Beam Global 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Beam Global (hereinafter, “Beam,” “Company,” “us,” “we” or “our”), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as "projects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "should," "would," "could," "will," “opportunity," "potential" or "may," and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important factors that could prevent the Company from achieving its stated goals include, but are not limited to, the following: (a) volatility or decline of the Company’s stock price or absence of stock price appreciation; (b) fluctuation in quarterly results; (c) failure of the Company to earn revenues or profits; (d) inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans; (e) unavailability of capital or financing to prospective customers of the Company to enable them to purchase products and services from the Company; (f) failure to commercialize the Company’s technology or to make sales; (g) reductions in demand for the Company’s products and services, whether because of competition, general industry conditions, loss of tax incentives for solar power, technological obsolescence, or other reasons; (h) rapid and significant changes in markets; (i) litigation with or legal claims and allegations by outside parties; (j) insufficient revenues to cover operating costs, resulting in persistent losses; (k) potential dilution of the ownership of existing shareholders in the Company due to the issuance of new securities by the Company in the future; and (l) rapid and significant changes to costs of raw materials. 21 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. Overview Beam is a cleantech innovation company based in San Diego, California that develops, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, outdoor media advertising and energy security and disaster preparedness. The Company has designed five product lines that incorporate the same underlying proprietary technology 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 designed. Our product lines include: · EV ARC™ 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™ 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® DCFC – 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™ DCFC – DC Fast Charging system for charging EVs. · EV-Standard ™ – patent issued on December 31, 2019 and still under development. A Lamp Standard replacement 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, street lighting and emergency power. · 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. 22 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. Unlike 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, BTC Power 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 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; and · our ability to continuously create new and patentable inventions which are marketable and integrate our own proprietary technology and parts with other available engineered components, creating a further barrier to entry for our competition. Overall Business Outlook Our revenues increased from $4,009,644 in the first nine months of 2020 to $5,514,102 for the same period in 2021. Of our revenues in the first nine months of 2021, 71% were to state and local governments, primarily due to the delivery of 30 units of a 52 unit order from the State of California. We have also experienced growth from federal customers through our Federal General Services Administration (GSA) Multiple Award Schedule (MAS) contract which represented 14% of revenues in the first nine months of 2021 and enterprise customers represented 11% of revenues for the same period. We have strengthened our sales force over the past year and increased marketing efforts, including engaging a public relations firm and a rebranding, to communicate and increase awareness of our products 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.” Also, the Senate passed a bill on August 10, 2021 which Congress passed on November 5, 2021 for a $1.2 trillion infrastructure package that includes $7.5 billion for building a nationwide network of plug-in electric vehicle chargers. 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 have hired a government relations person and engaged a lobbying firm in Washington DC to support this opportunity for growth. We are also increasing our sales 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 and public charging increases. We believe our products are uniquely positioned to benefit from this growth, as well as increased market share as a result of our ability to rapidly deploy resilient and low total cost EV charging infrastructure without the complexities of construction, electrical work or permitting. We continue to make progress in our outdoor media advertising business in 2021, where the efforts of our contracted industry expert are identifying and vetting potential corporate sponsors to receive global naming rights to the network of EV ARC™ systems planned for the City of San Diego and other major US cities. 23 We have two 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 ™ 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 have also been issued a new patent for our transformable EV ARC™ in China. We had a gross loss of $631,020 in the nine months ended September 30, 2021, compared to a gross loss of $173,037 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 discounts. 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. In the short-term, we are experiencing increases in steel pricing and transportation cost. We are working with our suppliers to get the best pricing we can and to ensure adequate supply until such time as production supply improves and pricing is expected to go back to normal pricing. Significant Accounting Policies and Estimates The 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 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 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 September 30, 2021. Results of Operations Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020 Revenues. For the three months ended September 30, 2021, revenues were $2,020,612, a 63% increase over $1,237,434 for the three months ended September 30, 2020. During the third quarter of 2021, we had a heavy concentration of revenues from California as we deployed an additional 23 of the 52 units ordered by the State of California through the state-wide Department of General Services (DGS) contract. These units are being deployed at various State agencies, including Cal Fire, Cal OES and Caltrans. We also delivered our first order on our state-wide Florida Sheriff’s Association contract. We received new orders of $5.4 million during the quarter which resulted in a strong backlog on September 30, 2021 of $7.1 million. 