Beam Global 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 that incorporate our proprietary technology 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 and battery storage to provide a mounting asset and a source of power for factory installed electric vehicle charging stations of any brand. The electronics are elevated to the underside of the solar array making the unit flood-proof up to nine and a half feet and allowing adequate space to park a vehicle 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 150kW DC fast charge to one or more electric vehicles or larger vehicles. - EV ARC™ DCFC – DC Fast Charging system for charging EVs comprised of four interconnected EV ARC™ systems and a 50kW DC fast charger. - EV-Standard TM – patent issued on December 31, 2019 and currently 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. 24 In addition, with the acquisition of All Cell Technologies, LLC (“All Cell”) in March 2022, we now offer Beam AllCell™ energy storage technology with a highly flexible lithium-ion and lithium iron phosphate 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, medical and 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 plans to incorporate this battery technology in our new product designs that are under development. 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 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, renewable energy 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 proprietary and patented energy 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 proprietary technology and parts, and other commonly available engineered components, which create a further barrier to entry for our competition. Our revenues increased from $9.0 million in 2021 to $22.0 million in 2022 we believe as a result of the ongoing maturation of the electric vehicle ecosystem, increased urgency for charging infrastructure as more EVs are adopted, an increased understanding of the challenges facing the installation and operation of utility grid-tied chargers and due to an increased investment in sales and marketing resources over the past two years. During the year ended December 31, 2022, product sales were generated from a wide variety of markets, including state and local government agencies, federal customers, commercial businesses, colleges and utilities. In 2022, a 52-unit EV ARC™ purchase was made under our contract with the State of California to provide sustainable EV charging and emergency power for 12 state government agencies in California. In 2022, we also received an order for $5.3 million from New York City to deliver EV ARCs TM throughout the city. As a result of our acquisition of All Cell in March 2022, we generated revenues of $5.2 million from sales of our solid, state-of-the-art energy storage product. In late 2020, we entered into a Multiple Award Schedule Contract with the General Services Administration (GSA) that helps streamline purchases from Federal agencies and state and local governments. In addition, the General Services Administration (GSA) awarded Beam Global a federal blanket purchase agreement (BPA) which provides federal agencies a streamlined procurement process for procuring EV ARC™ systems. We have also invested in our federal business channel by adding a federal lobbyist, a federal business development resource and a government relations employee. These resources have helped to identify opportunities on the federal side and are increasing awareness of our product and outreach with federal agencies. They are also able to support language in legislature to increase opportunities for federal contracts or federal grants and other funding. This resulted in several large federal orders in 2022, including a $29.4 million order through Techflow, Inc. for the US Army (IMCOM), a $11.7 million order for the General Services Administration for the Department of Veterans Affairs, and several other orders for the Department of Homeland Security, US Navy Facilities, US Marine Corps, and others. 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 30% Federal Solar Investment Tax Credit and Rule 179 accelerated depreciation which provide a strong financial incentive for many of our target commercial customers. We expect the electric vehicle market to continue to experience significant growth over the next decade as evidenced by 61 new electric vehicles that were launched in 2022 which will require additional EV charging infrastructure. We believe our products are uniquely positioned to benefit from this growth. 25 We continued to made progress in finding a sponsor for our outdoor media advertising business during 2022, working 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 our network of EV ARC™ systems. Superlative is compensated only 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 state-of-the-art storage batteries installed on our EV charging systems 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. We have begun development on our newest patented products - 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. Several contributing factors resulted in reporting a gross loss in both 2022 and 2021. We currently have a fixed overhead structure and facility that is underutilized but will support our expected growth over the next several years. As our revenues continue to increase, and we increase our production volumes, we will continue to increase our fixed overhead absorption which reduces our fixed overhead cost allocation 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 which we believe will result in further 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. We experienced cost increases on many of our components during 2021 and 2022, most notably our steel cost, which were brought on by supply chain issues resulting from plant closures and staffing shortages during the Covid-19 pandemic. In late 2022, we started to see these increases flatten out and some are starting to decrease, and we expect to see a reduction in the cost of our bill of materials. Batteries are the highest cost contributor to our bill of materials, but with the March 2022 purchase of AllCell Technologies, LLC, a lithium-ion battery manufacturer, we expect those costs to be significantly reduced. We have design changes to our EV ARC TM planned for 2023 that will reduce component costs and streamline the manufacturing process which will reduce the cost. We continually review the components and sub-assemblies which we manufacture or assemble in-house for which we intend to seek outsourced contracted manufacturing expertise. 