Beam Global

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

CORPORATE ORGANIZATION

Beam Global (formerly Envision Solar International, Inc.) was incorporated in June 2006 as a limited liability company (“LLC”). Through a series of transactions and mergers, including a series of 2010 transactions where the then existing entity was acquired by an inactive publicly held company in a transaction treated as a recapitalization of the Company, the resulting entity became Envision Solar International, Inc., a Nevada Corporation. On September 15, 2020, Envision Solar International, Inc. announced its rebranding and changed its corporate name to Beam Global (hereinafter the “Company”, “us”, “we”, “our” or “Beam”) and trading on Nasdaq: BEEM and BEEMW.

On March 4, 2022, the Company acquired substantially all the assets of All Cell Technologies, LLC (“All Cell”), an energy storage solutions and technologies company based in Broadview, Illinois.

On October 20, 2023, the Company completed an acquisition of Amiga DOO Kraljevo (“Amiga”), a company engaged in the manufacture and distribution of steel structures with electronic integration located in Kraljevo, Serbia. Refer to note 4, Business Combination for additional details.

NATURE OF OPERATIONS

Beam is a clean technology innovator based in San Diego, California; Broadview, Illinois and Kraljevo, Serbia. 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. Beam’s energy storage products provide high energy density in a safe, compact and bespoke form-factors ideal for the rapidly increasing numbers of mobile and stationary equipment and products which require electrical energy without being connected to the electrical grid.

Beam’s products and proprietary technology solutions target four markets that are experiencing significant growth with annual global spending in the billions of dollars:

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

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 December 31, 2023. As of December 31, 2023, approximately $10.9 million of the Company’s cash deposits were greater than the federally insured limits.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which immediately appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. All deposits and substantially all the asset of SVB were transferred to Silicon Valley Bridge Bank, N.A. (“SVBB”), which is no longer affiliated with SVB. The Company has full access to all of its deposited funds with SVBB and has opened accounts with Bank of America as well for its operations.

Major Customers

The Company continually assesses the financial strength of its customers. For the year ended December 31, 2023, three customer accounted for 37%,16% and 10% of total revenues and for the year ended December 31, 2022, one customer accounted for 11% of total revenues, each with no other single customer accounting for more than 10% of revenues. At December 31, 2023, accounts receivable from four customers accounted for 11%,10%,10% and 10% of total accounts receivable and at December 31, 2022, accounts receivable from three customers accounted for 30%,15% and 11% of total accounts receivable each with no other single customer accounting for more than 10% of the accounts receivable balance. For the years ended December 31, 2023 and 2022, the Company had a heavy concentration of sales to federal, state and local governments which represented 80% and 62% of revenues, respectively.

CASH

For the purposes of the statements of cash flows, the Company considers all liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There wereno cash equivalents at December 31, 2023 or December 31, 2022.

FOREIGN CURRENCY TRANSLATION

The Company’s reporting currency is U.S. dollars. The functional currency of the Company is the U.S. dollar. The functional currency of Amiga is the Serbian Dinar. The Company translates the assets and liabilities of Amiga at the exchange rates in effect on the balance sheet date. The Company translates the revenue, costs, and expenses of Amiga at the average rate of exchange rates in effect during the period. The Company includes translation gains and losses in the stockholders’ equity section of the Company’s consolidated balance sheet in accumulated other comprehensive income or loss. Transactions undertaken in other currencies are translated using the exchange rate in effect as of the transaction date and any exchange gains and losses resulting from these transactions are included in the consolidated statements of operations. The translation gain for the period was $0.6 million resulting from transactions between the Company and Amiga, the timing of the transactions in relation to changes in exchange rates and the fluctuation in the exchange rate between foreign currencies and the U.S. dollar.

