Beam Global 10-Q

ITEM 1. FINANCIAL STATEMENTS Beam Global Condensed Balance Sheets (In thousands) September 30, December 31, 2023 2022 Assets Current assets Cash $ 14,758 $ 1,681 Accounts receivable 14,892 4,429 Prepaid expenses and other current assets 2,651 1,579 Inventory 13,534 12,246 Total current assets 45,835 19,935 Property and equipment, net 1,912 1,548 Operating lease right of use assets 1,155 1,638 Goodwill 4,600 4,600 Intangible assets, net 9,269 9,947 Deposits 62 62 Total assets $ 62,833 $ 37,730 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 7,206 $ 2,865 Accrued expenses 3,036 1,687 Sales tax payable 92 33 Deferred revenue, current 498 1,183 Note payable, current 38 – Contingent consideration, current 1 6,776 Operating lease liabilities, current 595 628 Total current liabilities 11,466 13,172 Deferred revenue, noncurrent 348 266 Note payable, noncurrent 171 – Contingent consideration, noncurrent – 15 Operating lease liabilities, noncurrent 618 1,070 Total liabilities 12,603 14,523 Stockholders' equity Preferred stock, $ 0.001 par value, 10,000,000 authorized, none outstanding as of September 30, 2023 and December 31, 2022. – – Common stock, $ 0.001 par value, 350,000,000 shares authorized, 13,937,366 and 10,178,306 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. 14 10 Additional paid-in-capital 138,507 100,498 Accumulated deficit ( 88,291 ) ( 77,301 ) Total stockholders' equity 50,230 23,207 Total liabilities and stockholders' equity $ 62,833 $ 37,730 The accompanying unaudited notes are an integral part of these unaudited condensed financial statements 3 Beam Global Condensed Statement of Operations (Unaudited, in thousands except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues $ 16,486 $ 6,611 $ 47,325 $ 14,099 Cost of revenues 16,203 6,950 46,536 15,069 Gross profit (loss) 283 ( 339 ) 789 ( 970 ) Operating expenses 4,037 6,468 11,925 10,933 Loss from operations ( 3,754 ) ( 6,807 ) ( 11,136 ) ( 11,903 ) Other income (expense) Interest income 136 18 161 35 Other (expense) income ( 7 ) – 4 – Interest expense ( 4 ) – ( 6 ) ( 1 ) Other income 125 18 159 34 Loss before income tax expense ( 3,629 ) ( 6,789 ) ( 10,977 ) ( 11,869 ) Income tax expense – – 13 1 Net loss $ ( 3,629 ) $ ( 6,789 ) $ ( 10,990 ) $ ( 11,870 ) Net loss per share - basic $ ( 0.26 ) $ ( 0.67 ) $ ( 0.79 ) $ ( 1.21 ) Net loss per share - diluted $ ( 0.26 ) $ ( 0.67 ) $ ( 0.79 ) $ ( 1.21 ) Weighted average shares outstanding - basic 13,936 10,088 13,939 9,827 Weighted average shares outstanding - diluted 13,936 10,088 13,939 9,827 The accompanying unaudited notes are an integral part of these unaudited condensed financial statements 4 Beam Global Statements of Changes in Stockholders’ Equity (Unaudited, in thousands) Additional Total Common Stock Paid-in Accumulated Stockholders' Stock Amount Capital Deficit Equity Balance at December 31, 2021 8,972 $ 9 $ 83,588 $ ( 57,619 ) $ 25,978 Stock issued for director services - vested 5 – 107 – 107 Stock issued to (released from) escrow account - unvested 2 – – – – Stock issued for acquisition 1,055 1 14,358 – 14,359 Stock option expense – – 94 – 94 Warrants exercised for cash 14 – 88 – 88 Net loss – – – ( 2,278 ) ( 2,278 ) Balance at March 31, 2022 10,048 $ 10 $ 98,235 $ ( 59,897 ) $ 38,348 Stock issued for director services - vested 5 – 104 – 104 Stock issued to escrow account - unvested ( 5 ) – – – – Stock option expense – – 98 – 98 Warrants exercised for cash 36 – 228 – 228 Net loss – – – ( 2,803 ) ( 2,803 ) Balance at June 30, 2022 10,084 $ 10 $ 98,665 $ ( 62,700 ) $ 35,975 Stock issued for director services - vested 5 – 104 – 104 Stock issued to escrow account - unvested ( 5 ) – – – – Stock option expense – – 111 – 111 Warrants exercised for cash – – 2 – 2 Stock option exercise (cashless) 1 – – – – Stock issued for Committed Equity Facility 11 – 140 – 140 Net loss – – – ( 6,789 ) ( 6,789 ) Balance at September 30, 2022 10,096 $ 10 $ 99,022 $ ( 69,489 ) $ 29,543 Additional Total Common Stock Paid-in Accumulated Stockholders' Stock Amount Capital Deficit Equity Balance at December 31, 2022 10,178 $ 10 $ 100,498 $ ( 77,301 ) $ 23,207 Stock issued for director services - vested 6 – 76 – 76 Stock issued to (released from) escrow account - unvested ( 6 ) – – – – Stock-based compensation to consultants 6 – 1,704 – 1,704 Employee stock-based compensation expense – – 438 – 438 Warrants exercised for cash 16 – 100 – 100 Sale of stock under Committed Equity Facility 38 – 158 – 158 Net loss – – – ( 3,831 ) ( 3,831 ) Balance at March 31, 2023 10,238 $ 10 $ 102,974 $ ( 81,132 ) $ 21,852 Stock issued for director services - vested 12 – 148 – 148 Stock issued to (released from) escrow account - unvested 6 – – – – Settlement of earnout related to acquisition 447 1 