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. Critical Accounting Policies Please refer to Note 1 in the financial statements for further information on the Company’s critical accounting policies which are summarized as follows: 26 Business Combination. The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. Contingent consideration liability is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liability are recognized in operating expenses in the statement of operations. Contingent consideration liability related to the acquisition consists of commercial milestone payments and are valued using a Monte Carlo simulation. The fair value of commercial milestone payments reflects management’s estimates of discount rates and probability of achieving certain milestones. Changes in the fair value of contingent consideration subsequent to the acquisition date are recognized in operating expense in our consolidated statements of operations. Inventory. Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method of accounting. Inventory costs primarily relate to purchased raw materials and components used in the manufacturing of our products, work in process for products being manufactured, and finished goods. Included in these costs are direct labor and certain manufacturing overhead costs associated with normal capacity in the manufacturing process. The Company regularly reviews inventory components and quantities on hand and performs annual physical inventory counts. Impairment of Long-lived Assets. The Company accounts for long-lived assets in accordance with the provisions of Accounting Standards Codification (“ASC”) 360-10-35-15 “Impairment or Disposal of Long-Lived Assets,” which 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 Recognition. Beam follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation. Revenues are primarily derived from the direct sales of manufactured products. Revenues may also consist of maintenance fees for the maintenance of previously sold products and revenues from sales of professional services. 27 Revenues from inventoried product are recognized upon the final delivery of such product to the customer or when legal transfer of ownership takes place. Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into. The customer is typically obligated to make payment for such products within a 30-45 day period after delivery. Revenues from maintenance fees for services provided by the Company are recognized equally over the period of the maintenance term. Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into. The customer is typically obligated to make payment for the service in advance of the maintenance period. Extended maintenance or warranty services, where the customer has the option to purchase this extension as a separate purchase option, are considered a separate performance obligation. If the Company does not control the extended services, in terms of having the responsibility for fulfillment of the obligation or the option to choose who will perform the services, the Company is acting as an agent and would report the revenues on a net basis. Revenues from professional services for relocations, charger replacements or out of warranty repairs are recognized as services are performed. Revenue values are based upon fixed fee arrangements or hourly fee-based arrangements with agreed to hourly rates of service categories in line with expertise requirements. These services are billed to a customer as such services are provided and the customer will be obligated to make payments for such services typically within a 30-45 day period. The Company has a policy of recording sales incentives as a contra revenue. 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 EV charging infrastructure 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. The Company accrues for product warranties when the loss is probable and can be reasonably estimated. 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, which are included in inventory prior to a sale, as cost of revenues. The Company further includes shipping and handling fees billed to customers as revenues and shipping and handling costs as cost of revenues. Share-Based Compensation. We measure and recognize compensation expense for all share-based payments based on estimated fair value. Share-based compensation expense is recognized based on the fair value on a straight-line basis over the requisite service periods of the awards. The fair value of our restricted stock and performance stock units is based on the market price of our common stock on the date of grant. The determination of the amount of share-based compensation expense for our performance stock units requires the use of certain estimates and assumptions that affect the amount of share-based compensation expense recognized in our consolidated statements of operations. At each reported period, we reassess the probability of the achievement of corporate performance goals to estimate the amount of shares to be released. Any increase or decrease in share-based compensation expense resulting from an adjustment in the estimated shares to be released is treated as a cumulative catch-up in the period of adjustment. If any of the assumptions or estimates used change significantly, share-based compensation expense may differ materially from what we have recorded in the current period. 