Beam Global - Quarter Report: 2021 September (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Period ended September 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to ________________

Commission File Number 000-53204

Beam Global

(Exact name of Registrant as specified in its charter)

(858) 799-4583

(Registrant’s telephone number, including area code)

_____________________________________________

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company under Rule 12b-2 of the Exchange Act. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

The number of registrant's shares of common stock, $0.001 par value outstanding as of November 4, 2021 was 8,949,339.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Beam Global

Condensed Balance Sheets

The accompanying unaudited notes are an integral part of these unaudited condensed financial statements

Beam Global

Condensed Statements of Operations

(Unaudited)

The accompanying unaudited notes are an integral part of these unaudited condensed financial statements

Beam Global

Condensed Statements of Changes in Stockholders' Equity

(Unaudited)

The accompanying unaudited notes are an integral part of these unaudited condensed financial statements

Beam Global

Condensed Statements of Cash Flows

(Unaudited)

The accompanying unaudited notes are an integral part of these unaudited condensed financial statements

BEAM GLOBAL

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(Unaudited)

Nature of Operations

Beam Global, a Nevada corporation (hereinafter the “Company,” “us,” “we,” “our” or “Beam”) is a cleantech innovation company based in San Diego, California. Beam develops, designs, engineers, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging, outdoor media and energy security and disaster preparedness. Beam’s products enable vital and highly valuable energy production in locations where it is either too expensive or too impactful to connect to the utility grid, or where the requirements for electrical power are so important that grid failures, like blackouts, are intolerable. When competing with utilities or typical solar companies, we rely on our products’ ease of deployment, reliability, accessibility, and total cost of ownership, rather than producing the cheapest kilowatt hour with the help of subsidies.

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 nine months ended September 30, 2021 and 2020, and our financial position as of September 30, 2021, 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, 2020. The December 31, 2020 balance sheet is derived from those statements.

Risks and Uncertainties

The ongoing novel coronavirus (COVID-19) pandemic has resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders as well as the shutdown of many businesses around the world. These shutdowns have resulted in product shortages and longer delivery lead-times, global shipping disruptions and higher costs due to increasing demands for these goods and services. While we have been impacted by supplier cost increases and other supply chain issues, the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the nine months ended September 30, 2021. With the rollout of a COVID-19 vaccine and booster shots, businesses and governments are beginning to return to pre-pandemic status. However, it is difficult to predict what governmental actions may be enacted in the future or what impact the widespread economic disruption arising from the pandemic could have on our business. The extent and duration of the pandemic is unknown, and the future effects on our business are uncertain. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future.

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 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 August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. This ASU includes amendments that significantly change the guidance on convertible instruments and the derivative scope exception for contracts in an entity's own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. The prior conditions were difficult to apply and resulted in circumstances where warrants may have been required to be accounted for as a liability rather than as equity if issued under a registration statement. The Company, in consultation with legal counsel, determined that its outstanding public warrants issued under a Registration Statement on Form S-1 met, and continues to meet, the criteria for equity based on the terms of the warrant. Had the warrants been determined that liability treatment was required, the liability would have been approximately $64 million for the 953,595 public warrants at December 31, 2020 with a non-cash charge to the statement of operations of $61 million for the year ended December 31, 2020.

The ASU is effective for smaller reporting companies in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, although early adoption is permitted, as early as fiscal years beginning after December 15, 2020. As such, the Company adopted ASU 2020-06 effective January 1, 2021, on a full retrospective basis, which will allow the Company to continue to classify the warrants as equity, and as a result, had no effect on its condensed financial statements and related disclosures. If the Company had recorded the warrants as a liability in prior periods, with the full retrospective adoption on January 1, 2021, the liability would have been recast as equity and retained earnings adjusted to reverse the effect of the liability entries and as a result, there would be no impact on the financial statements for any periods presented.

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 standard is effective for the Company beginning January 1, 2023. The adoption of this guidance is not expected to have a material effect on our consolidated 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 institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts from inception through September 30, 2021. As of September 30, 2021, $23,184,771 of the Company’s cash deposits were greater than the federally insured limits.