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:

The Company’s financial instruments such as accounts receivable, net, accounts payable, and accrued expenses are carried at historical cost basis. At December 31, 2023, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

ACCOUNTS RECEIVABLE

In 2023, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss model for recognition of credit losses with a methodology that reflects expected credit losses over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. This update did not have a significant impact on the Company’s consolidated financial statements. The Company does business and extends credit based on an evaluation of each customer’s financial condition, generally without requiring collateral. 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. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company estimates future credit losses based on the age of customer receivable balances, collection history and forecasted economic trends. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The allowance for expected credit losses was $0.4 million at December 31, 2023. Receivables acquired from Amiga had an allowance for expected credit losses of $1.0 million and experienced net recoveries of $0.5 million and insignificant currency translation during the year ended December 31, 2023. There wasno allowance for expected credit losses or bad debt expense for the year ending December 31, 2022.

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 normal capacity in the manufacturing process. The Company regularly reviews inventory components and quantities on hand and performs annual physical inventory counts.

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of 3 to 7 years, except for leasehold improvements for which the depreciation is recorded over the shorter of the lease term or the estimated useful life. Expenditures for maintenance and repairs, along with fixed assets below our capitalization threshold, are expensed as incurred.

Long-lived assets are 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. There were no events triggering a review for impairment during the year ended December 31, 2023.** **

LEASES

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.

BUSINESS COMBINATION

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.

Assets acquired, including identifiable intangible assets, are recorded at fair value upon acquisition 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 relationships, for which the amortization is recorded on an accelerated method over the estimate useful life.

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.

**FINITE-LIVED INTANGIBLE ASSETS **

Administrative costs for patents are accumulated on the balance sheet as a patent asset until such time as a patent is issued. The costs of these intangible assets are classified as a long-term asset and amortized on a straight-line basis over the legal life of such asset, which is typically 20 years. In the event a patent is denied or abandoned, all accumulated administrative costs will be expensed in the period in which the patent was denied or abandoned.

GOODWILL

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 for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Such assessment is performed at the reporting unit level, for which the Company has one. 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. There were no such triggering events during the year ended December 31, 2023 and the annual testing was performed in the fourth quarter with no impairment identified.

REVENUE RECOGNITION

Revenue is recognized 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 to 45-day period after delivery.

Revenues from maintenance fees for services provided by the Company are recognized equally over the period of the maintenance term. Revenue values are fixed price arrangements determined at the time an order is placed or a contract is entered into. The customer is typically obligated to make payment for the service in advance of the maintenance period.

Extended maintenance or warranty services, where the customer has the option to purchase this extension as a separate purchase option, are considered a separate performance obligation. If the Company does not control the extended services, in terms of having the responsibility for fulfillment of the obligation or the option to choose who will perform the services, the Company is acting as an agent and would report the revenues on a net basis.

Revenues from professional services such as relocations, charger replacements or out of warranty repairs are recognized when services are performed. Revenue values are based upon fixed fee arrangements or hourly fee-based arrangements with agreed 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 to45-day period.

Revenue is recorded net of discounts and sales taxes collected on behalf of governmental authorities; shipping and handling fees billed to customers are recorded as revenues.

Any deposits received from a customer prior to delivery of the purchased product or monies paid prior to the period for which a service is provided are accounted for as deferred revenue on the balance sheet.

The Company generally provides a standard one-year warranty on its EV charging infrastructure 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. The Company accrues for product warranties when the loss is probable and can be reasonably estimated. During the year-ended December 31, 2023, the Company recorded a $0.1 million product warranty accrual in Accrued Expenses with an offset to Cost of Revenues, of which $0.1 million in repairs were completed during the year. For the year ended December 31, 2022, the Company recorded a $0.2 million product warranty accrual, of which $0.1 million in repairs were completed during the year.

COST OF REVENUES

The Company records direct material and component costs, direct labor and associated benefits, and manufacturing overhead costs such as supervision, manufacturing equipment depreciation, rent, and utility costs, all of which are included in inventory prior to a sale, as costs of revenues. The Company further includes shipping and handling costs as cost of revenues.

RESEARCH AND DEVELOPMENT

Expenditures for research and development of the Company’s products are expensed when incurred and are included in operating expenses. The Company recognized research and development costs of $2.3 million and $1.2 million for the years ending December 31, 2023 and 2022, respectively.

