What changed in this filing

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Item 1. Financial Statements

2021-05-24 compared with 2020-11-12 · 702 added, 966 removed, 204 unchanged (89% of the section changed)

1 unchanged sentence

Condensed Balance Sheets

September 30,

Current assets

Accounts receivable, net of $0 and $2,429 reserve for bad debt at September 30, 2020 and December 31, 2019, respectively

Accounts receivable

Prepaid and other current assets

9 unchanged sentences

Deferred revenue

Convertible note payable - related party, net of debt discount of $5,990 at December 31, 2019

Operating lease liabilities, current

4 unchanged sentences

Stockholders' equity

Preferred stock, $0.001 par value, 10,000,000 authorized, 0 outstanding as of September 30, 2020 and December 31, 2019, respectively.

Common stock, $0.001 par value, 9,800,000 shares authorized, 6,778,827 and 5,208,170 shares issued or issuable and outstanding at September 30, 2020 and December 31, 2019, respectively.

Preferred stock, $0.001 par value, 10,000,000 authorized, none outstanding as of March 31, 2021 and December 31, 2020, respectively.

Common stock, $0.001 par value, 9,800,000 shares authorized, 8,858,383 and 8,482,387 shares issued or issuable and outstanding as of March 31, 2021 and December 31, 2020, respectively.

Additional paid-in-capital

4 unchanged sentences

Total liabilities and stockholders' equity

The accompanying unaudited notes are an

integral part of these unaudited financial statements

The accompanying unaudited notes are an integral

part of these unaudited condensed financial statements

Condensed Statements of Operations

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of revenues

Gross profit (loss)

Operating expenses

3 unchanged sentences

Interest expense

Total other income (expense)

Loss before tax expense

$ (1,100,023 )

$ (2,876,501 )

Total other income (expense), net

$ (1,250,809 )

1 unchanged sentence

Weighted average shares outstanding - basic and diluted

The accompanying unaudited notes are an

integral part of these unaudited financial statements

The accompanying unaudited notes are an integral

part of these unaudited condensed financial statements

Condensed Statements of Changes in Stockholders'

4 unchanged sentences

$ (45,809,581 )

$ (2,480,679 )

Stock issued for director services

Value of warrants and beneficial conversion features related to

debt instruments

Stock issued to escrow account - unvested

Stock option expense

Warrants exercised

Net loss for the three months ended March 31, 2020

1 unchanged sentence

$ (46,752,102 )

$ (3,392,792 )

Stock Issued for Director Services

Stock option expense

Shares issued for cash

Warrants issued for cash

Cash fees related to stock offering

Fractional Share Cash Payment

Fractional Shares Issued from Reverse Split

Net Loss for the Three Months Ended June 30, 2019

Balance at June 30, 2019

$ (43,809,164 )

Stock issued for director services

Stock option expense

Net loss for the three months ended September 30, 2019

Balance at September 30, 2019

$ (44,419,527 )

Stockholders'

Paid-in-Capital

Equity (Deficit)

Balance at December 31, 2020

$ (45,809,581 )

Stock issued for director services

Stock issued for director services - vested

Stock issued to escrow account - unvested

Stock option expense

Warrants exercised

Warrants exercised for cash

Stock option exercise (cashless)

Net loss for the three months ended March 31, 2021

Balance at March 31, 2021

$ (46,752,102 )

Stock issued for director services

Stock issued to escrow account - unvested

Stock option expense

Warrants exercised

Net loss for the three months ended June 30, 2020

Balance at June 30, 2020

$ (47,586,059 )

Stock issued for director services

Stock issued to escrow account - unvested

Stock option expense

Proceeds from issuance of common stock, pursuant to public offering

Warrants exercised

Stock option exercise (cashless)

Stock issued for services

Cash fees related to stock offering

Net loss for the three months ended September 30, 2020

Balance at September 30, 2020

$ (48,686,082 )

The accompanying unaudited notes are an

integral part of these unaudited financial statements

The accompanying unaudited notes are an integral

part of these unaudited condensed financial statements

Condensed Statements of Cash Flows

For the Nine Months Ended

September 30,

For the Three Months Ended

Operating Activities:

$ (1,250,809 )

$ (2,543,868 )

Adjustments to reconcile net loss to net cash used in operating activities:

11 unchanged sentences

Accrued expenses

Convertible note payable issued in lieu of salary - related party

Convertible note payable repaid in lieu of salary - related party

Sales tax payable

2 unchanged sentences

Investing Activities:

Purchase of equipment

Purchases of equipment

Funding of patent costs

1 unchanged sentence

Financing Activities:

Borrowings (repayments) on convertible line of credit, net

Repayments of convertible notes payable, net

Borrowings (repayments) on notes payable

Repayments of auto loan

Withhold shares to cover taxes for cashless stock option exercise

Proceeds from warrant exercises

Payments of deferred equity offering costs

Fractional share payments

Proceeds from issuance of common stock and warrants, pursuant to public offering

Net cash provided by financing activities

Net increase in cash

Net increase (decrease) in cash

Cash at beginning of period

2 unchanged sentences

Cash paid for interest

Cash paid for taxes

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Recording of debt discount

Transfer of prepaid asset to inventory

Recording of right of use asset and corresponding liability

Depreciation capitalized into inventory

Reclassification of deferred equity offering costs to APIC

Transfer of fixed asset to inventory

The accompanying unaudited notes are an

integral part of these unaudited financial statements

CONDENSED NOTES TO CONDENSED FINANCIAL

September 30, 2020

Depreciation cost capitalized into inventory

The accompanying unaudited notes are an integral

part of these unaudited condensed financial statements

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2021

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Beam Global (formerly

Envision Solar International, Inc.), a Nevada corporation (hereinafter the “Company,”

Beam Global, a Nevada corporation (hereinafter the “Company,”

“us,”

2 unchanged sentences

or “Beam”) is a cleantech innovation company based in San Diego, California.

We develop, design,

engineer, manufacture and sell renewably energized high-quality products for electric vehicle (“EV”) charging, outdoor

media and branding, and energy security, that enable vital and highly valuable services in locations where it is either too expensive

or too impactful to connect to the utility grid, or where the requirements for electrical power are so important that grid failures,

like blackouts, are intolerable.

When competing with utilities or typical solar companies, we rely on our products’

of deployment, reliability, accessibility, and total cost of ownership, rather than producing the cheapest kilowatt hour with

the help of subsidies.

Beam’s products

and proprietary technology solutions target three markets that are experiencing significant growth with annual global spending

in the billions of dollars:

electric vehicle (EV) charging infrastructure;

out of home advertising platforms;

energy security and disaster preparedness.

On September 15, 2020, the

Company announced its rebranding and changed its corporate name from Envision Solar International, Inc.

to Beam Global (Nasdaq:

BEEM and BEEMW).

Beam develops, designs, engineers, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle

charging, outdoor media and energy security and disaster preparedness.

Beam’s products enable vital and highly valuable energy production

in locations where it is either too expensive or too impactful to connect to the utility grid, or where the requirements for electrical

power are so important that grid failures, like blackouts, are intolerable.

When competing with utilities or typical solar companies,

we rely on our products’

ease of deployment, reliability, accessibility, and total cost of ownership, rather than producing the

cheapest kilowatt hour with the help of subsidies.

Basis of Presentation

The interim unaudited

condensed financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of

the Securities and Exchange Commission.

The interim unaudited condensed

financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States

(“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions

to Form 10-Q and Rule 10-01 of Regulation S-X.

In management’s opinion, all adjustments (consisting of normal recurring adjustments

and reclassifications) necessary to present fairly our results of operations and cash flows for the three and nine months ended

September 30, 2020 and 2019, and our financial position as of September 30, 2020, have been made.

The results of operations for

such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information

and disclosures normally included in the notes to the annual financial statements have been condensed or omitted from these interim

financial statements.

Accordingly, these interim unaudited condensed financial statements should be read in conjunction with the

financial statements and notes thereto for the year ended December 31, 2019.

The December 31, 2019 balance sheet is derived from

those statements.

and reclassifications) necessary to present fairly our results of operations and cash flows for the three months ended March 31, 2021

and 2020, and our financial position as of March 31, 2021, have been made.

The results of operations for such interim periods are not

necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures

normally included in the notes to the annual financial statements have been condensed or omitted from these interim financial statements.

Accordingly, these interim unaudited condensed financial statements should be read in conjunction with the financial statements and notes

thereto for the year ended December 31, 2020.

The December 31, 2020 balance sheet is derived from those statements.

Risks and Uncertainties

On March 11, 2020,

the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic.

The outbreak of COVID-19 has

resulted in travel restrictions, quarantines, “stay-at-home”

On March 11, 2020, the World Health Organization

declared the outbreak of a novel coronavirus (COVID-19) as a pandemic.

