Beam Global - Quarter Report: 2022 March (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 March 31, 2022

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 May 16, 2022 was 10,075,569.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Beam Global

Condensed Balance Sheets

(In thousands)

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

Beam Global

Condensed Statements of Operations

(Unaudited, in thousands)

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

Beam Global

Condensed Statements of Changes in Stockholders' Equity

(Unaudited, in thousands)

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

Beam Global

Condensed Statements of Cash Flows

(Unaudited, in thousands)

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

BEAM GLOBAL

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

(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. We develop, design, engineer, manufacture and sell high-quality, renewably energized infrastructure products for electric vehicle (“EV”) charging, outdoor media and branding, and energy security and disaster preparedness as well as safe and compact, highly energy-dense battery solutions. 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.

On March 4, 2022, the Company completed its acquisition of All Cell Technologies, LLC (“All Cell”), an energy storage solutions and technologies company based in Broadview, Illinois. Refer to note 3, Business Combination for additional details.

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 ended March 31, 2022 and 2021, and our financial position as of March 31, 2022, 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.

The Company’s financial statements are presented on a consolidated basis. The Company prepared the consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

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, 2021. The December 31, 2021 balance sheet is derived from those statements.

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 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 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 March 31, 2022. As of March 31, 2022, approximately $20.0 million of the Company’s cash deposits were greater than the federally insured limits.

Major Customers

The Company continually assesses the financial strength of its customers. For the three months ended March 31, 2022, three customers accounted for 22%, 16% and 12% of total revenues each. For the three months ended March 31, 2021, revenues from three customers accounted for 32%, 12% and 10% of total revenues. At March 31, 2022, accounts receivable from two customers accounted for 34% and 19% of total accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance. At December 31, 2021, accounts receivable from four customers accounted for 30%, 22%, 13% and 10% of total accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance. For the three months ended March 31, 2022 and 2021, the Company had a heavy concentration of sales to federal, state and local governments which represented 69% and 70% of revenues, respectively.

Significant Accounting Policies

During the three months ended March 31, 2022, there were no changes to our significant accounting policies as described in in our Annual Report on Form 10-K for the year ended December 31, 2021. See below for our policy related to business combinations, goodwill and indefinite-lived intangible assets and fair value measurements.

Business Combinations

The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Contingent consideration liability is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liability are recognized in operating expenses in the statement of operations. Contingent consideration liability related to the acquisition consists of commercial milestone payments and are valued using a Monte Carlo simulation. The fair value of commercial milestone payments reflects management’s estimates of discount rates and probability of achieving certain milestones.

Goodwill and Indefinite-lived Intangible Assets

Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives except for customer deposits, for which the amortization is recorded on a double declining method over the estimate useful life. The carrying values of intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Goodwill represents the excess of the purchase prices of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test, including macroeconomic conditions, industry and market considerations, and our overall financial performance. If, after completing the qualitative assessment, it is determined it is more likely than not that the estimated fair value is greater than the carrying value, the Company concludes no impairment exists. Alternatively, if the Company determines in the qualitative assessment, it is more likely than not that the fair value is less than its carrying value, then the Company performs a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge is recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. The goodwill annual assessment test is performed in the fourth quarter of every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

Fair Value Measurements

The fair value of assets and liabilities are based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

•    Level 1 — Quoted prices in active markets for identical assets or liabilities.

•    Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•    Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate the related fair values due to the short-term maturities of these instruments.

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 269,433 common shares and warrants to purchase 505,714 shares of common stock were outstanding at March 31, 2022. Options to purchase 337,633 common shares and warrants to purchase 576,946 shares of common stock were outstanding at March 31, 2021. These options and warrants were not included in the computation of diluted loss per share for the three months ended March 31, 2022 and 2021 because the effects would have been anti-dilutive. These options and warrants may dilute future earnings per share.

Segments

The Company follows ASC 280-10 for “Disclosures about Segments of an Enterprise and Related Information.” Management assesses its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. For periods through the date of All Cell acquisition, the Company had, and reported in, one reportable segment. Subsequent to the acquisition of All Cell, management continues to review financial results, manage the business and allocate resources on an aggregate basis. Therefore, financial results continue to be reported in a single operating segment.

