Beam Global

Good afternoon and welcome to the BEAM Global Second Quarter 2022 Financial Results and Corporate Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kathy McDermott, CFO. Please go ahead.

Thank you. Good afternoon, and thank you for participating in BEAM Global's conference call for the second quarter of 2022. We appreciate your time today to join us for this call. Joining me is Desmond Wheatley, President, CEO, and Chairman of the Board. Desmond will be providing an update on the recent activities at BEAM, followed by a question and answer session. But first, I'd like to communicate to you that during this call, management will be making forward-looking statements, including statements that will address BEAM's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about those risks, please refer to the risk factors described in BEAM's most recently filed Form 10-K and other periodic reports filed with the SEC. The content of this call contains time-sensitive information that is accurate only as of today, August 12, 2022. Except as required by law, BEAM disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. And next, I'd like to provide an overview of our financial results for being second quarter ended June 30th, 2022. For the second quarter of 2022, we reported record Q2 revenues of 3.7 million, a 75% increase over 2.1 million reported for the second quarter of 2021. We also reported record first half revenues of 7.5 million, a 114% increase over 3.5 million reported in the first half of 2021. During the first half, Of the 4 million increases in revenue, 1.8 million was for a newly acquired battery storage business. 1.8 million was for increased shipments to federal, state, and local governments. And the balance consisted primarily of shipments to enterprise customers for fleet vehicles or workplace charging. Growth slot in the quarter ended June 30th, 2022 was 0.3 million, flat with the same period in 2021. For the first half of 2022, we reported a gross loss of $0.6 million compared to $0.4 million for the first half of 2021. The gross loss improved by 4 percentage points in the second quarter and year-to-date compared to the prior year as a result of the increased production volume resulting in favorable fixed overhead absorption and improved labor efficiencies and utilization. These savings were partially offset by higher material costs for steel and other components due to supply chain shortages and other inflationary pressures. Operating expenses were 2.5 million for Q2 2022, compared to 1.4 million for Q2 2021. For the first half of 2022, we reported 4.5 million for operating expenses, compared to 2.5 million for the first half of 2021, a decrease as a percentage of revenue of 11 percentage points. The increases were primarily due to the addition of our new battery storage business, and increased legal and accounting services partially due to the acquisition. The net loss was $2.3 million or $0.28 per share for the second quarter of 2022 compared to $1.6 million or $0.18 per share for the second quarter of 2021. The net loss for the first half was $5.1 million or $0.52 per share compared to $2.9 million or $0.33 per share for the first half of 2021. At June 30, 2022, we had cash of $13.8 million compared to $21.9 million at December 31, 2021. The cash decrease was primarily from operating activities and the cash payment for working capital for the purchase of all cell technologies. Included in the operating cash usage year to date, we increased inventory purchases and increased prepayment to vendors for inventory. to reduce the risk of potential shortages of cells required for battery manufacturing, as well as an increase in work-in-process inventory of EDR units. These increases are not expected to be ongoing quarterly cash requirements. Our working capital decreased from $24.6 million at December 31, 2021, to $19.4 million at June 30, 2022. And with that, I'm going to turn the call over to Desmond to give you an update on the business. Desmond?