Major Customers

For the three months ended September 30, 2021, revenues from one customer accounted for 74% of total revenues, and for the nine months ended September 30, 2021, revenues from one customer accounted for 36% of total revenues, with no other single customer accounting for more than 10% of revenues. At September 30, 2021, accounts receivable from two customers accounted for 52% and 16% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended September 30, 2020, revenues from four customers accounted for 41%, 27%, 14% and 11% of total revenues, and for the nine months ended September 30, 2020, revenues from two customers accounted for 14% and 13% of total revenues, with no other single customer accounting for more than 10% of revenues. At September 30, 2020, accounts receivable from four customers accounted for 42%, 29%, 14% and 10% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the nine months ended September 30, 2021 and 2020, we had a heavy concentration of sales to federal, state and local governments which represented 71% and 60% of revenues, respectively.

Cash and Cash Equivalents

For the purposes of the unaudited condensed statements of cash flows, the Company considers all liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at September 30, 2021 and December 31, 2020, respectively.

Fair Value of Financial Instruments

The Company’s financial instruments, including accounts receivable, accounts payable, accrued expenses, and short-term loans, are carried at historical cost basis. At September 30, 2021, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

Accounts Receivable

Accounts receivable are customer obligations due under normal trade terms. Management reviews accounts receivable on a periodic basis to determine if any receivables may become uncollectible. Management’s evaluation includes several factors including the aging of the accounts receivable balances, a review of significant past due accounts, dialogue with the customer, the financial profile of a customer, our historical write-off experience, net of recoveries, and economic conditions. The Company includes any accounts receivable balances that are determined to be uncollectible in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

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 the manufacturing process. The Company regularly reviews inventory components and quantities on hand and performs annual physical inventory counts. A reserve is established if this review process determines the net realizable value of such inventory may be below the carrying value.

Patents

The Company believes it will achieve future economic value benefits for its patents. All administrative costs for obtaining patents are accumulated on the balance sheet as a patent asset until such time as a patent is issued. The costs of these intangible assets are classified as a long-term asset and amortized on a straight-line basis over the legal life of such asset, which is typically 20 years. In the event a patent is denied or abandoned, all accumulated administrative costs will be expensed in the period in which the patent was denied or abandoned. Patent amortization expense was $13,156 and $3,273 in the nine months ended September 30, 2021 and 2020, respectively.

Leases

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees need to recognize almost all leases on the balance sheet as a right of use asset and a corresponding lease liability. The Company adopted this standard as of January 1, 2019 using the effective date method and applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected not to reassess the following: (i) whether any expired or existing contracts contain leases, and (ii) initial direct costs for any existing leases. For contracts entered into after the effective date, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected to not recognize right of use assets and lease liabilities for short term leases that have a term of 12 months or less.

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.

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 are recognized when 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.

Revenues on a bill-and-hold arrangement are recognized when control of the product is transferred to the customer, but physical possession of the product transfers at a point in time in the future. To determine this, the reason for the arrangement must be substantive, the product must be separately identified and ready for physical transfer, the customer has the ability to direct the use of the product and the product cannot be directed to another customer.

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.

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 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. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. At September 30, 2021, the Company has no product warranty accrual given the Company’s historical financial warranty expense.

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, all of which are included in inventory prior to a sale, as costs of revenues. The Company further includes shipping and handling costs as cost of revenues.

Stock-Based Compensation

The Company follows ASC 718, “Compensation – Stock Compensation.” ASC 718 requires companies to estimate and recognize the fair value of stock-based awards to employees and directors. The fair value of the portion of an award that is ultimately expected to vest is recognized as an expense over the shorter of the service periods or vesting periods using the straight-line attribution method.

The Company adopted ASU 2018-07 and accounts for non-employee share-based awards in accordance with the measurement criteria of ASC 718 and recognizes the fair value of such awards over the service period. The Company used the modified prospective method of adoption.

The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.

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 the incremental shares of common stock issuable upon the exercise of stock options, stock warrants, convertible debt instruments or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.

Options to purchase 222,383 shares of common stock and warrants to purchase 542,823 shares of common stock were outstanding at September 30, 2021. These shares were not included in the computation of diluted loss per share for the three or nine months ended September 30, 2021 because the effects would have been anti-dilutive. These options and warrants may dilute future earnings per share.

Reclassifications

Where necessary, the prior year’s information has been reclassified to conform to the current period’s statement presentation. On the Condensed Statements of Cash Flows, the prepaid inventory of $126,100 that was converted to inventory at September 30, 2020 was reclassified from inventory to conform to the September 30, 2021 presentation and $69,711 of deferred revenue was reclassed to deferred revenue, noncurrent on the Condensed Balance Sheets.