24 Gross Loss. For the three months ended September 30, 2021, we had a gross loss of $208,023 compared to a gross loss of $188,732 for the three months ended September 30, 2020. Despite the increase in revenues during the third 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™. Based on our experience with the production of our original EV ARC™, we believe our production costs per unit for the new EV ARC TM 2020 will reduce over time as our operations and engineering teams improve the production process. We are also being negatively impacted by increases in steel and other components due to high demand. We saw a significant increase on many of our steel component orders during the quarter which is beginning to be reflected in our cost of revenues and will continue to increase as more orders are received. We expect that these higher material costs may continue for several more quarters until global production levels increase. We made some changes to our shipping practices in Q3 2021 to minimize the use of third party logistics companies due to significant pricing increases. This resulted in deployment cost savings compared to recent quarters. This was partially offset by decreased revenue for shipping and handling during the current quarter as the DGS contract is exempt from paying for shipping and handling. Operating Expenses. Total operating expenses were $1,481,306 for the three months ended September 30, 2021, compared to $906,962 for the same period in 2020, a 63% increase. The increase was primarily due to $202,463 for non-cash compensation expense for stock option expense and vesting of director restricted shares, $243,614 for increased sales and marketing expense to support revenue growth, $31,997 for increased costs related to our 2021 annual shareholder meeting and $96,269 of other net increases. Other Income and Expense. Other income and expense were $698 of income in the quarter ended September 30, 2021, compared to $159 of expense the quarter ended September 30, 2020. Net Loss. Our net loss was $1,688,631 for the three months ended September 30, 2021, a $592,777 increase from a net loss of $1,100,023 for the same period in 2020, primarily due to the increase in gross loss and increased operating expenses. Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and 2020 Revenues. For the nine months ended September 30, 2021, revenues were $5,514,102, a 38% increase over $4,009,644 for the nine months ended September 30, 2020, primarily due to the delivery of 30 of the 52 units ordered by the State of California. Sales from Federal agencies also grew in the first nine months of 2021 compared to the same period in the prior year. In addition, we continue to see more multiple unit orders compared to prior quarters as evidenced by a 52 system order from the State of California and several others. During 2020, we experienced some delays in customers placing orders as a result of the COVID-19 pandemic, which are now moving forward in 2021. Our backlog on September 30, 2021 was $7.1 million. Gross Loss. For the nine months ended September 30, 2021, we had a gross loss of $631,020 compared to a gross loss of $173,037 for the nine months ended September 30, 2020. Despite the increase in revenues during the first nine months of 2021 compared to 2020, our gross loss increased primarily due to increased 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™. Based on our experience with the production of our original EV ARC™, we believe our production costs per unit for the new EV ARC 2020 will reduce over time as our operations and engineering teams improve the production process. We are also being negatively impacted by increases in steel prices and shipping costs due to high demand. Steel costs have increased significantly in the past two quarters, and we expect this to continue for the next several quarters until global production improves. Our shipping costs using third party logistics companies also increased in the first nine months of 2021 compared to the prior year. However, we made some changes to our shipping practices in Q3 2021 to minimize the use of third party logistics companies, which resulted in significant savings over the prior quarter. Operating Expenses. Total operating expenses were $3,952,991 for the nine months ended September 30, 2021, compared to $2,697,418 for the same period in 2020, a 47% increase. The increase was primarily due to $475,559 for non-cash compensation expense for stock option expense and vesting of director restricted shares, $394,177 for increased sales and marketing expense to support revenue growth, $78,310 for research and development increased headcount to support development projects, $71,934 for increased costs related to the 2021 annual shareholder meeting, $57,190 for increased directors and officers insurance premiums, $33,334 for increased director cash compensation, $39,790 for increased accounting fees, $21,562 for recruiting fees and $83,717 of other net increases. 25 Other Income and Expense. Interest income was $3,658 in the nine months ended September 30, 2021, compared to $10,280 for the same period in 2020, due to a significantly lower average gross yield on our investments. Interest expense was $11,357 in the nine months ended September 30, 2020, compared to a nominal $50 in the nine months ended September 30, 2021. Net Loss. Our net loss was $4,581,228 for the nine months ended September 30, 2021, a $1,704,727 increase from a net loss of $2,876,501 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, 2021, we had cash of $23,078,452, 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 below: September 30, 2021 2020 Cash (used in) provided by: Net cash used in operating activities $ (5,160,604 ) $ (3,231,325 ) Net cash used in investing activities $ (533,999 ) $ (222,648 ) Net cash provided by financing activities $ 2,070,251 $ 11,936,741 Operating Activities Net loss of $4,581,228 for the nine months ended September 30, 2021 decreased by $899,123 for non-cash expense items that included depreciation and amortization, common stock issued for services for director compensation, non-cash compensation expense related to the grant of stock options, and amortization of operating lease right of use asset. Cash used in operations for the period included a $1,011,971 increase in inventory based on forecasted requirements, a $689,353 increase in accounts receivable due to some slow payments and an $18,691 decrease in sales tax payable. Cash provided by operations included an $89,663 increase in prepaid expenses and other current assets due to insurance prepayments, a $62,549 increase in accounts payable for inventory purchases, a $52,107 increase in deferred revenue due to an increase in the sale of maintenance plans and a $37,198 increase in accrued expenses. 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, common stock issued for services for director compensation, non-cash compensation expense related to the grant of stock options, amortization of debt discount associated with the related party note, and 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. 26 Cash used in investing activities included $473,318 to purchase manufacturing equipment, including two trucks for product delivery and $60,681 for patent related costs during the nine months ended September 30, 2021. In the nine months ended September 30, 2020, $153,097 was used to purchase manufacturing equipment and $69,551 was used to fund patent related costs. During the nine months ended September 30, 2021, cash generated by our financing activities included $2,684,519 in proceeds received from the exercise of warrants and we used cash of $614,269 to cover payroll taxes related to cashless stock option exercises. 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 from the exercise of warrants, 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. Working capital has decreased from $28,133,031 at December 31, 2020 to $26,125,088 at September 30, 2021, primarily due to operating cash usage, partially offset by cash proceeds from warrant exercises. While the Company continues to focus on sales and increased market awareness of its products, 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 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 from these offerings 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. 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. 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.