ADVERTISING

The Company conducts advertising for the promotion of its products and services. Advertising costs are charged to operations and included in operating expenses when incurred. Such amounts aggregated $0.3 million in 2023 and $0.2 million in 2022.

STOCK-BASED COMPENSATION

Compensation expense related to stock awards is measured at estimated fair market value and the expense is amortized over the vesting period using the straight-line attribution method and expense for performance based stock grants is amortized over the service period.

The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. Forfeitures are accounted for as incurred, as a reversal of share-based compensation expense related to awards that will not vest. The fair value of restricted stock units is determined based on the closing market price of the Company’s common stock on the grant date. Compensation expense for time-based restricted stock units (RSUs) is recognized ratably over the vesting period. A portion of RSUs granted contain performance conditions for vesting tied to specific company goals, such as gross margin and revenue targets (PSUs). For the purpose of measuring compensation expense of PSUs, the number of shares expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.

INCOME TAXES

The Company accounts for income taxes pursuant to the provisions of ASC Topic 740, “Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. All tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards. The Company has received no notice of audit from the IRS for any of the open tax years.

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.

The following shares were not included in the computation of diluted loss per share for the years ended December 31, 2023 and 2022 because the effects would have been anti-dilutive. These options and warrants may dilute future earnings per share.

**COMMITMENTS AND CONTINGENCIES **

Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Company management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable would be disclosed. The Company does not include legal costs in its estimates of amounts to accrue.

SEGMENTS

The Company assesses its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. Our financial results are reported in one operating and reportable business segment.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted pronouncements

In June 2016, the FASB issued ASU* 2016-13,* Financial Instruments – Credit Losses(ASC Topic 326) requiring initial recognition of credit losses, as well as any subsequent change in the estimate, when it is probable that a loss has been incurred. The standard eliminates the threshold for initial recognition in current U.S. GAAP and it covers a broad range of financial instruments, including trade and other receivables at each reporting date. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. The Company adopted this standard effective January 1, 2023, with no material effect on the financial statements.

Recent pronouncement not yet adopted

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements” (“ASU 2023-06”), which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The ASU was issued in response to the SEC’s disclosure update and simplification initiative issued in August 2018. The effective date for the amendments for each topic will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoptions prohibited.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a company’s effective tax rate reconciliation and information on income taxes paid. The standard is effective for Beam beginning with our annual financial statements for the fiscal year ending December 31, 2025. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on the consolidated financial statements.

The Company has a history of net losses, including the accompanying financial statements for the years ended December 31, 2023 and 2022 where the Company had net losses of $16.1 million (which includes $4.3 million of non-cash expenses) and $19.7 million (which includes $9.1 million of non-cash expenses), respectively, and net cash used in operating activities of $13.3 million and $18.1 million, respectively. During 2023, the $13.3 million of operating cash usage included a $9.5 million increase in accounts receivable related to the strong increase in revenues in the fourth quarter of 2023 compared to the fourth quarter of 2022, and the acquisition of Amiga.

At December 31, 2023, the Company had a cash balance of $10.4 million and working capital of $23.8 million. In June 2023, the Company raised $25.4 million in net proceeds from a public offering through the issuance of common stock which was intended to cover cash payments for the acquisition of Amiga as well as for working capital. Based on the Company’s current operating plan, the Company believes that it has the ability to fund its operations and meet contractual obligations for at least twelve months from the date of this report. In September 2022, the Company entered into a Common Stock Purchase Agreement and Registration Rights Agreement with B. Riley Principal Capital II, LLC (“B. Riley”) under which the Company has the right, but not the obligation, to sell up to $30.0 million shares or a maximum of two million shares of its common stock over a period of 24 months in its sole discretion (see note 12 for further information). The Company issued 198,033 shares of stock in 2023 for $2.5 million under this agreement. Furthermore, we could pursue other equity or debt financings. In addition, the Company’s outstanding warrants have generated $0.2 million and $0.5 million of proceeds during the years ended December 31, 2023 and 2022, respectively. The Company believes that it will become profitable in the next few years as our revenues continue to grow, we improve our gross profit margins and we leverage our overhead costs, but we expect to continue to incur losses for a period of time. There is no guarantee that profitable operations will be achieved, the warrants will be exercised or that additional capital or debt financing will be available.

