Envision Solar International, Inc. and Subsidiary
The accompanying notes are an integral part of these Consolidated Financial Statements
The accompanying notes are an integral part of these Consolidated Financial Statements
The accompanying notes are an integral part of these Consolidated Financial Statements
The accompanying
notes are an integral part of these Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
|
1.
|
CORPORATE ORGANIZATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
CORPORATE ORGANIZATION
Envision Solar was
incorporated on June 12, 2006 as a limited liability company (“LLC”), under the name Envision Solar, LLC. In September
2007, the company was reorganized as a California C Corporation and issued one share of common stock for each outstanding member
unit in the LLC. Also during 2007, the Company formed various wholly owned subsidiaries to account for its planned future operations,
but these entities were mostly dissolved over the subsequent years. The only remaining subsidiary included in these consolidated
financial statements is Envision Solar Construction Company, Inc.
On February 11, 2010,
Envision Solar International, Inc., a California corporation (Envision CA) was acquired by an inactive publicly-held company in
a transaction treated as a recapitalization of the company with Envision CA being the surviving business and becoming our wholly-owned
subsidiary. On March 11, 2010, Envision CA was merged into our publicly-held company and the name of the publicly-held company
was changed to Envision Solar International, Inc. (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.
NATURE OF OPERATIONS
Envision, a Nevada
corporation, invents, designs, and manufactures solar products and proprietary technology solutions targeting three verticals:
electric vehicle charging infrastructure; out of home advertising infrastructure; and renewable energy production and disaster
preparedness. The Company focuses on creating renewably energized platforms for EV charging, and media and branding which are attractive,
rapidly deployed, and of the highest quality. Management believes that the Company's chief differentiator is its ability to design
and engineer architecturally accretive solar products which are a complex integration of simple, commonly available engineered
components. The resulting products are built to have the longest life expectancy in the industry while also delivering valuable
amenities and possible revenue opportunities for our customers. Management believes that Envision's products deliver multiple layers
of value such as: renewably energized EV charging; media, branding, and advertising platforms; renewable and reliable energy production;
architectural enhancement; reduced carbon footprint; reduction of heat islanding and improved parking experiences through shading;
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 costs to complete and earnings on uncompleted contracts, 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,
2015 and 2014
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, 2015. The Company did not have any bank balances in
excess of FDIC insured levels as of December 31, 2015. Bank balances in excess of the FDIC insured levels amounted to $1,132,553
as of December 31, 2014.
Concentration of
Accounts Receivable
At December
31, 2015 and 2014, customers that each accounted for more than 10% of our accounts receivable were as follows:
|
2015
|
2014
|
Customer 1
|
56%
|
-
|
Customer 2
|
39%
|
-
|
Customer 3
|
2%
|
44%
|
Customer 4
|
-
|
36%
|
Customer 5
|
3%
|
20%
|
Concentration of
Revenues
For the
years ended December 31, 2015 and 2014, customers that each represented more than 10% of our revenues were as follows:
|
2015
|
2014
|
Customer A
|
39%
|
9%
|
Customer B
|
26%
|
-
|
Customer C
|
-
|
59%
|
Customer D
|
-
|
27%
|
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 $14,376 and $0 cash equivalents at December 31, 2015 and December
31, 2014, 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, 2015 and 2014, 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.)
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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
Inventory is stated
at the lower of cost or market. 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 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
Effective January 2015,
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.
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 or exercise of a derivative instrument, the instrument
is marked to fair value at the conversion date and then that fair value is reclassified to equity. 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.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
REVENUE AND COST RECOGNITION
Revenues are primarily
derived from the direct sales of products in addition to construction contracts for the production and installation of our integrated
solutions and proprietary products. Revenues may also consist of design fees for the design of solar systems and arrays, and revenues
from sales of professional services.
Revenues from 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. Any deposits received from a customer prior
to such delivery are accounted for as deferred revenue on the balance sheet.
Revenues and related
costs on construction projects are recognized using the “percentage of completion method” of accounting in accordance
with ASC 605-35, “Construction-Type and Production-Type Contracts.” Under this method, contract revenues are recognized
over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs
for the entirety of the contract. Costs include direct material, direct labor, subcontract labor, allocable depreciation and other
allocable indirect costs and are charged to the periods as incurred. All unallocable indirect costs and corporate general and administrative
costs are also charged to the periods as incurred. Any recognized revenues that have not been billed to a customer are recorded
as an asset in “costs and estimated earnings in excess of billings on uncompleted contracts.” Any billings of customers
in excess of recognized revenues are recorded as a liability in “Billings in excess of costs and estimated earnings on uncompleted
contracts.” However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is
determined.
For construction contracts
that do not qualify for use of the percentage of completion method, the Company accounts for such contracts using the “completed
contract method” in accordance with ASC 605-35. Under this method, contract costs are accumulated as deferred
assets and billings and/or cash receipts are recorded to a deferred revenue liability account during the periods of construction,
but no revenues, costs or profits are recognized in operations until the period upon completion of the contract. Costs include
direct material, direct labor, subcontract labor, allocable depreciation and other allocable indirect costs. All unallocable indirect
costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a
contract is foreseen, the Company will recognize the loss when such loss is determined. The deferred asset (accumulated contract
costs) in excess of the deferred liability (billings and/or cash received) is classified as a current asset under “Costs
in excess of billings on uncompleted contracts.” The deferred liability (billings and/or cash received) in excess of the
deferred asset (accumulated contract costs) is classified under current liabilities as “Billings in excess of costs on uncompleted
contracts.”
