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BEAM GLOBAL - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Source: 
Edgar Glimpses

OVERVIEW:

Beam 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 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:

- EV ARC™ Electric Vehicle Autonomous Renewable Charger - a patented, rapidly

deployed, infrastructure product that uses integrated solar power and battery

storage to provide a mounting asset and a source of power for factory installed

electric vehicle charging stations of any brand. In 2019, we began deploying

our upgraded version, the EV ARC™ 2020, which provides all of the features of

the original EV ARC™ in addition to elevating the electronics to the underside

of the solar array making the unit flood-proof up to nine feet and making more

space available on the engineered ballast and traction pad which gives the

product stability. 21

- Solar Tree® DCFC - Off-grid, renewably energized and rapidly deployed, patented

single-column mounted smart generation and energy storage system with the

capability to provide a 50kW DC fast charge to one or more electric vehicles or

larger vehicles.

- EV ARC™ DCFC - DC Fast Charging system for charging EVs.

- EV-StandardTM - patent issued on December 31, 2019 and still under development.

A lamp standard, EV charging and emergency power product which uses an existing

streetlamp's foundation and a combination of solar, wind, grid connection and

onboard energy storage to provide curbside charging.

- UAV ARC™ - patent issued on November 24, 2020 and still under development. An

off-grid, renewably energized and rapidly deployed product and network used to

charge aerial drone (UAV) fleets.

We believe that there is a clear need for a rapidly deployable and highly scalable EV charging infrastructure, and that our products fulfill that requirement. Unlike grid-tied installations which require general and electrical contractors, engineers, consultants, digging trenches, permitting, pouring concrete, wiring, and ongoing utility bills, the EV ARC™ system can be deployed in minutes, not months, and is powered by renewable energy so there is no utility bill. We are agnostic as to the EV charging service equipment or provider and integrate best of breed solutions based upon our customer's requirements. For example, our EV ARC™ and Solar Tree® products have been deployed with Chargepoint, Blink, Enel X, Electrify America and other high quality EV charging solutions. We can make recommendations to customers or we can comply with their specifications and/or existing charger networks. Our products replace the infrastructure required to support EV chargers, not the chargers themselves. We do not sell EV charging, rather we sell products which enable it.

We believe our chief differentiators for our electric vehicle charging infrastructure products are:

· Our patented, renewably energized products which dramatically reduce the cost, time and complexity of the installation and operation of EV charging infrastructure and outdoor media platforms when compared to traditional, utility grid tied alternatives; · Our first-to-market advantage with EV charging infrastructure products which are renewably energized, rapidly deployed and require no construction or electrical work on site. · our products' capability to operate during grid outages and to provide a source of EV charging and emergency power rather than becoming inoperable during times of emergency or other grid interruptions; and · our ability to continuously create new and patentable inventions which are marketable and a complex integration of our own proprietary technology and parts, and other commonly available engineered components, creating a further barrier to entry for our competition.

Our revenues increased from $5.1 million in 2019 to $6.2 million in 2020. Historically, we have generated revenue primarily from the sale of EV ARCs™ to a few large customers, such as Google, the City of New York, and the State of California. During the year ended December 31, 2020, product sales were more diversified with sales to a wider variety of municipalities, colleges, commercial businesses, utilities, and federal customers such as the U.S. Navy and national laboratories. In addition, we are still maintaining our contracts with the City of New York and the State of California, as well as initiating state-wide contracts with Massachusetts and Florida, and we received a large award from Electrify America for the deployment of 30 units in central California. With a change of administration in Washington, we believe there is increased support for funding EV charging infrastructure, as well as a number of federal grants available in addition to the Federal Solar Investment Tax Credit, the code 30C Tax Credit and Rule 179 accelerated depreciation which provide a strong financial incentive for many of our target customers. In late 2020, we were awarded a General Services Administration (GSA) Multiple Award Schedule Contract that will help our customers to streamline purchases from Federal agencies and state and local governments. During 2020, we invested in sales in marketing resources including a seasoned Vice President of Sales and Marketing, an increase in our sales team, a strong public relations firm and a Company name change and rebranding to promote awareness of who we are. In addition, we expect the electric vehicle market to experience significant growth over the next decade, and with that will be the need for EV charging infrastructure. We believe our products are uniquely positioned to benefit from this growth, as well as increase market share as a result of the features our product ads.

