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 and Section 21E of the Securities Exchange Act of 1934, as amended. 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) 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; (f) litigation with or legal claims and allegations by outside parties; (g) insufficient revenues to cover operating costs, resulting in persistent losses; (h) rapid and significant changes to costs of raw materials from government tariffs or other market factors; (i) the preceding and other factors discussed in Part I, Item 1A, “Risk Factors,” and other reports we may file with the Securities and Exchange Commission from time to time; and (j) the factors set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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, 2022 (sometimes referred to as the “2022 Form 10-K”) that we previously filed with the Securities and Exchange Commission, including without limitation the “Risk Factors” section in the 2022 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 Global develops, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, energy storage, energy security, disaster preparedness and outdoor media. The Company has 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 and 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 sun-tracking 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 – Patented off-grid, renewably energized and rapidly deployed, 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™ – 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 currently under development. An off-grid, renewably energized and rapidly deployed product and network used to charge aerial drone (UAV) fleets. 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/or 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. 18 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 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 proprietary technology and parts, and other commonly available engineered components, which create a further barrier to entry for our competition. Overall Business Outlook Our revenues for the first three months of 2023 were $13.0 million, a 245% increase over $3.8 million for the same quarter in 2022, primarily derived from delivery of a significant backlog of orders received during the latter part of 2022. We have invested in sales and marketing resources over the past three years which has created increased demand for our EV ARC™ renewable chargers. Additionally, we had an increase of $1.8 million in sales from our battery storage business as a result of our acquisition of All Cell in March 2022. The Company believes there continues to be a high level of support for funding EV charging infrastructure on the federal level, including a number of federal grants available under the Inflation Reduction Act in 2022, in addition to the Federal Solar Investment Tax Credit and accelerated depreciation as allowed under Section 179 of IRS code which provide a strong financial incentive for many of our target customers. Given these available resources, we have invested in a federal lobbyist, a federal business development resource and a government relations employee, who have helped to identify opportunities on the federal side and have increased awareness of our product and outreach with federal agencies. In addition, the General Services Administration (GSA) awarded Beam Global a federal blanket purchase agreement which provides federal agencies a streamlined procurement process for procuring EV ARC™ systems. As a direct result, Beam Global was awarded a number of federal government orders in September through November 2022 that have or will be delivered in 2023. In the quarter ended March 31, 2023, we recorded revenues of $10.6 million for federal customers, compared to $0.8 million for the same period in 2022. Ongoing efforts to expand revenues to state agencies have also been successful. In June 2022, we were awarded a new three-year statewide contract with the State of California which can be used by state, local and municipal government entities throughout the U.S., not just California, and provides previously negotiated pricing to make the procurement process easier. In addition, in early October 2022, we were awarded a $5.3 million contract from the Department of Citywide Administrative Services to deploy units throughout New York City. In addition, as companies require employees to return back to the workplace rather than working remotely from home as was the case during the pandemic, we are seeing an increase in orders for workplace charging and corporate fleets for enterprise customers which we expect to continue. We expect the electric vehicle market to continue to experience significant growth over the next decade which will require additional EV charging infrastructure. We believe our products are positioned to benefit significantly from this growth. We believe the Company’s acquisition of the assets of All Cell, a battery technology company, will increase our new customer opportunities. As a result of the acquisition of All Cell, we believe Beam’s gross margin will continue to improve by utilizing the Beam All-Cell TM battery in its EV ARCs™, because we can reduce costs by retaining gross profits previously paid to battery vendors. We now also have the ability to value engineer bespoke battery solutions for our products. Beam All-Cell TM 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 our Beam All-Cell TM highly differentiated products. With the continued growth of untethered electrification, we believe there is opportunity for increased demand in these markets and others. 19 We continued to make progress in finding a sponsor for our outdoor media advertising business during 2022 and the beginning of 2023, working with The Superlative Group (“Superlative”), an industry leading consultant engaged in selling corporate sponsorships and they 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, if successful, 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 and value proposition for 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 are in 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. Our gross profit improved as a percentage of sales reporting a positive gross margin in Q1 2023, compared to 8.1% gross loss in the first quarter of 2022. Additionally, our cost of goods sold (COGS) for the first quarter of 2023 included $0.2 million of non-cash intellectual property amortization from the acquisition of All Cell in 2022. Excluding this non-cash expense results in a further improved gross profit of 1.8% for the quarter. We increased the number of EV ARC deliveries from 45 in Q1 2022 to 152 in Q1 2023 which resulted in favorable fixed overhead absorption and improved labor efficiencies gained by the higher volume. Our gross profit improvements were achieved in spite of 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 began to see some improvements in pricing on new supply chain orders placed in Q1 2023 which we expect to start to realize benefit from in Q2 2023 and forward. We also 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 All Cell’s assets, we expect those costs to be significantly reduced. 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. We continue to identify components and sub-assemblies that may be more cost effective to outsource, which may 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 improvement in our gross margins over the next year. 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, 2022. 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, valuation of contingent consideration liability, 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, 2023. 