The Company has a history of net losses, including the accompanying financial statements for the three months ended March 31, 2022 and 2021, where the Company had net losses of $2.3 million (which includes $0.1 million of non-cash stock-based compensation expense) and $1.3 million (which includes $0.1 million of non-cash stock-based compensation expense), respectively, and net cash used in operating activities of $1.9 million and $0.9 million, respectively. In addition, the Company’s outstanding warrants have generated an additional $0.1 million and $2.5 million of proceeds during the three months ended March 31, 2022 and 2021, respectively.

The Company expects to continue to incur losses for a period of time into the future. In addition, there is no guarantee that the warrants will be exercised or that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. The Company continues to invest in sales and marketing resources and seek out sales contracts that should provide additional revenues and, in time, generate operating profits.

The cash balance at March 31, 2022 was $19.2 million and our working capital was $21.8 million at March 31, 2022. 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.

On March 4, 2022, the Company completed its acquisition of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. This strategic acquisition is expected to increase and diversify our Company’s revenue, gross profitability, manufacturing capabilities, intellectual portfolio and customer base. The Company purchased substantially all of the assets and business of All Cell for 1,055,000 shares of Beam Common Stock (“Closing Consideration”) plus an additional $0.8 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 Beam Common Stock if it meets certain revenue milestones (the “Earnout Consideration”). The Earnout Consideration is: (i) two times the amount of All Cell revenue and contracted backlog that is greater than $7.5 million for 2022, and (ii) two times the amount of All Cell 2023 revenue only which exceeds the greater of either $13.5 million or 135% of the 2022 cumulative revenue, capped at $20.0 million. Revenues exceeding $20.0 million in 2023 will not be eligible for the Earnout Consideration. The maximum aggregate number of shares of Beam Common Stock that the Company will issue to seller for the Closing Consideration and Earnout Consideration will not exceed 1.8 million shares. Use of All Cell energy storage solutions in Beam Global products will not be considered as contributing to the Earnout calculation.

The preliminary fair value of consideration transferred consisted of the following (in thousands): 

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the acquisition date (in thousands): 

The estimated fair values assigned to identifiable assets acquired and liabilities assumed are provisional pending the finalization of the working capital and purchase price allocation and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to complete the allocation of purchase price as soon as practicable, but no later than one year after the acquisition date. The Company incurred $0.1 million of transaction costs during the three months ended March 31, 2022, directly related to the acquisition that is reflected in operating expenses in the statement of operations.

Goodwill represents the excess of the total purchase price over the fair value of the underlying net assets, largely arising from synergies expected to be achieved by the combined company and expanded market opportunities. The goodwill is expected to be fully deductible for tax purposes.

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 preliminary fair values assigned to identifiable intangible assets and goodwill acquired are as follows ($ in thousands): 

The fair values of the developed technology, trade name, customer relationships and backlog were estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits in the form of cash flows to be derived from ownership of the asset. The estimated fair values were developed by discounting future net cash flows to their present value at market-based rates of return. The useful lives of the intangible assets for amortization purposes were determined by considering the period of expected cash flows used to measure the fair values of the intangible assets adjusted as appropriate for entity-specific factors including legal, competitive and other factors that may limit the useful life. The identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives except for customer deposits which uses accelerated depreciation.

Pro Forma Financial Information

The following pro forma financial information summarizes the combined results of operations of Beam Global and All Cell as if the companies had been combined as of the beginning of the three months ended March 31, 2021 (in thousands):

The pro forma financial information is presented for information purposes only and is not indicative of the results of operations that would have been achieved had the acquisition been completed at the beginning of the three months ended March 31, 2021. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company, nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition. The unaudited pro forma financial information includes adjustments to reflect the incremental amortization expense of the identifiable intangible assets and transaction costs.

The statement of operations for the three months ended March 31, 2022 includes revenues of $0.4 million and loss from operations of $0.4 million from the acquired All Cell business.

