As filed with
the Securities and Exchange Commission on July 2, 2018
Registration
No. 333-_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1
TO
REGISTRATION
STATEMENT
UNDER
THE SECURITIES
ACT OF 1933
ENVISION SOLAR
INTERNATIONAL, INC.
(Name of Registrant
in its Charter)
Nevada
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3674
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26-1342810
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(State or other jurisdiction
of incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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5660 Eastgate Dr., San Diego, California
92121
Telephone: (858)
799-4583
(Address and
telephone number of principal executive offices)
Desmond Wheatley
Chief Executive
Officer
5660 Eastgate
Dr.
San Diego, California
92121
Telephone: (858)
799-4583
(Name, address
and telephone number of agent for service)
Copies to:
Mark J. Richardson,
Esq.
Richardson &
Associates
1453 Third Street
Promenade, Suite 315
Santa Monica,
California 90401
(310) 393-9992
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Barry I. Grossman, Esq.
Sarah E. Williams, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
(212) 370-1300
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Approximate Date
of Proposed Sale to the Public: As soon as practicable after the effective date of this registration statement.
If any of the securities
being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.
[X]
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
[ ]
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging Growth Company
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[ ]
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CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
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Proposed Maximum
Aggregate
Offering Price (1)
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Amount of
Registration
Fee
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Units consisting of shares of Common Stock, par value $0.001 per share, and Warrants to purchase shares of Common Stock, par value $0.001 per share (2)
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$11,500,000
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$1,431.75
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Common Stock included as part of the Units
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Included with Units above
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___
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Warrants to purchase shares of Common Stock included as part of the Units (3)
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Included with Units above
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___
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Representatives’ Warrant to purchase Common Stock (3)
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___
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___
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Shares of Common Stock issuable upon exercise of the Warrants (4)(5)
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[$ ]
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[$ ]
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Shares of Common Stock issuable upon exercise of Representatives’ Warrants (5)(6)
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[$ ]
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[$ ]
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TOTAL
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[$ ]
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[$]
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(1)
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o)
under the Securities Act of 1933, as amended.
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(2)
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Includes Units which may be issued upon exercise of a 45-day option granted to the underwriters
to cover over-allotments, if any.
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(3)
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In accordance with Rule 457(g) under the Securities Act, because the shares of the Registrant’s
common stock underlying the Warrants and Representative’s warrants are registered hereby, no separate registration fee is
required with respect to the warrants registered hereby.
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(4)
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There will be issued [ ] warrants to purchase [ ] share[s] of common stock for every [ ] shares
of common stock offered. The warrants are exercisable at a per share price of [ %] of the common stock public offering price.
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(5)
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Includes shares of common stock which may be issued upon exercise of additional warrants which
may be issued upon exercise of 45-day option granted to the underwriters to cover over-allotment, if any.
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(6)
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under
the Securities Act. The warrants are exercisable at a per share exercise price equal to 110% of the public offering price. As estimated
solely for the purpose of recalculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum
aggregate offering price of the Representative’s warrants is [$ ], which is equal to 110% of [$ ] ([ %] of [$]).
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In the event of a stock split, stock
dividend, or similar transaction involving the common stock, the number of shares registered shall automatically be increased to
cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act.
The registrant hereby amends
this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION,
DATED __________, 2018
ENVISION SOLAR
INTERNATIONAL, INC.
[
] Units
Each
Unit Consisting of
[_____]
Share[s] of Common Stock (par value $0.001)
and
[___]
Warrant[s] to Purchase up to [___] Share[s] of Common Stock,
at
[$______] per Unit
This is a firm commitment public offering of
[______] Units, each Unit consisting of [ ] share[s] of common stock, $0.001 par value per share, and [ ] warrant[s] to purchase
[____] share[s] of common stock, of Envision Solar International, Inc., a Nevada corporation. Each warrant is immediately exercisable
for [ ] shares of common stock at an exercise price of $_____ per share (or __% of the price of each share of common stock sold
in the offering) and will expire five years from the date of issuance.
Our common stock is presently traded on the
OTC-QB Market, operated by OTC Markets Group, under the symbol “EVSI.” We intend to apply to have our common stock
[and warrants] listed on The NASDAQ Capital Market under the symbols “EVSI” and “EVSIW.” No assurance can
be given that our application will be approved. On ______, 2018, the last reported sales price for our common stock as quoted on
the OTC-QB Market was $[ ] per share.
The share and per share information in this
prospectus does not reflect a proposed reverse stock split of the authorized and outstanding common stock in a range of 1-for-
[ ] to 1-for-[ ] to occur on or before the offering.
In
reviewing this prospectus, you should carefully consider the matters described in the section titled “Risk Factors”
beginning on page [ ] of this prospectus. INVESTORS SHOULD ONLY CONSIDER AN INVESTMENT IN THESE SECURITIES IF THEY CAN AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions (1)
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$
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$
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Proceeds to us before offering expenses (2)
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$
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$
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(1)
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Does not reflect additional compensation to the underwriters in the
form of warrants to purchase up to ____ shares of common stock (assuming the over-allotment option is fully exercised) at an exercise
price equal to 110% of the public offering price. We have also agreed to reimburse the underwriters for certain expenses. See “Underwriting”
on page ___ of this prospectus for a description of these arrangements.
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(2)
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We estimate the total expenses of this offering will be approximately
$____. Assumes no exercise of the over-allotment option we have granted to the Underwriters as described below.
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We have granted the underwriters a 45-day
option to purchase up to _____ additional shares of common stock and/or [ ] warrants.
The underwriters expect to deliver our
shares and warrants to purchasers in the offering on or about _______, 2018.
Maxim Group LLC
TABLE
OF CONTENTS
You
should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered
or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information
or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this
prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus
is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation
of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other
jurisdiction where the offer is not permitted.
The
information in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any
free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing
prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.
No
person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities
offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus.
If any other information or representation is given or made, such information or representation may not be relied upon as having
been authorized by us.
Through
and including , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s
obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither
we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus
in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself
about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD
LOOKING STATEMENTS
Some of the statements
in this prospectus and in the documents incorporated herein by reference contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our ability to
control or predict and that may cause actual results, levels of activity, performance or achievements to be materially different
from any future results, levels of activity, performance or achievements expressed or implied by forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,”
“expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.
Forward-looking
statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we
might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon
reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Actual events or results
may differ materially. Readers are cautioned not to place undue reliance on forward-looking statements. We have no duty to update
or revise any forward-looking statements after the date of this prospectus or to conform them to actual results, new information,
future events or otherwise.
The following factors,
among others, could cause our and our industry’s future results to differ materially from historical results or those anticipated:
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adverse economic conditions;
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potential fluctuation in quarterly results;
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volatility or decline of our stock price;
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the possibility we may be unable to manage our growth;
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loss of members of our senior management;
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regulatory interpretations and changes;
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our failure to earn revenues or profits;
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inadequate capital and barriers to raising capital
or to obtaining the financing needed to implement our business plans;
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changes in demand for our products and services;
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rapid and significant changes in technology and markets;
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litigation with or legal claims and allegations by
outside parties; and
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insufficient revenues
to cover operating costs.
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Although we believe
that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness
of these forward-looking statements.
You should read
these risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking
statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions
prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements
expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law.
PROSPECTUS SUMMARY
This summary
highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you
should read the entire prospectus carefully, including the risk factors and the financial statements. References in this prospectus
to “we,” “us,” “our,” “Envision,” and “Company” refer to Envision Solar
International, Inc. You should read both this prospectus and any prospectus supplement together with additional information described
below under the heading “Where You Can Find More Information.”
Company Overview
Envision
Solar International, Inc., a Nevada corporation (hereinafter the “Company,” “us,” “we,” “our”
or “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 that are experiencing significant growth with
annual global spending in the billions of dollars:
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electric vehicle charging infrastructure;
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out of home advertising platforms; and
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energy security and disaster preparedness.
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Via these three
verticals, 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.
We believe that
there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that EV ARC™ fulfills
that requirement. We are agnostic as to the EV charging service equipment (“EVSE”) and integrate best of breed solutions
based upon our customer’s requirements. For example, our EV ARC™ products have been deployed with Chargepoint, Blink,
Juice Box, Bosch and other high quality EV charging solutions. We can make recommendations to customers or we can comply with their
specifications and/or existing charger networks. EV ARC™ replaces the infrastructure required to support EV chargers, not
the chargers themselves. We do not sell EV charging, rather we sell products which enable it.
We believe our chief
differentiators are:
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our ability to invest, design, engineer, and manufacture solar powered
products which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure
and outdoor media platforms when compared to traditional, utility grid tied alternatives;
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our products’ capability to operate during grid outages and
to provide a source of emergency power rather than becoming inoperable during times of grid interruptions; and
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our ability to create new, marketable and patentable inventions which
are a complex integration of our own proprietary technology and parts, and other commonly available engineered components, creating
further barriers to entry for our competition.
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The resulting products
are built to have what we believe is 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, but not yet utilized. Envision’s
products can qualify for various federal, state, and local financial incentives which can significantly reduce final out-of-pocket
costs from our selling price for eligible customers. Currently, the main source of our revenue is from the sale of the patented
EV ARC™ to government agencies and private enterprise.
Product and Technology Overview
We currently produce
two categories of product: the patented EV ARC™ (Electric Vehicle Autonomous Renewable Charger) and the patented Solar Tree®.
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EV ARC™
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Solar Tree®
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We have recently
submitted a third product category, the EV-Standard™ product, for patent approval. It is patent pending and in late stage
product development and engineering. All three 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. We believe that our
series of products offer multiple layers of value to our customers while leveraging the same underlying technology and 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.
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 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.
Growth Strategy
We operate in three
rapidly growing and underserved markets: EV charging infrastructure, outdoor media and energy security. We have had success in
selling our products in 12 U.S. states and four international countries. We believe that the products we produce have a global
appeal and that we are only at a nascent period in the development of our sector. We believe we have a strategic growth plan in
place that will enable us to increase our user base and revenues while leading to increased profitability in the following manners:
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Increased
sales and marketing to educate our universe of potential customers
. We have historically not invested in significant marketing
activities and have only recently added a sales team. To date most of our sales have been made through word of mouth or management
relationships. As a result of not having a large historical sales and marketing budget, only a small percentage of the potential
prospective customers for our products are aware that we exist and the value that our products deliver. We have observed that we
have a high conversion rate from prospects to customers when we are able to demonstrate the value of our products to those prospects.
We believe that with increased investment in marketing and sales we will be able to reach a much larger audience of prospects who
could benefit from our products, and that we should be able to maintain our high conversion rates from prospects to customers.
•
Continue
to expand our geographic footprint and customer base
. We have sold product in 12 U.S. states and four international countries
to date. We believe that investment in growing our geographical footprint both domestically through increased selling and marketing
and also internationally with a focus on Europe and Asia will deliver significant growth opportunities. Our sales have been heavily
focused on the U.S. coastal regions,
specifically California and
the North East. We observe that those regions often lead where technology transitions are concerned, and we expect the rest of
the U.S. to follow the coastal leads as is historically the norm. We believe that this will result in further geographic growth
for our products domestically as well as with our international expansion.
•
Enhance
our gross margins by focusing on operating efficiencies and reduced cost of materials and production
. We believe that we
will continue to reduce our costs as we increase our capacity and production. We have observed and demonstrated that as our volumes
increase we are able to reduce our costs of goods sold without increasing our overheads. Excluding fixed overheads, we currently
generate about 30% gross profit margin on the sale of an EV ARC™. Additionally many of the major components which we integrate
into our products are also becoming less expensive as their markets mature. We believe that with investments in improved efficiency,
automation of certain of our manufacturing processes and increased volumes we can increase our gross profit margin to 50%, including
fixed overheads.
•
Increased
leverage of outsourcing as our manufacturing process scales
. We have invested in facilities to enable us to produce our
products in-house. This strategy has enabled us to efficiently grow through our product development process while controlling and
reducing costs. However, as our product development process matures and as we become experts on our manufacturing process, we believe
that there will be certain components of our manufacturing process that will be outsourced to manufacturing vendors. We believe
that we will be able to cherry pick certain of our components for outsourced manufacturing, simultaneously reducing our costs and
increasing our capacity. While we intend to continue in-house manufacturing for all new products, we anticipate a future when the
manufacturing of our mature products is carried out by far larger and more efficient manufacturers at greater speed and lower cost.
•
Expansion
of our recurring revenue business
. As our business matures we will begin to expand the recurring revenue component of our
business model through service and maintenance contracts. Historically, we did not focus on service and maintenance contracts but
rather focused on unit number growth. Many of our customers have indicated to us that they would be interested in acquiring service
and maintenance contracts as well as extended warranties from us. We believe that as we grow our customer base we will have increasing
opportunities to add recurring revenue through these services.
•
Capture
market share of the electrified personal and public transportation space, which is at a nascent phase
. To date we have
concentrated on fueling the revolution in sedan electrification, however, we believe that other modes of electrified transportation
are growing rapidly. The expansion in the use of electric bicycles, scooters and motor scooters is evident in many large cities
across the U.S., Asia and Europe. As more people rely on last mile solutions such as e-bikes and e-scooters, the requirements for
charging infrastructure will proliferate. We are working with an electric bike and scooter manufacturer to bundle two wheeled electric
modes of transport with our EV ARC™ product. We believe that sales of bundled solutions combining our products with others
transportation solutions represents another significant growth opportunity. The growth in the use of electric buses is happening
at a more rapid pace than that of EV sedans. We have already sold our Solar Tree® DC fast charging solution to the Fresno County
Rural Transit Authority for use in the charging of their public buses. This will be our first such deployment but we believe that
it will lead to significant opportunities in this rapidly growing space.
•
The
network effect (IoT) will drive significant value from the data we collect
. The units we produce communicate to our central
facility, which creates a network effect. Units will be able to communicate with each other in the future. Each of our products
sends data back to our central facility across a wireless network. The more units we have deployed the more data we will be able
collect and the more we can learn about charging habits, EVs, traffic patterns and many other useful data sets. We believe that
there will be significant value in this data in the future. As a result, we believe that our outdoor media business segment will
become more valuable as more units are deployed and communicating data about their individual usage. Our ability to communicate
remotely with our media assets means that we will increasingly be able to change content on the units, perhaps in response to the
individual users. As parcel delivery increasingly electrifies and the usage of drones and package drop-off locations multiply,
we believe that our portfolio of deployed assets will become increasingly valuable as a source of electricity for fueling and energizing
network assets as well as physical assets, which will allow for branded “locker” facilities.
•
Continued
expansion of our Outdoor Media Business unit
. We believe that a significant opportunity for increased high margin, recurring
revenue exists in this business unit as a result of new contract wins. In November 2017 we signed an agreement with Outfront Media
(NYSE:OUT) to sell naming rights and sponsorship arrangements for networks of our products deployed across cities. We believe that
we are progressing towards success with this initiative. We intend to retain title to future products deployed under this business
model and believe that we will be able to capture significant and increasing levels of recurring revenue while maintaining ownership
of the underlying assets. Although we have delivered a small number of our products with outdoor media platforms integrated to
date, we believe there is significant room to expand this aspect of our business in a meaningful way.
•
Develop
and innovate new products while building a strong IP portfolio
. The majority of our revenues come from sales of our EV
ARC™ and our Solar Tree® product family. The underlying technology is the same for both product sets and we have leveraged
the same proprietary underlying technology to invent two new products, which are currently patent pending: (i) EV Standard™,
which is a renewable energy street lamp replacement and (ii) DCN™ – Drone Charging Network, a renewable energy drone
recharging product. This will allow us to broaden our market appeal while not significantly increasing the requirements of our
manufacturing lines. We believe this strategy will enable us to grow revenues more profitably through increased operating leverage.
We intend to continue to research other areas in which we believe that our ability to deliver rapidly deployed, highly reliable
and cost effective sources of renewable energy in a productized format are embraced by prospective customers, so that we can continue
to invent and develop new products which we believe will bring value to our target audiences. We believe that with sufficient investment
we will be able to bring new products to market and create significant and rapidly growing opportunities to generate more revenue.
Competitive Advantages
We believe our
chief differentiators from our competitors are our ability to invent, design, engineer, and manufacture solar powered products,
which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure and outdoor
media platforms when compared to traditional, utility grid tied alternatives.
•
Unique
operating capabilities of our products
. We believe that our product’s capability to operate during grid outages and
to provide a source of emergency power rather than becoming inoperable during times of emergency or other grid interruptions is
a significant differentiator from our competitors. Our products give our customers ultimate flexibility in a time of need while
also providing operational efficiencies in normal operating conditions.
•
Strong
patent portfolio to protect our products
. Our ability to create new and patentable inventions which are marketable and
a complex integration of our own proprietary technology and parts with other commonly available engineered components is a further
barrier to entry for our competition. 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.
•
Diversified
product portfolio provides multiple verticals to monetize.
Envision’s products are designed to deliver multiple layers
of value. Those value propositions include impact free renewably energized EV charging; media, branding, and advertising platforms;
sustainable and secure energy production and storage; 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
it addresses. Qualified customers can also lease our EV ARC™ products through leasing relationships we have developed, but
not yet utilized. Envision’s products can qualify for various federal, state, and local financial incentives which can significantly
reduce final out-of-pocket costs from our selling price for eligible customers.
•
Manufacturing
and operating efficiencies
. We believe that the continuation of our strategy to create highly engineered, highly scalable
products that are manufactured in-house and that 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 markets 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.
Industry Overview
EV Charging.
The global electric car stock surpassed two million vehicles in 2016 after crossing the one million threshold in 2015,
and exceeded three million vehicles by November 2017. As the number of electric cars on the road has continued to increase, private
and publicly accessible charging infrastructure has also continued to grow. In 2016, the annual growth rate of publicly available
charging (72%) was higher than, but of a similar magnitude to, the electric car stock growth rate in the same year (60%).
According to Bloomberg,
financial services firm Morgan Stanley has estimated that the world will need to spend $2.7 trillion on charging infrastructure
to provide for the anticipated growth of EVs. Governor Brown of California has issued an executive order requiring the installation
of 250,000 EV chargers by 2025. This equates to an average of more than 40,000 charger installations per year. To date, the EV
charging industry has installed a total of about 16,000 grid-tied EV chargers in California. Many nations including the United
Kingdom, Norway, Germany and France have announced total bans on internal combustion vehicle sales after 2040. China is considering
similar bans and President Xi Xingping has recently called for the installation of 4.8 million chargers by 2020.
The need for very
large numbers of highly scalable, rapidly deployable EV charging solutions globally is clear. We believe that our products uniquely
fit this description.
Outdoor Media.
“
Digital Out of Home Advertising” is the third fastest growing advertising medium, according to Magna. Double
digit growth with billions of dollars per year in national and global spending make outdoor advertising an attractive opportunity.
Industry veterans spend a good deal of time looking for the “new new” in advertising. They seek 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 uniquely 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.
Energy Security.
According to insideenergy.org, the grid disruption database shows a marked increase in outages from 2000 through the first
half of 2014. According to the Department of Energy, grid outages cost U.S. businesses approximately $200 billion each year, and
lives have been lost due to power interruptions. Secure and reliable sources of electrical power are a strategic imperative, recognized
by the U.S. military as representing one of our most significant vulnerabilities. Government and enterprise customers are investing
in off-grid emergency power solutions such as diesel generators.
Our products provide
a highly reliable source of energy that is not susceptible to grid interruptions. Because they generate and store all of their
own energy, our products will continue to charge EVs and provide a secure source of emergency back-up power, even during grid outages
and failures such as those caused by hurricanes, earthquakes, flooding or heavy snow, or by terrorists or those that might, in
the future, be perpetrated by nefarious nation states.
Intellectual Property
Envision owns the
registered trademarks Solar Grove® and Solar Tree® structures. The Company has been issued five patents: one for our Solar
Tree ® structure (patent No. 7,705,277), one for EnvisionTrak™, a dual-synchronous tracking system for its solar products
(patent No. 8,648,551), one for our EV ARC™ product (patent No. 9209648), one for Transformer ARC™ (patent No. 9,917,471),
and one for our EV ARC™ product in China (Patent No. 201380042601.2).
Our EV-Standard™
product is currently patent-pending. Our patented Transformer ARC™ product is patent pending in China and we have two other
products in the patent application drafting process.
All of our patents
refer to products which are currently in production and being sold to and used by our key customers. We believe that the patents
that we are currently applying for will have similar or better market success.
Listing on the Nasdaq Capital Market
We intend
to apply to list our common stock and warrants on The Nasdaq Capital Market (“NASDAQ”) under the symbols “EVSI”
and “EVSIW”. If our listing application is approved, we expect to list our common stock and warrants on NASDAQ upon
consummation of this offering, at which point our common stock will cease to be traded on the OTC-QB Market. No assurance can be
given that our listing application will be approved. This offering will occur only if NASDAQ approves the listing of our common
stock and warrants on NASDAQ. NASDAQ listing requirements include, among other things, a stock price threshold. As a result, prior
to effectiveness, we will need to take the necessary steps to meet NASDAQ listing requirements, including but not limited to a
reverse split of our common stock. If NASDAQ does not approve the listing of our common stock and warrants, we will not proceed
with this offering.
Corporate Information
O
u
r
e
x
e
cu
ti
v
e
of
f
ic
e
s
a
r
e l
o
c
ated
at
5660 Eastgate Dr., San Diego, California 92121
a
n
d
o
u
r tele
p
h
o
n
e
nu
m
b
er
is
(858
)
799-4583
. O
u
r
w
e
b
s
ite
a
ddr
ess is
w
w
w
.
envisionsolar.com.
We have not incorporated by reference into this prospectus the information included on or linked from our website and you should
not consider it to be part of this prospectus.
Principal Risks
We are subject to
various risks discussed in detail under “Risk Factors,” which include risks related to the following:
|
·
|
an investment in us is speculative as we recently emerged from our late development stage;
|
|
·
|
we have sustained recurring losses since inception and have received a “going concern”
qualification from our auditors;
|
|
·
|
we do not have sufficient capital to continue or expand our business unless we raise additional
capital;
|
|
·
|
we face stiff competition from larger competitors in the EV charging industry and competition
may intensify in the future;
|
|
·
|
our revenue growth in the first quarter of 2018 is not indicative of our future results;
|
|
·
|
our revenue is concentrated from a small number of customers;
|
|
·
|
our business would be materially harmed if we fail to protect our patents, trademarks, tradenames
and other intellectual property;
|
|
·
|
our plan to expand our marketing and sales with more resources, more products and more geographic
markets may not succeed and may result in operating losses;
|
|
·
|
the loss of our chief executive officer or other key personnel would have a material adverse
impact on us;
|
|
·
|
a financial crisis or global, national, or regional recession would have a material adverse impact
on us;
|
|
·
|
failure to achieve our business performance expectations as reflected in forward-looking statements
that may be made by us;
|
|
·
|
our financial condition and operating results may be materially adversely impacted by litigation
and claims made against us that are not fully covered by insurance;
|
|
·
|
we may have liabilities that we are unable to pay;
|
|
·
|
we may experience higher operating costs and lower revenue than we expect;
|
|
·
|
interruptions in the provision of key supplies and services on which we rely could cause manufacturing
and delivery delays;
|
|
·
|
inability to keep pace with rapid technological changes and innovation;
|
|
·
|
lower energy prices causing a decline in the demand and selling price for our products;
|
|
·
|
existing government regulations and changes to them in the future could have a material adverse
effect on our operating results, financial condition and business performance;
|
|
·
|
general commercial and consumer demand for solar power products may decline in the future;
|
|
·
|
potential dilution of the ownership of existing shareholders in us due to the issuance of new
securities by us in the future;
|
|
·
|
rapid and significant changes to costs of raw materials due to government tariffs or other market
factors;
|
|
·
|
our failure to maintain an effective system of internal financial controls;
|
|
·
|
volatility or decline of our stock price;
|
|
·
|
the planned reverse stock split of our authorized and outstanding common stock could cause our
common stock market value to decline; and
|
|
·
|
we do not intend to declare or pay dividends on our common stock in the foreseeable future.
|
Please see the “Risk Factors”
section commencing on page __ for more information concerning the risks of investing in us.
Summary of the Offering
Securities offered:
|
[ ] Units, each Unit consisting of [_______] share[s] of our common stock and [_______] warrant[s] to purchase [_______] share[s] of our common stock. Each warrant will have an exercise price of $[ ] per share [___% of the public offering price of the common stock], is exercisable immediately and will expire five years from the date of issuance.
|
Common stock outstanding after the offering:
|
[_______].The number
of shares of our common stock to be outstanding after the completion of this offering is based on 144,706,495 shares of our common
stock outstanding as of March 31, 2018 and excludes:
•
15,216,664 shares of common stock issuable upon the exercise of stock options outstanding
as of March 31, 2018 with a weighted average exercise price per share of $0.23;
•
17,900,000 shares of common stock reserved for the future issuance of options under our 2011
Stock Option Plan;
•
6,463,017 shares of common stock issuable upon exercise of warrants as of March 31, 2018 with
a weighted average exercise price per share of $0.17; and
•
a reverse stock split of our common stock ranging from 1-for-[ ] to 1-for-[ ] to be effective
prior to the closing of this offering.
|
Underwriter’s Over-Allotment Option:
|
The Underwriting Agreement provides that we will grant to the underwriter an option, exercisable within 45 days after the closing of this offering, to acquire up to an additional 15% of the total number of shares of common stock and/or warrants to be offered by us pursuant to this offering, solely for the purpose of covering over-allotments.
|
Use of proceeds:
|
We estimate that we will receive net proceeds of approximately [ ] dollars from our sale of shares of common stock and warrants in this offering, after deducting underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to provide funding for the following purposes: to expand our business both domestically and internationally through an increase in our sales and marketing campaigns, grow our sales team, product development and manufacturing efficiencies, and for working capital and other general corporate purposes.
|
Subscription price:
|
[$ ] per Unit.
|
Trading symbol:
|
Our common stock is presently quoted on the OTC-QB Market Current Information Marketplace under the symbol “EVSI”. We intend to apply to have our common stock and warrants listed on the NASDAQ Capital Market under the symbols “EVSI” and “EVSIW,” respectively.
|
Risk factors:
|
Investing in our securities involves substantial risks. You should carefully review and consider the “Risk Factors” section of this prospectus beginning on page __ and the other information in this prospectus for a discussion of the factors you should consider before you decide to invest in this offering.
|
Lock-up:
|
We and our directors, officers and principal stockholders have agreed with the underwriters 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 for a period of 180 days after the date of this prospectus. See “Underwriting” section on page __.
|
Summary Consolidated Financial
Information
The
following summary consolidated statements of operations data for the years ended December 31, 2017 and 2016 have been derived from
our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations
data for the three months ended March 31, 2018 and 2017 and the consolidated balance sheets data as of March 31, 2018 are derived
from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The historical financial data
presented below is not necessarily indicative of our financial results in future periods, and the results for the three months
ended March 31, 2018 are not necessarily indicative of our operating results to be expected for the full fiscal year ending December
31, 2018 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements
and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting
principles (“U.S. GAAP”). Our unaudited consolidated financial statements have been prepared on a basis consistent
with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider
necessary for a fair presentation of the financial position and results of operations as of and for such periods.
Summary
Statements of Operations Data
|
|
For the Three Months Ended
March 31
|
|
For the Fiscal Years Ended December 31*
|
|
|
(unaudited)
2018
|
|
(unaudited)
2017
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
2,875,972
|
|
|
$
|
370,689
|
|
|
$
|
1,412,042
|
|
|
$
|
2,781,273
|
|
Total Cost of Revenues
|
|
|
2,841,672
|
|
|
|
374,543
|
|
|
|
1,884,793
|
|
|
|
2,925,994
|
|
Gross Profit (Loss)
|
|
|
34,300
|
|
|
|
(3,854
|
)
|
|
|
(472,751
|
)
|
|
|
(144,721
|
)
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
(609,169
|
)
|
|
|
(668,989
|
)
|
|
|
(2,227,645
|
)
|
|
|
(2,643,672
|
)
|
Total Other (Expense) Income
|
|
|
(436,738
|
)
|
|
|
53,270
|
|
|
|
(340,234
|
)
|
|
|
156,477
|
|
Tax Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(800
|
)
|
|
|
(800
|
)
|
Net Loss
|
|
$
|
(1,011,607
|
)
|
|
$
|
(619,573
|
)
|
|
$
|
(3,041,430
|
)
|
|
$
|
(2,633,516
|
)
|
Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Weighted Average Number of Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
143,489,736
|
|
|
|
122,413,803
|
|
|
|
127,470,749
|
|
|
|
112,469,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* derived
from audited consolidated financial statements.
The following table presents consolidated balance sheet data
as of March 31, 2018 on:
|
·
|
a pro forma basis giving effect to the sale by us of ___ shares
of common stock in this offering at an assumed public offering price of $_______________ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
|
The pro forma information will be adjusted based on the actual
public offering price and other terms of this offering determined at pricing.
|
|
March 31, 2018
|
|
|
Consolidated Balance Sheet Data:
|
|
Actual
(Unaudited)
|
|
Pro Forma(1)
|
Cash and cash equivalents
|
|
$
|
254,225
|
|
|
|
[$ ]
|
|
Working capital (deficit)
|
|
$
|
(1,123,045
|
)
|
|
|
[$ ]
|
|
Total assets
|
|
$
|
2,283,530
|
|
|
|
[$ ]
|
|
Total liabilities
|
|
$
|
3,009,012
|
|
|
|
[$ ]
|
|
Total stockholders’ equity (deficit)
|
|
$
|
(39,288,486
|
)
|
|
|
[$ ]
|
|
|
(1)
|
A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease
our cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by approximately
$________, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and
after deducting the underwriting discount and estimated offering expenses payable by us.
|
RISK FACTORS
Any investment in our
common stock involves a high degree of risk. You should consider carefully the risks described below, together with all of the
other information contained in this prospectus, before you decide whether to purchase our common stock. If any of these actually
occur, our business, financial condition or operating results could be adversely affected. The risks described below are not the
only ones we face. Additional risks not currently known to us or that we currently do not deem material also may become important
factors that may materially and adversely affect our business. The trading price of our common stock could decline due to any of
these described or additional risks and you could lose part or all of your investment.
Risks Relating to Our Business
Our Company
recently emerged from its late development stage, which increases the risk of investment in our common stock
. This investment
in us is speculative because the trend of increasing sales has only recently begun and may not be sustained. Funding is needed
to expand our sales and marketing campaigns for current markets and to extend the business into new markets, such as China and
Europe. We must also allocate capital, if available, to pay costs and liabilities until we achieve positive cash flow, of which
there is no assurance. Historically, we have not been profitable and there is no assurance that the Company will be profitable
in the future. The Company may not be able to successfully develop, manage, or market its products and services. Intense competition
and. government regulation may hinder the Company’s performance. The Company is exposed to other risks inherent in its business.
We have
sustained recurring losses since inception and expect to incur additional losses in the foreseeable future. We have received
a “going concern” qualification from our auditors, which indicates that there are substantial risks to the
Company continuing as a going concern.
We were formed on June 12, 2006 and have reported annual net losses since
inception. For our fiscal years ended December 31, 2017 and December 31, 2016, we experienced net losses of approximately
$3,041,430 and $2,633,516, respectively. For the three months ended March 31, 2018, our net loss was
$1,011,607. Further, as of March 31, 2018, we had an accumulated deficit of $39,288,486 (reflects cash and noncash expenses
under generally accepted accounting principles), a working capital deficit of $1,123,045, and a stockholder’s deficit
of $725,482. The Company’s consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These matters
raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial
statements included in this prospectus do not include any adjustments relating to the recoverability and classification of
asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a
going concern. In addition, we expect to incur additional losses in the future, and there can be no assurance that we will
achieve profitability. Our future viability, profitability and growth depend upon our ability to raise capital and
successfully operate and expand our operations. We cannot assure that any of our efforts will prove successful or that we
will not continue to incur operating losses. These factors raise substantial doubt as to the Company’s ability to
operate as a going concern.
We may
need to raise additional capital or financing after this offering to continue to execute and expand our business.
We
expect that the net proceeds from this offering will be sufficient to sustain our operations for the foreseeable future, but
we may need to raise additional capital after this offering to expand or if positive cash flow is not achieved and
maintained. As of March 31, 2018, our available cash balance was $254,225. We may be required to pursue sources of additional
capital through various means, including joint venture projects, sale and leasing arrangements, and debt or equity
financings. Any new securities that we may issue in future transactions to raise capital may be more favorable for our new
investors than this offering. Newly issued securities may include preferences, superior voting rights, and the issuance of
warrants or other convertible securities that will have additional dilutive effects. We cannot assure that additional funds
will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal
fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash
expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely
impact our financial condition and results of operations. Our ability to obtain needed financing may be impaired by such
factors as the weakness of capital markets, and the fact that we have not been profitable, which could impact the
availability and cost of future financings. If the amount of capital we are able to raise from financing activities, together
with our revenues from operations, is not sufficient to satisfy our capital needs, we may have to reduce our operations
accordingly.
Our revenue
growth in the first quarter of 2018 is not indicative of our future results.
Our revenues for the three months ended March
31, 2018 were $2,875,972 compared to $370,689 for the same period in 2017. These revenues were primarily derived from the delivery
of forty-two EV ARC™ units during the first three months of 2018, while in the first three months of 2017, we delivered five
EV ARC™ units and one ARC Mobility trailer. This significant increase in the number EV ARC™ units sold (and consequent
significant increase in revenues) is not indicative of our future revenues for 2018 and future periods because thirty of these
units were waiting for delivery by the end of 2017 and were only delivered in January 2018, resulting in a disproportionate increase
in revenues in the first quarter of 2018. As a result, you should not rely on our results for the first quarter of 2018 as an indication
of our expected performance for the full year of 2018 or future periods.
Our
revenues are concentrated in a small number of customers and they may decrease significantly if we were to lose one of
these customers
. Two customers generated 84% of our revenues for the first quarter of 2018 and 40% of our revenues
for the year ended December 31, 2017. Those customers were New York City and the State of California in 2017, and the City of
New York and the City of Pittsburg in the first quarter of 2018. In both cases, we receive purchase orders from multiple sub
entities or departments, although in the first quarter of 2018, a single department in each of the City of New York and the
City of Pittsburg were responsible for all of the revenue attributable to those two customers. The purchase orders
aggregate under single contracts, but we believe that the selling opportunities are far more varied than suggested by the
total revenues associated with those contracts. We expect future sales of our products to be among a more diversified
customer base in the future. Nevertheless, this high concentration of revenues from a small number of clients creates a risk
that our revenues may decrease substantially if we were to lose one of such customers. We cannot assure you that our current
two main customers (the City of New York and the State of California) will continue to purchase our products in the
future.
Our revenue
growth depends on consumers’ willingness to adopt electric vehicles.
Our growth is highly dependent upon the adoption
by consumers of electric vehicles (“EV”), and we are subject to a risk of any reduced demand for EVs. If the market
for EVs does not gain broad market acceptance or develops more slowly than we expect, our business, prospects, financial condition
and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized
by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards,
frequent new vehicle announcements, long development cycles for EV original equipment manufacturers, and changing consumer demands
and behaviors. Factors that may influence the purchase and use of alternative fuel vehicles, and specifically EVs, include:
● perceptions
about EV quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if
adverse events or accidents occur that are linked to the quality or safety of EVs;
● the limited
range over which EVs may be driven on a single battery charge and concerns about running out of power while in use;
● improvements
in the fuel economy of the internal combustion engine;
● consumers’
desire and ability to purchase a luxury automobile or one that is perceived as exclusive;
● the environmental
consciousness of consumers;
● volatility
in the cost of oil and gasoline;
● consumers’
perceptions of the dependency of the U.S. on oil from unstable or hostile countries and the impact of international conflicts;
● government
regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
● access to
charging stations, standardization of EV charging systems and consumers’ perceptions about convenience and cost to charge
an EV; and
● the availability
of tax and other governmental incentives to purchase and operate EVs or future regulation requiring increased use of nonpolluting
vehicles.
The influence of any of these factors
may negatively impact the widespread consumer adoption of EVs, which would materially adversely affect our business, operating
results, financial condition and prospects.
We face intense
competition, and many of our competitors have substantially greater resources than we do.
Competition in the solar renewable
energy and EV charging industries is intense, and competition is fragmented among a wide variety of entities. We operate in a highly
competitive environment that is characterized by price fluctuations and rapid technological change. While we were the only respondents
to recent requests for EV charger proposals (RFPs) by the State of California and New York City, and won those contracts, nevertheless,
we compete with major international and domestic companies. Our major competitors include numerous regional players, and other
companies similar to us located in our operating markets. Our competitors often have greater market recognition and substantially
greater resources than we do. Competition for RFPs, and in our market in general, may intensify in the future. Competitors may
develop products based on new solar power technologies that may ultimately have costs similar to, or lower than, our projected
costs. Many of our current and potential competitors have longer operating histories, greater name recognition, access to larger
customer bases and significantly greater financial, sales, marketing, manufacturing, distribution, technical and other resources
than we do. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to
the development, promotion and sales of products than we can. Some of our competitors own, partner with, or have longer or stronger
relationships with, solar cell or other component providers, which could result in them being able to obtain components on a more
favorable basis than we can. New competitors or alliances among existing competitors could emerge and rapidly acquire significant
market share, which would harm our business. If we fail to compete successfully, our business would suffer and we may lose or be
unable to gain market share. We may in the future compete for potential customers with solar providers, which have products similar
to ours. In addition, we may face competition from other alternative energy resources now in existence or developed in the future.
Increased competition could result in price reductions, reduced margins, or loss of market share and greater competition for qualified
technical personnel. There can be no assurance that we will be able to compete successfully against current and future competitors.
If we are unable to compete effectively, or if competition results in a deterioration of market conditions, our business and results
of operations would be adversely affected.
The solar
energy industry and in particular, as it is utilized for EV charging, is an emerging market that is constantly evolving and may
not develop to the size or at the rate we expect.
The solar energy industry, especially as it applies to EV charging, is
an emerging and constantly evolving market opportunity. We believe the industry will take several years to fully develop and mature,
and we cannot be certain that the market will grow at the rate we expect. Any future growth of the solar energy market in general,
and for EV charging in particular, and
the success of our products depend on
many factors beyond our control. These factors include without limitation recognition and acceptance of EVs and EV charging products
by customers and users, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected
tax benefits and other incentives and our ability to provide our product offerings cost-effectively. If the markets for solar energy
for EV charging do not develop at the rate we expect, our business may be adversely affected.
Tariffs imposed
pursuant to Section 201 of the Trade Act of 1974 could significantly and adversely affect our business, revenues, margins, results
of operations, and cash flows.
On January 23, 2018, the President of the United States. issued Proclamation 9693, which
approved recommendations to provide relief to U.S. manufacturers and impose safeguard tariffs on imported solar cells and modules,
based on the investigations, findings, and recommendations of the U.S. International Trade Commission (the “International
Trade Commission”). The Section 201 petition relating to these products was filed by Suniva, Inc., which Solar World Americas
Inc. later joined, regarding foreign-manufactured photovoltaic (“PV”) cells and modules. Modules will be subject to
a four-year tariff at a rate of 30% in the first year, declining 5% in each of the three subsequent years, to a final tariff rate
of 15% in 2021. Cells will be subject to a tariff-rate quota under which the first 2.5 GW of cell imports each year will be exempt
from tariffs; and cells imported after the 2.5 GW quota has been reached will be subject to the same 30% tariff as modules. It
is uncertain how the quota will be allocated and administered, and further guidance is pending from the International Trade Commission.
Tariffs went into effect on February 7, 2018. The tariffs may increase the costs and restrict the supply of certain of our components,
causing us harm. In the near term, uncertainty surrounding the potential implications of the tariffs imposed on the U.S. solar
market, and whether specific products may be excluded, is likely to cause market volatility, price fluctuations, supply shortages,
and project delays, any of which could harm our business. Any pursuit by us of mitigating actions to obtain an exemption from the
tariffs may divert substantial resources from other projects. In addition, the imposition of tariffs is likely to result in a wide
range of impacts on the U.S. solar industry and the global manufacturing market, as well as our business in particular. Such tariffs,
if our products or the parts we use to manufacture our products are ultimately determined to be subject to them, could materially
increase the price of our products and result in significant additional costs to us, which could cause a significant reduction
in demand for our products.
Existing regulations
and policies and changes to them may present technical, regulatory, and economic barriers to the purchase and use of solar power
products, which may significantly reduce demand for our products and services.
The market for electric generation products
is heavily influenced by federal, state and local government laws, regulations and policies concerning the electric utility industry
in the United States and abroad, as well as policies adopted by electric utilities. Changes that make solar power less competitive
with other power sources could result in a significant reduction in the demand for our products. The market for electric generation
equipment is also influenced by trade and local content laws, regulations and policies that can discourage growth and competition
in the solar industry and create economic barriers to the purchase of solar power products, thus reducing demand for our products.
In addition, on-grid applications depend on access to the grid, which is also regulated by government entities. We anticipate that
our grid connected products and their installation will continue to be subject to oversight and regulation in accordance with federal,
state, local and foreign regulations relating to construction, safety, environmental protection, utility interconnection and metering,
trade, and related matters. It is difficult to track the requirements of individual states or local jurisdictions and design equipment
to comply with the varying standards. In addition, the U.S., European Union and Chinese governments, among others, have imposed
tariffs or are in the process of evaluating the imposition of tariffs on solar panels, solar cells, polysilicon, and potentially
other components. These and any other tariffs or similar taxes or duties may increase the price of our products and adversely affect
our cost reduction strategy, which could harm our results of operations and financial condition. Any new regulations or policies
pertaining to our products may result in significant additional expenses to us, which could cause a significant reduction in demand
for our solar power products.
In high demand
locations, the use of our products could exhaust their electricity supply on particular days, even with our storage batteries.
Our solar products create electricity and store it during those daylight hours when use is low. While this process has generally
been effective to meet daily EV charging and energy storage demand, it is possible that heavy charging could cause a power draw
exceeding the onboard electricity supply. In such instances, except for our grid-connected products, the EV charger would have
to recharge through solar energy replenishment or other direct outside charge before EV charging could resume.
Developments
in alternative technologies or improvements in distributed solar energy generation may have a material adverse effect on demand
for our offerings.
Significant developments in alternative technologies, such as advances in other forms of distributed
solar PV power generation, storage solutions, such as batteries, the widespread use or adoption of fuel cells for residential or
commercial properties or improvements in other forms of centralized power production, may have a material adverse effect on our
business and prospects. Any failure by us to adopt new or enhanced technologies or processes, or to react to changes in existing
technologies, could result in product obsolescence, the loss of competitiveness of our products, decreased revenue and a loss of
market share to competitors.
Defects or
performance problems in our products could result in loss of customers, reputational damage, and decreased revenue, and we may
face warranty, indemnity, and product liability claims arising from defective products.
Although our products meet our
stringent quality requirements, they may contain undetected errors or defects, especially when first introduced or when new generations
are released. Errors, defects, or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing
difficulties, which can affect both the quality and the yield of the product. Any actual or perceived errors, defects, or poor
performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products,
damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts, and increases
in customer service and support costs, all of which could have a material adverse effect on our business, financial condition,
and results of operations. Defective components may also give rise to warranty, indemnity, or product liability claims against
us that exceed any revenue or profit we receive from the affected products. We offer a one-year limited warranty for our EV ARC™
and a one-year limited warranty for our SolarTree®. Our limited warranties cover defects in materials and workmanship of our
products under normal use and service conditions. As a result, we bear the risk of warranty claims long after we have sold products
and recognized revenue. While we do have accrued reserves for warranty claims, our estimated warranty costs for previously sold
products may change to the extent future products are not compatible with earlier generation products under warranty. Our warranty
accruals are based on our assumptions and we do not have a long history of making such assumptions. As a result, these assumptions
could prove to be materially different from the actual performance of our systems, causing us to incur substantial unanticipated
expense to repair or replace defective products in the future or to compensate customers for defective products. Our failure to
accurately predict future claims could result in unexpected volatility in, and have a material adverse effect on, our financial
condition.
We may be
subject to product liability claims
. If one of our products were to cause injury to someone or cause property damage, including
as a result of product malfunctions, defects, or improper installation, then we could be exposed to product liability claims. We
could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability
claim we face could be expensive to defend and could divert management’s attention. The successful assertion of a product
liability claim against us could result in potentially significant monetary damages, penalties or fines, subject us to adverse
publicity, damage our reputation and competitive position, and adversely affect sales of our products. In addition, product liability
claims, injuries, defects, or other problems experienced by other companies in the solar industry could lead to unfavorable market
conditions for the industry as a whole, and may have an adverse effect on our ability to attract new customers, thus harming our
growth and financial performance.
If we are
unable to keep up with advances in EV technology, we may suffer a decline in our competitive position.
The EV industry
is characterized by rapid technological change. If we are unable to keep up with changes in EV technology, our competitive position
may deteriorate which would materially and adversely affect our business, prospects, operating results and financial condition.
As technologies change, we plan to upgrade or adapt our EV products in order to continue to provide EV charging services with the
latest technology. However, due to our limited cash resources, our efforts to do so may be limited.
If a third
party asserts that we are infringing upon its intellectual property, whether successful or not, it could subject us to costly and
time-consuming litigation or expensive licenses, and our business may be harmed.