Well, thank you, Cathy, and thank you, everybody else, for joining us today for this call. I'm going to just start out by reminding all of you, or certainly introducing those of you who have not joined us for one of these calls before, that we are in the flight path for the Marine Corps Air Station at Miramar. In fact, we're only about a mile as the crow flies from that airbase. From time to time, we will get flyovers. during this call and it's very loud when that happens. When and if it does happen, just expect me to stop talking and I'll wait for them to fly over for 10 or 15 seconds and then I'll start right back up where I left off. Don't worry if you hear a very loud noise, that's all it is. Well, we've had another very fruitful quarter at Beam Global, setting new records in revenue, sales growth and pipeline growth. We've also increased our efficiencies reduced our cost per unit produced, and improved gross profitability and net profitability in both the second quarter and the first half of this year. We've made significant advances in the integration of our recently acquired battery company in Chicago. And I'm happy to report that in addition to the other good work we're doing there, we're now starting to produce our own proprietary battery systems and installing them in the latest EV arcs, which are currently being shipped to our customers at a greater rate than at any time in our history. The level of attention that Beam Global is now receiving at state governmental levels and also importantly in Washington, D.C., is higher than it's ever been. And that's being matched by a significant increase in attention from the media. I've recently met with congressmen and ranking officials from the Department of Energy and Transportation. Two years ago, I might have had a hard time getting a junior staffer to take my call. Such are the advances that both we and the understanding of what we do and why we do it have made. I've also personally been interviewed by publications like the Wall Street Journal, CNN, Inc. Magazine, Politico, and many other trade and industry publications. Where previously, Beam Global's products might have been viewed as interesting and niche solutions for a small minority of EV charging requirements. The attributes which are embedded in our value proposition, such as rapid and highly scalable deployment, a secure source of energy during grid outages, a low total cost of ownership, and a versatile and flexible means to increase electrical capacity, not afforded by the giant and centralized grid, are now being viewed as essential by regulators, policymakers, and, importantly, purchasers, both governmental and corporate. The EV industry is really taking off, and the general global perception of energy and its instability, along with climate change, exacerbated by the war in Ukraine and the heat waves and fires being experienced all across Europe, Asia, and the United States, tragic as they are, are increasing awareness and acceptance of products which clearly reduce the risk from both energy insecurity and climate change. Beam Global's rapidly deployed and renewably energized portfolio of products are poster children for the new era of increased emphasis on clean, reliable, secure, and domestically produced energy, and as a means to actually provide the massive amount of publicly available electric vehicle charging that will be required over the next couple of decades. Now, let's take a look at some numbers. In Q2, as Cathy said, we generated more revenue than in any second quarter, and actually the second highest revenue of any quarter in our history, a 75% increase over Q2 of 2021. That continued a trend we set in the first quarter of this year, resulting in first half revenues which are 114% greater than that first half prior year. And actually greater than any full year's revenue in our history, except for last year. So at the midpoint of the year, with six months left to go, we'd already generated over 80% of 2021's full year revenue. And that year was 144% of our previous record year. Perhaps you can start to detect a pattern here. I believe that we'll see an increase in momentum during the remainder of this year. So naturally, I'm feeling enthusiastic about our future, both short and long term. We're operating in a period of unprecedented inflation and supply chain challenges. And yet, in the second quarter, and indeed throughout the first half of 2022, we improved our gross profitability by over 4%. Improvements of net profitability were over 14% during the first half. Now, remember that during that period, we closed the acquisition of our Chicago-based battery company and commence the integration of the two entities. Integrating a new acquisition is never easy. It inevitably leads to increases in overhead costs, albeit often one-time increases. That's certainly been our experience this time. And yet, we've actually reduced our net loss as a percentage of revenue while undertaking this challenge. So, looking at gross profitability and net profitability, you can see that we were able to improve both, even in the face of the extraordinary activity of integrating an acquisition and during a period of the most severe inflation and supply chain challenges certainly in the last 40 years. I have consistently committed to improving our gross margins and our bottom line as volumes increase. The Beam Team has consistently made a reality out of the commitments that I've made on their behalf. Our use of cash during Q2 was much higher than in previous quarters, but let's be absolutely clear about what this means and what actually happened. The increase in the use of cash was not the result of excessive and propagated increases in overhead spending. Far from it. Reading our filings, you'll notice that of the 7.4 million of cash we used in Q2, 3.6 million was spent on inventory, work and process products, largely partially completed EVRs, which were already sold. And importantly, the strategic allocation of cash to secure vital battery cells, which are essential to our EV charging product production and to our broader battery manufacturing business. Anybody who reads the newspaper will know that supply chain constraints where battery cells are concerned are real. We used cash to defend against risks associated with these supply chain constraints, and we put ourselves in a position of security for the foreseeable future, even in the face of the significant increase in demand for our products, which we're experiencing. It's important to point out that using cash in this way, it's not the same as burning it on overhead, because any cash we use in this manner will be returned to us as cash when we take revenue on the products reduced as a result of work in progress, inventory, and the prepayments that we've made to vital suppliers. This is not a condition which I anticipate will endure. While there is a supply-demand imbalance today, I'm confident that that imbalance will be corrected in the future. In any event, our use of cash in the second quarter was composed of many non-typical events, and actual cash burn, not related to costs of goods sold, was fairly consistent with our history. We remain highly frugal with, I would say, almost unrivaled discipline where overhead spending is concerned. Any of you who visited my office could happily attest to that. A quick glance at our working capital position should remove any doubt about the veracity of my comments on this matter and demonstrate that we still need not be concerned about running out of money. But if you want more detail or color on this matter, don't hesitate to raise it during the Q&A session, or if you prefer, get in touch with us after the call. I or Kathy would be happy to discuss the merits with you. The BEAN team has worked very hard to mitigate the impacts of the various supply chain challenges which have confronted us during the last 12 months in particular. It's been hard work and required their professionalism and commitment to ensuring that challenging as it is, we do not allow it to prevent us from shipping product and generating revenue. While we've had many eyebrow raising moments, none have been more acute than those we've experienced with the battery supply chain. Any of you who listened to my explanations of the wisdom of making our battery company acquisition will know that one of the significant factors which drove me to execute on that excellent transaction was my determination to insulate us from the battery supply chain constraints I anticipated. Hindsight has more than validated my premonition. We've struggled this year to acquire sufficient battery packs from our supplier to meet the ever-increasing demand for our products. While we managed through this shortfall, our Chicago-based battery team has been working with urgency to engineer and manufacture a new and superior pack for our EVR products. This is a process which is much more complex than many may imagine. Creating a safe, efficient, and cost-effective battery pack system is not the same as popping a few double A's into a flashlight. It's complex and difficult, and it requires a highly experienced team like the one that came with our acquisition. This, of course, is a significant differentiator for us. While there are increasing numbers of traditional electric vehicle charging infrastructure companies who are attempting to integrate battery storage with their grid-tied installations, we're the only company that I'm aware of that has its own proprietary energy storage solutions. The first of our new battery packs have now been shipped from Chicago facility and they're being installed in the latest EV arcs which are shipping to customers. The transition was not seamless and there have been periods during which we've had otherwise completed EV arcs waiting at our San Diego facility for battery packs. This goes some way to explaining the larger than normal work in progress inventory which we've had on hand. The good news is that we're solving these problems, and we fully anticipate that our Chicago team will catch up and keep pace with the increasing velocity at which we're having to produce EV arc systems. We have not lost any orders as a result of these delays, but the revenue did move right. This increased pace of EV arc production is impressive. Our existing team has more or less doubled the number of systems they were able to produce just six months ago. A strong indication of how much more efficient we've become is that our revenue per employee is increased by 34% over Q2 of 2021. And it's almost double what it was in Q2 of 2020. Said another way, while we're dramatically increasing our output, we're doing so without dramatically increasing the headcount. And of course, we're getting even more leverage from our fixed overhead costs. Another area where we've seen skyrocketing inflation is in the cost of transportation. both to deliver our products and also to receive the components and raw materials that go into them. While we cannot impact the cost of incoming transportation, except by increasing our volumes, of course, which we're doing, we've been able to positively impact the way we transport our products to our customers. We now have a beautiful video which shows our latest advance in delivery technology. A single operator transporting not one, but two EV arcs to a customer site and deploying them before returning to the factory. Remember that we can integrate as many as six chargers onto a single EV arc, and then consider Beam Global's impact on an industry that requires teams of contractors, electrical workers, consultants, engineers, and permitting specialists to spend weeks or months deploying a grid-tied charger. This new video shows a single Beam employee deploying two EV arc systems, which are capable of carrying as many as 12 chargers in a couple of hours, with no on-site activity or disruption for our customers. Look for that video soon on our website. It's really fantastic. Our production and revenues are up because, of course, sales are up. And this is probably the most exciting part of the Beam story at the moment. At the end of the second quarter, we had over $10 million in contracted backlog. This is a significant increase over the highest backlog that we've reported or indeed had at any time in our history. It's greater than any four years' revenue we've ever reported. At the same time, our sales pipeline has also increased to a new record of over $120 million. We keep getting more and more conservative about what we consider as active pipeline, and yet the number continues to increase dramatically. The combination of increasing revenue, backlog, and pipeline has never been better. The investments we've made in adding salespeople, increased marketing efforts, and particularly in government relations, has contributed to this growth, but in my mind, more importantly, positioned us for what I believe will be dramatic and accelerating growth for the foreseeable future. Just looking at anticipated federal spending on electric vehicle charging infrastructure and clean energy and remembering that we have a GSA contract in place and a blanket purchase authority that federal agencies can use to acquire our products might give a reasonable person cause to suspect that Beam Global will see significant growth in that area alone. But the fact is that federal spending commitments, while they dramatically increased this year, particularly now that the IRA has passed the Senate, are only one contributing factor to our future growth. We're seeing increased spending across the board at both governmental and corporate levels. There may be a recession coming, and that can be bad news for lots of companies, but it might have the opposite effect for us. Very little, if any, of the pipeline revenue that we have will be impacted by a recession. It might even support it. At the same time, the availability of labor will increase, and commodities, raw materials, and contributing parts will be in reduced demand, which should make them easier for us to secure while possibly reducing their costs as well. Feels good to have a business that should not be impacted by recession. We could end up being one of the few bright spots in an otherwise pretty dim 2023. Europe's commitment to banning the sale of internal combustion engine vehicles in 2035 has been a wake-up call to the entire industry. Automotive OEMs will not be able to produce internal combustion engine vehicles for North America and electric vehicles for Europe, not in this day and age. There are about 1.4 billion cars on the world's roads today, moving to 2 billion by 2030. In the United States, there are about 300 million of them. You need one publicly available charging plug for every five electric vehicles on the road. Simple arithmetic shows that the United States will need something in the order of 60 million plugs in the coming decades. Let's say we have the luxury of four decades to deploy all these plugs. We'd still need to install about one and a half million a year, every year, for 40 years. Beam Global has the most rapidly deployed, scalable, made-in-America infrastructure solution available today and we power any quality brand of charger. There will certainly be a mixture of solutions required to provide all the charging infrastructure and energy required, but with our unique attributes, I do not anticipate any decrease in the velocity of our growth for a long time to come. In fact, I think we're going to be very, very busy. Our sales are not just coming from EV charging solutions. If there's another area of growth which is as exciting, it'd have to be battery systems. Recently, We've sold or delivered batteries to companies that produce or operate drones, medical devices, EV chargers, industrial robots, personal watercraft, electric aircraft, and material rehandling equipment. These organizations and uses are as diverse and broad as the requirement for safe, energy-dense, and long-lived battery solutions. While our battery company acquisition is important to our EV charging infrastructure product business, It's also opening up a whole new universe of strategic revenue opportunities in the energy storage ecosystem. These opportunities are supportive of our renewably energized charging business because just about anybody who integrates batteries into their product needs to have a clever way of charging them. But they also provide another area of what I believe will be significant growth for Beam Global. We continue to pursue the sponsorship opportunity, about which I've said so much in the past. I'll offer you one update, which I believe will help you to understand why I continue to invest time and effort in this initiative. On Monday of this week, I welcomed a team from one of the world's largest companies to our facility in San Diego. They toured the factory, and we discussed the opportunity. This is the third visit by different teams of representatives from this one very large company. The basis of our discussions from day one has been the sponsored driving on Sunshine Network. I cannot guarantee that we'll secure a sponsor for our Driving on Sunshine network, but I can report that we continue to be actively engaged with very large organizations whose primary interest in us is driven by their interest in this initiative. Until that ceases to be the case, I will continue to drive the opportunity forward with the help of our partner, the Superlative Group. I still believe that it offers an excellent future source of highly profitable recurring revenue. As I've said before, As attractive an opportunity as the Driving on Sunshine Network is for us, it has never been essential to our growth or prosperity. The significant and continuing growth in our core business demonstrates that fact. However, as I've also said, I still view it as an excellent and attainable opportunity. Finally, I want to brief you on our continued international expansion plans. In September, I'll travel to Europe and the Middle East for a series of meetings which are intended to create fertile ground for expansion into both markets. Successfully pulling this off will take time and work, and I will not do it unless I'm convinced that we're positioned for success. Nevertheless, Europe is the largest EV market in the world and arguably even more receptive to product solutions which have the attributes we so uniquely possess. We continue to secure patents in that market. The combination of extreme weather events and equally extreme vulnerability to traditional sources of energy has had a significant impact on European receptivity. to rapidly deploying infrastructure to support electrification of transportation and reduce the reliance on traditional utility grid electricity. Beam Global's products solve for both opportunities. The Middle East is far less advanced where the adoption of electric vehicles is concerned. However, there is increasing interest in that part of the world for clean and sustainable solutions, and there's lots of cash to fund them. With the right partners in place who have relationships and credibility where infrastructure is concerned, I believe that we can create some significant growth opportunities in that market. Furthermore, to provide a gateway to the rest of Africa, where large sums of capital are expected to be invested by the rest of the world in the transition to sustainable energy and transportation. It's only days yet where international expansion is concerned for us, but I want you to know that it's an extremely important area of focus for me, and I intend to prosecute it with vigour. We will, of course, provide updates through press releases, filings, and calls like this if and when we make material progress. So to sum up, record revenues, record sales, record backlog, record pipeline, and an improvement in our gross and net profitability during exceptionally challenging times. I've often said that there's never been a better time to be being global, and that's because we continue to break records, provide growth, and improve our execution. So it's simply true. There really never has been a better time to be Beam Global, except the time that's coming. Thank you all for your time and attention. I'll now return the call to the operator and to Kathy and take your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Christopher Souther with B. Riley. Please go ahead.

