This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Envision Solar International, Inc. (hereinafter, "Envision," "Company," "us," "we" or "our"), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as "projects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "should," "would," "could," "will," "opportunity," "potential" or "may," and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company's actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important factors that could prevent the Company from achieving its stated goals include, but are not limited to, the following:





       (a)    volatility or decline of the Company's stock price or absence of
              stock price appreciation;




  (b) fluctuation in quarterly results;




  (c) failure of the Company to earn revenues or profits;




       (d)    inadequate capital to continue or expand its business, and inability
              to raise additional capital or financing to implement its business
              plans;




       (e)    unavailability of capital or financing to prospective customers of
              the Company to enable them to purchase products and services from
              the Company;




  (f) failure to commercialize the Company's technology or to make sales;




       (g)    reductions in demand for the Company's products and services,
              whether because of competition, general industry conditions, loss of
              tax incentives for solar power, technological obsolescence or other
              reasons;




  (h) rapid and significant changes in markets;




       (i)    inability of the Company to pay its liabilities, including without
              limitation its loans from lenders;




  (j) litigation with or legal claims and allegations by outside parties;




       (k)    insufficient revenues to cover operating costs, resulting in
              persistent losses;




       (l)    potential dilution of the ownership of existing shareholders in the
              Company due to the issuance of new securities by the Company in the
              future; and




  (m) rapid and significant changes to costs of raw materials.










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New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Because factors referred to elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 (sometimes referred to as the "2019 Form 10-K") that we previously filed with the Securities and Exchange Commission, including without limitation the "Risk Factors" section in the 2019 Form 10-K, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as may be required by applicable law, we undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date of this report on Form 10-Q.





Overview

Envision invents, designs, engineers, manufactures and sells solar powered products and proprietary technology solutions serving three markets with annual global spending in the billions of dollars and that are experiencing significant growth:





  · electric vehicle charging infrastructure;




  · outdoor media advertising; and




  · energy security and disaster preparedness.

The Company focuses on creating renewably energized, high-quality products for electric vehicle ("EV") charging, outdoor media and branding, and energy security that are rapidly deployable and attractively designed.

Electric Vehicle Charging Infrastructure

We currently produce two categories of products: the patented EV ARC™ (Electric Vehicle Autonomous Renewable Charger) and the patented Solar Tree®. In late 2019, we began deploying our upgraded version of our EV ARC™, the EV ARC™ 2020, which provides all of the features of the original EV ARC™ in addition to elevating the electronics under the solar canopy to make the unit flood-proof up to 9.5 feet, provides more space to park and provides added security. In addition, we have two new categories of products in development. On December 31, 2019, our patent for the EV-Standard™ product was issued, and a fourth category of product, the UAV ARC™ drone charging product, is awaiting patent approval. All four product lines incorporate the same underlying technology and value, having a built-in renewable energy source in the form of attached solar panels and/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 for curbside charging. The UAV ARC™ is a permanent solution in a transportable format and will be used to charge drone (UAV) fleets. Our EV charging solutions for electric vehicles and aerial drones can, or in the case of the products currently under development, are expected to, produce, deliver, and store power without the time and expense of having to be connected to the utility grid.

We believe that there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that our products fulfill that requirement. We are agnostic as to the EV charging service equipment and integrate best of breed solutions based upon our customer's requirements. For example, our EV ARC™ and Solar Tree® products have been deployed with Chargepoint, Blink, Juice Box, Bosch, AeroVironment 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. Our products replace the infrastructure required to support EV chargers, not the chargers themselves. We do not sell EV charging, rather we sell products which enable it.











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We believe our chief differentiators for our electric vehicle charging infrastructure products 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;

       ·   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

       ·   our ability to create new and patentable inventions which are 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.

Historically, we have recognized revenue primarily from the sale of EV ARCs™ to large commercial businesses, such as Google, Genentech, and Johnson & Johnson, and government agencies such as the City of New York, the State of California and the U.S. Navy. Our contract with the City of New York was renewed in March 2020 to extend through April 2021 and our State of California contract expires on June 23, 2020 but has two one-year renewal options through June 23, 2022 at the State of California's option.