Amiga DOO Kraljevo

On October 20, 2023, the Company acquired Amiga DOO Kraljevo (“Amiga”), pursuant to a Share Sale and Purchase Agreement dated October 6, 2023 (the “Purchase Agreement”) by and among the Company and the owners of Amiga (the “Sellers”). Pursuant to the terms of the Purchase Agreement, the Company acquired all the equity stock of Amiga from the Sellers in exchange for cash and common stock. With respect to the cash portion of the purchase price, the Company paid to the Sellers 4.6 million euros ($4.9 million) (“Tranche 1 Payment”) at closing and an additional 2.5 million euros ($2.7 million) was deferred on December 31, 2023, and paid on January 2, 2024 (“Deferred Tranche 2 Payment”). With respect to the equity portion of the purchase price, the Company issued to the Sellers 293,675 shares of our common stock (“Tranche 1 Issuance”) upon closing and an additional 158,132 shares before December 31, 2023, (“Tranche 2 Issuance”).

The Sellers are eligible to earn additional shares of the Company’s common stock if Amiga meets certain revenue milestones for the years ended December 31, 2024 and 2025 (the “Earnout Consideration”). The Earnout Consideration that Sellers are eligible to receive is equal to two times the amount of revenue of Amiga (“Amiga Net Revenue”) that is greater than specific revenue targets for each of the years ended December 31, 2024 and 2025. The Earnout Consideration will be paid in the Company’s stock for each annual target period and will be calculated based on the volume weighted average price of Beam’s common stock for the thirty trading days prior to the end of the applicable measurement period. In no event and under no circumstances will the Sellers receive from the Company or will the Company issue to the Sellers an amount of the Company’s common stock that exceeds 19.99% of the total outstanding common stock of the Company immediately prior to the closing. An estimate of the fair value of the contingent consideration has been recorded in the opening balance sheet. Additionally, if within five years of the closing date of the acquisition Amiga receives a final award in specific legal proceedings in excess of EUR 3.8 million, the amount exceeding EUR 3.8 million is payable to the Sellers. This is not currently considered probable and therefore no accrual has been established. On February 16, 2024, the Company and the Sellers entered into an amendment to the Purchase Agreement (the “Amendment”) to remove the requirement that the Sellers shall be providing services to Amiga as a condition to receive the Earnout Consideration.

Amiga, located in Serbia, is engaged in the manufacture and distribution of steel structures with integrated electronics, such as streetlights, cell towers, and ski lift towers. We expect the acquisition of Amiga to assist in introducing our products to Europe, increasing and diversifying our revenues, enhancing our manufacturing and engineering capabilities, accelerating the development of EV Standard™ and other products both in Europe and the US, adding new customer segments in both Europe and the US, increasing barriers to entry for future competition, and advancing Beam’s position as a leader in the green economy.

The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification (ASC) 805,Business Combinations. Goodwill represents the premium the Company paid over net fair value of tangible and intangible assets acquired.

The valuation of the Earnout Consideration was performed using a discounted cash flow analysis to determine the fair value of the contingent consideration, which includes estimates and assumptions such as forecasted revenues of Amiga, discount rates, and the milestone settlement value. As such valuation includes the use of unobservable inputs, it is considered to be a Level 3 measurement. The fair value of the Earnout Consideration will be reassessed on a quarterly basis with the change recorded to operating expenses. Change in the fair value of the Earnout Consideration during the year ended December 31, 2023 is as follows (in thousands):

The following table summarizes the estimated fair value allocation of consideration exchanged for the estimated fair value of tangible assets acquired and liabilities assumed at the acquisition date. The estimated fair value for working capital is generally equivalent to the net book value of the acquired assets and liabilities on the acquisition date. Fair value assigned to property, plant and equipment is based on real estate appraisals, market value comparisons, or acquired net book value of recently acquired assets. The valuation of the contingent consideration is based on a discounted cash flow analysis using the Company’s forecasted results for the operations for the two years subject to revenue earn-out targets. The Company incurred $0.2 million of transaction costs during the fiscal year ended December 31, 2023, directly related to the acquisition that are reflected in operating expenses in the statement of operations.