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We made strong progress in our outdoor media advertising business during 2020 with a collaboration agreement with the City of San Diego to deploy solar-powered EV charging infrastructure across the city. We are currently working with industry experts to identify a corporate sponsor who will receive global naming rights to the network and highly visible corporate brand placement on the EV ARC units as well as the benefits association with CO2 and other pollution offsets and credits. This business model can also 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 onboard state-of-the-art storage batteries installed on our EV chargers, which make us immune to the sorts of grid failures recently experienced in Texas, provide another reason for certain customers such as municipalities, counties, states, the federal government, hospitals, fire departments, large private enterprises with substantial facilities, and vehicle fleet operators, to buy our products.

We have 2 new patents that were issued by the United States Patent and Trademark Office at the end of 2019 and in 2020 for our EV StandardTMand 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.

Several contributing factors resulted in reporting a gross loss in both 2019 and 2020. We currently have a fixed overhead structure and facility that will support expected growth over the next several years. Until our revenues increase, 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 precipitously in the coming months and years. Battery cells are the highest cost contributor to our bill of materials. As we see significant decreases in the price of battery cells in the near future, we will in turn see a significant reduction in the cost of our bill of materials. We anticipate that this will have a further positive impact on our gross profits. 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 expertise. We believe that outsourcing these 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 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 near future.

Critical Accounting Policies

Please refer to Note 1 in the financial statements for further information on the Company's critical accounting policies which are summarized as follows:

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.

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.

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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.

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.

Impairment of Long-lived Assets. The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35-15 "Impairment or Disposal of Long-Lived Assets." This guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Accounting for Derivatives. The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, "Derivatives and Hedging." The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives, and debt discounts, and recognizes a net gain or loss on extinguishment. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.

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.

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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 as 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 and shipping and handling costs as cost of 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.

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 fees billed to customers as revenues and shipping and handling costs as cost of revenues.

Changes in Accounting Principles. Other than the adoption of Accounting Standards Update No. 2016-02: "Leases (Topic 842)" on January 1, 2019, there were no significant changes in accounting principles that were adopted during the years ended December 31, 2020 and 2019.

25 Results of Operations

Comparison of Results of Operations for Fiscal Years Ended December 31, 2020 and 2019

Revenue. For the year ended December 31, 2020, our revenues were $6,210,350 compared to $5,111,545 for the same period in 2019, an increase of $1,098,805 or 21%. Revenues for the year ended December 31, 2020 included the sale of 69 EV ARC™ units including 29 units to Electrify America for deployment in California, as well as to various municipalities, colleges, utilities and federal agencies. It also included the sale of three Solar Tree® systems and an EV ARC™ DC fast charging system for a rest stop in California. Revenues for the Solar Tree® and EV ARC™ DCFC are significantly higher than those for EV ARC™ 2020 units because they are more complex, have more storage, and deliver more energy and power. Revenues for the year ended December 31, 2019 were derived primarily from the sale and delivery of 65 EVARC™ units which included 34 units to the City of New York and two EV ARC™ DC fast charging deployments to two rest stops in California. During fiscal 2020, we invested in sales and marketing employees, resources and programs to raise awareness of the benefits and value of our products. The receipt of orders may continue to be uneven due to the timing of customer approvals or budget cycles.

Gross Loss. For the year ended December 31, 2020, we had a gross loss of $710,974 compared to a gross loss of $153,774 for the same period in 2019. Despite the increase in revenues during the year ended December 31, 2020 compared to 2019, the gross loss increased to 11% of net revenues in the year ended December 31, 2020 from 3% of net revenues in 2019. The increase is primarily due to an increase in costs for the new EV ARC™ 2020 unit that was launched at the end of 2019 compared to the original EV ARC™. Our experience with the original EV ARC™ demonstrated that while the initial costs of the unit start out high, the operations and engineering teams improve the production process and reduce material costs. We anticipate that this process will be repeated with the EV ARC™ 2020. Further, more than half of the units delivered in the year ended December 31, 2020 were on contracts which include shipping and handling in the price. Typically for regional deliveries, it is very inexpensive for us to deliver the units with our ARC Mobility™ trailer, which was still in development for the new EV ARC™ 2020 model, until its launch in the second half of 2020. This caused higher than normal shipping costs, which we anticipate will be reduced with usage of the trailer, and with additional refinement of the ARC™ Mobility trailer. Finally, 2019 benefited by recording $71,744 of cost for losses for the City of New York in 2018 that pertained to shipments in 2019.

Several contributing factors resulted in our reporting a gross loss in both 2019 and 2020. We currently have a fixed overhead structure and facility that will support expected growth over the next several years. Until our revenues increase, 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 precipitously in the coming months and years. Battery cells are the highest cost contributor to our bill of materials. As we see significant decreases in the price of battery cells in the near future, we will in turn see a significant reduction in the cost of our bill of materials. We anticipate that this will have a further positive impact on our gross profits. 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 expertise. We believe that outsourcing these 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 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 near future.