Outdoor Media Advertising

This business opportunity involves a partnership with a third party media company, whereby we solicit revenue 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 the surfaces of our products or on outdoor digital or static screens mounted on our EV charging solutions. We have yet to launch our outdoor media advertising other than signing an agreement with Outfront Media and developing our revenue model.

Energy Security and Disaster Preparedness

Our energy security business is connected with the deployment of our EV charging infrastructure products which includes an integrated emergency power panel, powered by solar power, which can continue to operate and deliver emergency power during utility grid failures or blackouts and brownouts. Our onboard state-of-the-art storage batteries installed on our EV chargers provide another reason for certain customers such as municipalities, counties, states, the federal government, hospitals, fire departments, large private enterprises with substantial facilities, and vehicle fleet operators, to buy our products. As an example of the benefit our emergency power capability provides, in April 2020, one of our California municipalities re-deployed two of their EV ARCTM units that were being underutilized since their employees were working from home, to COVID-19 response facilities to provide emergency power for medical equipment without the fumes and noise of a power generator.

Our current list of products includes:





       1.  EV ARC™ Electric Vehicle Autonomous Renewable Charger (patented).

       2.  Transformer (patented) EV ARC™ 2020 Stowable Electric Vehicle
           Autonomous Renewable Charger (EV ARCTM 2020).

       3.  EV ARC™ DC Fast Charging Electric Vehicle Autonomous Renewable Charger
           (EV ARCTM DCFC).











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       4.  EV ARC™ Media Electric Vehicle Autonomous Renewable Charger with
           advertising screen and or branding/messaging.

       5.  EV ARC™ Autonomous Renewable Motorcycle Charger.

       6.  EV ARC™ Autonomous Renewable Bicycle Charger.

       7.  ARC Mobility™ Transportation System.

       8.  The patented 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.

Our current products can be upgraded with the addition of the following features:





  1. EnvisionTrak™ sun tracking technology (patented),
  2. Data capture and management (IoT),
  3. SunCharge™ solar powered EV charging,
  4. ARC™ technology energy storage,
  5. E-Power emergency power panels,
  6. LED lighting,
  7. Media and branding screens, and
  8. Security cameras, WiFi, sound, and emergency call boxes.

Critical Accounting Policies

Please refer to Note 1 in the financial statements for further information on the Company's critical accounting policies which are summarized as follows:

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 financial statements include the allowance for doubtful accounts receivable, valuation of inventory and standard cost allocations, depreciable lives of property and equipment, valuation of intangible assets, estimates of loss contingencies, estimates of the valuation of right of use assets and corresponding lease liabilities, 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.











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Inventory. Inventory is stated at the lower of cost and 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 net realizable value of such inventory may be below the carrying 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.

Revenue and Cost Recognition. Envision follows 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 30-45 day period after delivery.

Revenues from maintenance fees for services provided by the Company 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.

Extended maintenance or warranty services, where the customer has the option to purchase this extension as a separate purchase option, are considered a separate performance obligation. If the company does not control the extended services, in terms of having the responsibility for fulfillment of the obligation or the option to choose who will perform the services, the Company is acting as an agent and would report the revenues on a net basis.

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 30-45 day period.

The Company has a policy of recording sales incentives as a contra revenue.











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The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs as cost of revenues.

Any deposits received from a customer prior to delivery of the purchased product or monies paid prior to the period for which a service is provided are accounted for as deferred revenue on the balance sheet.

Sales tax is recorded on a net basis and excluded from revenue.

The Company generally provides a standard one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and it will pass on the warranties from its vendors, if any, which generally exceeds 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 March 31, 2020 and 2019, the Company has no product warranty accrual given the Company's fluctuating historical financial warranty expense.