Consideration is comprised of the following (in thousands):

The following table shows the allocation of consideration to assets and liabilities at fair value (in thousands):

All Cell Technologies, LLC

On March 4, 2022, the Company acquired substantially all the assets of All Cell Technologies, LLC (“All Cell”), a leader in energy storage solutions. This acquisition has increased and diversified our Company’s revenue, intellectual property portfolio and customer base, and improved our gross profitability and manufacturing capabilities. The Company purchased substantially all of the assets and business of All Cell for 1,055,000 shares of our common stock (“Closing Consideration”) plus an additional $0.9 million in cash for the net working capital held by All Cell at closing.

In addition, All Cell is eligible to earn an additional number of shares of our common stock if the acquired energy storage business meets certain revenue milestones (the “Earnout Consideration”). The Earnout Consideration was: (i) two times the amount of energy storage products revenue and contracted backlog that is greater than $7.5 million for 2022 and is (ii) two times the amount of energy storage products 2023 revenue which exceeds the greater of either $13.5 million or 135% of the 2022 cumulative revenue, capped at $20.0 million. Any revenues exceeding $20.0 million in 2023 will not be eligible for the Earnout Consideration. The maximum aggregate number of shares of our common stock that we will issue to All Cell for the Closing Consideration and Earnout Consideration will not exceed 1.8 million shares. Revenue from energy storage products used in Beam Global products will not be considered as contributing to revenue in the Earnout calculation. The Company issued 446,815 shares of stock valued at $7.05 million as payment for the 2022 Earnout Consideration. No shares were earned or issued for the 2023 Earnout Consideration.

The valuation of the Earnout Consideration was performed using a two-factor Monte Carlo simulation, which includes estimates and assumptions such as forecasted revenues of All Cell, volatility, discount rates, share price and the milestone settlement value. As such valuation includes the use of unobservable inputs, it is considered to be a Level 3 measurement. The fair value of the Earnout Consideration is reassessed on a quarterly basis with the change recorded to operating expenses. Change in the fair value of the Earnout Consideration during the year ended December 31, 2022 and the year ended December 31, 2023 is as follows (in thousands):

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

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

The Company incurred $0.1 million of transaction costs during the year ended December 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 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 Unaudited Financial Information

The unaudited pro forma information for the periods set forth below gives effect to the acquisitions of Amiga and All Cell had they occurred on January 1, 2022. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the transactions been consummated as of that time nor does in purport to be indicative of future financial operating results. The pro forma unaudited financial information includes a conservative estimate of sell-through of the Company’s legacy products, as well as updated depreciation related to the fair value adjustments from the acquisitions.

Pro forma net revenues for the years ended December 31, 2023 and 2022 are $75.3 million and $32.3 million, respectively. Proforma net loss for the years ended December 31, 2023 and 2022 are $16.8 million and $22.0 million, respectively.

The consolidated statement of operations includes revenue of $11.9 and net loss of $5.8 million related to acquired operations for the year ended December 31, 2023.

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

Related party receivables as of December 31, 2023 and 2022 consisted primarily of payroll related taxes due for stock-based compensation.

Inventories are stated at the lower of cost and net realizable value. Costs are determined using the first in-first out (FIFO) method. As of December 31, 2023 and 2022, inventory consists of the following (in thousands):

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

Depreciation expense for 2023 and 2022 was $0.9 million and $0.4 million, respectively. In 2023 and 2022, $0.2 million and $0.2 million of depreciation was capitalized into inventory as manufacturing overhead costs, respectively. See Note 4 for additional details of the acquisition of land, buildings and machinery and equipment.

Intangible assets, net as of December 31, 2023 consist of the following (in thousands):

Amortization expense for each of the years ended December 31, 2023 and 2022 was $1.0 million. Amortization expense for intangible assets held as of December 31, 2023 will be $1.0 million for each of the years 2024 – 2028.