The EV and EV charging industries are
characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets. As we face increasing competition,
the possibility of intellectual property rights claims against us grows. Our technologies may not be able to withstand third-party
claims or rights against their use. Additionally, although we have acquired from other companies’ proprietary technology
covered by patents, we cannot be certain that such patents will not be challenged, invalidated or circumvented. Intellectual property
infringement claims against us could
harm our relationships with our customers, may deter future customers from subscribing to our services or could expose us to litigation
with respect to these claims. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome
in any such litigation could make it more difficult for us to defend our intellectual property in any subsequent litigation in
which we are a named party. Any of these results could harm our brand and operating results. Any intellectual property rights claim
against us or our customers, with or without merit, could be time-consuming, expensive to litigate or settle and could divert management
resources and attention. An adverse determination also could prevent us from offering our services to our customers and may require
that we procure or develop substitute services that do not infringe. With respect to any intellectual property rights claim against
us or our customers, we may have to pay damages or stop using technology found to be in violation of a third party’s rights.
We may have to seek a license for the technology, which may not be available on reasonable terms, may significantly increase our
operating expenses or require us to restrict our business activities in one or more respects. The technology also may not be available
for license to us at all. As a result, we may also be required to develop alternative non-infringing technology, which could require
significant effort and expense.
The success
of our business depends in large part on our ability to protect and enforce our intellectual property rights.
We rely on
a combination of patent, copyright, service mark, trademark, and trade secret laws, as well as confidentiality procedures and contractual
restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We cannot assure you
that any patents will issue with respect to our currently pending patent applications, in a manner that gives us the protection
that we seek, if at all, or that future patents that may be issued to us will not be challenged, invalidated or circumvented. Our
currently issued patents and any patents that may issue in the future may not provide sufficiently broad protection or they may
not be enforceable in actions against alleged infringers. We cannot assure you that any future service mark registrations will
be issued to us or that any registered service marks will be enforceable or provide adequate protection of our proprietary rights.
We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business in
order to limit access to and disclosure of our proprietary information. We cannot be certain that the steps we have taken will
prevent unauthorized use of our technology or the reverse engineering of our technology. Moreover, others may independently develop
technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights
also depends on our legal actions against these infringers, but we cannot be sure these actions will be successful, even when our
rights have been violated. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products are sold. In addition, the legal standards relating to the validity, enforceability
and scope of protection of intellectual property rights in EV-related industries are uncertain and still evolving.
We may not
be able to protect our intellectual property
.
Our success depends, in part, on our ability to protect our products
under United States and foreign trademark and patent laws, to preserve our trade secrets, and to operate without infringing the
proprietary rights of third parties. In addition to our registered trademarks and the patents we have obtained for our EV ARC™
product, Transformer EV ARC™ product, Solar Tree® structure, and EnvisionTrak™ (a dual-axis tracking solar system),
we have a patent application pending for our EV Standard™ utility lamp post product for curbside EV charging currently under
development. We have filed for patent recognition for certain of our existing United States patents filed in China and Malaysia.
EV ARC™ was granted patent recognition in China in 2018. We cannot assure that we will be successful in obtaining the patents,
service marks or trademarks that these applications will not be challenged, that others will not attempt to infringe upon our rights,
that these filings will afford us any protection or competitive advantages. If we are unable to protect our rights to our intellectual
property or if such property infringes on the rights of others, our business could be materially adversely affected. We cannot
assure that our intellectual property will afford us any protection or competitive advantages.
Our profitability
depends, in part, on our success and brand recognition and we could lose our competitive advantage if we are not able to protect
our trademarks and patents against infringement, and any related litigation could be time-consuming and costly.
We believe
our brand has gained substantial recognition within multiple markets and will continue to expand. We have registered the “Solar
Tree,” and “Solar Grove,” trademarks with the United States Patent and Trademark Office. Use of our trademarks
or similar trademarks by competitors in geographic areas in which we have not yet operated could adversely affect our ability to
use or gain protection for our brand in those markets, which could weaken our brand and harm our business and competitive
position. In addition, any litigation
relating to protecting our trademarks and patents against infringement could be time consuming and costly. There is also the risk
that our technologies and products could be legally challenged as infringing on another party’s proprietary or patent rights,
causing us to incur substantial expense and possible licensing fees
.
Our expansion
strategy has inherent risks.
Although management believes that pursuing the Company’s growth strategy is in the best
interests of the Company, such strategy involves substantial expenditures and risks to the Company. There can be no assurance that
any business acquisitions or strategic partnerships will be completed successfully or, if completed, will yield the expected benefits
to the Company, or will not materially and adversely affect the Company’s business, financial condition or results of operations.
The execution of plans to exploit intended expansion opportunities through business acquisitions, joint ventures, shareholder agreements
or otherwise, could result in operating losses and the write down of goodwill, which would increase the Company’s losses
or reduce or eliminate its earnings, if any.
The success
of our business depends on the continuing contributions of Desmond Wheatley and other key personnel who may terminate their employment
with us at any time, and we will need to hire additional qualified personnel.
We rely heavily on the services of Desmond
Wheatley, our chairman and chief executive officer, as well as other management personnel. Loss of the services of any such individuals
would adversely impact our operations. In addition, we believe our technical personnel represent a significant asset and provide
us with a competitive advantage over many of our competitors. Our future success will depend upon our ability to retain these key
employees and our ability to attract and retain other skilled financial, engineering, technical and managerial personnel. We do
not currently maintain any “key man” life insurance with respect to any of such individuals.
If we are
unable to attract, train and retain highly qualified personnel, the quality of our services may decline and we may not successfully
execute our internal growth strategies.
Our success depends in large part upon our ability to continue to attract, train,
motivate and retain highly skilled and experienced employees, including technical personnel. Qualified technical employees periodically
are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. While we currently
have available technical expertise sufficient for the requirements of our business, expansion of our business could require us
to employ additional highly skilled technical personnel. We expect competition for such personnel to increase as the market for
our products expand. We cannot assure that we will be able to attract and retain sufficient numbers of highly skilled technical
employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates of
compensation could impair our ability to secure and complete customer engagements and could harm our business.
We are exposed
to risks associated with a potential financial crisis and weaker global economy, which increase the uncertainty of project financing
for commercial solar installations and the risk of non-payment from customers.
The tightening of monetary policy in the
U.S., rise of interest rates in the credit markets, potential turmoil in the financial markets, and a potentially weakened global
economy would contribute to slowdowns in the renewable energy industry, which may worsen if these economic conditions are prolonged
or deteriorate further. The market for the installation of our products depends largely on commercial, consumer and government
capital spending. Economic uncertainty exacerbates negative trends in these areas of spending, and may cause our customers to delay,
cancel, or refrain from placing orders, which may reduce our sales. Difficulties in obtaining capital and deteriorating market
conditions may also lead to the inability of some customers to obtain affordable financing, including traditional project financing
and tax-incentive based financing, resulting in lower sales to potential customers with liquidity issues, and may lead to an increase
of incidents where our customers are unwilling or unable to pay for systems they purchase, and additional bad debt expense for
us. Further, these conditions and uncertainty about future economic conditions make it challenging for us to obtain equity and
debt financing to meet our working capital requirements to support our business, forecast our operating results, make business
decisions, and identify the risks that may affect our business, financial condition and results of operations. If we are unable
to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, financial condition
and results of operations may be materially and adversely affected.
We are exposed
to various possible claims and hazards relating to our business, and our insurance may not fully protect us.
Although we
maintain modest theft, casualty, liability, and property insurance coverage, along
with workmen’s compensation and
related insurance, we cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business.
In particular, we may incur liability if one or more of our other products are deemed to have caused a personal injury. Should
uninsured losses occur, they would have a material adverse effect on our operating results, financial condition, and business performance.
We may face
litigation in the future.
As a manufacturer and seller of goods, we are exposed to the risk of litigation for a variety
of reasons, including product liability lawsuits, employee lawsuits, commercial contract disputes, government enforcement actions,
and other legal proceedings. We cannot assure that future litigation in which we may become involved will not have a material adverse
effect on our financial condition, operating results, business performance, and business reputation.
We may incur
liabilities which we are unable to pay.
We have liabilities and may in the future have other liabilities to affiliated
or unaffiliated lenders. These liabilities represent fixed costs, which are required to be paid regardless of the level of business
or profitability experienced by Envision. We cannot assure that we will not incur more debt in the future, that we will have sufficient
funds to repay our indebtedness or that we will not default on our debt, jeopardizing our business viability. Furthermore, we may
not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary
to conduct our business. Our existing revolving purchase order financing facility has lender review and renewal rights every 300
days. The lender has the right to terminate the facility on each of these reviews, for any reason, or the lender may convert the
outstanding balance of the loan into shares of our common stock. The loss of this facility would have a material adverse effect
on our operating results, financial condition and business performance. The current outstanding balance on the purchase order revolving
financing facility is $290,000 as of March 31, 2018, and total current indebtedness for all debt outstanding for borrowed funds
is $2,097,116 as of that date. We recently extended the maturity date of the convertible notes payable to Pegasus and John Evey
to December 31, 2019 and July 1, 2019, respectively. Pegasus is our former landlord and John Evey is a former director of the Company.
We cannot assure that we will be able to pay all of our liabilities, or that we will not experience a default on our indebtedness.
The costs
incurred by us to develop and manufacture our solar technology products may be higher than anticipated which could hurt our ability
to earn a profit.
We may incur substantial cost overruns in the development, manufacture, and distribution of solar technology
products. Unanticipated costs may force us to obtain additional capital or financing from other sources, and would hinder our ability
to earn a profit. If we incur cost overruns, there is no assurance that we could obtain the financing or capital to cover them.
If a greater investment in the business is required because of cost overruns, the probability of earning a profit or a return of
the shareholders’ investment in Envision is diminished.
Our failure
to meet our financial obligations could subject our business to liens.
If we fail to pay for materials and services for
our business on a timely basis, our assets could be subject to materialmen’s and workmen’s liens. We may also be subject
to bank liens in the event that we default on loans from banks, if any.
There is no
assurance that our letters of intent and teaming agreements with third parties will result in definitive transactions
.
We have in the past and may in the future enter into letters of intent and teaming agreements with other strategic customers or
partners. We cannot assure that we will enter into definitive sales agreements, make any sales, conduct any business, or earn any
revenue or profits under such letters of intent or teaming agreements with third parties.
The equipment
comprising our products currently charge at rates that are comparable to the average charging speed of competitors, but that may
change in the future.
Our standard EV ARC™ as a stand-alone does not provide a DC Fast Charge, rather, it charges
EVs at a slower pace. To date, we have found that since most EV trips are relatively short and local, the standard EV ARC™
has satisfied consumer demand. Our EV ARC™ HP DC Fast Charging Electric Vehicle Autonomous Renewable Charger can provide
a DC Fast Charge, so we believe we can compete in that market. Nevertheless, the demand for faster EV charging may increase in
the future, requiring us to adjust our marketing and sales strategies. There is no assurance that our equipment will remain competitive
in the market in the future, causing possible customer complaints and claims, and the loss of sales in the future.
Our Company
depends on key suppliers and outside contractors
. The Company depends on key suppliers and outside contractors, such as
our solar panel suppliers who manufacture them in California, the Philippines, and
Malaysia , whose failure to perform
could hinder our ability to operate profitably and have a material adverse impact on our operating results, financial condition,
and business performance. We source important components from a variety of suppliers in the United States and Mexico. We license
certain computer software from third parties, including our proprietary EnvisionTrak™ solar panel rotating system. We do
not own that software. While we believe that we can secure substitute suppliers for our components, it could be expensive and time
consuming to replace any of them if we had to do so, especially for important computer software.
We have experienced
technological changes in our industry. New technologies may prove inappropriate and result in liability to us or may not gain market
acceptance by our customers.
The industries in which we operate are subject to constant technological change. Our future
success will depend on our ability to appropriately respond to changing technologies and changes in function of products and quality.
If we adopt products and technologies that are not attractive to consumers, we may not be successful in capturing or retaining
a significant share of our market. In addition, some new technologies are relatively untested and unperfected and may not perform
as expected or as desired, in which event our adoption of such products or technologies may cause us to lose money.
Existing regulations,
and changes to such regulations, may present technical, regulatory and economic barriers to the purchase and use of our products,
which may significantly reduce demand for our products.
Installation of a small number of our products is subject to oversight
and regulation in accordance with national and local ordinances, building codes, zoning, environmental protection regulation, utility
interconnection requirements for metering and other rules and regulations. In particular, our new EV Standard™ product, designed
to provide curbside EV charging through existing or newly installed street lampposts owned by municipalities and utilities, will
require close cooperation with, and supervision by, local government agencies. We attempt to keep up-to-date about these requirements
on a national, state, and local level, and must design systems to comply with varying standards. Certain cities may have ordinances
that increase the cost of installation of our products. In addition, new government regulations or utility policies pertaining
to power systems are unpredictable and may result in significant additional expenses or delays in the installation of our grid-connected
products and, as a result, could cause a significant reduction in demand, especially for our EV Standard™ product. There
currently exist metering caps in certain jurisdictions, which effectively limit the aggregate amount of power that may be sold
by solar power generators into the power grid.
Our media
branding and advertising strategy may not result in a profitable operation of that segment of our business.
We are able
to equip our EV ARC™ and Solar Tree® platforms with digital advertising screens with content that can be controlled directly
and in some cases remotely. There is no assurance that the revenue model crafted for this capability will be successful or profitable,
or will not result in operating losses or rejection by government regulators or consumers. Sponsors and advertisers for the service
may not materialize or be willing to pay the rates sought by us or our customers.
Our business
is impacted by the availability to our customers of rebates, tax credits and other financial incentives, the reduction, elimination
or uncertainty of which would reduce the demand for our products.
Many states offer substantial incentives to offset the
cost of solar power systems. These incentives can take many forms, including direct rebates, state tax credits, system performance
payments and Renewable Energy Credits (RECs). Moreover, the federal government currently offers a 30% tax credit for the installation
of solar power systems. Effective in 2009 and currently, the federal tax credit is 30% for commercial and residential installations.
Businesses may also elect to accelerate the depreciation on their system over five years. Uncertainty about the introduction of,
reduction in, or elimination of such incentives, or delays or interruptions in the implementation of favorable federal or state
laws could substantially increase the cost of our systems to some of our customers, resulting in significant reductions in demand
for our products from non-governmental customers, which would negatively impact our sales.
Our business
strategy depends on the widespread adoption of solar power and EV charging technology.
The market for solar power products
is emerging and rapidly evolving, and its future success is uncertain. If solar power technology proves unsuitable for widespread
commercial deployment or if demand for solar power products fails to develop sufficiently, we would be unable to generate enough
revenues to achieve and sustain profitability and positive cash flow. The factors influencing the widespread adoption of solar
power technology include but are not limited to:
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cost-effectiveness and
efficiency of solar power technologies as compared with conventional and non-solar alternative energy technologies;
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performance and reliability
of solar power products as compared with conventional and non-solar alternative energy products;
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fluctuations in economic
and market conditions which impact the viability of conventional and non-solar alternative energy sources, such as increases or
decreases in the prices of oil and other fossil fuels;
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continued deregulation
of the electric power industry and broader energy industry; and
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availability of governmental
subsidies and incentives.
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Compliance
with new and existing environmental laws and rules is required
. Compliance with new and existing environmental laws and
rules could significantly increase construction and start-up costs for our customers, deterring customers from purchasing our products
and services. To construct Envision’s Solar Tree products, our customers may be required to obtain and comply with a number
of permitting requirements. As a condition of granting necessary permits, regulators could make demands that increase our customers’
expected costs of construction and operations, in which case they may delay or cancel delivery or our products. Environmental issues,
such as contamination and compliance with applicable environmental standards could arise at any time during the construction and
operation of a customer’s project. If this occurs, it could require a customer to spend additional resources to remedy the
issues and may delay or prevent construction or operation of the project.
The success
of a project is dependent upon a continued need for renewable energy.
The topic of alternative fuels has retained a significant
status in the consciousness of the American people, as seen by rounds of debate and legislation in Congress, but interest in developing
and utilizing alternative fuels could wane unexpectedly at any time. If such interest were lost or if the need for alternative
fuels were to decrease substantially, the Company could encounter problems generating sufficient revenue to achieve or sustain
profitability or meet its working capital requirements.
The success
of our product offering may require the availability of locations provided by municipalities or private owners of real estate.
Our ability to sell branding opportunities or licenses could be highly dependent on the availability of real estate to
locate our product, or municipal approval for visible branding. We cannot assure that these rights will be available to us in the
future, or will be available on terms acceptable to us. The lack of availability of these rights could have a material adverse
effect on our results of operations and financial condition. We may operate our business in which leasing or licensing agreements
with venues or municipalities are necessary, so the long-term success of this aspect of our business could depend upon our ability
to initiate such agreements and to renew these agreements upon their termination. We cannot assure that we will be able to renew
these agreements on acceptable terms or at all, or that we will be able to obtain attractive agreements with substitute venues.
Risks Relating to our Organization and our Common Stock
The Company
is a result of a 2010 reverse merger with a shell company that did not have operations.
Because we were formed through
a reverse merger with a non-operating shell company, our stock is subject to certain restrictions if we fail in the future to stay
current in our reporting requirements with the SEC. As of May 31, 2018, we are current with all of our SEC reporting requirements.
In the event our common stock becomes restricted due to noncompliance, the market for our common stock will be adversely affected
and the market price for our common stock could decline significantly.
If we fail
to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately
or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and
adversely impact the trading price of our common stock.
It may be time consuming, difficult and costly for us to develop
and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional
financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls
and reporting procedures. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud.
If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we
would if an effective control environment existed, and our business and reputation with investors may be harmed. In addition, if
we are unable to comply with the internal controls requirements of the Sarbanes-
Oxley Act, then we may not be able to
obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with the
SEC current and may adversely affect any market for, and the liquidity of, our common stock. As of March 31, 2018 and during prior
periods, as disclosed in our quarterly and annual reports, we do not have an effective system of internal controls and do not comply
with certain provisions of the Sarbanes-Oxley Act.
Public company
compliance may make it more difficult for us to attract and retain officers and directors.
The Sarbanes-Oxley Act and new
rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public
company, we expect these rules and regulations to increase our compliance costs and to make certain activities more time consuming
and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us
to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage
or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract
and retain qualified persons to serve on our board of directors or as executive officers.
Our shares
of common stock are thinly traded, the price may not reflect our value and there is no assurance that there will be an active market
for our shares of common stock either now or in the future.
Our shares of common stock are thinly traded, and the price,
if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock
either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that
our management might take to increase awareness of our Company with investors. We cannot assure that there will be any awareness
generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value
of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for
our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor
finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer
fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit
the use of such shares of common stock as collateral for loans.
Our stock
price may be volatile.
The public market trading price of our common stock is likely to be highly volatile, may decline,
and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
|
·
|
changes in our industry;
|
|
·
|
competitive pricing pressures;
|
|
·
|
our ability to obtain working capital financing;
|
|
·
|
additions or departures of key personnel;
|
|
·
|
limited “public float” in the hands of
a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price
for our common stock;
|
|
·
|
sales of our common stock privately or in the public
market, by us or by other shareholders;
|
|
·
|
our ability to execute our business plan;
|
|
·
|
operating results that fall below expectations;
|
|
·
|
loss of any strategic relationship;
|
|
·
|
adverse regulatory developments;
|
|
·
|
adverse economic and other external factors;
|
|
·
|
additional dilution of ownership because of the issuance
of new securities by us, and period-to-period fluctuations in our financial condition or operating results.
|
In addition, the
securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our
common stock.
A reverse
stock split could cause our stock price to decline relative to its value before the split.
We plan to effect a reverse
stock split of our authorized, issued and outstanding common stock before this offering is made in order to achieve a sufficient
increase in our stock price to enable us to qualify for listing on the NASDAQ Capital
Market (the “NASDAQ”). There
is no assurance that the reverse stock split will be successful in raising our stock price sufficiently to enable us to list on
the NASDAQ, that we will be accepted by the NASDAQ in any event, or that the reverse split will not cause an actual decline in
the value of our outstanding common stock.
We may not
pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We do not anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial
condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. Our
current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and contributing to
the growth of the Company. Prospective investors seeking or needing dividend income or liquidity should therefore not purchase
the Shares. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if
our stock price appreciates.
Offers or
availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory
holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, the market price of our common stock
could decline because of or in anticipation of the selling pressure. The existence of anticipated sales, whether or not sales have
occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity
or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
The relationship
of our management team to us could create conflicts of interest
. The relationship of management to the Company may create
conflicts of interest. Management’s compensation from the Company may not be determined pursuant to arm’s-length negotiation.
We have only two directors who may be considered independent, and our Compensation Committee has two members, only one of whom
may be considered to be independent under the rules and regulations of the Securities and Exchange Commission.
We will indemnify
and hold harmless our officers and directors to the maximum extent permitted by Nevada law.
Our Bylaws provide that we
will indemnify and hold harmless our officers and directors against claims arising from our activities, to the maximum extent permitted
by Nevada law. If we were called upon to perform under our indemnification agreement, then the portion of our assets expended for
such purpose would reduce the amount otherwise available for our business.
Our Articles
and Bylaws may be amended by the affirmative vote of a majority of our shareholders.
Under the Nevada General Corporations
Law, a corporation’s articles of incorporation may be amended by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote, and a majority of the outstanding shares of each class entitled to vote as a class, unless
the articles require the vote of a larger percentage of shares. Our Articles of Incorporation, as amended, do not require the vote
of a larger percentage of shares. As permitted under the Nevada General Corporations Law, our Bylaws give our board of directors
the power to adopt, amend, or repeal our Bylaws. Our shareholders entitled to vote have concurrent power to adopt, amend, or repeal
our Bylaws.
We have applied
for listing of our common stock on the NASDAQ Capital Market in connection with this offering
. We expect that our common
stock will be eligible to be quoted on the NASDAQ Capital Market. For our common stock to be so listed, we must meet the current
NASDAQ Capital Market listing requirements. If we fail to comply with those continuing listing standards, our securities could
be delisted. If we were unable to meet these requirements, including but not limited to requirements to obtain shareholder approval
of a transaction other than a public offering involving the sale or issuance equal to 20% or more of our common stock, our common
stock could be delisted from the NASDAQ Capital Market. If our common stock were to be delisted from the NASDAQ Capital Market,
our common stock could continue to trade on the over-the-counter bulletin board or OTC-QB Market following any delisting from the
NASDAQ Capital Market, or on the OTC Pink Sheets. Any such delisting of our common stock could have an adverse effect on the market
price of, and the efficiency of the trading market for, our common stock, not only in terms of the number of shares that can be
bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts,
if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect
on our ability to raise capital in the public or private equity markets.
Risks Relating to this Offering
Investors in this
offering will experience immediate and substantial dilution in net tangible book value.
The public offering price will
be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors
in this offering will incur immediate dilution of $
per share, based on the assumed public offering price of $ per
share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting
our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted
upon the completion of this offering.
Our stock price could
fall and, for that reason, we could be delisted from the NASDAQ Capital Market.
The NASDAQ Capital Market requires that
the trading price of its listed stocks remain above one dollar in order for the stock to remain listed. If a listed stock trades
below one dollar for more than 30 consecutive trading days, then it is subject to delisting from the NASDAQ Capital Market.
Broker-dealers may
be discouraged from effecting transactions in shares of our common stock if we are considered to be a penny stock and thus subject
to the penny stock rules.
The Securities and Exchange Commission (the “SEC”) has adopted a number of rules
to regulate “penny stocks” that restricts transactions involving stock which is deemed to be penny stock. Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These rules may have the effect of reducing the liquidity of penny stocks. “Penny
stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain
national securities exchanges or quoted on The NASDAQ Capital Market if current price and volume information with respect to transactions
in such securities is provided by the exchange or system). Our securities have in the past constituted, and may again in the future
constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements
imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock,
which could severely limit the market liquidity of such shares and impede their sale in the secondary market.
A U.S. broker-dealer selling
penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net
worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a
special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior
to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations
require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule
prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction
is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered
representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements
disclosing recent price information with respect to the “penny stock” held in a customer’s account and information
with respect to the limited market in “penny stocks”.
Stockholders should be
aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud
and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related
to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading
press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections
by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired
level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical limitations to prevent the described patterns from being established
with respect to our securities.
Warrants are speculative
in nature.
The warrants offered in this offering do not confer any rights of common stock ownership on their holders, such
as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of our common stock
at a fixed price for a limited period of time. Specifically,
commencing on the date of issuance, holders
of the warrants may exercise their right to acquire the common stock and pay an exercise price of ___ per share ([ %]) of the public
offering price of our common stock in this offering), prior to five years from the date of issuance, after which date any unexercised
warrants will expire and have no further value. Moreover, following this offering, the market value of the warrants is uncertain
and there can be no assurance that the market value of the warrants will equal or exceed their public offering price. There can
be no assurance that the market price of the common stock will ever equal or exceed the exercise price of the warrants, and consequently,
whether it will ever be profitable for holders of the warrants to exercise the warrants.
Substantial future
sales of shares of our common stock in the public market could cause our stock price to fall.
Shares of our common stock
that we have issued directly or that have been or may be acquired upon exercise of warrants or the conversion of convertible securities
are or may be covered by registration statements which permit the public sale of stock. Other holders of shares of common stock
that we have issued, including shares issuable upon exchange or conversion of our common stock, may be entitled to dispose of their
shares pursuant to (i) the applicable holding period, volume and other restrictions of Rule 144 or (ii) another exemption from
registration under the Securities Act. The lock-up agreements, which our officers, directors, and principal shareholders entered
into with the Underwriter, expire 180 days after the closing of this offering. Upon the expiration of those lock-up agreements,
the outstanding shares of common stock covered by them become eligible for resale in the open market (subject to Rule 144 volume
limitations applicable to executive officers, directors and 10% or more shareholders), resulting in more shares eligible for sale
and potentially causing selling in the market to increase and our stock price to decline. Additional sales of a substantial number
of our shares of our common stock in the public market, or the perception that sales could occur, could have a material adverse
effect on the price of our common stock. Our securities are quoted on the OTC-QB and there is not now, nor has there been, a significant
market for shares of our common stock. An active trading market for our shares may never develop or be sustained. If substantial
amounts of our common stock become available for resale under Rule 144 once a market has developed for our common stock, or if
our common stock becomes listed on the NASDAQ Capital Market and registered under the Securities Act, the then-prevailing market
prices for our common stock may be reduced. Any substantial sales of our common stock pursuant to Rule 144 or if we become listed
on the NASDAQ Capital Market may have an adverse effect on the market price of our securities.
Sales of a substantial
number of shares of our common stock in the public market following this offering could cause the market price of our common stock
to decline. If there are more shares of common stock offered for sale than buyers are willing to purchase, then the market price
of our common stock may decline to a market price at which buyers are willing to purchase the offered shares of common stock and
sellers remain willing to sell the shares. All of the securities issued in the offering will be freely tradable without restriction
or further registration under the Securities Act.
If we issue
additional shares of our stock or other equity securities, existing Shareholders will experience dilution in their ownership of
Envision.
We are authorized to issue up to 490,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share, having such rights, preferences and privileges as are determined by our
board of directors in their discretion. We have the right to raise additional capital or incur borrowings from third parties to
finance our business. The board of directors has the authority, without the consent of any of the shareholders, to cause us to
issue more shares of our common stock and preferred stock. Consequently, our shareholders may experience more dilution in their
ownership of Envision in the future. We may also issue net profits interests in specified assets of Envision or incur off balance
sheet obligations. The issuance of additional shares of capital stock or net profits interests by us would dilute our shareholders’
ownership in Envision.
Risks Associated with Our Reverse Stock Split
If our planned
reverse stock split does not result in a proportionate increase in the price of our common stock, we may not be able to list our
common stock and the warrants on The NASDAQ Capital Market
. We expect that the [one-for-__] reverse stock split of our
authorized and outstanding common stock will increase the market price of our common stock so that we will be able to meet the
minimum bid price requirement of the listing rules of The NASDAQ Capital Market. However, the effect of a reverse stock split upon
the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in
similar circumstances have been varied. It is possible that the market price of our common stock following the reverse stock
split will not increase sufficiently
for us to be in compliance with the minimum bid price requirement. If we are unable meet the minimum bid price requirement, we
may be unable to list our shares on The NASDAQ Capital Market, in which case this offering will not be completed.
Even if the
reverse stock split achieves the requisite increase in the market price of our common stock, we cannot assure you that we will
be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital Market
. Even if the reverse
stock split achieves the requisite increase in the market price of our common stock to be in compliance with the minimum bid price
of The NASDAQ Capital Market, there can be no assurance that the market price of our common stock following the reverse stock split
will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a
company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock
declines following the effectuation of the reverse stock split, the percentage decline may be greater than would occur in the absence
of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as
negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability
to meet or maintain The NASDAQ Capital Market’s minimum bid price requirement.
Even if the
reverse stock split increases the market price of our common stock, there can be no assurance that we will be able to comply with
other continued listing standards of The NASDAQ Capital Market
. Even if the market price of our common stock increases
sufficiently so that we comply with the minimum bid price requirement, we cannot assure you that we will be able to comply with
the other standards that we are required to meet in order to maintain a listing of our common stock and/or warrants on The NASDAQ
Capital Market. For example, we may lose an independent director on our Audit Committee after it is formed, who cannot readily
be replaced. Our failure to meet these requirements may result in our common stock and/or warrants sold in this offering being
delisted from The NASDAQ Capital Market, irrespective of our compliance with the minimum bid price requirement.
The reverse
stock split may decrease the liquidity of the shares of our common stock
. The liquidity of the shares of our common stock
may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the
reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split.
In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common
stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty
effecting such sales.
Following
the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional
investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common
stock may not improve
. Although we believe that a higher market price of our common stock may help generate greater or
broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract
new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock
will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily
improve.
USE OF PROCEEDS
We estimate that
our net proceeds from the sale of _________ shares of common stock in this offering will be approximately [$ ], after deducting
the estimated underwriting discounts and estimated offering expenses payable by us. If the underwriters’ over-allotment option
is exercised in full, we estimate that our net proceeds will be approximately $__________.
The principal purposes
of this offering are to provide funding to expand our business both domestically and internationally through an increase in our
sales and marketing campaigns, grow our sales team, product development and manufacturing efficiencies, and for working capital
and other corporate purposes.
The amounts and
timing of our actual expenditures will depend upon numerous factors, including the growth of our sales and marketing activities,
the status of our research and development efforts, the amount of
proceeds actually raised in this offering
and the amount of cash generated by our operations, if any. We, therefore, cannot predict the relative allocation of net proceeds
that we receive in this offering and may allocate it differently than indicated on the above table. As a result, management will
have broad discretion over the deployment of the net proceeds from this offering.
DETERMINATION OF OFFERING PRICE
The offering price
has been negotiated between the representatives of the Underwriter and us. In determining the offering of the common stock, the
following factors were considered:
|
·
|
prevailing market conditions;
|
|
·
|
our historical performance and capital structure;
|
|
·
|
estimates of our business potential and earnings prospects;
|
|
·
|
an overall assessment of our management; and
|
|
·
|
the consideration of these factors in relation to market valuation
of companies in related businesses.
|
Our common stock
is quoted on the OTC-QB under the symbol “EVSI.” We have applied or will apply to The NASDAQ Capital Market to list
our common stock under the symbol “EVSI”. The following table sets forth, for the periods indicated, the high and low
sales prices per share of our common stock as reported by the OTC-QB. The prices below reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual transactions.
|
|
High
|
|
Low
|
2015
|
|
|
|
|
First Quarter
|
|
$
|
0.13
|
|
|
$
|
0.11
|
|
Second Quarter
|
|
$
|
0.13
|
|
|
$
|
0.11
|
|
Third Quarter
|
|
$
|
0.20
|
|
|
$
|
0.10
|
|
Fourth Quarter
|
|
$
|
0.16
|
|
|
$
|
0.11
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.19
|
|
|
$
|
0.11
|
|
Second Quarter
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
Third Quarter
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
Fourth Quarter
|
|
$
|
0.18
|
|
|
$
|
0.14
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
Second Quarter
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
Third Quarter
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
Fourth Quarter
|
|
$
|
0.20
|
|
|
$
|
0.14
|
|
2018
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.429
|
|
|
$
|
0.15
|
|
Second Quarter*
|
|
$
|
0.409
|
*
|
|
$
|
0.25
|
|
*Through May 31, 2018.
DIVIDEND POLICY
We do not intend
to pay cash dividends on our common stock in the foreseeable future. We expect to retain future earnings, if any, for reinvestment
in our business. We will not be permitted to pay dividends on our common stock unless all dividends on any preferred stock that
may be issued have been paid in full. Moreover, any credit agreements which we may enter into may restrict our ability to pay dividends.
The payment of dividends in the future will be subject to the discretion of our board of directors and will depend, among other
things, on our financial condition, results of operations, cash requirements, future prospects and any other factors our board
of directors deems relevant.
CAPITALIZATION
The following table
sets forth (i) our historical capitalization as of March 31, 2018 and (ii) our adjusted capitalization on a pro forma basis assuming
the offering was effective on March 31, 2018. The table below should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”, and our historical consolidated financial statements and
the notes thereto included elsewhere in this prospectus.
|
|
At March 31, 2018
|
|
|
As Reported
(Unaudited)
|
|
Pro Forma
(Unaudited)
|
|
|
|
|
|
Long Term Debt
|
|
$
|
17,259
|
|
|
$
|
17,259
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding as reported, 0 pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 490,000,000 shares authorized; 144,706,495 shares issued and outstanding as reported, [ ] pro forma
|
|
|
144,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
38,418,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated (deficit)
|
|
|
(39,288,486
|
)
|
|
|
(39,288,486
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
$
|
(725,482
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt and stockholders’ equity (deficit)
|
|
$
|
(708,223
|
)
|
|
$
|
|
|
DILUTION
If you invest in
our common stock in this offering, you will experience dilution to the extent of the difference between the initial public offering
price per share and the pro forma, as adjusted, net tangible book value per share of common stock after this offering.
As of March 31,
2018, we had a net tangible book value of ($827,843), or ($.006) per share. The net tangible book value per share of common stock
is determined by subtracting total liabilities from the total book value of the tangible assets and dividing the difference by
the number of shares of common stock deemed to be outstanding on the date the book value is determined.
Our pro forma net
tangible book value at March 31, 2018 was $____ million, or $____ per share. The pro forma net tangible book value per share of
common stock is determined by subtracting total pro forma liabilities from the total pro forma tangible assets and dividing the
difference by the pro forma number of shares of our common stock deemed to be outstanding on the date the tangible book value is
determined. After giving effect to the sale of [ ] shares of common stock offered by us in this offering at an assumed offering
price of [$ ] per share and the application of the estimated net proceeds from this offering, our pro forma as adjusted net tangible
book value as of March 31, 2018 would have been $____ or $____ per share. This represents an immediate increase in pro forma net
tangible book value to existing stockholders of $____ per share and an immediate dilution to new investors of $____ per share.
The following table illustrates this per share dilution to new investors purchasing our common stock in this offering.
|
|
Offering price per share
|
$
|
Pro forma net tangible book value per share as of March 31, 2018
|
|
Increase per share attributable to new investors
|
|
Pro forma, as adjusted, net tangible book value per share after the offering
|
|
Dilution per share to new investors
|
$
|
If the underwriters
exercise in full their option to purchase additional shares of our common stock in this offering, the pro forma net tangible book
value per share after the offering would be $____ per share, the increase in pro forma net tangible book value per share to existing
stockholders would be $____ per share and the dilution to new investors purchasing shares in this offering would be $____ per share.
The following table
sets forth on an unaudited pro forma as adjusted basis, as of March 31, 2018, the difference between the total consideration paid
and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering, before
deducting underwriting discounts and estimated offering expenses payable by us:
|
|
|
|
|
|
|
Shares Purchased
|
Total Consideration
|
Average Price
Per Share
|
|
Number
|
Percent
|
Amount
|
Percent
|
|
(in thousands)
|
|
(in thousands)
|
|
|
Existing stockholders
|
|
%
|
$
|
%
|
$
|
|
|
|
|
|
|
New investors
|
|
%
|
$
|
%
|
$
|
|
|
|
|
|
|
Totals
|
|
100 %
|
$
|
100 %
|
$
|
|
|
|
|
|
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The foregoing discussion
and tables assume no exercise of any stock options or warrants and no issuance of shares reserved for future issuance under our
equity plans. As of March 31, 2018, there were stock options outstanding to purchase ____ shares of our common stock at a weighted
average exercise price of $____ per share and warrants outstanding to purchase ____ shares of our common stock at a weighted average
exercise price of $____ per share. To the extent that any of these options or warrants are exercised, your investment will be further
diluted. In addition, we may grant more options or warrants in the future, which will cause further dilution to your investment.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read
the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial
statements and related notes appearing at the end of this prospectus. This discussion contains forward-looking statements reflecting
our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from
those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled
“Risk Factors” beginning on page 6 and elsewhere in this prospectus.
Overview
Envision invents,
designs, engineers, manufactures and sells solar powered products and proprietary technology solutions serving three markets that
are experiencing annual global spending in the billions of dollars and that are experiencing significant growth:
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electric vehicle charging infrastructure;
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out of home advertising platforms; and
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energy security and disaster preparedness.
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Via these three
verticals, the Company focuses on creating renewably energized, high-quality products for electric vehicle (“EV”) charging,
media and branding, and energy storage and security that are rapidly deployable and attractively designed.
We currently produce
two categories of products: the patented EV ARC™ (Electric Vehicle Autonomous Renewable Charger) and the patented Solar Tree®.
We have recently submitted a third product category, the EV-Standard™ product, for patent approval. It is patent pending
and in late stage product development and engineering. All three 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 charging stations can produce, deliver, and store power without the time and expense of having to be
connected to the utility grid. The EV-Standard™ is also fixed but uses an existing streetlamp’s foundation and grid
connection. See “Products and Technologies” in the business section for more details on these products and technologies.
We believe that
there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that EV ARC™ fulfills
that requirement. We are agnostic as to the EV charging service equipment (“EVSE”) and integrate best of breed solutions
based upon our customer’s requirements. For example, our EV ARC™ products have been deployed with Chargepoint, Blink,
Juice Box, Bosch and other high quality EV charging solutions. We can make recommendations to customers or we can comply with their
specifications and/or existing charger networks. EV ARC™ replaces the infrastructure required to support EV chargers, not
the chargers themselves. We do not sell EV charging, rather we sell products which enable it.
We believe our chief
differentiators are:
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our ability to invent, design, engineer, and manufacture solar powered
products which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure
and outdoor media platforms when compared to traditional, utility grid tied alternatives;
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our products’ capability to operate during grid outages and
to provide a source of emergency power rather than becoming inoperable during times of emergency or other grid interruptions; and
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our ability to create new and patentable inventions which are marketable
and a complex integration of our own proprietary technology and parts, with other commonly available engineered components, creating
a further barrier to entry for our competition.
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Historically, we
have earned revenue primarily from the sale of EV ARCs™ to large private companies, such as Google, Genentech, and Johnson
& Johnson, and government agencies such as the City of New York and the State of California. We have yet to launch our outdoor
media advertising service other than signing our agreement with Outfront Media in November 2017, and developing our revenue model
in discussions with it. Revenue from this business is expected from potential sponsors and from advertisers willing to pay fees
to us or to our media partners to display their brands, messages and advertisements on outdoor digital or static screens mounted
on our EV charging stations. Our energy security business is connected with the deployment of our EV chargers, and serves as an
additional benefit to the value proposition of our charging products. Our onboard state-of-the-art storage batteries installed
on our EV chargers provide another reason for certain customers such as hospitals, fire departments, large private enterprises
with substantial facilities, and vehicle fleet operators, to buy our EV chargers.
We currently do not plan to charge separately
for the energy storage capability, which is generally standard on all of our EV chargers. For an additional fee, we offer extra
storage batteries on particular charging stations.
Our current list
of products includes:
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1.
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EV ARC™ Electric Vehicle Autonomous Renewable Charger (patented).
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2.
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Transformer EV ARC™ Stowable Electric Vehicle Autonomous Renewable
Charger (patented).
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3.
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EV ARC™ HP DC Fast Charging Electric Vehicle Autonomous Renewable
Charger.
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4.
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EV ARC™ Media Electric Vehicle Autonomous Renewable Charger
with advertising screen and or branding/messaging.
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5.
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EV ARC™ Autonomous Renewable Motorcycle Charger.
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EV ARC™ Autonomous Renewable Bicycle Charger.
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ARC Mobility™ Transportation System.
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8.
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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 (patented).
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The EV Standard™
is currently in the development and patenting phase of its product evolution.
All Envision products
can be upgraded with the addition of the following:
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EnvisionTrak™ sun tracking technology (patented),
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Data capture and management (IoT),
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SunCharge™ solar powered EV charging,
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ARC™ technology energy storage,
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5.
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E-Power emergency power panels,
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7.
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Media and branding screens, and
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8.
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Security cameras, WiFi, sound, and emergency call boxes.
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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
.
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.
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.
Impairment of
Long-lived Assets.
The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35-15 “Impairment
or Disposal of Long-Lived Assets.” This guidance requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell.
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.
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.”
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.
The Company includes
shipping and handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues. 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 March
31, 2018, the Company has no product warranty accrual given the Company’s de minimis historical financial warranty experience.
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.
Results of Operations
Results of Operations for the Three
Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017
Revenue.
For
the three months ended March 31, 2018, our revenues were $2,875,972 compared to $370,689 for the same period in 2017, a 676% increase.
This substantial one-quarter rate of increase in revenue is not expected to be sustained in the short run, as we delivered on a
relatively large order from a single customer in a short time span. For the three months ended March 31, 2018, revenues were primarily
derived from the delivery of forty-two EV ARC™ units during the period including thirty units delivered to the City of New
York related to our city-wide contract, and additionally, five units delivered to the City of Pittsburg and three units delivered
to the City of Oakland. On December 31, 2017, the Company had 26 EV ARC™ units staged in New York City awaiting final delivery,
which, along with four additional units in a later stage of work in process on December 31, 2017, resulted in $1,977,300 of revenue
in January 2018. As of March 31, 2018, our contracted backlog was approximately $1.3 million with additional orders of approximately
$1.6 million that were booked between April 1, 2018 and May 4, 2018. For the three months ended March 31, 2017, revenues were primarily
derived from the delivery of five EV ARC™ units coupled with the delivery of an ARC Mobility trailer purchased by a customer.
Gross Loss.
For the three months ended March 31, 2018, we had a gross profit of $34,300 compared to a gross loss of $3,854 for the period ended
March 31, 2017, a 790% increase. Gross losses were recognized in 2018 related to the 2018 deliveries of the New York EV ARCs, but
every other unit delivered in the first quarter ended March 31, 2018 had associated gross profits. All of our product sales have
associated revenues that are greater than the direct labor and material costs associated with such builds. Management believes
that the Company’s expected growth in production will continue during the year, thus reducing the actual per unit allocations
of indirect annual manufacturing costs such as rents, indirect labor, and general overhead. In the first quarter of 2017, the majority
of the EV ARC ™ units also had direct cost positive margin associated with the sales, but with the expected and actual 2017
production volumes, the direct margins were offset by the other indirect allocated costs resulting in gross losses. Additionally,
in the first quarter of 2017, we recorded a loss on a specific individual unit that required additional expense to ensure the unit
met our current quality standards. We also provided a customer incentive since 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. Warranty costs remain
de minimis, totaling approximately $1,000 for the three months ended March 31, 2018 as compared to $3,000 for the three months
ended March 31, 2017. Such warranty costs were primarily travel related expenses to travel to deployed units.
Operating Expenses.
Total operating expenses were $609,169, for the three months ended March 31, 2018 compared to $668,989 for the same period
in 2017, a 8.9% decrease. Administrative labor costs decreased in 2018 by approximately $60,000 primarily due to a non-recurring
bonus received by our chief executive officer in first quarter of 2017 that did not occur in 2018, coupled with the departure of
an employee who was not replaced. Stock
option expense decreased by approximately
$35,000 due to the high number of stock options issued in first quarter of 2017. Administrative rent decreased by approximately
$25,000 in the first quarter of 2018 due to an increase in the first quarter of 2017 that related to prior months’ utility
costs owed to our landlord. Increases in director fees of $112,500 in first quarter of 2018 were offset by the decrease of $50,000
in investor relations consulting fees, as a service provider contract was not renewed for 2018. Marketing costs increased by approximately
$27,000 in first quarter of 2018 as the Company attended more trade shows and other marketing events and spent more on various
marketing campaigns associated with increased outreach. All other costs remained generally consistent between the periods.
Interest Expense.
Interest expense was $437,546 for the three months ended March 31, 2018 compared to $53,981 for the same period in 2017, a
710% increase. This increase in 2018 primarily related to $379,000 of amortized value of debt discount associated with common stock
purchase warrants issued to our purchase order financing lender at the commencement of the financings under the current purchase
order debt facility entered into in September 2017.
Change in Fair
Value of Embedded Conversion Option Liability.
There was no change in fair value of the embedded conversion option liability
in the three months ended March 31, 2018 as the debt associated with this liability was converted into equity in 2017 and thus
had previously been eliminated.
Net Loss.
We
had a net loss of $1,011,607 for the three months ended March 31, 2018 compared to net loss of $619,573 for the same period in
2017, a 63.3% increase. Significant elements deriving these losses have been discussed above.
Results of Operations for the
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Revenue.
For
the year ended December 31, 2017, our revenues were $1,412,042 compared to $2,781,273 for the same period in 2016, a 49.2% decrease.
Revenues for the period ended December 31, 2017 were derived primarily from the production and delivery of twenty EVARC™
units, seven of which were ordered via our State of California contract and four of which were ordered via our New York City contract.
Revenues in the period ended December 31, 2016 were derived from the production and delivery of thirty-one EV ARC™ units
and thirteen SolarTree® units. Twenty-five of these EVARC™ units were ordered through our contract with the State of
California. Additionally, in 2016, we successfully delivered our first unit to an overseas customer. Revenue declined because,
although we delivered 27 EV ARC™ units to New York City in December 2017, we were not able to recognize revenues on those
units before they were deployed in their final locations, which occurred in January 2018. We also had significant Solar Tree ®
sales in 2016 that were not repeated in 2017.