28 Results of Operations Comparison of Results of Operations for Fiscal Years Ended December 31, 2022 and 2021 Revenues. For the year ended December 31, 2022, our revenues increased 144% to $22.0 million compared to $9.0 million for 2021. Revenues to federal customers increased by $4.5 million. In addition, we were awarded a number of contracts from federal agencies in late September and early October of 2022 totaling more than $46.0 million, which we intend to deliver over the next 12 months. Some of these units shipped in the quarter ended December 31, 2022, with the balance scheduled for delivery in 2023. We recorded energy storage revenues of $5.2 million as a result of our acquisition of All Cell which closed on March 4, 2022. Our revenue to state agencies increased by $0.8 million compared to the prior year, and we continue to have a strong concentration of revenues to the State of California and state of New York, which represent 29% and 18% of total revenues, respectively. Revenues derived from non-government entities increased to 37% of our total revenues in 2022 representing a partial return to pre-COVID levels, compared to 13% of our total revenues in 2021. We continue to invest 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. Gross Loss. For the year ended December 31, 2022, our gross loss was $1.7 million, or 8% of sales, compared to $1.0 million, or 11% of sales in the prior year. As a percentage of sales, the margin improved by three percentage points, primarily due to the increase in production levels in the current quarter compared to 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 of $0.8 million for non-cash intangible amortization and 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 and transportation prices which have increased our delivery costs. Toward the end of the year, we started to see some reduction in gas prices and our products’ components. We expect our cost per unit to improve as we expect to see material costs start to decrease and as our volumes increase. We also acquired a battery manufacturer, All Cell 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 2023 and beyond, we expect our fixed overhead absorption to continue to improve. Operating Expenses. Total operating expenses were $18.0 million for the year ended December 31, 2022, compared to $5.6 million in the prior year, primarily due to a $5.5 million change in fair value of contingent consideration related to the All Cell acquisition. Excluding such cost, the operating expenses for the year ended December 31, 2022 increased by $6.9 million compared to the prior year, driven by $3.4 million in expenses attributable to the newly acquired All Cell business, $2.3 million increase in employee non-cash compensation, including a $1.6 million increase in employee non-cash stock-based compensation, $0.6 million increase for legal and accounting services, primarily attributable to the acquisition, and $0.5 million increase for sales and marketing costs to generate increased sales levels. As a percentage of revenue, operating expenses excluding the change in fair value of contingent consideration decreased by 6 percentage points. 29 Liquidity and Capital Resources At December 31, 2022, we had cash of $1.7 million, compared to cash of $21.9 million at December 31, 2021. We have historically met our cash needs through a combination of debt and equity financings. 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: December 31, 2,022 2021 Cash provided by (used in): Net cash used in operating activities $ (18,114 ) $ (6,408 ) Net cash used in investing activities $ (1,812 ) $ (582 ) Net cash (used in) provided by financing activities $ (342 ) $ 2,236 For the year ended December 31, 2022, our cash used in operating activities was $18.1 million compared to $6.4 million for the year ended December 31, 2021. Net loss of $19.7 million for the year ended December 31, 2022 was increased by $9.1 million of non-cash expense items that included a change in fair value of contingent consideration of $5.5 million, depreciation and amortization of $1.1 million, common stock issued for services for director compensation of $0.4 million and employee stock-based compensation expense of $2.0 million. Further, cash used in operations included a $0.6 million increase in accounts receivable, $0.8 million increase in prepaid expenses and other current assets, primarily related to the prepayment of battery cells, and $8.2 million increase in inventory (i) to secure battery cells required for battery manufacturing in case of potential future supply chain challenges and (ii) due to higher work in process inventory of nearly complete EV ARC TM units as well as finished EV ARC TM units awaiting final delivery at December 31, 2022. The increases in prepayments and inventory are not expected to continue in future quarters, but rather should remain flat or reduce to lower levels over the next 12 months. Cash provided by operations included a $1.3 million increase in accounts payable primarily for inventory and $0.9 million increase in accrued expenses. Our operating activities resulted in cash used in operations of $6.4 million for the year ended December 31, 2021. Net loss of $6.6 million for the year ended December 31, 2021 was increased by $1.3 million of non-cash expense items that included depreciation and amortization of $0.1 million, common stock issued for services for director compensation of $0.7 million and non-cash compensation expense related to the grant of stock options of $0.4 million primarily due to an increase in the stock price in the year ended December 31, 2021. Further, cash used in operations included an increase in accounts receivable of $2.0 million due to a strong fourth quarter revenue in 2021 compared to 2020 and $0.5 million increase in inventory due to inventory purchases to support increased sales activity. Cash provided by operations included a decrease in prepaid expenses and other current assets of $0.1 million, an increase in accounts payable of $0.8 million due to inventory purchases, $0.3 million increase in accrued expenses primarily due to compensation related accruals at the end of the year and $0.1 million for an increase in deferred revenue. Cash used in investing activities in the year ended December 31, 2022 included $0.8 million cash payment for working capital payment related to the acquisition of All Cell, $0.9 million to purchase equipment and $0.1 million in patent costs. The year ended December 31, 2021 included $0.1 million to fund patent related costs and $0.5 million to purchase equipment, primarily for production and transportation. In 2022, cash generated by our financing activities included $0.5 million from the exercise of warrants, $0.5 million used to cover payroll taxes related to stock-based compensation and $0.3 million payment of equity offering costs related to the committed equity line agreement entered into with B. Riley. In 2021, cash generated by our financing activities included $2.9 million from the exercise of warrants, offset by $0.6 million used to cover payroll taxes for cashless stock option exercises. 