A contract is considered
complete when all costs except insignificant items have been incurred and the installation is operating according to specifications
or has been accepted by the customer.
The Company has contracts
in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Costs
estimates are reviewed periodically on a contract-by-contract basis throughout the life of the contract such that adjustments to
the profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates,
including the estimated costs to complete projects, must be made and used in connection with the revenue recognized in the accounting
period. Current estimates may be revised as additional information becomes available.
The Company includes
shipping and handling fees billed to customers as revenues, and shipping and handling costs as cost of revenues. 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, 2015, the Company has no product warranty accrual
given its lack of any material historical warranty experience.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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 of $888 for
the year ending December 31, 2015 and $57,267 for the year ending December 31, 2014.
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 $49,500 in 2015 and $94,065 in 2014.
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, 2015, tax years 2012 through 2015 remain open for IRS audit. The Company has received no notice of audit from the IRS for any
of the open tax years.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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.
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 5,311,923 common shares, options to purchase 15,337,007 common shares and warrants to purchase 29,219,441 common shares were
outstanding at December 31, 2015. Convertible debt convertible into 7,373,058 common shares, options to purchase 15,387,007 common
shares and warrants to purchase 29,219,441 common shares were outstanding at December 31, 2014. Dilutive common stock equivalents
were not included in the computation of diluted net loss per share in 2015 and 2014 because the effects would have been anti-dilutive
due to the net losses. Due to the net losses in 2015 and 2014, 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 2015 and
2014, 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 period ended December 31, 2015 that 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, 2015, including the pronouncements discussed below, are not expected to have a significant effect on the Company’s consolidated
financial position or results of its’ operations.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
ASU 2015-03
In April 2015, the Financial Accounting
Standards Board issued Accounting Standards Update No. 2015-03,
"Simplifying the Presentation of Debt Issuance Costs,"
which
changes the presentation of debt issuance costs in financial statements. Under this guidance such costs would be presented as a
direct deduction from the related debt liability rather than as an asset. This guidance is effective for interim and annual reporting
periods beginning after December 15, 2015. This ASU did not have a material impact on its consolidated financial statements. The
Company is conforming to Standard Update 2015-15 related to the classification of debt issuance costs associated with lines of
credit.
ASU 2015-08
In May 2015, the FASB
issued ASU 2015-08,
“Business Combinations (Topic 805) Pushdown Accounting,
” which conforms the FASB’s
guidance on pushdown accounting with the SEC’s guidance. ASU 2015-08 is effective for annual periods beginning after December
15, 2015. This ASU did not have a material impact on its consolidated financial statements.
ASU 2015 - 11
In July 2015, the FASB
issued Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory.” This standard changes the inventory
valuation method from the lower of cost or market to the lower of cost or net realizable value for inventory valued under the first-in,
first-out or average cost methods. The standard is effective for fiscal years beginning after December 15, 2016, including interim
periods and requires prospective adoption with early adoption permitted. The Company does not expect this ASU to have a material
impact on its consolidated financial statements.
As reflected in the
accompanying consolidated financial statements for the years ended December 31, 2015 and 2014, the Company had net losses of $1,839,533
(which includes $121,915 of stock based compensation expense) and $3,146,302 (which includes $736,388 of stock based compensation
expense), respectively, and net cash used in operating activities of $2,469,343 and $1,817,122, respectively. Additionally, at
December 31, 2015, the Company had a working capital deficit of $1,915,684, stockholders’ deficit of $1,408,603, and accumulated
deficit of $32,601,933. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Envision is pursuing
a capital raise to provide funds during the upcoming months and will look to raise additional funds for further operating capital
and working capital later in the fiscal year. 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 providing additional
working capital. From January 1, 2015 through December 31, 2015, the Company raised $815,000 from a securities offering and drew
down $800,000 on a $1,000,000 line of credit that was established during the year.
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.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
|
3.
|
CONTRACT ACCOUNTING, ACCOUNTS RECEIVABLE, AND DEFERRED REVENUE
|
Costs and Estimated
Earnings in Excess of Billings on Uncompleted Contracts
Costs and estimated
earnings in excess of billings on uncompleted contracts represents costs and estimated earnings in excess of billings and/or cash
received on uncompleted contracts accounted for under the percentage of completion method (See Note 1).
At December 31, 2015,
costs and estimated earnings in excess of billings on uncompleted contracts consisted of the following for contracts accounted
for using the percentage of completion method:
Costs and estimated earnings recognized
|
|
$
|
511,108
|
|
Less: Billings or cash received
|
|
|
(489,050
|
)
|
Costs and estimated earnings in excess of billings on uncompleted
contracts
|
|
$
|
22,058
|
|
At December 31, 2014,
costs and estimated earnings in excess of billings on uncompleted contracts consisted of the following for contracts accounted
for using the percentage of completion method:
Costs and estimated earnings recognized
|
|
$
|
882,716
|
|
Less: Billings or cash received
|
|
|
(790,050
|
)
|
Costs and estimated earnings in excess of billings on uncompleted
contracts
|
|
$
|
92,666
|
|
Billings in Excess
of Costs and Estimated Earnings on Uncompleted Contracts
Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings and/or cash received that exceed accumulated revenues
recognized on uncompleted contracts accounted for under the percentage of completion method (See Note 1).
As of December 31, 2015,
there were no billings in excess of costs and estimated earnings on uncompleted contracts accounted for using the percentage of
completion method.