Gross Loss.
For
the year ended December 31, 2017, we had a gross loss of $472,751 compared to a gross loss of $144,721 for the same period in 2016,
a 227% increase. The increase in the gross loss in the year ended December 31, 2017 over the year ended December 31, 2016 is directly
related to the increase in EV ARC™ production for the City of New York, including a loss estimate related to the units delivered
to New York in January 2018. In these earlier stages of the production evolution for the EV ARC™ with lower overall production
volumes, we determined that the appropriate selling price point, based on the market, was lower than the actual total direct and
indirect costs of production. 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
general overhead costs are spread across the low volume of units we have produced to date, we have recognized gross losses on sales
rather than gross profits. We experienced an increase in facility costs starting in the year ended December 31, 2016 resulting
from our move into a larger manufacturing facility, but we believe this facility is ideally suited to handle and provide operational
benefits as we look to increase production volumes in the coming periods.
Operating Expenses.
Total operating expenses were $2,227,645 for the year ended December 31, 2017 and $2,643,672 for the same period in 2016, a
15.7% decrease. Much of this decrease directly relates to the reduction of non-cash stock-based compensation which decreased
to $430,084 for the year ended December 31, 2017 compared to $842,089 for the year ended December 31, 2016. Of this $412,005 reduction
in stock-based compensation in 2017, among other things, approximately $220,000 related to a reduction of stock option expense
that was higher in 2016 as a result of stock options issued in 2016 to our chief executive officer, a reduction of $150,000 of
stock value
for 2016 investor relations services
for which such expense was not incurred in 2017, and a 2017 reduction of approximately $60,000 related to director compensation.
While other operating expenses remained relatively flat between 2016 and 2017, a few noted changes include: an increase of $50,000
in sales personnel costs due to an increased staffing level in 2017 offset by a $75,000 reduction in commissions for 2017 consistent
with our lowered sales revenues (sales people are paid when the Company is paid); an increase of approximately $50,000 in administrative
rent expense after moving into our new larger facility in August 2016; a reduction of approximately $80,000 in legal expenses;
and an increase of approximately $25,000 in various marketing costs.
Provision for
Taxes.
Our tax expense for the years ended December 31, 2017 and December 31, 2016 remained consistent and related to charges
for the California Franchise Tax Board based on the minimum tax due to the state for each year. We did not incur any federal tax
liability for the years ended December 31, 2017 or December 31, 2016 because we incurred operating losses in these periods.
Interest Expense.
Interest expense was $474,601 for the year ended December 31, 2017 compared to $275,776 for the same period in 2016, a 72%
increase. Coupon type interest on outstanding debt including the purchase order financing loan and term refinancing loan incurred
in September 2017, amounted to approximately $142,000 in 2017 compared to $139,000 in 2016, a 2.1% increase. Additional interest
expense of approximately $330,000 in 2017 and approximately $137,000 in 2016, a 140.9% increase, was the result of the amortization
of debt issue and loan guaranty costs.
Gain (loss) on
Debt Settlement.
For the year ended December 31, 2017, we had a gain on debt settlement of $25,524 compared to a gain on debt
settlement of $450,927 for the same period in 2016, a 94% decrease. The majority of the gain on debt settlement in 2017 resulted
from the favorable discharge of a note payable settled in the period. In 2016, the gain on debt settlement was related primarily
to the reversing of various accounts payable and certain payroll related liabilities which were incurred prior to the Company’s
reverse merger in 2010 and where the statutes of limitations have expired.
Change in Fair
Value of Embedded Conversion Option Liability.
The income associated with gain related to the embedded conversion option liability
of $107,081 for the year ended December 31, 2017 recorded as gain on debt extinguishment, compared to an expense for the change
in fair value of the embedded conversion option liability of $19,089 for the period ended December 31, 2016, a 663% increase. The
amounts represent the change in fair value of the embedded conversion option attached to the original Gemini Master Fund notes
and are in large part due to the fluctuation of our stock price in relation to the conversion strike price of the debt. This note
was settled during 2017 resulting in the gain on debt extinguishment according to our accounting policy and there is no such liability
at December 31, 2017.
Net Loss.
We
generated net losses of $3,041,430 for the year ended December 31, 2017, compared to a net loss of $2,633,516 for the same period
in 2016, a 15.5% increase. The major components of these losses, and the changes of such between years, are discussed in the above
paragraphs.
Liquidity and Capital Resources
Three Months Ended
March 31, 2018
At March 31, 2018,
we had cash of $254,225. 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 $466,138 for the three months ended March 31, 2018, compared to cash provided by operations
of $18,457 for the same period in 2017, a 2,425% increase. The principal elements of cash flow for the three months ended March
31, 2018 include the net loss of the Company offset by depreciation and amortization of $18,071 and $140,625 of common stock share
value issued for director services. Further, cash from operations for the period included of a net increase in accounts receivable
of $867,823 directly related to the increase in revenue in the period; a use of cash of $176,887 related to the increase in prepaid
expenses primarily for the funding of annual business insurance policies; a generation of cash of $1,816,855 related to the sale
of inventory associated with increased revenue; 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 $106,109 related to the increase in accounts payable mainly
due to the timing of purchases and a generation of cash amounting to $34,823 related to the increase in sales tax payable associated
with certain sales made at the end of the period for which such sales tax had not been due to be submitted to the state.
Cash used in investing
activities was $27,222 and $4,181 for the three months ended March 31, 2018 and 2017, respectively, a 551% increase. In 2018, all
of the monies were used to fund patent related costs.
Cash used in our
financing activities was $588,166 for the three months ended March 31, 2018 compared to cash received of $22,234 for the same period
in 2017, a 2,744% increase. 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 March 31,
2018, current liabilities exceeded current assets by $1,123,045. In 2018, current assets decreased by approximately $916,000 resulting
primarily from the increase in accounts receivable associated with the increased amount of revenues in the period offset by a decrease
of $1,781,075 in inventory related to this same revenue increase in the period. In 2018, current liabilities decreased by approximately
$580,000 primarily as a result of the paydown of the convertible line of credit.
Year Ended December
31, 2017
At December 31,
2017, we had cash of $403,475. We have historically met our cash needs through proceeds from private placements of our securities,
draws on open lines of credit, and from other loans. Our cash requirements are generally for operating activities.
Our operating activities
used cash of $3,437,312 for the year ended December 31, 2017, and we used cash in operations of $1,798,726 for the same period
in 2016, a 91.1% increase. The use of cash in 2017 was primarily driven by the $3,041,430 net loss we experienced in the period
offset by various net changes in balance sheet items and other non-cash items recorded in such loss. In 2017, we had non-cash charges
consisting of $141,750 for services paid for using the Company’s common stock including $112,500 for director services, and
$27,000 for strategic consulting services paid to a related party. Additionally, the Company recorded non-cash expenses of $69,381
in depreciation and amortization expense; $220,084 in stock option expense primarily related to stock options issued in 2016 to
our chief executive officer; $68,250 of value of common stock issued for a loan guaranty; and $271,098 of amortization of previously
paid debt issue costs, much of which relate to the value of warrants and beneficial conversion features given to our lender. Notable
balance sheet account changes effecting cash used in operations include an increase in cash related to accounts receivable of $1,155,118
due to product deliveries that took place in late 2016 that were collected in 2017, a decrease in cash of $2,004,526 related to
increased inventory primarily associated with EV ARC™ units manufactured in 2017 but delivered in January 2018; a cash use
of $386,322 related to accounts payable due to the timing of payments to vendors; an increase of $146,185 related to the reduction
of accrued expenses for items settled using common stock; and an increase of $85,000 in the deferred compensation of our chief
executive officer.
Cash used in investing
activities during the year ended December 31, 2017 was $26,365, compared to $153,197 during the same period in 2016, a 82.7% decrease.
The majority of this cash for 2017 was used to purchase certain equipment to assist in the physical movement of our product through
production and to final delivery. In 2016, the Company used approximately $57,000 to build an EVARC™ unit for demonstration
purposes, approximately $34,000 for manufacturing and operations equipment, approximately $18,000 for computer equipment, and approximately
$7,000 in leasehold improvements. Additionally, in 2017 and 2016 respectively, the Company incurred $2,470 and $37,311 to fund
patent costs, a 93.3% decrease.
Cash received in
our financing activities was $3,858,584 for the year ended December 31, 2017, compared to cash received of $1,928,040 during the
same period in 2016, a 100% increase. A significant portion of the cash flow is attributable to the sale of common stock in private
placements in each of the applicable years, less offering costs for such period. Additionally, in 2017 and 2016, respectively,
the Company borrowed a net of $1,650,000 and $200,000 on various debt instruments. Further, in 2017 and 2016, the Company made
principal payments of $60,533 and $20,760 respectively, on certain debt instruments.
Current assets increased
to $2,784,595 at December 31, 2017 from $1,535,601 at December 31, 2016, a 81.3% increase (primarily related to an increase in
cash of $394,907, an increase in inventory amounting to $2,047,698, offset by an decrease in accounts receivable of $1,155,118)
while current liabilities increased to $3,571,216 at December 31, 2017 from $3,413,016 at December 31, 2016, a 4.6% increase (notably
related to the decrease of accounts payable of $386,322 and a net increase in debt instruments of approximately $680,000). As a
result, our working capital deficit decreased to $786,621 at December 31, 2017 from $1,877,415 at December 31, 2016, a 58.1% decrease.
As of December 31,
2017, the Company had a net $2,555,042 in short term borrowings, net of amortized discount of $402,436. All of our borrowings incur
interest rates between 5.96% and 10% per annum. Payments on the Company’s borrowings will restrict cash used for operations
during 2018. Two of the short term borrowing arrangements, from the same lender, are secured by substantially all the assets of
the Company.
While the Company
has been attempting to grow market awareness and focusing on the generation of sales to place our product 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.
Going Concern Qualification
As reflected in
the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2018, the Company had
a net loss of $1,011,607. Additionally, at March 31, 2018, the Company had a working capital deficit of $1,123,045, an accumulated
deficit of $39,288,486 and a stockholders’ deficit of $725,482. 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 filing
date of the Form 10-Q for the first quarter ended March 31, 2018.
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 product sales that should provide additional
revenues and, in the future, gross profits. Additionally, Envision intends to renegotiate the debt instruments that are
currently due or 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 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.
BUSINESS
General
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 that are experiencing annual global spending
in the billions of dollars and that are experiencing significant growth:
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electric vehicle charging infrastructure;
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out of home advertising platforms; and
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energy security and disaster preparedness.
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Via these three
verticals, 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.
We currently produce
two categories of products: the patented EV ARC™ (Electric Vehicle Autonomous Renewable Charger) and the patented Solar Tree®.
We have recently submitted a third product category, the EV-Standard™ product, for patent approval. It is patent pending
and in late stage product development and engineering. All three 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.
See the ‘Products and Technologies’ component of this business section for more details on these products and technologies.
We believe that
there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that EV ARC™ fulfills
that requirement. We are agnostic as to the EV charging service equipment (“EVSE”) and integrate best of breed solutions
based upon our customer’s requirements. For example, our EV ARC™ products have been deployed with Chargepoint, Blink,
Juice Box, Bosch and other high quality EV
charging solutions. We can make recommendations
to customers or we can comply with their specifications and/or existing charger networks. EV ARC™ replaces the infrastructure
required to support EV chargers, not the chargers themselves. We do not sell EV charging, rather we sell products which enable
it.
We believe our chief
differentiators are:
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our ability to invent, design, engineer, and manufacture solar powered
products which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure
and outdoor media platforms when compared to traditional, utility grid tied alternatives;
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our products’ capability to operate during grid outages and
to provide a source of emergency power rather than becoming inoperable during times of emergency or other grid interruptions; and
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our ability to create new and patentable inventions which are marketable
and a complex integration of our own proprietary technology and parts, and other commonly available engineered components, creating
a further barrier to entry for our competition.
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The resulting products
are built to have what we believe is 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 can significantly reduce final out-of-pocket costs
from our selling price for eligible customers. Currently, our revenue is mainly derived from the sale of our standard EV ARC™
to government agencies and private enterprise.
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 a third product category, the EV-Standard™ product, for patent approval. It is patent pending
and in late stage product development and engineering. All three 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. 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:
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EV ARC™ Electric Vehicle Autonomous Renewable Charger.
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EV ARC™ HP DC Fast Charging Electric Vehicle Autonomous Renewable
Charger.
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EV ARC™ Media Electric Vehicle Autonomous Renewable Charger
with advertising screen and or branding/messaging.
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EV ARC™ Autonomous Renewable Motorcycle Charger.
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EV ARC™ Autonomous Renewable Bicycle Charger.
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ARC Mobility™ Transportation System.
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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.
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All Envision products
can be upgraded with the addition of the following:
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EnvisionTrak™ sun tracking technology (patented),
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Data capture and management (IoT),
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SunCharge™ solar powered EV charging,
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ARC™ technology energy storage,
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E-Power emergency power panels,
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Media and branding screens, and
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Security cameras, WiFi, sound, and emergency call boxes.
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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™ Products.
According to Bloomberg,
financial services firm Morgan Stanley has estimated that the world will need to spend $2.7 trillion on charging infrastructure
if it is to support 500 million electric vehicles.
MIT Technology
Review reports that there are already
more than a billion vehicles on the world’s roads right now. It is likely that the number will increase in the coming decades
and we believe that many of those vehicles will be electric. We believe the Envision EV ARC™ is the world’s first and
only transportable, solar powered EV charger that can resolve many of the global charging problems that currently face the market
EV ARC™ produces
and stores all its own energy, it does not need a grid connection and therefore needs no trenching, switch gear, or transformer
upgrades. Management believes the lack of a foundation, trench or electrical infrastructure means that in most jurisdictions the
EV ARC™ will not need a building permit, and we have found that to be the case in every jurisdiction in which the product
has been deployed to date. It is immune to grid interruptions such as black outs or brown outs. As such, it will allow for vehicle
charging even in times of grid failure. It can be moved at any time because it is not connected to the ground or grid, and we believe,
creates an attractive and highly visible branding asset for the host. There are no utility bills to pay and, as the number of EVs
increase on the host campuses, more EV ARC™ units can be added with a continued lack of disruption. We have observed that
locations that currently offer grid tied EV chargers have placed those chargers in locations where a suitable circuit was most
easily accessed – the “low hanging fruit.” As the number of EVs increase in such locations the existing chargers
are no longer sufficient to fulfill the needs, leading to what is called in industry jargon “charge rage”, an event
when two or more EV drivers wish to use the same charger at the same time. We believe that this will lead those locations to require
more EV chargers and that, having used up the low hanging fruit, they will be required to extend circuits to locations in their
parking lots which will require invasive, time consuming and expensive infrastructure, permitting, construction and electrical
work.
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 complicated and invasive requirements of the installation.
Typical competing EV charger installations require a pedestal which is typically 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).
When a fixed EV
charger is deployed successfully, the host may be liable for increased kilowatt hour charges, and at times, more expensive demand
charges. Landlords, corporations, venues, and other hosts often do not perceive enough value creation in the deployment of a fixed
EV charger to justify the disruption caused by the associated trenching, foundations and electrical civil works. Consequently,
they may not be inclined to grant permission to the service providers who approach them, or to install EV chargers at their own
expense for their employees and guests, because the costs and disruption incurred with grid tied chargers can be prohibitive.
Many governments
and corporations have aggressive goals to install EV charging infrastructure. For example, Governor Brown of California has issued
an executive order requiring the installation of 250,000 EV chargers by 2025. This equates to an average of more than 40,000 charger
installations per year. To date, the EV charging industry has installed a total of about 16,000 grid-tied EV chargers. Nations
such as the United Kingdom, France, Norway and Germany have announced total bans on all internal combustion engine vehicles (“ICEs”)
during the next two decades. Others, like China and the State of California, are considering similar bans. China’s President,
Xi Jingping has recently called for the installation of 4.8 million EV chargers on public roads by 2020 with a further
requirement that EV charging infrastructure
should be installed in rural and poor areas where there is limited electrical grid connectivity. Electric Vehicles will be the
major replacement technology for ICEs and, as a result, the global demand for EV charging infrastructure is growing rapidly and
is forecast to accelerate. Bloomberg recently reported that the global market for EV charging infrastructure is estimated to exceed
U.S.$4 trillion. Vehicle manufacturers are rapidly transitioning to EV production. Volvo recently announced that by 2019, its entire
portfolio will be hybrid electric (“HEV”) or fully plug-in electric (“PEV”). Ford has committed to spending
$11 billion to electrify its portfolio, and VW, BMW, and Mercedes have committed to all electric portfolios. Most, if not all,
automobile manufacturers currently sell, or plan to sell EVs.
We believe that
there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that EV ARC™ fulfills
that requirement. We are agnostic as to the EV charging service equipment (“EVSE”) and integrate best of breed solutions
based upon our customer’s requirements. For example, our EV ARC™ products have been deployed with Chargepoint, Blink,
Juice Box, Bosch and other high quality EV charging solutions. We can make recommendations to customers or we can comply with their
specifications and/or existing charger networks. EV ARC™ replaces the infrastructure required to support EV chargers, not
the chargers themselves. We do not sell EV charging, rather we sell products which enable it
SolarTree® 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 April 2017, we received a purchase 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 believe Envision’s
larger Solar Tree® structures also make effective [EVSE] infrastructure solutions. Considering the list of impediments to EV
infrastructure deployments, we believe that the Solar Tree® structure
with column integrated CleanCharge™
EV chargers offers significant advantages over a typical grid tied EV charger. We believe that they offer the most attractive and
practical mounting assets for fixed EV charging stations. The single column design is ideal for centrally locating multiple chargers
and making them available to the maximum number of spaces. Entitlement might go more smoothly because the Solar Tree® structures
contribute more benefits to the local environment than simple EV chargers. Those additional benefits include shade, reduction in
heat islanding, reduction in light pollution, architectural appeal, reduction in grid stress, and disaster preparedness when equipped
with ARC™ storage technology. We believe that commercial real estate owners and corporate campuses will recognize the multiple
layers of increased value delivered by Solar Tree® structures and CleanCharge™ deployed with little disruption to their
facilities.
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.
Current Market Participants That We Target
Envision’s
markets consist of five broad segments: State, Municipal, Federal, Enterprise and International. These segments can further be
broken down into increasingly granular segments as different market opportunities are identified they are; University, Airport,
Resiliency, Ports and Department of Corrections. Envisions largest market is currently Municipal.
Envision’s
biggest customer is the City of New York followed by the State of California which is a conglomeration of California state agencies
and municipalities. Currently the most appealing markets for Envision are New York, California and Colorado. The following factors
that drive our determination for an appealing primary market are driven by the following important factors:
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Political Issues
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Political statements, mandates and
laws supporting and driving policy to reduce carbon emissions through the electrification of transportation. State and local governments
focusing on the transportation industry and the transition of fleet vehicles to reduce carbon emissions.
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Economic Factors
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The use of grants and incentives
to advance the adoption of EVs and EV charging infrastructure. Regions with difficult, time consuming permitting and regulatory
requirements and high construction costs.
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Sociocultural Factors
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High concentration of EV drivers
and a cultural desire to be good stewards of the environment.
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Technological Factors
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Regions with good insolation,
expensive energy costs, and poor or degraded air quality.
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Growth Strategy
We operate in three
rapidly growing and underserved markets: EV charging infrastructure, outdoor media and energy security. We have had success in
selling our products in 12 U.S. states and four international countries. We believe that the products we produce have a global
appeal and that we are only at a nascent period in the development of our sector. We believe we have a strategic growth plan in
place that will enable us to increase our user base and revenues while leading to increased profitability in the following manners:
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Increased
sales and marketing to educate our universe of potential customers
. We have historically not invested in significant marketing
activities and have only recently added a sales team. To date most of our sales have been made through word of mouth or management
relationships. As a result of not having a large historical sales and marketing budget, only a small percentage of the potential
prospective customers for our products are aware that we exist and the value that our products deliver. We have observed that we
have a high conversion rate from prospects to customers when we are able to demonstrate the value of our products to those prospects.
We believe that with increased investment in marketing and sales we will be able to reach a much larger audience of prospects who
could benefit from our products, and that we should be able to maintain our high conversion rates from prospects to customers.
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Continue
to expand our geographic footprint and customer base
. We have sold product in 12 U.S. states and four international countries
to date. We believe that investment in growing our geographical footprint both domestically through increased selling and marketing
and also internationally with a focus on Europe and Asia will deliver significant growth opportunities. Our sales have been heavily
focused on the U.S. coastal regions, specifically California and the North East. We observe that those regions often lead where
technology transitions are concerned, and we expect the rest of the U.S. to follow the coastal leads as is historically the norm.
We believe that this will result in further geographic growth for our products domestically as well as with our international expansion.
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Enhance
our gross margins by focusing on operating efficiencies and reduced cost of materials and production
. We believe that we
will continue to reduce our costs as we increase our capacity and production. We have observed and demonstrated that as our volumes
increase we are able to reduce our costs of goods sold without increasing our overheads. Excluding fixed overheads, we currently
generate about 30% gross profit margin on the sale of an EV ARC™. Additionally many of the major components which we integrate
into our products are also becoming less expensive as their markets mature. We believe that with investments in improved efficiency,
automation of certain of our manufacturing processes and increased volumes we can increase our gross profit margin to 50%, including
fixed overheads.
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Increased
leverage of outsourcing as our manufacturing process scales
. We have invested in facilities to enable us to produce our
products in-house. This strategy has enabled us to efficiently grow through our product development process while controlling and
reducing costs. However, as our product development process matures and as we become experts on our manufacturing process, we believe
that there will be certain
components of our manufacturing
process that will be outsourced to manufacturing vendors. We believe that we will be able to cherry pick certain of our components
for outsourced manufacturing, simultaneously reducing our costs and increasing our capacity. While we intend to continue in-house
manufacturing for all new products, we anticipate a future when the manufacturing of our mature products is carried out by far
larger and more efficient manufacturers at greater speed and lower cost.
•
Expansion
of our recurring revenue business
. As our business matures we will begin to expand the recurring revenue component of our
business model through service and maintenance contracts. Historically, we did not focus on service and maintenance contracts but
rather focused on unit number growth. Many of our customers have indicated to us that they would be interested in acquiring service
and maintenance contracts as well as extended warranties from us. We believe that as we grow our customer base we will have increasing
opportunities to add recurring revenue through these services.
•
Capture
market share of the electrified personal and public transportation space, which is at a nascent phase
. To date we have
concentrated on fueling the revolution in sedan electrification, however, we believe that other modes of electrified transportation
are growing rapidly. The expansion in the use of electric bicycles, scooters and motor scooters is evident in many large cities
across the U.S., Asia and Europe. As more people rely on last mile solutions such as e-bikes and e-scooters, the requirements for
charging infrastructure will proliferate. We are working with an electric bike and scooter manufacturer to bundle two wheeled electric
modes of transport with our EV ARC™ product. We believe that sales of bundled solutions combining our products with others
transportation solutions represents another significant growth opportunity. The growth in the use of electric buses is happening
at a more rapid pace than that of EV sedans. We have already sold our Solar Tree® DC fast charging solution to the Fresno County
Rural Transit Authority for use in the charging of their public buses. This will be our first such deployment but we believe that
it will lead to significant opportunities in this rapidly growing space.
•
The
network effect (IoT) will drive significant value from the data we collect
. The units we produce communicate to our central
facility which creates a network effect. Units will be able to communicate with each other in the future. Each of our products
sends data back to our central facility across a wireless network. The more units we have deployed the more data we will be able
collect and the more we can learn about charging habits, EVs, traffic patterns and many other useful data sets. We believe that
there will be significant value in this data in the future. As a result, we believe that our outdoor media business segment will
become more valuable as more units are deployed and communicating data about their individual usage. Our ability to communicate
remotely with our media assets means that we will increasingly be able to change content on the units, perhaps in response to the
individual users. As parcel delivery increasingly electrifies and the usage of drones and package drop-off locations multiply,
we believe that our portfolio of deployed assets will become increasingly valuable as a source of electricity for fueling and energizing
network assets as well as physical assets, which will allow for branded “locker” facilities.
•
Continued
expansion of our Outdoor Media Business unit
. We believe that a significant opportunity for increased high margin, recurring
revenue exists in this business unit as a result of new contract wins. In November 2017 we signed an agreement with Outfront Media
(NYSE:OUT) to sell naming rights and sponsorship arrangements for networks of our products deployed across cities. We believe that
we are progressing towards success with this initiative. We intend to retain title to future products deployed under this business
model and believe that we will be able to capture significant and increasing levels of recurring revenue while maintaining ownership
of the underlying assets. Although we have delivered a small number of our products with outdoor media platforms integrated to
date, we believe there is significant room to expand this aspect of our business in a meaningful way.
•
Develop
and innovate new products while building a strong IP portfolio
. The majority of our revenues come from sales of our EV
ARC™ and our Solar Tree® product family. The underlying technology is the same for both product sets and we have leveraged
the same proprietary underlying technology to invent two new products which are currently patent pending: (i) EV Standard™,
which is a renewable energy street lamp replacement and (ii) DCN™ – Drone Charging Network, a renewable energy drone
recharging product. This will allow us to broaden our market appeal while not significantly increasing the requirements of our
manufacturing lines. We believe this strategy will enable us to grow revenues more profitably through increased
operating leverage. We intend
to continue to research other areas in which we believe that our ability to deliver rapidly deployed, highly reliable and cost
effective sources of renewable energy in a productized format are embraced by prospective customers, so that we can continue to
invent and develop new products which we believe will bring value to our target audiences. We believe that with sufficient investment
we will be able to bring new products to market and create significant and rapidly growing opportunities to generate more revenue.
Key Initiatives
Our growth strategy
will target a number of key initiatives as we scale our business. Currently we are focused as follows:
Targeting
State and Local Governments Who Are Implementing Renewable Energy Initiatives.
We have been successful
in wining contracts from a number of state and local governments. We will continue to target these entities as a result of changing
environmental policies that are positively impacting the products that we produce.
During 2016 and
2017 the State of California’s Department of General Services and New York City’s Department of City Administration
Services, respectively, both conducted global searches for products which could compete with the EV ARC™. In both instances
they released publicly available ‘Requests for Proposals’ for competing products and in both cases, though the contracts
were competitively offered, only Envision demonstrated that it has a product which met their specifications. In both cases we were
the only qualified respondents to the contracting process and in both cases we were awarded multi-year, multi-million dollar contracts.
Envision’s
EV ARC™ product was selected for a State of California contract for transportable, solar powered EV chargers. As far as we
are aware, there were no other respondents to the State’s RFP (i.e., request for proposal) with products which qualified,
further supporting our belief that EV ARC™ is a product which is unique in the market. Similarly, when we responded to the
New York City RFP, we believe we were the only respondent with a qualifying product. Staff members from the State of California
have commented to us that they believe that they are behind goals where the deployment of EV charging infrastructure is concerned.
In July 2015, we were awarded a contract to supply EV ARC™ to California state agencies (to the extent ordered by them) by
the Department of General Services of the State of California, for a term of one year with two one-year renewal options. This contract
was renewed by the State of California in 2016 and we have consistently and regularly delivered EV ARC™ products to state
agencies during these periods.
We believe that
the major impediments to the deployment of EV chargers are the requirements for civil works such as trenching and foundations,
as well as limited access to sufficient electrical circuits to support EV charging in the locations where it is needed. However,
Envision’s products do not require access to utility grid circuits, and as such are perfect for remote locations such as
rest areas and park & rides. Our EV ARC™ products can be deployed in minutes and our Solar Tree® and EV ARC™
DCFC products can provide over 1,000 e miles per day through DC fast chargers which will deliver a full charge to a Nissan Leaf
(for example) in 20 minutes or so. We believe that this makes our products ideal for many of the State of California’s goals
for the electrification of transportation, and as such, we are aggressively targeting the state with face to face meetings and
educational materials. We believe that if we continue to be successful with the State of California and Caltrans, these relationships
will help us to expand sales to other states, the federal government, and the Department of Defense as a result of us having gone
through the extensive due diligence with these entities. We believe that the purchase orders we have received from multiple municipalities
and also from Department of Energy National Laboratories are validating our business plan and the need for our products in the
market.
New York City made
its first purchase of EV ARC™ products during the second quarter of 2015. New York’s Mayor Deblasio recently announced
what the city believes are the most aggressive EV adoption targets of any major city in the world. Its goals call for over 2,000
EVs to enter the city’s fleets during the next few years with an investment of $50 to $80 million over the next 10 years
to support additional charging infrastructure.
In September 2016,
New York City’s Department of City Administration Services (the City’s contracting department) released an Invitation
to Bid (“ITB”) for EV charging infrastructure. The ITB specified Envision Solar’s EV ARC™ product. After
submitting our response, we attended the bid opening where Envision was the only respondent. We were awarded a contract by DCAS
in April 2017. The contract is similar to the one we have with the State of California in that it enables any NYC department to
buy EV ARC™ products without having to go through any further due diligence or competitive bidding process. DCAS itself is
a customer and has ordered product from us. So far, we have delivered 38 EV ARC™ units to New York City for a total value
of $2.5 million. EV ARC™ is being used by NYPD, Department of Design and Construction, NY Dept. of Education and other entities.
We believe that the City’s requirements for rapidly deployed and highly scalable EV charging infrastructure will only increase
in the coming years.
There are over 19,000
municipalities in the U.S.. We have sold EV ARC™ products to approximately 23 of them at time of writing. We believe that
the municipal market for our products is robust and offers significant opportunities.
Creative Financing
Mechanisms to Solve Our Customers’ Needs.
We have observed
that our EV ARC™ product is often less expensive for our customers than the costs associated with grid-connected chargers,
we have also observed that many of our customers do not always have sufficient capital resources to allow them to purchase as much
EV charging infrastructure as they need. We have been told by certain government customers that they have greater flexibility to
pay operating expenses (“Op Ex”) than capital expenditures (“Cap Ex”). Furthermore, many of our customers,
for example government entities, are not able to take advantage of the tax incentives offered by the Federal and state governments
as they do not have a tax liability. As a result, we are working with a group of equity and tax equity investors and debt providers
to create a financing mechanism which will allow our prospective customers to take advantage of our products through making a series
of monthly payments spread out over many years. The cost of the products to our customers will be reduced by the available tax
incentives which will inure to the investors who will in turn pass on the savings in the form of reduced monthly payments.
During meetings
with various state government officials we have been led to believe that the combination of reduced overall costs and the spreading
of those costs across many years through monthly payments might make it more likely that government entities can order larger volumes
of our products. Initially the Company’s cash flows are not expected to be impacted by this structure as the investors would
take title to the products and pay Envision the full price for them at the inception of the plan. However, it is possible that
at some time in the future we may elect to increase our involvement in this process as a means to create a source of recurring
revenue and also to take advantage of the spread on the cost of the capital we source and that which we charge our customers for
the financing.
International
Renewable Energy Policy is Facilitating our International Expansion Plans.
The growth of EV
penetration is active in many parts of the globe. So is the need for energy security and the desire for outdoor media. Many nations
are ahead of the U.S. in terms of per capita spending for EVs and also in the rates of the growth. We believe that our products
solve many of the same problems globally that they solve in the United States. We believe our ability to export our intellectual
property and our knowledge is better than it has ever been in the past. We have adapted our products so that they are easily shipped
as simple kits or in folded expandable form in a standard shipping container. We have moved from project to product so that we
do not have to be on site when our products are installed, which means that we can ship products anywhere in the world, leaving
the installation work to local resources. We also believe that the knowledge we gained by putting an in-house fabrication facility
in place, inexpensively, to fabricate our products could allow us to rapidly scale in international markets.
Many nations including
the United Kingdom, Norway, Germany and France have announced total bans on internal combustion vehicle sales after 2040. China
is considering similar bans.
We believe that
in order to achieve global goals for EV charging infrastructure, a rapidly deployable and highly scalable set of EV charging solutions
like those we offer will be vital. We believe our products will be
needed both in the U.S. and internationally.
For this reason, we are continuing to explore opportunities to expand internationally.
Our current international
focuses are in the European Union (“EU”), the UAE (specifically Dubai) and China. In Spain, we continue to work with
Aconfort, a Spanish company with whom we have a multi-year relationship. We have registered the name Envision Europe SA and we
plan to send the EV ARC™ components to Spain as sales volumes dictate. Initially, we expect that EV ARC™ will be shipped
in pieces to Spain where it will be reassembled by Envision Europe personnel (these will be Aconfort employees in the early stages).
Certain components such as solar modules and gears, which are subject to tariffs when imported to the EU, will be sourced locally
to reduce costs. As the market for our products expands, we plan to hire employees and take on more of the fabrication tasks in
Spain while reducing the components we ship from the United States. As quickly as the market will support this, we intend to become
self-sufficient in the EU. It is our intention to form a subsidiary in Spain. We shipped the first EV ARC™ unit to Spain
in 2016 where it has been featured in a highly visible location in the center of Malaga.
According to the
government in Beijing, China will spend $200 billion on EV charging infrastructure over the next decade. Some industry experts
have suggested that as much as two thirds of the global spending on EV charging infrastructure will take place in China during
the next decade. China is currently the worlds’ largest market for EVs according to Bloomberg. China’s requirements
for energy security products are massive and growing rapidly due to electricity interruptions, according to Chinese governmental
agencies. According to ABC News, studies suggest more than one million people die prematurely every year from the toxic air that
has engulfed northern China. The Chinese government’s “War on Pollution” will involve the spending of billions
of dollars on renewable energy and the electrification of transportation.
Since 2016, we have
been engaged in discussions and negotiations with various Chinese entities. We have observed the business and negotiation environment
to be complicated and opaque. In April 2018, Envision’s CEO and a delegation from the U.S./China Chamber of Commerce visited
China with particular emphasis on one particular province. We believe that substantial progress was made in negotiating a deal
whereby Envision’s products might be produced for sale in China in a manner which is beneficial to our shareholders. Our
strategy is to take no deal, rather than a poor deal, that we do not have full confidence that will deliver positive and secure
results for the Company. We believe that we have taken a significant step towards realizing the benefits of this strategy.
We continue to work
with entities such as the U.S./China Chamber of Commerce in an effort to identify other suitable potential partners in China. We
seek to find a partner that can manufacture and sell our products in that region. We have observed that many such entities exist
and we further believe that the Chinese market affords attractive opportunities. We will continue to endeavor to create an agreement
with a partner with whom we can execute a secure and beneficial arrangement for Envision Solar.
We believe that
our international efforts could represent a significant set of new, large, and growing opportunities for the Company to monetize
in the future.
Continue to
Create Innovative Industry Leading Products.
EV Standard™
- 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.
ARC Mobility™
-
We have observed that the commercialization of our ARC Mobility™ transportation solution has revolutionized
the way that we deliver our EV ARC™ product to our customers. We believe that EV ARC™ is already the most easily deployed
EV charging solution available today. ARC Mobility™ makes it even easier and as a result, we believe it could help increase the
product’s penetration and sales. We have already sold ARC Mobility™ to customers including New York City.
Transformer EV
ARC™
–
We are starting to see increased interest from overseas markets for our products. We are in the process
of extending elements of our IP protection to Europe and China. The Chinese have issued a
Chinese patent for our EV ARC™
product. In 2016, we delivered an EV ARC™ to the government of the U.S. Virgin Islands which survived Hurricanes Maria and
Irma. We have received several inquiries from Caribbean island communities as a result of that sale. We have designed EV ARC™
to be transportable, and within the Continental United States, we can now transport it using either our ARC Mobility™ trailer
or commercial trucking companies. We have invented, tested, and delivered a design modification which allows us to effectively
collapse the EV ARC™ for containerization with a simple expansion process at the destination which does not require sophisticated
personnel, tools or significant time. The United States Patent and Trademark Office (“USPTO”) has issued us a patent
on this technological improvement (Transformer ARC™) on or about March 18, 2018. Our first successful deliveries of such
units were made to New York City during the third quarter of 2015 as well as to the Caribbean and Spain in 2016. Since that time
all EV ARC™ units which have been delivered to customers at locations greater than 1,500 miles from our factory have been
Transformer ARC™ products. Management believes that our ability to ship EV ARC™ products in commercial container units
will allow us to address overseas and distant markets in a way which has not been possible until the successful testing and delivery
of Transformer ARC™, and in a way which we believe no other competitor can match. We believe global growth in EV charging,
Out Of Home advertising, and energy security is vibrant. We believe that our ability to ship products worldwide will allow us to
take advantage of these global opportunities.
Solar Tree®
Structure Product/Technology Development
–
We are continuing to improve the designs and efficiencies of our products.
Significant emphasis is placed on innovation which we believe enables higher quality with increased deployment efficiency and reduced
deployment risk. Fabrication and installation methodologies which replace labor with mechanized processes are favored. Our design,
fabrication, and procurement processes are under constant improvement to increase efficiency and control costs.
ARC™ Technology
is the integration of storage into all existing Envision products. Battery storage removes the intermittency of electrical delivery
often cited as a reason for not taking advantage of renewable energy. We believe Envision is positioning itself to be a leader
in the convergence of renewable energy generation and storage. We believe our EV ARC™ product is an elegant embodiment of
this convergence. We are currently under contract to deliver our Solar Tree® DCFC with integrated battery storage to the Fresno
County Rural Transit Authority. Our EV-Standard™ product has battery storage as an integral part of its design. We plan to
continue to commit engineering resources to this space with the intention of making all products storage capable. The energy storage
market is nascent, and according to industry analysts, poised for growth in the coming months and years. Management intends that
we be a leader in the integration of renewable energy products with battery storage solutions.
Our Products
can be Used in Multiple Verticals including the Out Door Advertising Market (or Out of Home Advertising –“OOH”),
Providing Us with a Unique Opportunity to Expand and Monetize the Verticals in Which We Operate.
We believe that
our technology can potentially be monetized in a variety of ways to commercially exploit inefficiencies in certain markets such
as the advertising industry. By offering a unique, appealing and socially worthy outdoor physical platform to host digital and
static outdoor advertising displays, we are in a special position to earn revenue in this business.
In November 2017,
we executed an agreement with OutFront Media (NYSE:OUT). The agreement covers the relationship in which OutFront sells sponsorship
and naming rights to networks of EV ARC™ products distributed across major U.S. cities starting in San Diego, California.
OutFront has successfully sold similar deals in the past to fund bike sharing programs and believes that the market for sponsorship
and/or naming rights for highly visible, solar powered EV charging networks may be as or more lucrative than the bike sharing programs.
The business model involves a third party, typically a large corporation looking to enhance its corporate image, paying a fee for
the rights to name or sponsor an EV ARC™ network. The duration of the sponsorship might be three to five years. The fee is
calculated based upon Envision’s selling price of the product and a success fee paid to OutFront Media. Envision or a related
entity would retain title to the units during the term and at the end of the term we would have the right to repeat the process.
We believe that this model may constitute a significant opportunity for growth in the volume of units we deploy, and also a recurring
revenue stream to augment our one-time product sales revenues. We are currently working with OutFront Media to secure permission
from the City of San Diego for our intended use.
We have also secured
an agreement with ACE Parking to deploy EV ARC™ Digital in their parking lots across San Diego, California, and more broadly.
We may also seek an advertising partner or work with OutFront Media to monetize the value of the advertising screens. We have walked
these locations with an OOH company which has confirmed that they will allow for sufficient visibility of our screens to make an
attractive advertising platform. The OOH company identified 60 initial locations in San Diego which the Company believes will generate
advertising revenue using our EV ARC™ Digital. We will continue to seek to develop relationships with OOH providers. With
success in San Diego, management plans to endeavor to expand our EV ARC™ Digital network to other cities. Management believes
that the combination of our transportable, solar powered EV chargers with digital and static advertising may present a significant
growth opportunity for the Company.
Differentiation from Competitors
We believe our
chief differentiators from our competitors are our ability to invent, design, engineer, and manufacture solar powered products
which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure and outdoor
media platforms when compared to traditional, utility grid tied alternatives.
·
Rapid Deployability and Scalability of our products.
We believe that our products
are more rapidly deployed and more scalable than any of the other solutions in the markets we target. At a time when rapid growth
is required in the amount of publicly available EV charging infrastructure we believe that our ability to deploy permanent solutions
in a fraction of the time and often for much lower costs than our competition is a significant differentiator.
·
Environmentally sound approach.
We believe that many of our customers are increasingly
aware of the environmental impacts of their operations. Those customers who are installing EV charging infrastructure are aware
of the pollution associated with transportation and seek the cleanest method of fueling their vehicles. This is a significant
contributing factor in their choice of electric vehicles. Because our products are entirely powered by renewable, clean, solar
energy as opposed to grid electricity which is 70% powered by carbon fuels in the US, we believe that our environmentally sound
approach will continue to be viewed as a significant differentiator by our customers and prospects.
•
Unique
operating capabilities of our products
. We believe that our product’s capability to operate during grid outages and
to provide a source of emergency power rather than becoming inoperable during times of emergency or other grid interruptions is
a significant differentiator from our competitors. Our products give our customers ultimate flexibility in a time of need while
also providing operational efficiencies in normal operating conditions.
•
Strong
patent portfolio to protect our products
. Our ability to create new and patentable inventions which are marketable and
a complex integration of our own proprietary technology and parts with other commonly available engineered components is a further
barrier to entry for our competition. 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.
•
Diversified
product portfolio provides multiple verticals to monetize.
Envision’s products are designed to deliver multiple layers
of value. Those value propositions include impact free renewably energized EV charging; media, branding, and advertising platforms;
sustainable and secure energy production and storage; 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
it addresses. Qualified customers can also lease our EV ARC™ products through leasing relationships we have developed, but
not yet utilized. Envision’s products can qualify for various federal, state, and local financial incentives which can significantly
reduce final out-of-pocket costs from our selling price for eligible customers.
•
Manufacturing
and operating efficiencies
. We believe that the continuation of our strategy to create highly engineered, highly scalable
products that are manufactured in-house and that 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 markets 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 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 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, data
management and energy storage capabilities.
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 ballast 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 creates a significant
barrier to entry for our competition as our high-traction ballast pad forms part of our patent. EV ARC™ products are delivered
to our customers’ sites ready to operate.
For customer locations
within 1,500 miles of our factory, we use our proprietary and unique transportation system, the ARC Mobility™ trailer (“AMT”).
The AMT is a hydraulically operated trailer which is towed behind a standard one-ton pick-up truck with either a hitch or a gooseneck
connection. The AMT uses hydraulics to elevate the EV ARC™ unit above the ground and fix it beneath the AMT trailer where
it stays during transportation. Upon arrival at the site the driver uses the hydraulic system to lower the EV ARC™ product
into its designated parking space. This process takes as little as four minutes and is performed by one individual with no other
specialized equipment. We typically deliver EV ARC™ products during the middle of the night because our target parking spaces
are generally open at that time. For very tight locations we have a small electric powered tug which can maneuver the AMT into
locations which will not accommodate both the truck and the trailer. Destinations which are greater than 1,500 miles from our office
are reached through deliveries by third-party carrier’s trucks and trailers or in standard shipping containers by truck,
rail or sea. Because the EV ARC™ is too large to fit inside a container in its fully erect position we have invented and
perfected a modification to the product which we call Transformer ARC™. Transformer ARC™ products can, using a hydraulic
ram, collapse in upon themselves (stowing) thus presenting a much smaller form factor which will fit inside a shipping container.
When the Transformer ARC™ product arrives at its destination it is un-stowed using the same hydraulic ram and then placed,
fully erect, into its designated parking space. The Transformer ARC™ modification to the EV ARC™ is patented. We believe
that our ability to ship the EV ARC™ in different configurations and by different means is both unique and a significant
differentiator from our competition.
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 that 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.
EV ARC™, the
Solar Tree® and EV Standard™ are 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 U.S. 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.
Manufacturing and Operating Efficiency
Through ongoing
operational improvements, cost reductions and increasing sales volumes, we have reduced the total costs for labor and parts for
each individual EV ARC™ product to the point where they are lower than the selling price at the individual product level.
However, when, as GAAP requires, our fixed overhead costs such as rent, insurance and other direct overhead costs are spread across
the modest volume of units we have produced to date, we have generally recognized net 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 continue to increase and become sufficient to overcome certain
fixed overhead costs shared amongst all of our production, and we sustain the trend of reducing our costs through improved economies
of scale, production process improvements, and component cost reductions, management believes that gross profits will be realized
and maintained. In the first quarter of 2018 we announced record revenues and positive gross profits for the quarter. We believe
this is a validation of our assertion that with enough volume we can and will produce positive gross margins.
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 facility 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™ 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. 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 five 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 is challenging and resource
intensive. The challenge for marketing and sales is reaching 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, with the exception of the Federal General Services Administration Multiple Award Schedules
contract. 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.
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 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.
We believe 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 “loaner” 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, Twitter, and LinkedIn, video
postings on YouTube and Vimeo, distribution of printed materials promoting our products, industry speaking engagements and small-to-medium
enterprise 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. Using 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 “Gorilla”
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.
Major Customer Contracts
In 2017 and 2018, we have had two major
customers, the State of California and the City of New York, that have accounted for a substantial portion of our revenue. The
following summarizes the basic terms of the current contracts with them:
City of New
York Requirement Contract
. As of March 17, 2017, the Company received a Requirement Contract from the City of New York
(the “NY Contract”) for 35 EV ARCs™ and one single axle trailer for a total contract price of $3,797,710. The
NY Contract is a purchase order under the Company’s master contract with the City of New York. The term of the NY Contract
commences on April 17, 2017 and expires on April 16, 2020, during which period the Company must deliver four EV ARCs™ per
month commencing within 90 days from the commencement date of the NY Contract. When delivered, each unit must be completely assembled
and ready for operation. The NY Contract requires the following warranties: at least three years for each complete unit, and 25
years for each photovoltaic (solar) panel, five years for each solar inverter, and two years for each integrated battery solution
within each complete unit.