Hey, thanks for taking my question here. Yeah, hey. Maybe just on the backlog and pipeline, could you maybe break down – that between traditional beam products and the storage side, and then maybe within traditional beam, the mix between government and some of the commercial customers, trying to get a sense of where we are and some of the commercial customers coming back after COVID slowdowns and how the backlog and pipeline are starting to broaden out here. Thanks.

Yeah. So on the breakdown of backlog, um, it's highly transient of course. And I've, I've mentioned this on previous calls before. Uh, I actually think that backlogs are less useful metric than pipeline and revenue, uh, because of course, as we execute on backlog and convert it to revenue, it might never even show up in the reporting periods. Uh, so it's highly transient at the moment. It's probably 50, 50, uh, um, uh, charging products to energy storage products. Um, and, uh, we are seeing a significant return and increase to corporate backlog in our mix. During COVID, as you just pointed out, we certainly saw a very significant reduction in non-government revenue and backlog. And I have to point out that even during that period, we never did reduce our revenues at all, even having lost more or less all of our enterprise or corporate spending. At the moment, we're seeing that roaring back. But at the same time, Look, we're heading towards the end of the third quarter. Federal government spending, a lot of the contracts are signed and closed out before September 30th or have to be done by September 30th. So I wouldn't be at all surprised to see a significant shift in favor of the charging products during that period and a significant increase. Obviously, that's what we're planning for. But that's the way it breaks down at the moment.

Okay, maybe the pipeline as well, just given that it's more meaningful here.

Yeah, the pipeline, yes. Sorry, Chris, I didn't mean to ignore that part of your question. If I have to be honest, I forgot it. The pipeline is actually much more heavily weighted to the charging products side, so the stuff that you've been used to seeing Beam selling. And that speaks a little bit to some of the comments that I've just made. As I've said before in previous calls, we are increasingly looking at very much larger orders with very much larger product volumes associated with those orders. And although we weight them heavily, nevertheless, they are extremely impactful. And it doesn't take more than one or two of those to have a dramatic life-altering impact on this company. And of course, that's what we're working to affect.

No, that's good to hear. And then on the Volvo construction equipment deal, it seems like your products would be very well suited there. Can you just talk about the time where you think that could start to be meaningful and maybe initial thoughts on how you size that specific opportunity or end market, understanding it's very early days here?

Yeah, so that's precisely why I didn't mention it during my comments. I'm very, very enthusiastic about that Volvo partnership. There's several aspects about it which I really like. The first one, obviously, to have a company like Volvo include us in their catalog and in their financing so that customers can bundle their products and ours under that one finance blanket. I mean, there are many layers of value surrounding that. It's a significant validation of what they think of our product and the future of the business. It's also a strong recognition of the fact that electric construction equipment without rapidly deployed EV charging infrastructure that doesn't rely on the grid. Because remember, folks, you When you're doing a construction site, there isn't electricity there most of the time, especially when you're moving dirt, which is what most of these machines are designed to do. So it's a strong recognition and validation of the idea that having a transportable and renewably energized product that generates and stores all of its own energy in those types of environments and can then be moved to the next construction site. It's a very important part of our value proposition. So all of those things are good. Why did I not mention it in my comments? Because it's still a small market in the United States. But I'll tell you where it isn't a small market. Europe. Increasingly in Europe, between particulates pollution, the sort that you get from diesel, and noise pollution, the sort that you get from diesel engines, it's becoming increasingly difficult to operate diesel equipment in Europe. And I think that we're going to see an awful lot of growth in the deployment of that type of infrastructure there. And as I already mentioned in my comments, I think that the European market will be even more receptive to our products than the U.S. market because, you know, they are more sort of green, renewably energized minded. But beyond that, because it's actually much, much harder to do infrastructure in Europe because the streets are older. There's a lot more antiquated stuff around and everything else than certainly in the western part of the United States. So part of what I'll be doing when I'm in Europe, Aside from looking for or advancing my conversations with partners to expand over there, we'll be looking at those sorts of opportunities. I think that's where it's going to – we'll probably do more there than we will in the United States in the early days. However, I believe it's inevitable that it will take over here, and it's a multibillion-dollar industry, and we intend to take a good piece of it. That's great to hear.

I'll hop in the queue. Appreciate it. Thank you.

The next question is from Tate Sullivan with Maxim Group. Please go ahead.

Hi, good day. Thank you. I mean, again, the backlog, an impressive number. But, I mean, backing into the implied orders in the quarter, I think it also implies it's close to 10. Did you have some customers that didn't allow you to disclose larger orders, or was it just a wide variety of smaller orders within 2-2?