The major components of accrued expenses and long-term liabilities are summarized as follows (in thousands):

Acquired long-term liability of $3.8 million consists of a restructuring debt settlement from the acquisition of Amiga. The debt restructuring was entered into in 2021 for a nine year term with seven years remaining at December 31, 2023. Payments are due quarterly as a percent of the remaining balance due.

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 December 31, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

Other Commitments:

The Company enters into various contracts or agreements in the normal course of business whereby such contracts or agreements may contain commitments. Since inception, the Company entered into agreements to act as a reseller for certain vendors; joint development contracts with third parties; referral agreements where the Company would pay a referral fee to the referrer for business generated; sales agent agreements whereby sales agents would receive a fee equal to a percentage of revenues generated by the agent; business development agreements and strategic alliance agreements where both parties agree to cooperate and provide business opportunities to each other and in some instances, provide for a right of first refusal with respect to certain projects of the other parties; agreements with vendors where the vendor may provide marketing, investor relations, public relations, software licenses, technical consulting or subcontractor services, vendor arrangements with non-binding minimum purchasing provisions, and financial advisory agreements where the financial advisor would receive a fee and/or commission for raising capital for the Company.

On September 1, 2020, the Company entered into a five-year operating lease with two one-year options to extend the term of the lease. At this time, it is not reasonably certain that the Company will extend the term of the lease and, therefore, the renewal periods have been excluded from the right-of-use (“ROU”) asset. As part of the All Cell 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 ended on August 31, 2023 and contains clauses for annual rent escalation. The present values of the lease payment streams were calculated using an effective borrowing rate of 10%. The Company remained in the facility on a month-to-month lease and then entered into a five-year lease extension effective February 1, 2024. As part of the Amiga acquisition, the Company assumed a lease for a small office and a few other small leases in Belgrade, Serbia, which have an indefinite term and may be terminated at any time with 30 days notice. Because of the short term and small value, these leases were not capitalized. The weighted average remaining lease term is 3.3 years.

During the twelve months ended December 31, 2023 and 2022, cash paid for amounts included in the measurement of operating lease liabilities was $0.8 million and $0.6 million, respectively. Operating lease cost for the twelve months ended December 31, 2023 and 2022 were $0.8 million and $0.8 million, respectively.

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. The future minimum rental commitments for our operating leases is as follows (in thousands):

12. STOCKHOLDERS’ EQUITY

Stock Issued for Public Offering

In June 2023, the Company sold 3,062,500 shares of its common stock at an offering price of $9.00 per share in a public offering. The offering provided net proceeds of approximately $25.4 million after deducting underwriting discounts and commissions and offering expenses paid by the Company.

Stock Issued for Acquisition

The Company issued 1,055,000 shares of its common stock upon acquiring certain assets of All Cell during the year ended December 31, 2022. An additional 446,815 shares were issued in 2023 to All Cell in payment of contingent consideration for 2022 results.

The Company issued 451,807 shares of its common stock upon acquiring Amiga during the year ended December 31, 2023. See further discussion in note 4. Business Combination.

Committed Equity Facility

On September 2, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley. Pursuant to the Purchase Agreement, the Company has the right, in its sole discretion, to sell to B. Riley up to $30.0 million, but in any event, a maximum of 2 million shares of the Company’s common stock at 97% of the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day, calculated in accordance with the Purchase Agreement, over a period of 24 months subject to certain limitations and conditions contained in the Purchase Agreement. Sales and timing of any sales are solely at the election of the Company, and the Company is under no obligation to sell any common stock to B. Riley under the Purchase Agreement. As consideration for B. Riley’s commitment to purchase shares of the Company’s common stock the Company issued B. Riley 10,484 shares of its common stock in both September 2022 and April 2023.

The Company incurred an aggregate cost of approximately $0.4 million in connection with the Purchase Agreement, including the fair value of the shares of common stock issued to B. Riley, which were recorded as equity on the Balance Sheet and offset proceeds from the sale of the Company’s common stock under the Purchase Agreement.

During the year ended December 31, 2023, the Company issued 198,033 shares under the Purchase Agreement for $2.5 million in proceeds, of which $0.5 million was offset by the offering costs.