Segments

The Company follows ASC 280-10 "Disclosures about Segments of an Enterprise and Related Information." During the nine months ended September 30, 2021 and 2020, the Company only operated in one segment; therefore, segment information has not been presented.

As reflected in the accompanying unaudited condensed financial statements for the nine months ended September 30, 2021, the Company had a net loss and net cash used in operating activities of $4,581,228 (which includes $814,588 of non-cash compensation expense) and $5,160,604, respectively. Additionally, at September 30, 2021, the Company had an accumulated deficit of $55,603,834. The Company has incurred significant losses from operations since inception, and such losses are expected to continue.

In April 2019, the Company issued shares of its common stock in a public offering that generated gross proceeds of $13,201,000, which was used to pay off the Company’s debt and to fund business operations. The Company issued shares in two additional public offerings generating gross proceeds of $11,499,675 in July 2020 and $7,500,000 in November 2020. In addition, the warrants issued in the April 2019 public offering and from earlier private offerings generated an additional $12,611,377 during fiscal 2020 through September 30, 2021 from the exercise of such warrants. At September 30, 2021, there are warrants outstanding to purchase up to 542,823 shares of common stock, which if fully exercised would generate an additional $3,424,385.

At September 30, 2021, our cash balance was $23,078,452 and our working capital was $26,125,088. Management believes it has sufficient cash to fund its liabilities and operations for at least the next twelve months from the issue date of this report.

Inventory consists of the following: 

The major components of accrued expenses are summarized as follows: 

On October 18, 2016, the Company entered into a five-year employment agreement, effective as of January 1, 2016, with Mr. Desmond Wheatley, the Chief Executive Officer, President, and Chairman of the Company (the “Agreement”). Pursuant to the Agreement, Mr. Wheatley received an annual deferred salary of $50,000 which Mr. Wheatley deferred until such time as Mr. Wheatley and the Board of Directors agreed that payment of the deferred salary and/or cessation of the deferral was appropriate. In August 2018, the Agreement was amended to provide that his salary shall defer until the earliest to occur of the following: (i) a permissible event specified in Section 409A of the Code, (ii) December 31, 2020, (iii) a change of control as defined in the Agreement, or (iv) a sale of all or substantially all of the assets of the Company.

All deferred amounts were evidenced by an unsecured convertible promissory note payable by the Company to Mr. Wheatley bearing simple interest at the rate of 10% per annum, accruing until paid, convertible into shares of the Company’s common stock at $7.50 per share at any time in whole or in part at Mr. Wheatley’s discretion. As the conversion price was equivalent to the fair value of the common stock at various salary deferral dates prior to June 30, 2018, there was no beneficial conversion feature to this note through such date. Subsequent to June 30, 2018 through December 31, 2018 and based on the average daily closing price of our common stock, the Company recorded $8,672 of debt discount for the beneficial conversion feature value which is being amortized to interest expense over the term of the note. For the three months ended March 31, 2019 and based on the average daily closing price of our common stock, the Company recorded $3,967 of debt discount for the beneficial conversion feature value which is also being amortized to interest expense over the term of the note. There was no beneficial conversion value and therefore, no debt discount was recorded for any other periods subsequent to March 31, 2019. Additionally, on March 29, 2017, the Board of Directors granted Mr. Wheatley a $35,000 bonus for which Mr. Wheatley agreed to defer such bonus under the same terms of his salary deferral.

On September 17, 2019, the Board of Directors adopted a resolution to pay off the convertible promissory note issued to Mr. Wheatley for his deferred compensation in the near future (subject to a recommendation on timing from Mr. Wheatley), and no additional salary was deferred after September 15, 2019. In February 2020, the remaining debt discount of $5,990 was recorded as interest expense, additional interest of $3,442 was accrued, and the total note of $220,417 and interest of $52,326 was paid to Mr. Wheatley.

On May 1, 2020, the Company received a U.S. Small Business Administration Paycheck Protection Program loan of $339,262 which was offered through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This loan was recorded as a note payable, is subject to a 1% annual interest rate and has a two year term. This low interest loan was intended to support short term cash flow in the event we were more heavily impacted by the COVID-19 virus. In July 2020, we were able to raise capital and no longer required the loan. The full amount of the loan was repaid on November 13, 2020 in addition to $1,847 of interest.