Yeah, so this is kind of an interesting question, and it reflects a shift in the way that we are reporting what we do. In the past, when we were getting fewer orders and they were smaller, we tended to report all of them. However, that's changing now. If I put a press release out every time I get a purchase order, I'd be putting out a press release every day practically. And in fact, I think the numbers for the second quarter bear that out. We certainly had a purchase order every couple of days in the second quarter. And so what we're trying to do now is do less of that because we don't want the broader market or the investment community or anybody to think that we're excited by a one or two unit order anymore. Look, we love every order that we get. But what we're trying to do now is reduce the number of pressure leases we put out and maybe bundle stuff in a way. So you didn't see a lot of stuff because of that. Rest assured. And even, by the way, if we have a large and meaningful customer, the drone press release that we put out is a perfect example of this. We'd love to have named them, but they asked us not to. And that's going to happen. There are many customers, particularly the really large ones, the very well-known and popular ones, whose brand is so valuable to them, they don't even want us putting it in our press releases. They quite often brag about what they're doing with us, but we're not allowed to. So it's a combination of all those factors. But rest assured, when anything really big hits, we will still identify those with press releases. But yes, you're going to see more of this. You're going to see more revenue growth, more order growth, more backlog growth without necessarily being able to add up all the press releases to get to it.

Thank you. And on the revenue composition in 2Q, Kathy, you mentioned in the press release 1.4 million from energy storage, but I heard in your prepared remarks you also broke it down between government, customers, and commercial. Can you give those numbers again, please?

So that was part of the increase in revenues. 1.8 of that was the energy business that we didn't have in the prior year, so that was all growth. And then we had 1.8 was an increase in the federal, state, and local government area. So the 4 million, that's the majority of the growth.

Well, I think what the astute and you're all astute listeners are going to figure out here is that the and I mentioned it in my comments that we have quite a significant accumulated WIP, work in progress group of essentially partially, well, all but complete EV arc systems that because we had that that lack of smoothness in the transition from prior battery vendor who were unable to keep up with our demand and the new engineered packs that we're bringing over here, those would otherwise have gone to customers. So, said another way, we might have had a much better quarter if it wasn't for that imbalance. Now, the good news is they haven't gone anywhere, and we are now stuffing batteries into them and shipping them out to customers. And so, as I said in my comments, that revenue didn't go away. It just moved right, and it will inevitably hit future quarters.

And last for me, Dylan, sorry, you went over some of the verticals for all-sale. I heard medical devices, material handling. drones. What are some of the others that you mentioned as well, too? And it sounds like drone is just one of the many areas that you can go and sell to.

I'm not going to keep taking your questions if you keep referring to them as all-sell. We're going through a lot of trouble and work, so rebrand them as Beam. As Beam, excuse me. Beam Chicago, you can call it, please. It's fantastic. I'm thrilled to death with it. As I said, aircraft, drones, we're in submersibles, we're in robots, we're in material rehandling. We're in electric vehicles. It's just it's just it's a fantastic broad selection. And if you think it's not surprising, I don't think we've even begun to scratch the tip of the iceberg on this new generation of small battery powered devices that people are going to expect to have around there in their lives. You know, robot deliveries of groceries. Something's going to bring your Budweiser from the fridge to you when you're sitting on the sofa. We're going to see more and more of this sort of Roomba vacuum cleaner type thing, if you like. And then, yes, personal watercraft, drones and all the other things like that. Drones, obviously, very interesting to us, particularly in light of the fact that we have our UAV arc unmanned aerial vehicle recharging product, which is patented. So it's very broad. And that's what I like about it. And I was very clear with the Chicago team when we acquired them. that while it's important to me that they provide us with the best possible and least expensive and most scalable battery storage solution for the products that we were already making at Beam, that could not be at the expense of broadening revenues from the other aspects of their business because I want the revenue and the margin, but also because I want the opportunity to get into all of those other businesses in a meaningful way. So I'm really filled to bits with it. Thank you, Desmond. Thank you, Cathy. Thank you, Jay.

The next question is from Amit Dayal with HCW. Please go ahead. Hi, Amit. How are you?

Hi, guys. Good, good, Desmond. Thank you for taking my questions. With respect to the battery business, you mentioned, do you need to spend more sort of R&D dollars to develop batteries that can actually, you know, make a difference for those types of applications?

Yeah, not so much R&D dollars. Many of the applications that we fulfill, and this is part of our differentiator, frankly, are highly specific to the product. I mean, clearly it's quite a lot different to make a battery solution for a drone than it is for an electric surfboard. By the way, that's one of the incredibly diverse products that we put batteries into nowadays. That, again, is different from a medical device, and all of those are different from a stationary application like ours. So in each instance, there's a degree of bespoke nature to the battery pack, if you like. And that often requires a little engineering, and very often we bill for that, for the specific customer that comes in. However, that's not my ambition. I'm not interested in that side of the business. What we're getting much, much better at and what's an area of major focus for us is figuring out how we can mass-produce solutions which are versatile enough to solve a whole variety of different, what looked to the customer like bespoke problems. So it's sort of like Lego, if you like, a different number of blocks and maybe different shaped blocks, but all the same underlying technology going to fulfill a whole variety of different opportunities. And I got to tell you, I think that's going to be a very, very interesting business moving forward. Because as I said, I believe that we're only at the very beginning of this sort of revolution of all these different types of pieces of equipment and devices that were run on these batteries. And the thing is, they are necessarily going to have different form factors. I mean, you cannot make a drone the same shape as you make, you know, a robot that's delivering groceries in Milton Keynes. And real estate and weight and Energy density and all those other things are absolutely a premium to all of these companies. So they can't just lump in whatever old battery packs lying around and hope it works for them. And then, of course, safety. Don't forget the other big thing that we bring to this to our thermal management technology is the Goldilocks zone. We keep batteries in that nice state, middle temperature, and that does several things for us. It makes them less likely to experience thermal runaway or fire explosion in common parlance. But also keeping them in the Goldilocks zone means we can make them more energy dense and extend their life, which is another way of saying make them cheaper. So there's a great deal wrapped up in this. So I really hope that the way we're going to be able to add a great deal of margin and compete with very large, very well-funded organizations in this space is that we will be able to exceed the safety aspects, but at the same time provide the kind of bespoke requirements for many of these other applications, which, as I said, I believe are just at the very beginning of their growth curve. Understood.

Thank you for that. And then, you know, with respect to this IRA legislation, I mean, you're already doing well with the government, you know, segment. How much more benefit do you hope to sort of be able to extract, you know, based on the provisions in this legislation?

Look, there's another $360-odd billion being spent on clean energy and electric vehicle charging infrastructure. There's the extension of the ITC, in fact, returned to the 30% of the ITC and an extension for another decade with it. You know, that's obviously been sunsetting. our products are eligible for. It's never a decision factor in the purchase of our products, but it nevertheless is a nice shot in the arm. You get $300,000 back on a million dollars spent on our products. No one's going to say no to that. And then there are other manufacturing, I think it's 48C, the manufacturing incentives, et cetera. All of those will benefit us. But I think you're right to point out that really what this is all about is identifying the fact that the federal government is very serious about electrification. We know that for a fact because we are in the process of talking to very large federal entities about their requirements, which are significant and material. And in fact, it's a matter of public record. I'm not going to speak to it right now, and I'm not even going to direct you to it right now, but if you dig, you will find the RFPs, and I encourage you to read the specifications in them. So it's a It's not just IRA. It's a whole host of different things all happening at the federal level right now. We think that we're just at the beginning of it, and we have very good reason to believe that.

And do you think the legislation could help on your efforts to lock a sponsor deal?