The outbreak of COVID-19 has resulted in travel restrictions, quarantines,

“stay-at-home”

and “shelter-in-place”

orders as well as the

shutdown of many businesses around the world.

To date, while we have seen some delays and cancellations of opportunities in our

pipeline as a result of funding issues, priority issues or temporary business closures, the pandemic has not had a material adverse

effect on the Company’s financial position or results of operations for the three and nine months ended September 30, 2020.

However, it is difficult to predict if these governmental actions and the widespread economic disruption arising from the pandemic

will impact our business in the future.

The Company will continue to monitor its progress and communicate changes in estimates

and assumptions with shareholders, as necessary.

orders as well as the shutdown of many businesses around the world.

while we have seen some delays and cancellations of opportunities in our pipeline as a result of funding issues, priority issues or temporary

business closures, the pandemic has not had a material adverse effect on the Company’s financial position or results of operations

for the quarter ended March 31, 2021.

However, it is difficult to predict if these governmental actions and the widespread economic disruption

arising from the pandemic will impact our business in the future.

The Company will continue to monitor its progress and communicate changes

in estimates and assumptions with shareholders, as necessary.

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

The preparation of financial statements in conformity with GAAP

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

Actual results could differ from those estimates.

Significant estimates in the accompanying unaudited condensed 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

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 lease liabilities and the related right

of use assets, valuation of share-based costs, and the valuation allowance on deferred tax assets.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards

Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20)

and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and

Contracts in an Entity’s Own Equity to address the complexity in accounting for certain financial instruments with characteristics

of liabilities and equity.

This ASU includes amendments that significantly change the guidance on convertible instruments and the derivative

scope exception for contracts in an entity's own equity and simplifies the accounting for convertible instruments which include beneficial

conversion features or cash conversion features by removing certain separation models in Subtopic 470-20.

The prior conditions were difficult

to apply and resulted in circumstances where warrants may have been required to be accounted for as a liability rather than as equity

if issued under a registration statement.

The Company, in consultation with legal counsel, determined that its outstanding public warrants

issued under a Registration Statement on Form S-1 met, and continues to meet, the criteria for equity based on the terms of the warrant.

Had the warrants been determined that liability treatment was required, the liability would have been approximately $64 million for the

953,595 public warrants at December 31, 2020 with a non-cash charge to the statement of operations of $61 million for the year ended December

The ASU is effective for smaller

reporting companies in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, although early

adoption is permitted, as early as fiscal years beginning after December 15, 2020.

As such, the Company has adopted ASU 2020-06 effective

January 1, 2021, on a full retrospective basis, which will allow the Company to continue to classify the warrants as equity, and as a

result, had no effect on its condensed financial statements and related disclosures.

If the Company had recorded the warrants as a liability

in prior periods, with the full retrospective adoption on January 1, 2021, the liability would have been recast as equity and retained

earnings adjusted to reverse the effect of the liability entries and as a result, there would be no impact on the financial statements

for any periods presented.

Concentrations

Financial instruments

that potentially subject us to concentrations of credit risk consist of cash and accounts receivable.

The Company maintains

its cash in banks and financial institution deposits that at times may exceed federally insured limits.

The Company has not experienced

any losses in such accounts from inception through September 30, 2020.

As of September 30, 2020, $12,181,713 of the Company’s

cash deposits were greater than the federally insured limits.

Financial instruments that

potentially subject us to concentrations of credit risk consist of cash and accounts receivable.

The Company maintains its

cash in banks and financial institution deposits that at times may exceed federally insured limits.

The Company has not experienced any

losses in such accounts from inception through March 31, 2021.

As of March 31, 2021, $28,219,329 of the Company’s cash deposits

were greater than the federally insured limits.

Major Customers

For the three months

ended September 30, 2020, revenues from four customers accounted for 41%, 27%, 14% and 11% of total revenues, and for the nine

months ended September 30, 2020, revenues from two customers accounted for 14% and 13% of total revenues, with no other single

customer accounting for more than 10% of revenues.

At September 30, 2020, accounts receivable from four customers accounted for

42%, 29%, 14% and 10% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts

receivable balance.

For the three months

ended September 30, 2019, revenues from two customers accounted for 62% and 14% of total revenues, and for the nine months ended

September 30, 2019, revenues from two customer accounted for 49% and 24% of total revenues, with no other single customer accounting

For the three months ended

March 31, 2021, revenues from three customers accounted for 32%, 12% and 10% of total revenues, with no other single customer accounting

for more than 10% of revenues.

At September 30, 2019, accounts receivable from three customers accounted for 47%, 25% and 14% of

total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

At March 31, 2021, accounts receivable from four customers accounted for 28%, 19%, 11% and 10% of total

accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended

March 31, 2020, revenues from three customers accounted for 26%, 17% and 14% of total revenues, with no other single customer accounting

for more than 10% of revenues.

At March 31, 2020, accounts receivable from two customers accounted for 37% and 21% of total accounts receivable,

with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended

March 31, 2021 and 2020, we had a heavy concentration of sales to federal, state and local governments which represented 70% and 82% of

revenues, respectively.

Cash and Cash Equivalents

For the purposes of

the unaudited condensed statements of cash flows, the Company considers all liquid investments with an original maturity of three

months or less when purchased to be cash equivalents.

There were no cash equivalents at September 30, 2020 and December 31, 2019,

respectively.

For the purposes of the unaudited

condensed statements of cash flows, the Company considers all liquid investments with an original maturity of three months or less when

purchased to be cash equivalents.

There were no cash equivalents at March 31, 2021 and December 31, 2020, respectively.

Fair Value of Financial Instruments

The Company’s

financial instruments, including accounts receivable, accounts payable, accrued expenses, and short-term loans, are carried at

historical cost basis.

At September 30, 2020, the carrying amounts of these instruments approximated their fair values because

of the short-term nature of these instruments.

Accounts Receivable

The Company’s financial

instruments, including accounts receivable, accounts payable, accrued expenses, and short-term loans, are carried at historical cost basis.

At March 31, 2021, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these

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 is stated

at the lower of cost and net realizable value.

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.

After all attempts to collect a receivable have failed, the receivable is written off

against the allowance.

Inventory is stated at the

lower of cost and net realizable value.

Cost is determined using the first-in, first-out method of accounting.

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.

The Company believes

it will achieve future economic value benefits for its various patents and patent ideas.

All administrative costs for obtaining

patents are accumulated on the balance sheet as a patent asset until such time as a patent is issued.

The costs of these intangible

assets are classified as a long-term asset and amortized on a straight-line basis over the legal life of such asset, which is typically

In the event a patent is denied or abandoned, all accumulated administrative costs will be expensed in the period in

which the patent was denied or abandoned.

Patent amortization expense was $3,273 and $2,397 in the nine-month periods ended September

30, 2020 and 2019, respectively.

The Company uses

Financial Accounting Standards Board Accounting Standards 842 “Leases”

to account for its leases whereby almost

all leases are recognized on the balance sheet as a right of use asset and a corresponding lease liability.

adopted this standard as of January 1, 2019 using the effective date method and applying the package of practical expedients

to leases that commenced before the effective date whereby the Company elected not to reassess the following:

(i) whether any

expired or existing contracts contain leases, and (ii) initial direct costs for any existing leases.

For contracts entered

into after the effective date, at the inception of a contract the Company will assess whether the contract is, or contains, a

The Company’s assessment will be based on:

(1) whether the contract involves the use of a distinct identified

asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the

period, and (3) whether it has the right to direct the use of the asset.

The Company will allocate the consideration in the

contract to each lease component based on its relative stand-alone price to determine the lease payments.

The Company has

elected not to recognize right of use assets and lease liabilities for short term leases that have a term of 12 months or

The Company entered into a new 5-year lease of our manufacturing facility which began September 1, 2020.

Monthly lease

payments range from $52,000 to $58,526 through the initial term of the lease.

We calculated the present value of the

remaining lease payment stream using our effective borrowing rate of 10% and recorded a right-of-use asset and operating

lease liability each amounting to $2,605,032 at September 1, 2020.

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

The Company regularly reviews inventory components and quantities on hand and performs annual physical inventory counts.

is established if this review process determines the net realizable value of such inventory may be below the carrying value.

The Company believes it will

achieve future economic value benefits for its various patents and patent ideas.

All administrative costs for obtaining patents are accumulated

on the balance sheet as a patent asset until such time as a patent is issued.

The costs of these intangible assets are classified as a

long-term asset and amortized on a straight-line basis over the legal life of such asset, which is typically 20 years.

In the event a

patent is denied or abandoned, all accumulated administrative costs will be expensed in the period in which the patent was denied or abandoned.

Patent amortization expense was $7,670 and $1,091 in the three months ended March 31, 2021 and 2020, respectively.

In February 2016, the Financial

Accounting Standards Board issued Accounting Standards Update No.