Contract with the California Department
of General Services
. On June 12, 2015, the Company’s bid for solicitation was accepted by the California Department
of General Services (the “California Contract”). The term of the California Contract is for one year with two extension
options for one year. The California Contract permits California state and local government agencies, including cities, counties,
special districts, California State universities, University of California systems, K-12 school districts, and community colleges,
to purchase EV ARCs™, ARC Mobility Trailers, and related accessories from the Company. The total value of the contract is
up to $16,427,225. As of December 31, 2017, the Company had sold a cumulative total of 38 EV ARCs™ for a cumulative total
of $2,365,844 through the California Contract. As of March 31, 2018, the Company had sold a
cumulative total of 46 EV ARCs™ for a cumulative total
of approximately $2,902,851 through the California Contract.
New Patent Applications, Products and Technologies
We believe that
the improved EV charging experience offered by the EV-Standard™ design will be a differentiator for our company in a potentially
very large market. On street, or curbside, charging is considered by many jurisdictions to be an important factor in the future
EV charging infrastructure mix. This is particularly true in cities like New York and San Francisco where many residents have to
park their vehicles on streets and therefore cannot take advantage of EV chargers deployed in parking lots or residences. In New
York City many of the city’s fleet vehicles also park on street at night time. While we are supplying our EV ARC™ products
to charge New York’s fleet vehicles in parking lots, they seek solutions to charge those vehicles which are parked on the
street most of the time. Furthermore, we have learned from California’s Energy Commission (the “CEC”) that as
few as one in seven Californians park their vehicles close enough to an electrical circuit to charge their vehicles overnight,
even if there were EV chargers installed at those locations where circuits do exist. CEC states that this will mean that an increase
in work place and on street charging must take place if California’s electrification goals are to be met. 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 cities across the United States and the world as a viable and reliable on-street
EV charging solution, and as such, 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 will be able to
continue to charge EVs during black-outs or other grid interruptions.
Envision continues
to identify other complimentary product offerings and enhancements to current offerings, and is in the design, engineering, and
patenting phase on certain such products.
Intellectual Property
Envision owns the
registered trademarks Solar Grove® and Solar Tree® structures. The Company has been issued five patents: one for our Solar
Tree ® structure (patent No. 7,705,277), one for EnvisionTrak™, a dual-synchronous tracking system for its solar products
(patent No. 8,648,551), one for our EV ARC™ product (patent No. 9209648), one for Transformer ARC™ (patent No. 9,917,471
and one for our EV ARC™ product in China (Patent No. 201380042601.2)
Our EV-Standard™
product is currently patent-pending. Our patented Transformer ARC™ product is patent pending in China and we have two other
products in the patent application drafting process.
All of our patents
refer to products which are currently in production and being sold to and used by our key customers. We believe that the patents
that we are currently applying for will have similar or better market success.
Competitors
The market we address
can be intensely competitive. We are subject to competition from a number of other companies manufacturing, selling, and installing
solar power products in the commercial market, many of which have longer operating histories and greater financial and other resources
than the Company. Examples of these competitors are identified and discussed in the following paragraphs of this prospectus.
EV Charging
The EV charging
sector is growing rapidly with many companies playing different roles in the space. Companies such as Schneider, Eaton, Aerovironment,
and Bosch manufacture EV charging units but do not offer charging services. Companies such as Chargepoint and Car Charging Group
offer EV charging services and hardware but not, typically, installation. There are many companies which offer installation services
typically from electrical and general contracting backgrounds. There are one or two companies which are endeavoring to find ways
to monetize EV charging beyond generating revenue from services or hardware. Volta is a San Francisco based EV charging company
which derives revenue through the sale of advertising. Volta gives charging away for
free. They are deployed in a small number
of shopping malls and other locations. Many solar companies are now fixing EV chargers to their parking lot structures and some
are offering packages combining solar rooftop installations and EV charger installations for the residential market place. These
installations are almost always grid tied and do not include energy storage. We know of no other company that has a fully self-contained,
transportable, autonomous, solar powered EV charging solution and we know of no other company that offers a product which delivers
DC fast charging solely from solar generation.
Below is a table
showing a comparison between our EV ARC™ product and all the other offerings we can find, which claim to offer at least some
of the same attributes:
Outdoor Advertising
Envision’s
role in the outdoor advertising space is currently anticipated by management to be one of delivering hardware solutions in the
billboard, street furniture, and digital signage space. There are large well-established companies such as JC Decaux and Outfront
Media (NYSE: OUT) which specialize in the sale of advertising and also in the production of street furniture solutions. Other vendors
in the space include Daktronics which makes digital billboards and street furniture. We have met with both companies and determined
that neither has a transportable solar powered solution. Both companies have expressed that they recognize the value of EV charging
infrastructure as a platform for DOOH. Either of them could compete with us if they determined to invest in developing solar powered
products, however, we believe that our patents cover aspects of our product which we believe to be crucial to its success.
There are many companies
which specialize in the placement of outdoor content on existing infrastructure, including but not limited to Capitol Outdoors,
Vistar Media, EMC Outdoor and Outfront Media. We are under contract with OutFront and in contact with some others, and intend to
be in contact with more advertising media firms to educate them about our products. These companies can be seen as competition
as they are in the business of taking as much of the market share as they can for outdoor advertising content. However, they do
not always produce hardware. With that in mind we see these companies more as potential partners than competitors. Perhaps one
of the most interesting entrants into the outdoor digital content placement market is Google. With its recent announcement of time
and place-based content dispersal on outdoor digital screens, Google is taking its advertising placement technology outdoors. Google
has several solar and energy projects underway and as such, could create solar powered outdoor advertising technologies. Google
is currently a customer, purchasing EV ARC™ products for EV charging on its campuses.
The large outdoor
advertisers such as ClearChannel, Outfront Media, Lamar and JC Decaux have combinations of larger format billboards, digital billboards,
screens and street furniture. They use combinations of in house and outsourced resources to acquire hardware. We are not aware
that any of them currently have solar powered solutions such as those that we offer, however, we have seen each of them pay close
attention to sustainable options such as using solar panels adjacent to billboards to power them. We will endeavor, wherever
possible, to sell products to these
companies. Each of them could create competing products to our products, however, we believe that our patents cover aspects of
our product which we believe to be crucial to its success.
Energy Security
Our focus in energy
security is to produce solar powered products which include battery energy storage and which can dispatch power during times of
grid or carbon fueled generator failure. There are many companies, both large and small, with solar energy solutions, many with
battery storage solutions, and many with combinations of both capabilities. As our focus is on creating products from the combination
of solar power generation and energy delivery and storage, we view the competition from companies producing these types of solutions
to be most relevant to our business. Companies in this space range from small startup companies like Green Charge Networks to behemoths
like General Electric and NEC. Siemens, Eaton, Schneider and other large electrical component companies are all also working on
combined renewables/storage product solutions. We are in contact with all these companies and have not observed that any of them
have a product which provides all the same value and differentiation that our EV ARC™ product delivers.
While we believe
that our proprietary designs and our deployment strategies differentiate us from our competitors in the market, there is no assurance
that our business, operating results, and financial condition will not be materially adversely affected by our competitors.
INDUSTRY OVERVIEW
Our Target Markets – EV Charging
For the first time
in more than a century’s history of the gasoline powered automobile, we are witnessing the beginnings of a major shift in
how we fuel transportation. Although electric vehicles (“EVs”) were prevalent at the birth of the automobile era they
were replaced entirely by vehicles with internal combustion engines (“ICEs”). A multi trillion-dollar industry was
developed around the sourcing, refining and delivery of hydro-carbon fuels for transportation. Today, Americans spend about half
a trillion dollars each year on fuel for internal combustion engine vehicles. The petroleum industry has shaped the history of
the 20th and the first part of the 21st centuries.
At the government
level, nations such as China, the United Kingdom, France, Norway, India, the Netherlands, Germany, and others are either banning
ICEs outright within the next two decades or strongly considering such bans. Tax incentives, grants and other funding for EVs and
EV charging infrastructure are common across the globe. China’s president Xi Jingping has recently mandated the deployment,
in China, of 4.8 million EV chargers by 2020 with a strong emphasis on renewable energy and pushing EV charging infrastructure
into rural and poor communities where utility grid connections are often insufficient to support this new load. Envision Solar
recently received a Chinese patent for its EV ARC™, solar powered EV charging product. Morgan Stanley estimates that Western
Europe will need three million EV chargers by 2030, there are currently less than one hundred thousand. We also intend to assertively
expand our presence in the European Union, where we currently have a cooperation arrangement with a local company in Spain, which
may become the springboard for eventual manufacturing and sales of our products in the European market.
Following are a
sampling of headlines taken from recent press describing EV incentives globally. The list is not exhaustive:
-
Subsidies help China sell the most
electric cars
-
China extends tax rebate for electric
cars, hybrids
-
Germany officially announces a €4,000
incentive for electric vehicles starting in May
-
France plans new incentives to phase
out polluting vehicles
-
French families encouraged to switch
to electric cars with new subsidies
-
UK announces important £500 million
electric car support for infrastructure and rebate
-
Spain finalizes plan for electric vehicle
incentive and infrastructure funding
-
Electric Car Incentives In Norway,
United Kingdom, France, Germany, Netherlands, and Belgium
-
Reality of subsidies drives Norway’s
electric car dream
-
Tax breaks and incentives make Europeans
buy cleaner cars
-
Australia Initiates Push for Electric
Vehicles with Plans for Incentives
-
Hybrid and electric vehicle growth
in India driven by government incentives and changing customer attitudes
-
Partnerships, incentives to get India
to 2030 fossil-fuel vehicle ban
-
B.C. drivers can get up to $12K incentive
to buy electric vehicle
Sweden Offering Huge Tax Rebate on
Electric Vehicles
New Zealand announces EV incentives
Mexico's e-car users get incentives
Costa Rica Approves Incentives for
Electric Vehicles
Puerto Rico offers excise tax breaks
on hybrids, electric vehicles
Japan Continues to Offer Electric Vehicle
Incentives
Dubai announces new electric vehicle
incentives
South Africa Offers Up Unique Incentive
for Local Electric Vehicle Manufacturers
Local and State
government activities in the U.S. go beyond offering tax incentives. For example, the City of New York is currently replacing its
entire city-owned fleet with EVs. At time of writing, New York City owns approximately 1,300 EVs and is scheduled to own over 2,000
by the end of 2018. The State of California has mandated that 5% of all government-controlled parking spaces must be EV ready by
2022 and California’s department of transportation, Caltrans (along with many other departments), is rapidly electrifying
its fleet of sedans. Both New York City and the State of California have signed multi-year, multi-million dollar purchasing contracts
with Envision Solar and are currently power users of our products.
Federal agencies
such as the Department of Energy (“DOE”) are also electrifying their fleets. The DOE consumes 400 million gallons of
gasoline each year and is actively working to reduce its reliance on carbon fuels. As a result, it is converting fleet vehicles
from ICEs to EVs. The DOE is a repeat customer of Envision as is the Department of the Navy.
Even war fighters
are moving to electric vehicles. The U.S. Marine Corps recently tested tactical electric vehicles at a future war fighting training
exercise at Camp Pendleton in California. ICEs require liquid fuels which have to be transported to forward operating bases (“FOB”).
Diesel can cost as much as $1,000 per gallon to deliver to a FOB and numerous lives have been lost in the process. ICEs are also
loud and generate a heat signature which makes them vulnerable to targeting and highly visible at night. EVs do not require liquid
fuels, are very quiet and do not generate exhausts and heat. (The U.S. Marine Corps used Envisions EV ARC™ product to fuel
the tactical EV it tested at the event described above). Marine Corps General Robert Neller stated that what Marines really need
“is a way to recharge batteries—or maintain a sort of expeditionary power capability that doesn’t cause me to
pull a wagon or something.” Envision’s products reliably produce power wherever they are located and do not require
any other source of fuel.
Following are a
sampling of headlines taken from recent press describing EV incentives in various U.S. states. The list is not exhaustive:
-
New, bigger incentives for electric
cars could be ahead in California
-
PG&E Customers Eligible to Save
$3,000 on a New Nissan LEAF Electric Vehicle
-
Buying an electric car in Colorado
just got $5,000 cheaper
-
Connecticut Starts $3,000 Electric
Vehicle Rebate Program
-
Delaware finally adjusts green car
incentive program to boost EVs
-
Delaware Now Offers $2,200 EV Rebate
+ $500 EVSE Incentive
-
Electric vehicle tax credit resurrected
in [Atlanta] General Assembly
-
Bill to Extend Maryland EV Tax Credit
Moves Forward
-
Massachusetts & Maryland Join In
On $3,000 Off 2018 Nissan LEAF
-
Electric-car boosters offer Minnesotans
a rebate
-
State Of New York Says 5,750 Drive
Clean Rebates Claimed In First Year
-
New York sees big jump in electric
vehicle sales after rebate goes into effect
-
Nissan $10,000 Rebate For North Carolina
Residents
-
Customers in AEP Ohio territory can
get $10,000 off Nissan Leaf purchase
-
Oregon passes electric-car purchase
rebates up to $2,500; new EV fees delayed to 2020
-
Pennsylvania awarding up to $5M to
support alternative fuel transportation initiatives
-
More charging stations, plus R.I. rebate
program, equals more-convenient electric cars
-
Vermont utility offers $1,200 electric
vehicle rebate
-
Virginians will get 10% up to $3,500
back on EV purchases if new law passes
Solar Tree®
structures with ARC™ technology energy storage could generate and store enough energy to provide over 1,000 e miles per
day through any high quality EV charger including DC fast chargers. They could be deployed in any location that is not shaded
and they do not require any utility grid connection. We believe that this vital factor makes them a compelling choice for remote
locations where there is inadequate utility grid connection (e.g. rest areas). Corridor charging, the term used to describe EV
charging on highways between built up areas, is recognized as being very important, but also very difficult to achieve with traditional
grid tied chargers because of the lack of electrical circuits and the environmental and economic impact of bringing infrastructure
to remote sites. We believe that our Solar Tree® and EV ARC™ products are ideal for corridor charging because they do
not need to connect to the electrical grid. Additionally, where the requirement is for charging of mission critical vehicles (e.g.
first responders, hospitals, fleet vehicles), Solar Tree® and EV ARC™ products can provide a highly robust and secure
source of energy even when the grid is not available. Unlike gasoline or diesel-powered generators, our products are not reliant
on external sources of fuel and, we believe, require much less maintenance, testing and service. It is our further contention
that any campus environment with an EV charging need and a wish for a high degree of reliability in its electrical supply can
benefit from our Solar Tree® structures with ARC™ on-board energy storage because, we believe, in times of grid instability
(e.g. natural disaster, terrorism, capacity constraints), the Envision products could provide the most reliable source of energy
at the location.
The private sector
is also actively engaged in the deployment of EV charging infrastructure. There are companies whose core offering is supporting
EV charging as a service, such as Chargepoint and Blink (NASDAQ:BLNK). The most aggressive private sector focus on EV charging
infrastructure is coming from businesses which seek to attract EV drivers and be ready for them in the future. Companies are offering
workplace EV charging for employees as a means to reduce the company’s carbon footprint, and as an essential recruiting and
retention tool. As more customers and employees drive EVs, so then must more businesses and employers offer EV charging to satisfy
this new need. Google, Johnson and Johnson, McDonalds, Dell and Genentech are good examples of the sorts of companies, which are
offering EV charging for their guests and employees. All of these named companies are currently Envision customers and using our
products. There are also other less obvious new entrants in the EV charging space. In 2017, Shell Oil bought New Motion, one of
Europe’s largest EV charging providers. Shell is also installing EV chargers in its gas stations in Europe. This is the first
move by a major oil company into the EV charging space but there is much evidence to suggest that the others will follow suit.
Currently major oil companies like Total are also invested in renewable energy. Total owns a large percentage of Sunpower (NASDAQ:
SPWR).
As a result of a
settlement with the U.S. government over the “Dieselgate” scandal, Volkswagen has formed Electrify America, a company
which will deploy EV charging infrastructure. The settlement calls for VW to spend $2 billion dollars on EV charging infrastructure
during the next decade with $800 million in California. Electrify America is a potential customer for Envision as they will need
a variety of solutions to meet their mandates. We are in regular contact with them.
The automotive industry
in general is actively growing its electric vehicle initiatives. Every major automotive original equipment manufacturer (“OEM”)
has announced plans to electrify some or all of its available portfolio of products. Following are a sampling of headlines taken
from recent press describing the OEMs actions. The list is not exhaustive:
-
Volvo expects half its sales to be
pure electric vehicles by 2025
-
Volvo to electrify all cars from 2019:
'end of internal-combustion engine alone'
-
BMW: 25 Electrified Models To Arrive
By 2025, 12 Of Which Will Be Fully Electric
-
Rolls-Royce may be electrified due
to demand
-
Jaguar Land Rover to Electrify Its
Entire Lineup by 2020
-
Who's going all-electrified? Volvo,
then Jaguar Land Rover, now Lincoln: report
-
BMW Targets Upwards of 100,000 Electrified
Vehicle Sales In 2017
-
GM's Future: 20 All-Electric Vehicles
by 2023
-
Ford Promises Performance Electric
SUV & 40 Electrified Models By 2025 In $11 Billion Push
-
Hyundai and Kia to Have 26 Electrified
Models by 2020
-
INFINITI To Build Five New Models In
China And Electrify Its Portfolio
-
Infiniti Will Be “All Electrified”
After 2021, Says New
-
Ford Plans To Electrify Trucks, SUVs
and the Mustang
-
Ford plans $11 billion investment,
40 electrified vehicles by 2022
-
Nissan targets sales of 1 million EVs
annually by 2022
-
Tesla expands electric-vehicle portfolio
with first truck and an updated roadster
-
Honda (“HMC”) to Launch
Electric Cars in Europe and China
-
Honda’s ‘Electric Vision’
– two thirds of European sales to feature electrified powertrains by 2025
-
Honda to electrify two-thirds of its
vehicle portfolio by 2030
-
Toyota says all its cars will have
an electric or hybrid option by 2025
The adoption
of EVs by individuals is still relatively low in absolute numbers but the trends show significant growth even in the face of cheap
gasoline. According to International Energy Agency (“IEA”) analysis, registrations of electric cars hit a new record
in 2016, with over 750 thousand sales worldwide. With a 29% market share, Norway has incontestably achieved the most successful
deployment of electric cars in terms of market share, globally. It is followed by the Netherlands, with a 6.4% electric car market
share, and Sweden with 3.4%. The People’s Republic of China (hereafter, “China”), France and the United Kingdom
all have electric car market shares close to 1.5%. In 2016, China was by far the largest electric car market, accounting for more
than 40% of the electric cars sold in the world and more than double the amount sold in the United States.
The global electric
car stock surpassed 2 million vehicles in 2016 after crossing the 1 million threshold in 2015, and exceeded three million vehicles
by November 2017.
Global EV Adoption 2010 to 2016
Until 2015, the
United States accounted for the largest portion of the global electric car stock. In 2016, China became the country with the largest
electric car stock, with about a third of the global total. With more than 200 million electric two-wheelers, 3 to 4 million low-speed
electric vehicles (“LSEVs”) and more than 300 thousand electric buses, China is also by far the global leader in the
electrification of other transport modes.
The growth rates
in electric vehicle sales and, as a result, the requirements for supporting infrastructure are impressive. To date, the deployment
of electric vehicle service equipment (“EVSE”) has not met the goals set by federal or state governments or any of
the larger companies currently engaged in the space. The reasons for the delays are numerous but the main impediments include the
following:
|
a)
|
Site Acquisition – identifying and leasing/controlling locations
|
|
b)
|
Entitlement – permitting and zoning requirements
|
|
c)
|
Civil Works – foundations and trenching
|
|
d)
|
Inability to move the EV charger once deployed
|
|
e)
|
Energy – sources and cost of energy
|
|
f)
|
Reliability – EV chargers will not work during utility grid interruptions
|
|
g)
|
Telemetry – communications with the EV chargers
|
As the number of
electric cars on the road has continued to increase, private and publicly accessible charging infrastructure has also continued
to grow. In 2016, the annual growth rate of publicly available charging (72%) was higher than, but of a similar magnitude to, the
electric car stock growth rate in the same year (60%).
Traditional thinking
within the EV charging industry has been that individuals will choose to charge at home and to a great extent this has been true
for the early adopters of EVs who have typically been well-off and owners of their own homes. As EVs become more mainstream, solutions
will have to be found for the 70% of Americans who do not own a single-family residence. The California Energy Commission (“CEC”)
recently published a study in which it concludes that only one in seven Californians lives in an environment where they can reasonably
expect to charge an EV at home. This leaves six of seven Californians in need of alternate charging options. It seems likely that
California’s results will be similar across the nation and even more pronounced in Europe and Asia where far larger sections
of the population live in multi-dwelling units (“MDU”).
Fortunately, there
are options for current and future EV owners. An immutable link exists between car ownership and travel to destinations, be those
trips for work, shopping, leisure, education or any number of other options. People with cars go places and when they get there
they tend to dwell for a while. In fact, the average privately-owned sedan in the U.S. spends 95% of its time parked. Typical parking
spots offer excellent environments for EVs to re-fuel opportunistically while the owners happen to be at the location for whatever
reason originally took them there. Workplace, retail, healthcare, leisure, education – all of these environments, and any
others with parking, offer excellent opportunities for the majority of EV owners to refuel. According to the Department of Transportation,
the average American sedan travels 31.4 miles each day. A typical Level II EV charger delivers 25 miles of charge to an EV in an
hour. In other words, 45 minutes charging at the supermarket and another 45 minutes charging at work delivers more miles than the
average driver requires in a day - and that’s without charging at home. Most employees spend at least 6 hours at work each
day giving them the opportunity to pick up almost five times the electricity they need to fuel their daily driving needs in each
shift at work. We believe that this paradigm shift in fueling behavior will contribute significantly to consumers’ adoption
of EVs because it will mean the end of destination fueling. No longer will consumers make special trips to a location (gas station)
to fill their cars with fuel. Rather they will fuel, opportunistically, where they were already going. Consumers will fill their
cars in the same way that they fill their cellphones today – whenever they are near a charger, and while they are sleeping,
working, eating or doing anything other than actually driving.
Battery Electric
Vehicles (“BEVs”) are becoming more affordable with the release of each new model. The Chevy Bolt delivers 240 miles
of range for around $30k after tax incentives. The Tesla 3 does more or less the same. The average American spends around $5k per
year on fuel and maintenance for their ICE. EVs have far lower fuel costs and practically no maintenance. When considering the
reduced annual operating costs it’s hard not to view EVs as competitive today, with or without tax incentives. BEVs are also
delivering longer driving ranges, though this may not be necessary in light of peoples’ actual driving habits. In fact, there
is a strong argument to suggest that the Chinese model of producing lots of lower range vehicles and ensuring that there is ubiquitous
charging infrastructure makes more sense than having every vehicle carry around sufficient batteries to support trips that most
people rarely, or never, take. Most Americans would not need an EV with a range of greater than 50 miles if they knew that they
could reliably charge every day. As batteries continue to be the largest (though falling dramatically) cost contributor to the
price of an EV, this would offer a simple and obvious way to further reduce the cost of EVs and increase their range (through reduced
weight) in the future.
While Tesla is the
recognized leader in the EV space today, it must also be recognized that all of the major automobile manufacturers have plans for
all electric product line-ups. In most cases those plans are for exclusively electric line ups, and in some cases automotive OEMs
describe a future where their entire portfolio is available in an electric format even if they plan to retain some ICEs for the
time being. Consumer choice will flourish as an example of the major OEMs shifting to electric. Ranges may continue to increase,
and costs may continue to come down. In a decade or so we believe that car dealerships will offer a wider variety of EVs than any
other solution and that those EVs will be better, offer more options and be less expensive than the ICE alternative. It could be
said that for the first time in over one hundred years we have Moore’s Law in transportation. EVs may improve so dramatically
and so quickly that the ownership experience will be closer to that of the laptop or the smart phone. In fact, studying the adoption
curves of both those relatively new technologies might be a useful data source when trying to forecast the consumer adoption of
EVs, and therefore EV charging infrastructure, in the coming years.
A Massive Need for Charging Infrastructure
EV charging will
be required in just about any location where visitors, residents, guests or workers park cars. Slower speed charging such as Level
I (120 volt/5 miles per hour) and Level II (240 volt/25 miles per hour) will suffice for most urban environments. Workplace, retail,
airport, transit terminal, healthcare, hospitality and any other dwell type environment will be well served with offering around
25 electric miles for each hour of charging which means that Level II will suffice. For certain fleet requirements such as taxis,
first responders and certain shared and autonomous vehicles, direct current fast charging (DCFC 50+kW 200 miles per hour and up)
may be required. Corridor environments such as rest areas on Interstates and Highways will require direct current fast charging
(“DCFC”) because, in general, consumers will not want to wait for long periods of time while their vehicles re-charge
during longer journeys. Though we believe that DCFC is an appropriate solution in these types of environments we also believe that
it is currently being oversold by many players in the industry. There is, in some camps, an effort to replace the hundred-year-old
practice with something similar, through the installation of very fast destination charging just like the current gas station model.
It is much more expensive to deploy DCFC than Level I or II charging and it is also much more expensive to operate it. While it
might benefit certain incumbents and new entrants to push this model, we believe that consumers will learn to enjoy the new habit
of fueling where they were already going and as such will decreasingly seek out destinations which require a special trip for their
fueling needs. As mentioned above there is rarely a need to charge for more than two hours in any given day on Level II chargers
and the great majority of vehicles are parked somewhere for much longer than that. Therefore, we believe that the extra expense
associated with DCFC does not seem warranted or supportable except in specialized use cases like those described above. Envision’s
products deliver all three levels and the level selected is based upon our customers’ preferences.
Regardless of which
level of EV charging is contemplated in any given location, a source of electricity will have to be delivered to the EV charger
itself. The charger, in turn, will have to be located somewhere that an EV can access it conveniently. In the early days of charger
deployment, most organizations will pick “low hanging fruit” locations for charger installations if they have them.
A typical low hanging fruit scenario would be one in which there is a sufficient electrical circuit close enough to a parking space
to allow for the relatively simple and inexpensive installation and connection of the EV charger to the source of electricity.
For example, there might be a parking space against an outside wall of a building, which has an electrical circuit conveniently
located on the inside of the same wall, thus allowing for an easy connection by penetrating the wall and extending the circuit
to the parking space. Most parking spaces, however, are not found in such convenient locations. In fact, most parking spaces are
several hundred feet away from the nearest available circuit which is sufficient to support EV charging. This is not surprising
as it would be unlikely that any developer of a parking environment would run any more electrical circuit than is required to power
lighting and perhaps a parking metering machine. Furthermore, the typical commercial real estate property, which has adjacent parking,
will not only have no electrical circuits deployed in the parking lot but equally it is likely that the property does not have
sufficient electrical infrastructure to support EV charging at any meaningful scale. Most properties were not designed with the
significant increase in load which EV charging creates. A typical EV is the equivalent of a single-family residence in terms of
the load it creates. Having 10 EVs charge at a retail environment is like supplying electricity to 10 homes – generally not
contemplated in the original design. Thus, delivering EV charging to most parking spaces becomes an involved, time consuming, expensive
and disruptive process requiring the involvement of multiple professions and civil and electrical contracting. A typical parking
lot installation might require:
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Architectural design
including ADA compliance
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Permitting – construction,
electrical, easements etc.
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Trenching and boring
for foundations
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Electrical infrastructure
upgrades – switch gear, transformers etc.
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Installation contracting
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Interconnection with
the utility
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Parking lot resurfacing
and striping
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3
rd
party
leases or other agreements
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When the installation
is complete and successful, the fixed EV charger will generate a utility bill which can be as high as $40 to $80 thousand dollars
over 20 years (in California) and might often result in demand charges and utility billing tier increases.
Wireless Charging Technologies and
Other New and Developing Charging Initiatives
The development
and commercialization of wireless or inductive charging is in advanced stages. There are several companies such as Qualcomm, Momentum
Dynamics, Wave, Hevo and Witricity which have commercially available wireless chargers for EVs and larger electrified vehicles.
We believe that our products, particularly the EV ARC™, are ideal for the integration of wireless charging for two reasons:
(i) the wireless power transmitters can be integrated directly into our base pads whereas traditional grid-connected products may
have to install the transmitters into the concrete or asphalt, requiring further permitting and construction activities and, (ii)
wireless charging is about 5% less efficient than conductive (plugging in) charging which means that an operator of a large number
of vehicles or a network of chargers will find that their utility bill increases by 5% when they upgrade to wireless charging because
of this loss. Our products generate all their own energy from renewable sources without generating a utility bill so there will
be no increase in energy costs for a fleet operator when they convert to wireless charging with Envision products.
We believe that
wireless charging will play a major role in the future of EV charging because (a) the consumer will demand the ease and convenience
of simply parking their car and having it fuel without their having to plug in and (b) fleet operators will no longer have to be
concerned that their employees have plugged EVs in at the end of a shift. So long as they are parked they will fuel automatically.
Management believes that increased adoption of wireless or inductive charging constitutes another significant opportunity for a
differentiated advantage and, as a result, growth in the future.
Another area in
the charging ecosystem which provides major opportunities and challenges is 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 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. The EV-Standard™ product 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.
Our Target Markets – Outdoor
Media
As the value of
traditional advertising media such as television, radio, and print diminishes, advertisers in the United States and abroad are
looking for new outlets to capture the attention of consumers. Industry experts believe that there will be significant growth in
spending on outdoor advertising platforms particularly when mounted on street furniture. We anticipate this is particularly true
relative to digital content. The DOOH (digital out of home) industry, from what we understand, is enjoying a period of rapid growth
and may continue to do so for the foreseeable future. Management has seen statistics suggesting DOOH and other outdoor advertising
spending exceeded $7B in the United States and $25B globally in 2014, with massive potential markets such as China just beginning
to enter the marketplace. (Source: Magna.)
“Digital Out
of Home Advertising” is the third fastest growing advertising medium, according to Magna. 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.
In November 2017,
we signed an agreement with OutFront Media (NYSE: OUT). Through this agreement OutFront will market the sponsorship and naming
rights for networks of EV ARC™ products distributed across major U.S. cities, using the same business model that OutFront
has previously used to monetize the deployment of bike sharing programs such as the Deco bike program in San Diego, California.
OutFront ranks in the top three outdoor advertising companies in the United States and has been successful selling similar sponsorship
and naming rights opportunities. We believe that a significant opportunity exists, though our relationship with OutFront, to deploy
large numbers of EV ARC™ products in multiple cities across the U.S.. OutFront has identified corporate prospects for this
model. That prospect has toured our facility and is advancing the discussions with OutFront as of May 15, 2018.
While we believe
there is a great deal of pent up demand for out of home advertising spending in the United States, there are also significant barriers
to the widespread deployment of such displays, which we believe enhance our competitive position:
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a)
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Entitlement – traditional signs and billboards are increasingly
difficult to take through the permitting and zoning process. Some jurisdictions have outlawed them entirely.
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b)
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Public perception – the value of outdoor advertising becomes
questionable when the constituency views the medium as anti-social, as is often the case with traditional billboards.
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c)
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Energy Costs – lit and digital billboards are major energy
consumers.
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d)
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Content updates – signs and billboards can be slow and costly
to update.
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e)
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Civil engineering and construction – signs and billboards require
costly installations and electrical connections.
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We believe Envision
has products that solve each of the above impediments to billboard and DOOH infrastructure deployments. We, together with our partner,
OutFront Media (NYSE:OUT), are currently in the process of working to secure agreements with one or more cities to allow for the
deployment of our advertising or sponsorship funded, solar powered EV chargers. We are also working with individuals and organizations
to encourage investment in our products deployed in this manner.
The Envision products
are renewably energized, so they are shrouded in what is often referred to as the “Green Halo.” We have observed that
the green/sustainable aspect of our products can make them more likely to win approval through the entitlement process, while also
making them more popular with an increasingly environmentally-conscious public. The dual effect, we believe, is that our products
may be deployable in locations where traditional signs or billboards may be denied. We believe these products will be more popular
with an advertisers’ intended audience and, as a result, advertisers may be willing to pay for them either as a capital purchase
or through an existing payment schedule they have with vendors such as Lemar, Clear Channel or JC Decaux, or through sponsorship
and naming rights such as those OutFront Media intends to sell. Envision plans to sell products either directly to the end user
or to one of the brokerages or to maintain title to the charging products while collecting a fee for the sponsorship and naming
rights. We do not currently intend to sell space to content providers except in select locations as there are other well established
companies doing that to which we can sell. Technology advances in advertising operations are making it increasingly possible to
place digital content on advertising screens through the leveraging of automated platforms. Google is piloting programs in the
United Kingdom for place and time-based advertising on digital screens. Management is meeting with various companies involved in
the automatic placement of digital content on outdoor screens to ascertain whether there is a model which will allow us to successfully
monetize the EV ARC™ Digital without the active involvement of a third party, thus avoiding an increase in associated direct
costs. In the case of the sponsorship deals contemplated with OutFront Media, Envision may retain title to the products throughout
the sponsorship period and charge fees for the rights to the network. These fees would constitute recurring revenue for the Company.
At the end of the sponsorship period, which is currently contemplated by OutFront Media to be in the three to five year range,
the rights to the network would revert to Envision at which point we may be at liberty to sell them again.
Our products produce
more energy than they consume through the display of advertising content, so they do not have ongoing operating expenses associated
with energy costs. In fact, they can also support other local energy requirements such as lighting or, even more politically important,
EV charging infrastructure or disaster preparedness.
Each of our products
can be equipped with a wide area network (“WAN”) connection that can be used to monitor the condition and performance
of the unit. This WAN connection can be used equally to deliver content updates to our products’ advertising screens and
to network the products so that they can be intelligently linked to one another as well as to local consumers through NFC (Near
Field Communications). This means that our products can be deployed without any physical connection to power or telecommunications
while delivering the same value as those that have gone through expensive construction processes to physically connect to power
and data.
Our Target Markets – Energy
Security
Power outages cost
the United States $200 billion per year according to the Department of Energy. A report in the Wall Street Journal stated that
the United States is nine key sub stations away from a total black out, and further reported if one of a few transformer companies
who could supply the hardware to repair the sub stations was also disabled, that the black outs would last 18 months. We believe
that energy security will be an important
growth market and that our Solar Tree®
and EV ARC™ products with ARC technology energy storage can address this and provide possible growth opportunities.
According to insideenergy.org,
the grid disruption database shows a marked increase in outages from 2000 through the first half of 2014. Outages fluctuate from
month to month, season to season, and year to year, but the trend-line shows a steady rise. Here are some other interesting observations:
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·
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The five-year annual
average of outages
doubled
every five years
, which means the current five-year annual average is four times
what it was fifteen years ago:
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For 2000 to 2004, there were an average
of 44 reported grid outages per year.
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From 2005 to 2009, there were an average
of 100 reported grid outages per year.
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From 2010 to 2013 (a four-year period),
there were an average of 200 reported grid outages per year.
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In the first six months
of 2014, there were 130 reported grid outages – which puts that six-month period as having more outages than all but four
years
since
2000.
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Comparing 2000 to
2013, the monthly average grid outages increased six-fold
: In 2000, there were an average of 2.5 grid disruption events a month.
In 2013, there were an average of 14.5 disruption events a month. In the first half of 2014, there were 21.7 events a month. In
2011, the year with the most reported outages, there were an average of 25.6 reported events each month.
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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. 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
not be operational 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, our EV ARC™ product deployed for the government of the U.S. Virgin Islands was subjected to category five, 185mph 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. Similarly, our Solar Tree® product has survived hurricane force winds in Florida and
the foothills of the Rockies.
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 customers’
request. In one instance we have a utility company customer which is using the EV ARC™ product to charge EVs but 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 distributed
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.
Using solar power
to reduce an entity’s utility bill is not new and is now a highly competitive market, however, Envision believes that the
growth in energy security products will create a significant opportunity for the Company. We have overcome many hurdles inherent
in the production of reliable, cost effective, stand alone, renewable energy generation and storage solutions. Our EV ARC™
product is essentially a micro-grid which generates, stores, and makes available, day or night, clean, reliable electrical energy.
This technology is already offering our customers an alternative to back-up generators or other expensive measures which they feel
compelled to own to safeguard their increasingly important energy supplies. Many of our customers have expressed that they view
the fact that EVs can charge from our products even when the utility grid fails as one of the key components in
their decision to buy. Their ability
to connect external devices to the EV ARC™ power outlets and “shore power” cable may allow them to eliminate
the need for gasoline or diesel generators where EV ARC™ is deployed.
Customers like New
York City and Caltrans who own increasingly large fleets of EVs cannot take the chance that there is another major grid outage
such as the one that was caused by Hurricane Sandy. The impact of such an outage would be that the EVs would be grounded during
such an event. Our products provide a hedge against such a catastrophe because they are immune to grid interruptions.
Distributed generation
photovoltaic solar projects have historically been rooftop or adjacent property installations. Rooftops have a number of inherent
problems that are avoided by utilizing parking lots and the top levels of parking structures for solar installations. Rooftops
are populated with mechanical equipment, vents, skylights, elevator overruns and most importantly, roofing materials and systems
including waterproof membranes, that require maintenance, are warranted, and must be replaced more often than solar PV products.
Rooftops are also limited in the area which is required for large scale energy production by PV systems. The low returns generated
by many roof top and adjacent property solar deployments are often not sufficient inducement to a real estate owner to expose themselves
to the encumbrance and risks associated with those sorts of deployments, which in part might explain the relatively low adoption
of this otherwise beneficial technology.
There are over 800
million parking spaces in the United States. As the adoption of Electric Vehicles increase, we believe parking lots will be ideal
locations for EV charging infrastructure, and Envision’s products with SunCharge™ will offer an attractive option to
any entity considering the deployment of such solutions.
We believe, globally,
solar deployments are growing significantly. While much of the growth has been focused on competing with utilities to provide cheaper
electricity, we believe that there will be a significant growth in Solar 3.0 in which solar energy is used to enable services and
amenities where the grid is unavailable or too unreliable for the intended use. Electrical energy is becoming increasingly vital
to almost everything that we do and our requirements for it are no longer restricted to indoor locations where standard outlets
are readily available. Solar powered products, like those that we produce, which can deliver reliable energy in locations where
there is insufficient circuit, like parking lots, streets, parks, and public spaces, appear to have significant market opportunities.
Our deployment speed is also important to our marketing efforts. In most cases, we deploy our EV ARC™ and Solar Tree®
products in active parking lots of active businesses. Whether we are deploying for EV charging, energy security, or for marketing
purposes, our prospective customers often consider business disruption in their analysis and buying decisions. We believe that
our products can be installed faster than any other products in the industry, making deployment of Envision products less negatively
impactful than the deployment of our competitors’ products. The potential loss of revenue or opportunity caused by a torn-up
parking lot can, over time, be quite substantial. We believe our deployment speed will increasingly contribute to Envision’s
competitive edge.
Customer Concentration
During 2017,
the Company had two customers that combined to exceed 40% of our revenue, and in the first quarter ended March 31, 2018, two
customers who combined to account for 84% of our total revenue in that quarter. Those customers were New York City and the
State of California in 2017, and in the first quarter of 2018, New York City and the City of Pittsburg. In both cases we receive
purchase orders from multiple sub entities or departments, although in the first quarter of 2018, a single department in each
of the City of New York and the City of Pittsburg were responsible for all of such 84% of our total revenue. The
purchase orders aggregate under single contracts, but we believe that the selling opportunities are far more varied than
suggested by the total revenues associated with those contracts. Furthermore, we expect future sales of our products to be
among a more diversified customer base in the future. We believe that it is also important to note that the winning, by the
Company, of contracts which have generated millions of dollars in sales, with such notable customers as New York City and the
State of California has come about as the result of a deliberate strategic focus on large and difficult to win customers
with the potential for repeat, significant orders from diversified entities under a single contract vehicle. We do not,
therefore view the customer concentration in 2017 or the first quarter of 2018 as negative, viewing it instead as validation
of our strategy to win these types of large and recurring customers.
Lender Convertible Debt Instruments
On September
18, 2017, Envision entered into a revolving secured convertible promissory note (the “Revolver”) and a secured
convertible promissory note (the “Note”) 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, by giving five (5) business days written notice to the Lender of a request for borrowings (the
“Evaluation Period”). During the Evaluation Period, if Lender determines in its commercially reasonable judgement
that the customer (“Customer”) is not credit worthy, Lender may refuse to advance the Draw Down. 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 the Revolver to reflect any changes in the 12-month
LIBOR rate as quoted at 1:00 pm Eastern Time in New York, New York on that day, or if that day is not a business day, on the
next business day. 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, dated September 18, 2017. 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 conversion election to convert, prior to any
prepayment of such Draw Down by the Company, 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. The Revolver is secured by a
second priority perfected recorded security interest in all of the assets of the Company, evidenced by a Security Agreement
with the Lender.
As additional consideration
for the loan made by the Lender to 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 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.
In addition to the
Revolver, the Lender agreed to lend $1,500,000 to the Company pursuant to the Note. The Company covenanted to use the proceeds
of the Note exclusively to pay-off the entire outstanding balance of that certain loan and security agreement that the Company
has with Silicon Valley Bank, dated October 30, 2015. 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
“Note Interest Rate”). The Note 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 1:00 pm Eastern Time in New York, New York 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 three hundred and sixty-four (364) days
after the date of the Note (the “Note Maturity Date”), 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 that certain Security Agreement by and between the Company and the Lender, dated September 18, 2017. At any time
until the Note 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 “Note Conversion
Amount”), into such number of fully paid and nonassessable shares of the Company’s common stock as is determined by
dividing the Note 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), which resulted in the issuance of warrants to
purchase up to 2,000,000 shares of the Company’s common stock.
During any time
when the Note or the Revolver 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 and the Revolver.
As of March 31,
2018, the balance outstanding under the Note was $1,500,000 while the balance outstanding under the Revolver was $290,000.
Summary of Convertible Notes
As of
March 31, 2018, we had a total of $2,097,116 of convertible notes outstanding, plus accrued but unpaid interest of $162,649, all of
which are convertible into shares of our common stock and have the maturity dates and per share conversion prices indicated
on the following table:
Outstanding Principal and Accrued Interest of Note
|
|
Payee
|
|
Interest Rate
(Simple)
|
|
Conversion Price
|
|
Maturity Date
|
|
Total Conversion Shares
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500,000
|
|
|
SFE VCF (1)
|
|
|
(1
|
)
|
|
$
|
0.263
|
/Share
|
|
|
September 17, 2018
|
|
|
|
5,703,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
290,000
|
|
|
SFE VCF (1)
|
|
|
(1
|
)
|
|
$
|
0.263
|
/Share
|
|
|
July 15, 2018
|
|
|
|
1,102,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
163,269
|
|
|
Desmond Wheatley
|
|
|
10
|
%
|
|
$
|
0.15
|
/Share
|
|
|
(2
|
)
|
|
|
1,088,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,838
|
|
|
John Evey (3)
|
|
|
10
|
%
|
|
$
|
0.20
|
/Share
|
|
|
July 1, 2019
|
|
|
|
619,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,658
|
|
|
Pegasus (4)
|
|
|
10
|
%
|
|
$
|
0.33
|
/Share
|
|
|
December 31, 2019
|
|
|
|
553,510
|
|
|
(1)
|
SFE VCF is the lender that made the Revolving Purchase Order credit
line loan (now having an outstanding balance of $290,000) to the Company, and the renewable term loan in the amount of $1,500,000
that refinanced our prior loan from Silicon Valley Bank. The interest rate on both these loans is adjustable on a monthly basis
to (a) 400 basis points over the 12-month LIBOR rate (currently, 2.67% per annum), on the renewable term loan, and (b) 600 basis
points over the 12-month LIBOR rate, on the Revolving Purchase Order credit line.
|
|
(2)
|
Desmond Wheatley, our Chief Executive Officer, is issued this convertible
note, which is adjusted every pay period, to reflect deferred compensation payable to Mr. Wheatley pursuant to his employment agreement
with the Company. The maturity date of the note depends on when Mr. Wheatley and the Board of Directors agree that adequate cash
is available, or when specified milestones agreed upon by the Board of Directors and Mr. Wheatley are achieved. These milestones
have not yet been specified.
|
|
(3)
|
Mr. Evey is a former director of the Company. Currently, the Company
is paying down principal only at the rate of $3,000 on the last day of every fiscal quarter. This note bears simple interest at
the rate of 10% per annum. Mr. Evey and the Company recently entered into an amendment to this note agreement extending the maturity
date to July 1, 2019 and adding a lock-up covenant by Mr. Evey until July 1, 2019, commencing on the closing of this offering,
for any conversion shares he may be issued if he converts all or a portion of the note, and until December 31, 2018 for any other
shares he may own. Prior to the amendment, Mr. Evey was forbearing on asserting collection rights pursuant to a verbal understanding
of the parties. As of March 31, 2018, the outstanding principal balance of the note was $59,616, with $64,222 of accrued interest.
|
|
(4)
|
Pegasus is a former landlord of the Company. This note bears simple
interest at the rate of 10% per annum. The original principal balance was $100,000 and as of March 31, 2018, accrued interest was
$82,658. The Company and Pegasus recently entered into an amendment to their loan agreement extending the maturity date to December
31, 2019 and adding a lock-up covenant by Pegasus until December 31, 2019, commencing on the closing of this offering, for any
conversion shares that may be issued to it if it converts all or a portion of the note, and for any other shares of our common
stock it may own.
|
Government Regulation
Businesses in general
and solar energy companies in particular are subject to extensive regulation at the federal, state, and local level. We are subject
to extensive government regulation of employment, health, safety, working conditions, labor relations, and the environment in the
course of the conduct of our business. In order for our customers to enable the installation of some of our products, they generally
are required to obtain permits from local and other governmental agencies. In the case of our grid tied products, they must comply
with the applicable rules and regulations of the relevant state public utility agencies. In order for our customers to take advantage
of available tax and other governmental incentives associated with the installation of solar power production facilities, and the
production and use or sale of solar power, they must comply with the applicable regulatory terms and conditions. Government regulation
may have a material adverse impact on our business, operating results, and financial condition.