Well, certainly the extension of the ITC because, of course, that's a major source of funding for that deal. But there are other aspects of it as well. There's been much ado made about the fact that the IRA legislation restricts the number of electric vehicles which are compliant with the $7,500 tax credit. But I'll tell you what, people are completely missing the bus on this. It's certainly true that expensive vehicles for rich people might be at risk. But what's really interesting actually is not that. What's really interesting is the lift on the cap of the 200,000 vehicles. So that was much more alarming because when you're talking about very widespread deployment, it's not going to be rich people in expensive vehicles. That was always the early adopter niche. The truth of the matter is that the average American consumer is going to be getting into vehicles like the Chevy Bolt, you know, $35,000, $29,000 or wherever they are. And those price, the vehicle caps are were much more impactful. So what we're going to see as a result of this, if they raise those caps, is that limitless numbers of people can buy those vehicles and get that $7,500, as opposed to only $200,000 per company, not per vehicle. And that will dramatically, in my view, increase the adoption of electric vehicles and accelerate the adoption of electric vehicles. And the one thing that we've learned about this driving on sunshine sponsorship deal is I was way too early with it. The fact is everybody liked it, but they didn't really think it was important because they didn't really think the EVs were that much of a deal or anything else like that. That part of what we've observed and part of who we're talking to now tells us the same thing, which is that this EV charging infrastructure thing is becoming a far bigger deal for everyone. And a big part of that's driven by adoption of EVs. So I would say just that one aspect alone, encouraging more people to own these vehicles and not rich people in elite cars. That's not who's interesting. That's 20 million of the 300 million cars on the United States roads. I want the other 280 million, and that's what that will help with. And, yes, that will definitely support our efforts for driving on sunshine is concerned, as will the ITC. Okay. That's all I have, Desmond. Thank you.

Thank you, Emmett. The next question is from Noel Parks with Twohy Brothers Investment Research. Please go ahead.

Hello, Noel. Hi. Good afternoon.

Good afternoon. I'm listening to all. Oh, great. A couple of things. Actually, you did touch just a minute ago on the fact that all the news recently has been about the Inflation Reduction Act. And I'm sorry if you discussed this already, but can you talk some more about maybe where things stand or what the status is that you see from the infrastructure bill from last year, just the rulemaking process and sort of kind of where you think you're going to or when you're going to think you're really going to see benefits from that.

Yeah, so the infrastructure bill last year being quite distinct from IRA that's just come out right now. But with the $7.2, I think it was, billion for electric vehicle charging infrastructure, obviously we believe that's going to be very important to us. There are two buckets of that. Five billion of that's going to go into the NEVI funding, the National Electric Vehicle Infrastructure funding. I encourage you to take a look at the Federal Highway Administration's guidance document that describes how those funds should be spent. It's available online. Just Google. Take a look at that document. What you're going to find in that document is that there is only one image anywhere in the document. That image is on the front cover of that document, and that image is of our products. So for some reason, the Federal Highway Administration and Department of Energy and Department of Transportation, when they were putting the document together to tell people how they should spend the $5 billion, selected an image of our products as the front cover of that magazine. Now, if I was in sales, I'd say that's a buying sign. So that's $5 billion of it. And we can certainly... fulfill the requirements of some of that in ways that other people can't. We don't agree with all the rulemaking. We don't agree with all the standards or the regulations. And I can tell you that I firmly believe that there will be lots of exceptions made and lots of exemptions made, because there will have to be. And that's because one of the requirements is that there should be 600 kilowatts of charging every 50 miles down the United States highways. Nobody imagines for one second that that type of power is available anywhere. in almost any of these locations. We, of course, can provide that 150 kilowatt charging in those locations without bringing the grid there. And so that's one of the great strengths that we'll bring to bear on that. The other two plus billion dollars in that funding is more flexible, and I believe a great deal of it will go to level two charging. A lot of it will go to disadvantaged communities. A lot of it will go to broadly dispersed infrastructure And in every instance, those will be places where it's harder to get the grid deployed and harder to scale up or anything else. And, of course, we are ideally suited for those sorts of deployments and have a demonstrated history of deploying in those types of environments. So, look, as I said in my comments, we're going to need a shitload of infrastructure here in the next couple of decades, an unimaginable amount. One and a half million chargers a year if we take four decades to do it. The entire industry has deployed 120,000 chargers in the last decade publicly available, I'm talking about. It's going to take a mixture of many, many things to solve for this. We, I believe, are going to get a very, very big piece of that pie from our point of view. You know, I mean, it's a $6 trillion build-out or whatever in the long run, according to Goldman Sachs. But from our point of view, to get thousands of units deployed and thousands and thousands and thousands of them deployed won't have the tiniest bit of impact on the overall demand. But, of course, it would be very, very meaningful for us.

Sure, absolutely. Um, and strategically, um, you, you know, I was, um, struck to see that there was, um, another deal of a, um, public battery, uh, battery company, uh, acquired by a, um, an EV OEM and just earlier. Yeah. Right.

Exactly.

And, and I was just curious, um, do you, um, with your own, um, M&A in that, in that space, um, is there, is there sort of like, um, a likely drive of continued vertical integration transactions that you foresee kind of near term, next year or two, or is it more a case where there are specific windows of opportunity when a seller might be reasonable in terms of bid-ask spread and you can make it happen? Do you think we'll just see a spate of these, or do you think they're kind of just really situation specific?

No, it's both things. I am aggressively acquisitive. I want to control more of what we're doing. I want to defend my supply chain. I want to bring margin in-house. And beyond that, we work very, very hard to make other people's stuff work in unique ways. In fact, we are always educating the vendors of various components that we buy off the shelf as to what their ships can do. They didn't even know they could do it themselves. And in some instances, had that stuff added to their manuals. Our engineers have figured it out. So I want to control more of that. Don't forget, we're not going to stop with EV arcs. We've got EV standard coming. We've got our UAV arc coming. We've got many other products in the pipeline and between our ears. And so we want to control as much of this as we can so that we can maximize margins, defend supply chain, and also make sure that the things that we're integrating are actually right for our products. So you'll see me continuing to look for opportunities wherever possible for more vertical integration. But at the same time, the second thing that you said is also true. I'm only going to do that when I can buy it right. And AllSell is a great example of this. I've been trying to buy AllSell for a long time. Believe me, it didn't just start happening last year. I wanted them for a long time. And it wasn't until we could, you know, a whole series of externalities put us in a position where we were able to affect that transaction, not least of which was the fact that Beam's growth opportunities, so material and so significant that that the funds, don't forget, they were over the wall. I could disclose stuff to them that I can't disclose to other people. And the fund that owned AllSell at that time realized that they were going to make a hell of a lot more money owning 10% of Beam than they would ever make owning 100% of AllSell. I don't want to put words in their mouth, but that didn't hurt the transaction.

Gotcha. And when you're thinking about... Well, the lead time for that transaction, I'm just curious, was it sort of your traditional M&A social issues that were, was the thing that extended it so much? Was it, you know, just financing concerns? No, it was not.

Remember, it was an all-paper deal. It was an all-paper deal. So, look, there was certainly a very tough negotiation on price. There's no question about that. Very tough. Okay. but also the truth of the matter is when I said I've been after them for years I took a run at them a couple of years earlier and it didn't work and I have a discipline about I've done a bit of M&A in my time and I have a good discipline about not falling in love with deals and walking away from them if I don't get what I want I want fair deals and I can tell you that the seller in this case would feel very much that this was a fair deal that they've already done very well out of it and they're going to do a whole lot better out of it that's how I want it but I'm not My primary concern has always been with my existing shareholders and my existing company. I'm not going to sell them down the road to enrich somebody else. That's really important to me. But in fact, when we came back together to attempt to get this done the second time, it didn't take a long time. It was spirited. There was no doubt about that. There was a few table-thumping sessions and some raised voices. But at the end of the day, we got it done pretty quickly because we were able to fairly early on discover that we were better off on the same team than we were in opposing teams. And that's one of the great things about doing an all-paper deal. You know, you give somebody cash, that's your adversary through the transaction at closing and after the transaction. When you give somebody paper, they quickly become your greatest supporter, right? And that's a great thing. I love being in that position with a seller. They're now valued shareholders in Beam Global. I like them personally. They're very well known and have great experience in the industry. And I'm looking forward to making them a lot of money and staying engaged with them for a long time. But anytime anybody will tell you they've been involved in any type of M&A transaction with me or indeed any large deal with me, they probably think I'm a bit of an asshole, frankly, because I have a tendency to stick to my guns and I have a firm grasp of what I believe is fair and I won't venture away from it.