In October 2015, the Company purchased a new vehicle and financed the purchase through a dealer auto loan. The loan has a term of 60 months, requires minimum monthly payments of approximately $950, and bears interest at a rate of 5.99 percent. The final payment was made on this loan in October 31, 2020.

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, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

Leases:

In August 2016, the Company entered into a sublease for its current corporate headquarters and manufacturing facility. The sublease expired in August 2020 which was the same term of the master lease for which the Company was the subtenant. In September 2020, the Company initiated a new five year master lease agreement, with two optional one year renewals. Monthly lease payments will range from $52,000 to $58,526 per month over the term of the lease.

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, 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. All expenses and liabilities relating to such contracts were recorded in accordance with GAAP during the periods.

The Company evaluates new leases at inception based on the criteria defined in Leases (Topic 842). On September 1, 2020, the Company entered into a new five year operating lease with payments ranging from $52,000 to $58,526. The lease has two one-year options to extend the term of the lease. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal periods have been excluded from the right-of-use (“ROU”) asset. We calculated the present value of the lease payment stream using our effective borrowing rate of 10% and recorded a ROU asset and operating lease liability each of $2,605,032 at September 1, 2020. The ROU asset and the corresponding lease liability are being equally amortized on a straight-line basis over the term of the lease which expires on August 31, 2025.

The tables below show the operating ROU assets and liabilities as of December 31, 2020 and the balance as of September 30, 2021, including the changes during the periods.  

As of September 30, 2021 and December 31, 2020, the current and non-current portions of the lease liability were recorded to the Balance Sheet as follows:  

The future minimum rental commitments for our operating leases reconciled to the lease liability as of September 30, 2021 is as follows:  

There was no Federal income tax expense for the nine months ended September 30, 2021 or 2020 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, 2021 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.

On September 30, 2021 the company granted each of our two non-employee directors annual restricted stock grants of 2,900 shares of our common stock and our lead independent director an annual restricted stock grant of 4,000 shares of common stock, which vest quarterly in four (4) equal installments beginning on December 31, 2021. On the grant date, these shares had a per share fair value of $27.37 based on the closing trading price of our common stock, or $268,234. There was no expense recognized in the quarter ended September 30, 2021.

On April 1, 2021, the Board approved two restricted stock grants to Mr. Wheatley under the 2011 Stock Incentive Plan. The total number of shares granted was determined based on an award of $112,500, divided by the per share closing trading price on April 1, 2021. On the grant date, the shares had a per share fair value of $40.10 and 2,806 shares were granted, half of which will vest quarterly over three equal installments and half of which will vest quarterly over 11 equal installments. During the six months ended September 30, 2021, 1,192 of these shares vested generating an expense of $47,728. At September 30, 2021, 1,614 shares are unvested representing $64,772 of unrecognized restricted stock grant expense which will be recognized through the quarter ending December 31, 2023.

On April 16, 2021, the Board appointed Nancy Floyd to the Company’s board of directors. Concurrent with her appointment, the Company, upon recommendation of the Compensation Committee, granted Ms. Floyd 5,592 shares of restricted stock which had a per share fair value of $33.34 on the date of grant and will vest quarterly through September 30, 2021. During the nine months ended September 30, 2021, all 5,592 shares vested generating an expense of $186,426. At September 30, 2021, all of these shares were vested, and no unrecognized restricted stock grant expense remained.

On April 16, 2021, the Board appointed Mr. Posawatz as the Lead Independent Director. With this appointment, the Company, upon recommendation of the Compensation Committee, granted Mr. Posawatz 2,246 shares of restricted stock for this role which had a per share fair value of $33.34 on the date of grant and will vest quarterly through September 30, 2021. During the nine months ended September 30, 2021, all 2,246 shares vested generating an expense of $74,876. At September 30, 2021, all of these shares were vested, and no unrecognized restricted stock grant expense remained.

On October 20, 2020, the Company granted each of our two non-employee directors annual restricted stock grants of 12,200 shares of our common stock and our then lead independent director an annual restricted stock grant of 17,100 shares of common stock, which vest quarterly in four (4) equal installments. On the grant date, these shares had a per share fair value of $14.95 based on the closing trading price of our common stock, or $620,425. During the three months ended March 31, 2021, upon the death of our lead independent director, 12,825 unvested shares of restricted stock were forfeited and returned to the Company. During the nine months ended September 30, 2021, 18,300 shares of restricted stock relating to the other two directors vested, generating an expense of $273,584. At September 30, 2021, all of these shares were vested, and no unrecognized restricted stock grant expense remained.