Cost of Revenues. The Company records direct material and component costs, direct labor and associated benefits, and manufacturing overhead costs such as supervision, manufacturing equipment depreciation, rent, and utility costs, all of which are included in inventory prior to a sale, as costs of revenues. The Company further includes shipping and handling fees billed to customers as revenues and shipping and handling costs as cost of revenues.

Changes in Accounting Principles. There were no significant changes in accounting principles that were adopted during the three months ended March 31, 2020.





Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2020 and 2019

Revenues. For the three months ended March 31, 2020, revenues were $1,317,052, compared to $1,189,595 for the three months ended March 31, 2019, an 11% increase. Revenues in the three months ended March 31, 2020 included a variety of customers, including municipalities in North Carolina, Wisconsin, Arizona and several in California. We delivered EV ARCs to Bronx College in New York and Rice University in Texas. We also delivered to a large commercial business, Pfizer, for workplace charging for its employees and guests. This compares to revenues for the three months ended March 31, 2019 which resulted from the delivery of 18 units to one customer, the City of New York. As of March 31, 2020, our contracted backlog was approximately $3.6 million. This includes an order from Electrify America for $2.0 million received during the quarter ended March 31, 2020 for 30 EV ARCTM charging stations to be deployed in rural areas of California. We had three large projects that were originally expected to be delivered in the quarter ended December 31, 2019 that were delayed until 2020 for different reasons including customer scheduling delays, customer awaiting permits for one of our solar tree installations, and delays in the final design acceptance with the other solar tree installation. These projects have again been moved to the quarter ended June 30, 2020. Our shipments will continue to fluctuate each quarter due to the varying size of orders and timing of deliveries.

Gross Loss. For the three months ended March 31, 2020, we had a gross loss of $39,641 compared to a gross loss of $53,102 for the period ended March 31, 2019, a 25% decrease. The gross loss in the quarter ended March 31, 2019 benefited from the reversal of $37,982 of expense for losses that was accrued at December 31, 2018. Our gross loss is caused by several factors. First, we have priced our units to be competitive and to gain market share in the EV charging market. In doing so, we are targeting to increase our revenue. In addition, we incur a certain level of fixed costs related to our manufacturing facility and production management that is spread over the units produced. As our revenues increase, the fixed cost per unit would be lower. Also, with a higher volume of production, we expect that our labor will work more efficiently by having a more consistent repetitive processes, which will reduce the cost per unit. We believe our cost per unit will improve as our revenues increase and we are able to allocate fixed costs over more units, negotiate for better volume pricing from suppliers, better utilization of our production labor and as we make improvements to our products to reduce cost. Warranty costs remain low for both the three months ended March 31, 2020 and 2019.











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Operating Expenses. Total operating expenses were $902,000 for the three months ended March 31, 2020 compared to $522,667 for the same period in 2019, a 73% increase. The increase in operating expense resulted primarily from an investment in our sales and marketing resources to build Company and product awareness with the intent to increase revenues. As indicated above, higher revenues with the same fixed cost structure will increase our profitability. Operating expenses increased by $154,679 for marketing, sales and investor relations consultants and trade shows and $79,995 for increased sales personnel and commissions. In addition, operating expenses increased by $71,964 for non-cash compensation expense for stock option expense and vesting of director restricted shares, $49,176 for increased salaries and the addition of medical benefits, and $23,519 of other expenses.

Other Income and Expense. Interest expense was $9,772 for the three months ended March 31, 2020 compared to $375,206 for the same period in 2019, a 97% decrease, due to the repayment of debt in 2019, following the Company's public offering. Interest income increased by $7,548 due to increased cash deposits.

Net Loss. Our net loss of $942,521 for the three months ended March 31, 2020 was comparable to a net loss of $949,631 for the same period in 2019. The increase in revenue and gross profit, was offset by higher operating expenses.

Liquidity and Capital Resources

At March 31, 2020, we had cash of $2,432,300. We have historically met our cash needs through a combination of proceeds from private placements of our securities, loans and through a public offering. Our cash requirements are generally for operating activities.