Absolutely. I understand. Fair enough. So thanks very much for that background. That's all for me. My pleasure. Thanks, too.

The next question is from Joseph Miranda, a private investor. Please go ahead.

Hello, Joseph. Hello, Desmond. Thank you for taking my questions. You don't break out either on the press release or the 10Q segmented information. So just a more general question. Which segment do you foresee as becoming profitable first, Beam San Diego or Beam Chicago?

So really important for me to point out, the reason we don't break it out is because we do not operate them as a separate segment. They're fully integrated into our company. And I mean, from an accounting point of view, that's important to point out. And it's also philosophically very important to point out that it's not us and them. It's just us. And so the simple fact of the matter is they will be crucial to beam San Diego's profitability because, of course, batteries are about 30 percent of our bill of materials. And so anything that we can do to reduce costs, there's going to have a very, very significant impact on our profitability and quickly. They will also do some deals which are very profitable. The gross profitability will be very high on certain deals that they do and can be lower on other deals that they do. I think what you'll find is that San Diego, if we're going to segment it like that, by the way, we can't even do that in the future because I'm going to bring factory manufacturing over here and I intend to expand our charging products manufacturing into the Midwest as well as demand dictates. But just to keep for that, using that nomenclature at the moment, I think what you'll see is a greater consistency in the product offerings in San Diego because you know, we make a smaller number of products and they all have very, very fixed prices, sometimes minor discounts for large volume purchases for the Feds or State of California or something like that. Whereas with the battery products, there's going to be much more variability in the margin sets there. And some of that will be to do with how bespoke they have to be, what kind of volumes we're looking at, and also what the cells and raw material contributions are to them, which are very varied. But I'm not going to tell you which one is going to be more profitable than the other because the fact of the matter is we are all going to be profitable and we're going to do it together.

Okay, that's good news. Secondly, any update on the rollout of the EV standard?

Yeah. So the EV standard, unfortunately, is falling victim to our success in the rest of the business right now. We're very, very busy now. Engineering is very, very busy, and we're seeing a very significant increase. I mean, obviously, you can see just from the backlog and particularly the pipeline number, we're sort of readying ourselves for what we believe is going to be a significant onslaught here in the remainder of this year and into 2023. And so I've got to be pragmatic about this. At the same time, I love that product, and I view it as very important to our future. And so I can tell you what we're doing right now is recruiting. We're recruiting engineers because we need to – not just engineers. We're recruiting just whatever we can lay our hands on. But we are definitely recruiting engineers because I need to commit a team to that development of the EV standard product so that we can get it out because I love it. And I do believe it will be a very significant seller for us.

Well, that sounds great. And one final question. In terms of – you've been –

controlling and trying to get uh costs under control in this very tough environment bringing everything in-house have you at all been successful at bringing a painting final painting of the ev arcs in-house that's a bloody good question uh it's it's definitely an area where we give up a lot of margin and indeed uh we we it adds risk to our business because we're relying on others to do it and you're you're absolutely right to identify as something that's uh very much in our crosshairs at the moment. We have not done it yet, but I intend to. I have the space, and it's actually not as expensive as you might think to do that nowadays. The booths and everything like that come to you prefabricated, pre-permitted, and everything else. It's just another one of the things that's on the list for our operations team to do. And by the way, one of the great... The tensions that you have running a growing business like this is, on the one hand, you just pump as much product as you can because the growth is significant and only going to get more so. On the other hand, you've got to have the discipline to get people to stop what they're doing and take the steps necessary to move us to the next level. And that's always a tension. I can tell you, my operations manager was in here right now. He's running at 100 miles an hour, just keeping up with producing product and delivering it, and yet this is one of his responsibilities. And so I know that he feels that he's under attention sometimes, but we'll get it done. And it is a very important area of another one of those vertical integration things that we will bring in-house for sure.

Well, Desmond, thank you very much. That's great news all around. Keep it going. Thank you.

Thanks, Joseph. Thanks for being on board.

The next question is from James McCulloch, a private investor. Please go ahead. Hello, James.

Yeah, hi, Desmond. You commented during your prepared remarks on some of the supply chain challenges and use of cash to pre-purchase sales for Beam Chicago. First question was... On the battery cells, are they sourced locally, and how long do you feel confident that you've got a source of supply in terms of a year, six months, any contracts to handle any future growth in at least the next couple of years?

Yeah, so to answer your first question, if only. There simply isn't any domestic battery cell supply chain. Not in any meaningful way and certainly not within any kind of scales of economies that you could work with. That's a shame. And I've been very vocal in D.C. and to the press, frankly, about the fact that we need to start onshoring a lot more of this stuff for all sorts of different reasons, which we don't have time to get into today. But it's going to take a while to do it. And I hope that we can all be grown up enough and have the courage of leadership at governmental level and all other levels. to get that done as quickly as possible. I've been to some of the places where the raw materials and components are brought out, and I don't want it happening anywhere except here, frankly.

And we can do it.

Just to be clear, we have plenty of lithium. The US has the fourth largest cobalt reserves in the world. We don't need to be sending children down holes in Congo to get that stuff. And then the Western friendly democracies have everything else that we need as well. So I shouldn't get off track on that. But as yet, that's not happening. I hope it will. The other thing that I think you're going to see happening just while we're on that subject, which can be very impactful, is the tremendous maturation of the recycling industry. You can recycle about 98% of a lithium ion battery. We are already engaging in discussions for second life use of batteries. So batteries come out of EVs and into our products, which should dramatically reduce our costs, as well as, of course, fantastically improving that whole cycle as well. But at any rate, no, they're coming from overseas. We have committed a lot of capital to defending our position for the next 12 months. And also, in Portland, doing that is not only are you defending your position with committed resources, but also we're putting our money where our mouths are with those overseas vendors, mostly Korea, by the way, to be clear. And that cements our position. And in fact, on the 22nd of this month, I'll be in Chicago. I visit there regularly, not surprisingly. And I'll be meeting with a very, very senior executive from a Korean battery company to continue that strengthening of the relationship and everything else. But money ultimately is what makes it work. And we've done that. Now, the good news with that is it looks terrifying when you look at the spend during the quarter. Oh, my God, how could they possibly have spent $7.4 million? Look, money is just like copper or battery cells or paint or steel or anything else that we put into our products. When we sell our products, we get the money back. And I'm confident that we will get most of all of that back within the next 12 months and a whole bunch of other money that's not involved with that. So it's not a matter for concern. It's exactly the right thing to do, and it's the way we should be using our balance sheet.

I would concur. I might have even bought more. So what I didn't know was – I was not aware of any domestically sourced sales, and I didn't know if you'd pulled a rabbit out of your hat. So I appreciate the clarity on the sourcing, and it's nice to hear it from Korea anyway. So the second question was on the European market opportunity. Sounds like you've kind of pushed that opportunity forward on your prioritization for future growth. If you could just maybe comment just a little bit on maybe timing, what are you looking at as far as timing? and if you've got any approach you're tending towards, whether it's Greenfield, JV, or a licensing deal.

