a $35,000 bonus for which Mr. Wheatley agreed to defer such bonus
under the same terms of his salary deferral. The balance of the note as of June 30, 2018, is $160,000 with accrued and unpaid
interest amounting to $19,576 which is included in accrued expenses (See Notes 4 and 13).
7.
|
CONVERTIBLE NOTES PAYABLE
|
As of June 30, 2018,
the following summarizes amounts owed under convertible notes payable:
|
|
Amount
|
|
|
Unamortized Discount
|
|
|
Convertible Notes Payable, net of discount
|
|
Evey Note
|
|
$
|
56,616
|
|
|
$
|
30,960
|
|
|
$
|
25,656
|
|
“Lender” Note
|
|
|
1,500,000
|
|
|
|
53,956
|
|
|
|
1,446,044
|
|
Convertible Notes Payable – Current Portion
|
|
$
|
1,556,616
|
|
|
$
|
84,916
|
|
|
$
|
1,471,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pegasus Note
|
|
$
|
100,000
|
|
|
$
|
–
|
|
|
$
|
100,000
|
|
Convertible Notes Payable – Long term Portion
|
|
$
|
100,000
|
|
|
$
|
–
|
|
|
$
|
100,000
|
|
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Pegasus Note
On December 19, 2009,
the Company entered into a convertible promissory note for $100,000 to a new landlord in lieu of paying rent for one year for new
office space. The interest is 10% per annum with the note principal and interest originally due December 18, 2010. However, if
the Company receives greater than $1,000,000 of proceeds from debt or equity financing, 25% of the amount in excess of $1,000,000
shall be used to pay down the note. This note is subordinate to all existing senior indebtedness of the Company. This note is convertible
at $0.33 per share and had no beneficial conversion feature at the note date.
Through a series of
amendments, the term of the note was extended until December 31, 2016, and waived, through December 31, 2015, the requirement to
pay down the note with financing proceeds received by the Company.
Effective June 13,
2018, the Company entered into a further amendment to extend the maturity date of this note to December 31, 2019 and waive the
past requirements to pay the note with financing proceeds received by the Company. Additionally, the note holders agreed not to
offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible
into common stock, before December 31, 2019. There were no additional fees or discounts associated with this amendment. This modification
was treated as an extinguishment as the change in fair value of the embedded conversion option just before and just after the modification
was more than 10% of the carrying amount of the note. The market price of the Company’s stock was below the conversion price
at the time of the modification, therefore no beneficial conversion feature needed to be recorded.
As of June 30, 2018,
the note had a balance of $100,000 with accrued and unpaid interest amounting to $85,151 which is included in accrued expenses
(See Note 4).
Evey Note
Prior to fiscal 2011,
the Company was advanced monies by John Evey, our former director, and executed a 10% convertible promissory note with compounding
interest which was convertible into shares of common stock at $0.33 per share. There was no beneficial conversion feature at the
note date and this note is subordinate to the then existing notes. Through a series of amendments from the original due date, the
conversion price of the convertible note was reduced to $0.20 and the maturity date was extended to December 31, 2017.
Effective June 27,
2018, the Company entered into a further extension agreement to extend the maturity date of this note to July 1, 2019. Additionally,
Mr. Evey agreed not to offer for sale, issue, sell, contract to sell, or otherwise dispose of any of our common stock or securities
convertible into common stock on or before December 31, 2018 and not to offer for sale, issue, sell, contract to sell, pledge,
or otherwise dispose of any of our common stock issuable upon the conversion of the note, on or before July 1, 2019. There were
no additional fees or discounts associated with this extension. This modification was treated as an extinguishment as the change
in fair value of the embedded conversion option just before and just after the modification was more than 10% of the carrying amount
of the note. The Company recorded debt discount amounting to $30,960 for the value of the beneficial conversion feature and will
amortize this to interest expense over the remaining term of the loan.
For the six month period
ended June 30, 2018, in lieu of interest payments, the Company made principal payments totaling $6,000. As of June 30, 2018, this
note has a balance, net of $30,960 of discount, amounting to $25,656 with accrued interest amounting to $67,272 which is included
in accrued expenses (See Note 4). The note continues to bear interest at a rate of 10%
.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
“Lender”
Note
On September 18, 2017,
in addition to entering into a revolving convertible line of credit (See Note 5), the Company also entered into a $1,500,000 secured
convertible promissory note with the same unaffiliated lender (the “Lender”). The Note bears simple interest at the
floating rate per annum equal to the 12 month USD LIBOR index rate quoted from time to time in New York, New York by the Bloomberg
Service plus 400 basis points (the “Interest Rate”). The Interest Rate will be adjusted on the first day of each calendar
month during the term of the Note to reflect any changes in the 12 month LIBOR rate as quoted at on that day, or if that day is
not a business day, on the next business day thereafter. Interest will only accrue on outstanding principal. Accrued unpaid interest
is payable monthly on the first calendar day of each month for interest accrued during the previous month, with all outstanding
principal and accrued unpaid interest payable in full on or before September 17, 2018 to the extent not converted into shares of
the Company’s common stock. The Note is secured by a perfected recorded first priority security interest in all of the Company’s
assets, as set forth in a certain Security Agreement by and between the Company and the Lender, dated September 18, 2017. At any
time until the Maturity Date, and provided Lender gives the Company written notice of Lender’s election to convert prior
to any prepayment of this Note by the Company with respect to converting that portion of this Note covered by the prepayment, the
Lender has the right to convert all or any portion of the outstanding principal and accrued interest (the “Conversion Amount”),
into such number of fully paid and nonassessable shares of the Company’s common stock as is determined by dividing the Conversion
Amount by the greater of (i) fifteen cents ($0.15) or (ii) 75% of the Volume Weighted Average Price of the Company’s common
stock that is quoted on a public securities trading market (if more than one, the one with the then highest trading volume), during
the five (5) consecutive trading days immediately prior to the date of the Lender’s written notice of its election to convert.
As additional consideration
for the loan evidenced by the Note, the Company agreed to issue to the Lender common stock purchase warrants exercisable for a
period of three years from the date of issuance with an exercise price equal to $0.15 per share. The number of warrants issuable
to the Lender is equal to 25% of the loan Amount divided by fifteen cents ($0.15). As of September 18, 2017, the Company issued
2,500,000 common stock purchase warrants under this provision having a fair value of $187,142 using the Black-Scholes valuation
methodology, and each with a $0.15 exercise price. As a result of this transaction, the Company recorded $232,767 of debt discount
consisting of the relative fair value of the warrants of $166,384 and a beneficial conversion feature of $66,384, which is being
amortized to interest expense over the term of the note.
During any time when
the Note is outstanding, or when the Lender holds any Company stock, or any warrants to acquire Company stock where the combination
of both could result in the Lender owning stock with a current value of one million dollars or greater, in the Company, the Lender
will have certain review and consulting rights as described in the Note.
As of June 30, 2018,
the convertible note had a balance, net of $53,956 of debt discount, amounting to $1,446,044.
In October 2015, the
Company purchased a new vehicle and financed the purchase through a dealer auto loan. The loan has a term of 60 months, requires
minimum monthly payments of approximately $950, and bears interest at a rate of 5.99 percent. As of June 30, 2018, the loan has
a short-term portion of $7,602 and a long-term portion of $17,196.
9.
|
COMMITMENTS AND CONTINGENCIES
|
Legal Matters:
From time to time,
we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of June
30, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results
of our operations.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
Leases:
In August 2016, the
Company entered into a sublease for its current corporate headquarters and manufacturing facility. The sublease expires in August
2020 which is the same term of the master lease for which the Company is the subtenant. Monthly lease payments range from $46,800
per month currently increasing to $50,619 per month for the final year of the lease.
Other Commitments:
The Company enters
into various contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments.