7,050 – 7,051 Employee stock-based compensation expense – – 427 – 427 Proceeds from issuance of common stock, pursuant to public offering 3,063 3 25,421 – 25,424 Warrants exercised for cash 4 – 26 – 26 Sale of stock under Committed Equity Facility 171 – 1,956 – 1,956 Net loss – – – ( 3,530 ) ( 3,530 ) Balance at June 30, 2023 13,941 $ 14 $ 138,002 $ ( 84,662 ) $ 53,354 Stock issued for director services - vested 6 – 77 – 77 Stock issued to (released from) escrow account - unvested ( 12 ) – – – – Employee stock-based compensation expense – – 424 – 424 Warrants exercised for cash 2 – 11 – 11 Expenses to maintain Committed Equity Facility – – ( 7 ) – ( 7 ) Net loss – – – ( 3,629 ) ( 3,629 ) Balance at September 30, 2023 13,937 $ 14 $ 138,507 $ ( 88,291 ) $ 50,230 The accompanying unaudited notes are an integral part of these unaudited condensed financial statements 5 Beam Global Condensed Statements of Cash Flows (Unaudited, in thousands) Nine Months Ended September 30, 2023 2022 Operating Activities: Net loss $ ( 10,990 ) $ ( 11,870 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,054 789 Common stock issued for services 301 315 Change in fair value of contingent consideration liabilities 260 3,690 Employee stock-based compensation 1,289 303 Stock Compensation expense for non-employees 264 – Changes in assets and liabilities: (Increase) decrease in: Accounts receivable ( 10,463 ) ( 2,236 ) Prepaid expenses and other current assets 479 ( 1,020 ) Inventory ( 1,149 ) ( 8,304 ) Increase (decrease) in: Accounts payable 4,341 2,255 Accrued expenses 1,390 194 Sales tax payable 59 5 Deferred revenue ( 603 ) 155 Net cash used in operating activities ( 13,768 ) ( 15,724 ) Investing Activities: Working capital payment for acquisition – ( 811 ) Purchase of property and equipment ( 787 ) ( 755 ) Funding of patent costs ( 94 ) ( 79 ) Net cash used in investing activities ( 881 ) ( 1,645 ) Financing Activities: Proceeds from sale of common stock under committed equity facility, net of offering costs 2,107 – Proceeds from warrant exercises 137 318 Borrowings (repayments) of note payable 209 Payments of equity offering costs ( 151 ) ( 218 ) Proceeds from issuance of common stock and warrants, pursuant to public offering 25,424 – Net cash provided by financing activities 27,726 100 Net increase (decrease) in cash 13,077 ( 17,269 ) Cash at beginning of period 1,681 21,949 Cash at end of period $ 14,758 $ 4,680 Supplemental Disclosure of Cash Flow Information: Cash paid for interest 6 $ 1 Cash paid for taxes $ 13 $ – Supplemental Disclosure of Non-Cash Investing and Financing Activities: Fair value of common stock issued as consideration for business combination $ 7,051 $ 14,359 Purchase of property and equipment by incurring debt $ 209 $ – Purchase of property and equipment by incurring current liabilities $ – $ 9 Depreciation cost capitalized into inventory $ 140 $ 126 Right-of-use assets obtained in exchange for lease liabilities $ – $ 192 Warrants issued for services to non-employee $ 1,609 $ 140 Shares issued for services to non-employee $ 95 $ – The accompanying unaudited notes are an integral part of these unaudited condensed financial statements 6 BEAM GLOBAL NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Beam Global, a Nevada corporation (hereinafter the “Company,” “us,” “we,” “our” or “Beam”), is a sustainable technology innovation company based in San Diego, California. We develop, manufacture, and sell high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, energy security, and disaster preparedness. We also produce proprietary energy storage battery products. Our Electric Vehicle (EV) charging infrastructure products are powered by locally generated renewable energy and enable vital and highly valuable EV charging and energy securityservices in locations where it is either too expensive, too disruptive, or impossible to connect to a utility grid, or where the requirements for electrical power are so important that grid failures, like blackouts, are intolerable. We do not compete with EV charging companies; rather, we enable such companies by providing infrastructure solutions that replace the time consuming and expensive process of construction and electrical work which are usually required to install traditional grid-tied EV chargers. We also do not compete with utilities. Our products provide utilities with another tool to deliver reliable and low-cost electricity to EV chargers and, in the case of a grid failure, to first responders and others, through our integrated emergency power panels. We also provide energy storage technologies that make commodity battery cells safer, longer lasting and more energy efficient and our thermal and battery management systems (BMS) and associated packaging