Broadview Lease

As part of the acquisition, the Company assumed a facility lease located in Broadview, Illinois, and recorded $0.2 million in right-of-use asset and lease liability. The lease term ends on August 31, 2023 and contains clauses for annual rent escalation. Total minimum rental payments remaining as of March 31, 2022 were $0.2 million, of which $0.1 million is due within 2022.

Prepaid expenses and other current assets are summarized as follows (in thousands): 

Related party receivables as of March 31, 2022 and December 31, 2021 consisted primarily of payroll related taxes due for an employee option exercise.

Inventory consists of the following (in thousands): 

Property and equipment consist of the following (in thousands): 

The major components of accrued expenses are summarized as follows (in thousands): 

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 March 31, 2022, 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 sales agent agreements whereby sales agents would receive a fee equal to a percentage of revenues generated by the agent; 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.

There was no Federal income tax expense for the three months ended March 31, 2022 or 2021 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 March 31, 2022 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.

Stock Issued For Acquisition

The Company issued 1,055,000 shares of its common stock upon acquiring certain assets of All Cell Technologies, LLC. See further discussion in note 3. Business Combination.

Awards Under Stock Incentive Plans

Stock Options

Option activity for the three months ended March 31, 2022 is as follows: 

The Company’s stock option compensation expense was $0.1 million for each of the three months ended March 31, 2022 and 2021, and there was $1.0 million of total unrecognized compensation costs related to outstanding stock options at March 31, 2022 which will be recognized over 4.0 years.

Restricted Stock

A summary of activity of the restricted stock awards for the three months ended March 31, 2022 is as follows: 

As of March 31, 2022, there were unreleased shares of common stock representing $0.3 million of unrecognized restricted stock grant expense which will be recognized over approximately three years.

Warrants

A summary of activity of warrants outstanding for the years ended March 31, 2022 is as follows: 

For each of the identified periods, revenues can be categorized into the following (in thousands):

During the three months ended March 31, 2022 and 2021, 48% and 32% of revenues were derived from customers located in California, respectively. In addition, 4% of revenues in the three months ended March 31, 2022 were international sales compared to none in the same period in the prior year.

At March 31, 2022 and December 31, 2021, deferred revenue was $1.5 million and $0.3 million, respectively. These amounts represented customer deposits in the amount of $1.3 million and $0.1 million for March 31, 2022 and December 31, 2021, respectively and prepaid multi-year maintenance plans for previously sold products which account for $0.2 million and $0.2 million for March 31, 2022 and December 31, 2021, respectively and pertain to services to be provided through 2028.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements that are based on current expectations, estimates, forecasts, and projections about us, the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).

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, 2021 (sometimes referred to as the “2021 Form 10-K”) that we previously filed with the Securities and Exchange Commission, including without limitation the “Risk Factors” section in the 2021 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 develops, manufactures and sells high-quality, renewably energized infrastructure products for electric vehicle charging infrastructure, energy storage, energy security, disaster preparedness and outdoor media advertising.

The Company has designed five product lines for the electrification of transportation, that incorporate the same underlying proprietary technology and value for producing a unique alternative to grid-tied charging, having a built-in renewable energy source in the form of attached solar panels and/or light wind generator to produce power and battery storage to store the power. These products are rapidly deployable and attractively designed. Our product lines include:

In addition, with the acquisition of All Cell Technologies, LLC, we now offer Beam AllCell™ energy storage technology with a highly flexible lithium-ion battery platform architecture. The battery design uses a proprietary phase change material which provides a low-cost thermal management solution and a unique safety mechanism to prevent propagation of thermal runaway. They are ideally suited for applications where energy density, safety and specialized enclosures require high power in small spaces. Drones, submersibles, recreational products and a host of micro mobility products benefit from this technology. Beam is already using AllCell™ energy storage products in EV ARC™ products for EV charging and plan to incorporate this battery technology in our new product designs that are under development.