Since inception, the Company entered into agreements to act as a reseller for certain vendors; joint development contracts with
third parties; referral agreements where the Company would pay a referral fee to the referrer for business generated; sales agent
agreements whereby sales agents would receive a fee equal to a percentage of revenues generated by the agent; business development
agreements and strategic alliance agreements where both parties agree to cooperate and provide business opportunities to each other
and in some instances, provide for a right of first refusal with respect to certain projects of the other parties; agreements with
vendors where the vendor may provide marketing, investor relations, public relations, technical consulting or subcontractor services,
vendor arrangements with non binding minimum purchasing provisions, and financial advisory agreements where the financial advisor
would receive a fee and/or commission for raising capital for the Company. All expenses and liabilities relating to such contracts
were recorded in accordance with generally accepted accounting principles during the periods. Although such agreements increase
the risk of legal actions against the Company for potential non-compliance, there are no firm commitments in such agreements.
Stock Issued in Cash Sales
During the six months
ended June 30, 2018 pursuant to a private placement, the Company issued 1,933,333 shares of common stock for cash with a per share
price of $0.15 per share or $290,000 and the Company incurred $12,000 of capital raising fees that were paid in cash and charged
to additional paid-in-capital. Additionally, the Company issued 273,333 warrants as an offering cost to a third party, each with
a 5 year term and a strike price of $0.15 per share, at the close of the private placement offering. There was no accounting
effect for the issuance of these warrants as their fair value was charged to additional paid-in-capital as an offering cost and
offset by a credit to additional paid-in-capital for their fair value when issuing these warrants. (See Note 11)
Director Compensation
During the
six month period ended June 30, 2018, the Company released a total of 375,000 vested shares of common stock (related to previous
grants to each of these directors of 750,000 shares which vest on a pro rata basis over a three year period), with a per share
fair value of $0.15, or $56,250 (based on the market price at the time of the agreement), to three directors for their service
as defined in their respective Restricted Stock Grant Agreements. The $56,250 was expensed during the six months ended June 30,
2018 (See Note 13). As of June 30, 2018, there were unreleased shares of common stock representing $168,750 of unrecognized restricted
stock grant expense related to these Restricted Stock Grant Agreements.
Effective
March 27, 2018, based on authorization initially approved by the Board of Directors on December 19, 2017, and confirmed by resolutions
adopted by the Board on March 27, 2018, the Company granted a total of 750,000 shares of common stock with a per share value of
$0.15 per share (based on contemporaneous cash sales prices), or $112,500, to three directors for performance of their duties.
These shares are being issued from a pool of 750,000 shares of common stock for each director of previously authorized restricted
stock grant awards for performance that are awarded if specific performance criteria are achieved or the Board authorizes their
award and vesting by specific resolutions (See Note 13). These shares are immediately expensed.
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
11.
|
STOCK OPTIONS AND WARRANTS
|
Stock Options
There were no stock
options issued during the six months ended June 30, 2018.
During the six months
ended June 30, 2018, the Company recorded stock option based compensation of $8,684 related to prior grants. As of June 30, 2018,
there is $24,845 of unrecognized stock option based compensation expense that will be recognized over the next two years.
Warrants
As a part of the Company’s
private placement, the Company effectively issued 273,333 warrants during the three months ended March 31, 2018 to the placement
agents. These warrants, valued at $26,206, are exercisable for 5 years at an exercise price of $0.15 per share. The
Company estimated the fair value of the warrants utilizing the Black-Scholes pricing model. The assumptions used in the valuation
of these warrants include volatility of 79.39%, expected dividends of 0.0%, a discount rate of 1.50%, and expected term of 5 years.
There was no financial statement accounting effect for the issuance of these warrants as their fair value has been charged to Additional
Paid-in-Capital as an offering cost and was offset by a credit to Additional Paid-in-Capital for their fair value when recording
the issuance of these warrants (See Note 10).
In connection with
a Draw Down of a convertible line of credit, as of February 20, 2018, the Company issued 407,784 common stock purchase warrants
with a total value of $61,282 and each with a $0.1778 exercise price and 3 year term. The Company estimated the fair value of the
warrants utilizing the Black-Scholes pricing model. The assumptions used in the valuation of these warrants include volatility
of 82.55%, expected dividends of 0.0%, a discount rate of 1.50%, and expected term of 3 years. (See Note 5).
For each of the identified
periods, revenues can be categorized into the following:
|
|
For the six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Product Sales
|
|
$
|
3,706,103
|
|
|
$
|
874,819
|
|
Maintenance Fees
|
|
|
3,789
|
|
|
|
–
|
|
Professional Services
|
|
|
10,575
|
|
|
|
3,600
|
|
Total Revenues
|
|
$
|
3,720,467
|
|
|
$
|
878,419
|
|
At June 30, 2018 and
December 31, 2017, deferred revenue amounted to $70,724 and $77,514 respectively. At June 30, 2018, the Company has received an
initial deposit to plan and manufacture two Solar Tree® units in addition to deposits for multi-year maintenance plans for
previously sold products. As of June 30, 2018, deferred revenue associated with product deposits are $26,304 and the delivery of
such products are expected within the following six months, while deferred maintenance fees amounted to $44,420 and pertain to
services to be provided through the second quarter of 2022.
13.
|
RELATED PARTY TRANSACTIONS
|
During the six months
ended June 30, 2018, the Company released a total of 1,125,000 shares of common stock with a total value of $168,750, to three
directors. These payments were expensed upon release of the shares (See Note 10).
ENVISION SOLAR INTERNATIONAL, INC. AND
SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2018
(Unaudited)
On October 18, 2016,
the Company entered into a five year employment agreement, effective as of January 1, 2016, with Mr. Desmond Wheatley, the Chief
Executive Officer, President, and Chairman of the Company (the “Agreement”). Pursuant to the Agreement, Mr. Wheatley
will receive an annual deferred salary of $50,000 which Mr. Wheatley will defer until such time as Mr. Wheatley and the Board of
Directors agree that payment of the deferred salary and/or cessation of the deferral is appropriate. Additionally, on March 29,
2017 the board of directors granted Mr. Wheatley a $35,000 bonus for which Mr. Wheatley agreed to defer such bonus under the same
terms of his salary deferral. All deferred amounts are evidenced by an unsecured convertible promissory note payable by the Company
to Mr. Wheatley. The balance of the note as of June 30, 2018, is $160,000 with accrued and unpaid interest amounting to $19,576
which is included in accrued expenses (See Notes 4 and 6).
Subsequent to June
30, 2018, the Company has borrowed net funds under its Convertible Line of Credit with the Lender amounting to $203,561 (See Note
5).
On July 19, 2018, Mr. Jay S. Potter resigned
as a director of Envision Solar International, and the Company accepted Mr. Potter’s resignation effective on the same date.
In recognition of Mr. Potter’s long and valuable service to the Company, the Board of Directors authorized the immediate
vesting and issuance to Mr. Potter of the balance of the nonperformance restricted stock award scheduled to be issued to him through
December 31, 2018. As such, the Company released a total of 125,000 vested shares of common stock with a per share fair value of
$0.15, or $18,750 (based on the market price at the time of the agreement).
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
This report contains
forward-looking statements that are based on current expectations, estimates, forecasts and projections about Envision Solar International,
Inc. (hereinafter, with its subsidiary, “Envision,” “Company,” “us,” “we” or “our”),
the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding
matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects.
For example, when we use words such as "projects," "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," "should," "would," "could,"
"will," "opportunity," "potential" or "may," and variations of such words or other words
that convey uncertainty of future events or outcomes, we are making forward-looking statements.
These forward-looking
statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be
materially different from any future results expressed or implied by the Company in those statements. The most important factors
that could prevent the Company from achieving its stated goals include, but are not limited to, the following:
|
(a)
|
volatility or decline of the Company’s stock price;
|
|
(b)
|
potential fluctuation in quarterly results;
|
|
(c)
|
failure of the Company to earn revenues or profits;
|
|
(d)
|
inadequate capital to continue or expand its business, and inability to raise additional capital
or financing to implement its business plans;
|
|
(e)
|
unavailability of capital or financing to prospective customers of the Company to enable them to
purchase products and services from the Company;
|
|
(f)
|
failure to commercialize the Company’s technology or to make sales;
|
|
(g)
|
reductions in demand for the Company’s products and services, whether because of competition,
general industry conditions, loss of tax incentives for solar power, technological obsolescence or other reasons;
|
|
(h)
|
rapid and significant changes in markets;
|
|
(i)
|
inability of the Company to pay its liabilities;
|
|
(j)
|
litigation with or legal claims and allegations by outside parties;
|
|
(k)
|
low trading volume of our common stock and general lack of liquidity;
|
|
(l)
|
competition in the EV charging market including price competition from grid connected chargers;
|
|
(m)
|
insufficient revenues to cover operating costs, resulting in persistent losses; and
|
|
(n)
|
potential dilution of the ownership of existing shareholders in the Company due to the issuance
of new securities by the Company in the future.
|
There is no assurance
that the Company will be profitable. The Company may not be able to successfully develop, manage, or market its products and services.