Yeah, so I'm going there in September, and these are not cold calls, just to give you an indication of how advanced the conversations are. I wouldn't put my bottom in an airplane seat if I didn't feel that I had a degree of advancement in the discussions with the people who I'm going to go and meet to make it worthwhile making the trip. By the way, I'm also meeting with customer prospects while I'm over there. And some of them are really cool. So it is important to me. It's a very, very important market. And, you know, things are moving quickly in this industry. The war in Ukraine and the heat waves and everything have definitely heightened European sensitivity about all this stuff. And they're quite different than the Americans in the way they operate over there. You know, if they decide that they're going to spend government money on something, they just do it. You know, nimbyism and stuff like that plays a much smaller role. So I want to make sure that we strike while the iron's hot. Not licensing. I just don't like that model. I want to control much more of it than that. I think it's unlikely it's Greenfield. I think what you should be thinking about is us finding a worthy and credible partner in that part of the world and then creating some sort of entity in which we have equal share of equity. That's the way I'm going after it at the moment. These things always have a way of evolving, and it doesn't happen overnight, particularly not if you're strict about what you'll put up with, and I am. but I believe that we'll get a lot of value out of it if we pull it off, and if it was just me, I'd say when we pull it off.

Okay, good. Now, I had a little experience with my own company, and we actually JV'd with a company that was struggling, made a huge investment, and built a fairly large manufacturing facility in Larne, Belgium, which, as a JV, turned out the way to go. So it was...

One thing I want to make clear to you and to everybody else who's listening, part of the other reason that it might take a little bit longer to get this done is because I want to continue down the path of not using cash or our capital to get these things done. We've got a tremendous amount of IP. We bring a lot of value to the table. And I think I'll be working very hard to make sure that the other side brings the capital to the table, not us.

So that opens up the third question when you mentioned IP. Could you just, Desmond, comment a little bit about the strength of your patent portfolio? And do you have process protection? Is it product protection? And do you feel that you've got strong enough patent protection on any particular products that could successfully be defended in the event of an onslaught from, say, a much bigger, better finance company.

One of the things I learned a few years ago in a meeting in New York City with some bankers and a bunch of attorneys, and I know that sounds like the beginning of a bad joke, but in fact it was a reality. One of the attorneys there was an IP attorney. He had looked at our patent portfolio at the time, which has only been strengthened since then, and he told me that he would write me a check to take on a defense if somebody big and powerful came after us. He was so confident in the strength of the patents that we have written. We have them in the US, we have them in Europe, and we have them to some extent in Asia as well. Of course, we've dramatically increased that patent portfolio with the acquisition of the battery company in Chicago. We've got lots of life left on the patents that are important to us, and we continue to get more and more of them. And what I'll say to you about this is where patents are concerned is I have a really strong discipline around that. I do not invest in patents to pump up my own ego. The litmus test that we use is will it create a significant barrier to entry for the competition, and is it something that we can monetize within the next 12 to 18 months? And if the answer is no to either of those questions, I don't spend money on it because it's not cheap, as you know. So, all the patents that we've ever gone after are in products that we have today that are either making money for us right now, revenue that is, I have to be clear in saying that because, of course, we're pre-profit, or they're just recently patented and we haven't started producing them yet. And that's our discipline.

Okay. And then the last question was on the growth opportunity. I believe you mentioned you had about 7 million sales for the six months this year. Is that correct?

So we're at $7.5 million for the first six months of the year, which again, for last year, which was a record year of revenue for us, is greater than any previous year in our history. And that was for the first six months. Got it.

So the question was, I would think there is at least a $1 billion sales opportunity available almost now or at least in the next couple of years. And I know you've sounded very proud on your conference calls on cost containment and the ability to grow while maintaining expenses, whether it's cost of goods sold or overhead. It sounds like that the market opportunity, especially with the new legislation that's been passed, is so enormous. So are there any considerations to, even if it's on a temporary basis, to shore up, whether it's in the sales or engineering space, or other areas to support a fairly significant increase in sales should occur.

So I'll agree with you on your ideas about the billion in product sales. I actually don't even consider that to be a very big number where we're concerned. I think there's going to be an awful lot more than that. And so to the second part of your question, without a doubt, we're recruiting. I mean, we are careful about money. And we're careful to try to add resources when they're needed or just a little ahead of when they're needed. But at the same time, yes, we are recruiting because I do believe that there's a wave coming. Okay, Desmond. Thank you very much. Thank you.

The next question is from Frank Hart with High Capital Funding. Please go ahead.

Hello, Frank. How are you?

Hello, Desmond.

I've been so very, very happy to hear this call. I thought when you and I met that you were a master, and you have continued to demonstrate that with what you've done with the company. I can't see how the company does not end up as one of the behemoths in this industry, and I'm not even sure what the definition of this industry is. because you're in so many different areas. Anyway, that has nothing to do with the questions. A couple of questions. One, what do you see as your two biggest bottlenecks right now?

Yeah, so human beings and potential supply chain stuff. I mean, the supply chain stuff, I know everyone's talking about it, but believe me, it has been We've had to work bloody hard to keep up with this, and we've had to do some pretty clever maneuvering as well. I mean, Frank, I think you know me well enough to know what I'm like where money is concerned. The fact that I'm prepared to part with money to buy sales in advance or prepay vendors is a strong indication to you about how much of a risk I view supply chain problems in the future. Nevertheless... Well, I don't think it's going to get a whole lot worse. In fact, I think we're going to start to see things improve, and we have managed through this. We definitely had a slowing down of deployments in the second quarter. The quarter could have been better had we not had that imbalance of battery supply at that time, but we're solving that. As I say, we didn't lose anything out of it. But who knows what's coming around the corner next, and that's going to be the thing. So the next thing, of course, is human beings. We, without a doubt, to the previous question, same thing, We need to hire the best and the brightest. What I can tell you about that is good news is two things. First of all, labor is actually a fairly small percentage of our cost model. And so the good news where that's concerned is you can actually afford to pay a little bit more than the next person without really having a major impact on your cost model. Because unlike lots of businesses where labor is 60% and materials are 40%, in our instance, actual hands-on labor on the product is only 5%. The rest of it is bonds. And so that allows us some latitude there. And then the second thing we've got going for us is, and thank you for making those initial comments, but basically it's related to your initial comments, which is that this is a fantastic company doing fantastic things in a brand new and very exciting industry. An increasing number of people are starting to understand that and get their head around it. And of course they want to come and work for us. So we'll get over it, but it's all going to require a lot of work and a lot of effort.

Indeed. One other thing on that subject is, So you mentioned people. You need more people who have the competence to move the business and your agenda forward. And clearly you should be able to attract the right ones. But the next part of my question is actually about money. I remember at one point some time ago I suggested to you, that even though you had convinced me that you had enough money to get through, when anybody looked at your balance sheet, they wouldn't think that. And I suggested to you that you might want to take in some more money so that no one would even think that, because you're behind the eight ball when somebody even raises the question, even if it's only in their own mind and doesn't say it to you. So I'm wondering two things. Number one, would it make sense for you to do some sort of non-dilutive financing? I know many companies have done these kind of preferred issues and so on that have no dilution at all. It's just effectively a dividend rate or an interest rate on the capital. And at the rate that you're going... I wouldn't think that that should be a big cost item in terms of your profitability. And yet, if you did a $10 or $25 million non-dilutive deal like that, it would just blow away anybody's questions about capital. The second question with respect to money is, Have you thought about or have you set up a finance company, a captive finance company, you know, like General Motors Credit Corp or Chrysler Credit Corp? Because I understand two things on that. One, your systems are relatively expensive to purchase compared to some other systems. Of course, the total cost of ownership, is a lot lower. But that's got to be off-putting to some people with respect to the initial purpose. And I'm wondering if two things in that, two sub-things in that, one, with respect to government stuff, where some governments only have an annual budget and don't have the money to spend on the capital, but could you lease it to them over five years or rent it to them year by year? And if they don't want to you know, extend it for the next year, you have the ability to just charge them the restocking fee, so to speak, and redeploy the equipment.