20 Results of Operations Comparison of Results of Operations for the Three Months Ended March 31, 2023 and 2022 Revenues. For the first quarter ended March 31, 2023, our revenues increased 245% to $13.0 million compared to $3.8 million for the first quarter of 2022. Revenues to federal customers increased by $9.8 million in Q1 2023, resulting from a number of large awards from federal agencies in late September and early October of 2022 totaling more than $46.0 million. Some of these units shipped in the quarter ended December 31, 2022, with the balance scheduled for delivery by the end of 2023. We continue to have a strong concentration of revenues from the State of California which represents 60% of total revenues. Revenues derived from non-government, commercial entities increased by 55% from Q1 2022 to Q1 2023 representing a partial return to pre-COVID levels. We recorded energy storage revenues of $1.8 million as a result of our acquisition of All Cell which closed on March 4, 2022. 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 Profit. For the quarter ended March 31, 2023, we recorded a marginal positive gross profit at .04% of revenues, compared to a gross loss of $0.3 million, or 8.1% of sales in the prior year. As a percentage of sales, the margin improved by 8.1%, primarily due to the increase in production levels in the current quarter compared to the prior year, 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. Our gross profits, while positive, were negatively impacted by $0.2 million for non-cash intangible amortization and further by an increase in material costs for steel, batteries and other components compared to the first quarter of 2022, due to the COVID-19 pandemic and other inflationary pressures. We began to see some improvements in pricing on new orders placed in Q1 2023 which we believe we will start to realize benefit from in Q2 2023 and forward. We also implemented some design changes in Q1 2023 which we believe will reduce the labor and material cost of our product. Our acquisition of All Cell in March 2022 should significantly reduce the cost of the batteries in our products. In addition, as our revenues increase in 2023 and beyond, we expect our fixed overhead absorption to also improve. Operating Expenses. Total operating expenses were $3.8 million, or 30% of revenues, for the quarter ended March 31, 2023, compared to $2.0 million, or 52% of revenues, for the same quarter in the prior year, an improvement of 22% of revenues. Operating expenses in Q1 2022 included only one month of expenses for our battery operation based on the acquisition of All Cell that closed in March 2022. This accounts for approximately $0.5 million of the increase. In addition, we increased $0.4 million for R&D salaries and expenses, $0.3 million for non-cash compensation expense, $0.3 million for audit fees, and $0.3 million for admin salaries and bonus expense. Operating expenses decreased from 52% to 30% of revenues from Q1 2022 to Q1 2023. Liquidity and Capital Resources At March 31, 2023, we had cash of $1.0 million, compared to cash of $1.7 million at December 31, 2022. 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: March 31, 2023 2022 Cash provided by (used in): Net cash used in operating activities $ (619 ) $ (1,907 ) Net cash used in investing activities $ (330 ) $ (954 ) Net cash provided by financing activities $ 258 $ 88 21 For the three months ended March 31, 2023, our cash used in operating activities was $0.6 million compared to $1.9 million for the three months ended March 31, 2022. Net loss of $4.1 million for the three months ended March 31, 2023 was increased by $0.9 million of non-cash expense items that included depreciation and amortization of $0.3 million, common stock issued for services for director compensation of $0.1 million and employee stock-based compensation expense of $0.5 million. Further, cash used in operations included a $2.4 million increase in accounts receivable due to the increase in revenues in the quarter, $0.3 million decrease in deferred revenue, and a $0.2 million increase in inventory. Cash used in operations included a $4.2 million increase in accounts payable primarily for inventory, $0.9 million increase in accrued expenses and a $.4M decrease in prepaid expenses and other current assets. For the three months ended March 31, 2022, our cash used in operating activities was $1.9 million. 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 used in 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. Cash used in investing activities in the three months ended March 31, 2023 included $0.3 million for the purchase of equipment and patent costs. The three months ended March 31, 2022 included $0.8 million cash payment for working capital payment related to the acquisition of All Cell and $0.1 million to purchase equipment. For the three months ended March 31, 2023, cash generated by our financing activities included $0.2 million proceeds from the sale of stock and $0.1 million from the exercise of warrants, compared to $0.1 million for the exercise of warrants for the same period in the prior year. Current assets were $23.4 million at March 31, 2023, an increase from $19.9 million at December 31, 2022, primarily due to a $2.5 million increase in accounts receivable, a $1.3 million increase in prepaid expenses and other current assets and $0.5 million increase in inventory, partially offset by a $0.7 million decrease in cash. Current liabilities, which include a $6.7 million non-cash contingent consideration attributable to our March 2022 acquisition of All Cell, increased to $17.9 million at March 31, 2023 from $13.2 million at December 31, 2022, primarily due to a $4.2 million increase in accounts payable and $0.9 million increase in accrued expenses, partially offset by a $0.3 million decrease in deferred revenue, current. As a result, our working capital decreased to $5.5 million at March 31, 2023 compared to $6.8 million at December 31, 2022. The Company has been focused on marketing and sales efforts to increase our revenues. Revenues increased by 45% from 2020 to 2021, 144% from 2021 to 2022, and 245% from Q1 2022 to Q1 2023 demonstrating that this investment has been successful. The Company has now earned a gross profit on its sale of products, which includes $0.2 million of non-cash amortization of acquired intangible assets. Improvements have been made despite the current inflationary period. As revenues increase, we expect to continue to see our fixed overhead costs spread over more units, which will reduce the cost per unit. Our engineering and operations teams have made several design changes and process improvements in our product development and manufacturing operations in 2022 and early 2023 which has helped to increase labor efficiency and reduce material costs. At the same time, the Company is still recovering from supply chain issues related to the COVID-19 virus which caused an increase in certain of our material costs, most notably in steel purchases. However, we are seeing these costs start to decline in early 2023, which will help us to increase gross profit 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 624,306 shares of our Common Stock outstanding at March 31, 2023, which could potentially generate an additional $6.1 million of proceeds over the next 5.1 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. There is no guarantee that profitable operations will be achieved, the warrants will be exercised or that additional capital or debt financing will be available on a timely basis, on favorable terms, or at all, and such funding, if raised, may not be sufficient to meet our obligations or enable us to continue to implement our long-term business strategy. In addition, obtaining additional funding or entering into other strategic transactions could result in significant dilution to our stockholders. 22 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.