The Company may not be able to attract or retain qualified executives and other personnel. Intense competition may suppress the
prices that the Company can charge for its products and services, hindering profitability or causing losses. The Company may not
be able to obtain customers for its products or services. Government regulation may hinder the Company’s business. Additional
dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the
exercise of outstanding warrants and stock options. The Company is exposed to other risks inherent in its businesses.
Because the statements
are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking
statements. The Company cautions you not to place undue reliance on the statements, which speak only as of the date of this unaudited
Quarterly Report on Form 10-Q. Forward looking statements and other disclosures in this report speak only as of the date they are
made. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent
written or oral forward-looking statements that the Company or persons acting on its behalf may issue. The Company does not undertake
any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.
Overview
Envision is a sustainable
technology innovation company based in San Diego, California.
Focusing on what we refer to as “Solar
3.0,” we invent, design, engineer, manufacture and sell solar powered products that enable vital and highly valuable services
in locations where it is either too expensive or too impactful to connect to the utility grid, or where the requirements for electrical
power are so important that grid failures, like blackouts, are intolerable. When competing with utilities or typical solar companies,
we rely on our products’ deployability, reliability, accessibility, and total cost of ownership, rather than producing the
cheapest kilowatt hour with the help of subsidies.
Envision’s solar
powered products and proprietary technology solutions target three verticals: electric vehicle charging infrastructure, out of
home advertising platforms, and energy security and disaster preparedness. The Company focuses on creating renewably energized,
high-quality products for electric vehicle (“EV”) charging, media and branding, and energy security, that are rapidly
deployable and attractively designed. Our chief differentiator is, we believe, our ability to invent, design, engineer, and manufacture
solar products which are a complex integration of our own proprietary technology and parts, and other commonly available engineered
components. The resulting products are built to have the longest life expectancy in the industry while also delivering valuable
amenities and potentially highly attractive revenue opportunities for our customers. Envision’s products are designed to
deliver multiple layers of value such as: impact free renewably energized EV charging; media, branding, and advertising platforms;
sustainable and secure energy production; reduced carbon footprint; high visibility "green halo" branding; reduction
of net operating costs through reduced utility bills; and revenue creation opportunities through sales of digital out of home (“DOOH”)
media. The Company sells its products to customers with requirements in one or more of the three verticals the Company addresses.
Qualified customers can also lease our EV ARC™ products through leasing relationships we have developed. Envision’s products can qualify
for various federal, state, and local financial incentives which could significantly reduce final out-of-pocket costs from our selling
price for eligible customers.
Products and Technologies
We currently produce
two categories of product: the patented EV ARC™ (Electric Vehicle Autonomous Renewable Charger) and the patented Solar Tree®.
We have recently submitted third and fourth product categories, the EV-Standard™ product and the UAV ARC™ product,
for patent approval. They are patent pending and in late stage product development and engineering. All four product lines incorporate
the same underlying technology and value, having a built-in renewable energy source in the form of attached solar panels or light
wind generator, along with battery storage. The EV ARC™ product is a permanent solution in a transportable format and the
Solar Tree® product is a permanent solution in a fixed format. The EV-Standard™ is also fixed but uses an existing streetlamp’s
foundation and grid connection. The UAV ARC™ is a permanent solution in a transportable format and the marinized version
will also be deployable at sea or on other bodies of water. We believe that our series of products offer multiple layers of value
to our customers while leveraging the same underlying technology, fabrication techniques and infrastructure that we use for all
of our products. This enables us to reach a broad customer base with varied product offerings without maintaining the overhead
normally associated with a diverse set of products.
Our current list of
products includes:
|
·
|
EV ARC™ Electric Vehicle Autonomous Renewable Charger.
|
|
·
|
EV ARC™ HP DC Fast Charging Electric Vehicle Autonomous Renewable Charger.
|
|
·
|
EV ARC™ Media Electric Vehicle Autonomous Renewable Charger with advertising screen and/or branding/messaging.
|
|
·
|
EV ARC™ Autonomous Renewable Motorcycle Charger.
|
|
·
|
EV ARC™ Autonomous Renewable Bicycle Charger.
|
|
·
|
ARC Mobility™ Transportation System.
|
|
·
|
The Solar Tree® DCFC product, a single column-mounted smart generation and energy storage system with the capability to provide a 50kW DC fast charge to one or more electric vehicles.
|
The EV Standard™ is currently patent
pending and in the development and engineering phase of its product evolution.
The UAV ARC™, a drone recharging
product, is patent pending and in the development and engineering phase of its product evolution.
All current Envision
products can be upgraded with the addition of the following:
|
·
|
EnvisionTrak™ sun tracking technology (patented),
|
|
·
|
Data capture and management (IoT),
|
|
·
|
SunCharge™ solar powered EV charging,
|
|
·
|
ARC™ technology energy storage,
|
|
·
|
E-Power emergency power panels,
|
|
·
|
Media and branding screens, and
|
|
·
|
Security cameras, WiFi, sound, and emergency call boxes.
|
EV ARC™ and Solar
Tree® products can also be equipped to provide emergency power to users such as first responders during times of emergency
or other grid failures. Because our products replenish their batteries every day, even during cloudy conditions, we believe that
they are some of the most robust and reliable back-up energy sources available today. Several of our current government customers
are ordering EV ARC™ units with our optional E Power panels integrated into the units. E Power is a series of secured power
outlets with directed and primary energy access available to emergency responders. This is a source of increased revenue for us
and, we believe, a compelling value proposition for our products.
EV ARC™ and Solar
Tree® products can be grid connected if the customer wishes. Our first utility customer connected its EV ARC™ units to
the grid in 2015. The EV ARC™ products provide solar powered EV charging, but they also serve as grid stability tools. During
times of low energy use the utility will charge the EV ARC™ on board batteries. During times of grid stress, the utility
takes energy from EV ARC™ batteries thus reducing stress on their generation assets and grid infrastructure. We believe that
“Grid Balancing” offers a potentially significant market opportunity for Envision’s products as electrical grids
become increasingly unstable due to increased demand, aging infrastructure, and extreme weather events. Experts from utilities
such as San Diego Gas & Electric have told us that this is the case and that distributed storage is an important part of their
future plans.
We believe these factors
make our products a compelling value proposition to anyone who intends to install such devices. A corporate customer can deploy
EV charging quickly, efficiently, and without digging up its parking lots. The positive carbon foot print impact is greater because
our products use sunlight to charge the employees’ EVs and, we believe, the marketing and branding impact is far greater
because the enterprise has a highly visible demonstration of its commitment to the environment.
EV ARC™:
EV ARC™ is a
transportable, but essentially permanent EV charging infrastructure product which supports Level I, Level II and DC Fast Charging
(which requires 4 to 7 interconnected units). EV ARC™ products can charge between one and six EVs simultaneously and a single
unit can provide EV charging in as many as 10 parking spaces. We have observed that the EV ARC™ can solve many problems associated
with electric vehicle charging infrastructure deployments. Until the introduction of the EV ARC™, the deployment of EV chargers
could be hindered by complications in site acquisition caused by the challenging and invasive requirements of the installation.