At December 31, 2014,
billings in excess of costs and estimated earnings on uncompleted contracts consisted of the following for contracts accounted
for using the percentage of completion method:
Billings and/or cash receipts on uncompleted contract
|
|
$
|
15,000
|
|
Less: Revenues recognized
|
|
|
(9,386
|
)
|
Billings in excess of costs and estimated earnings on uncompleted
contracts
|
|
$
|
5,614
|
|
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Accounts Receivable
The Company records
accounts receivable related to its construction contracts and its design services based on billings or on amounts due under the
contractual terms. 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, 2015
and 2014, accounts receivable were as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Accounts receivable
|
|
$
|
855,017
|
|
|
$
|
114,917
|
|
Less: Allowance for doubtful accounts
|
|
|
(23,400
|
)
|
|
|
(11,700
|
)
|
Accounts receivable, Net
|
|
$
|
831,617
|
|
|
$
|
103,217
|
|
Bad debt expense for
2015 and 2014 was $11,700 and $0, respectively.
Deferred Revenue
Deferred revenues are
deposits from customers for product sales which have not yet been delivered (See Note 1). Deferred revenue was $213,467 and $717,291
for the periods ended December 31, 2015 and December 31, 2014, respectively.
|
4.
|
SUBSCRIPTIONS RECEIVABLE
|
Subscriptions receivable
are subscriptions made for the purchase of shares of the Company’s common stock in a private offering where the subscription
was made but the cash payment was in transit. The balance of this account was $0 and $25,000 as of December 31, 2015 and 2014,
respectively. The cash payment for the December 31, 2014 balance was received in January 2015.
|
5.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses and
other current assets are summarized as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Prepaid Insurance
|
|
$
|
20,035
|
|
|
$
|
20,707
|
|
Deposit on future raw materials
|
|
|
31,752
|
|
|
|
114,071
|
|
Total prepaid expenses and other current assets
|
|
$
|
51,787
|
|
|
$
|
134,778
|
|
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, 2015 and 2014, inventory consists of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Finished Goods
|
|
$
|
85,487
|
|
|
$
|
–
|
|
Work in Process
|
|
|
234,226
|
|
|
|
42,120
|
|
Raw Materials
|
|
|
130,245
|
|
|
|
305,783
|
|
Inventory Reserve
|
|
|
(27,783
|
)
|
|
|
–
|
|
Inventory, net
|
|
$
|
422,175
|
|
|
$
|
347,903
|
|
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
|
7.
|
PROPERTY AND EQUIPMENT
|
Property and equipment
consists of the following:
|
|
Est. Useful
Lives
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Computer equipment and software
|
|
5 years
|
|
$
|
155,620
|
|
|
$
|
155,620
|
|
Furniture and fixtures
|
|
7 years
|
|
|
202,009
|
|
|
|
197,169
|
|
Office equipment
|
|
5 years
|
|
|
28,289
|
|
|
|
28,289
|
|
Machinery and equipment
|
|
1-5 years
|
|
|
348,045
|
|
|
|
129,360
|
|
Autos
|
|
3 years
|
|
|
49,238
|
|
|
|
–
|
|
Leasehold improvements
|
|
19 months
|
|
|
18,541
|
|
|
|
11,394
|
|
Total property and equipment
|
|
|
|
|
801,742
|
|
|
|
521,832
|
|
Less accumulated depreciation
|
|
|
|
|
(557,781
|
)
|
|
|
(398,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
|
|
$
|
243,961
|
|
|
$
|
123,565
|
|
Depreciation expense
for 2015 and 2014 was $139,032 and $41,392, respectively. In 2015, approximately $20,000 of depreciation was capitalized into inventory
as manufacturing overhead costs.
The major
components of accrued expenses are summarized as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Accrued vacation
|
|
$
|
135,940
|
|
|
$
|
122,537
|
|
Accrued officers’ salary
|
|
|
68,749
|
|
|
|
68,749
|
|
Accrued interest
|
|
|
142,261
|
|
|
|
173,437
|
|
Accrued estimated losses on contracts
|
|
|
–
|
|
|
|
1,590
|
|
Other accrued expense
|
|
|
1,517
|
|
|
|
1,913
|
|
Total accrued expenses
|
|
$
|
348,467
|
|
|
$
|
368,226
|
|
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 is secured by a second priority perfected
security interest in all of the assets of the Company in favor of the Bank. The LSA contains 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.
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 are recorded as Debt Issue Costs on the accompanying balance sheet and will be amortized
over the one year term of the line of credit.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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, are recorded as Debt Issue
Costs in the accompanying balance sheet and will be amortized over the 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. The Company also 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 has 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 is unable to meet its obligations under the LSA, Keshif will
immediately become entitled to elect one member to Envision’s Board of Directors (see Notes 14 and 17).
The outstanding balance
on the line of credit at December 31, 2015 is $800,000 leaving $200,000 of credit line available to the Company.
|
10.
|
CONVERTIBLE NOTES PAYABLE – RELATED PARTIES AND FAIR VALUE MEASUREMENTS
|
As of December 31,
2015 and 2014, the following summarizes amounts owed under short-term convertible notes –related parties:
|
|
|
December 31, 2015
|
|
|
|
December 31, 2014
|
|
Evey Note
|
|
$
|
86,616
|
|
|
$
|
98,616
|
|
Gemini Master Fund - Third Amended and Restated Secured Bridge Note - Noble Portion
|
|
|
600,000
|
|
|
|
–
|
|
|
|
$
|
686,616
|
|
|
$
|
98,616
|
|
Evey Note
Prior to 2011, the
Company was advanced monies by John Evey, our director, and executed a 10% convertible promissory note 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 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, 2013.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Effective December
31, 2013, the Company entered into a further extension agreement to extend the maturity date of this note to December 31, 2014.