make batteries safe and usable in a variety of mobility, energy-security, and stationary applications. On October 20, 2023, Beam completed an acquisition of Amiga DOO Kraljevo (“Amiga”). Amiga is a business located in Serbia and engaged in the manufacture and distribution of steel structures with electronic integration, such as streetlights, cell towers, and ski lift towers. Amiga currently has engineering, product development and manufacturing capabilities which we believe are well suited to manufacturing and perfecting Beam’s current products for the European market. Amiga is one of Europe’s leading manufacturers of streetlights and Beam believes it is well positioned to bring Beam’s patented EV Standard™ to market both in the EU and USA. Amiga’s team of engineers will be integrated with Beam’s current team which Beam believes will provide a valuable enhancement and acceleration of product development cycles. Amiga’s current customer list includes entities in 16 international nations which are similar to Beam’s current customers in the United States, creating what Beam believes will be a significant post-acquisition advantage in selling Beam’s products to an international customer base. Our charging infrastructure products are rapidly deployed without the need for construction or electrical work. We compete with the highly fragmented and disintegrated ecosystem of general contractors, electrical contractors, consultants, engineers, permitting specialists and others who are required to perform a traditional grid-tied EV charger installation construction and electrical project. Our clean-technology products are designed to replace a complicated, expensive, time-consuming and risk prone process with an easy, low total cost of ownership, robust and reliable product. Basis of Presentation The interim unaudited condensed financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In management’s opinion, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly our results of operations and cash flows for the three months and nine months ended September 30, 2023 and 2022, and our financial position as of September 30, 2023, have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year. Certain information and disclosures normally included in the notes to the annual financial statements have been condensed or omitted from these interim financial statements. Accordingly, these interim unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022. The December 31, 2022 balance sheet is derived from those statements. 7 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include the allowance for doubtful accounts receivable, valuation of inventory and standard cost allocations, depreciable lives of property and equipment, valuation of contingent consideration liability, 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. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326) requiring initial recognition of credit losses, as well as any subsequent change in the estimate, when it is probable that a loss has been incurred. The standard eliminates the threshold for initial recognition in current U.S. GAAP and it covers a broad range of financial instruments, including trade and other receivables at each reporting date. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The Company adopted this standard effective January 1, 2023 with no material effect on the financial statements. Concentrations Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist of cash and accounts receivable. The Company maintains its cash in banks and financial institutions that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts from inception through September 30, 2023. As of September 30, 2023, approximately $ 15.2 million of the Company’s cash deposits were greater than the federally insured limits. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which immediately appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. At the time, the Company maintained all of its cash deposits with SVB. All deposits and substantially all of the assets of SVB were transferred to Silicon Valley Bridge Bank, N.A. (“SVBB”), which is no longer affiliated with SVB. On March 27, 2023, First-Citizens Bank & Trust Company entered into an agreement with the FDIC to purchase substantially all loans and certain other assets and assume all customer deposits and certain other liabilities of SVBB. The Company has full access to all of its deposited funds with SVBB and we have also established deposit accounts at Bank of America. Major Customers The Company continually assesses the financial strength of its customers. We are not aware of any material credit risks associated with our customers. 