Typical competing EV charger installations require a pedestal which is usually mounted on a poured concrete foundation which requires
excavation. Fixed chargers also typically require a trench to deliver grid connected electricity, and often require transformers
and other local electrical equipment upgrades. Additional entitlements, easements, leases, and other site acquisition requirements
of fixed chargers can be environmentally impactful and expensive, and may slow, or prevent entirely, the deployment of large numbers
of typical fixed format chargers. California’s Department of General Services has informed us that it takes an average of
18 months to go through the process of installing a utility grid-tied EV charger. New York City, currently our largest customer,
experiences similar and sometimes longer delays because of the complexities of extending the electrical grid to locations where
EVs need to charge. Because the EV ARC™ has its own ballast and traction pad, it does not require a foundation. Because it
is entirely powered by locally generated and stored renewable energy, it does not require a grid connection. These innovations
allow us to completely avoid any on-site construction or electrical work which, in turn, allows us to avoid the design, engineering
and entitlement/planning processes typical of grid-tied installations. We have demonstrated that we are able to deploy EV chargers
attached to our EV ARC™ product in as little as four minutes (rather than 18 months).
We believe EV ARC™
changes the paradigm of installing EV charging infrastructure completely because it is entirely self-contained and is delivered
to the site ready to operate. It requires no foundation, trenching, concrete, electrical or civil works, and can be deployed in
minutes. Its high-traction ballasted base pad creates a structurally sound platform that supports the rest of the structure. The
solar array is connected via our EnvisionTrak™ tracking solution to a column which is mounted to the ballasted pad. An electrical
cabinet integrated into the unit houses various components enabling the conversion of sunlight to electricity, which is stored
in on-board batteries, and delivers that electricity to the EV charging station. Incorporating battery storage means that an EV
ARC™ operates day and night, as well as during grid interruptions such as blackouts. An EV ARC™ can deliver a clean
source of power to any model of EV charger that is integrated into the structure. Further, the EV ARC™ can be remotely monitored
through a cellular data connection for energy production and the state of health of its vital components. EV ARC™ products
fit in a standard legal-sized parking space but they do not render that parking space unusable because vehicles, EV or otherwise,
can park on the high-traction ballasted pad. This is a significant differentiator for our product as most commercial and government
owned parking lots have a minimum number of parking spaces which they must provide, according to local codes, to support their
tenants, employees and visitors. Reducing, even by one, the number of available parking spaces might place the building out of
compliance with local and perhaps other codes. We believe that the fact that EV ARC™ does not reduce parking spaces creates
a significant barrier to entry for our competition as our high-traction ballasted pad forms part of our patent. EV ARC™ products
are delivered to our customers’ sites ready to operate.
In some instances,
we have integrated a digital, static, or scrolling advertising screen onto the EV ARC™ creating the EV ARC™ Media.
These advertising screens are resistant to weather, theft, and vandalism and are powered entirely by the EV ARC™. The introduction
of the advertising screen creates new potential revenue streams for the owner of the EV ARC™ and we believe this makes an
EV ARC™ a more attractive product for certain prospective customers. This advancement could lead to multiple other similar
uses of our products. Because the EV ARC™ product delivers valuable services such as solar powered EV charging and a secure
energy source which can be used by first responders during grid failures, management believes that the signage, promotion, and
advertising may be eligible for permitting where other advertising platforms would be prohibited.
“Digital Out
of Home Advertising” is the third fastest growing advertising medium. Double digit growth with billions of dollars per year
in national and global spending make outdoor advertising an attractive opportunity. There are, however, significant barriers to
making it work. In general, in the United States, it is becoming harder to deploy outdoor advertising in most places where it is
of value. Similar to the EV charging vertical, the outdoor advertising industry seeks new solutions to overcome the significant
barriers to entry such as planning, permission, entitlement, electrical circuitry, and civil engineering. Industry veterans spend
a good deal of time looking for the “new new” in advertising, a solution that is environmentally friendly, cost effective,
and most importantly, can make its way through the significant hurdles of permitting and zoning. We believe that our products are
ideally suited to reduce many of the barriers to entry for outdoor advertising, and as such, we believe that significant opportunities
may present themselves to us as we continue to address this market.
EV ARC™ products
also provide a highly reliable source of energy that is not susceptible to grid interruptions. Because an EV ARC™ generates
and stores all of its own energy, it will continue to charge EVs even during grid outages and failures such as those caused by
hurricanes, earthquakes, flooding or heavy snow, or by terrorists and in the future, outages that might be precipitated by nefarious
nation states. Government fleet operators, in particular, recognize the importance of having a hedge against such grid interruptions.
Many of their fleet vehicles provide essential services and cannot be grounded for several days during a prolonged black-out such
as the one that occurred as a result of Hurricane Sandy. Grid tied EV chargers will not operate during black-outs. EV ARC™
supported EV chargers are immune to grid failure and as such provide a vital hedge against the loss of fleet electric vehicles.
We believe that as larger segments of the total vehicle fleet (government, private sector, and consumer) electrify, the necessity
of a large proportion of EV chargers which are powered by locally generated and stored electricity will create a significant opportunity
for our first mover status with our EV ARC™ and other products.
Because EV ARC™
can be deployed with an optional emergency power (E Power) panel, it can also be used as a reliable source of energy in times of
disaster, emergency, or grid failure caused by hurricanes, terrorism, cascading blackouts or other grid vulnerabilities. EV ARC™
can be configured to allow a select group, such as first responders, to access the solar generated and stored energy. A fireman
or police officer will be able to safely connect to the EV ARC™ and power any devices that would typically require a gasoline
or diesel generator. We believe that the EV ARC™ will be a much more reliable, and a cleaner source of energy than the electric
grid or other traditional back up energy sources. The EV ARC™ does not require the level of ongoing maintenance that a diesel
or gasoline generator requires, and there is less chance that it will be inoperable in times of emergency since first responders
are not required to start it or fill it with fuel. We are currently selling EV ARC™ products equipped with E Power panels
to New York City, Caltrans, and many other entities. In the summer of 2017 the EV ARC™ product deployed for the government
of the US Virgin Islands was subjected to category five, 185 mph, winds which it survived. Our customer informed us, in writing,
that while most other infrastructure had been damaged or destroyed by the storm, our EV ARC™ product not only survived, but
was still in excellent condition. The EV ARC™ product is independently certified to withstand winds of 110mph by a licensed
structural engineering firm. We and our customers have observed that in practice, it can withstand hurricane force winds.
While the EV ARC™
and Solar Tree® products are designed to be grid independent, they can also be connected to the utility grid at the customer’s
request. In one instance we have a utility company customer which is using the EV ARC™ product to charge EVs, and also as
a grid balancing tool. The utility has connected the EV ARC™ to the grid and is able to use the internal batteries as a buffer
during times of grid instability. Industry experts predict that there will be a significant increase in the amount of deployed
energy storage connected to the grid to provide stability in the future. We believe that the EV ARC™ products’ ability
to act as a grid buffering solution, as well as a rapidly deployed EV charging solution, is another differentiator and a potentially
significant value proposition.
We believe, and we
have been told by our customers and prospects, that the triple use of EV charging, digital outdoor advertising, and emergency energy
production make the EV ARC™ an extremely valuable product for our customers.
EV ARC™ is designed
to address the sizable market of EV charging infrastructure. We believe the current lack of such infrastructure is the single greatest
impediment to the adoption of EVs in the US and elsewhere. A standardized, portable, easily deployable EV charger, which is renewably
energized rather than relying on carbon based electrical energy, would appear to have significant appeal to those who are interested
in the proliferation of EV’s and EV charging infrastructure. We believe no competing company has a similar product, so the
Company’s first-to-market position should create an opportunity for a sizable share in the market interest.
For our EV ARC product,
direct labor and material costs are lower than the selling price at the individual product level. However, when all of our overhead
cost allocations such as rent, indirect labor, and other allocated costs have been spread across the low volume of units we have
annually produced, we have historically recognized gross losses on sales rather than gross profits. We continually endeavor to
make production improvements in both our products and our processes to reduce our manufacturing costs while maintaining the high
quality for which we strive. As unit sales and production continue to increase to become sufficient to overcome overhead costs
shared amongst all of our production, and we trend toward reducing our cost base through improved economies of scale, production
process improvements, and component cost reductions, management believes that gross profits will be realized and consistently maintained
in the future.