Yes, right, got it. Let me answer those questions. I'm conscious of other people's time on the line. Let me just go after those. So as far as the amount of cash we have on our balance sheet is concerned, you're right. I mean, look, I do have the Scottish tendency to be very, very careful and tight with money. You can look at the financings I've done in our history. I've never done anything toxic. Most of the money that I've raised for the company has been at market, sometimes even a little premium, sometimes a little discount, but nothing ever off-putting from that point of view. And the result of that is that today we have by far the lowest flow of any company of our size or dimension anywhere in the industry. I'm 8 million in the flow, 11 million fully diluted, 10 million outstanding right now. And that's why I'm still a shareholder. Yes, well, good. So be very careful with that. At the end of the day, this entire game is about earnings per share. we will have a lot less S to divide into that E. And as a result, we're going to really give our shareholders a great ride for their money because they're just far fewer shares out than anybody else. Nevertheless, the other thing about that is it does give me a lot of dry powder where this is concerned. And so let me just tell you this. While I don't like raising money and I don't like giving up equity and every dollar matters to me and every share matters to me, At the same time, I'm going to be very pragmatic about this. And there are several instances, and I've been clear about this in the past. While I don't need to raise money, there are several instances where I might. And one of them, for example, would be an acquisition where raising some capital made sense to do that. But the other one, which in many ways is sort of more fun to talk about, is if the stock picks up its head significantly. Would I throw some more millions onto the balance sheet? You're damn right I would under those circumstances. And let me give you one circumstance where that could happen. At the moment, we've got about 21% short interest in our stock, something like 12 days to cover with a minuscule float. And I'm very confident that we're off to great things. Now, when you short somebody's stock, there's only one way of getting out of it, and that's by buying it. Right. And we're being shorted not for any fundamental reason. I'm not going to deliver to the shorters. I'm not going to bankrupt. I'm not going to do a destructive, dilutive financing. I'm not going to fail. In fact, we're going completely opposite direction. And so if we get into a situation where there's a short squeeze or the stock runs up for any reason, frankly, I would be very happy to strengthen our balance sheet, taking the money out of those shorters pockets without a doubt. So it's not that I'm saying never. And it's just that I want to make sure that like everything else I do, it's done at the right time in the right way. And then just quickly on your other question about financing for the customers. Yes, we've definitely looked at that. You're right to point that out. And one of the major areas to point out is that many of our customers are government customers and as a result, cannot take advantage of the various tax incentives like ITC that I mentioned, which is 30% as a credit, not a deduction. And so we can put financing together into which we could roll that ITC and other tax equity for cap reduction and offer really a very inexpensive solution. So yes, that's definitely on our drawing board as well. And then there's some other more interesting things too, like batteries as a service. Now that we own the battery company, There's nothing to stop us, let's say, selling an EV arc, but without the cost of the batteries in it, which is a significant contributor, and then charging people a monthly fee for the batteries. We maintain title and therefore risk because we understand them better. We'd arbitrage fear in that case. So, yes, there are lots of very interesting things that we can do. And I want you to rest assured that we're not ignoring any of those. We just need to plow on and put them into effect. But don't think I won't raise money if we need to. We don't need to. But if we did, I would. But mostly if there's some way that I can do it in a way that's, as you said, not dilutive and is really much in the favor of the current shareholder and growing the company, I'll do it. I've got to take the next question.

Go on, I think. I'm just glad to hear you got it on your radar. Well done. Thank you, Frank. Thank you very much.

The next question is from Alan Ginsberg, a private investor. Please go ahead.

Hello, Alan. Yeah, hi. How are you, Desmond? With the expansion of your business being so robust as we hear from this call, and other people asking you about hiring various technical people. Do you think you have the depth of management, and are you going to be hiring more management? And also, second part, the capacity in your manufacturing operation. Do you think you're going to have to expand that as well?

Yeah, so let me answer the second question first. The really good news where that's concerned, in this 53,000 square foot facility that I'm operating in today, one of my operations managers just came to me and told me that they were up to two units a day with a current headcount, but we can get to six units, a shift that is, we can get to six units a shift with the current headcount. We can, of course, go to two shifts and three shifts. We're currently operating five days a week. We can go to seven days a week. I just put that in perspective for you. That equates to about $105 million a shift. So if we were to go to three shifts, we could probably pump around $300 million a year out of this facility and very profitably because, of course, the rent doesn't go up when we do that. This is all about leveraging these fixed overheads that we have. I've been talking about this for years in low volumes. It's very expensive to do this, but as volumes go up, lots of things get less expensive, materials and particularly fixed overheads. We've got loads of room for expansion here. But at the same time, as I've already mentioned on the call, I intend to expand into Europe. I'm not going to do that from here. So I'll use other people's money and not our equity or money to make that expansion happen. I'll use our IP to make that happen if I'm able to pull that off. And then I also mentioned that I want to bring battery manufacturing. I want to expand our battery manufacturing capabilities, not just in Chicago, but bring that here to San Diego because that's The state will throw lots of money at me to do that. And of course, it makes a lot of sense to make batteries where I'm making the charging products. But equally, I want to expand my charging products business into the Midwest because at the moment I'm making products in San Diego and shipping them to New York City. And they're heavy and they're big. And that doesn't make sense to do that. And so to get to somewhere like Chicago or somewhere else in the Midwest.

to expand there as well that would double our capacity that would get us to 600 million another 300 million in europe you can see over a billion pretty bloody quickly and we haven't done anything at all to satiate the demand so can you speak to the depth of management i mean you can't be in five places at once and uh the senior management are you going to make that more robust as we go along

Yes, without a doubt. Cathy and I were just having this discussion the other day because it looks like my travels will keep me out of the country for about a month in September between the Middle East and Europe. And yes, we are looking for people. Another thing is, listen, I'm a pretty robust guy. I've got a lot of energy. I'm healthy. And I love what I'm doing. But I cannot have this company in a position where something nasty happened to me that it would be hurt in any way. So I want to make sure that we have good succession in place and that we have the depth of management to build out the teams. And we are currently recruiting for high-level people. And the big reason that we're doing that is because from a cost structure point of view, there was some asshole comment made in some stock magazine last week about how our operating expenses were up. And they are up, but they're not up anywhere near as much as our revenues are up. And so what we're trying to do is balance this right as we get in these opportunities and as we scale the business up. I still think there's a lot of opportunity to increase revenue per head. In fact, I know there is. And so as we scale these things up and bring in the opportunities, then we'll bring in the headcount. Because I want to be able to keep reporting to you that we are reducing operating costs as a percent of revenue and reducing direct costs as a percent of revenue because that's where profitability comes from. Okay, thank you very much and good luck. Thanks, Alan. We make our own luck.

This concludes our question and answer session. I would like to turn the conference back over to Desmond Wheatley for any closing remarks.

I think we've gone a bit over time here, so I don't want to hold anybody any longer just to say thank you very much. As always, I'm thrilled about what's going on. You hear that from me every time I do these calls, and I've got good reason to be. We keep growing this thing and growing it dramatically, and we're in the right place at the right time, and we have the right products. So thank you for being involved, and I can't wait to speak to you in a quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.