Stock Issued For Services

In March 2023, the Company issued 6,444 shares of its common stock in exchange for marketing services to be provided over a six-month period. The number of shares were determined by dividing $0.1 million by the volume-weighted average price (VWAP) per share of the Company’s common stock for the 30 days preceding the effective date which was $15.518. The shares were then valued based on a market price on the date of grant of $14.72 resulting in a fair value of $0.1 million which was recorded to prepaid expenses and other current assets upon issuance and recognized over the service period which ended in the third quarter of 2023.

Awards Under Stock Incentive Plans

On June 9, 2021, the Company’s stockholders approved the Beam Global 2021 Equity Incentive Plan (the “2021 Plan”) under which 2,000,000 shares of the Company’s common stock are allowed to be issued pursuant to the exercise of stock options or other awards granted under such plan in addition to the 630,000 shares previously allowed under the Beam Global 2011 Stock Incentive Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to 5% of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a lesser number as may be determined by our board of directors or compensation committee. As of December 31, 2023,2.7 million shares remain available to grant under the 2021 Plan.

Stock Options

Stock options are granted to new and existing employees. New employee option grants generally have a term of ten years and vest ratably over four years. Existing employee option grants generally have a term of ten years and vest immediately upon grant.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock based on our historical volatility. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate.

We used the assumptions in the table below and we assumed there would not be dividends granted for the options granted in fiscal 2023 and 2022:

Option activity for the years ended December 31, 2023 and 2022 is as follows:

The Company’s stock option compensation expense was $0.7 million and $0.9 million for the years ended December 31, 2023 and 2022, respectively, and there was $1.3 million of total unrecognized compensation costs related to outstanding stock options at December 31, 2023 which will be recognized over 4.0 years. There were no options exercised in the year ended December 31, 2023, and the total intrinsic value of options exercised was immaterial for the year ended December 31, 2022. Number of stock options vested and unvested as of December 31, 2023 were 335,745 and 146,113, respectively.

Restricted Stock Units

In November 2022, the Company granted 285,000 restricted stock units (RSUs) to its Chief Executive Officer (CEO), half of which contains performance conditions (PSUs). 50% of the RSUs without performance condition vested upon grant, and 25% will vest on February 1 st of 2024 and 2025. The number of shares issuable under the PSUs are determined based on the achievement of performance metrics specific to the Company that are measured at the end of fiscal year 2024. The fair value of both the RSUs and PSUs were based on the stock price of $13.05 per share on the date of grant. The PSUs were further reviewed to determine estimated performance over the term and then a factor was applied ranging from 0% to 150% of the grant date fair value. This estimate is reviewed quarterly.

A summary of activity of the RSUs for the year ended December 31, 2023, is as follows:

Stock compensation expense related to restricted stock units was $1.2 million during the year ended December 31, 2023, with $1.4 million in unrecognized stock compensation expense remaining to be recognized over 1.2 years as of December 31, 2023. There were no restricted stock units that vested during the year ended December 31, 2023.

Restricted Stock Awards

The Company issues restricted stock to the members of its board of directors as compensation for such members’ services. Such grants generally vest ratably over four quarters. Through 2022, the Company also issued restricted stock to its CEO, for which generally 50% of the shares granted vest ratably over four quarters and the remaining 50% vest ratably over twelve quarters. The common stock related to these awards are issued to an escrow account on the date of grant and released to the grantee upon vest. The fair value is determined based on the closing stock price of the Company’s common stock on the date granted and the related expense is recognized ratably over the vesting period.

A summary of activity of the restricted stock awards for the years ended December 31, 2023 and 2022 is as follows:

Stock compensation expense related to restricted stock awards was $0.4 million for each of the years ended December 31, 2023 and 2022, respectively. Fair values of restricted stock vested during each of the years ended December 31, 2023 and 2022 were $0.4 million.

As of December 31, 2023, there were unreleased shares of common stock representing $20 thousand of unrecognized restricted stock grant expense which will be recognized over 1.25 years.