81 % of our third quarter revenues were derived from pre-funded federal, state and local government programs, and the remaining 19 % were derived from commercial customers that we believe have good credit or, alternatively, favorable payment terms which minimizes our credit risk with respect to such customers. For the three months ended September 30, 2023, two customers accounted for 28 % and 24 % of total revenues and for the nine months ended September 30, 2023, three customers accounted for 43 %, 23 % and 10 % of total revenues, with no other single customer accounting for more than 10% of revenues. At September 30, 2023, accounts receivable from three customers accounted for 24 %, 15 % and 14 % of total accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance. At December 31, 2022, accounts receivable from three customers accounted for 30 %, 15 % and 11 % of total accounts receivable each with no other single customer accounting for more than 10% of the accounts receivable balance. For the nine months ended September 30, 2023 and 2022, the Company’s sales to federal, state and local governments represented 84 % and 59 % of revenues, respectively. 8 Significant Accounting Policies During the nine months ended September 30, 2023, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2022, except for the adoption of ASC Topic 326 effective January 1, 2023 with no material effect on the financial statements. Net Loss Per Share Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the periods presented. Diluted net loss per common share is computed using the weighted average number of common stock outstanding for the period, and, if dilutive, potential common stock outstanding during the period. Potential common stock consists of shares of common stock issuable upon the exercise of stock options, stock warrants, or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. Options to purchase 363,598 shares of common stock and warrants to purchase 618,395 shares of common stock were outstanding at September 30, 2023. Options to purchase 279,658 common shares and warrants to purchase 469,305 shares of common stock were outstanding at September 30, 2022. These options and warrants were not included in the computation of diluted loss per share for the three months and nine months ended September 30, 2023 and 2022 because the effects would have been anti-dilutive. These options and warrants may dilute future earnings per share. Segments The Company assesses its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. Management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a single operating segment. 2. LIQUIDITY The Company had net losses of $ 11.0 million (which includes $ 3.0 million of non-cash expenses) and $ 11.9 million (which includes $ 5.2 million of non-cash expenses) and net cash used in operating activities of $13.8 million and $15.7 million for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, the Company had a cash balance of $ 14.8 million and working capital of $ 34.4 million . In June of 2023, the Company sold shares of its common stock in a public offering for net proceeds of approximately $ 25 million after deducting underwriting discounts and commissions and offering expenses paid by the Company. The Company used a portion of the proceeds to fund the acquisition of Amiga DOO Kraljevo (See note 3 below for further information), a European based manufacturer of smart street lights, street furniture and communications and security infrastructure products, in furtherance of the Company’s strategy to expand its business in Europe as well as for working capital and general corporate purposes. Based on the Company’s current operating plan, the Company believes that it has the ability to fund its operations and meet contractual obligations for at least twelve months from the date of this report. In 2022, the Company entered into a Common Stock Purchase Agreement and Registration Rights 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 worth of shares, but in any event, no more than 2.0 million shares of its common stock over a period of 24 months in its sole discretion (see note 11 for further information). The Company issued 198,033 shares for $2.5 million for the first nine months of 2023 under this agreement, compared to none for the same period in 2022. There is $27.5 million shares of common stock remaining under this facility available to sell through Q4 2024. The Company’s outstanding warrants generated $ 0.1 million and $ 0.3 million of proceeds during each of the nine months ended September 30, 2023 and 2022, respectively. There are remaining 418,395 warrants issued as part of our 2019 public offering which have an exercise price of $6.30 and which expire in April of 2024. The Company has total warrants outstanding to purchase 618,395 