Solar Tree®
Products:
Our patented Solar
Tree® product has been in deployment and continued improvement for several years. We believe the resulting product has become
the standard of quality in larger scale solar powered EV charging, energy security, and media and branding. We understand the Solar
Tree® product to be the only single column, sun tracking, and architectural solar support structure with integrated energy
storage, EV charging and media platforms available today. We believe that Solar Tree® products with integrated battery storage
will become important contributors to the growing EV charging infrastructure requirements in California and the rest of the world.
Because our products do not require a connection to the electrical grid, they can be rapidly deployed and enable EV charging in
locations where it would otherwise be impossible or economically infeasible. For example, rest areas and park and ride locations
which might have sufficient energy for lights and vending machines, but do not have sufficient power for EV charging, can be served
by our Solar Tree® products which can be optimized for direct current (“DC”) fast charging. The costs and environmental
impact associated with delivering a 50kW or greater circuit to a remote rest area may be prohibitive, whereas a Solar Tree®
DCFC can be deployed with minimal site disturbance. In November 2017, we received an order from the Fresno County Rural Transit
Authority to provide Solar Tree® DCFC products which will be used to charge electric buses from BYD Company Ltd. (“BYD”).
The growth in electric bus adoption is happening at a greater pace than EVs at time of writing. BYD is the biggest electric bus
company in the world. We believe that the successful deployment of these Solar Tree® DCFC products for Fresno and with BYD
may create significant opportunities for further deployments of electric bus charging infrastructure and DC fast charging infrastructure
for EVs both in the U.S. and internationally. We further believe that success of the sort that we currently have with Caltrans
may be leveraged with other departments of transportation across the United States and the rest of the world.
We believe Solar Tree®
products with on-board battery storage can provide a highly reliable source of energy to be used in the event of a failure of the
grid. We have seen data suggesting that grid failures cost businesses in the United States approximately $200 billion per year
and when those failures impact vital services such as hospitals, they have been responsible for loss of life. We believe that a
hospital equipped with Solar Tree® energy security products could benefit both economically and from a life safety point of
view. We believe that there are many other such instances where the reliable combination of renewable energy and energy storage
can deliver value which exceeds simply competing with the utility. This will become particularly true when larger segments of transportation
become electrified and grid interruptions mean the “grounding” of EVs which rely solely on the utility grid to re-fuel.
We also believe that
Solar Tree® products optimized for branding can create visually stunning platforms for the delivery of a business’ brand
message with a less onerous planning and entitlement process than that experienced with traditional signage.
We have invented and
incorporated EnvisionTrak™, our patented and proprietary tracking solution, onto all of our products, furthering the unique
nature of our products and, we believe, increasing our technological leadership within the industry. EnvisionTrak™ is a complex
integration of high quality gearing, electrical motors, and controls which are combined in a robust, highly engineered, and reliable
manner. While there are many tracking solutions available to the solar industry, we believe EnvisionTrak™ is the only tracking
solution which causes the solar array to orient itself in alignment with the sun without swinging, rotating, or leaving its lineal
alignment with the parking spaces. We have received a patent on our claims of these attributes. We believe this is a vital attribute
in solar generators in parking environments, since any swinging or rotating arrays could result in impeding the flow of traffic,
particularly first responders such as fire trucks, in the drive aisles. It is a violation of many local codes to have restricted
overhead clearance in the drive aisles. EnvisionTrak™ has been demonstrated, through data obtained from our past customers,
to significantly increase electrical production. An additional value is derived from the high visual appeal created by EV ARC™
or Solar Tree® structures which are tracking the sun in perfect synchronicity. Solar Tree® products incorporate our latest
engineering and fabrication improvements. This has allowed us to reduce costs and time to deploy Solar Tree® structures, and
we have seen improvements in the fabrication processes. We anticipate further improvements in future deployments of the product
as we incorporate more smart technology and storage capabilities.
EV-Standard™
Product:
We have invented and
are in the late stages of product development on, our patent pending EV-Standard product which is, in our belief, the ideal curb
side charging solution. We believe this is another area in the developing charging ecosystem which provides major opportunities
and challenges within the “curbside” or “on street” sector. Because so many owners of vehicles and even
fleet operators (in cities like New York and San Francisco) park their vehicles on street, there is a significant need for curb
side charging. In fact, the CEC has publicly stated that only one in seven Californians are able to park their car close enough
to a circuit to charge at home. Their conclusion is that curb side, on street charging will be an important contributor to the
successful electrification of transportation in the State. Many other jurisdictions such as New York City have made the same statements.
We believe our EV-Standard™
product is a solution to solve this problem. EV-Standard™ is a streetlamp replacement which incorporates renewable energy
and on-board energy storage, and which provides a meaningful EV charging experience without significant infrastructure or construction
requirements. The EV-Standard™ design includes a light-wind generator fixed atop a new streetlamp standard. Also integrated
is a tracking solar panel and on-board battery storage. The EV-Standard™ product design takes power from the existing streetlamp
grid connection and uses it to charge the on-board batteries. The streetlamp’s circuit is available 24 hours per day but
is only in use during the hours of darkness. As a result, EV-Standard™ is able to use the full capacity of the grid connection
to charge its batteries during the day time. A further advantage of the EV-Standard is that it is delivered with a low energy,
high lumens, LED light fixture which reduces the energy required for street lighting during the hours of darkness. This makes the
street light more efficient and, crucially, the EV-Standard™ can use the unused capacity of night-time operations to further
charge its on-board batteries. The additional renewable energy generated by both the tracking solar array and the light-wind generator
supplies more energy to EV-Standards’ batteries. The energy from the batteries is then delivered to a Level II EV charger
which is mounted to the EV-Standard™ products’ column. The combination of the three sources of capacity, when delivered
at once through our on-board batteries, allows us to deliver a much more powerful and therefore more meaningful EV charging experience
than would be available simply through connecting to the existing street lamps’ utility grid connection as some of our competitors
currently offer.
We believe that the
improved EV charging experience offered by the EV-Standard™ design will be a differentiator for our company in a potentially
large market. We currently provide work-place charging to the State of California through our EV ARC™ product. We believe
that EV-Standard will become an excellent choice for California, New York and many other jurisdictions across the U.S., and the
world, as a viable and reliable on-street EV charging solution. Accordingly, we believe that EV-Standard™ represents an important
opportunity for future growth. Like the EV ARC™ and Solar Tree® products, the EV-Standard™ will not rely upon a
grid connection and as such will be able to continue to charge EVs during black-outs or other grid interruptions.
The UAV ARC™ Product:
We filed a patent application
for our new UAV ARC™ product which is currently in the advanced stage of product development. The UAV ARC™ is a rapidly
deployable, highly scalable, range extending drone recharging network. It does not require any fueling or grid connection because
it generates and stores all of its own energy from renewable sources. UAV ARC™ is self-ballasted and leveling and does not
require any planning or construction for its installation. UAV ARC™ has a hardened exterior and countermeasures designed
to protect it from vandalism, theft or other nefarious activities. Each UAV ARC™ forms part of a broader network which fuels
drones and gathers and shares information about their health and flight plans as part of the Internet of Things (“IoT”).
UAV ARC™ units can be deployed on flat roofs in cities or on any terrain in remote locations. The maritime version can be
deployed at sea to extend UAV missions in a maritime environment. The planned networks of UAV ARC™ units will be designed
to be open to any operator of unmanned aerial vehicles as part of a subscription or individual usage plan.
Operations
We are headquartered
in San Diego, California in a leased 50,000 square foot building professionally equipped to handle the significant growth possibilities
we believe are in front of us. The building houses our corporate operations, sales, design, engineering and product manufacturing.
The EV ARC™ and
Solar Tree® structures are currently fabricated in this facility. We intend to fabricate EV-Standard™ and UAV ARC™
in the same facility. We have reduced certain direct costs associated with individual products as a result of insourcing fabrication.