“Leases (Topic 842)”

whereby lessees need to recognize

almost all leases on the balance sheet as a right of use asset and a corresponding lease liability.

The Company adopted this standard

as of January 1, 2019 using the effective date method and applying the package of practical expedients to leases that commenced before

the effective date whereby the Company elected not to reassess the following:

(i) whether any expired or existing contracts contain leases,

and (ii) initial direct costs for any existing leases.

For contracts entered into after the effective date, at the inception of a contract

the Company assesses whether the contract is, or contains, a lease.

The Company’s assessment is based on:

(1) whether the contract

involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use

of the asset throughout the period, and (3) whether it has the right to direct the use of the asset.

The Company allocates the consideration

in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

The Company has elected

to not recognize right of use assets and lease liabilities for short term leases that have a term of 12 months or less.

Revenue Recognition

Beam follows the revenue

standards of Financial Accounting Standards Board Update No.

Beam follows the revenue standards

of Financial Accounting Standards Board Update No.

“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

2) identify the performance obligations in the contract;

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;

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 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

Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into.

customer is typically obligated to make payment for such products within a 30-45 day period after delivery.

product are recognized upon the final delivery of such product to the customer or when legal transfer of ownership takes place.

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

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

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 when 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.

Revenues on a bill-and-hold

2 unchanged sentences

To determine this, the reason for the arrangement must be substantive, the product must be separately

identified and ready for physical transfer, and the product cannot be directed to another customer.

The Company has a policy

of recording sales incentives as a contra revenue.

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 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.

September 30, 2020, the Company has no product warranty accrual given the Company’s fluctuating historical financial warranty

identified and ready for physical transfer, the customer has the ability to direct the use of the product and the product cannot be directed

to another customer.

The Company has a policy of

recording sales incentives as a contra revenue.

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 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 March 31, 2021, the Company

has no product warranty accrual given the Company’s 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

The Company further includes shipping and handling fees billed to customers as revenues and shipping and handling

costs as 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.

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

Stock-Based Compensation

The Company follows

ASC 718, “Compensation –

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 shorter of the service periods or vesting periods using the straight-line attribution method.

The Company adopted

ASU 2018-07 on January 1, 2019 and accounts for non-employee share-based awards in accordance with the measurement and recognition

criteria of ASC 718 and recognizes the fair value of such awards over the service period.

The Company used the modified prospective

method of adoption.

There was no cumulative effect of adoption on January 1, 2019.

The Company estimates

the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.

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 shorter of the service periods or vesting periods using the straight-line attribution method.

The Company adopted ASU 2018-07

and accounts for non-employee share-based awards in accordance with the measurement criteria of ASC 718 and recognizes the fair value

of such awards over the service period.

The Company used the modified prospective method of adoption.

The Company estimates the

fair value of each stock option at the grant date by using the Black-Scholes option pricing model.

Net Loss Per Share

Basic net loss per

share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods

Diluted net loss per common share is computed using the weighted average number of common shares outstanding for the

period, and, if dilutive, potential common shares outstanding during the period.

Potential common shares consist of the incremental

common shares issuable upon the exercise of stock options, stock warrants, convertible debt instruments or other common stock equivalents.

Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.

Basic net loss per share is

computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods presented.

net loss per common share is computed using the weighted average number of common shares outstanding for the period, and, if dilutive,

potential common shares outstanding during the period.

Potential common shares consist of the incremental common shares issuable upon

the exercise of stock options, stock warrants, convertible debt instruments or other common stock equivalents.

Potentially dilutive securities

are excluded from the computation if their effect is anti-dilutive.

Options to purchase 337,633

305,308 common shares and warrants to purchase 2,384,340 common shares were outstanding at September 30, 2020.

These shares were

not included in the computation of diluted loss per share for the three or nine months ended September 30, 2020 because the effects

would have been anti-dilutive.

These options and warrants may dilute future earnings per share.

common shares and warrants to purchase 576,946 common shares were outstanding at March 31, 2021.

These shares were not included in the

computation of diluted loss per share for the three months ended March 31, 2021 because the effects would have been anti-dilutive.

options and warrants may dilute future earnings per share.

Reclassifications

Where necessary, the prior year’s

information has been reclassified to conform to the current period 2020 statement presentation.

On the Condensed Balance Sheets,

the operating lease right of use asset of $316,389 was reclassified from the property and equipment, net line item and the operating

lease liabilities, current of $349,160 was reclassified from accrued expenses to conform to the September 30, 2020 presentation.

The Company follows

ASC 280-10 "Disclosures about Segments of an Enterprise and Related Information."

During the nine months ended September

30, 2020 and 2019, the Company only operated in one segment;

Where necessary, the prior year’s information has been reclassified to conform to the current period’s

statement presentation.

On the Condensed Statements of Cash Flows, the amortization of operating lease right of use asset of $12,289

at March 31, 2020 was reclassified from accrued expenses to conform to the March 31, 2021 presentation.

The Company follows ASC 280-10

"Disclosures about Segments of an Enterprise and Related Information."

During the three months ended March 31, 2021 and 2020,

the Company only operated in one segment;

therefore, segment information has not been presented.

As reflected in the

accompanying unaudited condensed financial statements for the nine months ended September 30, 2020, the Company had a net loss

and net cash used in operating activities of $2,876,501 and $3,231,325, respectively.

Additionally, at September 30, 2020, the

Company had an accumulated deficit of $48,686,082.

As reflected in the accompanying

unaudited condensed financial statements for the three months ended March 31, 2021, the Company had a net loss and net cash used in operating

activities of $1,250,809 (which includes $191,390 of non-cash compensation expense) and $855,783, respectively.

Additionally, at March

31, 2021, the Company had an accumulated deficit of $52,273,415.

The Company has incurred significant losses from operations since inception,

and such losses are expected to continue.

In April and May 2019,

the Company received approximately $8.5 million of cash, net of offering costs and repayment of certain debt, under an equity offering.

This cash eliminated most of the Company debt and provided working capital for ongoing operations.

Also, in July 2020, the Company

sold shares of common stock in a public offering and received net proceeds of approximately $10.5 million after deducting underwriting

discounts and commissions and estimated offering expenses payable by the Company.

The Company intends to use the proceeds for working

capital and general corporate purposes.

The cash balance

at September 30, 2020 was $12,332,224 and our working capital was $13,914,212 at September 30, 2020.

With these financings,

management believes it has sufficient cash to fund its liabilities and operations for the next twelve months from the issue

date of this report.

In addition, we have warrants that are exercisable to purchase shares of the Company’s common

stock and, if all warrants are fully exercised, the Company would receive additional proceeds of $15,193,848.

In April 2019, the Company

issued shares of its common stock in a public offering that generated gross proceeds of $13,201,000, which was used to pay off the Company’s

debt and to fund business operations.

The Company issued shares in two additional public offerings generating gross proceeds of $11,499,675

in July 2020 and $7,500,000 in November 2020.

In addition, the company issued warrants as part of the April 2019 public offering which

has generated an additional $10,879,389 during fiscal 2020 through March 31, 2021.

At March 31, 2021, there are 576,946 warrants outstanding,

which if fully exercised would generate an additional $3,639,359.

At March 31, 2021, our cash balance

was $28,214,029 and our working capital was $29,507,478.

Management believes it has sufficient cash to fund its liabilities and operations

for at least the next twelve months from the issue date of this report.

Inventory consists of the following:

September 30,

Finished goods

2 unchanged sentences

Inventory allowance

Total inventory

Total net inventory

ACCRUED EXPENSES

The major components of accrued expenses

are summarized as follows:

September 30,

Accrued vacation

The major components of accrued expenses are summarized

Accrued salaries

Accrued interest

Accrued vacation

Other accrued expense

1 unchanged sentence

CONVERTIBLE NOTE PAYABLE - RELATED PARTY AND NOTE PAYABLE

On October 18, 2016,

the Company entered into a five-year employment agreement, effective as of January 1, 2016, with Mr.

Desmond Wheatley, the Chief

Executive Officer, President, and Chairman of the Company (the “Agreement”).

On October 18, 2016, the Company

entered into a five-year employment agreement, effective as of January 1, 2016, with Mr.

Desmond Wheatley, the Chief Executive Officer,

President, and Chairman of the Company (the “Agreement”).

Pursuant to the Agreement, Mr.

received an annual deferred salary of $50,000 which Mr.

Wheatley received an annual deferred

salary of $50,000 which Mr.

Wheatley deferred until such time as Mr.

Wheatley and the Board of Directors

agreed that payment of the deferred salary and/or cessation of the deferral was appropriate.

In August 2018, the Agreement was

amended to provide that his salary shall defer until the earliest to occur of the following:

(i) a permissible event specified

in Section 409A of the Code, (ii) December 31, 2020, (iii) a change of control as defined in the Agreement, or (iv) a sale of all

or substantially all of the assets of the Company.