shares of our Common Stock at September 30, 2023, which could potentially generate an additional $6.0 million of proceeds over the next 4.5 years, conditioned upon the warrant holders’ ability and decision to exercise them. The proceeds from these offerings are expected to provide working capital to fund business operations and the development of new products. In March 2023, the Company entered into a supply chain line of credit agreement with OCI Group for up to $100 million to further support our working capital requirements. Subject to the terms of the agreement, OCI Group will make available to the Company funding based on amounts owed to the Company by customers. Furthermore, we could pursue other equity or debt financings. The Company believes that it will become profitable in the next few years as our revenues continue to grow, we improve our gross margins and we leverage our overhead costs, but we expect to continue to incur losses for a period of time. 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. 9 3. BUSINESS COMBINATION All Cell Technologies, LLC On March 4, 2022, the Company acquired substantially all the assets of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. This acquisition has increased and diversified our Company’s revenue, intellectual property portfolio and customer base, and improved our gross profitability and manufacturing capabilities. The Company purchased substantially all of the assets and business of All Cell for 1,055,000 shares of our common stock (“Closing Consideration”) plus an additional $ 0.9 million in cash for the net working capital held by All Cell at closing. In addition, All Cell is eligible to earn an additional number of shares of our common stock if the acquired energy storage business meets certain revenue milestones (the “Earnout Consideration”). The Earnout Consideration was: (i) two times the amount of energy storage products revenue and contracted backlog that is greater than $7.5 million for 2022, and is (ii) two times the amount of energy storage products 2023 revenue which exceeds the greater of either $13.5 million or 135% of the 2022 cumulative revenue, capped at $20.0 million. Any revenues exceeding $20.0 million in 2023 will not be eligible for the Earnout Consideration. The maximum aggregate number of shares of our common stock that we will issue to All Cell for the Closing Consideration and Earnout Consideration will not exceed 1.8 million shares. Revenue from energy storage products used in Beam Global products will not be considered as contributing to revenue in the Earnout calculation. The Company issued 446,815 shares of stock valued at $ 7.05 million as payment for the 2022 Earnout Consideration. The valuation of the Earnout Consideration was performed using a two-factor Monte Carlo simulation, which includes estimates and assumptions such as forecasted revenues of All Cell, volatility, discount rates, share price and the milestone settlement value. As such valuation includes the use of unobservable inputs, it is considered to be a Level 3 measurement. The fair value of the Earnout Consideration is reassessed on a quarterly basis with the change recorded to operating expenses. Change in the fair value of the Earnout Consideration during the year ended December 31, 2022 and the nine months ended September 30, 2023 is as follows (in thousands): Schedule of fair value earnout Balance as of December 31, 2021 $ – Acquisition of All Cell 1,251 Change in estimated fair value 5,540 Balance as of December 31, 2022 $ 6,791 Issue earnout shares for 2022 ( 7,051 ) Change in estimated fair value 261 Balance as of September 30, 2023 $ 1 10 Amiga DOO Kralievo On October 20, 2023, Beam acquired Amiga DOO Kraljevo (“Amiga”), pursuant to a Share Sale and Purchase Agreement dated October 6, 2023 (the “Purchase Agreement”) by and among Beam and the owners of Amiga (the “Sellers”). Amiga, located in Serbia, is engaged in the manufacture and distribution of steel structures with integrated electronics, such as streetlights, cell towers, and ski lift towers. Pursuant to the terms of the Purchase Agreement, Beam acquired all the equity stock of Amiga from the Sellers in exchange for cash and common stock. With respect to the cash portion of the purchase price, Beam paid to the Sellers EUR 4,550,000 at closing and will pay the Sellers EUR 2,450,000 on or before December 31, 2023. With respect to the equity portion of the purchase price, Beam issued to the Sellers 293,675 shares of our common stock and, on or before December 31, 2023, will issue to the Sellers an additional 158,132 shares of our common stock. The Sellers are eligible to earn additional shares of our common stock if such Seller is providing services to Beam and Amiga meets certain