There were no additional fees or discounts associated with this extension. Per generally accepted accounting principles, this modification
was treated as an extinguishment, but as the market price of the Company’s stock was below the conversion price at the time
of the modification, there was no beneficial conversion feature that needed to be recorded. During the year ended December 31,
2014, in lieu of interest payments, the Company made principal payments on this note amounting to $12,000.
Effective December
31, 2014, the Company entered into a further extension agreement to extend the maturity date of this note to December 31, 2015.
There were no additional fees or discounts associated with this extension. Per generally accepted accounting principles, 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, but as the market price of the Company’s stock was below the conversion
price at the time of the modification, there was no beneficial conversion feature that needed to be recorded. During the fiscal
year ended December 31, 2015, in lieu of interest payments, the Company made principal payments on this note amounting to $12,000.
Effective December
31, 2015, the Company entered into a further extension agreement to extend the maturity date of this note to December 31, 2016.
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 note continues
to bear interest at a rate of 10%. The balance of the note as of December 31, 2015 is $86,616 with accrued and unpaid interest
amounting to $36,749 (See Note 17).
Gemini Third Amended and Restated Secured
Bridge Note – Noble Portion
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. With regard to the conversion feature of these notes,
the conversion rights contain price protection whereby if the Company sold equity or converted existing instruments to common stock
at a price less than the effective conversion price, the conversion price will be adjusted downward to the sale price. Furthermore,
if the Company issues new rights, warrants, options or other common stock equivalents at an exercise price that is less than the
stated conversion price, then the conversion price shall be adjusted downward to a new price based on a stipulated formula. The
holder may not convert the debt if it results in the holder beneficially holding more than 4.9% of the Company’s common stock.
The note is secured by substantially all assets of the Company and its subsidiary, and is unconditionally guaranteed by the subsidiary.
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; and the terms were extended to December 31, 2013.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Effective February
28, 2014 the Company entered into an additional extension and amendment agreement with a simultaneous principal conversion agreement
related to these convertible notes payable. With this agreement, all outstanding notes were merged into one note, the term of the
note was extended to June 30, 2015 and the beneficial holder ceiling was increased to 9.9%. No other terms of the notes were modified.
These changes were accounted for as a debt modification but not as a debt extinguishment because the embedded conversion feature
is bifurcated and treated as a derivative and no other debt extinguishment criteria were met. As a result of this transaction,
the Company recorded $478,561 of embedded conversion option based effective interest based on the increase in the fair value of
the embedded conversion option due to the modification which is recorded as debt discount and is being amortized over the remaining
term of the loan. The Company further issued 1,500,000 common stock purchase warrants valued at $193,625 using the Black-Scholes
valuation methodology, each with a three year term and $0.20 strike price, to the holder which was recorded as debt discount and
is being amortized over the remaining term of the note. The Company agreed to pay a $6,500 fee to cover legal and document fees
which was capitalized as an asset on the balance sheet as “Debt issue costs” and was amortized over the remaining term
of the note. Simultaneously, Gemini converted $550,000 of principal convertible debt, and all accrued interest through 2013, and
further, the accrued interest through the conversion date for the converted debt, totaling $155,161 into 4,701,076 shares of common
stock of the Company (3,666,666 shares for principal and 1,034,410 for interest) at the contracted conversion price of $0.15 per
share. The conversion was recorded to equity with no gain or loss on such conversion related to the principal portion, while the
Company recorded a loss of $20,689 related to the conversion of accrued interest. As an inducement to Gemini to convert the principal
debt amount, the Company issued 3,727,778 common stock purchase warrants, each with a strike price of $0.20 and a three year term.
These warrants are valued at $482,300 using the Black-Scholes option pricing model and were expensed at the date of the transaction.
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. 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 of $306,624 to pay off the balance of the Gemini note and its accrued interest, and recorded a loss
on debt settlement of $2,925.
In regards to the 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. As Robert Noble is a greater than 10% shareholder in the Company, the
note balance has been reclassified to Convertible Notes Payable- Related Parties in the accompanying December 31, 2015 balance
sheet, while it is classified as Convertible Notes Payable in the accompanying December 31, 2014 balance sheet (See Note 17).
At December 31, 2015,
the remaining note had a balance of $600,000, and accrued interest of $31,438.
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.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Assets and
liabilities measured at fair value on a recurring and non-recurring basis consisted of the following at December 31, 2014 and 2015:
|
|
Carrying Value at
|
|
|
Fair value Measurements at December 31, 2014
|
|
|
|
December 31, 2014
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Embedded Conversion Option Liability
|
|
$
|
355,611
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
355,611
|
|
|
|
Carrying Value at
|
|
|
Fair value Measurements at December 31, 2015
|
|
|
|
December 31, 2015
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Embedded Conversion Option Liability
|
|
$
|
87,992
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
87,992
|
|
The following
is a summary of activity of Level 3 liabilities for the period ended December 31, 2014 and 2015:
Balance at December 31, 2013
|
|
$
|
281,265
|
|
Increase in liability due to debt modification
|
|
|
478,561
|
|
Change in fair value
|
|
|
(404,215
|
)
|
Balance at December 31, 2014
|
|
$
|
355,611
|
|
Increase in liability due to debt modification
|
|
|
–
|
|
Change in fair value
|
|
|
(267,619
|
)
|
Balance December 31, 2015
|
|
$
|
87,992
|
|
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, 2014 and 2015:
Assumptions
|
|
|
December 31, 2014
|
|
|
|
December 31, 2015
|
|
Expected remaining term
|
|
|
0.50
|
|
|
|
0.25
|
|
Expected Volatility
|
|
|
174%
|
|
|
|
113%
|
|
Risk free rate
|
|
|
0.66%
|
|
|
|
0.16%
|
|
Dividend Yield
|
|
|
0.00%
|
|
|
|
0.00%
|
|
There were
no changes in the valuation techniques during 2015.