We believe we have been better able to control quality as a result of our own in-house manufacturing processes as opposed to outsourcing
this activity as we did in the past. We have made improvements to existing products and are able to introduce new products in a
much more timely and efficient manner. Management believes that the product development process is significantly faster and less
expensive when carried out by an in-house fabrication facility. We sell our Solar Tree® products as an engineered kit of parts
to be installed by third parties employed by the buyer of the Solar Tree® kit. We will continue to deliver our EV ARC™
product, using the specialized and proprietary ARC Mobility™ trailer, within an approximate 1,500-mile range of our fabrication
facility, and use third party transportation solutions and Transformer ARC™ for greater distances.
Management believes
that the continuation of our strategy to create highly engineered, highly scalable products which are delivered complete or as
a kit of parts to the customer site, and which require minimal planning, entitlement, or field labor activities, is further positioning
us as a leader in the provision of unique and highly scalable solutions to the market verticals we target. Our products are complex
but standardized, readily deployable, and reduce the exposure of the Company and our customers to the risks and inherent margin
erosion that are incumbent in field deployments. We are no longer directly involved in the field installation of our Solar Tree®
products, instead selling them as a kit to be installed by others. Wherever possible, the components of the Solar Tree® structures
are factory integrated and assembled such that complete assemblies are delivered to customer sites so that they may be erected
and installed by readily available local labor contracted directly by the site host without our involvement. As part of the delivery
of the latest units of Solar Tree structures to our customers, our design and engineering team has created a detailed, step by
step, installation manual that can be used by any competent construction firm to seamlessly erect and install our structures. With
this manual, we believe the ease of installation can be directly communicated to minimize installation costs and thereby reduce
sales hurdles, resulting in increased sales.
The EV ARC™ product
family requires no field installation work and is typically delivered to the customer site by us or by a third-party transportation
company for a fee.
We continue to bring
engineering improvements to our products that are designed to increase the level of standardization and reduce the field labor
and effort required for product deployment. The EV ARC™ is the embodiment of this strategy in that it requires almost no
field activity beyond “parking” it in a space. We have invented and produced the ARC Mobility™ trailer which
is a hydraulically enabled delivery trailer that can lower an EV ARC™ product to the ground in its final location in less
than eight minutes.
We strive to benefit
by the deliberate continued utilization of certain outsourced resources. While we develop all intellectual property in-house, product
designs are vetted by third-party structural and electrical engineering firms to ensure that the designs meet the local jurisdictional
requirements and codifications for the deployment locations. We believe this further helps dissipate potential liabilities for
the structural and electrical elements by providing additionally insured experts with partial responsibility for the designs.
Sales and Marketing
Envision Solar uses
research to identify potential customers utilizing the following list of titles: Fleet Managers, Facilities Mangers, Parking Managers,
Public Works, Equipment Managers, City Planners, Acquisitions, Transportation Managers, Sustainability Managers, Environmental
Services, Energy Managers, Engineering and Energy Consultants. This is straight forward in the government space, however, reaching
persons responsible for adopting and implementing EV charging infrastructure in the enterprise space can be challenging and resource
intensive. The marketing and sales team endeavors to reach customers early when they have the initial need and before they choose
a more difficult and costly method of installing EV charging infrastructure.
Management of Envision’s
product portfolio will remain in a direct sales and marketing channel, pairing customers with sales specialists to ensure their
needs are met with the right equipment. Envision Solar has employed a General Services Administration (“GSA”) consultant
(FedShed) to assist Envision in the procurement of a GSA title 52 schedule. In this case federal and some state agencies will be
able to select products from the GSA catalog. Federal sales and marketing campaigns will continue direct distribution or organizations
will have the option to order indirectly through the catalog. This Federal selling process will be similar to those we already
have in place with the State of California and the City of New York.
Envision Solar uses
a layered approach to marketing in support of direct sales, involving a combination of regional and industry focused campaigns,
nurturing campaigns, tradeshows, speaking opportunities, product demonstrations, press releases and social media (Facebook, Instagram,
Twitter and LinkedIn). We are rebranding and updating our website which will serve as a foundation to connect with our customers,
influencers, investors and enthusiasts. Envision Solar is, we believe, an industry leader in the EV charging infrastructure space
and the website will be used to highlight that with webinars and industry news to automate the education of our markets helping
them confidently make an informed decision about the purchase of our products. Presentation and execution will continue to remain
a priority and we will keep sales and marketing materials updated to ensure messaging is on point and consistent with our product
offering, customer’s needs and industry standards.
Envision solar products
can have a long sales cycle. This is a sophisticated sale and often a large capital expense for our customers. Sales often hinge
on bureaucratic processes and funding approval. Political mandates do not always equal availability of resources to execute policy
into action. We will continue to strive to increase conversion rates by providing a “boutique like” sales experience.
The sales team uses
Salesforce
to track and maintain contact with customers and
Salesloft
to increase the efficiency
of campaigns and measure effectiveness. Data metrics and a rigorous evaluation of budgets will be used to maximize the impact of
resources. Our sales team personnel are experts on our products and make sure our products are selected and designed to exceed
our customer's needs.
Historically, we concentrated
a sizeable portion of our resources on product development and engineering. We now have a reproducible suite of products which
address the three market verticals in which we operate (EV charging infrastructure; out of home advertising infrastructure; and
energy security). As a result, we have increased our focus on sales and marketing and intend to continue to grow this focus in
2018. In 2016, we hired employees to form a sales team to sell our products directly through telephone and emailing campaigns.
Our sales team has created a significant pipeline of prospective customers and has already converted such efforts into contracted
sales. Our current sales activities are undertaken in the following manner: direct sales efforts undertaken by our “in-house”
sales team, direct sales efforts undertaken by other independent contractors, direct sales efforts as a result of management relationships,
and follow-on sales to existing customers.
Our marketing efforts
are responsible for the generation of many of our sales leads and have consisted of the following: attendance at trade shows and
conferences, often with live demonstrations of EV ARC™, deliveries of a demonstration EV ARC™ unit to potential customer
sites so the customer can directly experience the benefits of the product, web site and limited search engine optimization, direct
electronic mailings to prospects within our target markets, social media outreach on Facebook, Instagram, Twitter, and LinkedIn,
video postings on YouTube and Vimeo, distribution of printed materials promoting our products, industry speaking engagements and
subject matter expertise panel participation across the United States, and media interviews in print, radio and television. Currently
we are targeting Corporations, outdoor advertising companies, automotive related companies, municipalities, state and federal government
entities, utilities and commercial real estate.
We also have independently
contracted sales resources that are paid based upon performance. They are paid a percentage of revenue only when we actually receive
payment from our customers. Our team will assist such contractors in the creation of proposal documents when the prospective sale
appears to warrant the commitment of resources to such an activity. These contractors are responsible for their own costs except
in some instances where the Company’s management pre-approves an expenditure aimed at winning a sales contract.
We continue to explore
the use of sales channels to communicate the value of and sell our products. Examples of the types of channels we seek are: upstream
vendors such as solar module manufacturers, inverter manufacturers, EVSE manufactures, EV charging service providers, Outdoor advertising
companies, General contractors, Architects, and Engineers and consultants.
During 2016, we added
multiple members to be a part of our national sales team, including a new director of sales and business development who is a former
Navy Seal Intelligence Officer, as well as developed national sales strategies. We continue to pursue and make progress on promising
sales opportunities. Leveraging our contracts with the State of California and the City of New York, we continue to garner sales
and add new government customers. We have received follow on orders from New York City, Caltrans and others and added new California
ordering departments. We believe we are close to securing orders from other agencies. We continue to have discussions with other
governmental and private sector organizations which management believes will result in near term future orders. Additionally, we
have been delivering our EV ARC™ on our ARC Mobility™ trailer to a variety of locations during a “Guerilla”
marketing road show. The EV ARC™ is being delivered to corporate campuses in major California metropolitan areas such as
San Diego, Los Angeles, San Francisco and Silicon Valley. We pre-announce the free availability of solar powered EV charging –
“Driving on Sunshine” – through the human resource and marketing departments of the host companies. It is hoped
that the host companies and their employees will see the ease of deployment and the value of highly visible solar powered EV charging,
and as a result, buy our products. We believe that this has been a good way to raise awareness about the unique values that our
products deliver.