revenue milestones for fiscal years 2024 and 2025 (the “Earnout Consideration”). The Earnout Consideration that Sellers are eligible to receive for 2024 is equal to two times the amount of revenue of Amiga (“Amiga Net Revenue”) that is greater than EUR 13,500,000 for 2024. The Earnout Consideration that Sellers are eligible to receive for 2025 is equal to (i) two times the amount of Amiga Net Revenue for 2025 that exceeds the greater of (i) EUR 18,225,000 or (ii) 135% of the Amiga Net Revenue for 2024. The Earnout Consideration for each period will be calculated based on the volume weighted average price of Beam’s common stock for the thirty trading days prior to the end of the applicable measurement period. In no event and under no circumstances will the Sellers receive from Beam or will Beam issue to the Sellers an amount of our common stock that exceeds 19.99% of the total outstanding common stock of Beam immediately prior to the closing. We expect the acquisition of Amiga to assist in introducing our products to Europe, increasing and diversifying our revenues, enhancing our manufacturing and engineering capabilities, accelerating the development of EV Standard™ and other products both in Europe and the US, adding new customer segments in both Europe and the US, increasing barriers to entry for future competition, and advancing Beam’s position as a leader in the green economy. 4. INVENTORY Inventory consists of the following (in thousands): Schedule of inventory September 30, December 31, 2023 2022 Finished goods $ 1,736 $ 2,814 Work in process 1,486 1,771 Raw materials 10,312 7,661 Total inventory $ 13,534 $ 12,246 11 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands): Schedule of property and equipment September 30, December 31, 2023 2022 Office furniture and equipment $ 225 $ 186 Computer equipment and software 147 118 Leasehold improvements 222 180 Autos 595 337 Machinery and equipment 1,955 1,556 Total property and equipment 3,144 2,377 Less accumulated depreciation ( 1,232 ) ( 829 ) Property and Equipment, net $ 1,912 $ 1,548 6. INTANGIBLE ASSETS The intangible assets consist of the following (in thousands): Schedule of intangible assets December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-average Amortization Period (yrs) Developed technology $ 8,074 $ ( 612 ) $ 7,462 11 Trade name 1,756 ( 146 ) 1,610 10 Customer relationships 444 ( 49 ) 395 13 Backlog 185 ( 154 ) 31 1 Patents 491 ( 42 ) 449 20 Intangible assets $ 10,950 $ ( 1,003 ) $ 9,947 September 30, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted-average Amortization Period (yrs) Developed technology $ 8,074 $ ( 1,162 ) $ 6,912 11 Trade name 1,756 ( 278 ) 1,478 10 Customer relationships 444 ( 97 ) 347 13 Backlog 185 ( 185 ) – 1 Patents 584 ( 52 ) 532 20 Intangible assets $ 11,043 $ ( 1,774 ) $ 9,269 12 7. ACCRUED EXPENSES The major components of accrued expenses are summarized as follows (in thousands): Schedule of accrued expenses September 30, December 31, 2023 2022 Accrued vacation $ 230 $ 190 Accrued salaries and bonus 1,354 1,220 Vendor accruals 1,043 85 Accrued warranty   25 160 Other accrued expense 384 32 Total accrued expenses $ 3,036 $ 1,687 8. NOTE PAYABLE In May 2023, the Company purchased two new trucks and financed the purchase through an auto loan. The loan has a term of 60 months, requires monthly payments of approximately $ 4,452 , and bears interest at a rate of 7.55 percent per year. Payment on the loan began in July 2023, and the loan has a short-term balance of $ 38,000 . 9. COMMITMENTS AND CONTINGENCIES Legal Matters: From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of September 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations. Other Commitments: The Company enters into various contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments. Since inception, the Company entered into agreements to act as a reseller for certain vendors; joint development contracts with third parties; referral agreements where the Company would pay a referral fee to the referrer for business generated; sales agent agreements whereby sales agents would receive a fee equal to a percentage of revenues generated by the agent; business development agreements and strategic alliance agreements where both parties agree to cooperate and provide business opportunities to each other and in some instances, provide for a right of first refusal with respect to certain projects of the other parties; agreements with vendors where the vendor may provide marketing, investor relations, public relations, software licenses, technical consulting or subcontractor services, vendor arrangements with non-binding minimum purchasing provisions, and financial advisory agreements where the financial advisor would receive a fee and/or commission for raising capital for the Company. 