Employees
As
of the date of this prospectus, we had 17 employees, and seven additional individuals engaged through a temporary employment
agency. The individuals we utilize through the temporary employment agency work for us on a full-time basis but were hired
through an agency to maximize our flexibility and to reduce the risks and costs associated with full time employees. We also
currently have 3 interns on staff assisting the engineering and marketing departments.
Seasonality
Our operations
are not expected to be materially affected by seasonality.
MANAGEMENT
Executive Officers and Directors
The names of all
current executive officers and members of the Board of Directors and certain information regarding them are set forth in this section
of the prospectus. Our directors hold office until the earlier of their death, resignation, removal by stockholders, or until their
successors have been qualified. Our officers are selected by, and serve at the pleasure of, our Board of Directors.
The following table
sets forth information regarding our executive officers and directors as of May 31, 2018:
Name
|
Age
|
Position
|
|
|
|
Desmond Wheatley
|
52
|
Chief Executive Officer, President and Chairman of the Board of Directors
|
Chris Caulson
|
49
|
Chief Financial Officer
|
Jay Potter
|
53
|
Director
|
Anthony Posawatz
|
57
|
Director
|
Peter Davidson
|
58
|
Director
|
Biographies of Directors and Officers
Desmond Wheatley
has served as our president, chief operating officer, and secretary since September 2010, and was named chief executive officer
and a director in August 2011 and became the chairman of our board of directors in December 2016. Mr. Wheatley has two decades
of senior international management experience in technology systems integration, energy management, communications and renewable
energy. Prior to joining Envision, Mr. Wheatley was a founding partner in the international consulting practice Crichton Hill LLC
in 2009 and chief executive officer of iAxis FZ LLC, a Dubai based alternative energy and technology systems integration company,
from 2007 to 2009. From 2000 to 2007, Mr. Wheatley held a variety of senior management positions at San Diego based Kratos Defense
and Security Solutions, fka Wireless Facilities with the last five years as president of ENS, the largest independent security
and energy management systems integrator in the United States. Prior to forming ENS in 2002, Mr. Wheatley held senior management
positions in the cellular and broadband wireless industries, deploying infrastructure and lobbying in Washington DC on behalf of
major wireless service providers. Mr. Wheatley’s teams led turnkey deployments of thousands of cellular sites and designed
and deployed broadband wireless networks in many MTAs across the United States. Mr. Wheatley has founded, funded, and operated
four profitable start-up companies and was previously engaged in merger and acquisition activities. Mr. Wheatley evaluated acquisition
opportunities, conducted due diligence and raised commitments of $500 million in debt and equity. Mr. Wheatley sits on the boards
of Admonsters, located in San Francisco California, and the Human Capital Group, located in Los Angeles, California, and was formerly
a board member at DNI in Dallas, Texas.
Mr. Wheatley’s
qualifications are: leadership experience-Mr. Wheatley has been our chief executive officer since August 2011 and president since
September 2010; industry experience-Mr. Wheatley has held numerous executive positions in international organizations including
five years as president of a publicly traded technology and energy management company. Mr. Wheatley was the founding member of
an international consulting company with expertise in the renewable and energy sectors. He has held various executive level positions
in multiple infrastructure deployment companies and has been involved in energy management and renewables since 2002; finance experience-Mr.
Wheatley was founding partner in multiple companies with direct responsibilities for their financial success and stability. He
has participated in $500 million of capital raises and held full profit and loss responsibility for a public company with approximately
$70 million of revenues; and education experience -Mr. Wheatley was educated in his native Scotland.
Chris Caulson
has been our Chief Financial Officer since August 2011 and previously led our accounting and finance functions since June 2010.
Mr. Caulson brings over 25 years of financial management experience including security infrastructure and technology integration,
wireless communications, and telecommunications industries. From 2004 into 2009, Mr. Caulson held various positions including Vice
President of Operations and Finance of ENS, the largest independent technology systems integrator in the United States and a wholly-owned
division of Kratos Defense & Security Solutions, Inc. In this role, Mr. Caulson was responsible for the operational and financial
execution of multiple subsidiaries and well over $100 million of integration projects including networks for security, voice and
data, video, life safety and other integrated applications. Prior to 2004, Mr. Caulson was chief financial officer of Titan Wireless,
Inc., a $200 million international telecommunications division of Titan Corp (subsequently purchased by L-3.). Mr. Caulson, who
has a Bachelor of Accountancy degree from the University of San Diego, began his career with the public accounting firm Arthur
Andersen.
Mr. Caulson’s
qualifications are: leadership experience-Mr. Caulson has been our Chief Financial Officer since August 2011 and has held similar
positions in multiple other companies; finance experience-Mr. Caulson has over 25 years of experience in financial related positions
and was an external auditor in the public accounting firm of Arthur Andersen; industry experience-Mr. Caulson has held multiple
financial related executive positions in publically traded companies; and education experience-Mr. Caulson has his Bachelor of
Accountancy degree from the University of San Diego.
Jay Potter
has served as a director of the Company since 2007. Mr. Potter has been active in the financial and energy industries for over
20 years and has participated, directed or placed over two hundred million dollars of capital in start-up and early stage companies.
In 2006, Mr. Potter served as the interim chief executive officer of EAU Technologies Inc. (Symbol: EAUI:OB), a publicly traded
company specializing in non-toxic sanitation and disinfectant technologies. In 2007, he founded GreenCore Capital, Inc., an early
stage venture capital company, and serves as that company’s chairman and chief executive officer. He has served as chairman,
president and chief executive officer of Nexcore Capital, Inc. and its financial service affiliates since co-founding that company
in 1996. Prior to December 2012, he was a registered representative with Allied Beacon Partners, Inc., a registered securities
broker dealer firm that has served as
the placement agent on certain of the Company’s private placements of securities. Effective December 2012, without admitting
or denying the findings, Mr. Potter entered into a Letter of Acceptance, Waiver and Consent with the Financial Industry Regulatory
Authority (FINRA) to settle alleged violations of FINRA Rules 2010, 1122, IM-1000 and Article V, Section 2(c) of the Bylaws that
impose certain reporting obligations on FINRA members, resulting in a fine and temporary suspension. Mr. Potter serves as the chairman
of Sterling Energy Resources, Inc. (symbol: SGER:PK), a public oil and gas company involved in the acquisition, exploration and
development of oil and natural gas from its numerous leases. Mr. Potter serves as a director of Noble Environmental Technologies
Corporation and Fulcrum Enterprises, among others.
Mr. Potter’s
qualifications are: leadership experience-Mr. Potter has held various executive positions at multiple companies and is a Board
member of Envision, Sterling Energy Resources, Inc., GreenCore Capital, LLC, and Noble Environmental Technologies Corporation;
industry experience-Mr. Potter has held numerous executive level positions for companies focusing on renewable energies and other
environmentally focused ventures; finance experience-Mr. Potter raised and placed over $200 million of capital into early stage
companies, primarily in energy, alternative energy and environmental businesses; and education experience-Mr. Potter attended San
Diego State University.
Anthony Posawatz
has served as a director of the Company since February 2016. He currently serves on our Audit, Compensation and Nominating Committees.
Mr. Posawatz has been an automotive industry professional for over 30 years. Since September 2013, Mr. Posawatz has served as the
president and chief executive officer of Invictus iCAR, LLC, an automotive innovation consulting and advisory firm focused on assisting
energy and auto clean technology companies. He served as the president, chief executive officer, and a director of Fisker Automotive
from August 2012 to August 2013. Mr. Posawatz worked for General Motors (“GM”) for more than 25 years. As GM’s
vehicle line director for the Chevrolet Volt and key leader of global electric vehicle development, he was responsible for bringing
the Chevrolet Volt from concept to production (beginning in 2006 as a founding member and employee #1). He currently serves as
a member of several boards of directors, including INRIX, Nexeon, SAFE – Electrification Coalition, Momentum Dynamics, and
Electrification Coalition. Mr. Posawatz is a licensed professional engineer (P. E.) in Michigan and was both a General Motors Undergraduate
Scholar at Wayne State University where he earned a Bachelor of Science degree in Mechanical Engineering, and a Graduate Fellow
at Dartmouth College, Tuck School of Business where he earned a Master of Business Administration degree.
Mr. Posawatz’s qualifications
are: leadership experience-Mr. Posawatz has held various executive level positions including chief executive officer of several
companies and is a board member for multiple organizations; industry experience-Mr. Posawatz has led the development of several
electric vehicle products and sits on the board of multiple industry organizations; finance experience-Mr. Posawatz had profit
and loss responsibilities in several organizations; and education experience-Mr. Posawatz is a licensed professional engineer (P.
E.) in Michigan and was both a General Motors Undergraduate Scholar at Wayne State University where he earned a Bachelor of Science
degree in mechanical engineering, and a Graduate Fellow at Dartmouth College, Tuck School of Business where he earned a Master
of Business Administration degree.
Peter Davidson
has served as a director of the Company since September 2016. He currently serves on our Audit (Chairman), Compensation and Nominating
Committees. Mr. Davidson has been an adjunct professor at Columbia University’s School of International and Political Affairs
since 2014 and a non-resident fellow at Columbia University’s Center on Global Energy Policy since 2015. In May 2013, Mr.
Davidson was appointed by President Obama to serve as the executive director of the Loan Program Office (“LPO”) at
the United States Department of Energy, a position he held until June 2015. At the LPO, Mr. Davidson oversaw the program’s
more than $30 billion portfolio of loans and loan guarantees, making it the largest project finance organization in the United
States government. Mr. Davidson was responsible for ensuring that the LPO carried out its mission to accelerate the deployment
of innovative clean energy projects and domestic advanced vehicle manufacturing. Prior to leading the LPO, Mr. Davidson was the
senior advisor for energy and economic development at the Port Authority of New York and New Jersey (from 2012 to 2013) and was
the executive director of New York State’s economic development agency, the Empire State Development Corporation (from 2009
to 2011). From 1989 to 2014, Mr. Davidson was an entrepreneur who founded and managed several separate companies in television
and radio broadcasting, outdoor advertising, and traditional and digital marketing services, with a focus on the Hispanic market.
From 1986 to 1989, he was an executive in the investment banking division of Morgan Stanley & Co. Since 2001, Mr. Davidson
has also been the chairman of the JM Kaplan Fund, a New York City based philanthropic
organization. Under his leadership,
grant making has focused on reducing New York City’s carbon footprint, supporting immigrant integration in the U.S. and archeological
conservation world-wide. Mr. Davidson received his Master of Business Administration degree from Harvard University in 1986 and
his Bachelor of Arts degree from Stanford University in 1981.
Mr. Davidson’s
qualifications are: leadership experience-Mr. Davidson has held various executive level positions at multiple companies. Further,
he has served as executive director of the Loan Program Office of the United States Department of Energy, the executive director
of the Empire State Development Corporation, and is the chairman of the JM Kaplan Fund; industry experience-Mr. Davidson is a non-resident
fellow at Columbia University’s Center on Global Energy Policy and the chairman of the JM Kaplan Fund, a New York City based
philanthropic organization where grant making is focused on reducing New York City’s carbon footprint, supporting immigrant
integration in the United States, and archeological conservation world-wide; finance experience-Mr. Davidson has had profit and
loss responsibilities in several organizations. Further, while working as the executive director of the Loan Program Office of
the United States Department of Energy, he oversaw the program’s more than $30 billion portfolio of loans and loan guarantees,
making it the largest project finance organization in the United States government; and education experience-Mr. Davidson received
his Bachelor of Arts degree from Stanford University and a Master of Business Administration degree from Harvard University.
Family Relationships
There
are no family relationships among any of our executive officers and directors.
Director Independence
Our board of directors
currently consists of four directors. Two of our directors are “independent” as defined in Rule 4200 of FINRA’s
listing standards and the NASDAQ Capital Market criteria. In accordance with the standards of the NASDAQ Capital Market, two of
our directors are considered “independent” because they are not employees or executive officers of the Company, and
have not been paid more than $120,000 of compensation by the Company, other than for their service as members of our Board of Directors,
in any consecutive 12-month period during the past three years. Furthermore, they have no family members being paid compensation
by the Company, and they do not serve as directors or officers of any companies that conduct business with the Company as outside
vendors or service providers. We plan to appoint additional independent directors to our board of directors in the future.
Board Leadership
Structure and Role in Risk Oversight
Our Board of Directors
focuses on the most significant risks facing us and our general risk management strategy, and also ensuring that risks undertaken
by us are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management
is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach
for addressing the risks facing us and that our Board leadership structure supports this approach.
Board Committees
Audit Committee
.
The Audit Committee of the Board of Directors currently consists of two independent directors of which at least one qualifies as
a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Peter Davidson is the Chairman of the Audit Committee
and financial expert, and Anthony Posawatz is the other director who is a member of the Audit Committee. The Audit Committee's
duties are to recommend to our Board of Directors the engagement of the independent registered public accounting firm to audit
our consolidated financial statements and to review our accounting and auditing principles. The Audit Committee reviews the scope,
timing and fees for the annual audit and the results of audit examinations performed by any internal auditors and independent public
accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee would
at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship
that would interfere with the exercise of independent judgment as
a committee member and who possess an
understanding of consolidated financial statements and generally accepted accounting principles. The charter of the Audit Committee
is available on our website at www.envisionsolar.com.
Compensation
Committee
. The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our
executive officers and recommends to the Board stock option grants for our executive officers. The members of the new Compensation
Committee are Anthony Posawatz and Peter Davidson. Each of Messrs. Posawatz and Davidson are independent under Nasdaq’s independence
standards for compensation committee members. Our chief executive officer often makes recommendations to the Compensation Committee
and the Board concerning compensation of other executive officers. The Compensation Committee seeks input on certain compensation
policies from the chief executive officer. The charter of the Compensation Committee is available on our website at www.envisionsolar.com.
Nominating and
Governance Committee
. The Nominating and Governance Committee is responsible for matters relating to the corporate governance
of our Company and the nomination of members of the Board and committees thereof. The members of the Nominating and Governance
Committee are Anthony Posawatz and Peter Davidson. Each of Messrs. Posawatz and Davidson are independent under Nasdaq’s independence
standards. The charter of the Nominating and Governance Committee is available on our website at www.envisionsolar.com.
Code of Ethics
Our Board has adopted
a Code of Ethics that applies to all of our directors, officers and employees. Any waivers of any provision of this code for our
directors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of
this code for an employee or a representative may be granted only by our chief executive officer or principal accounting officer.
We will provide any person, without charge, a copy of this Code. Requests for a copy of the code may be made by writing to Envision
at 5660 Eastgate Drive, San Diego, California 92121, Attention: Chief Financial Officer.
Limitation of Liability and Indemnification of Officers
and Directors
Under Nevada General
Corporation Law and our articles of incorporation, our directors and officers will have no personal liability to us or our stockholders
for monetary damages incurred as the result of the breach or alleged breach by a director or officer of his “duty of care.”
This provision does not eliminate or limit the liability of a director or officer for (i) acts or omissions that involve intentional
misconduct or a knowing violation of law or (ii) the payment of dividend in violation of Section 78.300 of the Nevada Revised Statutes.
This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross
negligence.
The effect of this
provision in our articles of incorporation is to eliminate the rights of Envision and our stockholders (through stockholder’s
derivative suits on behalf of Envision) to recover monetary damages against a director or officer for breach of his fiduciary duty
of care (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses
(i) through (ii) above. This provision does not limit nor eliminate the rights of Envision or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a director’s or officer’s duty of care. Nevada
General Corporation Law grants corporations the right to indemnify their directors, officers, employees and agents in accordance
with applicable law. Our bylaws provide for indemnification of such persons to the full extent allowable under applicable law.
These provisions will not alter the liability of the directors under federal securities laws.
We intend to enter
into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements,
among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines,
and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Envision,
arising out of such person’s services as a director or officer of Envision, any subsidiary of Envision or any other company
or enterprise to which the person provides services at the request of Envision. We believe that these provisions and agreements
are necessary to attract and retain qualified directors and officers.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling Envision pursuant
to the foregoing provisions, Envision has been informed that in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following Compensation
Discussion and Analysis describes the material elements of compensation for our executive officers identified in the Summary Compensation
Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described
below, our board of directors makes all decisions for the total direct compensation of our executive officers, including the Named
Executive Officers. We do not have a compensation committee, so all decisions with respect to management compensation are made
by the whole board.
Compensation Program Objectives and
Rewards
Our compensation
philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward
the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following
this philosophy, we consider all relevant factors in determining executive compensation, including the competition for talent,
our desire to link pay with performance, the use of equity to align executive interests with those of our stockholders, individual
contributions, teamwork, and each executive’s total compensation package.
The compensation
received by our Named Executive Officers is based primarily on the levels at which we can afford to retain them and their responsibilities
and individual contributions. Our compensation policy also reflects our strategy of minimizing general and administration expenses.
To date, we have not applied a formal compensation program to determine the compensation of the Named Executives Officers. In the
future, our Board of Directors expects to apply the compensation philosophy and policies described in this section of our annual
report.
The primary purpose
of the compensation and benefits we consider is to attract, retain, and motivate highly talented individuals who will engage in
the behavior necessary to enable us to succeed in our mission, while upholding our values in a highly competitive marketplace.
Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each
Named Executive Officer are subject to the annual review of our compensation committee who will make recommendations regarding
compensation to our Board of Directors. The following is a brief description of the key elements of our planned executive compensation
structure.
|
•
|
Base salary and benefits are designed to attract and retain employees
over time.
|
|
•
|
Incentive compensation awards are designed to focus employees on
the business objectives for a particular year.
|
|
•
|
Equity incentive awards, such as stock options and non-vested stock,
focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure
our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability
and other elements.
|
|
•
|
Severance and change in control plans are designed to facilitate
a company’s ability to attract and retain executives as we compete for talented employees in a marketplace where such protections
are commonly offered.
|
Benchmarking
We have not yet
adopted benchmarking but may do so in the future. When making compensation decisions, our Board of Directors may compare each element
of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that
includes both publicly-traded and privately-held companies. Our Board believes that while such peer group benchmarks are a point
of reference for measurement, they are not necessarily a determining factor in setting executive compensation. Each executive officer’s
compensation relative to the benchmark varies based on the scope of responsibility and time in the position. We have not yet formally
established our peer group for this purpose.
The Elements of Envision’s
Compensation Program
Base Salary
Executive officer
base salaries are based on job responsibilities and individual contribution. Our Board of Directors reviews the base salaries of
our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving
objectives (without reference to any specific performance-related targets) and individual performance experience and expertise.
Additional factors reviewed by our Board of Directors in determining appropriate base salary levels and raises include subjective
factors related to corporate and individual performance. For the year ended December 31, 2017, all executive officer base salary
decisions were approved by the Board of Directors.
Incentive Compensation Awards
Our chief executive
officer was awarded a discretionary $35,000 bonus in 2017 related to his 2016 service. No other Named Executives have been paid
bonuses and our Board has not yet recommended a formal compensation policy for the determination of bonuses other than the bonus
potential for our chief executive officer as defined in his employment agreement. If our revenue grows and bonuses become affordable
and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers
and other officers of Envision: (1) the growth in our revenue, (2) the growth in our gross profit (3) the growth in our earnings
before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), (4) achievement of other corporate goals
as outlined by the Board and (5) our stock price. In 2016, our chief executive officer was granted a bonus plan which provides
for a bonus payment based on the Company achieving certain revenue amounts, with additional bonuses for being profitable. No such
targets were achieved and no bonus has been earned to date. The Board has not adopted further performance goals or target bonus
amounts but may do so in the future.
Equity Incentive Awards
In order to provide
an incentive to attract and retain directors, officers, and other employees whose services are considered valuable, to encourage
a sense of proprietorship and to stimulate an active interest of such persons in our development and financial success, on August
10, 2011, the Board approved and caused the Company to adopt, a new equity incentive plan (the “2011 Plan”), pursuant
to which 31,500,000 shares of our common stock are currently reserved for issuance as awards to employees, directors, consultants
and other service providers. This 2011 Plan was ratified by our shareholders as a part of the 2012 annual shareholders meeting.
From January 1,
2017 through December 31, 2017, the Company issued a total of 645,000 stock options to a total of thirteen employees. These options
vest over time in accordance with specified schedules. From January 1, 2016 through December 31, 2016, the Company granted a total
of
5,380,000
stock options to a total of fifteen employees, including 4,350,000 stock options to Desmond Wheatley, our Chairman
and Chief Executive Officer. These options vest over time in accordance with specified schedules.
During the year
ended December 31, 2017, the Company released upon vesting 750,000 shares of common stock with a per share fair value of $0.15,
or $112,500 (based on the market price at the time of the respective agreements), to three directors for their service as defined
in their respective Restricted Stock Grant Agreements.
Benefits and Prerequisites
At this stage of
our business we have limited benefits and no prerequisites for our employees other than vacation and sick benefits. We do not have
a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits
for our executive officers in the future if our business grows sufficiently to enable us to afford them.
Separation and Change in Control
Arrangements
On October 18, 2016
and effective as of January 1, 2016, the Company entered into an employment agreement with its chief executive officer. The agreement
expires on January 1, 2021. The agreement provides for a payment to the chief executive officer in an amount equal to four times
his annual compensation if he is terminated for reasons other than mutual agreement, his death, his breach or other cause, or upon
his disability, as defined in the agreement.
There were no other
employment agreements outstanding as of December 31, 2017.
Executive Compensation
The following Summary
Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services rendered
in all capacities by our Chief Executive Officer and all other compensated executive officers, as determined by reference to total
compensation for the fiscal year ended December 31, 2017 and 2016, who were serving as executive officers at the end of the 2017
and former executive officers, who received or are entitled to receive remuneration in excess of $100,000 during the stated periods.
Summary Compensation Table
Name and
Principal Position
|
|
|
Year
|
|
|
|
Salary
|
|
|
Deferred Comp s
|
|
|
Bonus
|
|
|
Stock Awards
|
|
|
Option Awards(4)
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Desmond Wheatley, Chief Executive Officer and President(1)
|
|
|
2017
2016
|
|
|
|
$200,000
$200,000
|
|
|
$50,000
$50,000
|
|
|
$35,000
0
|
|
|
0
0
|
|
|
0
$513,861(3)
|
|
|
0
0
|
|
|
$285,000
$763,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Caulson(2)
|
|
|
2017
2016
|
|
|
|
$165,000
$165,000
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
$165,000
$165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers as a Group
|
|
|
2017
2016
|
|
|
|
$365,000
$365,000
|
|
|
$50,000
$50,000
|
|
|
$35,000
0
|
|
|
0
0
|
|
|
0
$513,861
|
|
|
0
0
|
|
|
$450,000
$928,861
|
|
|
(1)
|
Mr. Wheatley joined the Company full time in December 2010 at which
time he was appointed president. On August 10, 2011, Mr. Wheatley was appointed chief executive officer of the Company. In December
2016, Mr. Wheatley was named chairman of the board of directors.
|
|
(2)
|
Mr. Caulson joined the Company full time in November 2010. On August
10, 2011, Mr. Caulson was appointed chief financial officer of the Company.
|
|
(3)
|
Represents the (i) grant date fair value of 4,350,000 options to purchase
Company common stock. These options were issued on October 18, 2016 and vested; (i) 1,450,000 on October 18, 2016; (ii) 1,450,000
on January 1, 2017; (iii) 1,450,000 on January 1, 2018. See note 15 to the consolidated financial statements regarding the valuation
of the options issued.
|
|
(4)
|
This represents the fair value of the award as of the grant date in
accordance with FASB ASC Topic 718.
|
Agreements with Executive Officers
Desmond Wheatley.
The Company entered into a five-year employment agreement with Mr. Wheatley on October 18, 2016, effective as of January
1, 2016. This agreement provides for an annual salary of $250,000, which will be paid (i) in twenty-four installments of $8,333.33
each on the fifteenth and last day of each month and (ii) twenty-four installments of $2,083.34, on the same dates, 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. In certain circumstances upon the Company achieving specified milestones, which are described in
the
agreement, Mr. Wheatley can demand payment
of all or any portion of the deferred amount, and the Company must comply with such demand. These milestones have not yet been
added to the employment agreement and are to be determined by a resolution of the Board of Directors and Mr. Wheatley. All deferred
amounts will be 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
(subject to appropriate adjustment in the event of stock dividends, stock splits, recapitalizations, and similar extraordinary
transactions) at any time in whole or in part at Mr. Wheatley’s discretion, with a maturity date of December 31, 2020. Additionally,
pursuant to the agreement, on October 18, 2016, Mr. Wheatley was granted 4,350,000 stock options to purchase 4,350,000 shares of
the Company’s common stock pursuant to the Company’s 2011 Stock Incentive Plan, exercisable at an exercise price of
$0.15 per share for a period of ten years from the date of grant, vesting as follows: 1,450,000 on October 18, 2016, 1,450,000
on January 1, 2017, and 1,450,000 on January 1, 2018.
Outstanding Equity Awards at Fiscal
Year End
The following table
summarizes the total outstanding incentive equity awards as of December 31, 2017, for each named executive officer:
Name
|
|
Number of securities underlying unexercised options - number exercisable
|
|
Number of underlying unexercised securities options - number unexercisable
|
|
Option exercise price ($)
|
|
Option expiration date
|
Desmond Wheatley
|
|
|
4,320,000
|
(1)
|
|
|
—
|
|
|
|
0.27
|
|
|
August 9, 2021
|
Desmond Wheatley
|
|
|
2,900,000
|
(2)
|
|
|
2,900,000
|
|
|
|
0.15
|
|
|
October 17, 2026
|
Chris Caulson
|
|
|
2,700,000
|
(3)
|
|
|
—
|
|
|
|
0.27
|
|
|
August 9, 2021
|
|
(1)
|
On August 10, 2011, Mr. Wheatley received 4,320,000 stock options
pursuant to our 2011 Plan with an exercise price of $0.27 per share exercisable for a period of ten (10) years from the date of
grant. One third of these options vested immediately, one third vested on November 1, 2011 and one third vested on November 1,
2012.
|
|
(2)
|
On October 18, 2016, Mr. Wheatley was granted 4,350,000 stock options
to purchase 4,350,000 shares of the Company’s common stock pursuant to the Company’s 2011 Stock Incentive Plan, exercisable
at an exercise price of $0.15 per share for a period of ten years from the date of grant, vesting as follows: 1,450,000 on October
18, 2016, 1,450,000 on January 1, 2017, and 1,450,000 on January 1 2018.
|
|
(3)
|
On August 10, 2011, Mr. Caulson was granted 2,700,000 stock options
pursuant to our 2011 Plan with an exercise price of $0.27 per share exercisable for a period of ten (10) years from the date of
grant. One third of these options vested immediately, one third vested on November 1, 2011 and one third vested on November 1,
2012.
|
Option Exercises and Stock Vested
None of our executive
officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year ended December
31, 2017.
Director Compensation
The following table
sets forth all compensation paid, distributed, or accrued for services rendered in the capacities of non-executive Board members.
Name
|
|
Fees earned or cash paid
|
|
Year
|
|
Option Awards ($)(1)
|
|
Stock Awards ($)(2)
|
|
All other compensation
|
|
Total ($)
|
Jay Potter
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
–
20,050
|
(3)
|
|
|
37,500(4)
50,000(4)
|
|
|
|
—
|
|
|
|
37,500
70,050
|
|
Anthony Posawatz
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
—
|
|
|
|
37,500(5)
45,833(5)
|
|
|
|
—
|
|
|
|
37,500
45,833
|
|
Peter Davidson
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
—
|
|
|
|
37,500(6)
18,750(6)
|
|
|
|
—
|
|
|
|
37,500
18,750
|
|
John Evey (9)
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
–
20,050
|
(3)
|
|
|
–
37,500
|
(4)
|
|
|
—
|
|
|
|
–
57,550
|
|
Don Moody (7)
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
—
|
|
|
|
–
20,833
|
(7)
|
|
|
—
|
|
|
|
–
20,833
|
|
Robert Noble (8)
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
–
15,493
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
–
15,493
|
|
All Directors as a Group
|
|
|
—
|
|
|
|
2017
2016
|
|
|
|
–
55,593
|
|
|
|
112,500
172,916
|
|
|
|
—
|
|
|
|
112,500
228,509
|
|
|
(1)
|
This represents the fair value of the award as of the grant date in
accordance with FASB ASC Topic 718.
|
|
(2)
|
This represents the value of stock released to the director upon vesting
during the identified period which is a portion of a larger multiple year award issued to the director for applicable multiple
year services.
|
|
(3)
|
On February 12, 2016, the Company issued 200,000 nonqualified stock
options pursuant to our 2011 Plan to each of these non-executive directors that served as directors during 2015, other than Mr.
Moody. These options were granted as compensation for the services provided in 2015 and vested immediately.
|
|
(4)
|
On February 12, 2016, the board of directors approved a compensation
program, effective January 1, 2016, for two non-executive directors, Mr. Jay Potter and Mr. John Evey, that did not already have
pre-existing compensation arrangements with the Company. Each director received 1,000,000 restricted shares of common stock, with
a per share value of $0.15 (based on contemporaneous cash sales prices), or $150,000, pursuant to a restricted stock grant agreement.
The shares vested 1/12 at the end of each calendar quarter over a three year period, so long as such director serves as a director
of the Company. The Company issued and released 249,999 of these shares, with a value of $37,500, during the twelve month period
ended December 31, 2016 to John Evey. Mr. Evey’s services as a director terminated in December 2016. The Company issued and
released 333,333 of these shares, with a value of $50,000, during the twelve month period ended December 31, 2016 to Jay Potter.
Effective as of December 31, 2016, Mr. Potter agreed to terminate his rights to 666,667 unvested restricted shares of the Company’s
common stock under his Restricted Stock Grant Agreement, dated February 12, 2016, in consideration for which the Company granted
to Mr. Potter 750,000 restricted shares of the Company’s common stock, vesting 1/36 per month over a 36 month period commencing
on the date of grant, issuable quarterly on the last day of each calendar quarter so long as Mr. Potter serves as a director, employee,
consultant or officer of the Company at the time of scheduled vesting. The Company will also grant an additional 750,000 restricted
shares of the Company’s common stock to Mr. Potter to vest in the future from time to time, based on Mr. Potter achieving
certain performance criteria to be agreed upon by the Board of Directors after discussion with senior management at a future date.
During the twelve months ended December 31, 2017, 250,000 shares of common stock valued at $37,500 vested under this agreement.
|
|
(5)
|
In consideration for Mr. Posawatz’s acceptance to serve as a
director of the Company, on February 19, 2016, the Company granted Mr. Posawatz 1,000,000 restricted shares of its common stock,
with a per share value of $0.15 (based on contemporaneous cash sales prices), or $150,000, vesting according to the following vesting
schedule: 27,777 per month over a 36 month period commencing on March 31, 2016, issuable on the last day of each calendar quarter
so long as Mr. Posawatz serves as a director of the Company, subject to the grantee’s right to waive vesting and issuance
on a quarterly basis (the “original Posawatz RSA”). During the twelve months ended December 31, 2016, the Company released
305,556 shares of common stock with a per share fair value of $0.15, or $45,833, to Mr. Posawatz pursuant to the Original Posawatz
RSA. Effective as of December 31, 2016, Mr. Posawatz agreed to terminate his rights to 694,444 unvested restricted shares of the
Company’s common stock under the original Posawatz RSA, in consideration for which the Company granted to Mr. Posawatz 750,000
restricted shares of the Company’s common stock, vesting 1/36 per month over a 36 month period commencing on the date of
grant, issuable quarterly on the last day of each calendar quarter so long as Mr. Posawatz serves as a director, employee, consultant
or officer of the Company at the time of scheduled vesting. The Company will also grant an additional 750,000 restricted shares
of the Company’s common stock to Mr. Posawatz to vest in the future from time to time, based on Mr. Posawatz achieving certain
performance criteria to be agreed upon by the Board of Directors after discussion with senior management at a future date. During
the twelve months ended December 31, 2017, 250,000 shares of common stock, valued at $37,500, vested under this agreement.
|
|
(6)
|
In consideration for Mr. Davidson’s acceptance to serve as a
director of the Company, on September 8, 2016, the Company granted to Mr. Davidson 750,000 restricted shares of its common stock
with a per share value of $0.15 (based on contemporaneous cash sales process) or $112,500, vesting according to the following vesting
schedule: 62,500 shares or pro rata portion thereof per calendar quarter over a 36 month period commencing on September 30, 2016,
issuable on the last day of each calendar quarter so long as Mr. Davidson serves as a director of the Company (the “Original
Davidson RSA”). During the twelve months ended December 31, 2016, the Company released 125,000 shares of common stock with
a per share fair value of $0.15, or $18,750, to Mr. Davidson pursuant to the Original Davidson RSA. Effective as of December 31,
2016, Mr. Davidson agreed to terminate his rights to 625,000 unvested restricted shares of the Company’s common stock under
the Original Davidson RSA in consideration for which the Company granted to Mr. Davidson 750,000 restricted shares of the Company’s
common stock, vesting 1/36 per month over a 36 month period commencing on the date of grant, issuable quarterly on the last day
of each calendar quarter so long as Mr. Davidson serves as a director, employee, consultant or officer of the Company at the time
of scheduled vesting. The Company will also grant an additional 750,000 restricted shares of the Company’s common stock to
Mr. Davidson to vest in the future from time to time, based on Mr. Davidson achieving certain performance criteria to be agreed
upon by the Board of Directors after discussion with senior management at a future date. During the twelve months ended December
31, 2017, 250,000 shares of common stock, valued at $37,500, vested under this agreement.
|
|
(7)
|
In consideration for Mr. Moody’s acceptance to serve as a director
of the Company, on July 11, 2014, the Company granted 1,000,000 restricted shares of its common stock to him, subject to the terms
and conditions set forth in the Restricted Stock Grant Agreement including but not limited to the following vesting schedule: 166,672
shares on July 11, 2014 and then 69,444 shares on the last day of each calendar quarter thereafter commencing on September 30,
2014. The total value of this stock grant is $0.15 per share (based on contemporaneous cash sales prices) or $150,000. The Company
issued and released
|
138,888 of these shares, with a
value of $20,833, during the nine month period ended September 30, 2016. The Company issued and released 277,776 of these shares,
with a value of $41,666, during the twelve month period ended December 31, 2015. The Company issued and released 305,560 of these
shares, with a value of $45,834, during the twelve month period ended December 31, 2014. Mr. Moody resigned from the Board effective
September 8, 2016.
|
(8)
|
Mr. Noble resigned as a director on December 24, 2015.
|
|
(9)
|
Mr. Evey’s service as a director terminated on December 19,
2016.
|
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
During the year
ended December 31, 2017, the Company made cash payments totaling $54,000, and issued 180,000 shares of the Company’s common
stock with a total value of $27,000 to GreenCore Capital LLC for professional services provided to the Company pursuant to a consulting
agreement dated March 28, 2014. The Consulting Agreement was terminated by mutual agreement on December 31, 2017. Jay Potter, our
director, is the managing member of GreenCore.
During the year
ended December 31, 2017, the Company released upon vesting 750,000 shares of common stock with a per share fair value of $0.15,
or $112,500 (based on the market price at the time of the agreement), to three directors for their service as defined in their
respective RSAs.
During the year
ended December 31, 2017, and in consideration for the continued guaranty of the Company’s obligations extended under a now
terminated and paid off line of credit, the Company issued 453,857 shares of its common stock, with a per share value of $0.15
(based on contemporaneous cash sales prices) or $68,078 to Keshif Ventures LLC, a related party, pursuant to the SPA. Additionally,
during the year ended December 31, 2017, pursuant to a private placement, the Company issued 1,333,333 shares of common stock for
cash, with a per share price of $0.15 per share or $200,000 to Keshif.
In 2016, the Company
entered into two nonexclusive, best efforts selling agreements with LightPath Capital, Inc., a FINRA registered broker-dealer,
50% of which is owned by one of the legal counsel to the Company. The selling agreements relate to a previous private placement
as well as a 2017 private placement of common stock that was conducted by the Company to raise up to $4,050,000 of capital. Under
the agreements, LightPath is entitled to a selling commission of 8% of total capital raised by it and warrants to purchase our
common stock at $0.15 per share for up to 5% of the number of shares of common stock sold by LightPath in the offerings. For the
13 months ended January 2018, which was the open term of the 2017 private placement, the Company paid $65,600 in commission and has issued 273,333 warrants to purchase our common stock.
In June 2015, Gemini
Master Fund Ltd sold an approximate 70% stake in its convertible promissory note to Robert Noble, our past Chairman in a private
transaction (“Note”). During the twelve months ended December 31, 2015, the Company made a $100,000 payment to Mr.
Noble to pay down the accrued interest on this Note. Effective January 20, 2016, Mr. Noble entered into a Purchase Option Agreement
with Greencore (the “Optionee”), pursuant to which the Optionee had the right to purchase or arrange for the purchase
of the Note from Mr. Noble and all of Mr. Noble’s shares in the Company (the “Option”), at any time prior to
March 31, 2016, which date was subsequently extended. During the fourth quarter of 2016, the Company was notified that a transaction,
or series of transactions, arranged by GreenCore, had officially closed pursuant to which the Note and 11,587,440 shares of our
common stock owned by Mr. Noble were acquired by a group of shareholders, some of whom are related parties to the Company. Keshif
Ventures, LLC obtained a 49.3% stake in the outstanding Note balance. Effective as of February 15, 2017, the Company received conversion
notices from all the then current Note holders to convert the entire principal balance of the Note amounting to $600,000 and accrued
and unpaid interest, as of February 15, 2017, amounting to $104,709. Accordingly, the Note was repaid in full through the conversion,
and has a zero outstanding balance. The Company issued 4,698,060 shares of common stock at the contracted conversion price of $0.15
per share. As a part of this transaction, Keshif Ventures LLC, a related party, received 2,315,940 shares based on its ownership
percentage of the Note. Additionally, as a part of these transactions, Jay Potter, our director, received 4,112,440 shares of common
stock from these shareholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table
sets forth certain information as of March 31, 2018 regarding the beneficial ownership of our common stock by (i) each person or
entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and named officer;
(iii) each director; and (iv) all of our officers and directors as a group. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage
of ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable
or become exercisable within 60 days of March 31, 2018 are deemed outstanding even if they have not actually been exercised. Those
shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise
indicated in the footnotes to the following table, each of the stockholders named in the table has sole voting and investment power
with respect to the shares of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders
listed below is: c/o 5660 Eastgate Drive, San Diego, California 92121.
Unless otherwise
indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses
sole voting and investment power over their shares of common stock, except for those jointly owned with that person’s spouse.
Name of Beneficial Owner
|
Number of Shares Beneficially Owned (1)
|
Percentage Beneficially Owned Before Offering (2)
|
Percentage Beneficially Owned After Offering (2)
|
Desmond Wheatley
|
8,670,000(3)
|
5.65%
|
|
Jay Potter
|
8,433,518(4)
|
5.79%
|
|
Chris Caulson
|
2,700,000(5)
|
1.83%
|
|
Peter Davidson
|
1,354,166(6)
|
*
|
|
Anthony Posawatz
|
868,056(6)
|
*
|
|
Keshif Ventures, LLC
|
33,413,836(7)
|
23.09%
|
|
SFE VCF
|
11,631,048 (8)
|
8.04%
|
|
All officers and directors as a group (5 persons)
|
22,025,740
|
14.02%
|
|
*Beneficial ownership of less than
one percent.
|
(1)
|
Shares of common stock beneficially owned and the respective percentages
of beneficial ownership of common stock assume the exercise by such person of all options, warrants and other securities convertible
into common stock beneficially owned by such person or entity currently exercisable or exercisable within 60 days of March 31,
2018.
|
|
(2)
|
Based on 144,706,495 shares of our common stock outstanding as of
March 31, 2018.
|
|
(3)
|
Includes 8,670,000 shares of common stock issuable upon the exercise
of options which are currently exercisable or exercisable within 60 days of March 31, 2018.
|
|
(4)
|
Includes 4,799,440 shares of common stock (of which 3,112,440 shares
were acquired in a nonissuer transaction), 2,634,078 shares issued to GreenCore Capital LLC for which Mr. Potter is the managing
member and 1,000,000 shares of which were acquired in a nonissuer transaction. Includes 1,000,000 shares of common stock issuable
upon the exercise of options.
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(5)
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Includes 2,700,000 shares of common stock issuable upon exercise of
options which are currently exercisable or exercisable within 60 days of March 31, 2018.
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(6)
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Includes shares that have vested pursuant to a RSA, but not unvested
shares.
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(7)
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The address of this shareholder is 990 Highland Drive, Suite 314,
San Diego, California. 92075.
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(8)
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SFE VCF, as the holder of two convertible notes payable by the Company
with an approximate aggregate outstanding balance of $1,790,135 as of March 31, 2018, has the right to convert the outstanding
balance into shares of our common
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stock at a conversion price
of $0.15 per share. SFE VCF also owns 4,824,451 warrants to purchase 4,824,451 shares of our common stock at an exercise price
of $0.15 per share, for 4,416,667 of these warrants, with the balance (407,784) exercisable at $0.178 per share. Accordingly, the
figure on the table for SFE VCF’s beneficial ownership assumes that both notes are converted and all warrants are exercised.
DESCRIPTION OF OUR CAPITAL STOCK
General
.
Our authorized capital stock consists of 490,000,000 shares of common stock, par value $0.001 per share, of which approximately
144,706,495
shares are issued and outstanding as of May
31, 2018, and 10,000,000 shares of preferred stock, par value $0.001 per share with no shares issued or outstanding as of May 31,
2018. See “CAPITALIZATION.” Under Nevada law and generally under state corporation laws, the holders of our common
and preferred stock will have limited liability pursuant to which their liability is limited to the amount of their investment
in us.
Common Stock.
Holders of common stock are entitled to one vote per share held of record on all matters submitted to a vote of stockholders. The
holders of common stock do not have cumulative voting rights in the election of directors. Accordingly, the holders of a majority
of the outstanding shares of common stock entitled to vote in any election of directors may elect all of the directors standing
for election. Subject to preferential rights with respect to any series of preferred stock that may be issued, holders of the common
stock are entitled to receive ratably such dividends as may be declared by the board of directors on the common stock out of funds
legally available therefore and, in the event of a liquidation, dissolution or winding-up of our affairs, are entitled to share
equally and ratably in all of our remaining assets and funds.
Preferred Stock.
We are authorized to issue 10,000,000 shares of Preferred Stock, par value $0.001 per share, having such rights, preferences and
privileges, and issued in such series, as are determined by our Board of Directors. We currently have no shares of Preferred Stock
outstanding.
Warrants.
We currently have a total of 6,463,017 common stock purchase warrants outstanding to purchase a total of 6,463,017 shares of our
common stock exercisable until various dates ranging from June 12, 2018 to January 10, 2023, 4,981,667 of which are exercisable
at an exercise price of $0.15 per share, 407,784 of which are exercisable at an exercise price of $0.178 per share, and 1,073,566
of which are exercisable at an exercise price of $0.25 per share. The following table summarizes the expiration dates of all outstanding
warrants as of May 31, 2018, grouped on a quarterly basis:
Number of Warrants
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Range
of Exercise Prices
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Fiscal Quarter Ending During Which Expiration Date Occurs
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645,067
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$0.25
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June 30, 2018
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106,667
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$0.25
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March 31, 2019
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66,666
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$0.25
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June 30, 2019
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95,166
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$0.25
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September 30, 2019
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160,000
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$0.25
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December 31, 2019
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3,916,667
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$0.15
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September 30, 2020
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500,000
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$0.15
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December 31, 2020
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407,784
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$0.178
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March 31, 2021
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291,667
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$0.15
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December 31, 2021
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273,333
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$0.15
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March 31, 2023
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Total: 6,463,017
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Transfer Agent and Registrar
The transfer agent
and registrar for the Shares is Island Stock Transfer, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Future
sales of substantial amounts of our common stock in the public market, including shares issued upon the exercise of
outstanding options or warrants, or upon debt conversion, or the anticipation of these sales, could adversely affect market
prices prevailing from time to time and could impair our ability to raise capital through sales of equity securities.
Upon completion
of this offering we estimate that we will have __________outstanding shares of our common stock, calculated as of _________, assuming
no further exercise of outstanding warrants.
Sale of Restricted Securities
The shares of our
common stock sold pursuant to this offering will be registered under the Securities Act or 1933, as amended, and therefore freely
transferable, except for our affiliates. Our affiliates will be deemed to own “control” securities that are not registered
for resale under the registration statement covering this prospectus. Individuals who may be considered our affiliates after the
offering include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted
for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals
who are our affiliates are not permitted to resell their shares of our common stock unless such shares are separately registered
under an effective registration statement under the Securities Act of 1933, as amended, or an exemption from the registration requirements
of the Securities Act of 1933, as amended, is available, such as Rule 144.
Rule 144
In general, under
Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns
“restricted securities” (i.e. securities that are not registered by an effective registration statement) of a “reporting
company” may not sell these securities until the person has beneficially owned them for at least six months. Thereafter,
affiliates may not sell within any three-month period a number of shares in excess of the greater of: (i) 1% of the then outstanding
shares of Common Stock as shown by the most recent report or statement published by the issuer; and (ii) the average weekly reported
trading volume in such securities during the four preceding calendar weeks.
