Beam Global 10-Q

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 27 During the period covered by this filing, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal controls over financial reporting. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, we do not yet have sufficient internal controls over financial reporting and procedures to ensure that all the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis. We identified the following material weakness which existed as of December 31, 2021: · The Company currently does not have sufficient controls in place to ensure that all inventory is appropriately tracked and recorded on a timely basis, given the lack of an automated tracking system and the manual nature of its current processes and controls surrounding inventory. · The Company performs manual processes during the year to track and control inventory transactions, apply labor and overheads to inventory and to perform a wall-to-wall physical inventory at the end of the year to confirm the ending inventory balance and valuation. While these processes provide good results in determining inventory and cost of sales transactions, as we grow, it has become a very time-consuming process and could impact our ability to submit timely reporting. A manufacturing system will also provide better management tools to analyze and plan production. This will avoid over-purchasing or shortages of inventory. We plan to implement a manufacturing and purchasing system in early fiscal 2023. In addition, we identified the following material weakness at March 31, 2022: · With regard to a business combination that was completed during the quarter ended March 31, 2022, we identified that the controls over the review of the business combination were not designed effectively such that a material error in the calculation of the purchase price was not detected in a timely manner. Since these controls have a pervasive effect across the inventory transaction cycle, management has determined that these circumstances constitute a material weakness, based on the criteria established in the “Internal Integrated Framework” issued by COSO in 2013 and as a result, we did not maintain effective internal control over financial reporting as of September 30, 2022. Changes in Internal Control Over Financial Reporting During the three months ended September 30, 2022, we continued to implement stronger processes related to ordering, counting, warehousing, valuing and transacting our inventory. We are evaluating enterprise resource planning (ERP) systems to replace our existing QuickBooks system. In addition, we evaluated the internal controls of All Cell and rolled out processes and procedures to this new acquisition which was acquired during the nine months ended September 30, 2022. During the quarters ended June 30 and September 30, 2022, the Company implemented a review control over third-party valuation reports, which include formalized review procedures and enhanced communications with third-party experts. We believe that these controls will address the material weakness identified in the quarter ended March 31, 2022. 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of this report, there are no ongoing or pending legal claims or proceedings of which management is aware.