Operating Expenses. Total operating expenses were $4,496,660 for the year ended December 31, 2020 compared to $3,117,793 for the same period in 2019, a 44% increase. The increase in expense is primarily due to an increase of $776,627 for non-cash compensation expense due to new stock option grants issued to new members of the management team, annual stock grants for directors and December 2020 employee stock option grants all awarded at a higher stock valuation due to an increase in stock price in the quarter ended December 31, 2020. In addition, we increased $518,375 for sales and marketing expenses including salaries, commissions and marketing and sales consultants to support revenue growth, $96,382 for increased bonus expense for meeting business objectives, $47,339 for increased medical benefits that were initiated in November 2019, $46,955 for increased legal expenses due to a credit adjustment in the prior year and $124,563 for other increases. The increase in expense was partially offset by a reduction of $150,979 of R&D expense due to higher new product development expenses in 2019 and an $80,396 reduction in travel expenses due to travel restrictions related to the COVID-19 pandemic.

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Provision for Income Taxes. Our tax expense for the year ended December 31, 2020 related to charges for the California Franchise Tax Board based on the minimum tax due and to New York City for Corporation Tax. We did not incur any federal tax liability for the years ended December 31, 2020 or December 31, 2019 because we incurred operating losses for tax purposes in these periods.

Other Income and Expense. Interest expense decreased from $716,337 for the year ended December 31, 2019 to $11,893 for the year ended December 31, 2020 due to the repayment of debt in 2019. Interest income decreased by $45,636 in the year ended December 31, 2020 due to lower interest rates.

Net Loss. We generated net losses of $5,213,025 for the year ended December 31, 2020, compared to a net loss of $3,933,922 for the same period in 2019. The major components of these losses and the changes between years are discussed in the above paragraphs.

Liquidity and Capital Resources

At December 31, 2020, we had cash of $26,702,804, compared to cash of $3,849,456 at December 31, 2019. 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:

December 31, 2020 2019

Cash provided by (used in): Net cash used in operating activities $ (4,138,138 ) $ (4,826,340 ) Net cash used in investing activities $ (358,901 ) $ (109,586 ) Net cash provided by financing activities $ 27,350,387 $ 8,541,358

For the year ended December 31, 2020, our cash used in operating activities was $4,138,138 compared to $4,826,340 for the year ended December 31, 2019. Net loss of $5,213,025 for the year ended December 31, 2020 was increased by $1,208,504 of non-cash expense items that included depreciation and amortization of $40,952, common stock issued for services for director compensation of $458,924, non-cash compensation expense related to the grant of stock options of $722,549 primarily due to an increase in the stock price in the quarter ended December 31, 2020, amortization of debt discount of $5,990, offset by $19,911 for amortization of operating lease right of use asset. Further, cash used in operations included an increase in accounts receivable of $1,021,937 due to a strong fourth quarter revenue in 2020 compared to 2019, an increase in prepaid expenses and other current assets of $385,895 primarily due to warrants that were exercised but the payment was pending, and $220,417 for the payment of a convertible note to a related party for deferred compensation. Cash provided by operations included a reduction of inventory of $1,060,614, an increase in accounts payable of $242,900 due to inventory purchases to support Q4 2020 shipments, $86,452 increase in accrued expenses, $85,917 increase in sales tax payable for California Q4 2020 shipments, $13,880 for an increase in deferred revenue, and $4,869 for a decrease in deposits.

Our operating activities resulted in cash used in operations of $4,826,340 for the year ended December 31, 2019. Net loss of $3,933,922 for the year ended December 31, 2019 was increased by $974,198 of non-cash expense items that included depreciation and amortization of $40,500, common stock issued for services for director compensation of $355,931, non-cash compensation expense related to grant of stock options of $48,915, $526,423 of amortization of debt discount to interest expense associated with the financings of the current debt facilities, and $2,429 for a provision for doubtful accounts. Further, cash used in operations for the period included increases in prepaid expenses and other current assets of $468,313 for increased vendor prepayments, increased inventory by $110,455, decreases in accounts payable of $883,238, decrease in accrued expenses of $276,284 for the payment of interest and a reversal of the accrued loss for New York shipment, and a decrease in deferred revenue of $742,176 from the shipment of units that we had received prepayments for. Cash provided by operations included a reduction of accounts receivable of $523,739, a $48,672 decrease in deposits for our building lease, an increase of $35,417 for convertible note payable issued in lieu of salary - related party for increased deferred salary, and an increase in sales tax payable of $6,022.