Our cash flows from operating, investing and financing activities, as reflected in the condensed statements of cash flows, are summarized in the table below:

March 31,
                                                 2020            2019

Cash provided by (used in): Net cash used in operating activities $ (1,553,276 ) $ (222,177 ) Net cash used in investing activities $ (143,512 ) $ (13,229 ) Net cash provided by financing activities $ 279,632 $ 117,173






Operating Activities

Our operating activities resulted in cash used in operations of $1,553,276 for the three months ended March 31, 2020, compared to cash used in operations of $222,177 for the same period in 2019. Net loss of $942,521 for the three months ended March 31, 2020 was increased by $120,441 for non-cash expense items that included depreciation and amortization of $8,936, common stock issued for services for director compensation of $78,447, non-cash compensation expense related to stock options of $27,068 and $5,990 for amortization of debt discount to interest expense associated with the related party note. Cash used in operations for the period included increases in inventory by $605,396 for product needed for fiscal Q2 deliveries, prepaid expenses and other current assets of $308,685 for vendor prepayments, funding our annual business insurance and prepaid annual Nasdaq fees, increase in accounts receivable of $214,077 due to higher sales in Q1 2020 compared to Q1 2019 and a slow paying customer from Q4 2019, payment of a convertible note originally issued in lieu of salary for a related party of $220,417 and a $223 increase in deposits. Cash provided by operations included an increase of $522,770 for accounts payable, primarily for inventory purchases, $67,167 for accrued expenses, primarily for payroll, $22,218 for an increase for sales tax payable and $5,447 for an increase in deferred revenue.













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Our operating activities resulted in cash used in operations of $222,177 for the three months ended March 31, 2019. Principal elements of cash flow for the three months ended March 31, 2019 include the net loss of the Company offset by non-cash expense items including depreciation and amortization of $9,929, common stock share value issued for director services of $31,250, and $298,739 of amortization of debt discount to interest expense associated with the financings of the current debt facilities. Further, cash from operations for the period included of a net increase in accounts receivable of $101,080; a use of cash of $102,700 related to the increase in prepaid expenses primarily for funding our annual business insurance policies; a generation of cash of $48,672 associated with the reduction of deposits which was used to offset a monthly rent payment per the terms of our lease; a generation of cash of $225,958 related to the increase in accounts payable primarily due to the timing of purchases and our ability to make payments; a generation of cash of $84,179 related to the increase in accrued liabilities primarily due to an accrued payroll period; a generation of cash amounting to $68,322 related to the increase in deferred revenue for a prepayment for an EVARC™ unit by a customer.

Cash used in investing activities included $125,142 to purchase equipment, primarily for a demo EV ARCTM unit and a forklift truck and $18,370 for patent related costs during the three months ended March 31, 2020. In the three months ended March 31, 2019, $10,119 was used to fund patent related costs while $3,110 was used to purchase manufacturing equipment.

During the three months ended March 31, 2020, cash generated by our financing activities included $282,350 in proceeds received from the exercise of warrants and we used cash of $2,718 for the repayment of an auto loan. During the three months ended March 31, 2019, cash generated by financing activities was primarily net borrowings on our line of credit facility amounting to $158,442 offset by auto loan payments of $2,583 and funding of deferred equity offering costs of $38,686.

While the Company has been attempting to grow market awareness and focusing on the generation of sales, the Company has not generally earned a gross profit on its sales of products during prior years. However, during 2019 and in the first quarter ended March 31, 2020, we were close to breakeven on the gross profits on the sales of our products and we believe that our gross profits will improve as our revenues grow. Management believes that with increased production volumes that we believe are forthcoming, efficiencies will continue to improve, and total per unit production costs will decrease, thus allowing for increasing gross profits on the EV ARC™ product in the future. The Company may continue to rely on capital from the private or public issuance of its securities, if or when needed, 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, increased overhead absorption resulting from revenue growth, process improvements and vendor negotiations 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 to continue operations. There is no assurance, however, as to if or when the Company will be able to achieve those operating objectives.

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.











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