Sales under Rule
144 by our affiliates will also be subject to restrictions relating to manner of sale, notice and the availability of current public
information about us and may be affected only through unsolicited brokers’ transactions.
Persons not deemed
to be affiliates who have beneficially owned “restricted securities” for at least six months but for less than one
year may sell these securities, provided that current public information about the Company is “available,” which means
that, on the date of sale, we have been subject to the reporting requirements of the Exchange Act for at least 90 days and are
current in our Exchange Act filings. After beneficially owning “restricted securities” for one year, our non-affiliates
may engage in unlimited re-sales of such securities.
Shares received
by our affiliates in the Distribution or upon exercise of stock options or upon vesting of other equity-linked awards may be “controlled
securities” rather than “restricted securities.” “Controlled securities” are subject to the same
volume limitations as “restricted securities” but are not subject to holding period requirements.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is
a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our units,
common stock and warrants purchased in this offering, which we refer to collectively as our securities, but is for general information
purposes only and does not purport to be a complete analysis of all the potential tax considerations. The holder of a unit generally
should be treated, for U.S. federal income tax purposes, as the owner of the underlying [__] shares of common stock and [__] warrants
to purchase [__] shares of common stock that underlie the unit, as the case may be. As a result, the discussion below with respect
to actual holders of common stock and warrants should also apply to holders of units (as the deemed owners of the underlying common
stock and warrants that comprise the units). This summary is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the “Code”), existing and proposed Treasury regulations promulgated thereunder, administrative rulings and
judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S.
federal income and estate tax consequences different from those set forth below. There can be no assurance that the Internal Revenue
Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained,
and do not intend to obtain, an opinion of counsel or ruling from the IRS with respect to the U.S. federal income tax considerations
relating to the purchase, ownership or disposition of our securities.
This summary does
not address any alternative minimum tax considerations, any considerations regarding the tax on net investment income, or the tax
considerations arising under the laws of any state, local or non-U.S. jurisdiction, or under any non-income tax laws, including
U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this summary does not address
tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax
rules, including, without limitation:
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banks, insurance companies or other financial institutions;
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tax-exempt organizations or governmental organizations;
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regulated investment companies and real estate investment trusts;
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controlled foreign corporations, passive foreign investment companies
and corporations that accumulate earnings to avoid U.S. federal income tax;
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brokers or dealers in securities or currencies;
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traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
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persons that own, or are deemed to own, more than five percent of
our capital stock (except to the extent specifically set forth below);
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tax-qualified retirement plans;
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certain former citizens or long-term residents of the United States;
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partnerships or entities or arrangements classified as partnerships
for U.S. federal income tax purposes and other pass-through entities (and investors therein);
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persons who hold our securities as a position in a hedging transaction,
“straddle,” “conversion transaction” or other risk reduction transaction or integrated investment;
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persons who hold or receive our securities pursuant to the exercise
of any employee stock option or otherwise as compensation;
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persons who do not hold our securities as a capital asset within
the meaning of Section 1221 of the Code; or
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persons deemed to sell our securities under the constructive sale
provisions of the Code.
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In addition, if
a partnership (or entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our securities,
the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly,
partnerships that hold our securities, and partners in such partnerships, should consult their tax advisors.
You are urged
to consult your own tax advisors with respect to the application of the U.S. federal income tax laws to your particular situation,
as well as any tax consequences of the purchase, ownership and disposition of our securities arising under the U.S. federal estate
or gift tax laws or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Allocation of Purchase Price and
Characterization of a Unit
No statutory, administrative
or judicial authority directly addresses the treatment of a unit or instruments similar to a unit for U.S. federal income tax purposes
and, therefore, that treatment is not entirely clear. The acquisition of a unit should be treated for U.S. federal income tax purposes
as the acquisition of [__] shares of common stock and [__] warrants to purchase [__] shares of common stock. For U.S. federal income
tax purposes, each holder of a unit must allocate the purchase price paid by such holder for such unit between such [__] shares
of common stock and [__] warrants to purchase [__] shares of common stock based on their relative fair market values at the time
of issuance. Under U.S. federal income tax law, each investor must make his or her own determination of such value based on all
the relevant facts and circumstances. Therefore, we strongly urge each investor to consult his or her tax adviser regarding the
determination of value for these purposes. The price allocated to each share of common stock and each warrant should be the stockholder’s
tax basis in such share or warrant, as the case may be. Any disposition of a unit should be treated for U.S. federal income tax
purposes as a disposition of the [__] shares of common stock and [__] warrants to purchase [__] shares of common stock comprising
the unit, and the amount realized on the disposition should be allocated between the [__] shares of common stock and [__] warrants
to purchase [__] shares of common stock based on their respective relative fair market values (as determined by each such unit
holder on all the relevant facts and circumstances) at the time of disposition. The separation of the common stock and warrants
comprising units should not be a taxable event for U.S. federal income tax purposes.
The foregoing treatment
of the common stock and warrants and a holder’s purchase price allocation are not binding on the IRS or the courts. Because
there are no authorities that directly address instruments that are similar to the units, no assurance can be given that the IRS
or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor
is urged to consult its own tax advisors regarding the tax consequences of an investment in a unit (including alternative characterizations
of a unit). The balance of this discussion assumes that the characterization of the units described above is respected for U.S.
federal income tax purposes.
Consequences to U.S. Holders
The following is
a summary of the U.S. federal income tax consequences that will apply to a U.S. holder of our securities. For purposes of this
discussion, you are a U.S. holder if, for U.S. federal income tax purposes, you are a beneficial owner of our securities, other
than a partnership, that is:
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an individual citizen or resident of the United States;
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a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income tax regardless
of its source; or
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a trust (x) whose administration is subject to the primary supervision
of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the
Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated
as a “United States person.”
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Distributions
As described in
the section titled “Dividend Policy,” we have never declared or paid cash dividends on our common stock and do not
anticipate paying any dividends on our common stock in the foreseeable future. However, if we do make distributions on our common
stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings
and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current
and our accumulated earnings and profits, the excess will constitute a return of capital and will first reduce your basis in our
common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under “—Sale,
Exchange or Other Taxable Disposition of Common Stock.”
Dividend income
may be taxed to an individual U.S. holder at rates applicable to long-term capital gains, provided that a minimum holding period
and other limitations and requirements are satisfied. Any dividends that we pay to a U.S. holder that is a corporation will qualify
for a deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations equal to a portion of
any dividends received, subject to generally applicable limitations on that deduction. U.S. holders should consult their own tax
advisors regarding the holding period and other requirements that must be satisfied in order to qualify for the reduced tax rate
on dividends or the dividends-received deduction.
Constructive
Distributions
The terms of the
warrants allow for changes in the exercise price of the warrants under certain circumstances. A change in exercise price of a warrant
that allows holders to receive more shares of common stock on exercise may increase a holder’s proportionate interest in
our earnings and profits or assets. In that case, such holder may be treated as though it received a taxable distribution in the
form of our common stock. A taxable constructive stock distribution would generally result, for example, if the exercise price
is adjusted to compensate holders for distributions of cash or property to our stockholders.
Not all changes
in the exercise price that result in a holder’s receiving more common stock on exercise, however, would be considered as
increasing a holder’s proportionate interest in our earnings and profits or assets. For instance, a change in exercise price
could simply prevent the dilution of a holder’s interest upon a stock split or other change in capital structure. Changes
of this type, if made pursuant to bona fide reasonable adjustment formula, are not treated as constructive stock distributions
for these purposes. Conversely, if an event occurs that dilutes a holder’s interest and the exercise price is not adjusted,
the resulting increase in the proportionate interests of our stockholders could be treated as a taxable stock distribution to our
stockholders.
Any taxable constructive
stock distributions resulting from a change to, or a failure to change, the exercise price of the warrants that is treated as a
distribution of common stock would be treated for U.S federal income tax purposes in the same manner as distributions on our common
stock paid in cash or other property, resulting in a taxable dividend to the recipient to the extent of our current or accumulated
earnings and profits (with the recipient’s tax basis in its common stock or warrants, as applicable, being increased by the
amount of such dividend), and with any excess treated as a return of capital or as capital gain. U.S. holders should consult their
own tax advisors regarding whether any taxable constructive stock dividend would be eligible for tax rates applicable to long-term
capital gains or the dividends-received
deduction described under “—Distributions,” as the requisite applicable holding period requirements might not
be considered to be satisfied.
Sale, Exchange
or Other Taxable Disposition of Common Stock
A U.S. holder will
generally recognize capital gain or loss on the sale, exchange or other taxable disposition of our common stock. The amount of
gain or loss will equal the difference between the amount realized on the sale and such U.S. holder’s tax basis in such common
stock. The amount realized will include the amount of any cash and the fair market value of any other property received in exchange
for such common stock. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the common stock for more
than one year. Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility
of capital losses is subject to certain limitations.
Sale, Exchange,
Redemption, Lapse or Other Taxable Disposition of a Warrant
Upon a sale, exchange,
redemption, lapse or other taxable disposition of a warrant, a U.S. holder generally will recognize capital gain or loss in an
amount equal to the difference between the amount realized (if any) on the disposition and such U.S. holder’s tax basis in
the warrant. The amount realized will include the amount of any cash and the fair market value of any other property received in
exchange for the warrant. The U.S. holder’s tax basis in the warrant generally will equal the amount the holder paid for
the warrant. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the warrant for more than one year.
Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility of capital losses
is subject to certain limitations.
Exercise of
a Warrant
The exercise of
a warrant for shares of common stock generally will not be a taxable event for the exercising U.S. holder, except with respect
to cash, if any, received in lieu of a fractional share. A U.S. holder will have a tax basis in the shares of common stock received
on exercise of a warrant equal to the sum of the U.S. holder’s tax basis in the warrant surrendered, reduced by any portion
of the basis allocable to a fractional share, plus the exercise price of the warrant. A U.S. holder generally will have a holding
period in shares of common stock acquired on exercise of a warrant that commences on the date of exercise of the warrant.
Consequences to Non-U.S. Holders
The following is
a summary of the U.S. federal income tax consequences that will apply to a non-U.S. holder of our securities. A “non-U.S.
holder” is a beneficial owner of our securities (other than a partnership or an entity or arrangement treated as a partnership
for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not a U.S. holder.
Distributions
Subject to the discussion
below regarding effectively connected income, any dividend, including any taxable constructive stock dividend resulting from certain
adjustments, or failure to make adjustments, to the exercise price of a warrant (as described above under “Consequences to
U.S. Holders—Constructive Distributions”), paid to a non-U.S. holder generally will be subject to U.S. withholding
tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income
tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E
or other applicable IRS Form W-8 properly certifying qualification for the reduced rate. These forms must be updated periodically.
A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If a non-U.S. holder holds our securities
through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required
to provide appropriate documentation to the agent, which then may be required to provide certification to us or our paying agent,
either directly or through other intermediaries.
Dividends received
by a non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable
income tax treaty, attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States)
are generally exempt from such withholding tax if the non-U.S. holder satisfies certain certification and disclosure requirements.
In order to obtain this exemption, the non-U.S. holder must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8
properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at
the same graduated U.S. federal income tax rates applicable to U.S. holders, net of certain deductions and credits. In addition,
dividends received by a corporate non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business may
also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
Non-U.S. holders should consult their own tax advisors regarding any applicable tax treaties that may provide for different rules.
Gain on Sale,
Exchange or Other Taxable Disposition of Common Stock or Warrants
Subject to the discussion
below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be required to pay U.S. federal income
tax on any gain realized upon the sale, exchange or other taxable disposition of our common stock or a warrant unless:
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the gain is effectively connected with the non-U.S. holder’s
conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent
establishment or fixed base maintained by the non-U.S. holder in the United States);
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the non-U.S. holder is a non-resident alien individual who is present
in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition
occurs and certain other conditions are met; or
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shares of our common stock or our warrants, as applicable, constitute
U.S. real property interests by reason of our status as a “United States real property holding corporation” (a USRPHC)
for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the non-U.S. holder’s
disposition of, or the non- U.S. holder’s holding period for, our common stock or warrants, as applicable.
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We believe that
we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so
assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property
relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the
future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market,
such common stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively hold more
than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding the non-U.S.
holder’s disposition of, or the non-U.S. holder’s holding period for, our common stock. In addition, provided that
our common stock is regularly traded on an established securities market, a warrant will not be treated as a U.S. real property
interest with respect to a non-U.S. holder if such holder did not own, actually or constructively, warrants whose total fair market
value on the date they were acquired (and on the date or dates any additional warrants were acquired) exceeded the fair market
value on that date (and on the date or dates any additional warrants were acquired) of 5% of all our common stock.
If the non-U.S.
holder is described in the first bullet above, it will be required to pay tax on the net gain derived from the sale, exchange or
other taxable disposition under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the
first bullet above also may be subject to the branch profits tax at a rate of 30%, or such lower rate as may be specified by an
applicable income tax treaty. An individual non-U.S. holder described in the second bullet above will be required to pay a flat
30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, exchange or other
taxable disposition, which gain may be offset by U.S. source capital losses for the year (provided the non-U.S. holder has timely
filed U.S. federal income tax returns with respect to such losses). Non-U.S. holders should consult their own tax advisors regarding
any applicable income tax or other treaties that may provide for different rules.
Federal Estate
Tax
Common stock or
warrants beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal
estate tax purposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal
estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax treaty
provides otherwise.
Backup Withholding and Information
Reporting
Generally, we must
report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A
similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports
available to tax authorities in your country of residence.
Payments of dividends
on or of proceeds from the disposition of our securities made to you may be subject to information reporting and backup withholding
at a current rate of 28% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS
Form W-8BEN or IRS Form W-8BEN-E or other applicable IRS Form W-8. Notwithstanding the foregoing, backup withholding and information
reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding
is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained
from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account
Tax Compliance Act (“FATCA”) generally imposes withholding tax at a rate of 30% on dividends on and gross proceeds
from the sale or other disposition of our securities paid to a “foreign financial institution” (as specially defined
under these rules), unless such institution enters into an agreement with the U.S. government to, among other things, withhold
on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders
of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that
are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding
tax of 30% on dividends on and gross proceeds from the sale or other disposition of our securities paid to a “non-financial
foreign entity” (as specially defined for purposes of these rules) unless such entity provides the withholding agent with
a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or
otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends paid by us, and under current
transitional rules are expected to apply with respect to the gross proceeds from a sale or other disposition of our securities
on or after January 1, 2019. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes.
An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described
in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation
on their investment in our securities.
Each prospective
investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences
of purchasing, owning and disposing of our securities, including the consequences of any proposed changes in applicable laws.
UNDERWRITING
Maxim Group LLC
is acting as sole bookrunner and as representative of the underwriters (the “Representative”). Subject to the terms
and conditions of an underwriting agreement between us and the Representative, we have agreed to sell to each underwriter named
below, and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts
set forth on the cover page of this prospectus, the number of shares of common stock and warrants listed next to its name in the
following table:
Name of Underwriter
|
|
Number of Shares
|
|
Number of Warrants
|
Maxim Group LLC
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
The underwriters
are committed to purchase all the shares of common stock and warrants offered by this prospectus if they purchase any shares of
common stock and warrants. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase
the shares of common stock and/or warrants covered by the underwriters’ over-allotment option described below. The underwriters
are offering the shares of common stock and warrants, subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt
by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel
or modify offers to the public and to reject orders in whole or in part.
Over-Allotment Option
We have granted
to the underwriters an option, exercisable no later than 45 calendar days after the date of the underwriting agreement, to purchase
up to ______ shares of common stock and/or warrants at the public offering price listed on the cover page of this prospectus, less
underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments, if any, made in
connection with this offering. To the extent the option is exercised and the conditions of the underwriting agreement are satisfied,
we will be obligated to sell to the underwriters, and the underwriters will be obligated to purchase, these additional shares of
common stock and/or warrants.
Representative’s Warrants
We have agreed to
grant to Maxim Group LLC, the representative of the underwriters, warrants to purchase a number of shares equal to 5% of the total
number of shares of common stock sold in this offering at a price equal to 110% of the price per share of the common stock sold
in this offering. The warrants will contain a cashless exercise feature.
Discounts and Commissions
We have agreed to
pay the underwriters (i) a cash fee equal to eight percent (8%) of the aggregate gross proceeds raised in this offering and (ii)
warrants to purchase that number of shares of our common stock equal to an aggregate of five percent (5%) of the shares of common
stock sold in the offering (or _____ shares, assuming the over-allotment option is fully exercised). Such underwriters’ warrants
shall have an exercise price equal to $_____ per share, which is 110% of the public offering price, terminate five years after
the effectiveness of the registration statement of which this prospectus forms a part, and otherwise have the same terms as the
warrants sold in this offering except that (1) they will not be subject to redemption by the Company and (2) they will provide
for unlimited “piggyback” registration rights with respect to the underlying shares during the seven (7) year period
commencing six months after the effective date of this offering. Such underwriters’ warrants will be subject to FINRA Rule
5110(g)(1) in that, except as otherwise permitted by FINRA rules, for a period of 180 days following the effectiveness of the registration
statement, of which this prospectus forms a part, the underwriters’ warrants shall not be (A) sold, transferred, assigned,
pledged, or hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or call transaction that would result
in the effective economic disposition of the securities by any person.
The representative
has advised us that the underwriters propose to offer the shares and warrants directly to the public at the public offering price
set forth on the cover of this prospectus. In addition, the representative may offer some of the shares and warrants to other securities
dealers at such price less a concession of up to $_________ per share. After the offering to the public, the offering price and
other selling terms may be changed by the representative without changing the Company’s proceeds from the underwriters’
purchase of the shares and warrants.
The following table
summarizes the public offering price, underwriting commissions and proceeds before expenses to us assuming both no exercise and
full exercise of the underwriters’ option to purchase additional shares and warrants. The underwriting commissions are equal
to the public offering price per share less the amount per share the underwriters pay us for the shares.
|
Per Share(1)
|
Total Without Over
Allotment
|
Total With Over
Allotment
|
|
|
|
|
Public offering price
|
$
|
|
|
Underwriting discounts and commissions
|
$
|
|
|
Proceeds, before expenses, to us
|
$
|
|
|
|
(1)
|
The fees shown do not include the warrant to purchase shares of common
stock issuable to the underwriters at closing.
|
We estimate that
the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses,
but excluding underwriting discounts and commissions, will be approximately $[ ], all of which are payable by us. This figure includes
expense reimbursements we have agreed to pay Maxim for reimbursement of its expenses related to the offering up to a maximum aggregate
expense allowance of $_______, for which we have paid a $35,000 retainer.
Lock-Up Agreements
We and each of our
officers, directors, affiliates and certain existing stockholders aggregating at least 1.0% of our outstanding shares have agreed,
subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise
dispose of any shares of our common stock or other securities convertible into or exercisable or exchangeable for shares of our
common stock for a period of six (6) months after this offering is completed without the prior written consent of Maxim Group LLC.
Maxim Group LLC
may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior
to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the representative
will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time.
Right of First Refusal
We have granted the representatives
a right of first refusal, for a period of twelve months from the commencement of sales, to act as sole and exclusive investment
banker, book-runner, financial advisor, underwriter and/or placement agent, at the Representative’s sole and exclusive discretion,
for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject
Transaction”), during such twelve (12) month period, of the Company, or any successor to or subsidiary of the Company, on
terms and conditions customary to the Representative for such Subject Transactions.
Indemnification
We have agreed to indemnify
the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that
the underwriters may be required to make for these liabilities.
OTC-QB and NASDAQ Capital Market
Our common stock is presently
quoted on the OTC-QB marketplace under the symbol “EVSI”. We intend to apply to have our common stock and warrants
listed on The NASDAQ Capital Market under the symbols “EVSI” and “EVSIW”, respectively. No assurance can
be given that our application will be approved. There is no established public trading market for the warrants. No assurance can
be given that a trading market will develop for the warrants.
Price Stabilization, Short Positions,
and Penalty Bids
In connection with
this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common
stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares and warrants than
are set forth on the cover page of this prospectus. This creates a short position in our common stock for its own account. The
short position may be either a covered short position or a naked short position. In a covered short position, the number of shares
common stock or warrants over-allotted by the underwriters is not greater than the number of shares of common stock or warrants
that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock or warrants
involved is greater than the number of shares common stock or warrants in the over-allotment option. To close out a short position,
the underwriters may elect to exercise all or part of the over-allotment option. The underwriters may also elect to stabilize the
price of our common stock or reduce any short position by bidding for, and purchasing, common stock in the open market. Since the
warrants will not be listed and are not expected to trade, the underwriters cannot purchase the warrants in the open market and,
as a result, the underwriters cannot and will not enter into naked short positions.
The underwriters
may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for
distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.
Finally, the underwriters
may bid for, and purchase, shares of our common stock in market making transactions, including “passive” market making
transactions as described below.
These activities
may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist
in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of
these activities at any time without notice. These transactions may be effected on NASDAQ, in the over-the-counter market, or otherwise.
In connection with
this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market making transactions
in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation
M under the Exchange Act. Rule 103 generally provides that:
|
·
|
a passive market maker may not effect transactions or display bids
for our common stock in excess of the highest independent bid price by persons who are not passive market makers;
|
|
·
|
net purchases by a passive market maker on each day are generally
limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month
prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and
|
|
·
|
passive market making
bids must be identified as such.
|
Electronic Distribution
A prospectus in
electronic format may be made available on a website maintained by the representatives of the underwriters and may also be made
available on a website maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters
to underwriters that may make Internet distributions on the same basis as other allocations. In connection with the offering, the
underwriters or syndicate members may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses
that are printable as Adobe® PDF will be used in connection with this offering.
The underwriters
have informed us that they do not expect to confirm sales of shares and warrants offered by this prospectus to accounts over which
they exercise discretionary authority.
Other than the prospectus
in electronic format, the information on any underwriter’s website and any information contained in any other website maintained
by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Certain Relationships
Certain of the underwriters
and their affiliates may provide, from time to time, investment banking and financial advisory services to us in the ordinary course
of business, for which they may receive customary fees and commissions.
Notice to Prospective Investors in
Canada
This prospectus
constitutes an “exempt offering document” as defined in and for the purposes of applicable Canadian securities laws.
No prospectus has been filed with any securities commission or similar regulatory authority in Canada in connection with the offer
and sale of the shares. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon
this prospectus or on the merits of the shares and any representation to the contrary is an offence.
Canadian investors
are advised that this prospectus has been prepared in reliance on section 3A.3 of National Instrument 33-105 Underwriting Conflicts
(“NI 33-105”). Pursuant to section 3A.3 of NI 33-105, this prospectus is exempt from the requirement that the Company
and the underwriter(s) provide Canadian investors with certain conflicts of interest disclosure pertaining to “connected
issuer” and/or “related issuer” relationships that may exist between the Company and the underwriter(s) as would
otherwise be required pursuant to subsection 2.1(1) of NI 33-105.
Resale Restrictions
The offer and sale
of the shares in Canada is being made on a private placement basis only and is exempt from the requirement that the Company prepares
and files a prospectus under applicable Canadian securities laws. Any resale of shares acquired by a Canadian investor in this
offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction,
and which may require resales to be made in accordance with Canadian prospectus requirements, pursuant to a statutory exemption
from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption
from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions
may under certain circumstances apply to resales of the shares outside of Canada.
Representations of Purchasers
Each Canadian investor
who purchases shares will be deemed to have represented to the Company, the underwriters and to each dealer from whom a purchase
confirmation is received, as applicable, that the investor is (i) purchasing as principal, or is deemed to be purchasing as principal
in accordance with applicable Canadian securities laws, for investment only and not with a view to resale or redistribution; (ii)
an “accredited investor” as such term is defined in section 1.1 of National Instrument 45-106
Prospectus Exemptions
or,
in Ontario, as such term is defined in section 73.3(1) of the
Securities Act
(Ontario); and (iii) is a “permitted
client” as such term is defined in section 1.1 of National Instrument 31-103
Registration Requirements, Exemptions
and Ongoing Registrant Obligations
.
Taxation and Eligibility for Investment
Any discussion of
taxation and related matters contained in this prospectus does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a Canadian investor when deciding to purchase the shares and, in particular, does not address
any Canadian tax considerations. No representation or warranty is hereby made as to the tax consequences to a resident, or deemed
resident, of Canada of
an investment in the shares or with
respect to the eligibility of the shares for investment by such investor under relevant Canadian federal and provincial legislation
and regulations.
Rights of Action for Damages or Rescission
Securities legislation
in certain of the Canadian jurisdictions provides certain purchasers of securities pursuant to an offering memorandum (such as
this prospectus), including where the distribution involves an “eligible foreign security” as such term is defined
in Ontario Securities Commission Rule 45-501
Ontario Prospectus and Registration Exemptions
and in Multilateral
Instrument 45-107
Listing Representation and Statutory Rights of Action Disclosure Exemptions
, as applicable, with
a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum,
or other offering document that constitutes an offering memorandum, and any amendment thereto, contains a “misrepresentation”
as defined under applicable Canadian securities laws. These remedies, or notice with respect to these remedies, must be exercised
or delivered, as the case may be, by the purchaser within the time limits prescribed under, and are subject to limitations and
defenses under, applicable Canadian securities legislation. In addition, these remedies are in addition to and without derogation
from any other right or remedy available at law to the investor.
Language of Documents
Upon receipt of
this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating
in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice)
be drawn up in the English language only.
Par la réception de ce document, chaque investisseur canadien confirme
par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de
quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant,
pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.
LEGAL MATTERS
The validity of
the issuance of the shares of common stock covered by this prospectus will be passed upon for us by Richardson & Associates,
special counsel to Envision.
EXPERTS
Our consolidated
financial statements as of and for our years ended December 31, 2017 and December 31, 2016 included in this prospectus and elsewhere
in the registration statement have been audited by Salberg & Company, P.A., an independent registered public accounting firm,
as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts
in auditing and accounting in giving said reports.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No named expert or
counsel was hired on a contingent basis, will receive a direct or indirect interest in the issuer, or was a promoter, underwriter,
voting trustee, director, officer, or employee of Envision.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with
the Securities and Exchange Commission, Washington, D.C., 20549, under the Securities Act of 1933, a registration statement on
Form S-1 relating to the securities offered hereby. This prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with respect to our company and the securities we are
offering by this prospectus you should refer to the registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public Reference Section of the Securities and Exchange Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission's World Wide Web address
is http://www.sec.gov.
We file periodic
reports, proxy statements and other information with the Securities and Exchange Commission in accordance with requirements of
the Exchange Act. These periodic reports, proxy statements and other information are available for inspection and copying at the
regional offices, public reference facilities and Internet site of the Securities and Exchange Commission referred to above. In
addition, you may request a copy of any of our periodic reports filed with the Securities and Exchange Commission at no cost, by
writing or telephoning us at the following address:
Envision Solar International, Inc.
5660 Eastgate Dr.
San Diego, California 92121
Attention: Desmond Wheatley, Chief Executive
Officer
Information contained
on our website is not a prospectus and does not constitute a part of this prospectus.
You should rely
only on the information contained in or incorporated by reference or provided in this prospectus. We have not authorized anyone
else to provide you with different information. We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume the information in this prospectus is accurate as of any date other than the date on the front
of this prospectus.
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows
us to “incorporate by reference” into this prospectus the information we file with, and furnish to it, which means
that we can disclose important information to you by referring you to those filed or furnished documents. The information incorporated
by reference is considered to be a part of this prospectus. However, statements contained this prospectus or in documents that
we file with or furnish to the Commission and that are incorporated by reference into this prospectus will automatically update
and supersede information contained in this prospectus, including information in previously filed or furnished documents or reports
that have been incorporated by reference into this prospectus, to the extent the new information differs from or is inconsistent
with the old information. We hereby incorporate by reference the documents listed below:
|
·
|
Our Annual Report on Form 10-K for the fiscal year ended December
31, 2017.
|
|
·
|
Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2018, and September 30, 2017, and June 30, 2017.
|
|
·
|
Our Registration Statement on Form SB-2 declared effective by the
Securities and Exchange Commission on November 2, 2007.
|
|
·
|
All other reports filed by the Registrant pursuant to Section 13(a),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), since March 31, 2018.
|
We will provide
without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon his or her written or
oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus.
You may obtain a copy of these documents by writing to or telephoning us at the following address: Attn: our president at our principal
executive offices: Envision Solar International, Inc., 5660 Eastgate Dr., San Diego, California 92121, telephone number (858) 799-4583.
Alternatively, copies of these documents are available via our website (http://www.envisionsolar.com). The information on our website
is not incorporated by reference into this prospectus.
INDEX TO FINANCIAL STATEMENTS
ENVISION SOLAR INTERNATIONAL,
INC. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
for the Three Months Ended March
31, 2018 and 2017 (unaudited)
Consolidated Financial Statements
for the Years Ended December 31,
2017 and 2016
Envision Solar International, Inc.
and Subsidiary
Condensed Consolidated Balance Sheets
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
254,225
|
|
|
$
|
403,475
|
|
Accounts Receivable, net
|
|
|
873,769
|
|
|
|
5,946
|
|
Prepaid and other current assets
|
|
|
202,289
|
|
|
|
55,674
|
|
Inventory, net
|
|
|
538,425
|
|
|
|
2,319,500
|
|
Total Current Assets
|
|
|
1,868,708
|
|
|
|
2,784,595
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
202,673
|
|
|
|
226,112
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Patents, net
|
|
|
102,361
|
|
|
|
75,279
|
|
Deposits
|
|
|
109,788
|
|
|
|
156,588
|
|
Total Other Assets
|
|
|
212,149
|
|
|
|
231,867
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,283,530
|
|
|
$
|
3,242,574
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
592,799
|
|
|
$
|
486,690
|
|
Accrued Expenses
|
|
|
436,775
|
|
|
|
451,924
|
|
Sales Tax Payable
|
|
|
34,869
|
|
|
|
46
|
|
Deferred Revenue
|
|
|
55,649
|
|
|
|
77,514
|
|
Convertible Line of Credit - net of discount amounting to $120,371 and $226,768 at March 31, 2018 and December 31, 2017, respectively
|
|
|
169,629
|
|
|
|
923,232
|
|
Convertible Notes Payable -Related Parties
|
|
|
207,116
|
|
|
|
197,616
|
|
Convertible Notes Payable - net of discount amounting to $115,141 and $175,668 at March 31, 2018 and December 31, 2017, respectively
|
|
|
1,484,859
|
|
|
|
1,424,332
|
|
Auto Loan - Current Portion
|
|
|
10,057
|
|
|
|
9,862
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,991,753
|
|
|
|
3,571,216
|
|
|
|
|
|
|
|
|
|
|
Long-term Portion of Auto Loan
|
|
|
17,259
|
|
|
|
20,620
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,009,012
|
|
|
|
3,591,836
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 0 outstanding as of March 31, 2018 and December 31, 2017, respectively
|
|
|
—
|
|
|
|
—
|
|
Common Stock, $0.001 par value, 490,000,000 shares authorized, 144,706,495 and 141,835,662 shares issued or issuable and outstanding at March 31, 2018 and December 31, 2017, respectively
|
|
|
144,706
|
|
|
|
141,836
|
|
Additional Paid-in-Capital
|
|
|
38,418,298
|
|
|
|
37,785,781
|
|
Accumulated Deficit
|
|
|
(39,288,486
|
)
|
|
|
(38,276,879
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(725,482
|
)
|
|
|
(349,262
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
2,283,530
|
|
|
$
|
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 March 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Revenues
|
|
$
|
2,875,972
|
|
|
$
|
370,689
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
2,841,672
|
|
|
|
374,543
|
|
|
|
|
|
|
|
|
|
|
Gross Profit (Loss)
|
|
|
34,300
|
|
|
|
(3,854
|
)
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock based compensation expense of $144,967 and $69,486 for the three months ended March 31, 2018 and 2017, respectively)
|
|
|
609,169
|
|
|
|
668,989
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(574,869
|
)
|
|
|
(672,843
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
808
|
|
|
|
170
|
|
Interest Expense
|
|
|
(437,546
|
)
|
|
|
(53,981
|
)
|
Gain on Debt Extinguishment
|
|
|
—
|
|
|
|
107,081
|
|
Total Other Income (Expense)
|
|
|
(436,738
|
)
|
|
|
53,270
|
|
|
|
|
|
|
|
|
|
|
Loss Before Tax Expense
|
|
|
(1,011,607
|
)
|
|
|
(619,573
|
)
|
|
|
|
|
|
|
|
|
|
Tax Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,011,607
|
)
|
|
$
|
(619,573
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share- Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding- basic and diluted
|
|
|
144,706,495
|
|
|
|
122,413,803
|
|
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 Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,011,607
|
)
|
|
$
|
(619,573
|
)
|
Adjustments to Reconcile Net loss to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,071
|
|
|
|
17,475
|
|
Shares issued for services
|
|
|
140,625
|
|
|
|
30,375
|
|
Compensation expense related to grant of stock options
|
|
|
4,342
|
|
|
|
39,111
|
|
Gain on debt extinguishment
|
|
|
—
|
|
|
|
(107,081
|
)
|
Amortization of debt discount
|
|
|
379,344
|
|
|
|
—
|
|
Amortization of debt issue costs
|
|
|
—
|
|
|
|
800
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(867,823
|
)
|
|
|
693,263
|
|
Prepaid expenses and other current assets
|
|
|
(176,887
|
)
|
|
|
(13,478
|
)
|
Inventory
|
|
|
1,816,855
|
|
|
|
(54,231
|
)
|
Deposits
|
|
|
46,800
|
|
|
|
—
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
106,109
|
|
|
|
(174,968
|
)
|
Accrued expenses
|
|
|
(15,149
|
)
|
|
|
150,429
|
|
Convertible note payable issue in lieu of salary - related party
|
|
|
12,500
|
|
|
|
47,500
|
|
Sales tax payable
|
|
|
34,823
|
|
|
|
(31,822
|
)
|
Deferred revenue
|
|
|
(21,865
|
)
|
|
|
40,657
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
466,138
|
|
|
|
18,457
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
—
|
|
|
|
(3,219
|
)
|
Funding of patent costs
|
|
|
(27,222
|
)
|
|
|
(962
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(27,222
|
)
|
|
|
(4,181
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
290,000
|
|
|
|
30,000
|
|
Payments of offering costs related to sale of common stock
|
|
|
(12,000
|
)
|
|
|
(2,400
|
)
|
Payments on line of credit, net
|
|
|
(860,000
|
)
|
|
|
—
|
|
Repayments on convertible notes payable
|
|
|
(3,000
|
)
|
|
|
(3,000
|
)
|
Repayments of auto loan
|
|
|
(3,166
|
)
|
|
|
(2,276
|
)
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
(588,166
|
)
|
|
|
22,324
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(149,250
|
)
|
|
|
36,600
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
403,475
|
|
|
|
8,568
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
254,225
|
|
|
$
|
45,168
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
71,372
|
|
|
$
|
11,412
|
|
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
|
|
$
|
5,508
|
|
|
$
|
5,481
|
|
Prepaid insurance financed by a third party
|
|
$
|
—
|
|
|
$
|
31,250
|
|
Shares issued for debt conversion
|
|
$
|
—
|
|
|
$
|
704,709
|
|
Recording of debt discount
|
|
$
|
212,420
|
|
|
$
|
—
|
|
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
March 31, 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 months ended March 31, 2018 and 2017, and our financial position as of March 31, 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
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
conversion features in convertible
debt, valuation of share-based payments, and the valuation allowance on deferred tax assets.
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 March 31, 2018. As of March 31, 2018, there were no amounts greater than the
federally insured limits.
Concentration of Accounts
Receivable
As of March 31, 2018, customers
that each represented more than 10% of the Company’s net accounts receivable balance were as follows:
Customer A
|
|
|
48
|
%
|
Customer B
|
|
|
24
|
%
|
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 three months ended
March 31, 2018, customers that each represented more than 10% of our net revenues were as follows:
Customer A
|
|
|
69
|
%
|
Customer B
|
|
|
15
|
%
|
For the three months ended
March 31, 2017, customers that each represented more than 10% of our net revenues were as follows:
Customer C
|
|
|
39
|
%
|
Customer D
|
|
|
24
|
%
|
Customer E
|
|
|
17
|
%
|
Customer F
|
|
|
13
|
%
|
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 March
31, 2018 and December 31, 2017 respectively.
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 March 31, 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
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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.
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.
The Company
includes shipping and handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues. 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 March 31, 2018, the Company has no product warranty accrual given the Company’s de minimis historical financial warranty
experience.
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. 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 $140 in each of the three-month
periods ended March 31, 2018 and 2017.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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.
Convertible
notes payable that are convertible into 9,067,752 common shares, options to purchase 15,216,664 common shares and warrants to purchase
6,463,017 common shares were outstanding at March 31, 2018. These shares were not included in the computation of diluted loss per
share for the three months ended March 31, 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.
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.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
ASU 2017-05
In February
2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-05:
"Other Income - Gains and
Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)” -
to clarify the scope of Subtopic 610-20,
“Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets”, and to add guidance for partial
sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial
assets in contracts with noncustomers. This guidance is effective for interim and annual reporting periods beginning after December
15, 2017. The adoption of ASU No. 2017-05 did not have a material impact on the Company's consolidated financial statements or
related disclosures.
ASU 2016-15
In August
2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash Payments.
This guidance addresses eight specific cash flow issues with
the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement
of cash flows. The standard provides guidance on the classification of the following items: (1) debt prepayment or debt extinguishment
costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination,
(4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies,
(6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately
identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2017 on a retrospective basis. The adoption of ASU No. 2016-15 did not have a material impact
on the Company's consolidated financial statements or related disclosures.
ASU 2014-09
In May
2014, the Financial Accounting Standards Board issued Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606)”
which requires that an entity recognize revenue to depict the transfer of promised goods and services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Since the
issuance of the original standard, the FASB has issued several updates to the standard which i) clarify the application of the
principal versus agent guidance; ii) clarify the guidance relating to performance obligations and licensing; iii) clarify assessment
of the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts
at transaction; and iv) clarify narrow aspects of ASC 606 or corrects unintended application of the guidance. The new revenue recognition
standard, amended by the updates, becomes effective in the first quarter of 2018 and is to be applied retrospectively using one
of two prescribed methods. The Company has adopted the new standard effective January 1, 2018 and the adoption of this standard
did not have any impact on the amount or timing of its revenues.
As reflected
in the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2018, the Company
had a net loss of $1,011,607. Additionally, at March 31, 2018, the Company had a working capital deficit of $1,123,045, an accumulated
deficit of $39,288,486 and a stockholders’ deficit of $725,482. 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 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 are currently due or 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.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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:
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Finished Goods
|
|
$
|
121,616
|
|
|
$
|
1,716,141
|
|
Work in Process
|
|
|
275,506
|
|
|
|
311,481
|
|
Raw Materials
|
|
|
149,904
|
|
|
|
300,479
|
|
Inventory Allowance
|
|
|
(8,601
|
)
|
|
|
(8,601
|
)
|
Total Inventory
|
|
$
|
538,425
|
|
|
$
|
2,319,500
|
|
The major
components of accrued expenses are summarized as follows:
|
|
March 31,
2018
|
|
December 31,
2017
|
Accrued vacation
|
|
$
|
146,622
|
|
|
$
|
152,051
|
|
Accrued interest
|
|
|
162,783
|
|
|
|
175,953
|
|
Accrued rent
|
|
|
76,332
|
|
|
|
77,164
|
|
Accrued loss contingency
|
|
|
—
|
|
|
|
44,423
|
|
Other accrued expense
|
|
|
51,038
|
|
|
|
2,333
|
|
Total accrued expenses
|
|
$
|
436,775
|
|
|
$
|
451,924
|
|
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.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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.
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 is being amortized to interest expense over the estimated term of the Draw Down.
As of
March 31, 2018, the convertible line of credit had a balance, net of a $120,371 debt discount, amounting to $169,629.
6.
|
CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
|
As of
March 31, 2018, the following summarizes amounts owed under short-term convertible notes –related parties:
|
|
Amount
|
Evey Note
|
|
$
|
59,616
|
|
Wheatley Note
|
|
|
147,500
|
|
|
|
$
|
207,116
|
|
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.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
Although
as of December 31, 2016, Mr. Evey is no longer a director, because he was our Chairman and a related party since 2010, we have
continued to classify this note as a Convertible Note Payable - Related Parties in the accompanying balance sheet. For the three
month period ended March 31, 2018, the Company made principal payments totaling $3,000. As of March 31, 2018, this note is past
due and has a balance of $59,616 with accrued interest amounting to $64,222, which is included in accrued expenses (See Note 4
and 13). The note continues to bear interest at a rate of 10%
.
Wheatley Note
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. In certain circumstances
upon the Company achieving specified milestones, which are described in the Agreement, Mr. Wheatley can demand payment of all or
any portion of the deferred amount, and the Company must comply with such demand. 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 March 31, 2018, is $147,500 with accrued and unpaid
interest amounting to $15,769 which is included in accrued expenses (See Notes 4 and 13).
7.
|
CONVERTIBLE NOTES PAYABLE
|
As of
March 31, 2018, the following summarizes amounts owed under convertible notes payable:
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
Notes Payable,
|
|
|
Amount
|
|
Discount
|
|
net of discount
|
Pegasus Note
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
“Lender” Note
|
|
|
1,500,000
|
|
|
|
115,141
|
|
|
|
1,384,859
|
|
|
|
$
|
1,600,000
|
|
|
$
|
115,141
|
|
|
$
|
1,484,859
|
|
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.
As of
March 31, 2018, the note is past due and had a balance of $100,000 with accrued and unpaid interest amounting to $82,658 which
is included in accrued expenses (See Note 4).
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 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
March 31, 2018, the convertible note had a balance, net of $115,141 of debt discount, amounting to $1,384,859.
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 March 31, 2018, the
loan has a short-term portion of $10,057 and a long-term portion of $17,259.
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 March 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on
the results of our operations.
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
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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 three months ended March 31, 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 will
be no accounting effect for the issuance of these warrants as their fair value will be 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 three month period ended March 31, 2018, the Company released a total of 187,500 vested shares of common stock with a per share
fair value of $0.15, or $28,125 (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 payments were expensed at issuance (See Note 13). As of March
31, 2018, there were unreleased shares of common stock representing $196,875 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 12).
11.
|
STOCK OPTIONS AND WARRANTS
|
Stock Options
There
were no stock options issued during the three months ended March 31, 2018.
During
the three months ended March 31, 2018, the Company recorded stock option based compensation of $4,342 related to prior grants.
As of March 31, 2018, there is $29,187 of unrecognized stock option based compensation expense that will be recognized over the
next two years.
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
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 $0.15 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 three months ended March 31
|
|
|
2018
|
|
2017
|
Product Sales
|
|
$
|
2,868,630
|
|
|
$
|
367,089
|
|
Maintenance Fees
|
|
|
5,448
|
|
|
|
3,600
|
|
Professional Services
|
|
|
1,894
|
|
|
|
—
|
|
Total Revenues
|
|
$
|
2,875,972
|
|
|
$
|
370,689
|
|
At March
31, 2018 and December 31, 2017, deferred revenue amounted to $55,649 and $77,514 respectively. At March 31, 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 March 31, 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 $29,344 and
pertain to services to be provided through the fourth quarter of 2021.
13.
|
RELATED PARTY TRANSACTIONS
|
During
the three months ended March 31, 2018, the Company released a total of 937,500 shares of common stock with a total value of $140,625,
to three directors. These payments were expensed at issuance (See Note 10).
In 2009,
the Company executed a 10% convertible note payable in the amount of $102,236 due December 31, 2010 to John Evey for amounts loaned
to the Company. Mr. Evey joined the Board of Directors on April 27, 2010. Through a series of extensions, the note due date was
extended to December 31, 2017. During the three months ended March 31, 2018, in lieu of interest payments, the Company made principal
payments on this note amounting to $3,000. As of March 31, 2018, the note is past due and has a balance of $59,616 with accrued
and unpaid interest amounting to $64,222 (See Notes 4, and 6). Although as of December 31, 2016 Mr. Evey is no longer a director,
because he was our Chairman and a prior related party, we have continued to classify this note as a Convertible note payable -
related parties in the accompanying balance sheet.
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
ENVISION SOLAR INTERNATIONAL, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
payable by the Company to
Mr. Wheatley. The balance of the note as of March 31, 2018, is $147,500 with accrued and unpaid interest amounting to $15,769 which
is included in accrued expenses (See Notes 4 and 6).
Subsequent
to March 31, 2018, the Company paid down its outstanding borrowing under its Convertible Line of Credit with the Lender amounting
to $290,000 (See Note 5).
Envision Solar International, Inc.
and Subsidiary
Consolidated Financial Statements
December 31, 2017 and 2016
Envision Solar International, Inc. and
Subsidiary
Table of Contents
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Stockholders
of:
Envision Solar International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Envision Solar International, Inc. and Subsidiary (the “Company”) as of December 31, 2017 and 2016,
the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows, for each of the two
years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted
in the United States of America.
Going Concern
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has a net loss and cash used in operations of $3,041,430 and $3,437,312, respectively, in 2017
and has a working capital deficit, stockholders’ deficit and accumulated deficit of $786,621, $349,262 and $38,276,879, respectively,
at December 31, 2017. These matters raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s Plan in regards to these matters is also described in Note 2. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ Salberg & Company P.A
.
SALBERG & COMPANY, P.A.