All deferred amounts

were evidenced by an unsecured convertible promissory note payable by the Company to Mr.

Wheatley bearing simple interest at the

rate of 10% per annum, accruing until paid, convertible into shares of the Company’s common stock at $7.50 per share at any

time in whole or in part at Mr.

Wheatley and the Board of Directors agreed that payment of the deferred

salary and/or cessation of the deferral was appropriate.

In August 2018, the Agreement was amended to provide that his salary shall defer

until the earliest to occur of the following:

(i) a permissible event specified in Section 409A of the Code, (ii) December 31, 2020, (iii)

a change of control as defined in the Agreement, or (iv) a sale of all or substantially all of the assets of the Company.

All deferred amounts were

evidenced by an unsecured convertible promissory note payable by the Company to Mr.

Wheatley bearing simple interest at the rate of 10%

per annum, accruing until paid, convertible into shares of the Company’s common stock at $7.50 per share at any time in whole or

in part at Mr.

Wheatley’s discretion.

As the conversion price was equivalent to the fair value of the common

stock at various salary deferral dates prior to June 30, 2018, there was no beneficial conversion feature to this note through

Subsequent to June 30, 2018 through December 31, 2018 and based on the average daily closing price of our common stock,

the Company recorded $8,672 of debt discount for the beneficial conversion feature value which is being amortized to interest expense

over the term of the note.

For the three months ended March 31, 2019 and based on the average daily closing price of our common

stock, the Company recorded $3,967 of debt discount for the beneficial conversion feature value which is also being amortized to

interest expense over the term of the note.

There was no beneficial conversion value and therefore, no debt discount was recorded

for any other periods subsequent to March 31, 2019.

Additionally, on March 29, 2017 the Board of Directors granted Mr.

a $35,000 bonus for which Mr.

Wheatley agreed to defer such bonus under the same terms of his salary deferral.

On September 17, 2019,

the Board of Directors adopted a resolution to pay off the convertible promissory note issued to Mr.

Wheatley for his deferred

compensation in the near future (subject to a recommendation on timing from Mr.

Wheatley), and no additional salary will be deferred

after September 15, 2019.

As a result, this note was presented as a short-term liability as of December 31, 2019 with a balance

of $214,427, net of debt discount of $5,990, with accrued and unpaid interest of $48,884 which was included in accrued expenses

(See Note 4).

In February 2020, the remaining debt discount of $5,990 was recorded as interest expense, additional interest of

$3,442 was accrued, and the total note of $220,417 and interest of $52,326 was paid to Mr.

On May 1, 2020, the Company received a U.S.

Small Business Administration Paycheck

Protection Program loan of $339,262 which was offered through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

This loan was recorded as a note payable, is subject to a 1% annual interest rate and has a two year term.

This low interest loan

was intended to support short term cash flow in the event we were more heavily impacted by the COVID-19 virus.

We are reporting

this as a current liability because we plan to repay it in the quarter ending December 31, 2020.

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 September 30, 2020, the loan

has a short-term balance of $1,019.

As the conversion price was equivalent to the fair value of the common stock at various salary

deferral dates prior to June 30, 2018, there was no beneficial conversion feature to this note through such date.

Subsequent to June 30,

2018 through December 31, 2018 and based on the average daily closing price of our common stock, the Company recorded $8,672 of debt discount

for the beneficial conversion feature value which is being amortized to interest expense over the term of the note.

For the three months

ended March 31, 2019 and based on the average daily closing price of our common stock, the Company recorded $3,967 of debt discount for

the beneficial conversion feature value which is also being amortized to interest expense over the term of the note.

There was no beneficial

conversion value and therefore, no debt discount was recorded for any other periods subsequent to March 31, 2019.

Additionally, on March

29, 2017 the Board of Directors granted Mr.

Wheatley a $35,000 bonus for which Mr.

Wheatley agreed to defer such bonus under the same

terms of his salary deferral.

On September 17, 2019, the

Board of Directors adopted a resolution to pay off the convertible promissory note issued to Mr.

Wheatley for his deferred compensation

in the near future (subject to a recommendation on timing from Mr.

Wheatley), and no additional salary was deferred after September 15,

In February 2020, the remaining debt discount of $5,990 was recorded as interest expense, additional interest of $3,442 was accrued,

and the total note of $220,417 and interest of $52,326 was paid to Mr.

On May 1, 2020, the Company

received a U.S.

Small Business Administration Paycheck Protection Program loan of $339,262 which was offered through the Coronavirus Aid,

Relief, and Economic Security Act (CARES Act).

This loan was recorded as a note payable, is subject to a 1% annual interest rate and has

a two year term.

This low interest loan was intended to support short term cash flow in the event we were more heavily impacted by the

COVID-19 virus.

In July 2020, we were able to raise capital and no longer required the loan.

The full amount of the loan was repaid on

November 13, 2020 in addition to $1,847 of interest.

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.

The final payment was made on this loan in October 31, 2020.

COMMITMENTS AND CONTINGENCIES

Legal Matters:

From time to time,

we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

As of September

30, 2020, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results

of our operations.

In August 2016, the

Company entered into a sublease for its current corporate headquarters and manufacturing facility.

The sublease expired in August

2020 which is the same term of the master lease for which the Company is the subtenant.

Monthly lease payments ranged from $48,672

to $50,619 per month in the final year of the lease.

On March 31, 2020, the Company entered into a new 5-year lease agreement for our manufacturing facility which began September

2020 through August 2025.

Monthly lease payments range from $52,000 per month to $58,526 per month in the final year of the initial

term of the lease.

The lease includes two additional one-year options to renew at the Company’s option.

We calculated the

present value of the remaining lease payment stream using our effective borrowing rate of 10% and recorded a right-of-use asset

and operating lease liability each amounting to $2,605,032 at September 1, 2020.

From time to time, we may

be involved in litigation relating to claims arising out of our operations in the normal course of business.

As of March 31, 2021, there

were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

In August 2016, the Company

entered into a sublease for its current corporate headquarters and manufacturing facility.

The sublease expired in August 2020 which was

the same term of the master lease for which the Company was the subtenant.

In September 2020, the Company initiated a new five year master

lease agreement, with two optional one year renewals.

Monthly lease payments will range from $52,000 to $58,526 per month over the term

of the lease.

Other Commitments:

The Company enters

into various contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments.

Since inception, the Company entered into agreements to act as a reseller for certain vendors;

joint development contracts with

third parties;

referral agreements where the Company would pay a referral fee to the referrer for business generated;

agreements whereby sales agents would receive a fee equal to a percentage of revenues generated by the agent;

business development

agreements and strategic alliance agreements where both parties agree to cooperate and provide business opportunities to each other

and in some instances, provide for a right of first refusal with respect to certain projects of the other parties;

agreements with

vendors where the vendor may provide marketing, investor relations, public relations, technical consulting or subcontractor services,

vendor arrangements with non-binding minimum purchasing provisions, and financial advisory agreements where the financial advisor

would receive a fee and/or commission for raising capital for the Company.

All expenses and liabilities relating to such contracts

were recorded in accordance with generally accepted accounting principles during the periods.

Although such agreements increase

the risk of legal actions against the Company for potential non-compliance, there were no financial exposures that were not accounted

for in our financial statements.

Director Compensation

On September 17, 2019,

the Board, upon the recommendation of its Compensation Committee, granted two directors annual grants of 12,500 shares each, and

the lead director was issued an annual grant of 17,500 shares, which vest quarterly in four (4) equal installments.

The grant date

was determined to be September 17, 2019 as that was when a mutual understanding of the key terms and conditions of the grants was

On the grant date, these shares had a per share fair value of $5.50 based on the quoted trading price, or $233,750.

shares vested in 2019.

During the three and nine months ended September 30, 2020, 10,625 of these shares vested generating an expense

of $58,439 and 31,875 shares vested generating an expense of $170,325, respectively.

At September 30, 2020, there were no shares

remaining unvested in escrow.

On October 1, 2019,

the Board approved two grants of restricted stock of the Company to Mr.

Wheatley under the 2011 Stock Incentive Plan.

number of shares granted was determined based on an award of $150,000 divided by the per share quoted trading price on October

On the grant date, the shares had a per share fair value of $5.97 and 25,124 shares were granted.

In addition, on June

17, 2020, the Board approved two additional restricted stock grants to Mr.

The Company enters into various

contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments.