Critical Accounting Policies
Use
of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying
unaudited condensed consolidated financial statements include the allowance for doubtful accounts receivable, valuation of inventory,
depreciable lives of property and equipment, estimates of loss contingencies, valuation of derivatives, valuation of beneficial
conversion features in convertible debt, valuation of share-based payments, and the valuation allowance on deferred tax assets
.
Revenue and Cost
Recognition.
As of January 1, 2018, Envision adopted the revenue standards of Financial Accounting Standards Board Update No.
2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle
by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the
contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize
revenue when (or as) we satisfy a performance obligation.
Revenues are primarily
derived from the direct sales of manufactured products. Revenues may also consist of maintenance fees for the maintenance of previously
sold products, and revenues from sales of professional services.
Revenues from inventoried
product sales are recognized upon the final delivery of such product to the customer or when legal transfer of ownership takes
place. Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into. The
customer is typically obligated to make payment for such products within a 15-45 day period after delivery.
Revenues from maintenance
fees are recognized equally over the period of the maintenance term. Revenue values are fixed price arrangements determined at
the time an order is placed or a contract is entered into. The customer is typically obligated to make payment for the service
in advance of the maintenance period.
Revenues from professional
services are recognized as services are performed. Revenue values are based upon fixed fee arrangements or hourly fee-based arrangements
with agreed to hourly rates of service categories in line with expertise requirements. These services are billed to a customer
as such services are provided and the customer will be obligated to make payments for such services typically within a 15-45 day
period.
Any deposits received
from a customer prior to delivery of the purchased product or monies paid prior to the period for which a service is provided are
accounted for as deferred revenue on the balance sheet.
Sales tax is recorded
on a net basis and excluded from revenue.
The Company generally
provides a standard one year warranty on its products for materials and workmanship but will pass on the warranties from its vendors,
if any, which generally cover at least such period.
Cost of Revenues:
The Company records
direct material and component costs, direct labor and associated benefits, and manufacturing overhead costs such as supervision,
manufacturing equipment depreciation, rent, and utility costs as costs of revenues. The Company further includes shipping and
handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues.
Stock Based Compensation.
The Company follows ASC 718, “Compensation – Stock Compensation.” ASC 718 requires companies to estimate
and recognize the fair value of stock-based awards to employees and directors. The fair value of the portion of an award that
is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution
method. We estimate the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Equity
instruments granted to non-employees are accounted for under ASC 505-50 “Equity Based Payments to Non-Employees.”
Accounts Receivable.
Accounts receivable are customer obligations due under normal trade terms. Management reviews accounts receivable on a periodic
basis to determine if any receivables may become uncollectible. Management’s evaluation includes several factors including
the aging of the accounts receivable balances, a review of significant past due accounts, dialogue with the customer, the financial
profile of a customer, our historical write-off experience, net of recoveries, and economic conditions. The Company includes any
accounts receivable balances that are determined to be uncollectible in its overall allowance for doubtful accounts. Further, the
Company may record a general reserve in its allowance for doubtful accounts to account for future changes that may negatively impact
our overall collections. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Fair Value of Financial
Instruments.
We measure our financial assets and liabilities in accordance with generally accepted accounting principles. For
certain of our financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and short-term loans,
the carrying amounts approximate fair value due to their short maturities. Further, amounts recorded as long-term notes payable,
net of discount, also approximate fair value because current interest rates for debt that are available to us with similar terms
and maturities are substantially the same.
Inventory.
Inventories
are valued at the lower of cost or net realizable value and consist of certain purchased or manufactured components of our overall
product offering. Cost is determined using the first-in, first-out (FIFO) method, and includes material and labor costs. If the
Company determines that the carrying value of an item may not be realizable, an impairment reserve is recorded to adjust such items
to their realizable value.
Accounting for Derivatives.
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or
embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives
and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is
recorded in the statement of operations as other income (expense). Upon conversion of a note where the embedded conversion option
has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related
notes, derivatives and debt discounts, and recognizes a net gain or loss on extinguishment. Equity instruments that are initially
classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value
of the instrument on the reclassification date.
Changes in Accounting
Principles
. No significant changes in accounting principles were adopted during the three months ended June 30, 2018.
Results of Operations
Results of Operations for the Three
Months Ended June 30, 2018 Compared to the Three Months Ended June 30, 2017
Revenue.
For
the three months ended June 30, 2018, our revenues were $844,495 compared to $507,730 for the three months ended June 30, 2017,
a 66% increase. For the three months ended June 30, 2018, revenues were primarily derived from the delivery of thirteen EV ARC™
units. For the three months ended June 30, 2017, revenues were primarily derived from the delivery of seven EV ARC™ units
coupled with the customer requested modification and upgrade of two additional units that had been previously deployed. As of June
30, 2018, our contracted backlog was approximately $2.7 million.
Gross Profit (Loss).
For the three months ended June 30, 2018, we had a gross profit of $18,734 compared to a gross loss of $13,106 for the period ended
June 30, 2017, a 243% increase. Every unit sold during the period ended June 30, 2018 had a direct positive gross margin associated
with the sale and inclusive of standard overhead allocations. Management believes, as long as we can continue to increase our sales
and production volumes, that such margins will continue to improve over the remainder of the year and beyond. In 2017, multiple
EV ARC ™ units had a direct cost positive margin associated with the sale but were offset by gross losses on other EVARC™
unit sales. In both of these periods, margins were offset by certain other expenses such as delivery equipment depreciation expense
and warranty costs. Warranty costs remain di minimis at a few hundred dollars.
Operating Expenses.
Total operating expenses were $573,151 for the three months ended June 30, 2018 compared to $545,292 for the same period in
2017, a 5.1 % increase. Administrative labor costs increased in 2018 by approximately $65,000 primarily due to the timing of payroll
but also with modest payroll increases year to year. Sales expenses increased by $26,000 during 2018 primarily as a result of direct
sales expenses and commissions on our increased sales base. Stock option expense decreased by approximately $35,000 due to prior
issued stock options. Consulting fees decreased by $46,153 for the three months ended June 30, 2018 compared to the three-month
period ended June 30, 2017 as a result of decreased financial consulting provided to the Company offset by a small increase in
accounting fees recorded in the period. Marketing expenses increased approximately $11,000 in 2018 as the Company attended more
trade shows and other marketing events and spent more on various marketing collateral associated with increased outreach. All other
costs remained generally consistent between the periods.
Interest Expense.
Interest expense was $220,468 for the three months ended June 30, 2018 compared to $47,625 for the same period in 2017, a 363%
increase. This increase in 2018 primarily related to $182,000 of amortized value associated with common stock purchase warrants
provided to our lender at the onset of the financings of the current debt facilities entered into in September 2017.
Net Loss.
We
had a net loss of $774,271 for the three months ended June 30, 2018 compared to net loss of $604,332 for the same period in 2017,
an increase of 28%. Significant elements deriving these losses have been discussed above.
Results of Operations for the Six Months
Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017
Revenue.
For
the six months ended June 30, 2018, our revenues were $3,720,467 compared to $878,419 for the same period in 2017, an increase
of 324%. During the six months ended June 30, 2018, we delivered fifty-five EV ARC™ units compared to the delivery of twelve
EVARC™ units and an ARC Mobility Trailer.
Gross Profit.
For the six months ended June 30, 2018, we had a gross profit of $53,034 compared to a gross loss of $16,960 for the same period
in 2017, a 413% increase. Significant gross losses were recognized, primarily in December 2017, related to the 2018 deliveries
of 30 EVARCs™ to the city of New York, but every other unit delivered in the six months ended June 30, 2018 had a direct
positive gross margin associated with the sale and inclusive of standard overhead allocations. Management believes, as long as
we can continue to increase our sales and production volumes, that such margins will continue to improve over the remainder of
the year and beyond. In 2017, the majority of the EV ARC ™ units had a modest direct cost positive margin associated with
the sale, but these margins were offset by certain other expenses such as delivery equipment depreciation expense and warranty
costs. Additionally, we recorded a loss on a specific individual unit that required additional expense to ensure the unit met our
current quality standards and provided a customer incentive as the unit was originally built in a prior year for a different customer
that upgraded its purchase to an enhanced model after the unit had been manufactured.