We have served as the company’s
auditor since 2008
Boca Raton, Florida
March 30, 2018
2295 NW Corporate
Blvd., Suite 240 • Boca Raton, FL 33431
Phone: (561)
995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com
• info@salbergco.com
Member National
Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect
with Affiliated Offices Worldwide
•
Member Center for Public Company Audit Firms
Envision Solar International,
Inc. and Subsidiary
Consolidated Balance Sheets
|
|
December 31,
|
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
403,475
|
|
|
$
|
8,568
|
|
Accounts Receivable, net
|
|
|
5,946
|
|
|
|
1,161,064
|
|
Prepaid and other current assets
|
|
|
55,674
|
|
|
|
94,167
|
|
Inventory, net
|
|
|
2,319,500
|
|
|
|
271,802
|
|
Total Current Assets
|
|
|
2,784,595
|
|
|
|
1,535,601
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
226,112
|
|
|
|
293,041
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Debt issue costs, net
|
|
|
—
|
|
|
|
800
|
|
Patents, net
|
|
|
75,279
|
|
|
|
73,370
|
|
Deposits
|
|
|
156,588
|
|
|
|
154,778
|
|
Total Other Assets
|
|
|
231,867
|
|
|
|
228,948
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,242,574
|
|
|
$
|
2,057,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
486,690
|
|
|
$
|
873,012
|
|
Accrued Expenses
|
|
|
451,924
|
|
|
|
430,433
|
|
Sales Tax Payable
|
|
|
46
|
|
|
|
50,181
|
|
Deferred Revenue
|
|
|
77,514
|
|
|
|
75,323
|
|
Line of Credit
|
|
|
—
|
|
|
|
1,000,000
|
|
Convertible Line of Credit, net of discount of $226,768
|
|
|
923,232
|
|
|
|
—
|
|
Convertible Notes Payable -Related Parties
|
|
|
197,616
|
|
|
|
724,616
|
|
Convertible Notes Payable, net of discount amounting to $175,668 and $0 at December 31, 2017 and December 31, 2016, respectively
|
|
|
1,424,332
|
|
|
|
100,000
|
|
Note Payable
|
|
|
—
|
|
|
|
43,033
|
|
Auto Loan -current portion
|
|
|
9,862
|
|
|
|
9,337
|
|
Embedded Conversion Option Liability
|
|
|
—
|
|
|
|
107,081
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
3,571,216
|
|
|
|
3,413,016
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of Auto Loan
|
|
|
20,620
|
|
|
|
29,678
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,591,836
|
|
|
|
3,442,694
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value, 10,000,000 authorized, 0 outstanding as of December 31, 2017 and 2016, respectively.
|
|
|
—
|
|
|
|
—
|
|
Common Stock, $0.001 par value, 490,000,000 shares authorized, 141,835,662 and 120,105,418 shares issued or issuable and outstanding at December 31, 2017 and 2016, respectively.
|
|
|
141,836
|
|
|
|
120,105
|
|
Additional Paid-in-Capital
|
|
|
37,785,781
|
|
|
|
33,730,240
|
|
Accumulated Deficit
|
|
|
(38,276,879
|
)
|
|
|
(35,235,449
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(349,262
|
)
|
|
|
(1,385,104
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
3,242,574
|
|
|
$
|
2,057,590
|
|
The accompanying notes are an integral
part of these Consolidated Financial Statements
Envision Solar International, Inc.
and Subsidiary
Consolidated Statements of Operations
|
|
For the Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Revenues
|
|
$
|
1,412,042
|
|
|
$
|
2,781,273
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
1,884,793
|
|
|
|
2,925,994
|
|
|
|
|
|
|
|
|
|
|
Gross Loss
|
|
|
(472,751
|
)
|
|
|
(144,721
|
)
|
|
|
|
|
|
|
|
|
|
Operating Expenses (including stock based compensation expense of $430,084 for the year ended December 31, 2017 and $842,089 for the year ended December 31, 2016)
|
|
|
2,227,645
|
|
|
|
2,643,672
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(2,700,396
|
)
|
|
|
(2,788,393
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
1,762
|
|
|
|
415
|
|
Gain on Debt Settlement, net
|
|
|
25,524
|
|
|
|
450,927
|
|
Interest Expense
|
|
|
(474,601
|
)
|
|
|
(275,776
|
)
|
Gain on debt extinguishment
|
|
|
107,081
|
|
|
|
—
|
|
Change in the fair value of embedded conversion option liability
|
|
|
—
|
|
|
|
(19,089
|
)
|
Total Other Income (Expense)
|
|
|
(340,234
|
)
|
|
|
156,477
|
|
|
|
|
|
|
|
|
|
|
Loss Before Tax Expense
|
|
|
(3,040,630
|
)
|
|
|
(2,631,916
|
)
|
|
|
|
|
|
|
|
|
|
Tax Expense
|
|
|
800
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,041,430
|
)
|
|
$
|
(2,633,516
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share- Basic and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding- Basic and Diluted
|
|
|
127,470,749
|
|
|
|
112,469,828
|
|
The accompanying notes are an integral
part of these Consolidated Financial Statements
Envision Solar International, Inc.
and Subsidiary
Consolidated Statements of Changes
in Stockholders' Deficit
For the Years Ended December 31, 2017
and 2016
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional Paid-in
|
|
Accumulated
|
|
Total Stockholders'
|
|
|
Stock
|
|
Amount
|
|
Stock
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
Balance December 31, 2015
|
|
|
—
|
|
|
$
|
—
|
|
|
|
105,207,701
|
|
|
$
|
105,208
|
|
|
$
|
31,088,122
|
|
|
$
|
(32,601,933
|
)
|
|
$
|
(1,408,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Cash
|
|
|
—
|
|
|
|
—
|
|
|
|
12,133,333
|
|
|
|
12,133
|
|
|
|
1,807,867
|
|
|
|
—
|
|
|
|
1,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Offering Costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(68,800
|
)
|
|
|
—
|
|
|
|
(68,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Services
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
149,000
|
|
|
|
—
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Services - Related Party
|
|
|
—
|
|
|
|
—
|
|
|
|
464,115
|
|
|
|
464
|
|
|
|
69,139
|
|
|
|
—
|
|
|
|
69,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Director Services
|
|
|
—
|
|
|
|
—
|
|
|
|
1,152,776
|
|
|
|
1,153
|
|
|
|
171,763
|
|
|
|
—
|
|
|
|
172,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Loan Guranty -Related Party
|
|
|
—
|
|
|
|
—
|
|
|
|
147,493
|
|
|
|
147
|
|
|
|
21,976
|
|
|
|
—
|
|
|
|
22,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
442,871
|
|
|
|
—
|
|
|
|
442,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Warrant Modification Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48,302
|
|
|
|
—
|
|
|
|
48,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,633,516
|
)
|
|
|
(2,633,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
|
120,105,418
|
|
|
$
|
120,105
|
|
|
$
|
33,730,240
|
|
|
$
|
(35,235,449
|
)
|
|
$
|
(1,385,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Cash
|
|
|
—
|
|
|
|
—
|
|
|
|
15,633,327
|
|
|
|
15,634
|
|
|
|
2,329,366
|
|
|
|
—
|
|
|
|
2,345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Offering Costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(53,600
|
)
|
|
|
—
|
|
|
|
(53,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Loan Conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
4,698,060
|
|
|
|
4,698
|
|
|
|
700,011
|
|
|
|
—
|
|
|
|
704,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Services
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
15
|
|
|
|
2,235
|
|
|
|
—
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Services - Related Party
|
|
|
—
|
|
|
|
—
|
|
|
|
180,000
|
|
|
|
180
|
|
|
|
26,820
|
|
|
|
—
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Issued for Director Services
|
|
|
—
|
|
|
|
—
|
|
|
|
750,000
|
|
|
|
750
|
|
|
|
111,750
|
|
|
|
—
|
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Loan Guranty -Related Party
|
|
|
—
|
|
|
|
—
|
|
|
|
453,857
|
|
|
|
454
|
|
|
|
67,624
|
|
|
|
—
|
|
|
|
68,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recording of Debt Discount on Convertible Loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
651,251
|
|
|
|
—
|
|
|
|
651,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
220,084
|
|
|
|
—
|
|
|
|
220,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,041,430
|
)
|
|
|
(3,041,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
141,835,662
|
|
|
$
|
141,836
|
|
|
$
|
37,785,781
|
|
|
$
|
(38,276,879
|
)
|
|
$
|
(349,262
|
)
|
The accompanying notes are an integral
part of these Consolidated Financial Statements
Envision Solar International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
|
|
For the Year Ended December 31,
|
|
|
2017
|
|
2016
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,041,430
|
)
|
|
$
|
(2,633,516
|
)
|
Adjustments to Reconcile Net loss to Net Cash Used in Operating Activities:
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
69,381
|
|
|
|
102,438
|
|
Bad Debt Expense
|
|
|
—
|
|
|
|
510
|
|
Decrease of Reserve on Inventory
|
|
|
—
|
|
|
|
(19,182
|
)
|
Common Stock issued for Loan Guaranty
|
|
|
68,250
|
|
|
|
—
|
|
Common Stock Issued for Services
|
|
|
141,750
|
|
|
|
350,916
|
|
Gain on Debt Settlement, net
|
|
|
(25,524
|
)
|
|
|
(450,927
|
)
|
Compensation Expense Related to Grant of Stock Options
|
|
|
220,084
|
|
|
|
442,871
|
|
Warrant Modification Expense
|
|
|
—
|
|
|
|
48,302
|
|
Gain on debt extinguishment
|
|
|
(107,081
|
)
|
|
|
—
|
|
Change in Fair Value of Embedded Conversion Option Liability
|
|
|
—
|
|
|
|
19,089
|
|
Amortization of Debt Discount
|
|
|
271,098
|
|
|
|
—
|
|
Amortization of Debt Issue Costs
|
|
|
800
|
|
|
|
125,917
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
1,155,118
|
|
|
|
(329,957
|
)
|
Prepaid Expenses and Other Current Assets
|
|
|
19,659
|
|
|
|
(24,845
|
)
|
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
|
|
|
—
|
|
|
|
22,058
|
|
Inventory
|
|
|
(2,004,526
|
)
|
|
|
166,236
|
|
Deposits
|
|
|
(1,810
|
)
|
|
|
8,506
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
|
(386,322
|
)
|
|
|
351,691
|
|
Accrued Expenses
|
|
|
146,185
|
|
|
|
172,871
|
|
Convertible Note Payable Issued in Lieu of Salary - Related Party
|
|
|
85,000
|
|
|
|
50,000
|
|
Sales Tax Payable
|
|
|
(50,135
|
)
|
|
|
(63,560
|
)
|
Deferred Revenue
|
|
|
2,191
|
|
|
|
(138,144
|
)
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(3,437,312
|
)
|
|
|
(1,798,726
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of Equipment
|
|
|
(23,895
|
)
|
|
|
(115,886
|
)
|
Funding of Patent Costs
|
|
|
(2,470
|
)
|
|
|
(37,311
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(26,365
|
)
|
|
|
(153,197
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from Sale of Common Stock
|
|
|
2,345,000
|
|
|
|
1,820,000
|
|
Payments of Offering Costs Related to Sale of Common Stock
|
|
|
(53,600
|
)
|
|
|
(68,800
|
)
|
Borrowings on Convertible Note Payable
|
|
|
1,500,000
|
|
|
|
—
|
|
Borrowings on Convertible Line of Credit
|
|
|
1,150,000
|
|
|
|
—
|
|
Borrowings (Payments) on Line of Credit, Net
|
|
|
(1,000,000
|
)
|
|
|
200,000
|
|
Repayments of Convertible Notes Payable- Related Parties
|
|
|
(12,000
|
)
|
|
|
(12,000
|
)
|
Repayments on Notes Payable
|
|
|
(40,000
|
)
|
|
|
—
|
|
Repayments of Auto Loan
|
|
|
(8,533
|
)
|
|
|
(8,760
|
)
|
Payments of Debt Issue Costs
|
|
|
(22,283
|
)
|
|
|
(2,400
|
)
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,858,584
|
|
|
|
1,928,040
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
394,907
|
|
|
|
(23,883
|
)
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF YEAR
|
|
|
8,568
|
|
|
|
32,451
|
|
|
|
|
|
|
CASH AT END OF YEAR
|
|
$
|
403,475
|
|
|
$
|
8,568
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
73,409
|
|
|
$
|
45,133
|
|
Cash paid for tax
|
|
$
|
800
|
|
|
$
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Shares issued for debt conversion
|
|
$
|
704,709
|
|
|
$
|
—
|
|
Recording of debt discount
|
|
$
|
715,829
|
|
|
$
|
—
|
|
Shares issued for loan guarantee -related party
|
|
$
|
68,250
|
|
|
$
|
22,123
|
|
Transfer of prepaid asset to inventory
|
|
$
|
21,168
|
|
|
$
|
31,752
|
|
Depreciation transferred to inventory
|
|
$
|
22,004
|
|
|
$
|
21,606
|
|
Transfer of inventory to property and equipment
|
|
$
|
—
|
|
|
$
|
56,677
|
|
Prepaid insurance financed by third party
|
|
$
|
2,334
|
|
|
$
|
2,412
|
|
The accompanying notes are an integral
part of these Consolidated Financial Statements
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
1.
|
CORPORATE ORGANIZATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
CORPORATE ORGANIZATION
Envision Solar was
incorporated in June 2006 as a limited liability company (“LLC”). Through a series of transactions and mergers, including
a series of 2010 transactions where the then existing entity was acquired by an inactive publicly-held company in a transaction
treated as a recapitalization of the company, the resulting entity became Envision Solar International, Inc., a Nevada Corporation
(along with its subsidiary, hereinafter the “Company”, "us", "we", "our" or "Envision").
The effects of the recapitalization have been retroactively applied to all periods presented in the accompanying consolidated financial
statements and footnotes. Additionally, the Company had formed various wholly owned subsidiaries to account for its planned future
operations, but these entities were dissolved over the subsequent years. The only remaining subsidiary included in these consolidated
financial statements is Envision Solar Construction Company, Inc. which was a non-operational entity officially dissolved in 2017.
NATURE OF OPERATIONS
Envision 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 EV charging, media and branding, and energy security which are attractively designed,
rapidly deployable, 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.
PRINCIPALS OF CONSOLIDATION
The 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 consolidated 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 consolidated 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
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.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
CONCENTRATIONS
Concentration
of Credit Risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through December 31, 2017. The Company had approximately $150,000 of
bank balances in excess of FDIC insured levels as of December 31, 2017 and no such amounts as of December 31, 2016.
Concentration
of Accounts Receivable
At December
31, 2017 and 2016, customers that each accounted for more than 10% of our accounts receivable were as follows:
|
|
2017
|
|
2016
|
|
Customer 1
|
|
|
|
94
|
%
|
|
|
—
|
|
|
Customer 2
|
|
|
|
—
|
|
|
|
71
|
%
|
|
Customer 3
|
|
|
|
—
|
|
|
|
25
|
%
|
Concentration
of Revenues
For
the years ended December 31, 2017 and 2016, customers that each represented more than 10% of our revenues were as follows:
|
|
2017
|
|
2016
|
Customer A
|
|
|
28
|
%
|
|
|
—
|
|
Customer B
|
|
|
12
|
%
|
|
|
14
|
%
|
Customer C
|
|
|
—
|
|
|
|
26
|
%
|
Customer D
|
|
|
—
|
|
|
|
30
|
%
|
CASH AND CASH EQUIVALENTS
For the purposes
of the 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 December 31, 2017 and December 31,
2016, respectively.
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 December 31, 2017 and 2016, the carrying amounts of these instruments approximated their fair values
because of the short-term nature of these instruments. See Note 10 for further discussion of fair value measurements.
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.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
INVENTORY
Inventory is stated
at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method of accounting. Inventory
costs primarily relate to purchased raw materials and components used in the manufacturing of our products, work in process for
products being manufactured, and finished goods. Included in these costs are direct labor and certain manufacturing overhead costs
associated with the manufacturing process. The Company regularly reviews inventory components and quantities on hand, and performs
annual physical inventory counts. A reserve is established if this review process determines the market value of such inventory
may be below the carrying value.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment
is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related
assets of 3 to 7 years. Expenditures for maintenance and repairs, along with fixed assets below our capitalization threshold, are
expensed as incurred.
PATENTS
The Company believes
it will achieve future economic value 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. 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, all accumulated administrative costs will be expensed in that period. For the years
ended December 31, 2017 and 2016 respectively, patent amortization expense was $561 and $561.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts
for long-lived assets in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.”
This guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
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 AND COST RECOGNITION
Revenues are primarily
derived from the direct sales of products. Revenues may also consist of maintenance fees for previously sold products, design fees
for the design of solar systems and arrays, and revenues from sales of professional services.
Revenues from leases, maintenance fees,
design services, and professional services are recognized as earned.
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. Any deposits received from a customer prior to such delivery are accounted for as deferred revenue on the balance sheet.
At December 31, 2017 and December 31, 2016, deferred revenue amounted to $77,514 and $75,323 respectively. At December 31, 2017,
the Company has received partial deposits for two undelivered Solar Tree® units, an undelivered EVARC® unit and a multi-year
maintenance contract.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
The Company includes
shipping and handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues. Sales tax is recorded
on a net basis and excluded from revenue. The Company generally provides a one year warranty on its products for materials and
workmanship and will pass on the warranties from its vendors, if any, which generally covers this one year 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 December 31, 2017, the Company has no product warranty accrual given the Company’s de minimis historical financial warranty
experience.
RESEARCH AND DEVELOPMENT
In accordance with
ASC 730-10, “Research and Development,” expenditures for research and development of the Company’s products are
expensed when incurred, and are included in operating expenses. The Company recognized research and development costs, not including
the minimal amounts of labor associated with research and development projects, of $1,772 for the year ending December 31,
2017 and $3,459 for the year ending December 31, 2016.
ADVERTISING
The Company conducts
advertising for the promotion of its products and services. In accordance with ASC 720-35, “Advertising Costs,” advertising
costs are charged to operations when incurred. Such amounts aggregated $81,278 in 2017 and $58,149 in 2016.
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.
INCOME TAXES
The Company accounts
for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an
asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which
management believes it is more likely than not that the net deferred asset will not be realized.
The Company
follows the provisions of ASC 740-10-25-5,
“
Basic Recognition Threshold
.”
When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be
ultimately sustained. In accordance with the guidance of ASC 740-10-25-6, the benefit of a tax position is recognized in the
consolidated financial statements in the period during which, based on all available evidence, management believes it is more
likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability
for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would
be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being
upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31,
2017, tax years 2014 through 2017 remain open for IRS audit. The Company has received no notice of audit from the IRS for any
of the open tax years.
The Company recognizes
the benefit of a tax position when it is effectively settled. ASC 740-10-25-10, “Basic Recognition Threshold” provides
guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. ASC 740-10-25-10 clarifies that a tax position can be effectively settled upon the completion of an
examination by a taxing authority. For tax positions considered effectively settled, the Company recognizes the full amount of
the tax benefit.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
BASIC AND DILUTED NET LOSS PER COMMON
SHARE
Basic net loss per
share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted
net loss per common share is computed by dividing the net loss by 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.
Convertible debt
convertible into 19,846,181 common shares, options to purchase 15,216,664 common shares and warrants to purchase 5,781,900 common
shares were outstanding at December 31, 2017. Convertible debt convertible into 6,123,370 common shares, options to purchase 19,917,007
common shares and warrants to purchase 28,196,822 common shares were outstanding at December 31, 2016. Dilutive common stock equivalents
were not included in the computation of diluted net loss per share in 2017 and 2016 because the effects would have been anti-dilutive
due to the net losses. Due to the net losses in 2017 and 2016, basic and diluted net loss per share amounts are the same. These
potential common shares may dilute future earnings per share.
CONTINGENCIES
Certain conditions
may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which
will only be resolved when one or more future events occur or fail to occur. Company management and its legal counsel assess such
contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related
to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that
a liability has been incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be
accrued in the Company's consolidated financial statements. If the assessment indicates that a potentially material loss contingency
is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent
liability, together with an estimate of the range of possible loss if determinable would be disclosed. The Company does not include
legal costs in its estimates of amounts to accrue.
SEGMENTS
The Company follows
the guidance of ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information." During 2017 and
2016, the Company only operated in one segment; therefore, segment information has not been presented.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no new
accounting pronouncements that became effective during the year ended December 31, 2017 that materially affect the consolidated
financial position of the Company or the results of its’ operations. Accounting Standard Updates which are not effective
until after December 31, 2017, including the pronouncements discussed below, disclose the potential effects on the Company’s
consolidated financial position and/or results of its’ operations and financial statement disclosures.
ASU 2017-05
In
February 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-05:
"Other Income
- Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)” -
to clarify the scope of
Subtopic 610-20, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets”, and to add
guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and
losses from the transfer of nonfinancial assets in contracts with noncustomers. This guidance is effective for interim and
annual reporting periods beginning after December 15, 2017. The Company does not expect this ASU to have a material impact on
its consolidated financial statements.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
ASU 2017-08
In March
2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-08: “Receivables – Non-Refundable
fees and Other Costs (Subtopic 310-20)” to amend the amortization period for certain purchased callable debt securities held
at a premium. The Board is shortening the amortization period for the premium to the earliest call date. This guidance is effective
for interim and annual reporting periods beginning after December 15, 2018. The Company does not expect this ASU to have a material
impact on its consolidated financial statements.
ASU 2016-15
In August
2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash Payments.
This guidance addresses eight specific cash flow issues with
the objective of reducing diversity in practice regarding how certain cash receipts and cash payments are presented in the statement
of cash flows. The standard provides guidance on the classification of the following items: (1) debt prepayment or debt extinguishment
costs, (2) settlement of zero-coupon debt instruments, (3) contingent consideration payments made after a business combination,
(4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies,
(6) distributions received from equity method investments, (7) beneficial interests in securitization transactions, and (8) separately
identifiable cash flows. The Company is required to adopt ASU 2016-15 for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2017 on a retrospective basis. Early adoption is permitted, including adoption in an interim
period. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
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.
ASU 2016-09
In March
2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09:
"Compensation – Stock
Compensation (Topic 718)
- I
mprovements to Employee Share-Based Payment Accounting" which
includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. This guidance is
effective for interim and annual reporting periods beginning after December 15, 2016. The adoption of this ASU did not have a material
impact on its consolidated financial statements.
ASU 2014-09
In
May 2014, the Financial Accounting Standards Board issued Update No. 2014-09: “Revenue from Contracts with Customers
(Topic 606)” which requires that an entity recognize revenue to depict the transfer of promised goods and services to
customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those
goods or services. Since the issuance of the original standard, the FASB has issued several updates to the standard which i)
clarify the application of the principal versus agent guidance; ii) clarify the guidance relating to performance obligations
and licensing; iii) clarify assessment of the collectability criterion, presentation of sales taxes, measurement date for
non-cash consideration and completed contracts at transaction; and iv) clarify narrow aspects of ASC 606 or corrects
unintended application of the guidance. The new revenue recognition standard, amended by the updates, becomes effective in
the first quarter of 2018 and is to be applied retrospectively using one of two prescribed methods. Early adoption is
permitted. The Company currently plans to adopt the new standard effective January 1, 2018 and does not believe the adoption
of this standard will have any impact on the amount or timing of its revenues.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
ASU 2015-17
In November
2015, the FASB issued ASU No. 2015-17, “
Balance Sheet Classification of Deferred Taxes
,” which requires that
an entity classify deferred tax assets and liabilities as noncurrent on the balance sheet. Prior to the issuance of the standard,
deferred tax assets and liabilities were required to be separated into current and noncurrent amounts on the basis of the classification
of the related asset or liability. This ASU was effective for the Company on April 1, 2017. The adoption of ASU No. 2015-17 did
not have a material impact on the Company's consolidated financial statements or related disclosures.
ASU 2014-15
In August
2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which
requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern
for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard
was effective for the Company for its annual period beginning December 31, 2016. The Company has reflected the related disclosure
requirements associated with the standard in Note 2.
As reflected in
the accompanying consolidated financial statements for the years ended December 31, 2017 and 2016, the Company had net losses of
$3,041,430 (which includes $430,084 of stock based compensation expense) and $2,633,516 (which includes $842,089 of stock based
compensation expense), respectively, and net cash used in operating activities of $3,437,312 and $1,798,726, respectively. Additionally,
at December 31, 2017, the Company had a working capital deficit of $786,621, stockholders’ deficit of $349,262, and accumulated
deficit of $38,276,879. It is managements 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 date of this filing.
In addition to
the funds raised in a private securities offering during the year ended December 31, 2017 and reflected in the accompanying financial
statements, Envision raised an additional $290,000 from the same offering subsequent to December 31, 2017. Envision will look to
raise additional funds for further operating capital and working capital. Further, the Company will seek additional sales that
would provide additional revenues and possible gross profits. All such actions and funds, if successful, may or 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 or provide additional working capital. From January 1, 2017 through December 31, 2017, the Company raised $2,345,000 from
a private securities offering, borrowed a net $500,000 from certain loan facilities and additionally drew down $1,150,000 on a
potential $3,000,000 line of credit that was established during 2017.
The 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.
3.
|
ACCOUNTS RECEIVABLE, AND DEFERRED REVENUE
|
Accounts Receivable
The Company records
accounts receivable as it bills its customers for products and services. The allowance for doubtful accounts is based upon the
Company’s policy (See Note 1). Accounts receivable throughout the year may decrease based on payments received, credits for
change orders, or back charges incurred.
At December 31,
2017 and 2016, accounts receivables were as follows:
|
|
December
31, 2017
|
|
December
31, 2016
|
Accounts
receivable
|
|
$
|
5,946
|
|
|
$
|
1,161,064
|
|
Less:
Allowance for doubtful accounts
|
|
|
—
|
|
|
|
—
|
|
Accounts
receivable, Net
|
|
$
|
5,946
|
|
|
$
|
1,161,064
|
|
Bad debt expense
for 2017 and 2016 was $0 and $510, respectively.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Deferred Revenue
Deferred revenues
are deposits from customers for product sales which have not yet been delivered and multi period maintenance contracts (See Note
1). Deferred revenue was $77,514 and $75,323 for the years ended December 31, 2017 and December 31, 2016, respectively.
4.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses
and other current assets are summarized as follows:
|
|
December 31, 2017
|
|
December 31, 2016
|
Prepaid insurance
|
|
$
|
25,402
|
|
|
$
|
26,124
|
|
Deposit on future raw materials
|
|
|
30,272
|
|
|
|
21,168
|
|
Prepaid services
|
|
|
—
|
|
|
|
46,875
|
|
Total prepaid expenses and other current assets
|
|
$
|
55,674
|
|
|
$
|
94,167
|
|
Inventories are
stated at the lower of cost or net realizable value. Costs are determined using the first in- first out (FIFO) method. As of December
31, 2017 and 2016, inventory consists of the following:
|
|
December 31, 2017
|
|
December 31, 2016
|
Finished goods
|
|
$
|
1,716,141
|
|
|
$
|
22,375
|
|
Work in process
|
|
|
311,481
|
|
|
|
164,915
|
|
Raw materials
|
|
|
300,479
|
|
|
|
93,113
|
|
Inventory reserve
|
|
|
(8,601
|
)
|
|
|
(8,601
|
)
|
Inventory, net
|
|
$
|
2,319,500
|
|
|
$
|
271,802
|
|
6.
|
PROPERTY AND EQUIPMENT
|
Property and equipment
consists of the following:
|
|
Est. Useful
Lives
|
|
December 31,
2017
|
|
December 31,
2016
|
Computer equipment and software
|
|
5 years
|
|
$
|
32,666
|
|
|
$
|
28,344
|
|
Furniture and fixtures
|
|
7 years
|
|
|
82,529
|
|
|
|
82,529
|
|
Office equipment
|
|
5 years
|
|
|
20,533
|
|
|
|
20,533
|
|
Machinery and equipment
|
|
1-5 years
|
|
|
341,583
|
|
|
|
322,010
|
|
Autos
|
|
3 years
|
|
|
49,238
|
|
|
|
49,238
|
|
Leasehold improvements
|
|
47 months
|
|
|
6,790
|
|
|
|
6,790
|
|
Total property and equipment
|
|
|
|
|
533,339
|
|
|
|
509,444
|
|
Less accumulated depreciation
|
|
|
|
|
(307,227
|
)
|
|
|
(216,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
|
$
|
226,112
|
|
|
$
|
293,041
|
|
Depreciation expense
for 2017 and 2016 was $68,820 and $101,877, respectively. In 2017 and 2016, respectively, approximately $22,000 and $21,600 of
depreciation was capitalized into inventory as manufacturing overhead costs.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
The
major components of accrued expenses are summarized as follows:
|
|
December 31, 2017
|
|
December 31, 2016
|
Accrued vacation
|
|
$
|
152,051
|
|
|
$
|
136,410
|
|
Accrued interest
|
|
|
175,953
|
|
|
|
235,776
|
|
Accrued loan guaranty
|
|
|
—
|
|
|
|
8,333
|
|
Accrued rent
|
|
|
77,164
|
|
|
|
26,091
|
|
Accrued commissions
|
|
|
—
|
|
|
|
18,828
|
|
Accrued loss contingency
|
|
|
44,423
|
|
|
|
—
|
|
Other accrued expense
|
|
|
2,333
|
|
|
|
4,995
|
|
Total accrued expenses
|
|
$
|
451,924
|
|
|
$
|
430,433
|
|
8.
|
LINE OF CREDIT/TERM DEBT – SILICON VALLEY BANK
|
In October 2015,
the Company entered into a one year Loan and Security Agreement (the “LSA”) with Silicon Valley Bank (“Bank”),
pursuant to which the Bank agreed to provide the Company with a revolving line of credit in the aggregate principal amount of $1,000,000,
bearing interest at a floating per annum rate equal to the greater of three quarters of one percentage point (0.75%) above the
Prime Rate (as that term is defined in the LSA) or four percent (4.00%). The line of credit was secured by a second priority perfected
security interest in all of the assets of the Company in favor of the Bank.
The LSA contained certain
restrictions, subject to certain exceptions and qualifications, on the conduct of the Company and its subsidiary, including, among
other restrictions: incurring debt other than permitted indebtedness as defined, disposing of certain assets, making investments,
creating or suffering liens, completing certain mergers, consolidations and sales of assets, acquisitions, declaring dividends
to third parties, redeeming or prepaying other debt, and certain transactions with affiliates. Envision drew down $800,000 of this
line in 2015 with another $200,000 drawdown in February 2016. As of December 31, 2016, the balance of this revolving line of credit
was $1,000,000.
Under the terms
of the LSA, the Bank received a commitment fee of $2,500, reimbursement of Bank expenses for documentation of $10,000, and a reimbursement
of filing fees amounting to $1,836. These fees were recorded as Debt Issue Costs on the accompanying balance sheet and were amortized
over the one year term of the line of credit.
As of December 31,
2016, the term of the LSA was extended to January 28, 2017. Fees amounting to $2,400 relating to this extension were recorded as
Debt Issue Costs on the accompanying balance sheet and were amortized over the term of this extension.
As a
condition to the extension of credit to the Company under the LSA, Keshif Ventures, LLC (“Keshif”), a related
party shareholder with more than 10% of the outstanding stock of the Company, agreed to guarantee all of the Company’s
obligations under the LSA pursuant to a Master Unconditional Limited Guaranty between Bank and Keshif
(“Guaranty”). Keshif pledged cash equivalent collateral to the Bank as security for the Guaranty. Keshif also
agreed to subordinate to the Bank all of Company’s indebtedness and other monetary obligations owing to Keshif pursuant
to a Subordination Agreement (“Subordination Agreement”). In consideration for the Guaranty, Envision issued
571,429 shares of its common stock, with a per share value of $0.15 (based on contemporaneous cash sales prices) or $85,714
(the “Shares”) to Keshif pursuant to a stock purchase agreement (“SPA”). These shares, along with
legal costs associated with the issuance of this guaranty amounting to $11,435, were recorded as Debt Issue Costs and were
amortized over the initial one year term of the line of credit. Pursuant to the terms of the SPA, for each six-month period
from and after the six-month anniversary of October 29, 2015 (each, a “Measurement Period”) that Keshif
guarantees Borrower’s obligations under the LSA, Keshif will also receive the number of additional shares of
Envision’s common stock, rounded upward to the nearest whole number, equal to (a) two and one half percent (2.5%)
multiplied by the maximum outstanding principal amount of the LSA at any time during such Measurement Period, such amount to
be divided by (b) the twenty (20) day average closing price of the Company’s common stock, measured for the twenty (20)
consecutive trading days immediately prior to such Measurement Period, the quotient of which shall be multiplied by (c) a
fraction, the numerator of which is the number of calendar days during the Measurement Period which the Guaranty remained in
effect and the denominator of which is the number of calendar days in such Measurement Period. Related to this guaranty, as
of October 29, 2016, the Company issued 147,493 shares of its common stock valued at $0.15 per share, or $22,123, and
expensed this over the six month Measurement Period of the Guaranty. The Company recorded a gain on debt settlement of $2,877
on this transaction. Additionally, as of April 29, 2017, the Company issued 234,302 shares of its common stock valued at
$0.15 per share, or $35,145, and expensed this over the six month Measurement Period of the Guaranty. The Company recorded a
gain on debt settlement of $2,355 on this transaction. Additionally, in September 2017, the Company issued 219,555 shares of
its common stock valued at $0.15 per share, or $32,933 and expensed this over the final Measurement Period of the Guaranty.
The Company recorded a loss of $2,183 on this transaction (See Notes 14 and 17).
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Additionally, the
Company issued a side letter to Keshif (the “Side Letter”), which in addition to confirming Keshif’s entitlement
to the Shares, provided certain contractual rights to Keshif in consideration for the Guaranty, including a covenant by the Company
to provide financial statements and other periodic reports to Keshif, an agreement to reimburse Keshif for payments made by Keshif
to the Bank in accordance with the Guaranty (“Reimbursement Obligation”), and the grant of a security interest, subordinated
to the Bank under the Subordination Agreement, to secure the Reimbursement Obligation. Keshif also had the right under the Side
Letter to invite one representative to attend all meetings of Envision’s Board of Directors and, in the event Envision was
unable to meet its obligations under the LSA, Keshif was to immediately become entitled to elect one member to Envision’s
Board of Directors.
Effective March
30, 2017, the Company entered into an additional amendment to the LSA with Silicon Valley Bank as it relates to this debt. The
amendment (i) extended the maturity date to March 1, 2020, (ii) increased the loan to an aggregate principal amount of $1,500,000,
and (iii) changed the payment terms requiring monthly interest only payments through December 2017, and starting January 1, 2018,
the Company was required to repay the balance outstanding in twenty-seven equal monthly principal payments in addition to the monthly
accrued interest. The additional $500,000 of debt was funded to the Company in April 2017. Related to this amendment, the Company
paid $9,655 of fees to the Bank. These fees were recorded as debt discount and netted against the loan balance and amortized to
interest expense over the term of the debt facility.
As of September
25, 2017, the Company paid off the LSA in full with the proceeds of the “Lender” note as discussed in Note 11, and
the Guaranty and all other contractual rights related to this debt facility were cancelled.
9.
|
CONVERTIBLE LINE OF CREDIT
|
On September 18,
2017, in addition to a convertible “Lender” note (See Note 11), 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 Lender to 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 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 (See Note 15). As a result of this transaction, and including the value of the issued warrants, the Company
recorded $243,223 of value of beneficial conversion features, which is recorded as debt discount on the accompanying balance sheet,
and is being amortized to interest expense over the term of the loan.
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 (See Note 15). As a result of this transaction, and including the value of the issued warrants, the Company recorded $175,261
of value of beneficial conversion features, which is recorded as debt discount on the accompanying balance sheet, and is being
amortized to interest expense over the term of the loan.
As of December 31,
2017, the convertible line of credit had a balance, net of a $226,768 debt discount, amounting to $923,232. Accrued and unpaid
interest related to this note amounting to $22,236 is included in accrued expenses (See Note 7).
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
10.
|
CONVERTIBLE NOTES PAYABLE – RELATED PARTIES AND FAIR VALUE MEASUREMENTS
|
As of December 31,
2017 and 2016, the following summarizes amounts owed under short-term convertible notes –related parties:
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Evey Note
|
|
$
|
62,616
|
|
|
$
|
74,616
|
|
Wheatley Note
|
|
|
135,000
|
|
|
|
50,000
|
|
Gemini Master Fund – Third Amended and
|
|
|
|
|
|
|
|
|
Restated Secured Bridge Note – Current Group
|
|
|
—
|
|
|
|
600,000
|
|
|
|
$
|
197,616
|
|
|
$
|
724,616
|
|
Evey Note
Prior to 2011, the
Company was advanced monies by John Evey, our former chairman and 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 was subordinate to the Gemini Master Funds notes. Through a series of amendments, the conversion
price of the convertible note was reduced to $0.20 and the maturity date was extended to December 31, 2016. The Company made principal
payments amounting to $12,000 in fiscal 2016.
Effective December
31, 2016, the Company entered into a further extension agreement to extend the maturity date of this note to December 31, 2017.
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 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. The Company made principal payments amounting to $12,000 in fiscal
2017.
Although Mr. Evey
is no longer a director as of December 31, 2016, because he was our Chairman and a related party throughout most of 2016, we have
continued to classify this note as a Convertible note payable - related parties in the accompanying balance sheet. The note continues
to bear interest at a rate of 10%. The balance of the note as of December 31, 2017, is $62,616 with accrued and unpaid interest
amounting to $61,242 which is included in accrued expenses (See Note 7 and Note 17).
Wheatley Note
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. In certain circumstances upon
the Company achieving specified milestones, which are described in the Agreement, Mr. Wheatley can demand payment of all or any
portion of the deferred amount, and the Company must comply with such demand. 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 is 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 December 31, 2017, is $135,000 with accrued and unpaid interest amounting to $12,312 which is included
in accrued expenses (See Note 7).
Gemini Third Amended and Restated
Secured Bridge Note – Current Group
At the end of 2010,
the Company had a series of outstanding convertible notes to Gemini Master Fund, Ltd which were due December 31, 2011. These notes
bore interest at a rate of 12% per annum and, with the exception of one note, had a conversion feature whereby, the lender, at
its option, may at any time convert this loan into common stock at $0.25 per share. Interest under these notes is due on the first
business day of each calendar quarter, however, upon three days advance notice, the Company may elect to add such interest to the
note principal balance effectively making the interest due at note maturity. The note was secured by substantially all assets of
the Company and its subsidiary, and was unconditionally guaranteed by the subsidiary.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Prior to June 30,
2010 all shares underlying the Gemini Master Fund convertible debt were subject to a lock-up agreement, and the shares were not
easily convertible to cash thus, the embedded conversion option did not need to be bifurcated and recorded as a fair value derivative
due to the price protection provision in the notes. Subsequent to June 30, 2010, such lock-up provisions expired and as such, the
Company determined that the embedded conversion option met the definition of a derivative liability and needed to be bifurcated
and recorded as a derivative at fair value.
Through a series
of amendments, the Company modified terms of all notes so that the terms of these notes became equivalent. Further, the interest
rates were reduced to 10%; the conversion prices were reduced $0.15; the beneficial holder ceiling was increased to 9.9% and the
terms were extended to June 30, 2015.
In June 2015, Gemini
sold a 70.0066819% stake in its’ note to Robert Noble, our past Chairman, in a private transaction. The Company issued two
replacement notes for their respective ownership values based on this transaction with the Noble note having a balance of $600,000
and the Gemini note having a balance of $256,325. Each note has the same terms and conditions as existed prior to this transaction
and as discussed above. There were no accounting effects for this transaction.
In September 2015,
the Company made a payment to pay off the balance of the Gemini note and its accrued interest.
In regards to the
then remaining note, Robert Noble agreed to an extension to March 31, 2016. Additionally, during 2015, the Company made a $100,000
payment to Mr. Noble to pay down the accrued interest on this note.
Effective January
20, 2016, Mr. Noble entered into a Purchase Option Agreement with Greencore Capital LLC (“GreenCore”), a firm affiliated
with Jay S. Potter, a director of the Company (the “Optionee”), pursuant to which the Optionee has the right to purchase
or arrange for the purchase of the Note from Mr. Noble and all of Mr. Noble’s shares in the Company (the “Option”),
at any time prior to March 31, 2016, which date was subsequently extended. The Company had consented to the original Purchase Option
Agreement. Under a Note Settlement and General Release Agreement, provided that the Option is fully exercised and honored, the
Company agreed to extend the expiration date of 1,138,120 warrants to purchase 1,138,120 shares of the Company’s common stock
owned by Mr. Noble (the “Warrants”) from December 31, 2016 to December 31, 2017, and agreed to reduce the exercise
price of such Warrants from $0.24 to $0.20 per share. (see Note 15)
During the fourth
quarter of 2016, the Company was notified that a transaction, or series of transactions, arranged by GreenCore, had officially
closed whereas the convertible note and the “Noble” shares were ultimately obtained by a group of various shareholders,
some of which are related parties to the Company. As the note was partially held by a related party shareholder and was held by
other related party shareholders during the year, the note was classified as Convertible Notes Payable- Related Parties in the
accompanying balance sheets.
Effective as of
February 15, 2017, the Company received conversion notices from all the then current note holders effecting the conversion of the
entire principal balance of the note amounting to $600,000 and accrued and unpaid interest, as of February 15, 2017, amounting
to $104,709. The Company issued 4,698,060 shares of common stock at the contracted conversion price of $0.15 per share, to retire
the entirety of this convertible note (See Notes 14 and 17).
At December 31,
2017, there is no outstanding balance owed for this convertible note.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Fair Value Measurements –
Derivative liability:
The accounting
guidance for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding
fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be
paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants
on the measurement date. The accounting guidance established a fair value hierarchy which requires an entity to maximize the use
of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs
are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for
similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs
based on the Company’s own assumptions used to measure assets and liabilities at fair value. An asset or liability’s
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Assets
and liabilities measured at fair value on a recurring and non-recurring basis consisted of the following at December 31, 2016:
|
|
Carrying Value at
|
|
Fair Value Measurements at December 31, 2016
|
|
|
December 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Embedded Conversion Option Liability
|
|
$
|
107,081
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the
February 2017 conversion discussed above, there was no embedded conversion option liability as of December 31, 2017.
The following is a summary of activity
of Level 3 liabilities for the periods ended December 31, 2016 and 2017:
Balance at December 31, 2015
|
|
$
|
87,992
|
|
Change in fair value
|
|
|
19,089
|
|
Balance at December 31, 2016
|
|
$
|
107,081
|
|
Gain on debt extinguishment
|
|
|
(107,081
|
)
|
Balance at December 31, 2017
|
|
$
|
—
|
|
Changes
in fair value of the embedded conversion option liability are included in other income (expense) in the accompanying consolidated
statements of operations.
The Company
estimates the fair value of the embedded conversion liability utilizing the Black-Scholes pricing model, which is dependent upon
several variables such as the expected term (based on contractual term), expected volatility of our stock price over the expected
term (based on historical volatility), expected risk-free interest rate over the expected term, and the expected dividend yield
rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value
of the derivative liability. The following table summarizes the assumptions the Company utilized to estimate the fair value
of the embedded conversion option at December 31, 2016:
Assumptions
|
|
December 31, 2016
|
Expected remaining term
|
|
|
0.25
|
|
Expected Volatility
|
|
|
103
|
%
|
Risk free rate
|
|
|
0.50
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
There
were no changes in the valuation techniques during 2017. In 2016, the Company did compute the valuation of this derivative liability
using a binomial lattice model noting no material differences in valuation results. The weighted average interest rate for short
term notes as of December 31, 2017 was 10%.
11.
|
CONVERTIBLE NOTES PAYABLE
|
As of
December 31, 2016, the $100,000 owed under convertible notes payable consisted only of the Pegasus note.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
As of
December 31, 2017, the following summarizes amounts owed under convertible notes payable:
|
|
Amount
|
|
Discount
|
|
Convertible Notes Payable, net of discount
|
Pegasus Note
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
“Lender” Note
|
|
|
1,500,000
|
|
|
|
175,668
|
|
|
|
1,324,332
|
|
|
|
$
|
1,600,000
|
|
|
$
|
175,668
|
|
|
$
|
1,424,332
|
|
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
and subsequently extended until December 31, 2012. 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.
As of
December 31, 2017, the note is past due and had a balance of $100,000 with accrued and unpaid interest amounting to $80,164 which
is included in accrued expenses (See Note 7).
“Lender”
Note
On September
18, 2017, in addition to entering into a revolving convertible line of credit (See Note 9), the Company also entered into a secured
convertible promissory note with an 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 value of
$187,142 using the Black-Scholes valuation methodology, and each with a $0.15 exercise price (See Note 15). As a result of
this transaction, and including the value of the issued warrants, the Company recorded $232,767 of value of beneficial
conversion features, which is recorded as debt discount on the accompanying balance sheet, and 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.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
As of
December 31 2017, the convertible note had a balance, net of $175,668 of debt discount, amounting to $1,324,332 with accrued and
unpaid interest amounting to $7,593 which is included in accounts payable.
12.
|
NOTE PAYABLE AND AUTO LOAN
|
Note Payable
On June 1, 2010,
the Company entered into a Promissory Note with one of its vendors in exchange for the vendor cancelling its open invoices to the
Company. Total outstanding payables recorded by the Company at the time of settlement were $179,702. The note amount was for $160,633
and bears interest at 10%. The note can be converted only at the option of the Company, at any time, into common stock with an
original conversion price of $0.33 per share. During 2011, 2012 and 2013, the company made partial conversions of this note. Further,
through a series of amendments, the note was extended to December 31, 2014 and the conversion price of the note was reduced to
$0.20 per share of common stock.
Through a series
of amendments, the maturity date of the note was extended through June 30, 2016. There were no accounting effects for these amendments.
In December 2017
the Company made a $40,000 settlement payment to pay off this note, and all accrued interest, in full. The Company recorded a gain
on debt settlement of $25,352 related to this transaction.