On June 17, 2020, the Board approved two restricted stock grants to Mr. Wheatley under the 2011 Stock Incentive Plan. The total number of shares granted was determined based on an award of $150,000 divided by the per share quoted trading price on June 17, 2020. On the grant date, the shares had a per share fair value of $7.35 and 20,408 shares were granted, half of which vest quarterly over four equal installments and half vest quarterly over 12 equal installments. During the nine months ended September 30, 2021, 5,101 shares from this grant vested and 3,141 shares from an October 1, 2019 grant vested generating a total expense of $56,250. At September 30, 2021, 7,196 shares for these 2 grants are unvested representing $50,000 of unrecognized restricted stock grant expense which will be recognized through the quarter ending March 31, 2023.

Stock Options

During the three months ended September 30, 2021 and 2020, the Company recorded non-cash stock option based compensation expense of $49,136 and $27,068, respectively. During the nine months ended September 30, 2021 and 2020, the Company recorded non-cash stock option based compensation expense of $175,724 and $81,204, respectively. As of September 30, 2021, there was $435,461 of unrecognized stock option-based compensation expense that will be recognized over the next 3 years.

During the three months ended September 30, 2021, there were no stock options granted. There were 89,800 stock options exercised on a cashless basis for 33,142 shares of common stock at a weighted average exercise price of $13.27. The Company withheld shares to cover income and payroll taxes totaling $543,937, which was charged to additional paid in capital. There were 839 stock options exercised on a cash basis at an exercise price of $12.76 for a total purchase price of $10,706.

During the nine months ended September 30, 2021, there were no stock options granted. There were 95,753 stock options exercised on a cashless basis for 35,522 shares of common stock at a weighted average exercise price of $13.34. The Company withheld shares to cover income and payroll taxes totaling $624,976, which was charged to additional paid in capital. There were 839 stock options exercised on a cash basis at an exercise price of $12.76 for a total purchase price of $10,706.

There were stock options outstanding to purchase 222,383 shares of common stock at a weighted average exercise price of $9.30 at September 30, 2021. During the nine months ended September 30, 2021, 22,833 stock options were forfeited.

Warrants

During the nine months ended September 30, 2021, warrants to purchase 422,761 shares of the Company’s common stock were exercised generating $2,684,520. At September 30, 2021, there were warrants outstanding to purchase up to 542,823 shares of the Company’s common stock at a weighted average exercise price of $6.34.

For each of the identified periods, revenues can be categorized into the following: 

At September 30, 2021 and December 31, 2020, deferred revenue was $159,596 and $107,489, respectively. The September 30, 2021 balance consists of deferred maintenance fees of $156,296 pertaining to services to be provided through the second quarter of 2027 and a $3,300 prepayment from a customer. 

In October 2021, an option was granted to an employee to purchase up to 20,000 shares of the Company’s common stock. This option will vest over 4 years and has an exercise price of $26.80 per share.

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 Beam Global (hereinafter, “Beam,” “Company,” “us,” “we” or “our”), 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.

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:

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, 2020 (sometimes referred to as the “2020 Form 10-K”) that we previously filed with the Securities and Exchange Commission, including without limitation the “Risk Factors” section in the 2020 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.

Overview

Beam is a cleantech innovation company based in San Diego, California that develops, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, outdoor media advertising and energy security and disaster preparedness.

The Company has designed five product lines that incorporate the same underlying proprietary technology for producing a unique alternative to grid-tied charging of electric vehicles, 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:

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, BTC Power 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: 

