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 us, 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 within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). 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 the 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, technological obsolescence or other reasons; (h) litigation with or legal claims and allegations by outside parties; (i) insufficient revenues to cover operating costs, resulting in persistent losses; (j) rapid and significant changes to costs of raw materials from government tariffs or other market factors; (k) increasing spread of the COVID-19 pandemic and its impact on the Company’s business as well as worldwide financial markets; 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, 2021 (sometimes referred to as the “2021 Form 10-K”) that we previously filed with the Securities and Exchange Commission, including without limitation the “Risk Factors” section in the 2021 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. 17 Overview Beam develops, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, energy storage, energy security, disaster preparedness and outdoor media advertising. The Company has designed five product lines for the electrification of transportation, that incorporate the same underlying proprietary technology and value for producing a unique alternative to grid-tied charging, 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, battery storage and electronics and computing, to provide a mounting asset and a source of power for factory installed electric vehicle charging stations of any brand. The electronics and energy storage are elevated to the underside of the tracking solar array, making the unit flood-proof up to nine and a half feet and allowing adequate parking space 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 fast charging to one or more electric vehicles or larger vehicles. - EV ARC™ DCFC – DC Fast Charging system for charging EVs. - EV-Standard TM – 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. All Beam Global products are capable of operating completely independent of the utility grid but can also connect to the grid where it is advantageous to do so. In addition, with the acquisition of All Cell Technologies, LLC, we now offer Beam AllCell™ energy storage technology with a highly flexible lithium-ion battery platform architecture. The battery design uses a proprietary phase change material which provides a low-cost thermal management solution and a unique safety mechanism to prevent propagation of thermal runaway. They are ideally suited for applications where energy density, safety and specialized enclosures require high power in small spaces. Drones, submersibles, recreational products and a host of micro mobility products benefit from this technology. Beam is already using AllCell™ energy storage products in EV ARC™ products for EV charging and plan to incorporate this battery technology in our new product designs that are under development. We believe that we are living in an increasingly electrified and untethered era, where electricity is replacing other forms of fuel and energy and doing so, increasingly without being connected to the grid through the use of batteries and other forms of energy storage. We also believe that there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that our products fulfill these requirements. 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™ systems, equipped with our proprietary battery technologies, can be deployed in minutes, not months, and are 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. Because they generate and store all their own electricity, our products replace the infrastructure required to support EV chargers, but not the chargers themselves. We do not sell EV charging, rather we sell products which enable it. 18 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 proprietary and patented energy storage solutions; · 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 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 175% from $1.4 million in the first quarter of 2021 to $3.8 million for the first quarter of 2022. Primarily due to our investment in sales and marketing resources over the past two years which has created increased demand for our product, as well as an increase of $.4 million of sales for our battery storage business in March following the acquisition of All Cell Technologies, LLC. During the first quarter of 2022, revenues from federal customers and from enterprise customers showed strong growth compared to the same period in the prior year. We invested in our federal business channel with the addition of a federal lobbyist, a federal business development resource and a government relations employee who are helping to identify opportunities on the federal side, including increased awareness of our product and outreach with federal agencies. In addition, as companies are moving back to work from working from home during the past two years due to the pandemic, there is an increase in demand for workplace charging and corporate fleets. We continued to have material revenues from state and local agencies which comprised 69% and 70% of our sales in Q1 of 2022 and 2021, respectively. In addition, there is increased support for funding EV charging infrastructure on the state and federal level, as well as a number of federal grants available in addition to the Federal Solar Investment Tax Credit and Rule 179 accelerated depreciation which provide a strong financial incentive for many of our target customers. Net Zero Emission Initiatives continues to expand at the federal, state and local levels and with private enterprise. We expect the electric vehicle market to continue to experience significant growth over the next decade as supported by an expected 61 new electric vehicles launching in 2022 which will require additional EV charging infrastructure. We believe our products are uniquely positioned to benefit from this growth. The Company’s acquisition of All Cell Technologies, LLC, a battery storage company, will provide new customer opportunities for Beam Global’s products and vise versa. We believe Beam’s gross margin will improve by utilizing the Beam All Cell battery in its EV ARCs™ as it did for 10 years in the past, but now at lower cost. Beam’s All Cell batteries are ideally suited for applications where energy density, safety and bespoke enclosures require high power in small spaces. Drones, submersibles, recreational products and a host of micro mobility and electric vehicle products are already benefiting from AllCell’s highly differentiated products. With the continued growth of untethered electrification, we believe there is opportunity for increased demand in these markets and others. We continue