We believe that we are living in an increasingly electrified and untethered era, where electricity is replacing other forms of fuel and energy and doing so, increasingly without being connected to the grid through the use of batteries and other forms of energy storage. We also believe that there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that our products fulfill these requirements. 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™ systems, equipped with our proprietary battery technologies, can be deployed in minutes, not months, and are powered by renewable energy so there is no utility bill. We are agnostic as to the EV charging service equipment or provider and integrate best of breed solutions based upon our customer’s requirements. For example, our EV ARC™ and Solar Tree® products have been deployed with ChargePoint, Blink, Enel X, Electrify America and other high quality EV charging solutions. We can make recommendations to customers, or we can comply with their specifications and/or existing charger networks. Because they generate and store all their own electricity, our products replace the infrastructure required to support EV chargers, but 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 175% from $1.4 million in the first quarter of 2021 to $3.8 million for the first quarter of 2022. Primarily due to our investment in sales and marketing resources over the past two years which has created increased demand for our product, as well as an increase of $.4 million of sales for our battery storage business in March following the acquisition of All Cell Technologies, LLC. During the first quarter of 2022, revenues from federal customers and from enterprise customers showed strong growth compared to the same period in the prior year. We invested in our federal business channel with the addition of a federal lobbyist, a federal business development resource and a government relations employee who are helping to identify opportunities on the federal side, including increased awareness of our product and outreach with federal agencies. In addition, as companies are moving back to work from working from home during the past two years due to the pandemic, there is an increase in demand for workplace charging and corporate fleets. We continued to have material revenues from state and local agencies which comprised 69% and 70% of our sales in Q1 of 2022 and 2021, respectively. In addition, there is increased support for funding EV charging infrastructure on the state and federal level, as well as a number of federal grants available in addition to the Federal Solar Investment Tax Credit and Rule 179 accelerated depreciation which provide a strong financial incentive for many of our target customers. Net Zero Emission Initiatives continues to expand at the federal, state and local levels and with private enterprise. We expect the electric vehicle market to continue to experience significant growth over the next decade as supported by an expected 61 new electric vehicles launching in 2022 which will require additional EV charging infrastructure. We believe our products are uniquely positioned to benefit from this growth.

The Company’s acquisition of All Cell Technologies, LLC, a battery storage company, will provide new customer opportunities for Beam Global’s products and vise versa. We believe Beam’s gross margin will improve by utilizing the Beam All Cell battery in its EV ARCs™ as it did for 10 years in the past, but now at lower cost. Beam’s All Cell batteries are ideally suited for applications where energy density, safety and bespoke enclosures require high power in small spaces. Drones, submersibles, recreational products and a host of micro mobility and electric vehicle products are already benefiting from AllCell’s highly differentiated products. With the continued growth of untethered electrification, we believe there is opportunity for increased demand in these markets and others.

We continue to work with The Superlative Group, an industry leading consultant engaged in the selling of corporate sponsorships and have identified several potential corporate sponsors for a global naming rights agreement to network(s) of EV ARC™ units. Superlative is compensated when they are successful in securing a sponsor for our Driving on Sunshine network. This business model can be replicated in other cities throughout the country. Our energy security business is connected with the deployment of our EV charging infrastructure products and serves as an additional benefit to the value proposition of our charging products which, along with their integrated emergency power panels, can continue to operate, charge EVs, and deliver emergency power during utility grid failures. Our proprietary and state-of-the-art storage batteries installed on our products and powering EV chargers are immune to grid failures and provide another benefit for customers such as municipalities, counties, states, the federal government, hospitals, fire departments, large private enterprises with substantial facilities, and vehicle fleet operators or anyone who needs a reliable source of electricity to fuel electric vehicles.

We have begun development on our newest patented products - our EV Standard™ and UAV ARC™, which we expect will expand our product offerings leveraging the same proprietary technology as our current products and allow us to expand into new markets.

Gross margins improved in the quarter ended March 31, 2022, compared to the same period in 2021. The increase in revenues of EV ARC^TM systems from 18 in the first quarter of 2021 to 45 in the first quarter of 2022 resulted in favorable fixed overhead absorption and improved labor efficiencies gained by the higher volume. This was partially offset by ongoing inflation and supply chain driven cost increases on many of our components, including steel, in addition to increased delivery charges due to fuel price increases. We believe these cost increases are largely a temporary increase brought on by supply chain issues resulting from plant closures and staffing shortages due to the Covid-19 virus as well as other transitory inflationary pressures. As the supply chain issues are resolved over time and costs begin to come back down in the coming months and years, we expect to see a reduction in the cost of our bill of materials, which when combined with the cost reductions we anticipate through use of our in-house battery manufacturing, should contribute to a material reduction in our product costs. We are implementing lean manufacturing process improvements and making engineering changes to our product where we expect to benefit from cost reductions. Many of the components that we integrate into our products are manufactured by others. This is consistent with our strategy to take advantage of the investment by large and well-funded organizations in the improvement of various components and sub-assemblies which we integrate into our final product. Batteries are the highest cost contributor to our bill of materials, but with the March 2022 purchase of All Cell Technologies, LLC, a lithium-ion battery manufacturer, we expect those costs to be significantly reduced. We are in the process of identifying certain components and sub-assemblies which we manufacture or assemble in-house for which we intend to seek outsourced contracted manufacturing. We believe that outsourcing certain components and sub-assemblies will further reduce our costs, increase our gross margins, and significantly increase the potential output from our factory. We expect to see a significant increase in the demand for electric vehicle charging infrastructure and as such we do not anticipate significant pricing pressure on our products. The combination of this increase in demand for electric vehicle charging infrastructure and our revenues, and the cost cutting measures described above lead us to believe that we will see significant improvement in our gross margins in the near future.

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, 2021. There have been no material changes in these policies or their application.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include the allowance for doubtful accounts receivable, valuation of inventory and standard cost allocations, depreciable lives of property and equipment, valuation of intangible assets, estimates of loss contingencies, estimates of the valuation of lease liabilities and the related right of use assets, valuation of share-based costs, and the valuation allowance on deferred tax assets.

Changes in Accounting Principles. There were no significant changes in accounting principles that were adopted during the three months ended March 31, 2022.

Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021

Revenues. For the quarter ended March 31, 2022, our revenues increased 175% to $3.8 million compared to $1.4 million for the same period in 2021. Revenues to customers in California represented 48% of the total, which continues to be a strong market for EV ARC^TM systems. Most of these customers were state agencies or municipalities. Revenues to federal customers and corporate enterprises also increased during the quarter compared to the prior year. We recorded revenues in March 2022 of $0.4 million for energy storage as a result of our acquisition of All Cell Technologies which closed on March 4, 2022. We are currently engaged in a contract renewal process with the State of California’s Department of General Services. In addition, the General Services Administration (GSA) Beam was awarded a federal blanket purchase agreement (BPA) which will provide federal agencies a streamlined procurement process for procuring EV ARCs. During fiscal 2021, we invested in sales and marketing employees, resources and programs to raise awareness of the benefits and value of our products, which is reflected in the strong year over year sales growth in the quarter. The receipt of orders may continue to be uneven due to the timing of customer approvals or budget cycles, however we believe that as EV adoption increases in concert with increased availability of infrastructure funding, our business will be less impacted by specific variations in order timing.

Gross Loss. For the quarter ended March 31, 2022, our gross loss was $0.3 million, or 8% of sales, compared to $0.1 million, or 11% of sales in the same quarter of the prior year. As a percentage of sales, the margin improved by 3 percentage points, primarily due to the increase in production levels in the current quarter compared to the first quarter of 2021, which resulted in favorable fixed overhead absorption. In addition, our labor efficiency improved during the quarter as a result of a steady flow of units through the factory. This was partially offset by an increase in material costs for steel, batteries and other components, due to the Covid-19 pandemic and other inflationary pressures. Shipping costs have increased globally as well as gas prices which have increased our delivery costs. We expect our cost per unit to continue to decrease as we expect to see material costs return to normalcy post pandemic. We also acquired a lithium-ion battery manufacturer, All Cell Technologies, LLC in March 2022, which should significantly reduce the cost of the batteries in our units. In addition, as we expect the Company to grow in 2022 and beyond, we expect our fixed overhead absorption to continue to improve.

Operating Expenses. Total operating expenses were $2.0 million for the first quarter of 2022, compared to $1.1 million for the same period in the prior year, a 79% increase. The increase was primarily due to $0.3 million for increased sales and marketing expense to support revenue growth, $0.2 million for expenses related to the newly acquired All Cell Technologies, $0.2 million increase for legal and accounting services, partially attributable to the acquisition, and $0.2 million of other net expenses.

Liquidity and Capital Resources

At March 31, 2022, we had cash of $19.2 million, compared to cash of $21.9 million at December 31, 2021. We have historically met our cash needs through a combination of proceeds received from private and public offerings of our securities and loans. Our cash requirements are generally for operating activities.

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

For the three months ended March 31, 2022, our cash used in operating activities was $1.9 million compared to $0.9 million for the three months ended March 31, 2021. Net loss of $2.3 million for the quarter ended March 31, 2022 was increased by $0.4 million of non-cash expense items that included depreciation and amortization of $0.2 million, common stock issued for services for director compensation of $0.1 million and non-cash compensation expense related to the grant of stock options of $.01 million. Further, cash used in operations included an increase in prepaid expenses and other current assets by $1.5 million, primarily related to the purchase of cells and $0.6 million increase in inventory based on the sales forecast. Cash provided by operations included a $1.2 million decrease in accounts receivable due to the collection of a couple slow pay accounts from 2021, $0.5 million decrease in accounts payable, $0.4 million increase in accrued expenses and $0.1 million increase in deferred revenue.

Net loss of $1.2 million for the three months ended March 31, 2021 decreased by $0.2 million for non-cash expense items that included depreciation and amortization, common stock issued for services for director compensation, non-cash compensation expense related to grant of stock options, and amortization of operating lease right of use asset. Cash used in operations for the period included a $0.5 million increase in inventory purchases and a $0.1 million reduction of sales tax payable. Cash provided by operations included a $0.2 million decrease in accounts receivable due to lower revenues in the first quarter of 2021, compared to the fourth quarter of 2020, a $0.2 million decrease in prepaid expenses and other current assets as the December 31, 2020 balance included a receivable for payment due for warrant exercises, a $0.2 million increase in accounts payable primarily due to increased inventory purchases, and a $0.1 million increase in accrued expenses for accrued payroll for Q1 2021 that was paid in Q2 2021.

Cash used in investing activities in the three months ended March 31, 2022 included $0.8 million cash payment for working capital payment related to the acquisition of All Cell Technologies, LLC and $0.1 million to purchase equipment. The three months ended March 31, 2021 included $0.1 million to fund patent related costs and to purchase equipment.

In the three months ended March 31, 2022, cash generated by our financing activities included $0.1 million from the exercise of warrants, compared to $2.4 million for the exercise of warrants for the same period in the prior year.

Current assets increased to $28.0 million at March 31, 2022 from $27.6 million at December 31, 2021. Current liabilities increased to $6.1 million at March 31, 2022 from $3.0 million at December 31, 2021, primarily due to the recording of $0.9 million for contingent consideration, current based on the terms of the acquisition of All Cell Technologies, LLC, and a $1.3 million increase in deferred revenue for customer deposits received from customers. As a result, our working capital decreased to $21.8 million at March 31, 2022 compared to $24.6 million at December 31, 2021.

The Company has been focused on marketing and sales efforts over the past two years to support an increase in revenues. We saw a 45% increase in revenues in 2021 compared to 2020, and the first quarter of 2022 was 175% higher than the first quarter of 2021 which shows continued improvement on revenues. While the Company has still not earned a gross profit on its sale of products, as revenues increase, we expect to see our fixed overhead costs spread over more units, which will reduce the cost per unit. Management has made several design changes and process improvements in our manufacturing operations in 2021 and Q1 2022 which has helped to increase labor efficiency and reduce costs. At the same time, supply chain issues related to the COVID-19 virus have caused an increase in certain of our material costs, most notably in steel purchases. However, we believe that we will continue to improve our gross profit as our revenues grow. Management believes that with anticipated increased production volumes, efficiencies will continue to improve, and the fixed overhead cost per unit will decrease. In addition, our suppliers believe that costs that have increased this past year should start to come back down in the later part of 2022. This should result in increasing gross profits on the EV ARC ™ and Solar Tree® products in the future.

The Company may be required to raise capital from the private or public 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. The Company has 505,714 warrants remaining at March 31, 2022, which could potentially generate an additional $3.2 million of proceeds over the next 2 years, depending on the market value of our stock and the warrant holders’ ability to exercise them. The proceeds from these offerings are expected to provide working capital to fund business operations and the development of new products. Management cannot currently predict when or if it will achieve positive cash flow.

On March 4, 2022, the Company completed an acquisition of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. This strategic acquisition is expected to increase and diversify our Company’s revenue, gross profitability, manufacturing capabilities, intellectual portfolio and customer base. The Company purchased substantially all of the assets and business of All Cell for 1,055,000 shares of Beam Common Stock (“Closing Consideration”) (on the closing date, based on the closing price of the Beam Common Stock of $13.61, such shares had a value of approximately $14.4 million) plus an additional $0.8 million in cash for the net working capital of primarily inventory held by All Cell at closing. In addition to the cash paid for the working capital of $0.8 million, the Purchase Agreement requires a capital investment of not less than $1.5 million of equipment to be used for the business. The maximum aggregate number of shares of Common Stock that the Company will issue to All Cell for the Closing Consideration and Earnout Consideration will not exceed 1.8 million shares.

Management believes that evolution in the operations of the Company may allow it to execute on its strategic plan and enable it to experience profitable growth in the future. This evolution is anticipated to include the following continual steps: addition of sales personnel and independent sales channels, continued management of overhead costs, increased overhead absorption resulting from volume growth, process improvements and vendor negotiations leading to cost reductions, increased public awareness of the Company and its products, and the 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 adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

During the period covered by this filing, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal controls over financial reporting. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, we do not yet have sufficient internal controls over financial reporting and procedures to ensure that all the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis.

We identified the following material weakness which existed as of December 31, 2021:

In addition, in connection with the preparation of our financial statements for the quarter ended March 31, 2022, we identified the following:

Since these controls have a pervasive effect across the inventory transaction cycle, management has determined that these circumstances constitute a material weakness, based on the criteria established in the “Internal Integrated Framework” issued by COSO in 2013 and as a result, we did not maintain effective internal control over financial reporting as of March 31, 2021.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2022, we continued to implement stronger manual processes. We began researching enterprise resource planning (ERP) systems to replace our existing Quickbooks system. In addition, we evaluated the internal controls of All Cell Technologies, LLC and rolled out processes and procedures to this new acquisition which was acquired during the three months ended March 31, 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, 2021, 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.

In addition, the risks listed below should be considered:

We may acquire other businesses, which could require significant management attention, disrupt our business, dilute stockholder value and harm our business, revenue and financial results.

As part of our business strategy, we intend to make acquisitions to add complementary companies, products or technologies, such as our recent acquisition of All Cell. Our acquisitions may not achieve our goals, and we may not realize benefits from acquisitions. Any integration process will require significant time and resources, and we may not be able to manage the process successfully. If we fail to successfully integrate acquisitions, or the personnel or technologies associated with those acquisitions, the business, revenue and financial results of the combined company could be harmed. We may not successfully evaluate or utilize the acquired assets and accurately forecast the financial impact of an acquisition, including accounting charges. We may also incur unanticipated liabilities that we assume as a result of acquiring companies. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our securities. We would expect to finance any future acquisitions through a combination of additional issuances of equity, corporate indebtedness or cash from operations. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Our acquisition strategy could require significant management attention, disrupt our business and harm our business, revenue and financial results.

We are dependent on a limited number of suppliers for our battery cells, and in the current market, there is a risk that these suppliers will not be able to provide cells at prices and volumes acceptable to us, which could have an adverse effect on our business.

We source battery cells from a few suppliers, but the demand for cells and for Lithium has increased over the past year with the increase in electrification and the growing demand for electric vehicles. It is possible that our suppliers will not have adequate supply to cover our demand, or the price of the cells will increase due to shortages, impacting our ability to ship units and/or cause the price of our products to increase. While we believe that we will be able to establish additional supplier relationships for our battery cells, we may be unable to do so in the short term or at all at prices, quality or costs that are favorable to us.

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.