Overall Business Outlook

Our revenues increased from $4,009,644 in the first nine months of 2020 to $5,514,102 for the same period in 2021. Of our revenues in the first nine months of 2021, 71% were to state and local governments, primarily due to the delivery of 30 units of a 52 unit order from the State of California. We have also experienced growth from federal customers through our Federal General Services Administration (GSA) Multiple Award Schedule (MAS) contract which represented 14% of revenues in the first nine months of 2021 and enterprise customers represented 11% of revenues for the same period. We have strengthened our sales force over the past year and increased marketing efforts, including engaging a public relations firm and a rebranding, to communicate and increase awareness of our products to potential customers. On January 27, 2021, President Biden issued an executive order that called for “clean and zero-emission federal, state, local, and tribal government fleets.” Also, the Senate passed a bill on August 10, 2021 which Congress passed on November 5, 2021 for a $1.2 trillion infrastructure package that includes $7.5 billion for building a nationwide network of plug-in electric vehicle chargers. Beam Global views federal investment in EV infrastructure as an important potential source of future revenues particularly now that the Company has been awarded a Federal General Services Administration (GSA) Multiple Award Schedule (MAS) contract that will make the procurement process by federal agencies much easier and faster. We have hired a government relations person and engaged a lobbying firm in Washington DC to support this opportunity for growth. We are also increasing our sales across the U.S. to add to our significant presence in California. We believe that our opportunities in corporate markets will increase as demand for workplace and public charging increases. We believe our products are uniquely positioned to benefit from this growth, as well as increased market share as a result of our ability to rapidly deploy resilient and low total cost EV charging infrastructure without the complexities of construction, electrical work or permitting.

We continue to make progress in our outdoor media advertising business in 2021, where the efforts of our contracted industry expert are identifying and vetting potential corporate sponsors to receive global naming rights to the network of EV ARC™ systems planned for the City of San Diego and other major US cities.

We have two new patents that were issued by the United States Patent and Trademark Office at the end of 2019 and in 2020 for 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. We have also been issued a new patent for our transformable EV ARC™ in China.

We had a gross loss of $631,020 in the nine months ended September 30, 2021, compared to a gross loss of $173,037 for the same period in the prior year. We currently have a fixed overhead structure and facility that will support our expected growth over the next several years. Until our production increases, we have underutilized capacity that adds a fixed cost burden to our margins. Once we are able to increase our production volumes, we will improve our fixed cost 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 where we can 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. Components such as battery cells and solar panels are expected to continue to decrease in cost in the coming months and years. 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 therefore 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 future. In the short-term, we are experiencing increases in steel pricing and transportation cost. We are working with our suppliers to get the best pricing we can and to ensure adequate supply until such time as production supply improves and pricing is expected to go back to normal pricing.

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, 2020. There have been no material changes in these policies or their application.

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 valuation of inventory and standard cost allocations, depreciable lives of property and equipment, valuation of intangible assets, estimates of loss contingencies, estimates of the valuation of lease liabilities and the related right of use assets, valuation of share-based costs, and the valuation allowance on deferred tax assets.

Changes in Accounting Principles. There were no significant changes in accounting principles that were adopted during the three months ended September 30, 2021.

Results of Operations

Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020

Revenues. For the three months ended September 30, 2021, revenues were $2,020,612, a 63% increase over $1,237,434 for the three months ended September 30, 2020. During the third quarter of 2021, we had a heavy concentration of revenues from California as we deployed an additional 23 of the 52 units ordered by the State of California through the state-wide Department of General Services (DGS) contract. These units are being deployed at various State agencies, including Cal Fire, Cal OES and Caltrans. We also delivered our first order on our state-wide Florida Sheriff’s Association contract. We received new orders of $5.4 million during the quarter which resulted in a strong backlog on September 30, 2021 of $7.1 million.

Gross Loss. For the three months ended September 30, 2021, we had a gross loss of $208,023 compared to a gross loss of $188,732 for the three months ended September 30, 2020. Despite the increase in revenues during the third quarter of 2021 compared to 2020, our gross loss increased primarily due to an increase in costs for the new EV ARC™ 2020 unit that was launched at the end of 2019 and rolled out in 2020, compared to the original EV ARC™. Based on our experience with the production of our original EV ARC™, we believe our production costs per unit for the new EV ARC^TM 2020 will reduce over time as our operations and engineering teams improve the production process. We are also being negatively impacted by increases in steel and other components due to high demand. We saw a significant increase on many of our steel component orders during the quarter which is beginning to be reflected in our cost of revenues and will continue to increase as more orders are received. We expect that these higher material costs may continue for several more quarters until global production levels increase. We made some changes to our shipping practices in Q3 2021 to minimize the use of third party logistics companies due to significant pricing increases. This resulted in deployment cost savings compared to recent quarters. This was partially offset by decreased revenue for shipping and handling during the current quarter as the DGS contract is exempt from paying for shipping and handling.