13 10. INCOME TAXES There was no Federal income tax expense for the nine months ended September 30, 2023 or 2022 due to the Company’s net losses. Income tax expense represents minimum state taxes due. As a result of the Company’s history of incurring operating losses, a full valuation allowance has been established to offset all deferred tax assets as of September 30, 2023 and no benefit has been provided for the year-to-date loss. On a quarterly basis, the company evaluates the positive and negative evidence to assess whether the more likely than not criteria have been satisfied in determining whether there will be further adjustments to the valuation allowance. 11. STOCKHOLDERS’ EQUITY Committed Equity Facility On September 2, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley. Pursuant to the Purchase Agreement, the Company has the right, in its sole discretion, to sell to B. Riley up to $30.0 million, but in any event, a maximum of 2.0 million shares of the Company’s common stock at 97% of the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day, calculated in accordance with the Purchase Agreement, over a period of 24 months subject to certain limitations and conditions contained in the Purchase Agreement. Sales and timing of any sales are solely at the election of the Company, and the Company is under no obligation to sell any common stock to B. Riley under the Purchase Agreement. As consideration for B. Riley’s commitment to purchase shares of the Company’s common stock the Company issued B. Riley 10,484 shares of its common stock in both September 2022 and April 2023. The Company incurred an aggregate cost of approximately $0.5 million in connection with the Purchase Agreement, including the fair value of the shares of common stock issued to B. Riley, which were recorded as equity on the Balance Sheet and offset proceeds from the sale of the Company’s common stock under the Purchase Agreement. During the nine months ended September 30, 2023, the Company issued 198,033 shares under the Purchase Agreement for $2.5 million in proceeds, of which $ 0.5 million was offset by the offering costs. Stock Issued For Services During the nine months ended September 30, 2023, the Company issued 6,444 shares of its common stock in exchange for marketing services to be provided over a six-month period. The fair value of such stock issued is $ 0.1 million and was recorded to prepaid expenses and other current assets upon issuance and recognized over the service period which ended in the third quarter of 2023. Stock Options Option activity for the nine months ended September 30, 2023 is as follows: Schedule of option activity Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Outstanding at December 31, 2022 336,758 12.54 Granted 46,000 12.07 Exercised – – Forfeited ( 19,160 ) 19.21 Outstanding at September 30, 2023 363,598 $ 12.13 6.60 Years The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the table below and we assumed there would not be dividends paid during the life of the options granted during the nine months ended September 30, 2023 and 2022: Schedule of options granted Nine months ended September 30, 2023 Expected volatility 90.2 % - 94.5 % Expected term 6.5 - 7 Years Risk-free interest rate 3.55 % - 4.47 % Weighted-average FV $ 9.71 14 The Company’s stock option compensation expense was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2023 respectively, and $ 0.1 million and $ 0.3 million for each of the three and nine months ended September 30, 2022. There was $ 1.0 million of total unrecognized compensation costs related to outstanding stock options at September 30, 2023 which will be recognized over 4.0 years. Total intrinsic value of options outstanding and options exercisable were $ 0.2 million and $ 0.2 million , respectively, as of September 30, 2023. The number of shares of common stock underlying stock options vested and unvested as of September 30, 2023 were 278,182 and 85,416 , respectively. Restricted Stock Units In November 2022, the Company granted 142,500 restricted stock units (“RSUs”) and up to 142,500 performance stock units (“PSU”) to its Chief Executive Officer (“CEO”). 50% of the RSUs vested upon grant, with 25% vesting on February 1 st of 2024 and 2025. The number of shares that will be earned under the PSUs will be determined based on the achievement of specific performance metrics during the three-years ending December 31, 2024. There was no activity during the nine months ended September 30, 2023. 