The Company did however 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, 2015 was 10%.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
|
11.
|
NOTES 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.
During 2014, the Company
made partial conversions of this note into 150,000 shares of the Company’s common stock. The shares were valued at their
quoted trade prices aggregating $24,000. The Company recorded a reduction of principal of $30,000, and a gain on settlement of
debt of $6,000. Further, effective as of December 31, 2014, the Company entered into an amendment to extend the maturity date of
the note to December 31, 2015. There was no accounting effect for this extension.
Effective December
31, 2015, the Company entered into a further amendment to this note extending the maturity date of the note to June 30, 2016. There
was no accounting effect for this extension.
As of December 31,
2015, the note had a remaining balance due of $43,033 with accrued and unpaid interest amounting to $13,855.
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, 2015, the loan had a short-term
portion of $8,797 and a long term portion of $38,978.
|
12.
|
CONVERTIBLE NOTES PAYABLE
|
Summary:
As of December 31, 2015, principal
amounts owed under convertible notes consisted of only the Pegasus note.
As of December 31, 2014, the
following summarizes principal amounts owed under convertible notes:
|
|
Amount
|
|
|
Discount
|
|
|
Convertible Notes Payable, net of discount
|
|
Pegasus Note
|
|
$
|
100,000
|
|
|
$
|
–
|
|
|
$
|
100,000
|
|
Gemini Master Fund – Third Amended and Restated secured bridge Note
|
|
|
856,325
|
|
|
|
252,070
|
|
|
|
604,255
|
|
|
|
$
|
956,325
|
|
|
$
|
252,070
|
|
|
$
|
704,255
|
|
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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, 2014, and waived, through December 31, 2013, the requirement to
pay down the note with financing proceeds received by the Company.
Effective December
31, 2014, the Company entered into an additional modification extending the term of the note to December 31, 2015, and waived,
through December 31, 2014, the requirement to pay down the note with financing proceeds received by the Company in the period.
This modification was treated as a debt extinguishment, but as the market price of the Company’s stock was below the conversion
price at the time of the modification, there was no beneficial conversion feature that needed to be recorded.
Effective December
31, 2015, the Company entered into an additional modification extending the term of the note to December 31, 2016, and waiving,
through December 31, 2015, the requirement to pay down the note with financing proceeds received by the Company in the period.
There was no accounting effect for this transaction.
The balance of the
note as of December 31, 2015 is $100,000 with accrued and unpaid interest amounting to $60,219.
Gemini Third Amended and Restated Secured
Bridge Note
See note 10 for additional
information on a Convertible Note classified as Convertible Note Payable in 2014 but became a Convertible Note Payable - Related
Party in 2015.
|
13.
|
COMMITMENTS AND CONTINGENCIES
|
Leases:
In October
2014, the Company entered into a sublease for its current corporate headquarters and manufacturing facility. The sublease expires
in July 2016 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 $154,242 deposit to the landlord which will be reduced in each of the last five months of the sublease in lieu of rent
payments. At the end of the lease period, $25,707 of the deposit will remain as security for the surrender of the premises.
As of December
31, 2015 there are no lease agreements with non-cancelable terms in excess of one year.
Rent expense
was $30,765 and $130,939 for the years ended December 31, 2015 and 2014, respectively. Further, for the years ended December 31,
2015 and 2014, respectively, $268,487 and $22,281 of rent 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,
2015 and 2014
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, 2015, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on the results of our operations.
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 2015 and 2014, the Company has agreements to act as a reseller for certain vendors; joint development contracts with third
parties; 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, 2015.
Upon the
signing of customer contracts, 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. Payments made by the Company before the completion of projects are treated as ongoing project expenses and
due to the contractual nature of the agreements; the Company may be contingently liable for other payments required under the agreements.
Shares
Issued
Issuances
of the Company’s common stock during the years ended December 31, 2015 and 2014, respectively, are as follows:
2015
Stock Issued in Cash Sales
During the
year ended December 31, 2015 pursuant to private placements, the Company issued 5,433,334 shares of common stock for cash with
a per share price of $0.15 per share or $815,000 and the Company incurred $8,900 of capital raising fees that were paid in cash
and charged to additional paid-in capital.
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, 2015, the Company issued 373,107 shares of the Company’s common stock with a per share
fair value between $0.13 and $0.18 (based on an average market value of the stock when earned as defined in the agreement)
or
$54,000. The difference between the grant date fair value and contractual
value was de minimis. 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,
2015 and 2014
Stock Issued for Director
Services
During the
year ended December 31, 2015, the Company released 347,220 shares of common stock with a per share fair value of $0.15, or $52,082
(based on the market price at the time of the agreement), to two directors for their service as defined in their respective Restricted
Stock Grant Agreements. 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 $62,500 at December 31,
2015.