to work with The Superlative Group, an industry leading consultant engaged in the selling of corporate sponsorships and have identified several potential corporate sponsors for a global naming rights agreement to network(s) of EV ARC™ units. Superlative is compensated when they are successful in securing a sponsor for our Driving on Sunshine network. This business model can be replicated in other cities throughout the country. Our energy security business is connected with the deployment of our EV charging infrastructure products and serves as an additional benefit to the value proposition of our charging products which, along with their integrated emergency power panels, can continue to operate, charge EVs, and deliver emergency power during utility grid failures. Our proprietary and state-of-the-art storage batteries installed on our products and powering EV chargers are immune to grid failures and provide another benefit for customers such as municipalities, counties, states, the federal government, hospitals, fire departments, large private enterprises with substantial facilities, and vehicle fleet operators or anyone who needs a reliable source of electricity to fuel electric vehicles. 19 We have begun development on our newest patented products - our EV Standard™ and UAV ARC™, which we expect will expand our product offerings leveraging the same proprietary technology as our current products and allow us to expand into new markets. Gross margins improved in the quarter ended March 31, 2022, compared to the same period in 2021. The increase in revenues of EV ARC TM systems from 18 in the first quarter of 2021 to 45 in the first quarter of 2022 resulted in favorable fixed overhead absorption and improved labor efficiencies gained by the higher volume. This was partially offset by ongoing inflation and supply chain driven cost increases on many of our components, including steel, in addition to increased delivery charges due to fuel price increases. We believe these cost increases are largely a temporary increase brought on by supply chain issues resulting from plant closures and staffing shortages due to the Covid-19 virus as well as other transitory inflationary pressures. As the supply chain issues are resolved over time and costs begin to come back down in the coming months and years, we expect to see a reduction in the cost of our bill of materials, which when combined with the cost reductions we anticipate through use of our in-house battery manufacturing, should contribute to a material reduction in our product costs. We are implementing lean manufacturing process improvements and making engineering changes to our product where we expect to 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. Batteries are the highest cost contributor to our bill of materials, but with the March 2022 purchase of All Cell Technologies, LLC, a lithium-ion battery manufacturer, we expect those costs to be significantly reduced. We are in the process of identifying certain components and sub-assemblies which we manufacture or assemble in-house for which we intend to seek outsourced contracted manufacturing. We believe that outsourcing certain components and sub-assemblies will further reduce our costs, increase our gross margins, and significantly increase the potential output from our factory. 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 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 near future. 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, 2021. 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. 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 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, 2022. Results of Operations Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021 Revenues. For the quarter ended March 31, 2022, our revenues increased 175% to $3.8 million compared to $1.4 million for the same period in 2021. Revenues to customers in California represented 48% of the total, which continues to be a strong market for EV ARC TM systems. Most of these customers were state agencies or municipalities. Revenues to federal customers and corporate enterprises also increased during the quarter compared to the prior year. We recorded revenues in March 2022 of $0.4 million for energy storage as a result of our acquisition of All Cell Technologies which closed on March 4, 2022. We are currently engaged in a contract renewal process with the State of California’s Department of General Services. In addition, the General Services Administration (GSA) Beam was awarded a federal blanket purchase agreement (BPA) which will provide federal agencies a streamlined procurement process for procuring EV ARCs. During fiscal 2021, we invested in sales and marketing employees, resources and programs to raise awareness of the benefits and value of our products, which is reflected in the strong year over year sales growth in the quarter. The receipt of orders may continue to be uneven due to the timing of customer approvals or budget cycles, however we believe that as EV adoption increases in concert with increased availability of infrastructure funding, our business will be less impacted by specific variations in order timing. 20 Gross Loss. For the quarter ended March 31, 2022, our gross loss was $0.3 million, or 8% of sales, compared to $0.1 million, or 11% of sales in the same quarter of the prior year. As a percentage of sales, the margin improved by 3 percentage points, primarily due to the increase in production levels in the current quarter compared to the first quarter of 2021, which resulted in favorable fixed overhead absorption. In addition, our labor efficiency improved during the quarter as a result of a steady flow of units through the factory. This was partially offset by an increase in material costs for steel, batteries and other components, due to the Covid-19 pandemic and other inflationary pressures. Shipping costs have increased globally as well as gas prices which have increased our delivery costs. We expect our cost per unit to continue to decrease as we expect to see material costs return to normalcy post pandemic. We also acquired a lithium-ion battery manufacturer, All Cell Technologies, LLC in March 2022, which should significantly reduce the cost of the batteries in our units. In addition, as we expect the Company to grow in 2022 and beyond, we expect our fixed overhead absorption to continue to improve. Operating Expenses. Total operating expenses were $2.0 million for the first quarter of 2022, compared to $1.1 million for the same period in the prior year, a 79% increase. The increase was primarily due to $0.3 million for increased sales and marketing expense to support revenue growth, $0.2 million for expenses related to the newly acquired All Cell Technologies, $0.2 million increase for legal and accounting services, partially attributable to the acquisition, and $0.2 million of other net expenses. Liquidity and Capital Resources At March 31, 2022, we had cash of $19.2 million, compared to cash of $21.9 million at December 31, 2021. We have historically met our cash needs through a combination of proceeds received from private and public offerings of our securities and loans. Our cash requirements are generally for operating activities. Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the table below (in thousands): March 31, 2022 2021 Cash provided by (used in): Net cash used in operating activities $ (1,907 ) $ (856 ) Net cash used in investing activities $ (954 ) $ (56 ) Net cash provided by financing activities $ 88 $ 2,423 21 For the three months ended March 31, 2022, our cash used in operating activities was $1.9 million compared to $0.9 million for the three months ended March 31, 2021. Net loss of $2.3 million for the quarter ended March 31, 2022 was increased by $0.4 million of non-cash expense items that included depreciation and amortization of $0.2 million, common stock issued for services for director compensation of $0.1 million and non-cash compensation expense related to the grant of stock options of $.01 million. Further, cash used in operations included an increase in prepaid expenses and other current assets by $1.5 million, primarily related to the purchase of cells and $0.6 million increase in inventory based on the sales forecast. Cash provided by operations included a $1.2 million decrease in accounts receivable due to the collection of a couple slow pay accounts from 2021, $0.5 million decrease in accounts payable, $0.4 million increase in accrued expenses and $0.1 million increase in deferred revenue. Net loss of $1.2 million for the three months ended March 31, 2021 decreased by $0.2 million 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 $0.5 million increase in inventory purchases and a $0.1 million reduction of sales tax payable. Cash provided by operations included a $0.2 million decrease in accounts receivable due to lower revenues in the first quarter of 2021, compared to the fourth quarter of 2020, a $0.2 million decrease in prepaid expenses and other current assets as the December 31, 2020 balance included a receivable for payment due for warrant exercises, a $0.2 million increase in accounts payable primarily due to increased inventory purchases, and a $0.1 million increase in accrued expenses for accrued payroll for Q1 2021 that was paid in Q2 2021. Cash used in investing activities in the three months ended March 31, 2022 included $0.8 million cash payment for working capital payment related to the acquisition of All Cell Technologies, LLC and $0.1 million to purchase equipment. The three months ended March 31, 2021 included $0.1 million to fund patent related costs and to purchase equipment. In the three months ended March 31, 2022, cash generated by our financing activities included $0.1 million from the exercise of warrants, compared to $2.4 million for the exercise of warrants for the same period in the prior year. Current assets increased to $28.0 million at March 31, 2022 from $27.6 million at December 31, 2021. Current liabilities increased to $6.1 million at March 31, 2022 from $3.0 million at December 31, 2021, primarily due to the recording of $0.9 million for contingent consideration, current based on the terms of the acquisition of All Cell Technologies, LLC, and a $1.3 million increase in deferred revenue for customer deposits received from customers. As a result, our working capital decreased to $21.8 million at March 31, 2022 compared to $24.6 million at December 31, 2021. The Company has been focused on marketing and sales efforts over the past two years to support an increase in revenues. We saw a 45% increase in revenues in 2021 compared to 2020, and the first quarter of 2022 was 175% higher than the first quarter of 2021 which shows continued improvement on revenues. While the Company has still not earned a gross profit on its sale of products, as revenues increase, we expect to see our fixed overhead costs spread over more units, which will reduce the cost per unit. Management has made several design changes and process improvements in our manufacturing operations in 2021 and Q1 2022 which has helped to increase labor efficiency and reduce costs. At the same time, supply chain issues related to the COVID-19 virus have caused an increase in certain of our material costs, most notably in steel purchases. However, we believe that we will continue to improve our gross profit as our revenues grow. Management believes that with anticipated increased production volumes, efficiencies will continue to improve, and the fixed overhead cost per unit will decrease. In addition, our suppliers believe that costs that have increased this past year should start to come back down in the later part of 2022. This should result in increasing gross profits on the EV ARC ™ and Solar Tree® products in the future. 22 The Company may be required to raise capital from the private or public 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. The Company has 505,714 warrants remaining at March 31, 2022, which could potentially generate an additional $3.2 million of proceeds over the next 2 years, depending on the market value of our stock and the warrant holders’ ability to exercise them. The proceeds from these offerings are expected to provide working capital to fund business operations and the development of new products. Management cannot currently predict when or if it will achieve positive cash flow. On March 4, 2022, the Company completed an acquisition of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. This strategic acquisition is expected to increase and diversify our Company’s revenue, gross profitability, manufacturing capabilities, intellectual portfolio and customer base. The Company purchased substantially all of the assets and business of All Cell for 1,055,000 shares of Beam Common Stock (“Closing Consideration”) (on the closing date, based on the closing price of the Beam Common Stock of $13.61, such shares had a value of approximately $14.4 million) plus an additional $0.8 million in cash for the net working capital of primarily inventory held by All Cell at closing. In addition to the cash paid for the working capital of $0.8 million, the Purchase Agreement requires a capital investment of not less than $1.5 million of equipment to be used for the business. The maximum aggregate number of shares of Common Stock that the Company will issue to All Cell for the Closing Consideration and Earnout Consideration will not exceed 1.8 million shares. 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 volume 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.