142,500 PSUs and 71,250 RSUs remain outstanding as of September 30, 2023, with weighted-average grant-date fair values of $ 13.05 each. Stock compensation expense related to the RSUs and PSUs was $ 0.9 million during the nine months ended September 30, 2023, with $ 1.7 million in unrecognized stock compensation expense remaining to be recognized over 1.4 years as of September 30, 2023. Restricted Stock Awards The Company issues restricted stock to the members of its board of directors as compensation for such members’ services. Such grants generally vest ratably over four quarters. The Company also previously issued restricted stock awards to its CEO, for which generally 50% of the shares granted vest ratably over four quarters and the remaining 50% vest ratably over twelve quarters. The common stock related to these awards are issued to an escrow account on the date of grant and released to the grantee upon vesting. The fair value is determined based on the closing stock price of the Company’s common stock on the date granted and the related expense is recognized ratably over the vesting period. A summary of activity of the restricted stock awards for the nine months ended September 30, 2023 is as follows: Schedule of restricted stock awards Weighted- Nonvested Average Grant- Shares Date Fair Value Nonvested at December 31, 2022 17,865 $ 14.11 Granted 18,375 11.40 Vested ( 23,765 ) 13.12 Forfeited ( 5,400 ) 11.40 Nonvested at September 30, 2023 7,075 $ 13.84 Stock compensation expense related to restricted stock awards was $ 0.3 million during each of the nine months ended September 30, 2023 and 2022. During the quarter ended September 30, 2023, 5,400 shares were forfeited from the escrow account as a result of the departure of a board member. As of September 30, 2023, there were unreleased shares of common stock representing $ 0.1 million of unrecognized restricted stock grant expense which will be recognized over 1.25 years. 15 Warrants During the nine months ended September 30, 2023, the Company issued warrants to purchase up to 200,000 shares of the Company’s common stock at a price per share equal to $17.00 to a consultant for investor relations services to be provided over a five-year period. The warrants are immediately exercisable but are subject to repurchase by the Company until the required service is provided. The fair value of such warrants was $8.05 per share or $ 1.6 million on the date of grant using the Black-Scholes option-pricing model. This model incorporated certain assumptions for inputs including a risk-free market interest rate of 3.86%, expected dividend yield of the underlying common stock of 0%, expected life of 2.5 years and expected volatility in the market value of the underlying common stock based on our historical volatility of 99.6%. The fair value of the warrants was recorded to prepaid expenses and other current assets to be recognized over the service period. During the nine months ended September 30, 2023, $ 0.1 million was recorded as expense and at September 30, 2023, $1.1 million of cost has not been recognized and will be recognized over the next 4.50 years. A summary of activity of warrants outstanding for the nine months ended September 30, 2023 is as follows: Schedule of warrants outstanding Number of Warrants Weighted Average Exercise Price Outstanding at December 31, 2022 440,204 9.73 Granted 200,000 17.00 Exercised ( 21,809 ) 6.30 Outstanding at September 30, 2023 618,395 $ 9.76 Exercisable at September 30, 2023 618,395 $ 9.76 Exercisable warrants as of September 30, 2023 have a weighted average remaining contractual life of 1.83 years. The intrinsic value of the exercisable shares of the warrants at September 30, 2023 was $ 0.5 million . 12. REVENUES For each of the identified periods, revenues can be categorized into the following (in thousands): Schedule of revenues Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Product sales $ 15,781 $ 6,268 $ 45,696 $ 13,022 Maintenance fees 23 17 57 37 Professional services 35 60 95 491 Shipping and handling 742 288 1,762 584 Discounts and allowances ( 95 ) ( 22 ) ( 285 ) ( 35 ) Total revenues $ 16,486 $ 6,611 $ 47,325 $ 14,099 During the nine months ended September 30, 2023 and 2022, 14 % and 36 % of revenues were derived from customers located in California, respectively. In addition, 10 % and 11 % of revenues in the nine months ended September 30, 2023 and 2022 were international sales, respectively. At September 30, 2023 and December 31, 2022, deferred revenue was $ 0.8 million and $ 1.4 million , respectively. These amounts consisted mainly of customer deposits in the amount of $ 0.4 million and $ 1.1 million for September 30, 2023 and December 31, 2022, respectively and prepaid multi-year maintenance plans for previously sold products which account for $ 0.5 million and $ 0.3 million for September 30, 2023 and December 31, 2022, respectively, and pertain to services to be provided through 2029. 16