Stock Issued for Loan
Guaranty
During the
year ended December 31, 2015, and in consideration for the Guaranty of the Company’s obligations extended under a line of
credit, the Company 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 to Keshif Ventures LLC, a related party, pursuant to a stock purchase agreement. These shares are recorded as
Debt Issue Costs in the accompanying balance sheet and will be amortized over the one year term of the line of credit (See Note
9 and Note 17).
2014
Stock Issued in Cash Sales
During the
year ended December 31, 2014 pursuant to private placements, the Company issued 20,186,725 shares of common stock for cash with
a per share price of $0.15 per share or $3,028,010 and the Company incurred $102,840 of capital raising fees that were paid in
cash and charged to additional paid-in capital.
Stock Issued for Services
– Related Party
On
March 28, 2014, the Company entered into a new consulting agreement with GreenCore Capital LLC (“GreenCore”) and effectively
cancelled all prior agreements between the companies. GreenCore will continue to provide financial advisory and analytical professional
services to the Company as well as acting as a sales channel for Envision products. Related to these professional services provided,
and during the twelve month period ended December 31, 2014, the Company issued 440,000 shares of the Company’s common stock
with a per share value of $0.15 (based on contemporaneous cash sales prices)
or
$66,000, and issued an additional 176,856 shares of the Company’s common stock with a per share value average of $0.15 (based
on market price at the time of the transaction) or $26,528. 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)
Stock Issued for Director
Services
On January
23, 2014, Mr. Paul H. Feller accepted an appointment as a new director of the Company effective January 23, 2014. In consideration
for Mr. Feller’s acceptance to serve as a director of the Company, 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 January 24, 2014 and then 69,444 shares on the last day of each calendar quarter
thereafter commencing on March 31, 2014. The total value of this stock grant is $0.15 per share (based on contemporaneous cash
sales prices) or $150,000. The share value is being expensed proportionately as the shares vest. The Company issued and released
444,448 of these shares, with a value of $66,667, during the twelve month period ended December 31, 2014. Mr. Feller resigned as
a director on April 30, 2015.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
On April
2, 2014, Mr. John “Jack” Schneider accepted an appointment as a new director of the Company effective April 2, 2014.
In consideration for Mr. Schneider’s acceptance to serve as a director of the Company, 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 April 2, 2014 and then 69,444 shares on the last day of each
calendar quarter thereafter commencing on June 30, 2014. The total value of this stock grant is $0.15 per share (based on contemporaneous
cash sales prices) or $150,000. The share value is being expensed proportionately as the shares vest. The Company issued and released
375,004 of these shares, with a value of $56,251, during the twelve month period ended December 31, 2014. Mr. Schneider resigned
as a director on March 5, 2015.
On July 11,
2014, Mr. Don Moody accepted an appointment as a new director of the Company effective July 11, 2014. In consideration for Mr.
Moody’s acceptance to serve as a director of the Company, 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 share value is being expensed proportionately as the shares vest. 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.
Stock Issued in Settlement
of Convertible Notes Payable and Related Interest
On February
28, 2014, the Company issued 3,666,666 shares of common stock with a value of $0.15 (based on contractual terms), or $550,000,
for the conversion of principal owed on its convertible debt. There was no gain or loss recorded for this transaction. Further,
and also on February 28, 2014, the Company issued an additional 1,034,410 shares of common stock with a per share value of $0.15
(based on contractual terms), or $175,850, related to the conversion of accrued interest owed on this convertible debt. The Company
recorded a $20,689 loss related to this piece of this transaction. (See Note 10)
Stock Issued in Settlement
of Note Payable
In September
2014, the Company issued 150,000 shares of common stock with a per share value of $0.16 (based on market price at the time of the
transaction) or $24,000 as a partial payment of outstanding debt. The Company recorded a reduction of notes payable of $30,000,
and a gain on debt settlement of $6,000 related to this transaction. (See Note 11)
|
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 30,000,000 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,
2015 and 2014
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
$15,833 and $457,152 for the years ended December 31, 2015 and 2014, respectively, and there was $19,139 of total unrecognized
compensation cost related to unvested options granted under the Company’s options plans as of December 31, 2015. This
stock option expense will be recognized through March 2019.
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, 2014 through December 31, 2014, the Company issued 600,000 fully vested stock options under the plans with a total valuation
of $87,224. Of these stock options, 200,000 have a 5 year term while the remaining 400,000 have a 10 year term.
From January
1, 2015 through December 31, 2015, the Company issued 150,000 stock options under the plans which all vest over 4 years, have a
term of 10 years, and a total valuation of $18,483.
We used the
following assumptions for options granted in fiscal 2015 and 2014:
|
2015
|
2014
|
Expected volatility
|
169.62%
|
138.71%
|
Expected term
|
7 Years
|
3-5.5 Years
|
Risk-free interest rate
|
0.66%
|
1.52%
|
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,
2015 and 2014
Option activity
for the years ended December 31, 2015 and 2014 under the 2008 and 2011 Plans are as follows:
|
|
Number of Options
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at December 31, 2013
|
|
|
24,049,862
|
|
|
$
|
0.30
|
|
Granted
|
|
|
600,000
|
|
|
|
0.19
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
9,262,855
|
|
|
|
0.33
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding at December 31, 2014
|
|
|
15,387,007
|
|
|
$
|
0.28
|
|
Granted
|
|
|
150,000
|
|
|
|
0.13
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
200,000
|
|
|
|
0.22
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding at December 31, 2015
|
|
|
15,337,007
|
|
|
$
|
0.28
|
|
Exercisable at December 31, 2015
|
|
|
15,195,688
|
|
|
$
|
0.28
|
|
Weighted average grant date fair value
|
|
|
|
|
|
$
|
0.12
|
|
The following
table summarizes information about employee stock options outstanding at December 31, 2015:
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Price
|
|
Number Outstanding
at December 31, 2015
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Number
Exercisable at
December 31, 2015
|
|
Weighted Average Exercise Price
|
|
Aggregate Intrinsic Value
|
$
|
0.13-1.31
|
|
15,337,007
|
|
4.45 Years
|
|
$
|
0.28
|
|
$
|
–
|
|
15,195,688
|
|
$
|
0.28
|
|
$
|
–
|
|
|
|
15,337,007
|
|
4.45 Years
|
|
$
|
0.28
|
|
$
|
–
|
|
15,195,688
|
|
$
|
0.28
|
|
$
|
–
|
As the Company’s
stock price was lower than the weighted average exercise price at December 31, 2015, there is no aggregate intrinsic value of the
options.
Options exercisable
have a weighted average remaining contractual life of 4.41 years as of December 31, 2015.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Warrants
2015
There was
no new warrant activity during 2015.
2014
During the
year ended December 31, 2014, pursuant to a private placement, the Company issued 20,186,725 warrants to purchase common stock
which is based on the number of units sold in the private offering. These warrants have an exercise price of $0.15 per share and
expire 3 years from the date of issuance.
As a part
of the Company’s private placement, the Company effectively issued 428,499 warrants in the twelve months ended December 31,
2014 to the placement agents. These warrants, valued at $68,124, are exercisable for 3 years at an exercise price of
$0.25 per share. The Company estimated the fair value of the warrants utilizing the Black-Scholes pricing model. The assumptions
used in the valuation of 106,667 of these warrants include volatility of 138.71%, expected dividends of 0.0%, a discount rate of
1.52%, and expected term of 3 years. The assumptions used in the valuation of 66,666 of these warrants include volatility of 172.66%,
expected dividends of 0.0%, a discount rate of 0.66%, and expected term of 3 years. The assumptions used in the valuation of 95,166
of these warrants include volatility of 171.32%, expected dividends of 0.0%, a discount rate of 0.66%, and expected term of 3 years.
The assumptions used in the valuation of 160,000 of these warrants include volatility of 172.22%, expected dividends of 0.0%, a
discount rate of 0.66%, and expected term of 3 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.
As a fee
to extend the term of the Gemini Master Fund convertible debt, the Company issued 1,500,000 common stock purchase warrants valued
at $193,625 using the Black-Scholes valuation methodology, each with a three year term and $0.20 strike price, to the holder which
was recorded as debt discount and will be amortized over the remaining term of the note. The assumptions used in the valuation
of these options include volatility of 140.80%, expected dividends of 0.0%, a discount rate of 1.52%, and expected term of 3 years.
(See Note 10)
As an inducement
to Gemini Master Fund to convert the principal debt amount discussed above, the Company agreed to issue 3,727,778 common stock
purchase warrants, each with a strike price of $0.20 and a three year term. These warrants were valued at $482,300 using the Black-Scholes
valuation methodology and were expensed at the date of the transaction. The assumptions used in the valuation of these options
include volatility of 140.80%, expected dividends of 0.0%, a discount rate of 1.52%, and expected term of 3 years. (See Note 10)
During the
twelve months ended December 31, 2014, 6,475,101 warrants had expired.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
Warrant activity
for the years ended December 31, 2015 and 2014 are as follows:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding at December 31, 2013
|
|
|
9,851,540
|
|
|
$
|
0.23
|
|
Granted
|
|
|
25,843,002
|
|
|
|
0.16
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
(6,475,101
|
)
|
|
|
0.20
|
|
Outstanding at December 31, 2014
|
|
|
29,219,441
|
|
|
$
|
0.18
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Outstanding at December 31, 2015
|
|
|
29,219,441
|
|
|
$
|
0.18
|
|
Exercisable at December 31, 2015
|
|
|
29,219,441
|
|
|
$
|
0.18
|
|
Weighted average grant date fair value
|
|
|
|
|
|
$
|
–
|
|
Warrants
exercisable have a weighted average remaining contractual life of 1.47 years as of December 31, 2015.
There was
no Federal income tax expense for the years ended December 31, 2015 and 2014 due to the Company’s net losses. Income tax
expense represents minimum state taxes due.
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,
|
|
|
|
2015
|
|
|
2014
|
|
Computed “expected” tax expense (benefit)
|
|
$
|
(625,441
|
)
|
|
$
|
(1,069,743
|
)
|
State taxes, net of federal benefit
|
|
|
(122,700
|
)
|
|
|
(206,901
|
)
|
Goodwill impairment and other non-deductible items
|
|
|
(104,420
|
)
|
|
|
(192,514
|
)
|
Change in deferred tax asset valuation allowance
|
|
|
854,161
|
|
|
|
1,470,758
|
|
Income tax expense
|
|
$
|
1,600
|
|
|
$
|
1,600
|
|
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:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Charitable contributions
|
|
$
|
4,128
|
|
|
$
|
4,128
|
|
Reserve for bad debt
|
|
|
25,345
|
|
|
|
20,684
|
|
Stock options
|
|
|
4,599,689
|
|
|
|
4,593,382
|
|
Inventory Adjustment
|
|
|
11,067
|
|
|
|
–
|
|
Other
|
|
|
19,634
|
|
|
|
15,702
|
|
Net operating loss carryforward
|
|
|
8,297,039
|
|
|
|
7,485,682
|
|
Total gross deferred tax assets
|
|
|
12,956,902
|
|
|
|
12,119,578
|
|
Less: Deferred tax asset valuation allowance
|
|
|
(12,853,622
|
)
|
|
|
(11,999,461
|
)
|
Total net deferred tax assets
|
|
|
103,280
|
|
|
|
120,117
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accrued salaries
|
|
|
(96,704
|
)
|
|
|
(96,704
|
)
|
Accrued vacation
|
|
|
–
|
|
|
|
(13,848
|
)
|
Depreciation
|
|
|
(6,576
|
)
|
|
|
(9,565
|
)
|
Total deferred tax liabilities
|
|
|
(103,280
|
)
|
|
|
(120,117
|
)
|
Total net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
The valuation
allowance at December 31, 2015 was $12,853,622. The increase in the valuation allowance during 2015 was $854,161.