Since inception,

the Company entered into agreements to act as a reseller for certain vendors;

joint development contracts with third parties;

agreements where the Company would pay a referral fee to the referrer for business generated;

sales agent agreements whereby sales agents

would receive a fee equal to a percentage of revenues generated by the agent;

business development agreements and strategic alliance

agreements where both parties agree to cooperate and provide business opportunities to each other and in some instances, provide for

a right of first refusal with respect to certain projects of the other parties;

agreements with vendors where the vendor may provide

marketing, investor relations, public relations, technical consulting or subcontractor services, vendor arrangements with non-binding

minimum purchasing provisions, and financial advisory agreements where the financial advisor would receive a fee and/or commission for

raising capital for the Company.

All expenses and liabilities relating to such contracts were recorded in accordance with GAAP during

The Company evaluates new

leases at inception based on the criteria defined in Leases (Topic 842).

On September 1, 2020, the Company entered into a new five year

operating lease with payments ranging from $52,000 to $58,526.

The lease has two one-year options to extend the term of the lease.

this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal periods have been excluded

from the right-of-use (“ROU”) asset.

We calculated the present value of the lease payment stream using our effective borrowing rate of 10%

and recorded a ROU asset and operating lease liability each of $2,605,032 at September 1, 2020.

The ROU asset and the corresponding lease

liability are being equally amortized on a straight-line basis over the term of the lease which expires on August 31, 2025.

The tables below show the

operating ROU assets and liabilities as of December 31, 2020 and the balances as of March 31, 2021, including the changes during the periods.

Operating lease ROU asset as of December 31, 2020

Less amortization of operating lease ROU asset

Operating lease ROU asset as of March 31, 2021

As of March 31, 2021 and December

31, 2020, the current and non-current portions of the lease liability were recorded to the Balance Sheet as follows:

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Total lease liability

The future minimum rental

commitments for our operating leases reconciled to the lease liability as of March 31, 2021 is as follows:

Total undiscounted future minimum payments

Less imputed interest

Total lease liability

Director Annual Restricted Stock Grants

On October 20, 2020, the Company

granted each of our two non-employee directors annual restricted stock grants of 12,200 shares of our common stock and our lead independent

director was issued an annual restricted stock grant of 17,100 shares of common stock, which vest quarterly in four (4) equal installments.

On the grant date, these shares had a per share fair value of $14.95 based on the closing trading price of our common stock, or $620,425.

During the three months ended March 31, 2021, upon the death of one of our directors, 12,825 unvested shares of restricted stock were

forfeited and returned to the Company, and 6,100 shares of restricted stock relating to the other two directors vested, generating an

expense of $91,196.

At March 31, 2021, there were 12,200 unvested shares of restricted stock representing $182,388 of unrecognized restricted

stock grant expense which will be recognized through the quarter ending September 30, 2021.

On June 17, 2020, the Board

approved two restricted stock grants to Mr.

Wheatley under the 2011 Stock Incentive Plan.

number of shares granted was determined based on an award of $150,000 divided by the per share quoted trading price on June 17,

On the grant date, the shares had a per share fair value of $7.35 and 20,408 shares were granted.

12,562 shares vested in

During the three and nine months ended September 30, 2020, 4,448 shares vested generating an expense of $31,250 and 13,084

shares vested generating an expense of $87,500, respectively.

At September 30, 2020, 19,886 shares were held unvested in escrow

Wheatley representing $137,500 of unrecognized restricted stock grant expense which will be recognized through the quarter

ending March 31, 2023.

Stock Issued in Cash Sales

The Company filed a “shelf”

registration statement

on Form S-3 and an accompanying prospectus with the Securities and Exchange Commission on May 26, 2020.

On July 7, 2020, the Company

closed an underwritten public offering issuing 1,393,900 shares, with a public offering price of $8.25 per share, generating approximately

$10.5 million after deducting underwriting discounts and commissions and estimated

offering expenses payable by the Company.

The Company intends to use the aggregate net proceeds primarily for working capital

and general corporate purposes.

Other Registered Securities

On August 27, 2020,

the Company filed a registration statement on Form S-8 to register 630,000 shares issued or to be issued under the Company’s

2011 Stock Incentive Plan.

The total number of shares granted was determined

based on an award of $150,000 divided by the per share quoted trading price on June 17, 2020.

On the grant date, the shares had a per

share fair value of $7.35 and 20,408 shares were granted, half of which vest quarterly over four equal installments and half vest quarterly

over 12 equal installments.

During the three months ended March 31, 2021, 3,401 of shares from this grant vested and 1,047 shares from

an October 1, 2019 grant vested generating a total expense of $31,250.

At March 31, 2021, 10,990 of these shares are unvested representing

$75,000 of unrecognized restricted stock grant expense which will be recognized through the quarter ending March 31, 2023.

STOCK OPTIONS AND WARRANTS

Stock Options

During the three months

ended March 31, 2020, an option was granted to an employee to purchase up to 49,104 shares of the Company’s common stock.

These options will vest over 4 years and have an exercise price of $4.57 per share.

The Company estimated the fair value of these

options at $222,612 utilizing the Black-Scholes pricing model.

The assumptions used in the valuation of these options include volatility

of 198.91% based on historical volatility, expected dividends of 0.0%, a discount rate of 1.79% and expected term of 7.0 years

based on the simplified method.

During the three months

ended September 30, 2020, an option was granted to an employee to purchase up to 20,000 shares of the Company’s common stock.

These options will vest over 4 years and have an exercise price of $12.76 per share.

The Company estimated the fair value of these

options at $204,185 utilizing the Black-Scholes pricing model.

The assumptions used in the valuation of these options include volatility

of 96.2% based on historical volatility, expected dividends of 0.0%, a discount rate of 0.46% and expected term of 7.0 years based

on the simplified method.

During the three months

ended September 30, 2020, 3,000 stock options were exercised on a cashless basis for 2,199 shares of common stock at an exercise

During the three months ended

March 31, 2021, there were no stock options granted.

During the three months ended

March 31, 2021 and 2020, the Company recorded non-cash stock option based compensation expense of $68,944 and $27,068, respectively.

of March 31, 2021, there was $703,866 of unrecognized stock option-based compensation expense that will be recognized over the next 3.5

During the three months ended

March 31, 2021, 2,300 stock options were exercised on a cashless basis for 1,063 shares of common stock at a weighted average exercise

price of $13.97.

During the nine months

ended September 30, 2020 and 2019, the Company recorded non-cash stock option based compensation expense of $81,204 and $12,092,

respectively.

As of September 30, 2020, there was $534,157 of unrecognized stock option-based compensation expense that will be

recognized over the next four years.

The Company withheld shares to cover income and payroll taxes totaling $46,963, which was charged to additional paid

There were stock options

outstanding to purchase 305,308 shares of common stock at September 30, 2020.

During the nine months ended September 30, 2020,

3,000 stock options were exercised for 2,199 shares of common stock at an exercise price of $4.09, there were 500 options forfeited

and there were no options that expired.

During the three months ended September 30, 2020, 102,179 warrants to purchase shares

of the Company’s common stock were exercised generating $749,727 of proceeds and during the nine months ended September

30, 2020, 151,450 warrants to purchase shares of the Company’s common stock were exercised generating $1,066,913 At September

30, 2020, there were warrants outstanding to purchase up to 2,384,340 shares of the Company’s common stock at a weighted

outstanding to purchase 337,633 shares of common stock at a weighted average exercise price of $11.13 at March 31, 2021.

three months ended March 31, 2021, 1,875 stock options terminated.

During the three months ended

March 31, 2021, 388,638 warrants to purchase shares of the Company’s common stock were exercised generating $2,469,543.

At March 31, 2021, there were warrants outstanding to purchase up to 576,946 shares of the Company’s common stock at a weighted

average exercise price of $6.31.

1 unchanged sentence

periods, revenues can be categorized into the following:

For the Nine Months Ended

September 30,

For the Three Months Ended

Product sales

1 unchanged sentence

Professional services

Shipping and handling

Discounts and allowances

Total revenues

International revenues

were $84,081, or 2% of revenues, and $0 during the nine months ended September 30, 2020 and 2019, respectively.

At September 30, 2020

and December 31, 2019, deferred revenue was $112,577 and $93,609, respectively.

The September 30, 2020 balance consists of deferred

maintenance fees pertaining to services to be provided through the third quarter of 2026.

At December 31, 2018,

the Company accrued expected contract losses of $71,744 on an order for a customer that shipped in 2019.

As the units were delivered,

the loss accrual was proportionally reduced during the nine months ended September 30, 2019.

At March 31, 2021 and December 31, 2020, deferred

revenue was $97,541 and $107,489, respectively.

The March 31, 2021 balance consists of deferred maintenance fees pertaining to services

to be provided through the fourth quarter of 2026.

Revenues during the quarters ended March 31, 2021

and 2020 had a heavy concentration of sales to federal, state and local governments which represented 70% and 82% of revenues, respectively.

SUBSEQUENT EVENTS

Subsequent to

September 30, 2020, 203,624 warrants were exercised to purchase shares of the Company’s common stock generating proceeds

of $1,293,484.