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Cash used in investing activities included $93,137 to fund patent related costs and $265,764 to purchase equipment, primarily for transportation equipment and a forklift truck, in the year ended December 31, 2020. The year ended December 31, 2019 used $76,746 on patent related costs and $32,840 to purchase equipment.

In 2020, cash generated by our financing activities included $18,999,675 in proceeds from the issuance of common stock pursuant to a public offering and $9,926,858 from the exercise of warrants, offset by the funding of equity offering costs of $1,566,852 and the payment of an auto loan. In 2019, cash generated by our financing activities included $13,201,000 in proceeds we received from issuance of common stock pursuant to a public offering, offset by funding of equity offering costs of $1,175,851, net repayments of our line of credit facility of $960,000, repayments of debt of $2,523,620 and fractional share payments of $171.

Current assets increased to $29,903,431 at December 31, 2020 from $6,605,556 at December 31, 2019, primarily due to a $22,853,348 increase in cash, while current liabilities increased to $1,840,111 at December 31, 2020 from $1,462,837 at December 31, 2019, primarily due to an increase in accounts payable due to strong sales in the quarter ended December 31, 2020 and the initiation of a new capital lease for the manufacturing facility. As a result, our working capital increased to $28,063,320 at December 31, 2020 compared to $5,142,719 at December 31, 2019.

In May 2020, the Company received a Small Business Administration Payroll Protection Plan loan for $339,262 for protection against potential impact from the COVID-19 virus which was repaid with interest in November 2020.

While the Company has been attempting to grow market awareness and focusing on the generation of sales, the Company has not generally earned a gross profit on its sales of products during recent years. However, we believe that we will improve our gross profit 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 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. Management cannot currently predict when or if it will achieve positive cash flow.

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.

Capitalization

On April 18, 2019, the Company closed an underwritten public offering with Maxim Group LLC ("Maxim"), as representative for the several underwriters (the "Underwriters"), pursuant to which the Company agreed to issue and sell to the Underwriters an aggregate of 2,000,000 units with each unit consisting of one (1) share of the Company's common stock, par value $0.001 per share (the "Common Stock"), and a warrant to purchase one (1) share of Common Stock at an exercise price equal to $6.30 per share (the "Warrants"). In addition, the Company granted the Underwriters a 45-day option to purchase up to 300,000 additional shares of Common Stock, or Warrants, or any combination thereof, at the public offering price to cover over-allotments, if any. The Common Stock and the Warrants were offered and sold to the public (the "Offering") pursuant to the Company's registration statement on Form S-1 (File Nos. 333-226040), filed by the Company with the Securities and Exchange Commission (the "Commission") on July 2, 2018, as amended, which became effective on April 15, 2019, and a related registration statement filed pursuant to Rule 462 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The offering price to the public was $6.00 per unit and the Underwriters purchased 2,000,000 units. In addition, the Underwriters purchased 300,000 Warrants for $3,000 upon the exercise of the Underwriters' over-allotment option. The Company received gross proceeds of approximately $12,003,000, before deducting underwriting discounts and commissions and estimated offering expenses.

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Concurrent with the offering, the Company effected a one-for-fifty reverse split of its issued and outstanding common stock (the "Reverse Stock Split") and reduced the number of authorized shares of common stock from 490,000,000 to 9,800,000. No fractional shares were issued as a result of the Reverse Stock Split. Fractional shares were rounded up or down to the nearest whole share, after aggregating all fractional shares held by a stockholder, resulting in the issuance of 187 round-up shares. Any stockholder holding less than 24 shares of Common Stock on a pre-reverse stock basis were paid in cash for such fractional share of Common Stock, which totaled $171.

On May 15, 2019 the Company closed the Underwriters Second Over-Allotment partial exercise option to purchase 200,000 shares of Common Stock at $5.99 per share (the "Second Over-Allotment Exercise") for additional gross proceeds of $1.198 million, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company, pursuant to and in compliance with the terms and conditions of the previously announced April 16, 2019 Underwriting Agreement and Offering.

The Company filed a "shelf" registration statement on Form S-3 and an accompanying prospectus with the Securities and Exchange Commission on May 26, 2020. On July 7, 2020, the Company closed an underwritten public offering issuing 1,393,900 shares, with a public offering price of $8.25 per share, generating approximately $10.5 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

On November 27, 2020, the Company closed a second underwritten public offering issuing 250,000 shares, with a public offering price of $30.00 per share, generating approximately $6.9 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the aggregate net proceeds primarily for working capital and general corporate purposes.

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.

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