Operating Expenses. Total operating expenses were $1,481,306 for the three months ended September 30, 2021, compared to $906,962 for the same period in 2020, a 63% increase. The increase was primarily due to $202,463 for non-cash compensation expense for stock option expense and vesting of director restricted shares, $243,614 for increased sales and marketing expense to support revenue growth, $31,997 for increased costs related to our 2021 annual shareholder meeting and $96,269 of other net increases.

Other Income and Expense. Other income and expense were $698 of income in the quarter ended September 30, 2021, compared to $159 of expense the quarter ended September 30, 2020.

Net Loss. Our net loss was $1,688,631 for the three months ended September 30, 2021, a $592,777 increase from a net loss of $1,100,023 for the same period in 2020, primarily due to the increase in gross loss and increased operating expenses.

Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and 2020

Revenues. For the nine months ended September 30, 2021, revenues were $5,514,102, a 38% increase over $4,009,644 for the nine months ended September 30, 2020, primarily due to the delivery of 30 of the 52 units ordered by the State of California. Sales from Federal agencies also grew in the first nine months of 2021 compared to the same period in the prior year. In addition, we continue to see more multiple unit orders compared to prior quarters as evidenced by a 52 system order from the State of California and several others. During 2020, we experienced some delays in customers placing orders as a result of the COVID-19 pandemic, which are now moving forward in 2021. Our backlog on September 30, 2021 was $7.1 million.

Gross Loss. For the nine months ended September 30, 2021, we had a gross loss of $631,020 compared to a gross loss of $173,037 for the nine months ended September 30, 2020. Despite the increase in revenues during the first nine months of 2021 compared to 2020, our gross loss increased primarily due to increased costs for the new EV ARC™ 2020 unit that was launched at the end of 2019 and rolled out in 2020, compared to the original EV ARC™. Based on our experience with the production of our original EV ARC™, we believe our production costs per unit for the new EV ARC 2020 will reduce over time as our operations and engineering teams improve the production process. We are also being negatively impacted by increases in steel prices and shipping costs due to high demand. Steel costs have increased significantly in the past two quarters, and we expect this to continue for the next several quarters until global production improves. Our shipping costs using third party logistics companies also increased in the first nine months of 2021 compared to the prior year. However, we made some changes to our shipping practices in Q3 2021 to minimize the use of third party logistics companies, which resulted in significant savings over the prior quarter.

Operating Expenses. Total operating expenses were $3,952,991 for the nine months ended September 30, 2021, compared to $2,697,418 for the same period in 2020, a 47% increase. The increase was primarily due to $475,559 for non-cash compensation expense for stock option expense and vesting of director restricted shares, $394,177 for increased sales and marketing expense to support revenue growth, $78,310 for research and development increased headcount to support development projects, $71,934 for increased costs related to the 2021 annual shareholder meeting, $57,190 for increased directors and officers insurance premiums, $33,334 for increased director cash compensation, $39,790 for increased accounting fees, $21,562 for recruiting fees and $83,717 of other net increases.

Other Income and Expense. Interest income was $3,658 in the nine months ended September 30, 2021, compared to $10,280 for the same period in 2020, due to a significantly lower average gross yield on our investments. Interest expense was $11,357 in the nine months ended September 30, 2020, compared to a nominal $50 in the nine months ended September 30, 2021.

Net Loss. Our net loss was $4,581,228 for the nine months ended September 30, 2021, a $1,704,727 increase from a net loss of $2,876,501 for the same period in 2020, primarily due to the increase in gross loss and increased operating expenses.

Liquidity and Capital Resources

At September 30, 2021, we had cash of $23,078,452, compared to cash of $26,702,804 at December 31, 2020. We have historically met our cash needs through a combination of equity and debt financings. Our cash requirements are generally for operating activities.

Our cash flows from operating, investing and financing activities, as reflected in the condensed statements of cash flows, are summarized in the table below:

Operating Activities

Net loss of $4,581,228 for the nine months ended September 30, 2021 decreased by $899,123 for non-cash expense items that included depreciation and amortization, common stock issued for services for director compensation, non-cash compensation expense related to the grant of stock options, and amortization of operating lease right of use asset. Cash used in operations for the period included a $1,011,971 increase in inventory based on forecasted requirements, a $689,353 increase in accounts receivable due to some slow payments and an $18,691 decrease in sales tax payable. Cash provided by operations included an $89,663 increase in prepaid expenses and other current assets due to insurance prepayments, a $62,549 increase in accounts payable for inventory purchases, a $52,107 increase in deferred revenue due to an increase in the sale of maintenance plans and a $37,198 increase in accrued expenses.