On October 20, 2020,

upon recommendation of its Compensation Committee, the Board granted two directors annual stock grants of 12,200 each and the lead

director was issued an annual grant of 17,100, which vest quarterly in four (4) equal installments.

On the grant date, these shares

had a per share fair value of $14.95 based on the quoted trading price, or $620,425.

In October 2020, an

option was granted to an employee to purchase up to 20,000 shares of the Company’s common stock.

This option will vest over

4 years and has an exercise price of $17.44 per share.

The Company estimated the fair value of these options at $285,002 utilizing

the Black-Scholes pricing model.

The assumptions used in the valuation of these options include volatility of 99.9% based on historical

volatility, expected dividends of 0.0%, a discount rate of 0.55% and expected term of 7.0 years based on the simplified method.

Subsequent to March 31, 2021,

warrants to purchase 18,233 shares of common stock were exercised generating proceeds of $114,868.

On April 1, 2021, the Board

approved two restricted stock grants to Mr.

Wheatley under the 2011 Stock Incentive Plan.

The total number of shares granted was determined

based on an award of $112,500, divided by the per share closing trading price on April 1, 2021.

On the grant date, the shares had a per

share fair value of $40.10 and 2,806 shares were granted, half of which will vest quarterly over three equal installments and half of

which will vest quarterly over 11 equal installments.

On April 16, 2021, the Board

appointed Nancy Floyd to the Company’s board of directors.

Concurrent with her appointment, the Company, upon recommendation of

the Compensation Committee, granted Ms.

Floyd 5,592 shares of restricted stock which had a per share fair value of $33.34 on the date

of grant and will vest quarterly through September 30, 2021.

On April 16, 2021, the Board

appointed Mr.

Posawatz the Lead Independent Director.

With this appointment, the Company, upon recommendation of the Compensation Committee,

Posawatz 2,246 shares of restricted stock for this role which had a per share fair value of $33.34 on the date of grant and

will vest quarterly through September 30, 2021.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

This report contains

forward-looking statements that are based on current expectations, estimates, forecasts and projections about Beam Global (hereinafter,

“Beam,”

This report contains forward-looking

statements that are based on current expectations, estimates, forecasts and projections about Beam Global (hereinafter, “Beam,”

“Company,”

1 unchanged sentence

“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

These statements include, in particular, statements about our plans, strategies and prospects.

For example, when we use

words such as "projects,"

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,"

12 unchanged sentences

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:

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:

volatility or decline of the Company’s stock price or absence of stock price appreciation;

10 unchanged sentences

rapid and significant changes to costs of raw materials.

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.

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.

Beam develops, designs,

engineers, manufactures and sells renewably energized 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 (EV) charging infrastructure;

outdoor media advertising;

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™.

New features of the product include the elevation of the electronics to the underside of the solar

canopy making the unit flood-proof up to 9.5 feet.

This change also provides more space to park on the product’s base pad

and adds security for the electrical components.

In addition, we have two new categories of products in development.

31, 2019, our patent for the EV-Standard™

product was issued, and a fourth category of product, the UAV ARC™

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)

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 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, or compete with those who do, rather we sell products which enable it.

We believe our chief

differentiators for our electric vehicle charging infrastructure products are:

our ability to invent, design, engineer, and manufacture renewably energized 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;

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.

Our contract with

the City of New York was renewed in March 2020 to extend through April 2021 and our State of California contract will expire on

June 23, 2021 unless the State of California exercises its one-year renewal option through June 23, 2022.

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.

In October 2020, we entered into an agreement

with the City of San Diego which allows us to deploy a network of our EV ARC TM solar-powered EV charging terminals across

We are currently seeking a corporate sponsor who will receive global naming rights to the network and highly visible

corporate brand placement on the EV ARC TM units in the city for periods of five years at a time.

We intend to renew

these agreements each time they expire, creating a new recurring revenue source for Beam.

We believe that this model can then be

expanded to other cities.

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 and battery storage, 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 municipal customers re-deployed two of their EV

units to COVID-19 response facilities to charge their EVs and provide emergency power for medical equipment without

the fumes and noise of a power generator.

Our current list of

products includes:

EV ARC™

Electric Vehicle Autonomous Renewable Charger (patented).

Transformer (patented) EV ARC™

2020 Stowable Electric Vehicle Autonomous Renewable Charger (EV ARC™

EV ARC™

DC Fast Charging Electric Vehicle Autonomous Renewable Charger (EV ARC™

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, 2020 (sometimes referred to as the “2020 Form 10-K”) that we previously filed with the

Securities and Exchange Commission, including without limitation the “Risk Factors”

section in the 2020 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.

Beam develops, manufactures

and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, outdoor media advertising

and energy security and disaster preparedness.

Company has designed five product lines that incorporate the same underlying proprietary technology and value for producing a unique

alternative to grid-tied charging of electric vehicles, having a built-in renewable energy source in the form of attached solar panels

and/or light wind generator to produce power and battery storage to store the power.

These products are rapidly deployable and attractively

Our product lines include:

EV ARC™

Media Electric Vehicle Autonomous Renewable Charger with advertising screen and or branding/messaging.

Electric Vehicle Autonomous Renewable Charger –

a patented, rapidly deployed, infrastructure product that uses integrated

solar power and battery storage to provide a mounting asset and a source of power for factory installed electric vehicle charging stations

of any brand.

In 2019, we began deploying our upgraded version, the EV ARC™

2020, which provides all of the features of the original

EV ARC™

Autonomous Renewable Motorcycle Charger.

in addition to elevating the electronics to the underside of the solar array making the unit flood-proof up to nine feet

and making more space available on the engineered ballast and traction pad which gives the product stability.

Solar Tree®

Off-grid, renewably energized and rapidly deployed, patented 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 or larger vehicles.

EV ARC™

Autonomous Renewable Bicycle Charger.

ARC Mobility™

Transportation System.

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 medium or heavy duty electric vehicles.

Our current products

can be upgraded with the addition of the following features:

BeamTrak™

sun tracking technology (patented),

Data capture and management (IoT),

SunCharge™

solar powered EV charging,

technology energy storage,

E-Power emergency power panels,

LED lighting,

Media and branding screens, and

Security cameras, WiFi, sound, and emergency call boxes.

All of the above products can be equipped

with the EV charger (EVSE) of our customers choice and do not require a connection to the utility grid to operate.

With the exception

of the Solar Tree®

(which requires some onsite work for the installation) they can be deployed without permitting, construction,

electrical work or engineering.

They will not generate a utility bill and they will continue to operate during grid outages.

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

DC Fast Charging system for charging EVs.

- EV-Standard ™

patent issued on December 31, 2019 and still under development.

A lamp standard, EV charging and emergency power product which

uses an existing streetlamp’s foundation and a combination of solar, wind, grid connection and onboard energy storage to provide

curbside charging.

- UAV ARC™

- patent issued on November 24, 2020 and still under development.

An off-grid, renewably

energized and rapidly deployed product and network used to charge aerial drone (UAV) fleets.

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.

grid-tied installations which require general and electrical contractors, engineers, consultants, digging trenches, permitting, pouring

concrete, wiring, and ongoing utility bills, the EV ARC™

system can be deployed in minutes, not months, and is powered by renewable

energy so there is no utility bill.

We are agnostic as to the EV charging service equipment or provider 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, Enel X, Electrify America 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.

We believe our chief differentiators

for our electric vehicle charging infrastructure products are:

Our patented, renewably energized 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 first-to-market advantage with EV charging infrastructure products which are renewably energized, rapidly deployed and require no construction or electrical work on site.

our products’

capability to operate during grid outages and to provide a source of EV charging and emergency power rather than becoming inoperable during times of emergency or other grid interruptions;

our ability to continuously create new and patentable inventions which are marketable and a complex integration of our own proprietary technology and parts, and other commonly available engineered components, creating a further barrier to entry for our competition.

Overall Business Outlook

Our revenues increased from

$1,317,052 in the first quarter of 2020, to $1,372,392 for the same period in 2021.

Our revenues continue to diversify to a broad array

of customers and markets.

We have strengthened our sales force over the past year and increased marketing efforts, including engaging

a public relations firm and a rebranding, to help communicate and promote awareness to potential customers.

On January 27, 2021, President

Biden issued an executive order that called for “clean and zero-emission federal, state, local, and tribal government fleets.”

Biden also proposed $174 billion investment in the EV market and an additional 500,000 publicly available EV charging stations on U.S.

Beam Global views federal investment in EV infrastructure as an important potential source of future revenues particularly now

that the Company has been awarded a Federal General Services Administration (GSA) Multiple Award Schedule (MAS) contract that will make

the procurement process by federal agencies much easier and faster.

We are also expanding geographically across the U.S.

to add to our

significant presence in California.