30 Current assets decreased to $19.9 million at December 31, 2022 from $27.6 million at December 31, 2021, primarily due to a $20.3 million decrease in cash, offset by a $10.6 million increase in inventory and $1.4 million increase in prepaid expenses and other current assets. Current liabilities increased to $13.2 million at December 31, 2022 from $3.0 million at December 31, 2021, primarily due to the recording of $6.8 million current portion of contingent consideration, a $1.3 million increase in accounts payable for purchases of inventory to support the increased sales forecast, $1.0 million increase in current deferred revenue and a $1.0 million increase in accrued expenses. As a result, our working capital decreased to $6.8 million at December 31, 2022 compared to $24.6 million at December 31, 2021. The Company has been focused on marketing and sales efforts to increase our revenues. Revenues increased by 45% from 2020 to 2021 and 144% from 2021 to 2022, demonstrating that this investment has been successful. While the Company has still not earned a gross profit on its sale of products, gross profit has improved even during an inflationary period, and 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 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 over the past year should start to decrease beginning in 2023. This should result in increasing gross profits on the EV ARC ™ and Solar Tree® products in the future. The Company may be required to raise capital until it achieves positive cash flow from its business, which is predicated on increasing sales volumes and the continuation of production cost reduction measures. In September 2022, the Company entered into a Common Stock Purchase Agreement with B. Riley under which the Company has the right to sell up to $30.0 million shares of its common stock over a period of 24 months (see note 10 for further information.) In addition, we could pursue other equity or debt financings. Furthermore, the Company has warrants to purchase 440,204 shares of our Common Stock outstanding at December 31, 2022, which could potentially generate an additional $2.8 million of proceeds over the next 1.3 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 the assets of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. We believe this strategic acquisition will increase and diversify our 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. All Cell is eligible to earn an additional number of shares of Beam Common Stock if Beam’s new energy storage business meets certain revenue milestones (the “Earnout Consideration”). The Earnout Consideration is: (i) two times the amount of energy storage products revenue and contracted backlog that is greater than $7.5 million for 2022, and (ii) two times the amount of energy storage products 2023 revenue only which exceeds the greater of either $13.5 million or 135% of the 2022 cumulative revenue, capped at $20.0 million. Revenues exceeding $20.0 million in 2023 will not be eligible for the Earnout Consideration. 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. 31 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 continued acceleration of average 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. Capitalization On April 18, 2019, the Company closed an underwritten public offering with Maxim Group LLC (“Maxim”), as representative for the several underwriters (the “Underwriters”), pursuant to which the Company agreed to issue and sell to the Underwriters an aggregate of 2,000,000 units with each unit consisting of one (1) share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and a warrant to purchase one (1) share of Common Stock at an exercise price equal to $6.30 per share (the “Warrants”). In addition, the Company granted the Underwriters a 45-day option to purchase up to 300,000 additional shares of Common Stock, or Warrants, or any combination thereof, at the public offering price to cover over-allotments, if any. The Common Stock and the Warrants were offered and sold to the public (the “Offering”) pursuant to the Company’s registration statement on Form S-1 (File Nos. 333-226040), filed by the Company with the Securities and Exchange Commission (the “Commission”) on July 2, 2018, as amended, which became effective on April 15, 2019, and a related registration statement filed pursuant to Rule 462 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The offering price to the public was $6.00 per unit and the Underwriters purchased 2,000,000 units. In addition, the Underwriters purchased 300,000 Warrants for $3,000 upon the exercise of the Underwriters’ over-allotment option. The Company received gross proceeds of approximately $12,003,000, before deducting underwriting discounts and commissions and estimated offering expenses. Concurrent with the offering, the Company effected a one-for-fifty reverse split of its issued and outstanding common stock (the “Reverse Stock Split”) and reduced the number of authorized shares of common stock from 490,000,000 to 9,800,000. No fractional shares were issued as a result of the Reverse Stock Split. Fractional shares were rounded up or down to the nearest whole share, after aggregating all fractional shares held by a stockholder, resulting in the issuance of 187 round-up shares. Any stockholder holding less than 24 shares of Common Stock on a pre-reverse stock basis were paid in cash for such fractional share of Common Stock, which totaled $171. On May 15, 2019, the Company closed the Underwriters Second Over-Allotment partial exercise option to purchase 200,000 shares of Common Stock at $5.99 per share (the "Second Over-Allotment Exercise") for additional gross proceeds of $1.198 million, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company, pursuant to and in compliance with the terms and conditions of the previously announced April 16, 2019 Underwriting Agreement and Offering. 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. On November 27, 2020, the Company closed a second underwritten public offering issuing 250,000 shares, with a public offering price of $30.00 per share, generating approximately $6.9 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. In September 2022, the Company entered into a Common Stock Purchase Agreement with B. Riley Principal Capital II, LLC (“B. Riley”) under which the Company has the right, but not the obligation, to sell up to $30.0 million shares or a maximum of 2.0 million shares of its common stock over a period of 24 months in its sole discretion. 32 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.