Net loss of $2,876,501 for the nine months ended September 30, 2020 was decreased by $345,899 for non-cash expense items that included depreciation and amortization, common stock issued for services for director compensation, non-cash compensation expense related to the grant of stock options, amortization of debt discount associated with the related party note, and amortization of operating lease right of use asset. Cash used in operations for the period included a $545,619 increase in accounts receivable due to higher revenues in Q3 2020 compared to Q4 2019, a $239,863 increase in prepaid expenses and other current assets for inventory prepayments and insurance deposits, payment of a convertible note originally issued in lieu of salary for a related party of $220,417, and a decrease in accounts payable of $114,228. Cash provided by operations included an increase of $177,640 for accrued expenses, primarily for payroll and related expenses, $143,224 for a decrease in inventory purchases, $74,703 for an increase for sales tax payable, $18,968 for increased deferred revenue for maintenance contracts, and $4,869 for deposits.

Cash used in investing activities included $473,318 to purchase manufacturing equipment, including two trucks for product delivery and $60,681 for patent related costs during the nine months ended September 30, 2021. In the nine months ended September 30, 2020, $153,097 was used to purchase manufacturing equipment and $69,551 was used to fund patent related costs.

During the nine months ended September 30, 2021, cash generated by our financing activities included $2,684,519 in proceeds received from the exercise of warrants and we used cash of $614,269 to cover payroll taxes related to cashless stock option exercises. During the nine months ended September 30, 2020, cash generated by our financing activities included $11,499,675 in proceeds from the issuance of common stock pursuant to a public offering, offset by funding of deferred equity offering costs of $960,833, $1,066,912 from the exercise of warrants, we borrowed $339,262 through the Small Business Administration Paycheck Protection Program made available through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and we paid $8,275 toward the repayment of an auto loan.

Working capital has decreased from $28,133,031 at December 31, 2020 to $26,125,088 at September 30, 2021, primarily due to operating cash usage, partially offset by cash proceeds from warrant exercises.

While the Company continues to focus on sales and increased market awareness of its products, the Company has not generally earned a net profit on its sales of products during recent years. However, we believe that our net profit will improve as our revenues grow. Management believes that with increased production volumes that we believe are forthcoming, efficiencies will continue to improve, and total per unit production costs will decrease, thus allowing for increasing gross profits on the EV ARC™ and Solar Tree® products in the future. The Company may raise capital from the issuance of its securities or debt instruments until it achieves positive cash flow from its business, which is predicated on increasing sales volumes and the continuation of production cost reduction measures. Management cannot currently predict when or if it will achieve positive cash flow.

On July 7, 2020, the Company issued 1,393,900 shares of common stock in an underwritten public offering at $8.25 per share, generating approximately $10,500,000 after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On November 27, 2020, the Company issued 250,000 shares of common stock in an underwritten public offering at $30.00 per share, generating approximately $6,900,000 after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the aggregate net proceeds from these offerings primarily for working capital and general corporate purposes.

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 revenue growth, process improvements and vendor negotiations leading to cost reductions, increased public awareness of the Company and its products, and the maturation of certain long sales cycle opportunities. Management believes that these steps, if successful, may enable the Company to generate sufficient revenue to continue operations. There is no assurance, however, as to if or when the Company will be able to achieve those operating objectives.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

During the period covered by this filing, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, we do not yet have sufficient controls and procedures to ensure that all the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.

The Company intends to improve its internal control over financial reporting and improve its disclosure controls and procedures. As of December 31, 2020, we had identified the following material weaknesses, of which the items below still exist as of September 30, 2021 and through the date of this report:

Since these controls have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

Corrective Action and Changes in Internal Control Over Financial Reporting

During the three months ended September 30, 2021, we continued to develop our manual controls, including setting up inventory locations in production to assist in the tracking and counting of our inventory. We had some staffing turnover that caused a delay in the selection of the new Enterprise Resource Planning (ERP) software package. We plan to select the new ERP in early 2022.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of this report, there are no ongoing or pending legal claims or proceedings of which management is aware.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition, liquidity or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.