At December 31,
2015, the Company has a net operating loss carry forward of $20,828,829 available to offset future net income through 2035. The
NOL expires during the years 2015 to 2035. 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.
|
17.
|
RELATED PARTY TRANSACTIONS
|
Accounts Payable
and Related Party Vendor Payments
During 2015,
the Company made cash payments totaling $76,000, accrued an additional $22,500, and additionally issued 373,107 shares of the Company’s
common stock with a total value of $54,000 to GreenCore Capital, LLC for professional services provided to the Company as detailed
in a March 28, 2014 consulting agreement. Jay Potter, our director, is the managing member of GreenCore Capital LLC (See Note 14).
During 2015,
pursuant to April 2015 lease agreement, the Company made cash payments to Desmond Wheatley, our President and CEO, totaling $13,480
for the lease of a vehicle owned by Mr. Wheatley but used exclusively by the Company for Company business. The lease was later
terminated in 2015.
During 2014,
the Company made cash payments totaling $93,000, and additionally issued 616,856 shares of the Company’s common stock with
a total value of $92,528 to GreenCore Capital, LLC for professional services provided to the Company as detailed in a March 28,
2014 consulting agreement. Jay Potter, our director, is the managing member of GreenCore Capital LLC.
On February
21, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Cronus Equity LLC, a Delaware
limited liability company (“Cronus”), to be effective as of February 1, 2014, pursuant to which Cronus provided professional
services to the Company. Paul Feller, a prior director of the Company, is a managing partner of Cronus and the individual performing
such professional services on behalf of Cronus. In consideration for services provided to the Company during 2014, Cronus received
payments amounting to $41,817. This agreement with Cronus was cancelled in May 2014. Prior to this agreement with Cronus, the Company
had a similar agreement with Fellco LLC, an entity also operated by Mr. Feller, to provide the same services. This agreement was
cancelled in January 2014. During 2014, the Company paid $5,135 to Fellco LLC.
Stock Issued for Director
Services
During the
year ended December 31, 2015, the Company released 347,220 shares of common stock with a per share fair value of $0.15, or $52,082
(based on the market price at the time of the agreement), to two directors for their service as defined in their respective Restricted
Stock Grant Agreements. The payments were expensed at issuance (See Note 14).
During the
year ended December 31, 2014, the Company released 1,125,012 shares of common stock with a per share fair value of $0.15, or $168,752
(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).
Stock Issued for Loan
Guaranty and Cash Sales
During the
year ended December 31, 2015, and in consideration for the Guaranty of the Company’s obligations extended under a line of
credit, the Company issued 571,429 shares of its common stock or $85,714 to Keshif Ventures LLC, a related party by virtue of
owning more than 10% of the Company’s common stock outstanding, pursuant to a stock purchase agreement (See Notes 9 and
Note 14). Additionally, during the year ended December 31, 2015, pursuant to a private placement, the Company issued 3,666,667
shares of common stock for cash, with a per share price of $0.15 per share or $550,000 to Keshif Ventures LLC.
ENVISION SOLAR INTERNATIONAL INC. AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2015 and 2014
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, 2016. During the fiscal year ended December 31, 2014, in lieu of interest payments, the Company made principal
payments on this note amounting to $12,000. During the fiscal year ended December 31, 2015, 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, 2015 is $86,616 with accrued
and unpaid interest amounting to $36,749 (See Note 10).
In
June 2015, Gemini Master Fund Ltd sold a 70.0066819% stake in its’ note to Robert Noble, our past Chairman and current
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.
The balance of the note as of
December 31, 2015 is $600,000 with accrued and unpaid interest amounting to $31,438
(See Note
10).
Stock Issued in Cash Sales
Subsequent
to December 31, 2015 pursuant to private placements, the Company issued 2,166,666 shares of common stock for cash with a per share
price of $0.15 per share or $325,000 and the Company incurred $23,600 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 98,333 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.
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, will vest 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.
New Director
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.
Accounts Payable and Related
Party Vendor Payments
Subsequent
to December 31, 2015, the Company made cash payments totaling $15,000, and additionally issued 128,571 shares of the Company’s
common stock with a total value of $19,286 (based on contemporaneous cash sales prices) to GreenCoreCapital, LLC for professional
services provided to the Company as detailed in a March 28, 2014 consulting agreement. The contractual value of this share issuance
is $18,000 and accordingly, the Company will record a loss on conversion of $1,286. Jay Potter, our director, is the managing
member of GreenCore Capital, LLC.
Line of Credit
Subsequent
to December 31, 2015, the Company drew down an additional $200,000 on its line of credit. As of the date of this report, there
is no additional drawing capacity on the line of credit.