We believe that our opportunities in corporate markets will increase as demand for workplace charging

We believe our products are uniquely positioned to benefit from this growth, as well as increased market share as a result

of the features our products add.

We continue to make progress

in our outdoor media advertising business in 2021, with the addition of a contracted industry expert to help identify a corporate sponsor

who will receive global naming rights to the network of EV ARC TM systems planned for the City of San Diego.

We have 2 new patents that

were issued by the United States Patent and Trademark Office at the end of 2019 and in 2020 for our EV Standard TM and UAV ARC™

which we expect will expand our product offerings with the same proprietary technology as our current products and allow us to expand

into new markets.

We had a gross loss of $149,120

in the quarter ended March 31, 2021, compared to a loss of $39,641 for the same period in the prior year.

We currently have a fixed overhead

structure and facility that will support our expected growth over the next several years.

Until our production increases, we have underutilized

capacity that adds a fixed cost burden to our margins.

Once we are able to increase our production volumes, we will improve our fixed

cost per unit, as well as benefit from improved labor efficiencies and utilization and cost improvements by negotiating volume purchase

We are also implementing lean manufacturing process improvements and making engineering changes to our product where we can

benefit from cost reductions.

Many of the components that we integrate into our products are manufactured by others.

This is consistent

with our strategy to take advantage of the investment by large and well-funded organizations in the improvement of various components

and sub-assemblies which we integrate into our final product.

Components such as battery cells and solar panels are expected to continue

to decrease in cost in the coming months and years.

We expect to see a significant increase in the demand for electric vehicle charging

infrastructure and as such we do not anticipate significant pricing pressure on our products.

The combination of this increase in demand

for electric vehicle charging infrastructure and therefore our revenues, and the cost cutting measures described above lead us to believe

that we will see significant improvement in our gross margins in the future.

Significant Accounting Policies and Estimates

Company’s significant accounting policies are described in Note 1 in the Company’s Annual Report on Form 10-K for the year

ended December 31, 2020.

There have been no material changes in these policies or their application.

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.

preparation of financial statements in conformity with GAAP 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

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.

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.

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

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

Beam follows the revenue standards of Financial Accounting Standards Board Update No.

“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;

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

Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into.

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

Revenues on a bill-and-hold

arrangement are recognized when control of the product is transferred to the customer, but physical possession of the product transfers

at a point in time in the future.

To determine this, the reason for the arrangement must be substantive, the product must be separately

identified and ready for physical transfer, and the product cannot be directed to another customer.

The Company has a policy

of recording sales incentives as a contra revenue.

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 September 30, 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

There were no significant changes in accounting principles that were adopted during the nine months ended September

Significant estimates

in the accompanying financial statements include the 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 lease liabilities and the

related right of use assets, valuation of share-based costs, and the valuation allowance on deferred tax assets.

Changes in Accounting Principles .

There were no significant changes in accounting principles that were adopted during the three months ended March 31, 2021.

Results of Operations

Comparison of Results of Operations

for the Three Months Ended September 30, 2020 and 2019

the three months ended September 30, 2020, revenues were $1,237,434, compared to $1,785,724 for the three months ended September

30, 2019, a 31% decrease, primarily due to delays in the receipt of orders compared to a strong quarter in the prior year.

in the three months ended September 30, 2020 included the delivery of the first of two of our latest generation of Solar Tree®

products to a customer in northern California which will provide charging for electric buses, electric heavy-duty vehicles, electric

agricultural equipment, public transportation and growing electric vehicle options in the construction industry.

We also deployed

the first 8 of 30 EV ARC TM units to Electrify America throughout Fresno County in California.

We also delivered several

additional units to Renewable Energy Laboratories and other customers.

This compares to revenues

for the three months ended September 30, 2019 which included the installation of two EV ARC™

HP DC Fast-Charging stations

at the Camp Roberts Rest Area on U.S.

California Highway 101.

They were the first solar-powered EV charging stations installed

for the public on a U.S.

highway in California rest areas controlled by the California Department of Transportation.

in revenue was partially related to the COVID-19 virus which caused some delays and cancellations of opportunities in our pipeline

as a result of customer funding issues, priority issues or business closures.

Our shipments will continue to fluctuate each quarter

due to the varying size of orders and timing of deliveries .

Gross Profit (Loss).

For the three months ended September 30, 2020, we had a gross loss of $188,732 compared to a gross profit of $340,836 for the

three months ended September 30, 2019.

The gross loss resulted from the decrease in revenue in the current quarter, which caused

an underabsorption of our fixed overhead costs and inefficient use of our labor resources.

We expect our margins to improve as

we increase our revenue levels, which will reduce our overhead costs per unit and improve our labor efficiency.

In addition, we

are working to negotiate better volume pricing and to engineer cost improvements into our processes.

Warranty costs increased by

$15,034 in the three months ended September 30, 2020 compared to the same period in the prior year due to the addition of a full-time

technical support person to support the units in the field and an increase in repairs.

Operating Expenses.

Total operating expenses were $906,962 for the three months ended September 30, 2020, compared to $963,487 for the same period

in 2019, a decrease of 6%.

The decrease in operating expense was primarily due to a $46,503 decrease in non-cash compensation

expense for stock option expense and vesting of director restricted shares due to Board stock grants in the prior year, a severance

payment of $82,500 to an employee in the prior year, a $33,990 reduction in travel due to the COVID-19 pandemic, a reduction in

R&D of $23,628 due to lower third party Engineering costs that are no longer required, partially offset by higher R&D

headcount and other reductions of $11,643.

This reduction was partially offset by an increase in sales and marketing expenditures

of $65,913 to support our sales growth and our marketing re-brand, and a $75,826 bonus accrual for meeting certain management

Other Income and

Interest expense was $920 for the three months ended September 30, 2020 compared to $7,182 for the same period in

2019, due to the repayment of debt in 2019 following the Company’s public offering.

Interest income decreased by $20,978

due to the high cash deposits last year following the public offering, prior to the payment of debt and cash usage.

net loss was $1,100,023 for the three months ended September 30, 2020, a $489,660 increase from a net loss of $610,363 for the

same period in 2019, primarily due to the reduction revenues and corresponding gross margin, partially offset by a decrease in

operating expenses.

Comparison of Results of Operations

for the Nine Months Ended September 30, 2020 and 2019

For the nine months ended September 30, 2020, revenues were $4,009,644, compared to $4,615,669 for the nine months ended September

30, 2019, a 13% decrease.

Revenues in the nine months ended September 30, 2020 included a wide variety of customers, including

several municipalities and state agencies in various states and in Canada, colleges, a large commercial business and two nonprofit

organizations.

We have also sold a variety of different products during this period, including our traditional EV ARC™, our

new EV ARC™

2020, a DC fast charging station for a California rest stop and the first two of three Solar Tree®

solar-powered

sustainable infrastructure products sold to charge large vehicles.

This compares to revenues

for the nine months ended September 30, 2019 where almost half of our revenue resulted from the delivery of units to one customer,

the City of New York.

We also sold two DC fast charging stations for California rest stops last year.

Our shipments will

continue to fluctuate each quarter due to the varying size of orders and timing of deliveries .

Gross Profit (Loss).

For the nine months ended September 30, 2020, we had a gross loss of $173,037 compared to gross profit of $349,279 for the

period ended September 30, 2019.

The gross profit in the period ended September 30, 2019 benefited from the reversal of $71,744

of expense for losses that were accrued at December 31, 2018.

The gross loss resulted from the decrease in revenue in the current

quarter, which caused an underabsorption of our fixed overhead costs and inefficient use of our labor resources.

We expect our

margins to improve as we increase our revenue levels, which will reduce our overhead costs per unit and improve our labor efficiency.

In addition, we are working to negotiate better volume pricing and to engineer cost improvements into our processes.

costs increased by $71,647 in the nine months ended September 30, 2020 compared to the same period in the prior year due to the

addition of a full-time technical support person to support the units in the field and an increase in repairs.

Comparison of Results of Operations for the

Three Months Ended March 31, 2021 and 2020

For the three

months ended March 31, 2021, revenues were $1,372,392, a 4% increase over $1,317,052 for the three months ended March 31, 2020.

the first quarter of 2021, we shipped units to municipalities, federal agencies, a university, a utility company, and to enterprise companies.

This included the sale of a unit to Jeep, a Stellantis brand, and one to their partner Electrify America, both for use in the Moab, UT

launch of their Jeep 4xe Charging Network to provide EV charging at Jeep Badge of Honor off-road trailheads throughout the U.S.

By comparison,

revenues in the first quarter of 2020 were heavily concentrated on state and local municipalities in several cities across the U.S.