Auto Loan
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 December 31, 2017, the loan
had a short-term portion of $9,862 and a long-term portion of $20,620.
13.
|
COMMITMENTS AND CONTINGENCIES
|
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. As part of the sublease, the
Company provided a $146,091 deposit to the landlord, which will be reduced in months nineteen and thirty-one of the sublease, as
defined, in lieu of rent payments. At the end of the lease period, $50,619 of the deposit will remain as security for the surrender
of the premises.
Future
annual minimum lease payments related to our facility lease are as follows:
|
2018
|
|
|
$
|
522,288
|
|
|
2019
|
|
|
|
543,180
|
|
|
2020
|
|
|
|
404,952
|
|
|
Total
|
|
|
$
|
1,470,420
|
|
Administrative
rent expense was $112,675 and $59,228 for the years ended December 31, 2017 and 2016, respectively. Further, for the years ended
December 31, 2017 and 2016, respectively, $446,618 and $337,287 of rent was capitalized into inventory as manufacturing overhead
costs.
As of December 31, 2017, there
are no other lease agreements with non-cancelable terms in excess of one year.
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 December 31, 2017, 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Other Commitments:
The Company
enters into various contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments.
During 2017 and 2016, the Company has agreements to act as a reseller for certain vendors; 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 have agreed to cooperate and provide business opportunities to each other; agreements with
vendors where the vendor may provide marketing, public relations, technical consulting or subcontractor services and financial
advisory agreements where the financial advisor would receive a fee and/or commission for advising and 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,
other than sales agent agreements and revenue generating sales contracts, there are no firm commitments in such agreements as of
December 31, 2017.
The Company
enters into various other agreements with third party vendors who will provide services and/or products to the Company. Such vendor
agreements may call for a deposit along with certain other payments based on the delivery of goods or services.
Shares
Issued
Issuances
of the Company’s common stock during the years ended December 31, 2017 and 2016, respectively, are as follows:
2017
Stock Issued in Cash Sales
During
the year ended December 31, 2017 pursuant to private placements, the Company issued 15,633,327 shares of common stock for cash
with a per share price of $0.15 per share or $2,345,000 and the Company incurred $53,600 of capital raising fees that were paid
in cash and charged to additional paid-in capital. Additionally, as of December 31, 2017, related to the Company’s private
placement, the company is obligated to issue 223,337 common stock purchase warrants to the placement agents. There will be no financial
statement accounting effect for the issuance of these warrants as their fair value will be 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 recording the issuance of these
warrants (see Note 15).
Stock Issued for Loan Conversion
During
the year ended December 31, 2017, and effective as of February 15, 2017, the Company issued 4,698,060 shares of common stock at
the contracted conversion price of $0.15 per share, or $704,709 effecting the conversion of the entire principal balance of the
note amounting to $600,000 and accrued and unpaid interest, as of February 15, 2017, amounting to $104,709 (See Note 10).
Stock Issued for Services
During
the year ended December 31, 2017, as payment for professional services provided, the Company issued 15,000 shares of the Company’s
common stock with a per share fair value of $0.15 (based on contemporaneous cash sales prices) or $2,250. These shares were fully
earned, and were expensed, upon issuance.
Stock Issued for Services –
Related Party
For professional
services provided per the terms of a consulting agreement with GreenCore Capital LLC (“GreenCore”), and during the
year ended December 31, 2017, the Company issued 180,000 shares of the Company’s common stock with a per share fair value
of $0.15 (based on contemporaneous cash sales prices) or $27,000. Jay Potter, our director, is the managing member of GreenCore
and the individual performing the services. (See Note 17)
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Stock Issued for Director Services
As of
December 31, 2016, the board approved a modified compensation program, effective January 1, 2017, for all non-executive directors
where each director would receive 750,000 restricted shares of common stock, pursuant to a restricted stock grant agreement (“New
Program RSA”) with vesting 62,500 per quarter over a 36 month period commencing on March 31, 2017 or upon the date for which
a new director is named, issuable on the last day of each calendar quarter so long as such director serves as a director of the
Company at that time. Each director that had a previous agreement agreed to terminate their rights to any previously issued shares
and cancel such previous agreements. As such, the Company granted 2,250,000 shares to directors on January 1, 2017 having a total
value of $337,500. The Company intends to grant up to an additional 750,000 shares of its common stock to each director based on
their achieving certain performance criteria to be agreed upon by the Board of Directors after discussion with senior management.
During
the year ended December 31, 2017, the Company released 750,000 shares of common stock with a per share fair value of $0.15, or
$112,500 (based on the market price at the time of the agreements), to three directors for their service as defined in their respective
restricted stock grant agreements. The payments were expensed at issuance (See Note 17 and 18).
The total
unrecognized restricted stock grant expense related to the Restricted Stock Agreements of our directors amounted to $225,000 at
December 31, 2017.
Stock Issued for Loan Guaranty
During
the year ended December 31, 2017, and in consideration for the continued Guaranty of the Company’s obligations extended under
a now terminated line of credit, the Company issued 453,857 shares of its common stock, with a per share value of $0.15 (based
on contemporaneous cash sales prices) or $68,078 to Keshif Ventures LLC, a related party, pursuant to a stock purchase agreement.
These shares were expensed to interest expense over the term of the Guaranty period. The Company recorded a gain on debt settlement
of $172 related to this transaction. (See Notes 8 and 17)
2016
Stock Issued in Cash Sales
During
the year ended December 31, 2016 pursuant to private placements, the Company issued 12,133,333 shares of common stock for cash
with a per share price of $0.15 per share or $1,820,000 and the Company incurred $68,800 of capital raising fees that were paid
in cash and charged to additional paid-in capital.
Stock Issued for Services
For professional
services provided per the terms of a consulting agreement with an investor relations consulting firm, the Company issued 1,000,000
shares of the Company’s common stock with a per share fair value of $0.15 per share (based on contemporaneous cash sales
prices) or $150,000. These payments were expensed over the term of the agreement. As of December 31, 2016, $46,875 was recorded
in prepaid expenses (See note 4) and expensed in 2017.
Stock Issued for Services –
Related Party
For
professional services provided per the terms of a consulting agreement with GreenCore Capital LLC (“GreenCore”),
and during the year ended December 31, 2016, the Company issued 464,115 shares of the Company’s common stock with a per
share fair value between $0.14 and $0.17 (based on an average market value of the stock when earned as defined in the
agreement) or $69,603. The Company recorded a gain on debt settlement of $2,396 on these transactions. These payments were
expensed at time of issuance. Jay Potter, our director, is the managing member of GreenCore and the individual performing the
services. (See Note 17)
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Stock Issued for Director Services
On February
12, 2016, the Board approved a compensation program for all non-executive directors that did not otherwise have a pre-existing
compensation plan. Starting for the 2016 year of service, each of two directors will receive 1,000,000 shares of common stock,
with a per share value of $0.15 (based on contemporaneous cash sales prices), or $150,000, that will vest equally at the end
of each calendar quarter that such director remains in service as a director over a three year period.
On February
19, 2016, Mr. Anthony Posawatz accepted an appointed as a new director of the Company effective February 19, 2016. In consideration
for Mr. Posawatz’s acceptance to serve as a director of the Company, the Company agreed to grant him 1,000,000 restricted
shares of its common stock, with a per share value of $0.15 (based on contemporaneous cash sales prices), or $150,000, vesting
according to the following vesting schedule: 27,777 per month over a 36 month period commencing on March 31, 2016, issuable on
the last day of each calendar quarter so long as Mr. Posawatz serves as a director of the Company, subject to the grantee’s
right to waive vesting and issuance on a quarterly basis.
On September
8, 2016, Mr. Peter Davidson accepted an appointment as a new director of the Company effective September 8, 2016. In consideration
for Mr. Davidson’s acceptance to serve as a director of the Company, the Company granted 750,000 restricted shares of its
common stock to him, subject to the terms and conditions set forth in the Restricted Stock Grant Agreement including but not limited
to the following vesting schedule: 62,500 shares or prorate portion thereof per calendar quarter over a 36 month period commencing
on September 30, 2016. The value of this stock grant is $0.15 per share (based on contemporaneous cash sales prices) or $112,500,
and is being expensed proportionately as the shares vest. The Company intends to grant up to an additional 750,000 shares of its
common stock to Mr. Davidson based on Mr. Davidson’s achieving certain performance criteria to be agreed upon by the Board
of Directors after discussion with senior management at a future date.
During
the year ended December 31, 2016, the Company released 1,152,776 shares of common stock with a per share fair value of $0.15, or
$172,916 (based on the market price at the time of the agreement), to five directors for their service as defined in their respective
Restricted Stock Grant Agreements and as discussed above. The payments were expensed at issuance (See Note 17).
The total
unrecognized restricted stock grant expense related to the above discussed stock issuances amounted to $337,500 at December 31,
2016.
Stock Issued for Loan Guaranty -Related
Party
During
the year ended December 31, 2016, and in consideration for the continued Guaranty of the Company’s obligations extended under
a line of credit, the Company issued 147,493 shares of its common stock, with a per share value of $0.15 (based on contemporaneous
cash sales prices) or $22,123 to Keshif Ventures LLC, a related party, pursuant to a stock purchase agreement. These shares were
expensed to interest expense over the term of the Guaranty period. The Company recorded a gain on debt settlement of $2,877 related
to this transaction. (See Notes 8 and 17)
15.
|
STOCK OPTIONS AND WARRANTS
|
On August
10, 2011, the Company’s Board of Directors approved and caused the Company to adopt the Envision Solar International, Inc.
2011 Stock Incentive Plan (the “Plan”), which authorizes the issuance of up to 31,500,000 shares of the Company’s
common stock pursuant to the exercise of stock options or other awards granted under the Plan.
In
2008, the Board approved the 2008 equity Incentive Plan, which authorizes 6,108,571 shares under the plan. Exercise rights
may not expire more than three months after the date of termination of the employee but may expire in less time as stipulated
in the individual grant notice. For disability or death, the optionee or estate will generally have up to twelve months to
exercise their options. For certain options the Company may have rights of first refusal for a stipulated period of time,
under a separate stock restriction agreement, whereby if the holder exercise the options and then desires to sell the
underlying shares, the Company has the right to repurchase such shares at a price to which the holder has agreed to sell them
to a third party.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Stock Options
The Company
follows the provisions of ASC Topic 718, “Compensation – Stock Compensation.” ASC Topic 718 establishes standards
surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services. ASC Topic
718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions,
such as options issued under the Company’s Stock Option Plans. The Company’s stock option compensation expense was
$220,084 and $442,871 for the years ended December 31, 2017 and 2016, respectively, and there was $33,529 of total unrecognized
compensation cost related to unvested options granted under the Company’s options plans as of December 31, 2017. This
stock option expense will be recognized through March 2020.
The fair
value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain
assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected
option life and expected volatility in the market value of the underlying common stock.
From January
1, 2016 through December 31, 2016, the Company issued 5,380,000 stock options under the plans with a total valuation of $622,109.
Of these stock options, 200,000 have a 5 year term while the remaining 5,180,000 have a 10 year term.
From January
1, 2017 through December 31, 2017, the Company issued 645,000 stock options under the plans with a total valuation of $61,632.
All of these options have a 10 year term.
We used
the following assumptions for options granted in fiscal 2017 and 2016:
|
|
2017
|
|
2016
|
Expected volatility
|
|
|
81.05
|
%
|
|
|
103.59% -114.93%
|
|
Expected term
|
|
|
5 Years
|
|
|
|
2.5-6.5 Years
|
|
Risk-free interest rate
|
|
|
0.15
|
%
|
|
|
0.16% -0.50%
|
|
Expected dividend yield
|
|
|
None
|
|
|
|
None
|
|
The Black-Scholes
option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its
traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s
opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The
risk free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the
expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s
current expectation of future action surrounding dividends. Expected volatility was based on historical data for the trading of
our stock on the open market. The expected lives for such grants were based on the simplified method for employees and directors.
All options
qualify as equity pursuant to ASC 815-40-25, “Contracts in Entity’s Own Equity.”
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Option activity for the years
ended December 31, 2017 and 2016 under the 2008 and 2011 Plans are as follows:
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2015
|
|
|
|
15,337,007
|
|
|
$
|
0.28
|
|
|
Granted
|
|
|
|
5,380,000
|
|
|
|
0.15
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
(800,000
|
)
|
|
|
0.19
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2016
|
|
|
|
19,917,007
|
|
|
$
|
0.25
|
|
|
Granted
|
|
|
|
645,000
|
|
|
|
0.16
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
(1,095,000
|
)
|
|
|
0.19
|
|
|
Expired
|
|
|
|
(4,250,343
|
)
|
|
|
0.33
|
|
|
Outstanding at December 31, 2017
|
|
|
|
15,216,664
|
|
|
$
|
0.23
|
|
|
Exercisable at December 31, 2017
|
|
|
|
13,479,165
|
|
|
$
|
0.24
|
|
|
Weighted average grant date fair value
|
|
|
|
|
|
|
$
|
0.10
|
|
The following
table summarizes information about employee stock options outstanding at December 31, 2017:
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Price
|
|
Number Outstanding at
December 31, 2017
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Number
Exercisable at
December 31, 2017
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value
|
$
|
|
|
0.13-1.31
|
|
|
|
15,216,664
|
|
|
|
5.45 Years
|
|
|
$
|
0.23
|
|
|
$
|
—
|
|
|
|
13,479,165
|
|
|
$
|
0.24
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
15,216,664
|
|
|
|
5.45 Years
|
|
|
$
|
0.23
|
|
|
$
|
—
|
|
|
|
13,479,165
|
|
|
$
|
0.24
|
|
|
$
|
—
|
|
As the
Company’s stock price was lower than the weighted average exercise price at December 31, 2017, there is no aggregate intrinsic
value of the options.
Options
exercisable have a weighted average remaining contractual life of 5.02 years as of December 31, 2017.
Warrants
2017
During
the year ended December 31, 2017, and as additional consideration for the funding of the Convertible Note payable by the Lender,
the Company issued 2,500,000 common stock purchase warrants having a value of $187,142 using the Black-Scholes valuation methodology,
and each with a $0.15 exercise price and a three year term (See Note 11). The assumptions used in the valuation of these warrants
include volatility of 85.78%, expected dividends of 0.0%, a discount rate of 1.50%, and expected term of 3 years.
During
the year ended December 31, 2017 as a result of Draw Downs on our Convertible Line of Credit with Lender, the Company issued
1,916,667 common stock purchase warrants having a value of $179,612 using the Black-Scholes valuation methodology, and each
with a $0.15 exercise price and three year term (See Note 9). The assumptions used in the valuation of these warrants include
volatility of 83.67-85.78, expected dividends of 0.0%, a discount rate of 1.50%, and expected term of 3 years.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
As of
December 31, 2017, related to the Company’s private placement, the company is obligated to issue 223,337 common stock purchase
warrants to the placement agents. There will be no financial statement accounting effect for the issuance of these warrants as
their fair value will be 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 recording the issuance of these warrants.
During
the twelve months ended December 31, 2017, 26,831,589 warrants had expired.
2016
As a part
of the Company’s private placement, the Company effectively issued 291,667 warrants in the twelve months ended December 31,
2016 to the placement agents. These warrants, valued at $30,419, 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 102.99%, expected dividends of 0.0%, a discount rate of 0.50%, 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.
During
the twelve months ended December 31, 2016, 1,314,286 warrants had expired.
Warrant activity for the years
ended December 31, 2017 and 2016 are as follows:
|
|
Number of Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2015
|
|
|
|
29,219,441
|
|
|
$
|
0.18
|
|
|
Granted
|
|
|
|
291,667
|
|
|
|
0.15
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(1,314,286
|
)
|
|
|
0.33
|
|
|
Outstanding at December 31, 2016
|
|
|
|
28,196,822
|
|
|
$
|
0.17
|
|
|
Granted
|
|
|
|
4,416,667
|
|
|
$
|
0.15
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(26,831,589
|
)
|
|
|
0.16
|
|
|
Outstanding at December 31, 2017
|
|
|
|
5,781,900
|
|
|
$
|
0.17
|
|
|
Exercisable at December 31, 2017
|
|
|
|
5,781,900
|
|
|
$
|
0.17
|
|
|
Weighted average grant date fair value
|
|
|
|
|
|
|
$
|
0.08
|
|
Warrants
exercisable have a weighted average remaining contractual life of 2.46 years as of December 31, 2017.
There
was no Federal income tax expense for the years ended December 31, 2017 and 2016 due to the Company’s net losses. Income
tax expense represents minimum state taxes due.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
The blended
Federal and State tax rate of 39.83% applies to loss before taxes. The Company’s tax expense differs from the “expected”
tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 34% to loss before taxes),
as follows:
|
|
Year ended December 31,
|
|
|
2017
|
|
2016
|
Computed “expected” tax expense (benefit)
|
|
$
|
(1,034,086
|
)
|
|
$
|
(895,395
|
)
|
State taxes, net of federal benefit
|
|
|
(171,202
|
)
|
|
|
(154,764
|
)
|
Goodwill impairment and other non-deductible items
|
|
|
643,016
|
|
|
|
(31,134
|
)
|
Change in federal tax rates
|
|
|
4,145,380
|
|
|
|
—
|
|
Change in deferred tax asset valuation allowance
|
|
|
(3,583,108
|
)
|
|
|
1,081,293
|
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The effects of temporary differences that gave rise to significant portions of deferred
tax assets and liabilities at December 31 are as follows:
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Charitable contributions
|
|
$
|
2,900
|
|
|
$
|
4,128
|
|
Reserve for bad debt
|
|
|
17,948
|
|
|
|
25,548
|
|
Stock options
|
|
|
3,416,792
|
|
|
|
4,776,104
|
|
Depreciation
|
|
|
6,920
|
|
|
|
33,638
|
|
Other
|
|
|
17,674
|
|
|
|
25,159
|
|
Net operating loss carryforward
|
|
|
6,957,507
|
|
|
|
9,167,042
|
|
Total gross deferred tax assets
|
|
|
10,419,741
|
|
|
|
14,031,619
|
|
Less: Deferred tax asset valuation allowance
|
|
|
(10,351,807
|
)
|
|
|
(13,934,915
|
)
|
Total net deferred tax assets
|
|
|
67,934
|
|
|
|
96,704
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accrued salaries
|
|
|
(67,934
|
)
|
|
|
(96,704
|
)
|
Total deferred tax liabilities
|
|
|
(67,934
|
)
|
|
|
(96,704
|
)
|
Total net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
As a result
of the Company’s history of incurring operating losses, a full valuation allowance has been established. The valuation allowance
at December 31, 2017 was $10,351,807. The decrease in the valuation allowance during 2017 was $3,583,108.
At December 31,
2017, the Company has a net operating loss carry forward of $24,862,803 available to offset future net income through 2037. The
NOL expires during the years 2017 to 2037. The utilization of the net operating loss carryforwards is dependent upon the ability
of the Company to generate sufficient taxable income during the carryforward period. In the event that a significant change in
ownership of the Company occurs as a result of the Company’s issuance of common stock, the utilization of the NOL carry forward
will be subject to limitation under certain provisions of the Internal Revenue Code. Management does not presently believe that
such a change has occurred.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (Act). The Act makes significant modifications to the
provisions of the Internal Revenue Code, including but not limited to, a corporate tax rate decrease to 21% effective as of
January 1, 2018. The Company’s net deferred tax assets and liabilities have been revalued at the newly enacted U.S.
Corporate rate in the year of enactment. The adjustment related to the revaluation of the deferred tax asset and liability
balances is a net charge of approximately $4.1 million. This expense is fully offset by a change in valuation allowance.
Accordingly, there is no impact on income tax expense as of December 31, 2017.
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
17.
|
RELATED PARTY TRANSACTIONS
|
Accounts Payable
and Related Party Vendor Payments
During
the year ended December 31, 2016, the Company made cash payments totaling $69,500, and issued 464,115 shares of the Company’s
common stock with a total value of $69,603 to GreenCore for professional services provided to the Company as detailed in a March
28, 2014 consulting agreement. Additionally, as of December 31, 2016, the Company had an accounts payable balance of $27,000 owed
to Greencore. During the year ended December 31, 2017, the Company made cash payments totaling $54,000, and issued 180,000 shares
of the Company’s common stock with a total value of $27,000 to GreenCore under this same agreement. There were no balances
owed to GreenCore as of December 31, 2017. Jay Potter, our director, is the managing member of GreenCore (See Note 14).
Director Compensation
On February
12, 2016, the Company issued 200,000 stock options to each of the three non-executive directors that served as a director during
2015, other than Mr. Moody, for a total of 600,000 stock options. These options were granted as compensation for the services
provided in 2015, vested immediately, and were valued using the Black-Scholes option pricing methodology. Jay Potter and
John Evey each received 200,000 options exercisable at a price of $0.125 per share for a period of 10 years from the date of grant,
with a combined total valuation of $40,100. Robert Noble received 200,000 options exercisable at a price of $0.1375 per share
for a period of 5 years from the date of grant for a total valuation of $15,493. The assumptions used in the valuation of
these options include volatility of 114.93%, expected dividends of 0.0%, a discount rate of 0.16%, and expected terms, applying
the simplified method, of 5 years for Mr. Potter and Mr. Evey and 2.5 years for Mr. Noble.
On February
12, 2016, the Board approved a compensation program for all non-executive directors that do not otherwise have a pre-existing compensation
plan. Starting for the 2016 year of service, each of two directors will receive 1,000,000 shares of common stock, with a
per share value of $0.15 (based on contemporaneous cash sales prices), or $150,000, that will vest equally at the end of each calendar
quarter that such director remains in service as a director over a three year period.
During
the year ended December 31, 2016, the Company released 1,152,776 shares of common stock with a per share fair value of $0.15, or
$172,916 (based on the market price at the time of the agreement), to five directors for their service as defined in their respective
Restricted Stock Grant Agreements. The payments were expensed at issuance (See Note 14).
On or
about December 31, 2016, Mr. Jay S. Potter, Mr. Tony Posawatz, and Mr. Peter Davidson, all directors of the Company, each entered
into an Amendment to their Restricted Stock Agreement with the Company (each an “Amendment”). Pursuant to their Amendments,
each director agreed to terminate his rights to unvested restricted shares of the Company’s common stock under their previous
respective Restricted Stock Agreements, in consideration for which the Company granted to each director 750,000 restricted shares
of the Company’s common stock, vesting 1/36 per month over a 36 month period commencing on the date of grant, issuable quarterly
on the last day of each calendar quarter (the first vesting is scheduled to occur on January 31, 2017 and be for 20,833 shares
and the first issuance is scheduled to occur on March 31, 2017 and be for 62,499 shares) so long as each director serves as a director,
employee, consultant or officer of the Company at the time of scheduled vesting. The Company will also grant an additional 750,000
restricted shares of the Company’s common stock to each director to vest in the future from time to time, based on their
achieving certain performance criteria to be agreed upon by the Board of Directors after discussion with senior management at a
future date.
During
the year ended December 31, 2017, the Company released 750,000 shares of common stock with a per share fair value of $0.15, or
$112,500 (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 payments were expensed at issuance (See Note 14 and 18).
ENVISION SOLAR INTERNATIONAL INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Stock Issued for Loan Guaranty and
Cash Sales
During
the year ended December 31, 2017, and in consideration for the continued Guaranty of the Company’s obligations extended under
a now terminated line of credit, the Company issued 453,857 shares of its common stock, with a per share value of $0.15 (based
on contemporaneous cash sales prices) or $68,078 to Keshif Ventures LLC, a related party, pursuant to a stock purchase agreement.
These shares were expensed to interest expense over the term of the Guaranty period (See Notes 8 and Note 14). Additionally, during
the year ended December 31, 2017, pursuant to a private placement, the Company issued 1,333,333 shares of common stock for cash,
with a per share price of $0.15 per share or $200,000 to Keshif.
During
the year ended December 31, 2016, and in consideration for the continuing Guaranty of the Company’s obligations extended
under a line of credit, the Company issued 147,493 shares of its common stock or $22,123 to Keshif Ventures LLC pursuant to a stock
purchase agreement. Additionally, during the year ended December 31, 2016, pursuant to a private placement, the Company issued
3,333,333 shares of common stock for cash, with a per share price of $0.15 per share or $500,000 to Keshif.
Convertible Notes Payable
to Related Parties
In 2009,
the Company executed a 10% convertible note payable in the amount of $102,236 due December 31, 2010 to John Evey for amounts loaned
to the Company. Mr. Evey joined the Board of Directors on April 27, 2010. Through a series of extensions, the note due date was
extended to December 31, 2017. During each of the fiscal years ended December 31, 2017 and 2016, respectively, in lieu of interest
payments, the Company made principal payments on this note amounting to $12,000. The balance of the note as of December 31, 2017
is $62,616 with accrued and unpaid interest amounting to $61,242 (See Note 10). Although Mr. Evey is no longer a director as of
December 31, 2016, because he was our Chairman and a related party throughout most of 2016, we have continued to classify this
note as a Convertible note payable - related parties in the accompanying balance sheet.
In June
2015, Gemini Master Fund Ltd sold a 70.0066819% stake in its’ note to Robert Noble, our former Chairman and former owner
of over 10% of our outstanding common stock, in a private transaction. The Company issued two replacement notes for their respective
ownership values based on this transaction. In regards to the note for Mr. Noble, he agreed to an extension of his note to March
31, 2016. During the twelve months ended December 31, 2015, the Company made a $100,000 payment to Mr. Noble to pay down the accrued
interest on this note. Effective January 20, 2016, Mr. Noble entered into a Purchase Option Agreement with a firm affiliated with
Jay S. Potter, a director of the Company (the “Optionee”), pursuant to which the Optionee has the right to purchase
or arrange for the purchase of the Note from Mr. Noble and all of Mr. Noble’s shares in the Company (the “Option”),
at any time until March 31, 2016. This date was subsequently extended. The Company consented to the Purchase Option Agreement.
Under a Note Settlement and General Release Agreement, provided that the Option is fully exercised and honored, the Company agreed
to grant Mr. Noble the right to acquire, for one dollar, at any time until June 30, 2017, a worldwide, perpetual, irrevocable,
nonexclusive, royalty-free license to utilize all of the Company intellectual property developed prior to January 1, 2011, except
for the following: (i) EV ARC™ and (ii) EnvisionTrak™. Further, provided the Option was exercised in full and Mr. Noble
complied with it, the Company would extend the expiration date of the 1,138,120 warrants to purchase 1,138,120 shares of the Company’s
common stock owned by Mr. Noble (the “Warrants”) from December 31, 2016 to December 31, 2017, and will reduce the exercise
price of such Warrants from $0.24 to $0.20 per share. During the fourth quarter of 2016, the Company was notified that a transaction,
or series of transactions, arranged by GreenCore, had officially closed whereas the convertible note and the “Noble”
shares were ultimately obtained by a group of various shareholders, some of which are related parties to the Company. As the note
was partially held by a related party shareholder at the end of 2016 and was held by other related party shareholders during its
existence, the note was classified as Convertible Notes Payable- Related Parties in the accompanying balance sheets. Effective
as of February 15, 2017, the Company received conversion notices from all the current note holders effecting the conversion of
the entire principal balance of the note amounting to $600,000 and accrued and unpaid interest, as of February 15, 2017, amounting
to $104,709. The Company issued 4,698,060 shares of common stock at the contracted conversion price of $0.15 per share, to retire
the entirety of this convertible note. Of these shares, 2,315,940 shares were issued to Keshif Ventures, LLC. (See Notes 10 and
14)
ENVISION SOLAR INTERNATIONAL
INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2017 and 2016
Line of Credit
Drawdown
On February
20, 2018, the Company received funds for a Draw Down on our Convertible Line of Credit in the amount of $290,000. As a result of
this Draw Down, the Company issued 407,784 common stock purchase warrants having a value of $61,282 using the Black-Scholes valuation
methodology, and each with a $0.1778 exercise price (See Note 9). As a result of this transaction, and including the value of the
issued warrants, the Company recorded $212,420 of value of beneficial conversion features, which is recorded as debt discount,
and is being amortized to interest expense over the term of the loan.
Stock and Warrants Issued
in Cash Sales
Subsequent
to December 31, 2017 pursuant to private placements, 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. Related to these sales, the Company is further obligated to issue 50,000 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 will be no accounting effect for the issuance of these warrants as their fair value will be 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.
Director Compensation
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 250,000 shares of common stock with a per share value of $0.15 per share (based on
contemporaneous cash sales prices), or $37,500, to each of three directors for excellent 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 14 and 17).
No dealer, salesman or any other
person has been authorized to give any information or to make any representation not contained in this prospectus in connection
with the offer made by this prospectus. If given or made, such information or representation must not be relied upon as having
been authorized by Envision. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities
other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by
any person in any jurisdiction in which such an offer or solicitation is not authorized or is unlawful. Neither delivery of this
prospectus nor any sale made hereunder shall under any circumstances create an implication that information contained herein is
correct as of any time subsequent to the date of this prospectus.
Until [_________], 2018 (___
days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or subscriptions.
ENVISION SOLAR INTERNATIONAL,
INC.
_______________ UNITS, EACH UNIT
COMPRISED OF
____________ SHARES OF COMMON
STOCK AND ____________ WARRANTS
TO PURCHASE _____________ SHARES
OF COMMON STOCK
____________________________
PROSPECTUS
____________________________
Sole Book Running Manager
Maxim Group LLC
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs
and expenses payable by us in connection with the offer of the common stock being registered. All amounts are estimates except
the SEC registration fee.
SEC registration fee
|
|
Legal fees and expenses
|
*
|
Accounting fees and expenses
|
*
|
Transfer agent and registrar fees and expenses
|
*
|
Miscellaneous fees and expenses
|
*
|
Total
|
*
|
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Our articles of
incorporation provide that our directors will not be personally liable for monetary damages to us for certain breaches of fiduciary
duty as directors to the fullest extent allowable by Nevada law. Under Nevada law, subject to specified exceptions, or unless the
articles of incorporation provide for greater individual liability, a director or officer is not individually liable to us or our
stockholders or creditors for any damages as a result of any act or failure to act in his capacity as a director or officer unless
it is proven that (a) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (b) his
breach of those duties involved intentional misconduct, fraud, or a knowing violation of law. Under current Nevada law, directors
and officers would remain liable for: (i) acts or omissions which constitute a breach of fiduciary duty and which involve intentional
misconduct, fraud or a knowing violation of law, and (ii) approval of certain illegal dividends or redemptions. In appropriate
circumstances, equitable remedies or non-monetary relief, such as an injunction, may remain available to a stockholder seeking
redress from any such violation.
Insofar as an indemnification
for liabilities arising under the Securities Act may be permitted for directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission each indemnification
is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 15. Recent Sales of Unregistered
Securities
Set forth below
in reverse chronological order is information regarding the number of shares of capital stock issued by us since April 1, 2015
that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
On February 20,
2018, the Company issued 407,784 common stock purchase warrants exercisable at an exercise price of $0.15 per share for a period
of three years from the date of grant to an unaffiliated lender (the “Lender”) in connection with a drawdown on that
certain revolving secured convertible promissory note with the Lender (the “Revolver”). These warrants were issued
pursuant Rule 506(b) of Regulation D of the Securities Act.
From March 17, 2017
to February 15, 2018, pursuant to a private placement of the Company’s common stock, the Company issued 17,566,660 shares
of common stock for cash at a price of $0.15 per share or $2,635,000 (the “2017-2018 CPPM”). These shares were issued
pursuant Rule 506(b) of Regulation D of the Securities Act.
On January 10, 2018,
the Company issued 273,333 common stock purchase warrants exercisable at an exercise price of $0.15 per share for a period of five
years from the date of grant to one placement agent who assisted the Company with its 2017-2018 CPPM. These warrants were issued
pursuant Rule 506(b) of Regulation D of the Securities Act.
On December 19,
2017, the Company granted to each of its three non-employee directors for performance of their duties 750,000 shares of unvested
restricted common stock with a per share value of $0.15 per share (based on contemporaneous cash sales
prices), or $112,500, pursuant to restricted
stock agreements. On March 27, 2018, the board declared that a total of 750,000 of these shares had vested. The grants were made
pursuant Rule 506(b) of Regulation D of the Securities Act.
On December 21,
2017, the Company granted 645,000 stock options to purchase 645,000 shares of the Company’s common stock pursuant to the
Company’s 2011 Stock Incentive Plan, to thirteen employees, exercisable at an exercise price of $0.16 per share for a period
of ten years from the date of grant and vesting on the date of grant. These stock options were issued pursuant to Rule 506(b) of
Regulation D of the Securities Act.
On October 24, 2017,
the Company issued 500,000 common stock purchase warrants exercisable at an exercise price of $0.15 per share for a period of three
years from the date of grant to the Lender in connection with a drawdown on the Revolver. These warrants were issued pursuant Rule
506(b) of Regulation D of the Securities Act.
On October 4, 2017
(effective as of September 25, 2017), the Company issued 219,555 shares of common stock, with a per share value of $0.15 or $32,933,
to Keshif Ventures LLC, a related party (“Keshif”), in consideration for its continued guaranty of the Company’s
obligations extended under a line of credit pursuant to a stock purchase agreement. These warrants were issued pursuant Rule 506(b)
of Regulation D of the Securities Act.
On September 25,
2017, the Company issued 1,416,667 common stock purchase warrants exercisable at an exercise price of $0.15 per share for a period
of three years from the date of grant to the Lender in connection with a drawdown on the Revolver. These warrants were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
On September 18,
2017, as additional consideration for the funding of that certain convertible note with Lender, the Company issued 2,500,000 common
stock purchase warrants exercisable at an exercise price of $0.15 per share for a period of three years from the date of grant
to the Lender. These warrants were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On May 2, 2017 (effective
as of April 29, 2017), the Company issued 234,302 shares of common stock, with a per share value of $0.15 or $35,145, to Keshif
in consideration for its continued guaranty of the Company’s obligations extended under a line of credit pursuant to a stock
purchase agreement. These warrants were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On July 17, 2017
(effective as of June 30, 2017), the Company issued 180,000 shares of the Company’s common stock with a blended per share
fair value of $0.15 (based on an average market value of the stock when earned as defined in the agreement) or $27,000 to GreenCore
Capital LLC, an affiliate of one of our directors (“GreenCore”), in consideration for professional services provided
pursuant to the terms of a consulting agreement. These shares were issued pursuant Rule 506(b) of Regulation D of the Securities
Act.
On April 3, 2017
(effective as of March 15, 2017), the Company issued 15,000 shares of the Company’s common stock with a per share fair value
of $0.15 or $2,250 as payment for professional services provided by one consultant to the Company. These shares were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
Effective as of
February 15, 2017, the Company issued 4,698,060 shares of common stock to one noteholder pursuant to the conversion of a note payable
with a principal balance of $600,000 plus accrued and unpaid interest of $104,709 at a conversion price of $0.15 per share, or
$704,709. These shares were issued pursuant Rule 506(b) of Regulation D of the Securities Act
As of December 31,
2016, the Company’s board of directors approved a modified compensation program, effective January 1, 2017, for all non-employee
directors pursuant to which each of the Company’s three non-executive directors received 750,000 unvested restricted shares
of common stock, pursuant to a restricted stock grant agreement (each a “New RSGA”). Each director’s restricted
shares of common stock vest 62,500 shares per quarter over a 36 month period commencing on March 31, 2017, provided such director
is still serving as a director of the Company on date of each vesting. Each director that had any prior agreements with the Company
regarding unvested restricted shares agreed to terminate all rights to such unvested restricted shares and to terminate all such
prior agreements. These shares were issued pursuant Rule 506(b) of Regulation D of the Securities Act. During the year ended December
31, 2017, 750,000 shares of common stock vested under the New RSGAs with a per share fair value of $0.15, or $112,500 (based on
the market price at the time of the agreements),
On December 19,
2016, the Company granted 430,000 stock options to purchase 430,000 shares of the Company’s common stock pursuant to the
Company’s 2011 Stock Incentive Plan, to eleven employees, exercisable at an exercise price of $0.15 per share for a period
of ten years from the date of grant, of which 50,000 options vested on the date of grant and the remaining 380,000 options vest
over three years on a [ ] basis. These options were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On December 12,
2016 (effective as of November 20, 2016), the Company issued 147,493 shares of common stock, with a per share value of $0.15 or
$22,123, to Keshif in consideration for its continued guaranty of the Company’s obligations extended under a line of credit
pursuant to a stock purchase agreement. These warrants were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
From February 24,
2016 to November 2, 2016, pursuant to a private placement of the Company’s common stock, the Company issued 12,133,333 shares
of common stock for cash at a price of $0.15 per share or $1,820,000 to eleven investors (the “2016-2017 CPPM”). These
shares were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On November 27,
2016, the Company issued 291,667 common stock purchase warrants exercisable at an exercise price of $0.15 per share for a period
of five years from the date of grant to [ ] placement agents who assisted the Company with its 2016-2017 CPPM. These warrants were
issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On October 18, 2016,
the Company granted 4,350,000 stock options to purchase 4,350,000 shares of the Company’s common stock pursuant to the Company’s
2011 Stock Incentive Plan, to Desmond Wheatley, our chief executive officer, exercisable at an exercise price of $0.15 per share
for a period of ten years from the date of grant, vesting as follows: 1,450,000 on October 18, 2016, 1,450,000 on January 1, 2017,
and 1,450,000 on January 1 2018. These options were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On October 18, 2016,
the Company issued 500,000 shares of the Company’s common stock with a per share fair value of $0.15 or $150,000 as payment
for professional services provided by one consultant to the Company. These shares were issued pursuant Rule 506(b) of Regulation
D of the Securities Act.
On October 3, 2016
(effective as of September 30, 2016), the Company issued 164,651 shares of the Company’s common stock with a blended per
share fair value of $0.1577 (based on an average market value of the stock when earned as defined in the agreement) or $25,969
to GreenCore in consideration for professional services provided pursuant to the terms of a consulting agreement. These shares
were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On September 8,
2016, the Company issued 750,000 unvested restricted shares of common stock to one non-employee director pursuant to a restricted
stock grant agreement. The restricted shares of common stock vest 62,500 shares per quarter over a 36 month period commencing on
September 30, 2016, provided such director is still serving as a director of the Company on date of each vesting. As of December
31, 2016, 125,000 shares were vested and the remaining 625,000 unvested restricted shares were cancelled due to this director’s
New RSGA.
On September 1,
2016, the Company issued 500,000 shares of the Company’s common stock with a per share fair value of $0.15 or $150,000 as
payment for professional services provided by one consultant to the Company. These shares were issued pursuant Rule 506(b) of Regulation
D of the Securities Act.
On July 13, 2016
(effective as of June 30, 2016), the Company issued 170,893 shares of the Company’s common stock with a blended per share
fair value of $0.15 (based on an average market value of the stock when earned as defined in the agreement) or $25,634 to GreenCore
in consideration for professional services provided pursuant to the terms of a consulting agreement. These shares were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
On March 10, 2016
(effective as of February 29, 2016), the Company issued 128,571 shares of the Company’s common stock with a blended per share
fair value of $0.14 (based on an average market value of the stock when earned as defined in the agreement) or $18,000 to GreenCore
in consideration for professional services provided pursuant to the terms of a consulting agreement. These shares were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
On February 19,
2016, the Company issued 1,000,000 unvested restricted shares of common stock to one non-employee director pursuant to a restricted
stock grant agreement. The restricted shares of common stock vest 27,777 shares per month over a 36 month period commencing on
March 31, 2016, provided such director is still serving as a director of the Company on date of each vesting. As of December 31,
2016, 305,556 shares were vested and the remaining 694,444 unvested restricted shares were cancelled due to this director’s
New RSGA.
On February 12,
2016, the Company issued 1,000,000 unvested restricted shares of common stock to each of two non-employee directors pursuant to
a restricted stock grant agreement. The restricted shares of common stock vest 833,333 shares per quarter over a 36 month period
commencing on September 30, 2016, provided such director is still serving as a director of the Company on date of each vesting.
As of December 31, 2016, 333,333 shares were vested and 666,667 unvested restricted shares were cancelled due to one director’s
New RSGA and 249,999 were vested and 750,001 unvested restricted shares were cancelled due to the other director leaving the board.
On February 12,
2016, the Company granted 600,000 stock options to purchase 600,000 shares of the Company’s common stock pursuant to the
Company’s 2011 Stock Incentive Plan, to three directors, 400,000 options of which are exercisable at an exercise price of
$0.125 per share for a period of ten years from the date of grant and 200,000 options of which are exercisable at an exercise price
of $0.1375 per share for a period of five years from the date of grant. All of these options vested on the date of grant. These
options were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
From July 14, 2015
to November 2, 2015, pursuant to a private placement of the Company’s common stock, the Company issued 5,433,334 shares of
common stock for cash at a price of $0.15 per share or $815,000 to six investors (the “2016-2017 CPPM”). These shares
were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
Effective as of
October 31, 2015, the Company issued 571,429 shares of common stock, with a per share value of $0.15 or $85,714, to Keshif in consideration
for its continued guaranty of the Company’s obligations extended under a line of credit pursuant to a stock purchase agreement.
These warrants were issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On October 6, 2015
(effective as of September 30, 2015), the Company issued 170,536 shares of the Company’s common stock with a blended per
share fair value of $0.158 (based on an average market value of the stock when earned as defined in the agreement) or $26,945 to
GreenCore in consideration for professional services provided pursuant to the terms of a consulting agreement. These shares were
issued pursuant Rule 506(b) of Regulation D of the Securities Act.
On April 7, 2015,
the Company granted 150,000 stock options to purchase 150,000 shares of the Company’s common stock pursuant to the Company’s
2011 Stock Incentive Plan, to two employees, exercisable at an exercise price of $0.13 per share for a period of ten years from
the date of grant and vesting over four years on a monthly basis, commencing on the date of grant. These options were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
On April 7, 2015
(effective as of March 31, 2015), the Company issued 202,571 shares of the Company’s common stock with a blended per share
fair value of $0.133 (based on an average market value of the stock when earned as defined in the agreement) or $26,942 to GreenCore
in consideration for professional services provided pursuant to the terms of a consulting agreement. These shares were issued pursuant
Rule 506(b) of Regulation D of the Securities Act.
Item 16. Exhibits
Exhibits
Exhibit
Description
|
1.1
|
Underwriting Agreement*
|
|
4.1
|
Form of Warrant
(11) *
|
|
4.2
|
Form of Investor Warrant *
|
|
4.3
|
Form of Warrant Agency Agreement *
|
|
4.4
|
Form of Representative Warrant *
|
|
5.1
|
Opinion of Richardson & Associates as to the legality of the securities being registered *
|
|
10.24
|
Agreement by Envision Solar International, Inc. with the State of California, dated as of June
12, 2015 *
|
|
10.25
|
Agreement by Envision Solar International, Inc. with the City of New York, dated as of April 17,
2017 *
|
|
24.1
|
Power of Attorney (contained on Page II-6, hereof.)
|
* To be
filed by Amendment or as an exhibit to a report filed under the Exchange Act and incorporated herein by reference.
|
(1)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
February 12, 2010.
|
|
(2)
|
Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities and
Exchange Commission dated November 2, 2007.
|
|
(3)
|
Incorporated by reference to the Form 10-Q filed with the Securities and Exchange Commission, dated
August 15, 2011.
|
|
(4)
|
Incorporated by reference to the Annual Report on Form 10-K filed with the Securities and Exchange
Commission, dated March 31, 2014.
|
|
(5)
|
Incorporated
by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
July 16, 2014.
|
|
(6)
|
Incorporated by reference to the
Form 8-K filed with the Securities and Exchange Commission, dated November 5, 2015.
|
|
(7)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
January 26, 2016.
|
|
(8)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
September 14, 2016.
|
|
(9)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
October 20, 2016.
|
|
(10)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
January 6, 2017.
|
|
(11)
|
Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated
September 18, 2017.
|
Item 17. Undertakings
The undersigned
registrant hereby undertakes to:
(a)(1) File, during
any period in which it offers or sells securities, a post-effective amendment to this registration statement:
(i) To include any
prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in
the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any
additional or changed material information on the plan of distribution.
(2) For determining
liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be the initial bona fide offering.
(3) File a post-effective
amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(4) For determining
liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities,
the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary
prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The portion
of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that
a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by
a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) That, for the
purpose of determining liability under the Securities Act to any purchaser:
(1) If the registrant
is relying on Rule 430B:
(i) Each prospectus
filed by the undersigned registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus
required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required
by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier
of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is
at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the
securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. provided, however, that no statement made in a registration statement or
prospectus that is part of the
registration statement or made in a
document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the registration statement or made in any such document
immediately prior to such effective date; or
(2) If the registrant
is subject to Rule 430C,
Each prospectus
filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying
on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on June 29, 2018.
ENVISION SOLAR INTERNATIONAL,
INC.
By:
/s/Desmond
Wheatley
Desmond Wheatley,
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS
, that each person whose signature appears below constitutes and appoints Desmond Wheatley, his true and
lawful attorney-in-fact and agent with full power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent or the substitute or substitutes of him, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons
in the capacities and on the dates indicated.
By:
/s/ Desmond Wheatley
|
Dated: June 29, 2018
|
Desmond
Wheatley, Chairman of the Board and Chief
Executive
Officer (Principal Executive Officer)
By:
/s/ Chris Caulson
|
Dated: June 29, 2018
|
Chris
Caulson, Chief Financial Officer (Principal
Financial and Accounting
Officer)
By:
/s/ Jay S. Potter
|
Dated: June 29, 2018
|
Jay
S. Potter, Director
By:
/s/ Peter Davidson
|
Dated: June 29, 2018
|
Peter
Davidson, Director
By:
/s/ Anthony Posawatz
|
Dated: June 29, 2018
|
Anthony
Posawatz, Director