Operating Expenses.
Total operating expenses were $1,182,320 for the six months ended June 30, 2018 compared to $1,214,281 for the six months ended
June 30, 2017, a 3% decrease. Sales costs increased in 2018 by approximately $33,000 directly related to increased sales costs
and commissions related to increased sales in 2018. Stock option expense decreased by approximately $70,000 in 2018 while marketing
expenses increased by approximately $38,000 as the Company attended more trade shows and other marketing events and spent more
on various marketing collateral associated with increased outreach. Utilities expenses decreased by approximately $27,000 primarily
related to a back-charge received from our landlord in 2017 for prior year’s utilities costs. Other expenses remained relatively
consistent between the years.
Interest Expense.
Interest expense was $658,014 for the six months ended June 30, 2018 compared to $101,606 for the same period in 2017, a 548%
increase. Total debt between the periods remained consistent as did the coupon interest for these debts. This increase in 2018
primarily related to $560,900 of amortized value associated with common stock purchase warrants provided to our lender at the onset
of the financings of the current debt facilities entered into in September 2017.
Gain on Debt Extinguishment.
We recorded a gain of $107,081 during the six months ended June 30, 2017. There was no gain in the six months ended June 30,
2018 as the debt associated with this liability was converted into equity in 2017 and thus had been previously eliminated.
Net Loss.
We
had a net loss of $1,785,878 for the six months ended June 30, 2018 compared to net loss of $1,223,905 for the same period in 2017.
Significant elements deriving these losses have been discussed above.
Liquidity and Capital Resource
At June 30, 2018, we
had cash of $128,675. We have historically met our cash needs through a combination of proceeds from private placements of our
securities, and from loans. Our cash requirements are generally for operating activities.
Our operating activities
resulted in cash provided by operations of $354,925 for the six months ended June 30, 2018, compared to cash used in operations
of $452,742 for the same period in 2017, a 178% improvement. The primary driver of this improvement was related to the decrease
in inventory value amounting to $1,468,797 related to 30 EVARC units that were built in 2017, but not delivered until January 2018.
Other principal elements of cash flow for the six months ended June 30, 2018 include the net loss of the Company offset by depreciation
and amortization of $36,355, $168,750 of common stock share value issued for director services, and $560,900 of the amortization
of debt discount to interest expense associated with common stock purchase warrants provided to our lender at the onset of the
financings of the current debt facilities entered into in September 2017. Further, cash from operations for the period included
of a net increase in accounts receivable of $683,413 directly related to the increase in revenue in the period; a use of cash of
$52,001 related to the increase in prepaid expenses primarily for the funding of annual business insurance policies; a generation
of cash associated with reduction of deposits which was used to offset a monthly rent payment per the terms of our lease, a generation
of cash of $485,973 related to the increase in accounts payable mainly due to the timing of purchases, and a generation of cash
amounting to $53,195 related to the increase in sales tax payable associated with certain sales made during the period for which
such sales tax had not been due to be submitted to the state.
Cash used in investing
activities was $44,858 and $5,057 for the six months ended June 30, 2018 and 2017, respectively, an 787% increase. In 2018, all
of the monies were used to fund patent related costs.
Cash used in our financing
activities was $584,867 for the six months ended June 30, 2018 compared to cash received of $721,137 for the same period in 2017,
a 181% decrease. In 2018 the cash used was primarily cash used to pay back our convertible line of credit offset by
$290,000 invested into the Company through private placements of our common stock.
As of June 30, 2018,
current liabilities exceeded current assets by $1,765,422. In 2018, current assets decreased by approximately $997,000 resulting
primarily from the increase in accounts receivable associated with the increased amount of revenues in the period offset by a decrease
of $1,427,510 in inventory related to this same revenue increase in the period. In 2018, current liabilities decreased by approximately
$18,000 primarily as a result of the paydown of the convertible line of credit offset by increases in accounts payable balances
and other accrued expenses.
While the Company has
been attempting to grow market awareness and focusing on the generation of sales to get our product out into the marketplace, the
Company has not generally earned a gross profit on its sales of products and services. It has been pricing its products and
services in an attempt to forge durable long-term customer relationships, to gain market share, and to establish its brand. Management
believes that with increased production volumes that we believe are forthcoming in the current year, efficiencies will continue
to improve, and total per unit production costs will decrease, thus allowing for consistent gross profits on the EV ARC ™
product as we move forward. The Company will continue to rely on capital infusions from the private or public placement of
its securities as well as initiating future debt instruments until it achieves positive cash flow from its business, which is predicated
on increasing sales volumes and the continuation of production cost reduction measures. Management cannot currently predict
when or if it will achieve positive cash flow.
Management believes
that evolution in the operations of the Company may allow it to execute on its strategic plan and enable it to experience profitable
growth in the future. This evolution is anticipated to include the following continual steps: addition of sales personnel and independent
sales channels, continued management of overhead costs, process improvements leading to cost reductions, increased public awareness
of the Company and its products, and the maturation of certain long sales cycle opportunities. Management believes that these steps,
if successful, may enable the Company to generate sufficient revenue and raise additional growth capital to allow the Company to
manage its debt burden appropriately and to continue operations. There is no assurance, however, as to if or when the Company will
be able to achieve those investment and operating objectives. The Company does not have sufficient capital to meet its current
cash needs, which include the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of
1934, as amended. The Company is also in the process of seeking additional capital and long and short-term debt financing to attempt
to overcome its working capital deficiencies. The Company is currently seeking financing, but there is no assurance that the Company
can raise sufficient capital or obtain sufficient financing to enable it to sustain monthly operations. The Company will attempt
to renegotiate the maturity dates of its current debt financings as needed and as it has done successfully in the past, but there
is no assurance that these efforts will be successful. In order to address its working capital deficit, the Company is also seeking
to increase sales of its existing products and services. There may not be sufficient funds available to the Company to enable it
to remain in business and the Company’s needs for additional financing are likely to persist.
Capitalization
On July 2, 2018, we filed with the Securities and Exchange Commission
a Registration Statement on Form S-1 to raise equity capital through the offer and sale of units consisting of shares of our common
stock and warrants to purchase additional shares of common stock. The Company is also applying to list its common stock for trading
on the NASDAQ Capital Market upon the closing of the offering, if it closes. The public offering is expected to be made through
a firm underwriting conducted by Maxim Capital Group, Inc., a registered member of the Financial Industry Regulatory Authority
(“FINRA”). The amount of the offering has not yet been finalized. See our filing at www.sec.gov for a copy of the registration
statement.
Going Concern Qualification
As reflected in the
accompanying unaudited condensed consolidated financial statements for the six months ended June 30, 2018, the Company had a net
loss of $1,785,878. Additionally, at June 30, 2018, the Company had a working capital deficit of $1,765,422, an accumulated deficit
of $40,062,757 and a stockholders’ deficit of $1,436,325. It is management’s opinion that these factors raise substantial
doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of
this report.
The Company has incurred
significant losses from operations, and such losses are expected to continue. In addition, the Company has limited working
capital. In the upcoming months, management's plans include seeking additional operating and working capital through a combination
of financings. There is no guarantee that additional capital or debt financing will be available when and to the extent required,
or that if available, it will be on terms acceptable to the Company. Further, the Company continues to seek sales contracts
for new projects and product sales that should provide additional revenues and, gross profits. Additionally, Envision intends to
renegotiate the debt instruments that become due later in 2018. All such actions and funds, if successful, may not be sufficient
to cover monthly operating expenses or meet minimum payments with respect to the Company’s liabilities over the next twelve
months.
The Company’s
Independent Registered Public Accounting Firm has included a “Going Concern Qualification” in their report for the
years ended December 31, 2017 and 2016. The condensed consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The “Going Concern Qualification” might make
it substantially more difficult to raise capital.
Off-Balance Sheet Arrangements
We do not have any
off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources,
that are material to investors.