2020, we experienced some delays in orders as a result of the COVID-19 virus, which are starting to move forward.

backlog on March 31, 2021 was $1.2 million.

three months ended March 31, 2021, we had a gross loss of $149,120 compared to a gross loss of $39,641 for the three months ended March

Despite the increase in revenues during the first quarter of 2021 compared to 2020, our gross loss increased primarily due to

an increase in costs for the new EV ARC™

2020 unit that was launched at the end of 2019 and rolled out in 2020, compared to the

original EV ARC™.

Our experience with the original EV ARC™

demonstrated that while the initial costs of the unit start out

high, the operations and engineering teams improve the production process and reduce material costs which will reduce the costs over time.

We anticipate that this process will be repeated with the EV ARC™

We are also being negatively impacted by increases in steel

prices and shipping costs due to high demand.

We expect our margins to improve as we increase our production levels, which will reduce

our overhead costs per unit and improve our labor efficiency.

Operating Expenses.

Total operating expenses were $2,697,418 for the nine months ended September 30, 2020 compared to $2,226,667 for the same period

in 2019, a 21% increase.

The increase in operating expense was primarily attributable to an investment in our sales and marketing

resources to build Company and product awareness and increase revenues.

Operating expenses increased by $333,628 for sales personnel

and sales and marketing consultants, $109,437 for non-cash compensation expense for stock option expense and vesting of director

restricted shares, $75,826 bonus accrual for meeting certain management goals, $41,357 for medical insurance which was not provided

in the prior year, and $55,253 of other increases.

These increases in expenses were partially offset by a severance payment of

$82,500 to an employee in the prior year that was not repeated in the current year and $62,250 for travel reductions due to the

COVID-19 pandemic.

Other Income and

Interest expense was $11,357 for the nine months ended September 30, 2020 compared to $709,148 for the same period

in 2019, due to the repayment of debt in 2019 following the Company’s public offering.

Interest income decreased by $35,488

due to the high cash deposits last year following the public offering, prior to the payment of debt and cash usage.

had a net loss of $2,876,501 for the nine months ended September 30, 2020, compared to a net loss of $2,543,868 for the same period

The increase in net loss was primarily due to the reduction in revenue and corresponding gross margin and increased operating

expenses, partially offset by a reduction of interest expense.

operating expenses were $1,102,675 for the three months ended March 31, 2021, compared to $902,000 for the same period in 2020, a 22%

The increase was primarily due to $85,875 for non-cash compensation expense for stock option expense and vesting of director

restricted shares, $51,605 for increased sales headcount to support revenue growth, $29,241 for R&D increased headcount to support

development projects, $14,610 for legal expenses and $19,344 of other net increases.

Other Income and Expense.

Interest income was $986 in the quarter ended March 31, 2021, compared to $8,892 in the quarter ended March 31, 2020, due to a significantly

lower average gross yield on our investments, despite higher cash balances.

Interest expense was $9,772 in the quarter ended March 31,

2020, and there was no interest expense in the quarter ended March 31, 2021.

was $1,250,809 for the three months ended March 31, 2021, a $308,288 increase from a net loss of $942,521 for the same period in 2020,

primarily due to the increase in gross loss and increased operating expenses.

Liquidity and Capital Resources

At September 30, 2020,

we had cash of $12,332,224.

We have historically met our cash needs through a combination of private and public offerings of our

securities and loans.

At March 31, 2021, we had

cash of $28,214,029, compared to cash of $26,702,804 at December 31, 2020.

We have historically met our cash needs through a combination

of equity and debt financings.

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

September 30,

Our cash flows from operating,

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

Cash provided by (used in):

Net cash used in operating activities

$ (3,231,325 )

$ (3,444,282 )

Net cash used in investing activities

1 unchanged sentence

Operating Activities

Our operating activities

resulted in cash used in operations of $3,231,325 for the nine months ended September 30, 2020, compared to cash used in operations

of $3,444,282 for the same period in 2019.

Net loss of $2,876,501 for the nine months ended September 30, 2020 was decreased by

$345,899 for non-cash expense items that included depreciation and amortization of $30,434, common stock issued for services for

director compensation of $257,825, non-cash compensation expense related to stock options of $81,204, $5,990 for amortization of

debt discount associated with the related party note, and an increase in net loss of $29,554 for amortization of operating lease

right of use asset.

Cash used in operations for the period included a $545,619 increase in accounts receivable due to higher revenues

in Q3 2020 compared to Q4 2019, a $239,863 increase in prepaid expenses and other current assets for inventory prepayments and

insurance deposits, payment of a convertible note originally issued in lieu of salary for a related party of $220,417, and a decrease

in accounts payable of $114,228.

Cash provided by operations included an increase of $177,640 for accrued expenses, primarily for

payroll and related expenses, $143,224 for a decrease in inventory purchases, $74,703 for an increase for sales tax payable, $18,968

for increased deferred revenue for maintenance contracts, and $4,869 for deposits.

Cash used in investing

activities included $153,097 to purchase equipment, primarily for a demo EV ARC™

unit and a forklift truck and $69,551 for

patent related costs during the nine months ended September 30, 2020.

In the nine months ended September 30, 2019, $41,554 was

used to fund patent related costs while $9,977 was used to purchase manufacturing equipment.

During the nine months

ended September 30, 2020, cash generated by our financing activities included $11,499,675 in proceeds from the issuance of common

stock pursuant to a public offering, offset by funding of deferred equity offering costs of $960,833, $1,066,912 in proceeds received

from the exercise of warrants and we borrowed $339,262 through the Small Business Administration Paycheck Protection Program made

available through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and we paid $8,275 toward the repayment of

an auto loan.

During the nine months ended September 30, 2019, cash generated by our financing activities included $13,201,000

in proceeds from issuance of common stock pursuant to a public offering, offset by funding of deferred equity offering costs of

$1,175,852, net repayments of our line of credit facility of $960,000, repayment of debt of $2,520,959 and fractional share payments

While the Company has

been attempting to grow market awareness and focusing on the generation of sales, the Company has historically had negative gross

profits and is getting closer to earning a gross profit on its sales of 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.

On July 7, 2020, the

Company issued 1,393,900 shares of common stock in an underwritten public offering at $8.25 per share, generating approximately

$10,500,000 after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

Company intends to use the aggregate net proceeds primarily for working capital and general corporate purposes.

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.

Net loss of $1,250,809 for

the three months ended March 31, 2021 decreased by $221,363 for non-cash expense items that included depreciation and amortization, common

stock issued for services for director compensation, non-cash compensation expense related to grant of stock options, and amortization

of operating lease right of use asset.

Cash used in operations for the period included a $454,634 increase in inventory purchases, a $51,647

reduction of sales tax payable and a $9,948 decrease in deferred revenue.

Cash provided by operations included a $202,759 decrease in

accounts receivable due to lower revenues in the first quarter of 2021, compared to the fourth quarter of 2020, a $180,256 decrease in

prepaid expenses and other current assets as the December 31, 2020 balance included a receivable for payment due for warrant exercises,

a $167,147 increase in accounts payable primarily due to increased inventory purchases, and a $139,730 increase in accrued expenses for

accrued payroll for Q1 2021 that was paid in Q2 2021.

Net loss of $942,521 for the

three months ended March 31, 2020 decreased by $108,152 for non-cash expense items that included depreciation and amortization, common

stock issued for services for director compensation, non-cash compensation expense related to stock options, amortization of debt discount

to interest expense associated with the related party note and amortization of operating lease right of use asset.

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, $79,456 for accrued expenses, primarily for

payroll, $22,218 for an increase for sales tax payable and $5,447 for an increase in deferred revenue.

Cash used in investing activities

included $33,445 to purchase manufacturing equipment and $22,129 for patent related costs during the three months ended March 31, 2021.

In the three months ended March 31, 2020, $125,142 was used to purchase manufacturing equipment and $18,371 was used to fund patent related

During the three months ended

March 31, 2021, cash generated by our financing activities included $2,469,544 in proceeds received from the exercise of warrants and

we used cash of $46,962 to cover payroll taxes related to cashless stock option exercises.

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

to make the final repayment of an auto loan.

Working capital has increased

from $28,063,320 at December 31, 2020 to $29,507,478 at March 31, 2021, primarily due to cash proceeds from warrant exercises, partially

offset by operating expenses.

While the Company continues

to grow market awareness and focusing on the generation of sales, the Company has not generally earned a net profit on its sales of products

during recent years.

However, we believe that our net profit 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 ™

and Solar Tree®

products in the future.

The Company may be

required to raise capital from the issuance of its securities or 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.

On July 7, 2020, the Company

issued 1,393,900 shares of common stock in an underwritten public offering at $8.25 per share, generating approximately $10,500,000 after

deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

On November 27, 2020, the Company

issued 250,000 shares of common stock in an underwritten public offering at $30.00 per share, generating approximately $6,900,000 after

deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

The Company intends to use the

aggregate net proceeds primarily for working capital and general corporate purposes.

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.

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

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.

Quantitative and Qualitative Disclosures About Market

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.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements