Beam Global quarterly report, Q3 FY2020

Beam Global Form 10-Q Summary

Reporting period: Three and nine months ended September 30, 2020; filed November 12, 2020. The company, formerly Envision Solar International, Inc., rebranded as Beam Global on September 15, 2020. Beam develops and manufactures renewable-energy products for EV charging infrastructure, outdoor media, and energy security.

Key Financial Metrics

Metric	Q3 2020	Q3 2019	9M 2020	9M 2019
Revenue	$1.24 million	$1.79 million	$4.01 million	$4.62 million
Gross profit (loss)	$(0.19) million	$0.34 million	$(0.17) million	$0.35 million
Gross margin	(15.3%)	19.1%	(4.3%)	7.6%
Operating expenses	$0.91 million	$0.96 million	$2.70 million	$2.23 million
Operating loss	$(1.10) million	$(0.62) million	$(2.87) million	$(1.88) million
Net loss	$(1.10) million	$(0.61) million	$(2.88) million	$(2.54) million
Net loss per share	$(0.17)	$(0.12)	$(0.50)	$(0.60)
Cash used in operating activities	Not separately provided	Not separately provided	$(3.23) million	$(3.44) million

Revenue was primarily from product sales: $3.95 million for the first nine months, supplemented by maintenance fees and professional services.
Cash was $12.33 million at September 30, 2020, compared with $3.85 million at December 31, 2019. Working capital was $13.91 million.
Total assets were $18.84 million and total liabilities were $3.95 million at September 30, 2020.
The company had an accumulated deficit of $48.69 million and stated that it has incurred significant operating losses since inception.
Debt consisted primarily of a $339,262 Paycheck Protection Program loan, reported as current and expected to be repaid in the quarter ending December 31, 2020, plus approximately $1,019 remaining on an auto loan. Operating lease liabilities totaled $2.56 million.

Material Changes Versus Prior Comparable Period

Third-quarter revenue declined 31%, and nine-month revenue declined 13%, primarily because of delayed orders and COVID-19-related customer funding issues, priority changes, and business closures.
Q3 gross profit of $340,836 in 2019 changed to a gross loss of $188,732 in 2020. Management attributed the loss to lower volume, underabsorption of fixed overhead, and inefficient labor utilization.
Nine-month gross profit of $349,279 in 2019 changed to a gross loss of $173,037 in 2020. The 2019 period benefited from a $71,744 reversal of a prior contract-loss accrual.
Nine-month operating expenses increased 21%, primarily because of higher sales and marketing investment, stock-based compensation, medical insurance, and a $75,826 management bonus accrual.
Interest expense fell substantially because most debt was repaid following the 2019 equity offering.
Financing activities provided $11.94 million during the first nine months, including $11.50 million from the July public offering and $1.07 million from warrant exercises. The offering issued 1,393,900 shares at $8.25 per share and generated approximately $10.5 million net of offering costs.
Shares issued or issuable and outstanding increased to 6,778,827 at September 30, 2020 from 5,208,170 at December 31, 2019.

Outlook, Commentary, Risks, and Unusual Items

Management expects margins to improve with higher revenue and production volumes, better overhead absorption, labor efficiencies, vendor negotiations, and process improvements. No formal revenue or earnings guidance was provided.
Management believes available cash and recent financing are sufficient to fund liabilities and operations for the twelve months following the report date, although the company expects continued losses and provides no assurance regarding profitable growth.
At September 30, 2020, outstanding options covered 305,308 shares and warrants covered 2,384,340 shares at a weighted-average exercise price of $6.37. If all warrants were exercised, the company estimated additional proceeds of $15.19 million, but future exercises could dilute existing shareholders.
COVID-19 caused delays and cancellations in the opportunity pipeline. Management stated that the pandemic had not materially affected financial position or results through September 30, 2020, but future effects remain uncertain.
The company entered into a new five-year manufacturing-facility lease beginning September 2020, with monthly payments ranging from $52,000 to $58,526 and a recorded right-of-use asset and lease liability of approximately $2.61 million.
Revenue and receivables were highly concentrated. Four customers represented 93% of third-quarter revenue, and four customers represented 95% of accounts receivable at September 30, 2020.
The company disclosed material weaknesses in disclosure controls and internal control over financial reporting, including limited segregation of duties and reliance on manual manufacturing, purchasing, inventory, and costing processes. Management planned to select an ERP system by year-end 2020 and implement it in early 2021.
No material pending or threatened litigation was reported. No material off-balance-sheet arrangements were disclosed.
Subsequent to quarter-end, 203,624 warrants were exercised for $1.29 million of proceeds, and additional director stock grants and an employee option grant were issued.

Important Facts for Investors to Verify

Whether order timing, customer concentration, and COVID-19 disruptions continue to affect quarterly revenue volatility.
Whether production scale, pricing, and manufacturing efficiencies are sufficient to restore positive gross margins.
The pace of cash burn relative to the $12.33 million cash balance and the timing of any additional financing needs.
The repayment, forgiveness, or remaining balance of the PPP loan and the ongoing cost of the new manufacturing lease.
Remediation progress for the disclosed material weaknesses and implementation of the planned ERP system.
The dilution impact of outstanding warrants, options, stock-based compensation, and future equity financing.
Renewal and performance of the City of New York and California contracts, as well as the development of the San Diego outdoor-media opportunity.