Warrants

During the year ended December 31, 2023, the Company issued warrants to purchase up to 200,000 shares of the Company’s common stock at a price per share equal to $17.00 to a consultant for investor relations services to be provided over a five-year period. The warrants are immediately exercisable but are subject to repurchase by the Company until the required service is provided. The fair value of such warrants was $8.05 per share or $1.6 million on the date of grant using the Black-Scholes option-pricing model. This model incorporated certain assumptions for inputs including a risk-free market interest rate of 3.86%, expected dividend yield of the underlying common stock of 0%, expected life of 2.5 years and expected volatility in the market value of the underlying common stock based on our historical volatility of 99.6%. The fair value of the warrants was recorded to prepaid expenses and other current assets to be recognized over the service period. During the year ended December 31, 2023, $0.2 million was recorded as expense and at December 31, 2023, $1.4 million of cost has not been recognized and will be recognized over the next 4.25 years.

A summary of activity of warrants outstanding for the years ended December 31, 2023 and 2022 is as follows:

Exercisable warrants as of December 31, 2023 have a weighted average remaining contractual life of 1.60 years. Of the outstanding warrants, 410,745 will expire in April 2024. The intrinsic value of the exercisable shares of the warrants at December 31, 2023 was $0.3.

During the year ended December 31, 2023,29,459 warrants to purchase shares of the Company’s registered common stock were exercised generating $0.2 million, and in the year ended December 31, 2022,79,454 warrants to purchase shares of the Company’s registered common stock were exercised generating $0.5 million.

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

During the year ended December 31, 2023 and 2022,80% and 62% of revenues were derived from federal, state and local governments, respectively. In addition,15% of revenues in the year ended December 31, 2023 were international sales compared to 9% in the prior year.

At December 31, 2023 and 2022, deferred revenue was $1.2 million and $1.4 million, respectively. These amounts consisted mainly of customer deposits in the amount of $0.7 million and $1.0 million for December 31, 2023 and 2022, respectively and prepaid multi-year maintenance plans for previously sold products which account for $0.5 million and $0.3 million for December 31, 2023 and 2022, respectively, and pertain to services to be provided through 2029. Revenue recognized during the year ended December 31, 2023 and 2022 which pertained to revenue deferred in prior years was $0.4 million and $0.1 million respectively.****

There was no Federal income tax expense for the years ended December 31, 2023 and 2022 due to the Company’s net losses. Income tax expense represents the minimum state taxes due.

The pretax loss by country is shown below (in thousands):

The blended Federal and State tax rate of 27.77% applies to loss before taxes. The Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 21% to loss before taxes), as follows (in thousands):

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):

As a result of the Company’s history of incurring operating losses, a full valuation allowance has been established. The valuation allowance at December 31, 2023 was $22.5 million. The increase in the valuation allowance during 2023 was $4.2 million which was all recorded through deferred taxes.

At December 31, 2023, the Company has a Federal net operating loss carry forward of $68.1 million, of which $25.1 million is available to offset future net income through 2037, a State net operating loss carry forward of $70.8 million and a Serbian net operating loss carry forward of $0.4 million. The net operating loss (“NOL”) expires during the years 2027 to 2037 and $43.0 million may be carried forward indefinitely and limited to offsetting 80% of taxable income. The utilization of the net operating loss carryforwards is dependent upon the ability of the Company to generate sufficient taxable income during the carryforward period. In the event that a significant change in ownership of the Company occurs as a result of the Company’s issuance of common stock, the utilization of the NOL carry forward will be subject to limitation under certain provisions of the Internal Revenue Code. Management does not presently believe that such a change has occurred.

No liability related to uncertain tax positions is recorded on the financial statements related to uncertain tax positions. There are no unrecognized tax benefits as of December 31, 2023. The Company does not expect that uncertain tax benefits will materially change in the next 12 months.

All tax returns will remain open for examination by the federal and state taxing authorities for three and four years, respectively, from the date of utilization of any net operating loss carryforwards.

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.

Power of Attorney

Each person whose signature appears below constitutes and appoints each of Desmond Wheatley and Lisa A. Potok, true and lawful attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated: