Expion Energy, Inc 10-K for FY2024
Expion Energy, Inc. (XPON)
About this 10-K
Expion Energy, Inc filed this 10-K on March 31, 2025, covering the fiscal year ended December 31, 2024 (FY2024).
Headline figures
Fiscal year ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.62M
- down 6.0% from $5.98M a year earlier
- Net loss
- $13.48M
- compared with a net loss of $7.46M a year earlier
- Diluted EPS
- -$21.03
- compared with -$108.25 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark
One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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the fiscal year ended
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The aggregate market
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Market on June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately
$
As of March 25, 2025, there were shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive Proxy Statement on Schedule 14A relating to its 2025 annual meeting of stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated herein by reference in Part III of this Annual Report on Form 10-K.
Expion360 Inc.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS and industry data
This Annual Report on Form 10-K (this “Annual Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Annual Report, other than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including, without limitation, any projections regarding the markets where we operate, any statements of the plans and objectives of our management for future operations, any statements concerning proposed new products or services, any statements regarding expected capital expenditures, any statements regarding future economic conditions or performance, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this Annual Report are made as of the date hereof and are based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “should,” “anticipates,” “intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable terminology. Although we believe the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct. Actual results will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements. Prospective investors are cautioned not to unduly rely on any such forward-looking statements.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| · | We operate in an extremely competitive industry and are subject to pricing pressures. |
| · | We have a history of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability. |
| · | Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern. |
| · | Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. |
| · | Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could harm our business. |
| · | Our business and future growth depends on the needs and success of our customers. |
| · | We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023. |
| · | If we fail to expand our sales and distribution channels, our business could suffer. |
| · | The uncertainty in global economic conditions could negatively affect our results of operations. |
| · | We are currently, and will likely continue to be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products could be negatively impacted. |
| · | We could face potential product liability or warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, and result in significant costs and liabilities, which would reduce our profitability. |
| · | Our operations expose us to litigation, tax, environmental, and other legal compliance risks. |
| · | Our failure to introduce new products and product enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, could adversely affect our business. |
| · | We may not be able to adequately protect our proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. |
| · | Any acquisitions that we complete may dilute stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may cause unanticipated liabilities. |
| · | If our electronic data is compromised, or we experience a failure in our information technology or storage systems, our business could be significantly harmed. |
| · | Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. |
| · | We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. |
| · | Our stock price may fluctuate significantly, and you may lose all or a part of your investment. |
| · | Sales of substantial amounts of our securities in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting power and your ownership interest in us. |
| · | The exercise of outstanding warrants may result in a substantial increase in the number of shares of our common stock that are outstanding. |
| · | The Series A Warrants and Series B Warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. |
| · | The Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. |
| · | Our long-term lease and debt obligations could adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. |
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All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our actual results will likely differ, and may differ materially, from anticipated results. Financial estimates are subject to change and are not intended to be relied upon as predictions of future results of operations, and we assume no obligation to update or disclose revisions to those estimates. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections.
MARKET, INDUSTRY, AND OTHER DATA
This Annual Report includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties as well as our own estimates. All of the market data used in this report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our products include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe our internal assumptions are reasonable, no independent source has verified such assumptions.
NOTICE REGARDING TRADEMARKS
This Annual Report includes trademarks, tradenames, and service marks that are our property or the property of others. Solely for convenience, such trademarks and tradenames sometimes appear without any “™” or “®” symbol. However, failure to include such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to these trademarks and tradenames.
FINANCIAL INFORMATION
Unless
otherwise noted, prior period results included in this Annual Report, including share and per share data, as well as stockholders’
equity balances, have been adjusted retroactively, as applicable, to reflect a 1-for-100 reverse stock split, which was effective
at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Reverse Stock Split and Reverse
Stock Split True-Up Payment” below for additional information
about the Reverse Stock Split.
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PART I
ITEM 1. BUSINESS
Our Company
Expion360 focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) who then sell our products to end consumers and drive brand awareness nationally.
Our primary target markets are currently the RV, marine, and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium batteries as the primary method of power sourcing in these industries. We are also focused on expanding into the home energy storage market with the introduction of our e360 Home Energy Storage Solutions, and we hope to establish a new standard in the industry for barrier price, flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional capacities to the expanding electric forklift and industrial material handling markets.
We launched our e360 product line, which is manufactured for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 Home Energy Storage Solutions.
We currently operate Expion360 as one reportable business segment, Energy Storage (ES).
Our products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong case materials, and internal and structural layouts, and are backed by responsive customer service.
Our Market Opportunity
The trend of vehicle electrification is expected to be a significant growth catalyst for lithium compounds over the next decade and beyond. According to ReportLinker, the global light electric vehicle market is growing at a 9.4% compound annual growth rate (“CAGR”) and is expected to reach $122.7 billion by 2027. Similarly, the global golf cart battery market is growing at a 5.9% CAGR and is anticipated to reach $216.5 million by 2031 according to Allied Market Research.
Furthermore, the global RV market was $57.3 billion in 2021, and is anticipated to have a CAGR of 7.6% from 2022 to 2031, with an anticipated market of $117.0 billion by 2031, per Allied Market Research.
In addition, the global residential solar energy storage market is expected to increase from $20.5 billion in 2023, to an anticipated $518.8 billion in 2032, a CAGR of 43.16%, according to Market Data Forecast.
At the intersection of both these trends lies the rapidly expanding lithium battery market. According to IMARC, the market for lithium-ion batteries is projected to grow at 13.2% CAGR to reach $93.3 billion by 2028.
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The vast expansion of the lithium battery market can be attributed to global trends promoting clean energy, as well as the compact and flexible nature of lithium battery packs, which make them easy to install in RVs and boats. Our technology, which we believe offers industry-leading battery pack flexibility for the most efficient energy storage, is poised to be able to offer power to these large vehicles such as RVs and recreational boats.
Expion360 is focused on expanding its position in the deep cycle, off-grid, and stationary energy storage markets. According to the Federal Consortium for Advanced Batteries, the United States has five goals in mind to secure battery materials and the U.S. technology supply chain. They include (i) securing access to raw materials; (ii) support of the U.S. materials-processing base; (iii) stimulation of U.S. electrode, cell, and pack manufacturing; (iv) enabling recycling and reuse of critical materials; and (v) support of scientific R&D, STEM education and workforce development. Expion360 is well-positioned to benefit from this national focus.
Lithium-based batteries power our daily lives, from consumer electronics to national defense. They enable electrification of the transportation sector and provide stationary grid storage, critical to developing the clean-energy economy. The U.S. has a strong research community, a robust innovation infrastructure for technological advancement of batteries, and an emerging lithium-based battery manufacturing industry, according to the U.S. Department of Energy.
It is our objective to work closely with federal, state and local governments, as well as private industry to help America be the leader in lithium battery technology.
Competitive Strengths
We believe the following strengths differentiate Expion360 and create long-term, sustainable competitive advantages:
Superior Capacity to Lead-Acid Competitors
Lead-acid batteries have historically been the standard in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion from lead-acid to lithium batteries as the primary method of power sourcing. Our lithium-ion batteries offer superior capacity to our lead-acid competitors with an expected lifespan of approximately 12 years—three to four times the lifespan of certain lead-acid batteries—and ten times the number of charging cycles. Furthermore, our typical battery may provide three times the power of the typical, lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a 0.1C rate).
In addition, we offer a 4.5 Ah 26650 lithium-ion phosphate battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 Ah 26650 cells.
Expansion into New Markets
Our proprietary e360 SmartTalk mobile app is included in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled LiFePO4 batteries. The technology enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both individual battery conditions and performance, and a power bank consisting of multiple e360 batteries. The 48 Volt GC2 LiFePO4 battery was our first e360 SmartTalk Battery for powering electric golf carts and other light electric vehicles.
In December 2023, we entered the home energy storage market with our introduction of two LiFePO4 battery storage solutions comprising our e360 Home Energy Storage Solution: a wall mounted all-in-one inverter and 10kWh battery and an expandable server rack style battery cabinet system. We believe our new home energy storage product line will benefit from a fast-growing battery energy storage market, which is forecasted by Markets and Markets to grow at a 26.4% CAGR to reach $17.5 billion by 2028. Further, according to Clean Energy Group, approximately 3.2 million homes in the United States have solar panels installed, but only about 6% of residential solar systems have battery storage. Our home energy storage products are currently completing UL testing and certification, as well as other requirements for various Authorities Having Jurisdiction.
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In January 2024, we introduced our next generation 12V GC2 and Group 27 series LiFePO4 batteries. These new versions include higher amp-hour options (4.0Ah and 4.5Ah cell technology) and the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction™ internal heating, Bluetooth®, and controller area network (“CANBus”) communication. We began delivering the new 12V GC2 and Group 27 batteries to customers in the second quarter of 2024.
In July 2024, we launched our new Edge battery, which offers a slim design and adds greater flexibility during installation. The Edge is offered in both 12V and 48V versions. We are seeing high customer interest and started shipping the new Edge in July 2024.
Strong National Retail Customers and Distribution Channels
We have sales relationships with many major RV and marine retailers and plan to use our strong reputation in the lithium battery space to create an even stronger distribution channel. Current and former members of management have used their decades of experience in the energy and RV industries to cultivate relationships with numerous retailers in the space, including Camping World, a leading national RV retailer; and Meyer Distributing, Inc., a leading national marketer and distributor of automotive and RV specialty products.
Home Energy Integration
We are currently having discussions with integration partners. This is key for the development of our home energy storage products and subsequent sales growth.
Expion360 Products
We have historically focused on the design, assembly, and sales of LiFePO4 batteries and supporting accessories for RV and marine applications, and have recently expanded into home energy storage solutions. Our batteries are designed and engineered in-house using premium lithium iron phosphate cells with quality controls at every step. We use high-grade LiFePO4 batteries meeting the UL 1642 standard (UL File No. MH64383). We believe our materials and engineering enhance the reliability, stability, and safety of our products relative to those of our competitors. We reimagined the standard battery case and included built-in rubber feet, radiused corners, 96.7% larger terminal connection pads, interior molded ribs for structural security, and the highest-grade ABS plastics with additives for fire retardancy. To maximize the power and efficiency of our batteries, we welded our cells via thick copper/tin-machined collector plates, welded all interior pack points, added a press break flange at each end to create a mechanical backbone for the battery monitoring system (“BMS”), used high-grade wiring and ring terminals throughout, and treated connections with industrial epoxy for long-lasting protection. Our internal “smart” BMS design includes multiple safety and performance features, such as low temperature discharge, auto shutoff, short circuit protection, low- and high-voltage shutoffs, and overcurrent disconnect. Our structurally sound BMS board features a bolted design, eliminating all unnecessary solder, resulting in one cohesive pack with a long lifespan. We hold our lithium batteries to high safety standards, which has enabled us to achieve a UL 1973 compliance. We stand by our batteries with a robust 12-year warranty.
To enable us to provide a full range of components to complement our battery offerings, we offer a suite of accessories and components for new installations or conversions which includes but is not limited to chargers, monitors, inverters, and solar components from brands such as Victron Energy and RedArc.
As of December 31, 2024, we offered the following products for sale:
12V Batteries:
| · | Group 24: |
| o | e360 60Ah LiFePO4 battery |
| o | e360 80Ah LiFePO4 battery |
| o | e360 95Ah LiFePO4 battery |
| · | Group 27: |
| o | e360 100Ah LiFePO4 battery |
| o | e360 120Ah LiFePO4 battery |
| o | e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating |
| o | e360 100Ah LiFePO4 battery with SmartTalk, CANBus, and VHS Internal Heating |
| · | GC2: |
| o | e360 162Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating |
| · | EX1 Custom: |
| o | e360 368Ah LiFePO4 battery |
| o | e360 368Ah LiFePO4 battery with SmartTalk |
| o | e360 450Ah LiFePO4 battery with SmartTalk |
| · | EX2 Edge Custom: |
| o | e360 240Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating |
48V Batteries:
| · | GC2: |
| o | e360 36Ah LiFePO4 battery with SmartTalk and CANBus |
| · | EX2 Edge Custom: |
| o | e360 60Ah LiFePO4 battery with SmartTalk, CANBus, and VHC Internal Heating |
| · | 3U Server Rack Home Energy Battery: |
| o | e360 100Ah Home Energy LiFePO4 battery with CANBus |
Accessories:
| · | Battery Monitors |
| · | DC-DC Battery Chargers |
| · | AC-DC Battery Chargers |
| · | Solar Charge Controller Battery Chargers |
| · | CANBus Communication Cables |
| · | 120W Portable Solar Panel |
| · | Industrial Battery Mounting Kits – 10 models |
| · | Terminal Blocks |
| · | Bus Bars |
| · | AURA Powercap 600W Inverter |
| · | e360 SmartTalk mobile app |
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As of December 31, 2024, we had the following products in our pipeline:
| · | In September 2023, we introduced a new 4.5 Ah 26650 lithium-ion phosphate battery cell and 12 Volt 450 Ah e360 SmartTalk™ lithium-ion battery. We have been regularly shipping the battery to our customers, including OEMs, since March 2024. |
| · | In December 2023, we introduced a wall mounted all-in-one inverter and 10kW battery and an expandable server rack style battery cabinet system and begun taking orders for the new e360 Home Energy Storage Solutions, which began shipping to customers in January 2025. See the section above titled “Competitive Strengths—Expansion into New Markets” for additional information about the new home energy storage solutions. |
Competitors
Our competitors include lithium-ion battery manufacturers, such as Relion (which was acquired by Brunswick Corporation in September 2021); Dragonfly Energy Holdings Corp (Nasdaq: DFLI), the manufacturer of Battle Born Batteries; Renogy; and Dakota Lithium. Lead-acid battery manufactures also continue to have a presence in the marketplace. We have designed custom form factors in both the industry standard Group 24 and Group 27 battery sizes allowing us to visually and structurally differentiate Expion360 within the market space. We believe our custom 360Ah battery also provides a unique capacity to footprint ratio compared to lead-acid and lithium battery competitors. Our batteries utilize lithium iron phosphate and therefore are expected to have a lifespan of approximately 12 years—three to four times that of certain lead-acid batteries—and ten times the number of charging cycles. Furthermore, our typical battery may provide three times the power of the typical lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a 0.1C rate).
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Manufacturing and Supply Chain
Our batteries are manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if needed.
Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us to source materials outside of Asia in the event it becomes necessary to do so.
In addition to increased mining and newly located reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. However, notwithstanding any efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments that may adversely affect our supply chain.
Management expects that products from our Asian third-party manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier concessions, customer price increases and efficiencies gained as sales continue to grow.
Customers
We currently have more than 300 customers across the United States consisting of dealers, wholesalers, private-label customers and OEMs who then sell our products to end consumers. Our sales are completed on a purchase order basis and most are without firm, long-term revenue commitments or sales arrangements. Expion360 has sales relationships with many major RV retailers, including Camping World, a leading national RV retailer and Meyer Distributing, Inc., a leading national marketer and distributor of automotive and RV specialty products. In addition, we also sell products directly to end consumers. We intend to continue to focus on our sales and distribution channels to develop existing customer relationships and grow our customer base. We also offer a high level of technical support to our customers before and after product sales.
We currently derive a significant portion of our revenue from a limited number of customers. During the year ended December 31, 2024, sales to one customer accounted for approximately 14% of our gross sales. This customer accounted for 6% of our accounts receivable as of December 31, 2024. Sales to each of our other customers did not exceed 10% during this period. Four other customers accounted for 60% of our accounts receivable as of December 31, 2024.
Intellectual Property
The success of our business and our technology leadership is supported by our proprietary battery technology. We have filed 11 patent applications in the United States to provide protection for our technology, including seven design patent applications and four utility patent applications. In addition, we rely upon a combination of trademark and trade secret laws in the United States, as well as license agreements and other contractual protections, to establish, maintain and enforce rights in our proprietary technologies. We also seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees and consultants and through non-disclosure agreements with business partners and other third parties.
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We periodically review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration of our domain names and trademarks and service marks in the United States and in an effort to protect our brand, as of December 31, 2024, we have 18 trademarks registered or pending registration to cover our house marks in the United States and have 9 trademarks registered or pending registration in Canada.
Government Regulation
We are subject to inspections by federal, state, and local regulators overseeing environmental health and safety, which could result in possible citations and/or fines. Lithium-ion battery shipments are categorized as “dangerous goods” and are subject to rules governing their transportation. We have implemented policies and procedures, trained our employees, and conducted internal audits to verify compliance with environmental health and safety regulations.
Our Group 24 and Group 27 batteries and our custom 360Ah battery have passed UL 1973 certification.
Employees
As of December 31, 2024, we had 20 employees, all of whom worked for us full time. None of our employees are covered by collective bargaining agreements and we have never experienced an organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages are competitive with those offered by competitors and consider our relations with our employees to be good.
Environmental, Health, and Safety
We and our third-party manufacturers and suppliers are, and could become, subject to a wide range of international, federal, state, provincial, and local governmental regulations directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other hazardous substances. Although we outsource our manufacturing, the manufacturing of our products by our third-party manufacturers and suppliers require the use of hazardous materials that similarly subject these third parties, and therefore our business, to such environmental laws and regulations. Our failure or the failure of these third parties to comply with these laws or regulations can result in regulatory, civil, or criminal penalties, fines, and legal liabilities, suspension of production, alteration of manufacturing processes, including for our products, reputational damage, and negative impact on our operations or sales of our products and services. Increased compliance costs by our third-party manufacturing partners may also result in increased costs to our business. Our business and operations are also subject to health and safety laws and regulations adopted by government agencies such as the Occupational Safety and Health Administration. Although we believe we are in material compliance with applicable laws concerning matters relating to health, safety, and the environment, the risk of liability relating to these matters cannot be eliminated completely. To date, we have not incurred significant expenditures relating to environmental compliance nor have we experienced any material issues relating to employee health and safety. See the section titled “Risk Factors” for additional information.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
| · | the requirement that we provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
| · | reduced disclosure about our executive compensation arrangements; |
| · | an exemption from the requirement that we hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and |
| · | an exemption from the auditor attestation in the assessment of our internal control over financial reporting. |
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We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under SEC rules.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the reduced reporting requirements available to smaller reporting companies and will be able to take advantage of these reduced reporting requirements for so long as our voting and non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Company Information
Expion360 Inc. was initially organized as a limited liability company under the name Yozamp Products Company, LLC in the State of Oregon on June 16, 2016 and converted to a Nevada corporation on November 16, 2021.
Our website is found at expion360.com and on the Investor Relations section of our website, we post or will post, as applicable, the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Reports on Form 10-K, our Proxy Statement on Schedule 14A, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
All of the information on our Investor Relations web page is available to be viewed free of charge. Information contained on our website is not part of this Annual Report or our other filings with the SEC. We assume no obligation to update or revise any forward-looking statements in this Annual Report whether as a result of new information, future events or otherwise, unless we are required to do so by law.
The SEC also maintains a website found at http://www.sec.gov/ that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves significant risk and uncertainty. Before you make a decision to buy our common stock, in addition to the risks and uncertainties discussed below under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of these risks actually occur, it may materially and adversely affect our business, financial condition, liquidity, results of operations, and prospects. As a result, the market price of our common stock could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this Annual Report are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. If any of the following risks or other risks not specified below materialize, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our shares of common stock could decline.
Risk Factor Summary
The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition and results of operations. The summary should be read in conjunction with the more detailed risk factors set forth in this “Risk Factors” section and the other information contained in this Annual Report.
Risks Related to Our Business
| · | We operate in an extremely competitive industry and are subject to pricing pressures. |
| · | We have a history of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability. |
| · | Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern. |
| · | Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. |
| · | Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could harm our business. |
| · | Our business and future growth depends on the needs and success of our customers. |
| · | We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023. |
| · | If we fail to expand our sales and distribution channels, our business could suffer. |
| · | The uncertainty in global economic conditions could negatively affect our results of operations. |
| · | We are currently, and will likely continue to be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products could be negatively impacted. |
| · | We could face potential product liability or warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, and result in significant costs and liabilities, which would reduce our profitability. |
| · | Our operations expose us to litigation, tax, environmental, and other legal compliance risks. |
| · | Our failure to introduce new products and product enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, could adversely affect our business. |
| · | We may not be able to adequately protect our proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. |
| · | Any acquisitions that we complete may dilute stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may cause unanticipated liabilities. |
| · | If our electronic data is compromised, or we experience a failure in our information technology or storage systems, our business could be significantly harmed. |
| · | Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. |
| · | We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. |
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Risks Related to Ownership of our Common Stock
| · | Our stock price may fluctuate significantly, and you may lose all or a part of your investment. |
| · | Sales of substantial amounts of our securities in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting power and your ownership interest in us. |
| · | The exercise of outstanding warrants may result in a substantial increase in the number of shares of our common stock that are outstanding. |
| · | The Series A Warrants and Series B Warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. |
| · | The Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. |
Risk Related to Our Capital Structure
| · | Our long-term lease and debt obligations could adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. |
Risks Related to Our Business
We operate in an extremely competitive industry and are subject to pricing pressures.
We compete with a number of major international and domestic manufacturers, assemblers and distributors, as well as a large number of smaller, regional competitors. In addition, our customers have many choices for energy storage solutions in the markets that we serve, including both traditional lead-acid products as well as lithium-ion products. We believe our main competitive advantage in displacing incumbent lead-acid batteries is that we produce a lighter, safer, higher performing, cost-effective battery with a longer lifespan. We believe our product offerings, proven reliability, and relationships with dealers, private-label direct to consumer and OEMs enable us to compete effectively against other battery manufacturers and position us favorably to expand into new addressable markets. However, OEM sales typically result in lower average selling prices and related margins, which could result in overall margin erosion, affect our growth, or require us to raise our prices. As a result, we may be unable to our competitive advantage.
Our current competitors have, and future competitors may have, greater resources than we do. Our competitors may be able to devote greater resources to the development of their current and future technologies. For example, foreign producers may be able to employ labor at significantly lower costs than producers in the U.S., expand their export capacity and increase their marketing presence in major America markets. In addition, several of our competitors may be able to devote greater resources to technical, marketing, sales, manufacturing, distribution and other resources, as well as significant name recognition, established positions in the market and long-standing relationships with OEMs and other customers. These advantages may afford them greater access to customers, and may be able to establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their competitive positioning. Our failure to adapt to or address these factors could have a material adverse effect on our business, financial condition, and results of operations.
In addition, our ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control and reduce our costs. We cannot assure you that we will be able to continue to control our operating, assembly and manufacturing expenses, to raise or maintain our prices or increase our unit volume or unit mix, in order to maintain or improve our results of operations.
We have a history of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have experienced net losses in each period since inception. We generated net losses of $13.5 million and $7.5 million for the years ended December 31, 2024 and 2023, respectively.
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Part of our business strategy is to focus on our long-term growth. As a result, our profitability may be lower in the near-term than it would be if our strategy were to maximize short-term profitability. Significant expenditures on sales and marketing efforts, expanding our platform, products, features, and functionality, and expanding our research and development, each of which we intend to continue to invest in, may not ultimately grow our business or cause long-term profitability. If we are ultimately unable to achieve profitability at the level anticipated by industry or financial analysts and our stockholders, our stock price may decline.
Our efforts to grow our business may be costlier than we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase our revenue enough to offset the increase in operating expenses resulting from these investments. If we are unable to continue to grow our revenue, the value of our business and common stock may significantly decrease, which may in turn have a material adverse effect on our ability to raise capital to grow our business.
Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern.
Our audited financial statements as of and for the years ended December 31, 2024 and 2023 were prepared on the assumption that we would continue as a going concern. For the years ended December 31, 2024 and 2023, we sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about our ability to continue as a going concern over the next 12 months and our independent auditors have included a “going concern” explanatory paragraph in their report on our financial statements as of and for the years ended December 31, 2024 and 2023. If our results of operations fail to improve and/or if we fail to raise additional debt or equity financing, then our financial condition could render us unable to continue as a going concern.
Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers.
We currently rely on multiple third-party manufacturers located in Asia to manufacture our batteries and battery cells, and we intend to continue to rely on these suppliers going forward. Lithium-ion batteries are our most significant raw material and are used along with significant amounts of plastics, steel, copper and other materials in our assembly and manufacturing processes. Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers and thus we may have limited control over the agreed pricing for these raw materials and battery components. We estimate that raw material costs account for over half of our cost of goods sold. The costs of these raw materials, particularly lithium-ion batteries, are volatile and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times resulting in higher prices and/or the need to find alternative suppliers. Furthermore, the cost of raw materials may also be influenced by transportation costs. Volatile raw material costs can significantly affect our results of operations and make period-to-period comparisons extremely difficult. We cannot assure you that we will be able to either hedge the costs or that we or our third-party manufacturers will be able to secure the availability of our raw material requirements at a reasonable level or that we will be able to pass on to our customers the increased costs of our raw materials without affecting demand, or that limited availability of materials will not impact our production capabilities. Our inability to raise the price of our products in response to increases in prices of raw materials or to maintain a proper supply of raw materials could have an adverse effect on our revenue, operating profit, and net income.
In addition, during the years ended December 31, 2024 and 2023, approximately 82% and 70%, respectively, of inventory purchases were made from foreign suppliers in Asia. Our dependence on a limited number of key third-party manufacturers and suppliers exposes us to challenges and risks in ensuring that we maintain adequate supplies required to produce our batteries. We do not have long-term purchase arrangements with our third-party manufacturers and our purchases are completed on a purchase order basis. Thus, although we carefully manage our inventory and lead times, we may experience a delay or disruption in our supply chain and/or our current suppliers may not continue to provide us with lithium-ion batteries in our required quantities or to our required specifications and quality levels or at attractive prices. Our close working relationships with our foreign suppliers to date, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts) and to order and receive delivery of components in advance of required demand, has helped us moderate or offset increased supply-related costs associated with inflation, currency fluctuations, and tariffs imposed on our battery imports by the U.S. government. However, if we are unable to enter into or maintain commercial arrangements with these suppliers on favorable terms, or if any of these suppliers experience unanticipated delays, disruptions or shutdowns or other difficulties ramping up their supply of products or materials to meet our requirements, our assembly operations and customer deliveries would be seriously impacted, potentially resulting in liquidated damages and harm to our customer relationships. Although we believe we could locate alternative suppliers to fulfill our needs, we may be unable to find a sufficient alternative supply in a reasonable time or on commercially reasonable terms.
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Further, our dependence on these third-party suppliers entails additional risks, including:
| · | inability, failure, or unwillingness of third-party suppliers to comply with regulatory requirements; |
| · | breach of supply agreements by the third-party supplies; |
| · | misappropriation or disclosure of our proprietary information, including our trade secrets and know-how; |
| · | relationships that third-party suppliers may have with others, which may include our competitors, and failure of third-party suppliers to adequately fulfill contractual duties, resulting in the need to enter into alternative arrangements, which may not be available, desirable, or cost-effective; and |
| · | termination or non-renewal of agreements by third-party suppliers at times that are costly or inconvenient for us. |
Several of our key manufacturers and suppliers are located in China, and we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies, laws, rules and regulations of the United States or Chinese governments, as well as political unrest or unstable economic conditions in China. For example, trade tensions between the United States and China have been escalating in recent years. Notably, the lithium-ion battery industry has been subjected to tariffs implemented by the United States government on goods imported from China. There is an ongoing risk of new or additional tariffs being put in place on lithium-ion batteries or related parts which would significantly increase our cost of goods sold, which could require us to increase prices to our customers or, if we are unable to do so, result in lower gross margins on the products sold by us. In addition, these tariffs could make our products less competitive than those of our competitors whose inputs are not subject to these tariffs. These U.S. tariff impositions against Chinese exports have been followed by a round of retaliatory Chinese tariffs on U.S. exports to China. The imposition of additional tariffs by the United States could trigger the adoption of tariffs by other countries as well. Any resulting escalation of trade tensions, including a “trade war,” could have a significant adverse effect on world trade and the world economy, as well as on our results of operations. At this time, we cannot predict how such enacted tariffs will impact our business. We may otherwise experience supply disruptions or delays, and although we carefully manage our inventory and lead-times, our suppliers may not continue to provide us with battery components in our required quantities, to our required specifications and quality levels or at attractive prices.
Further, we may be unable to control price fluctuations for these components or negotiate supply arrangements on favorable terms to us. We may also be exposed to fluctuations in the value of the U.S. dollar relative to the Renminbi with any appreciation in the value of the Renminbi increasing our costs for lithium-ion batteries and other raw materials sourced from China. Substantial increases in the prices for our lithium-ion batteries and other raw materials would increase our operating costs and negatively impact our results of operations. In addition, foreign currency fluctuations relative to the value of the U.S. dollar could affect the price of components and materials used in our batteries and sourced from countries other than the United States.
Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could harm our business.
From time to time, we may experience increases in the cost or a sustained interruption in the supply or shortage of battery components. For example, a global shortage and component supply disruptions of electronic battery components are currently being reported, and the full impact to us is yet unknown. Other examples of shortages and component supply disruptions could include the supply of electronic components and raw materials (such as resins and other raw metal materials) that go into the production of our battery components. Any such cost increase or supply interruption could materially and negatively impact our business, prospects, financial condition and results of operations.
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The prices for our battery components fluctuate depending on market conditions and global demand, and could adversely affect our business, prospects, financial condition and results of operations. For instance, we are exposed to multiple risks relating to price fluctuations for battery cells. These risks include, but are not limited to:
| · | supply shortages caused by the inability or unwillingness of suppliers and their competitors to build or operate component production facilities to supply the numbers of battery components requires to support the rapid growth of the electric RV and marine component vehicle industry and other industries in which we operate as demand for such components increases; |
| · | disruption in the supply of electronic circuits due to quality issues or insufficient raw materials |
| · | a decrease in the number of manufacturers of battery components; and |
| · | an increase in the cost of raw materials. |
We are dependent on the continued supply of battery components for our products. Any disruption in the supply of battery components could temporarily disrupt production of our products by our third-party manufacturers until a different supplier is fully qualified. The cost of our battery products depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt, and/or other metals which are used to produce battery components. Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers and thus we may have limited control over the agreed pricing for these raw materials and battery components. The prices for these materials fluctuate and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased global production of electric vehicles and energy storage products. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges. Any reduced availability of these raw materials or substantial increases in the prices for such materials may increase the cost of our components and consequently, the cost of our products. There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and results of operations.
Our business and future growth depends on the needs and success of our customers.
Our customers include dealers, wholesalers, private-label customers and OEMs. The demand for our products ultimately depends on consumers in our current end markets (primarily owners of RVs and marine vessels). These markets can be impacted by numerous factors, including, consumer spending, travel restrictions, fuel costs and energy demands (including an increasing trend towards the use of green energy) and overall economic conditions. Increases or decreases in these variables may significantly impact the demand for our products. If we fail to accurately predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may produce excess products, resulting in increased inventory and overcapacity in our production facilities, increasing our unit production cost and decreasing our operating margins.
We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our sales in 2024 and 2023.
We currently derive a significant portion of our revenue from a limited number of customers. Sales to one customer totaled approximately 14% of our gross sales during the year ended December 31, 2024, and four other customers had accounts receivable balances representing 60% of our total accounts receivable as of December 31, 2024. During the year ended December 31, 2023, sales to two customers totaled approximately 21% of our gross sales, and four other customers had accounts receivable balances representing 92% of total accounts receivable as of December 31, 2023. There are inherent risks whenever a large percentage of gross sales are concentrated with a limited number of customers. In addition, our sales are completed on a purchase order basis and most are without firm, long-term revenue commitments or sales arrangements. It is not possible for us to predict the future level of demand for our products and services that will be generated by our customers or the future demand for the products and services of our other customers. If any of our customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our products which could have an adverse effect on our margins and financial position and could negatively affect our revenue and results of operations and/or trading price of our common stock. Furthermore, there is inherent risk associated with accounts receivable concentration as a deterioration in the financial condition of a limited number of account debtors, or any other factor which affects their ability or willingness to pay could in turn have a material adverse effect on our financial condition.
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We may not be able to successfully manage our growth.
We have been continuously expanding our operations since our founding in 2016. As we continue to grow, we must continue to improve our managerial, technical and operational knowledge and allocation of resources, and to implement an effective management information system. To effectively manage our expanded operations, we need to continue to recruit and train managerial, accounting, internal audit, engineering, assembly and manufacturing, technical, sales and other staff to satisfy our development requirements and there are currently significant labor shortages in the market. In order to fund our ongoing operations and our future growth, we need to have sufficient internal sources of liquidity or access to additional financing from external sources. Furthermore, we will be required to manage relationships with a greater number of customers, suppliers, contractors, service providers, lenders and other third parties. We will need to further strengthen our internal control and compliance functions to ensure that we are able to comply with our legal and contractual obligations and to reduce our operational and compliance risks. We cannot assure you that we will not experience issues such as capital constraints, construction delays, operational difficulties at new locations, or difficulties in expanding our existing business and operations and in recruiting and training an increasing number of personnel to manage and operate the expanded business. Our expansion plans may also adversely affect our existing operations and thereby have a material adverse effect on our business, prospects, financial condition and results of operations.
Our results of operations may be negatively impacted by public health epidemics or outbreaks.
We are exposed to risks associated with public health crises and epidemics or pandemics. A widespread health crisis could adversely affect the global economy, resulting in an economic downturn that could impact our operations and demand for our products and therefore have a material adverse effect on our business and results of operations. For example, the COVID-19 global pandemic adversely impacted our operations, supply chains, and distribution systems as well as those of our third-party suppliers and manufacturers, which are located in the United States, Asia and Europe. A future public health epidemic or outbreak may make it more difficult for us and our third-party manufacturers to find sufficient components or raw materials and component parts on a timely basis or at a cost-effective price. Any performance failure on the part of any of our significant suppliers or third-party manufacturers could interrupt production of our products, which would have a material adverse effect on our business, financial condition and results of operations. In addition, during the pandemic we experienced shortages and workforce slowdowns due to stay-at-home mandates, illness among our workforce, delays in shipping finished products to customers, and delays in our receiving batteries and certain components. The highly competitive labor market made it difficult to recruit and maintain a workforce properly sized and suited for our operational and strategic needs, which further adversely impacted our business, and any future incidence of disease could similarly impact our business. In addition, while the pandemic positively impacted our battery sales due to more consumers adopting the RV lifestyle, there is no guarantee that any such increase would be sustained, which could cause our results of operations to fluctuate.
If we fail to expand our sales and distribution channels, our business could suffer.
Our success, and our ability to increase sales and operate profitably, depends on our ability to identify target customers and convert these customers into meaningful orders, as well as our continued development of existing customer relationships. If we are unable to expand our sales and distribution channels, we may not be able to increase revenue or achieve market acceptance of our products. We are expanding our direct sales force and plan to recruit additional sales personnel. New sales personnel will require training and take time to achieve full productivity, and there is strong competition for qualified sales personnel in our business. In addition, we believe our future success is dependent upon establishing successful relationships with a variety of distribution partners. To date, we have entered into agreements with only a small number of these distribution partners. We cannot be certain that we will be able to reach agreement with additional distribution partners on a timely basis or at all, or that these distribution partners will devote adequate resources to selling our products. Furthermore, if our distribution partners fail to adequately market or support our products, the reputation of our products in the market may suffer. In addition, we will need to manage potential conflicts between our direct sales force and any third-party reselling efforts. There can be no assurances that any of our efforts to expand our sales and distribution channels will be successful.
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Our ability to expand into international markets is uncertain.
Our strategy is to expand our operations into international markets. In addition to general risks associated with international expansion, such as foreign currency fluctuations and political and economic instability, we face the following risks and uncertainties any of which could prevent us from selling our products in a particular country or harm our business operations once we have established operations in that country:
- the difficulties and costs of localizing products for foreign markets;
- the need to modify our products to comply with local requirements in each country; and
- our lack of a direct sales presence in other countries, our need to establish relationships with distribution partners to sell our products in these markets and our reliance on the capabilities and performance of these distribution partners.
If we are unable to expand into international markets in the manner expected, our business, financial condition, results of operations and prospects may be materially and adversely affected.
Nearly all of our raw materials enter the United States through a limited number of ports and we rely on third parties to store and ship some of our inventory; labor unrest at these ports or other product deliver difficulties could interfere with our distribution plans and reduce our revenue.
We currently rely exclusively on foreign manufacturers to manufacture the lithium-ion batteries used as raw materials in our products, as well as certain other of our raw materials. We may suffer delays in receiving raw materials due to work stoppages, strikes or lockouts or other bottlenecks at the ports through which our raw materials are shipped. Likewise, we rely on trucking carriers to deliver products from the port of arrival to our distribution facilities and from our distribution facilities to our customers. Additionally, in some cases, third parties sort, store, and direct-ship products to our customers. Labor unrest or other disruptions could result in product shortages and delays in distributing our products to retailers, which could materially and adversely affect our business, financial condition, results of operations, and prospects.
The uncertainty in global economic conditions could negatively affect our results of operations.
Our results of operations are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our business is also highly dependent on the economic and market conditions in each of the geographic areas in which we operate. Our products are heavily dependent on the end markets that we serve and our results of operations will vary by location, depending on the economic environment in these markets. Sales of our RV and marine power products, for example, depend significantly on demand for new electric products for RVs and marine applications, which, in turn, depends on end-user demand for RVs and boats. The uncertainty in global economic conditions varies by geographic location and can result in substantial volatility in global credit markets, particularly in the United States. These conditions, including levels of consumer spending, economic recessions, slow economic growth, economic and pricing instability, inflation levels, increase of interest rates, credit market volatility and adverse developments affecting financial institutions, could affect our business by reducing prices that our customers may be able or willing to pay for our products or by reducing the demand for our products. In addition, the Russia-Ukraine war and the Israel-Palestine conflict has and may continue to further exacerbate disruptions in the global supply chain. As a result of sanctions imposed in relation to the Russia-Ukraine conflict, gas prices in the United States have risen to historic levels, and geopolitical tensions in the Middle East have impacted global shipping routes. Any rise in the cost of fuel may cause a decrease in RV travel, which could ultimately negatively impact sales of our batteries for RVs. We have also historically experienced increased shipping costs as a result of increased fuel costs and shutdowns at the ports through which our lithium-ion batteries and other raw materials are shipped, and such costs could adversely impact our results of operations in future periods. Any of the above factors could, in turn, negatively impact our sales and earnings generation and result in a material adverse effect on our business, cash flow, results of operations and financial position.
Government reviews, inquiries, investigations, and actions could harm our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards. Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business and/or reputation. Even if an inquiry does not result in these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and/or reputation.
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We are currently, and will likely continue to be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products could be negatively impacted.
We have a warehouse location in Redmond, Oregon and another in Elkhart, Indiana.
Our facilities may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, flooding, fire and power outages, utility and transportation infrastructure disruptions, acts of war or terrorism, or by public health crises, which may render it difficult or impossible for us to assemble our products for an extended period of time. The inability to produce our products or the backlog that could develop if any of our facilities is inoperable for even a short period of time may result in increased costs, harm to our reputation, a loss of customers or a material adverse effect on our business, financial condition or results of operations. Although we maintain property damage and business interruption insurance, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.
Our long-term target is to onshore the manufacturing of most of our components and assemblies, including cell manufacturing, to the United States. Our plans for expansion may experience delays, incur additional costs, or cause disruption to our existing production lines. The costs to successfully achieve our expansion goals may be greater than we expect, and we may fail to achieve our anticipated cost efficiencies, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, while we are generally responsible for delivering products to the customer, we do not maintain our own fleet of delivery vehicles and outsource this function to third parties. Any shortages in trucking capacity, any increase in the cost thereof or any other disruption to the highway systems could limit our ability to deliver our products in a timely manner or at all.
Lithium-ion battery cells have been observed to catch fire or release smoke and flame, which may have a negative impact on our reputation and business.
Our lithium-ion batteries use LiFePO4 as the cathode material for lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by releasing smoke and flames in a manner that can ignite nearby materials and other lithium-ion cells. This faulty result could subject us to lawsuits, product recalls, or redesign efforts, all of which would be time-consuming and expensive. Further, negative public perceptions regarding the suitability or safety of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident does not involve our products, could seriously harm our business and reputation.
To facilitate an uninterrupted supply of lithium-ion batteries, we store a significant number of lithium-ion batteries at our facilities. Any mishandling, other safety issue or fire related to the cells or batteries could disrupt our operations. In addition, any accident, whether occurring at our facilities or from the use of our batteries, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or property damage. Such damage or injury could lead to adverse publicity and potentially a product recall, which could have a material adverse effect on our brand, business, financial condition and results of operations.
We could face product liability or warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, and result in significant costs and liabilities, which would reduce our profitability.
Our product offerings and energy storage solutions, which are complex, could contain design- or manufacturing-related defects, or may not operate at expected performance levels. We face an inherent business risk of exposure to product liability claims in the event that the use of any of our products results in personal injury or property damage.
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In the event that any of our products prove to be defective, we may be required to recall or redesign such products, which would result in significant unexpected costs. Any insurance we maintain may not be available on terms acceptable to us or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product recall could result in adverse publicity against us, which could adversely affect our sales or increase our costs.
We are also exposed to potential liability and product performance warranty risks that are inherent in the design, assemble, manufacture and sale of our products. We sell the majority of our products to customers with conditional repair or replacement warranties. For example, our branded DC mobile chargers are warrantied for two years from the date of sale, and our branded VPR 4EVER Classic and Platinum batteries are warrantied at gradually lesser levels over a 12-year period from date of sale. As a result, we bear the risk of warranty claims long after we have sold the product and recognized revenue. In addition, under real world operating conditions, which may vary by location and design, as well as environmental conditions, our products may perform in a different way than under standard test conditions or other failure data sets. We depend significantly on our reputation for safety and reliability and high-quality products and services, exceptional customer service, and our brand name to attract new customers and maintain our current customers, and grow our business. If our products do not perform as anticipated or we experience unexpected reliability problems or widespread product failures, our brand and market reputation could be significantly impaired and we may lose, or be unable to gain or retain, customers which could impact our business and results of operations.
We have been required to make assumptions and apply judgments, including the durability and reliability of our products, regarding their performance over the estimated warranty period and our anticipated rate of warranty claims. We have a relatively limited operating history and must project how our offerings will perform over the estimated warranty period and the estimated reserve may have material changes. Historically, there have been very few claims and costs for repairs or replacement parts have been nominal. However, warranty reserves include our management’s best estimates of the projected costs to repair or replace items under warranty, which is based on estimated failure rates. Our assumptions could prove to be materially different from the actual performance of our products, causing us to incur substantial expense to repair or replace defective products in the future. An increase in our estimates of future warranty obligations could cause us to increase the amount of warranty obligations. If our warranty reserves are inadequate to cover future warranty claims on our energy storage products, our financial condition and results of operations could be adversely affected.
Our operations expose us to litigation, tax, environmental and other legal compliance risks.
We are subject to a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks include, among other things, possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, government contracts, taxes, health and safety liabilities, environmental matters and compliance with competition laws and laws governing improper business practices. We could be charged with wrongdoing as a result of such matters. If convicted or found liable, we could be subject to significant fines, penalties, repayments or other damages (in certain cases, treble damages). In the area of taxes, changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and tax liabilities.
We plan to manufacture lithium-ion batteries in the future which involves processing, storing, disposing of and otherwise moving large amounts of hazardous materials, and federal, state, and local regulations impose significant environmental requirements on the manufacturing, storage, transportation, and disposal of various components of advanced energy storage systems. As a result, we will be subject to extensive and changing environmental, health and safety laws, and regulations governing, among other things, the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees. Although we believe our operations are in material compliance with applicable environmental regulations, there can be no assurance that changes in such laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our products.
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Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to repair damage to natural resources. We may be responsible for remediating damage to our properties caused by former owners by our existing operations or by our future operations.
Changes in environmental and climate laws or regulations could lead to new or additional investment in production designs and could increase environmental compliance expenditures. For example, the United States Environmental Protection Agency has promulgated regulations applicable to projects involving greenhouse gas emissions above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations on greenhouse gas emissions.
Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw materials costs. Additionally, we cannot assure you that we have been or at all times will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation.
We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in the jurisdictions in which we conduct or in the future may conduct activities, including, the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA generally prohibits companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. The FCPA also imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments. Our policies mandate compliance with these antibribery laws. Despite meaningful measures that we undertake to facilitate lawful conduct, which include training and internal control policies, these measures may not always prevent reckless or criminal acts by our employees or agents as we expand our operations from the United States domestically to abroad. As a result, we could be subject to criminal and civil penalties, disgorgement, further changes or enhancements to our procedures, policies and controls, personnel changes or other remedial actions. Violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Our failure to introduce new products and product enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, could adversely affect our business.
Our success will depend on our ability to develop new products and capabilities that respond to consumer demand, industry trends, or developments by our competitors. There is no assurance that we will be able to successfully develop new products and capabilities that adequately respond to these forces. In addition, many new energy storage technologies have been introduced over the past several years. For certain important and growing markets, such as aerospace and defense, lithium-based battery technologies have a large and growing market share. Our ability to achieve significant and sustained penetration of key developing markets, including the RV marine, and home energy markets, will depend upon our success in developing or acquiring these and other technologies, either independently, through joint ventures, or through acquisitions, which in each case may require significant capital. In addition, new product introductions and technologies are risky, and may suffer from a lack of market acceptance, delays in related product development and failure of new products to operate properly. Any failure by us to successfully launch new products, or a failure by us to meet our customers criteria in order to accept such products, could adversely affect our results. If we fail to develop or acquire, assemble and manufacture and sell, products that satisfy our customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, then we may fail to maintain our competitive position in our markets, and our business and financial condition could be adversely affected. We cannot assure you that our portfolio of primarily lithium-ion products will remain competitive with products based on new technologies.
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We may not be able to adequately protect our proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims.
We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially battery case construction, are important to our business and are not protected by patents. Despite our efforts to protect our proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property and proprietary technologies. If we are unable to protect our intellectual property and technology, we may lose any technological advantage we currently enjoy and may be required to take an impairment charge with respect to the carrying value of such intellectual property or goodwill established in connection with the acquisition thereof. In either case, our results of operations and net income may be adversely affected. In addition, entities holding intellectual property rights relating to our technology may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. Any such litigation or claims, whether or not valid or successful, could result in substantial costs and diversion of resources and our management’s attention. If we are determined to have infringed upon a third-party’s intellectual property rights, we may have to pay substantial damages, obtain a license or cease making certain products, which in turn could have a material adverse effect on our business, results of operations and financial condition.
Quality problems with our products could harm our reputation and erode our competitive position.
The success of our business will depend upon the quality of our products and our relationships with customers. In the event that our products fail to meet our customers’ standards, our reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot assure you that our customers will not experience quality problems with our products.
Any acquisitions that we complete may dilute stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may cause unanticipated liabilities.
As part of our growth strategy, we may make future investments in businesses, new technologies, services and other assets that complement our business. Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities would dilute stockholder ownership interests. In addition, future acquisitions might not increase, and may even decrease, our earnings or earnings per share and the benefits derived by us from an acquisition might not outweigh or might not exceed the dilutive effect of the acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences in connection with any future acquisitions.
If our electronic data is compromised, or we experience a failure in our information technology or storage systems, our business could be significantly harmed.
We and our business partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business, including current and future products and services under development, and also contains certain customer, supplier, partner and employee data. Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology systems, which support our operations. We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming and/or human errors that could compromise the integrity and privacy of this data, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness, and results of operations. High-profile security breaches at other companies and in government agencies have increased in recent years, and cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. While we devote significant resources to security measures to protect our systems and data, these measures cannot provide absolute security.
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In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material. We operate a number of critical computer systems throughout our business that can fail for a variety of reasons. If such a failure were to occur, we may not be able to sufficiently recover from the failure in time to avoid the loss of data or any adverse impact on certain of our operations that are dependent on such systems. This could result in lost sales and the inefficient operation of our facilities for the duration of such a failure.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both or by entering into credit facilities or securing other types of financing. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our capital requirements. Further, we may be restricted in our ability to access existing sources of liquidity.
In addition, actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks. If banks or financial institutions enter receivership or become insolvent in response to financial conditions affecting the banking system and financial markets, our ability to raise additional financing or to access our existing cash, cash equivalents and investments may be threatened.
If we incur new debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business.
Our success depends in part on our ability to attract, retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate senior management and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. For example, John Yozamp, our co-founder, former Chief Business Development Officer, and former Chief Executive Officer, pioneered multiple new recreational concepts in the RV industry and leveraged extensive relationships in the RV OEM business to establish our company. Mr. Yozamp retired as Chief Business Development Officer as of December 31, 2023. In addition, Greg Aydelott, our Chief Financial Officer, resigned from his role as of December 31, 2024. While we believe we have successfully transitioned from these departures and have sufficient experience among our management team, any additional attrition among senior management or key employees could adversely impact us. The board has commenced a search for a new Chief Financial Officer. If we are unsuccessful in our succession planning efforts, the continuity of our business and results of operations could be adversely affected.
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Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially affect our financial position, results of operations, and cash flows. The overall tax environment remains uncertain and increasingly complex. Future changes in tax laws, treaties or regulations, and their interpretation or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary, and other fiscal challenges. In the U.S., various proposals to change corporate income taxes are periodically considered. Tax rates in the jurisdictions in which we operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult to operate with certainty about taxation. For example, changes to U.S. tax laws enacted in December 2017 had a significant impact on our tax obligations and effective tax rate beginning 2018, and the full consequences of the significant changes to U.S. tax laws as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) have not yet been fully determined. These enactments and future possible guidance from the applicable taxing authorities may have a material impact on our results of operations. In addition, regulatory or legislative developments may arise from various U.S. tax reform proposals, some of which include proposed changes to the U.S. tax laws, which, if adopted, could result in increased taxation of our business operations. We closely monitor these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted. We regularly assess the likely outcomes of our tax audits and disputes to determine the appropriateness of our tax reserves. However, any tax authority could take a position on tax treatment that is contrary to our expectations, which could result in tax liabilities in excess of reserves. In addition, the foregoing items, as well as any future changes in tax laws, could have a material adverse effect on our business, cash flow, financial condition, or results of operations.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies, and a failure to do so could result in higher than anticipated costs or could impair our results of operations.
Risks Related to Ownership of Our Common Stock
Our stock price may fluctuate significantly, and you may lose all or a part of your investment.
The trading price of our securities may be volatile and subject to wide price fluctuations in response to various factors, including:
| · | market conditions in the broader stock market; |
| · | actual or anticipated fluctuations in our quarterly financial condition and results of operations, or those of other companies in our industry; |
| · | actual or anticipated strategic, technological, or regulatory threats, whether or not warranted by actual events; |
| · | whether any securities analysts cover our stock; |
| · | issuance of new or changed securities analysts’ reports or recommendations, if any; |
| · | investor perceptions of our Company, the lithium battery and accessory industry; |
| · | the volume of trading in our stock; |
| · | changes in accounting standards, policies, guidance, interpretations, or principles; |
| · | sales, or anticipated sales, of large blocks of our stock; |
| · | additions or departures of key management personnel, creative, or other talent; |
| · | regulatory or political developments, including changes in laws or regulations that are applicable to our business; |
| · | litigation and governmental investigations; |
| · | sales or distributions of our common stock by significant stockholders, the entity through which our controlling stockholder holds its investment, or other insiders; |
| · | natural disasters and other calamities; and |
| · | macroeconomic conditions. |
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Furthermore, the stock market has experienced extreme volatility that in some cases has been unrelated or disproportionate to the operating performance of particular companies. These and other factors may cause the market price and demand for our securities to fluctuate substantially, which may limit or prevent investors from readily selling their securities and it may otherwise negatively affect the liquidity of our securities. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.
We do not anticipate paying dividends on our common stock in the foreseeable future, and you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We do not anticipate paying any dividends in the foreseeable future on our common stock. We intend to retain all future earnings for the operation and expansion of our business and the repayment of outstanding debt. Any future debt facilities we may enter into may contain restrictions on our ability to pay dividends or make distributions, and any new credit facilities we may enter into may contain similar restrictions. As a result, capital appreciation, if any, of our common stock may be your major source of gain for the foreseeable future. While we may change this policy at some point in the future, we cannot assure you that we will make such a change.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our securities may be influenced by the research and reports that securities or industry analysts publish about us or our business (or the absence of such research or reports). If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock prices or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade recommendations regarding our stock, or if our results of operations do not meet their expectations, our stock prices could decline and such decline could be material.
You may be diluted by the future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise.
You will experience additional dilution upon the exercise of options and warrants to purchase our common stock, including those options currently outstanding and possibly those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. As of December 31, 2024, we had 200,000,000 shares of common stock authorized, of which 2,096,082 were issued. Subsequent to December 31, 2024, we issued to certain institutional investors in connection with a registered direct offering (i) 474,193 shares of common stock; and (ii) 574,193 pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the “January 2025 Pre-Funded Warrant Shares”). The January 2025 Pre-Funded Warrants were all exercised immediately upon issuance. In a concurrent private placement that closed January 3, 2025, the Company also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) to purchase up to an aggregate of 1,048,386 shares of common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—January 2025 Registered Direct Offering and Warrant Private Placement” for additional information regarding the offering.
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Our Articles of Incorporation authorizes us to issue shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in connection with our incentive plans, acquisitions or otherwise. We have reserved 10,000 shares of common stock for issuance upon the exercise of outstanding stock options under the 2021 Incentive Award Plan and 25,000 shares of common stock for issuance pursuant to our 2021 Employee Stock Purchase Plan. In addition, as of December 31, 2024, there were outstanding warrants to purchase up to 5,380,965 shares of common stock. In addition, there are 11,430 shares of common stock issuable upon the exercise of equity incentive awards outstanding under our 2021 Incentive Award Plan as of December 31, 2024. Any common stock that we issue, including stock issued under our 2021 Incentive Award Plan or other equity incentive plans that we may adopt in the future, as well as under outstanding options or warrants would dilute the percentage ownership held by our common stockholders. To the extent we raise additional capital by issuing equity securities, our stockholders may also experience substantial additional dilution.
Sales of substantial amounts of our securities in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting power and your ownership interest in us.
If our existing stockholders sell substantial amounts of our securities in the public market, including the shares of common stock issued or issuable upon the exercise of the August 2024 Pre-Funded Warrants, Series A Warrants and Series B Warrants issued in the August 2024 Public Offering, as well as shares of common stock issued in the January 2025 Registered Direct Offering (including the January 2025 Pre-Funded Warrant Shares) and upon the issuance of shares of common stock upon the exercise, if any, of the January 2025 Warrants, and shares issued as consideration in any future acquisitions, or the market perceives that such sales may occur, the market price of our securities could fall and we may be unable to sell our securities in the future. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—August 2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices” and “—January 2025 Registered Direct Offering and Warrant Private Placement” for additional information regarding the August 2024 Public Offering and January 2025 Registered Direct Offering, respectively. The perception in the public market that our stockholders might sell securities could also depress our market price. As of March 25, 2025, we had 3,144,468 shares of common stock outstanding. Pursuant to the terms of the warrants issued to the underwriters (or their designees) in connection with our initial public offering (the “Underwriter Warrants”), the holders of the Underwriter Warrants have the right, subject to certain conditions, to require us to register the sale of the shares of our common stock underlying their Underwriter Warrants under the Securities Act.
If the holders of the Underwriter Warrants exercise their registration rights, the market price of shares of our securities may drop significantly. In addition, all of the shares of common stock issuable upon exercise of outstanding stock options under the 2021 Incentive Award Plan and all of the shares of common stock issuable pursuant to the 2021 Employee Stock Purchase Plan have been registered for public resale under the Securities Act. A decline in the price of shares of our securities might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
Although our common stock is listed on Nasdaq, the exchange could subsequently delist our common stock if we fail to comply with ongoing listing standards.
Our common stock currently is listed on Nasdaq. We are required to meet specified financial requirements in order to maintain such listing, including a requirement that the bid price for our common stock remain above $1.00. On September 6, 2024, as expected, we received a staff determination from The Nasdaq Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) to delist our common stock from Nasdaq. On September 12, 2024, we requested an appeal hearing, staying the delisting of the common stock pending a decision from a hearings panel. Upon successful completion of the Reverse Stock Split, we received a letter from Nasdaq staff on October 23, 2024, advising us that we had regained compliance with the continued listing requirements in Listing Rule 5550(a)(2) and that we are therefore in compliance with Nasdaq’s listing requirements. Consequently, the scheduled hearing before the hearings panel on October 24, 2024, was cancelled. See the section titled “Legal Proceedings” for further information on the delisting notice.
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While shares of our common stock continue to be listed and traded on Nasdaq, there can be no assurance that we will continue to meet Nasdaq listing standards. Any potential delisting of our common stock from Nasdaq may have materially adverse consequences to our stockholders, including:
- a reduced market price and liquidity with respect to our shares of common stock, which could make our ability to raise new investment capital more difficult;
- limited dissemination of the market price of our common stock;
- limited news coverage;
- limited interest by investors in our common stock;
- volatility of the prices of our common stock due to low trading volume;
- our common stock being considered a “penny stock,” which would result in broker-dealers participating in sales of our common stock being subject to the regulations set forth in Rules 15g-2 through 15g-0 promulgated under the Exchange Act;
- increased difficulty in selling our common stock in certain states due to “blue sky” restrictions; and
- limited ability to issue additional securities or secure additional financing.
The exercise of outstanding warrants may result in a substantial increase in the number of shares of our common stock that are outstanding.
As of December 31, 2024, 114,676,797 Series A Warrants, exercisable for 5,286,692 shares of common stock, at $5.206 per share (post-Adjustment), and 3,075,000 Series B Warrants exercisable for 87,384 shares of common stock, at $0.10 per share (post-Adjustment) were outstanding. In addition, subsequent to December 31, 2024, we issued to certain institutional investors the January 2025 Warrants to purchase up to an aggregate of 1,048,386 shares of common stock at an exercise price of $2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. The exercise of the Series A Warrants and, to a lesser extent, the Series B Warrants and January 2025 Warrants could result and have resulted in a substantial increase in the number of shares of common stock outstanding and therefore materially dilute the ownership percentage of currently outstanding shares of common stock. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—January 2025 Registered Direct Offering and Warrant Private Placement” and “—August 2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices” for additional information regarding the January 2025 Registered Direct Offering and August 2024 Public Offering, respectively.
Provisions of the Series A Warrants and Series B Warrants we sold in the August 2024 Public Offering may discourage an acquisition of us by a third party.
Certain provisions of the Series A Warrants and Series B Warrants we sold in the August 2024 Public Offering could make it more difficult or expensive for a third-party to acquire us. The Series A Warrants and Series B Warrants each prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the applicable warrants. These and other provisions of the Series A Warrants and Series B Warrants could prevent or deter a third-party from acquiring us even where the acquisition could be beneficial to our investors.
The Series A Warrants and Series B Warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination.
To the extent we issue shares of common stock to affect a future business combination, the potential for the issuance of a substantial number of additional shares of common stock upon exercise of the Series A Warrants and, to a lesser extent, the Series B Warrants could make us a less attractive acquisition vehicle in the eyes of a target business. Such Series A Warrants and Series B Warrants, when exercised, will increase the number of issued and outstanding shares of common stock and reduce the value of the shares issued to complete the business combination. Accordingly, the Series A and Series B Warrants may make it more difficult to effectuate a business combination or increase the cost of acquiring a target business. Additionally, the sale, or even the possibility of a sale, of the shares of common stock underlying the August 2024 Pre-Funded Warrants, Series A Warrants, and Series B Warrants could have an adverse effect on the market price for our securities or on our ability to obtain future financing. If and to the extent the Series A Warrants and Series B Warrants are exercised, our investors may experience dilution to their holdings.
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The Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering may have a material adverse impact on our financial condition, may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party.
As a result of the daily volume weighted average price (“VWAP”) of the common stock during the five trading days before and after the Reverse Stock Split, the Reverse Stock Split cash true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was triggered, but the payment of the Reverse Stock Split cash true-up payment is currently suspended in accordance with the terms of the Series A Warrants. However, in connection with the January 2025 Registered Direct Offering, we used approximately $500,000 of the $2.2 million in net proceeds to satisfy a portion of amounts owed to our Series A Warrant holders pursuant to the terms of the outstanding Series A Warrants. The obligation to make the Reverse Stock Split cash true-up payment could impede our ability to raise additional capital and could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to our investors. In the event that the conditions for suspension of the Reverse Stock Split cash true-up payment under the terms of the Series A Warrants become no longer applicable, the payment of the Reverse Stock Split cash true-up payment could have a material adverse impact on our financial condition.
We continue to incur considerable legal costs as a result of operating as a public company, and our management will be required to devote substantial time to comply with public company regulations.
As a public company, and particularly after we cease to be an “emerging growth company,” as defined in the JOBS Act, we will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules promulgated by the SEC and Nasdaq require us to adopt corporate governance practices applicable to U.S. public companies. Compliance with these rules and regulations will continue to increase our legal and financial compliance costs.
Sarbanes-Oxley, as well as rules and regulations subsequently implemented by the SEC and Nasdaq, have imposed increased disclosure and enhanced corporate governance practices for public companies. Our efforts to continue to comply with evolving laws, regulations and standards are likely to result in increased expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. We may not be successful in continuing to implement these requirements and implementing them could adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our financial results on a timely and accurate basis could be impaired.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. These obligations and constituents require significant attention from our senior management and can divert their attention away from the day-to-day management of our business, which can harm our business, results of operations and financial condition.
We are an “emerging growth company” and elect to comply with certain reduced reporting requirements applicable to emerging growth companies, which could make our securities less attractive to investors.
As an “emerging growth company,” we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our securities less attractive because we chose to rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
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Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We choose to avail ourselves of this extended transition period and defer adoption of certain changes in accounting standards.
As described in Section 101 of the JOBS Act, the “emerging growth company” classification can be retained for up to five years following our initial public offering or until the earlier occurrence of the following: the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30; or the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
If some investors find our securities less attractive as a result of any choices to reduce future disclosure, there may be a less active market for our securities and our stock price may be more volatile.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and stock price.
We are required to comply with certain SEC rules that implement Sections 302 and 404 of Sarbanes-Oxley, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. Though we are required to disclose changes made in our internal control procedures on a quarterly basis, we take advantage of certain exceptions from reporting requirements that are available to “emerging growth companies” under the JOBS Act. For example, each independent registered public accounting firm that performs an audit for us has not been required to attest to and report on our annual assessment of our internal controls over financial reporting pursuant to Section 404 and will not be required to do so until we are no longer an “emerging growth company” as defined in the JOBS Act and a non-accelerated filer in accordance with Rule 12b-2 under the Exchange Act. While we expect to be ready to comply with Section 404 of Sarbanes-Oxley by the applicable deadline, we cannot assure you that this will be the case. Furthermore, we may identify material weaknesses that we may be unable to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of Sarbanes-Oxley. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may be unable to conclude that we have effective internal controls over financial reporting in accordance with Section 404 of Sarbanes-Oxley. If we are unable to implement the requirements of Section 404 of Sarbanes-Oxley in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could have a material adverse effect on our business, prospects, results of operations, and financial condition.
If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
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Risks Related to Our Capital Structure
Our long-term lease and debt obligations could adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions.
As of December 31, 2024, we had total liabilities of $6.6 million, of which $5.0 million is the suspended liability for the true-up payment related to the August 8, 2024 capital raise, $799,000 was related to operating lease liabilities, and $230,000 was related to debt obligations.
If we cannot generate sufficient cash flow from operations to service our lease and debt obligations or the Reverse Stock Split cash true-up payment, we may need to further refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis or on terms satisfactory to us, or at all. Our substantial lease and debt obligations could have important consequences, including:
| · | our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes may be limited; |
| · | a portion of our cash flows from operations will be dedicated to payments on our lease and debt obligations and will not be available for other purposes, including operations, capital expenditures and future business opportunities; |
| · | we may be vulnerable in a downturn in general economic conditions or in business or may be unable to carry on capital spending that is important to our growth; |
| · | restrictive covenants in our debt documents may impose significant operating and financial restrictions on us, including our ability to pay dividends and make other restricted payments or sell our collateral (other than inventory in the ordinary course of business); |
| · | our ability to introduce new products or new technologies or exploit business opportunities may be restricted; and |
| · | we may be placed at a disadvantage compared with competitors that have proportionately less lease and debt obligations. |
Our Articles of Incorporation provide that the Nevada Eighth Judicial District Court of Clark County, Nevada shall be the exclusive forum for certain litigation that may be initiated by our stockholders, including claims under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our Articles of Incorporation provides that, subject to limited exceptions, the Nevada Eighth Judicial District Court of Clark County, Nevada shall be, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought in the name or right of the Corporation or on its behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or 92A, our Articles of incorporation or our Bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our Articles of Incorporation or Bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine.
Although these choice of forum provisions would not apply to suits brought to enforce any duty or liability created by the Exchange Act or rules and regulations thereunder, and suits brought to enforce the Securities Act or rules and regulations thereunder are granted concurrent jurisdiction in federal and state courts pursuant to preemptive federal law, these choice of forum provisions may otherwise limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents. Stockholders who do bring a claim in the Nevada Eighth Judicial District Court of Clark County, Nevada could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the State of Nevada. The Nevada Eighth Judicial District Court of Clark County, Nevada may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1c. cybersecurity
We maintain an information security and cybersecurity program, as well as a cybersecurity governance framework, which are designed to protect our information systems against operational risks related to cybersecurity.
Cybersecurity Risk Management and Strategy
We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats which include, among other things, operational risks, intellectual property theft, fraud or extortion, harm to employees or customers, violation of privacy or security laws and related litigation and legal risk, and reputational risks.
Our cybersecurity risk management program also includes processes to triage, assess the severity of, escalate, contain, investigate, and remediate an incident, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage. If a cybersecurity incident is determined to be a potentially material cybersecurity incident, our disclosure controls and procedures define the steps to determine materiality and disclose such a material cybersecurity incident.
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ITEM 2. PROPERTIES
Our corporate headquarters are in Redmond, Oregon, and house our engineering, sales, accounting, and operations staff. Our primary product warehouse is also located there. Our headquarters is approximately 15,000 square feet, leased at a base rent that increases 3.0% annually on January 31st of each year. From January 31, 2024 to January 30, 2025, the rental cost of our headquarters was approximately $19,600 per month.
We previously leased a facility in Redmond, Oregon, which was primarily used for warehousing. The square footage of this facility is approximately 33,770 square feet, and from February 1, 2024 to September 30, 2024, the rental cost of this facility was approximately $33,340 per month. On September 24, 2024, we voluntarily terminated the lease, effective as of October 1, 2024 as part of an effort to identify cost reduction opportunities. We plan to continue operating our warehousing out of its Redmond, Oregon headquarters and Elkhart, Indiana locations. In connection with the termination of the lease, we paid one extra month’s rent, a $30,000 fee, and a broker commission of approximately $89,000. The lease termination is expected to result in approximately $40,000 of cost savings per month over the 51 months following its termination.
We also lease a property in Elkhart, Indiana. In 2024, it served to provide a stocking location for several large manufacturers in the area. Elkhart is a hub for RV manufacturing in the United States. Currently, it is primarily used for office space and as a backup location for warehousing and distribution to local customers. The square footage of this facility is approximately 7,000 square feet, leased at a cost of $4,900 per month.
We believe these facilities are sufficient to meet our current and anticipated needs in the near term and that additional space can be obtained on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
We may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. We are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, cash flows or results of operations.
On September 6, 2024, we received a staff determination from The Nasdaq Listing Qualifications Department of Nasdaq to delist our Common Stock from Nasdaq indicating that (i) we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for our Common Stock had closed below $1.00 for the previous 30 consecutive business days, and (ii) we are subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) because, as of September 5, 2024, our Common Stock had a closing bid price of $0.10 or less for at least ten consecutive trading days (the “Staff Determination”).
On September 12, 2024, the Company requested an appeal hearing on the Staff Determination from a Hearings Panel (the “Panel”) by filing a hearing request with Nasdaq pursuant to the procedures set forth in the Nasdaq Listing Rules, staying the delisting of the Company’s common stock pending the Panel’s decision Upon successful completion of the Reverse Stock Split, we received a letter from the Nasdaq Office of General Counsel on October 23, 2024, advising us that we had regained compliance with the minimum bid price continued listing requirements in Listing Rule 5550(a)(2) and that we are therefore in compliance with Nasdaq’s listing requirements. Consequently, the scheduled hearing before the Panel on October 24, 2024 was cancelled. Our Common Stock continues to be listed and traded on Nasdaq.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock began trading on Nasdaq on April 1, 2022 under the symbol “XPON.” As of March 25, 2025, there were approximately 16 registered holders of our common stock, which does not include beneficial owners of our common stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our Board and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects, and other factors our Board may deem relevant. Further, any future debt facilities we may enter into may contain restrictions on our ability to pay dividends or make distributions, and any new credit facilities we may enter into may contain similar restrictions.
Stock Performance Graph
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 201(e) of Regulation S-K.
Recent Sales of Unregistered Securities from Registered Securities
There were no sales of unregistered equity securities during the fiscal year ended December 31, 2024 that were not previously reported in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes for the fiscal years ended December 31, 2024 and 2023, included in this Annual Report. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Annual Report, including in Item 1A. “Risk Factors” and “Cautionary Note Concerning Forward-Looking Statements and Industry Data.” Percentage amounts included in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this Annual Report. Certain other amounts that appear in this section may not sum due to rounding.
Unless otherwise noted, all references to shares and per share amounts for the years ended December 31, 2024 and 2023 presented in this section have been adjusted retroactively to reflect a 1-for-100 reverse stock split, which was effective at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reverse Stock Split and Reverse Stock Split True-Up Payment” below for additional information about the Reverse Stock Split.
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Overview
Expion360 focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) who then sell our products to end consumers and drive brand awareness nationally.
Our primary target markets are currently the RV, marine, and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium batteries as the primary method of power sourcing in these industries. We are also focused on expanding into the home energy storage market with the introduction of our e360 Home Energy Storage Solutions, and we hope to establish a new standard in the industry for barrier price, flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional capacities to the expanding electric forklift and industrial material handling markets.
We launched our e360 product line, which is manufactured for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 Home Energy Storage Solutions.
We currently operate Expion360 as one reportable business segment, Energy Storage (ES).
Our products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong case materials, and internal and structural layouts, and are backed by responsive customer service.
Recent Developments
January 2025 Registered Direct Offering and Warrant Private Placement
On January 3, 2025, we sold to certain institutional investors, in a registered direct offering, an aggregate of (i) 474,193 shares of common stock; and (ii) 574,193 pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the “January 2025 Pre-Funded Warrant Shares”). The offering price per share was $2.48 and the offering price per January 2025 Pre-Funded Warrant was $2.479. Each January 2025 Pre-Funded Warrant was exercisable for one share of common stock for $0.001 immediately and the January 2025 Pre-Funded Warrants were all exercised immediately upon issuance. The number of January 2025 Pre-Funded Warrant Shares are subject to adjustments for stock splits, recapitalizations, and reorganizations.
In a concurrent private placement that closed January 3, 2025, we also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) to purchase up to an aggregate of 1,048,386 shares of common stock (the “January 2025 Warrant Shares”) at an exercise price of $2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. The January 2025 Warrants were immediately exercisable and can be exercised until January 3, 2030. In connection with the private placement, we filed a registration statement on Form S-1 (File No. 333-284354), which was declared effective by the SEC on February 11, 2025, covering the resale of the January 2025 Warrant Shares.
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We received net proceeds of approximately $2.2 million from the offering and used approximately $500,000 of the net proceeds to satisfy a portion of certain amounts owed to our Series A Warrant holders pursuant to the terms of the outstanding Series A Warrants.
Chief Operating Officer Medical Leave of Absence
On November 16, 2024, Paul Shoun, our Co-Founder, President, Chief Operating Officer, and Chairman of the Board, commenced a temporary medical leave of absence from his duties as Chief Operating Officer. During his leave, Mr. Shoun continued to perform his duties as President and Chairman of the Board during his leave. Mr. Shoun resumed his duties as Chief Operating Officer in February 2025. In connection with Mr. Shoun’s return to his full responsibilities, Carson Heagen, our Vice President of Operations, who temporarily assumed the role of Chief Operating Officer, ceased serving in that capacity.
Resignation of Chief Financial Officer and Appointment of Interim Chief Financial Officer
On December 16, 2024, Greg Aydelott, our Chief Financial Officer, notified us of his resignation effective December 31, 2024, due to family health concerns. Mr. Aydelott is remaining with the Company in a consulting role on an ongoing basis. In connection with Mr. Aydelott’s resignation, on December 20, 2024, our Board appointed Brian Schaffner, who serves as our Chief Executive Officer and as a member of the Board, to serve as our interim Chief Financial Officer effective immediately upon Mr. Aydelott’s resignation. The Board has commenced a search for a new Chief Financial Officer.
Reverse Stock Split and Reverse Stock Split True-Up Payment
Effective as of 5:00 p.m. Pacific Time on October 8, 2024 (the “Effective Date”), we effected a 1-for-100 reverse stock split of our common stock (the “Reverse Stock Split”), which was approved by the Board on September 27, 2024, following stockholder approval at our annual meeting of stockholders held on September 27, 2024. No fractional shares of common stock were issued as a result of the Reverse Stock Split and instead each holder of Common Stock who was otherwise entitled to receive a fractional share as a result of the Reverse Stock Split received one whole share of common stock in lieu of such fractional share. As a result of this, 210,668 shares were issued on or before October 17, 2024. In addition, the Reverse Stock Split effected a reduction in the number of shares issuable pursuant to our equity awards, warrants and non-plan options outstanding as of the Effective Date, and a corresponding increase in the respective exercise prices, conversion prices, reset prices and the like thereunder.
As a result of the daily VWAP of the common stock during the five trading days before and after the Reverse Stock Split, a Reverse Stock Split cash true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was triggered, but the payment of the Reverse Stock Split cash true-up payment was suspended in accordance with the terms of the Series A Warrants. In connection with the closing of the January 3, 2025 offering, we used $500,000 of the net proceeds from the offering to satisfy a portion of certain amounts owed to the holders of the Series A Warrants pursuant to the terms thereof.
August 2024 Public Offering and Subsequent Warrant Exercises and Adjustments to Warrant Exercise and Reset Prices
On August 8, 2024, we sold in a public offering (the “August 2024 Public Offering”) (i) 33,402,000 common units (the “Common Units,” pre-Reverse Stock Split), each consisting of one share of common stock, two Series A warrants each to purchase one share of common stock (pre-Reverse Stock Split and pre-Adjustment (as defined below) and each, a “Series A Warrant”) and one Series B warrant to purchase such number of shares of common stock as determined in the Series B warrant (each, a “Series B Warrant”), and (ii) 16,598,000 pre-funded units (the “Pre-Funded Units,” and together with the Common Units, the “Units,” pre-Reverse Stock Split), each consisting of one pre-funded warrant to purchase one share of common stock (each, an “August 2024 Pre-Funded Warrant”), two Series A Warrants, and one Series B Warrant, through Aegis Capital Corp. serving as underwriter (in its capacity as such, the “Underwriter”). The Common Units were sold at a price of $0.20 per unit and the August 2024 Pre-Funded Warrants were sold at a price of $0.199 per unit (pre-Reverse Stock Split).
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In addition, we granted the Underwriter a 45-day option to purchase additional shares of common stock and/or August 2024 Pre-Funded Warrants and/or Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 Public Offering, solely to cover over-allotments, if any. The Underwriter partially exercised its over-allotment option with respect to 15,000,000 Series A Warrants and 7,500,000 Series B Warrants (pre-Reverse Stock Split).
The August 2024 Pre-Funded Warrants were immediately exercisable at an exercise price of $0.001 per share (pre-Reverse Stock Split) and could be exercised at any time until exercised in full. All August 2024 Pre-Funded Warrants have been exercised.
Each Series A Warrant is exercisable at any time or times beginning on September 30, 2024, which was the first trading day following our notice to the Series A Warrant holders of stockholder approval received at the 2024 Annual Meeting, and will expire five years from such date. Each Series A Warrant was initially exercisable at an exercise price of $24.00 per share of common stock (post-Reverse Stock Split). The exercise price of the Series A Warrants was subject to reduction on the 11th trading day after the stockholder approval to the greater of the lowest daily VWAP during the ten-trading-day period following the stockholder approval and the floor price of $5.206 (representing 20% of the lower of our common stock’s closing price on Nasdaq on the date that we priced the August 2024 Public Offering, post-Reverse Stock Split) or our common stock’s average closing price on Nasdaq for the five trading days ending on such date (such lower price, without giving effect to such 20% reduction, the “Nasdaq Minimum Price”), and the number of shares issuable upon exercise would be proportionately adjusted such that the aggregate exercise price would remain unchanged. As of September 30, 2024, there would have been 5,301,592 shares of common stock (post-Reverse Stock Split and assuming the Adjustment had occurred on September 30, 2024) issuable upon exercise of the Series A Warrants as of that date. Subsequent to September 30, 2024, the exercise price under the Series A Warrants was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price, post-Reverse Stock Split), beginning on October 14, 2024, the 11th trading day following stockholder approval. As of December 31, 2024, 14,900 shares of common stock have been issued upon exercise of Series A Warrants and 5,286,692 shares of common stock remain issuable upon exercise of Series A Warrants.
Each Series B Warrant was exercisable immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). The number of shares of common stock issuable under the Series B Warrants were subject to adjustment using a reset price based on the weighted average price of common stock over a rolling five-trading-day period between the issuance date of the Class B Warrants and the close of trading on the tenth trading day following stockholder approval, subject to certain floor prices. As of December 31, 2024, 1,294,367 shares of common stock (post-Reverse Stock Split) had been issued upon exercise of Series B Warrants and there were 1,032,198 shares of common stock (post-Reverse Stock Split) issuable upon exercise of Series B Warrants based on the reset price of $5.45 (representing the lowest arithmetic average of the daily VWAP during the five-trading-day period from September 12, 2024 through September 18, 2024). Effective October 8, 2024, after market close, the Reverse Stock Split occurred and as of December 31, 2024, 87,384 shares of common stock remain issuable upon exercise of Series B Warrants using the reset price, which was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price (post-Reverse Stock Split and post-Adjustment).
Key Factors Affecting Our Results of Operations
Our results of operations and financial performance are significantly dependent on the following factors:
Consumer Demand
Although our sales are primarily generated from dealers, wholesalers, private-label customers and OEMs focused on the RV, marine, and home energy markets, the demand for our products from these customers depends on consumer demand. Our sales are completed on a purchase order basis, and most are without firm, long-term revenue commitments or sales arrangements, which we expect to continue going forward. Accordingly, our growth prospects and future sales are subject to risks and uncertainties related in part to consumer demand for our products, which is affected by a number of factors, including fuel costs, discretionary spending, macroeconomic conditions, including inflation, changes in tariffs and interest rates, geopolitical pressures, and volatility in the RV, marine, and home energy markets. In recent years we have seen a rise in fuel costs, higher interest rates, and other changes in macroeconomic conditions, which have resulted in decreased consumer spending decisions and affecting our industry as a whole. In addition, we expect escalating tensions between the U.S. and China, where several of our key manufacturers and suppliers are located, as well as the ongoing risk of new or additional tariffs impacting lithium-ion batteries or related parts, to increase our cost of goods sold, which could require us to increase prices to our customers or result in lower gross margins on our products. These conditions have had, and may continue to have, a negative effect on our business, financial condition, and results of operations.
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While RV and marine applications have historically driven our revenue, in January 2025, we began shipping orders of our e360 Home Energy Storage Solution, comprised of two LiFePO4 battery storage solutions. Our e360 Home Energy Storage Solutions aim to provide consumers with a cost-effective, low barrier of entry, flexible system to power their homes utilizing solar energy, wind, or grid back-up. The success of our strategy depends on (i) the continued growth of these addressable markets in line with our expectations, and (ii) our ability to successfully enter and maintain a competitive position in the RV, marine, and home energy markets with commercially viable products. We expect to incur significant marketing costs understanding and growing our presence within these markets, and researching and targeting customers in these markets, and our efforts may not be successful in generating sales. If we fail to execute on this growth strategy in accordance with our expectations, our sales growth could be limited to the growth of existing products and existing end markets.
Expion360 has recently added several new distributors and OEM customers in RV and marine markets. Management believes that orders resulting from these new relationships will result in significant new revenue streams in the year ending December 31, 2025. In addition, Expion360 began shipping Home Energy Storage Systems in January 2025.
Manufacturing and Supply Chain
Our batteries are manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if needed.
Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us to source materials outside of Asia in the event it becomes necessary to do so.
In addition to increased mining and newly located reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past few years is lithium cell recycling. This process will recapture the raw lithium from the cell for reuse in future cells. However, notwithstanding efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments that may adversely affect our supply chain.
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Management expects that products from our Asian third-party manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier concessions, customer price increases and efficiencies gained as sales continue to grow.
For additional information regarding, see the section titled “Risk Factors—Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers” and “Risk Factors—Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.”
Product and Customer Mix
As of December 31, 2024, we sell 15 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to different customers (i.e., dealers, wholesalers, private-label customers, OEMs, etc.) at differing prices and have varying costs. The average selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs. Accessory and OEM sales typically have lower average selling prices and resulting margins, which could decrease our margins and negatively affect our growth or require us to increase the prices of our products. However, the benefits of increased sales volumes typically offset these reductions. The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin.
Competition
We compete with both traditional lead-acid and lithium-ion battery manufacturers that primarily either import their products and/or components or manufacture their products and/or components under a private label. As we develop new products and expand into new markets, we may experience competition with a broader range of companies. These companies may have more resources than us and be able to allocate more resources to their current and future products. Our competitors may source products or components at lower costs than us, which may require us to evaluate our own costs, lower our product prices, or increase our sales volume to maintain our expected profitability levels.
Research and Development
We anticipate that additional investments in our infrastructure and research and development spending will be required to scale our operations and increase productivity, address the needs of our customers, further develop and enhance our products and services, and expand into new geographic areas and market segments.
New technologies are rapidly emerging in the markets where we conduct business and many new energy storage technologies have been introduced over the past several years. Our ability to achieve significant and sustained penetration of key developing markets, including the RV, marine, residential energy storage, and small commercial energy storage markets, will depend upon our success in developing these and other technologies, either independently, through joint ventures, or through acquisitions, which in each case may require significant capital and commitment of resources to research and development. Accordingly, we may need to seek additional debt and equity financing to fund our research and development efforts and planned growth.
Certifications
We have completed the final requirements to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and on our 12V GC2 battery. Now that these certifications have been completed, all of the batteries produced by us will have a UL Safety Certification, emphasizing our commitment to quality, safety and service for our customers.
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Key Line Items
Net Sales
Our revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods or services. All of our sales are primarily within the United States.
Cost of Sales
Our primary cost of sales as a percentage of sales is related to our direct product and landing costs. Direct labor costs consist of payroll costs (including taxes and benefits) of employees directly engaged in assembly activities. Per full absorption cost accounting, overhead related to our cost of sales is added, consisting primarily of warehouse rent and utilities. The costs can increase or decrease based on costs of product and assembly parts (purchased at market pricing), customer supply requirements, and the amount of labor required to assemble a product, along with the allocation of fixed overhead.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist primarily of salaries and benefits, legal and professional fees, and sales and marketing costs. Other costs include facility and related costs, research and development, software and information technology, and insurance.
Interest and Other Income, net
Interest expense consists of interest costs on loans with interest rates ranging from 3.75% to 10.0% and amortization of convertible note costs. The amortized convertible note costs were $667,000 and $0 for the years ended December 31, 2024 and 2023, respectively.
Provision for Income Taxes
We are subject to corporate federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We have adopted the provisions in ASC 740, Income Taxes, related to accounting for uncertain tax positions, which require recognition of the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination and on the technical merits of the position. We have concluded there were no material unrecognized tax benefits as of December 31, 2024 or December 31, 2023.
Our practice is to recognize interest and/or penalties related to income tax matters as income tax expense. We had no accrual for interest or penalties on our balance sheet at December 31, 2024 or December 31, 2023, and did not recognize any interest or penalties in our statement of operations for the years ended December 31, 2024 or 2023, since there are no material unrecognized tax benefits. We do not expect any material change to the amount of unrecognized tax benefits to occur within the next 12 months.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
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Use of Non-GAAP Financial Measures
We disclose financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (US GAAP); however, we provide certain financial information on a non-GAAP basis (non-GAAP financial measures). We provide non-GAAP financial measures to provide information that may assist investors in understanding our results of operations and assessing our prospects for future performance, which consist of adjusted cost of sales. We believe evaluating certain financial and operating measures on an adjusted basis is important as it excludes liquidation costs that are not indicative of our core results of operations and are largely outside of our control. However, our non-GAAP financial measures are not intended to represent and should not be considered more meaningful measures than, or alternatives to, measures of financial or operating performance as determined in accordance with US GAAP.
We calculate our adjusted cost of sales non-GAAP financial measures for current period financial information by excluding the effect of liquidation of non-core product in the consolidated financial statements. The information presented on an adjusted cost of sales basis, as we present such information, may not necessarily be comparable to similarly titled information presented by other companies, and may not be appropriate measures for comparing our performance relative to other companies.
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Results of Operations
Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023
The following table sets forth certain operational data as a percentage of sales:
| Fiscal Years Ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Net sales | $ | % of Net sales | |||||||||||||
| Net sales | $ | 5,624,939 | 100.0 | % | $ | 5,981,134 | 100.0 | % | ||||||||
| Cost of sales | 4,469,711 | 79.5 | 4,405,611 | 73.7 | ||||||||||||
| Gross profit | 1,155,228 | 20.5 | 1,575,523 | 26.3 | ||||||||||||
| Selling, general, and administrative expenses | 7,909,219 | 140.6 | 8,745,135 | 146.2 | ||||||||||||
| Loss from operations | (6,753,991 | ) | (120.1 | ) | (7,169,612 | ) | (119.9 | ) | ||||||||
| Other expense - net | 6,727,032 | 119.6 | 283,369 | 4.7 | ||||||||||||
| Loss before income taxes | (13,481,023 | ) | (239.7 | ) | (7,452,981 | ) | (124.6 | ) | ||||||||
| Net loss | (13,479,475 | ) | (239.6 | ) | (7,456,274 | ) | (124.7 | ) | ||||||||
Net Sales
Net sales for the year ended December 31, 2024 decreased by $356,000, or 6.0%, compared to the year ended December 31, 2023. Sales were $5.6 million for the year ended December 31, 2024 and $6.0 million for the year ended December 31, 2023. The year-over-year decrease was primarily attributable to decreases in the consumer market, driving decreases in OEM sales. Our net sales for the three months ended December 31, 2024, however, increased by $1.1 million, or 131%, compared to the three months ended December 31, 2023. Sales were $2.0 million for the three months ended December 31, 2024 and $859,000 for the three months ended December 31, 2023.
Cost of Sales
Cost of sales for the year ended December 31, 2024 increased by $64,000, or 1.5%, compared to the year ended December 31, 2023. Cost of sales were $4.5 million for the year ended December 31, 2024 and $4.4 million for the year ended December 31, 2023. Cost of sales as a percentage of sales increased by 5.8% in 2024. The change in cost of sales was primarily related to a decrease in overall sales, resulting in a decrease in economies of scale pertaining to fixed costs, as well as the liquidation of some non-core product in 2024 increasing our cost of sales above what they would have been without the liquidation.
During the year ended December 31, 2024, we liquidated some non-core product, which was a factor in reducing leased warehouse space. If we had not done the liquidation, cost of sales for the year ended December 31, 2024 would have decreased by $42,000, or 0.9%, compared to the year ended December 31, 2023. Cost of sales would have been $4.4 million for the year ended December 31, 2024 and $4.4 million for the year ended December 31, 2023. Cost of sales as a percentage of sales would have increased by 4.5% in the year ended December 31, 2024 compared to the prior year.
Gross Profit
Our gross profit for the year ended December 31, 2024 decreased by $420,000, or 26.7%, compared to the year ended December 31, 2023. Gross profit was $1.2 million for the year ended December 31, 2024 and $1.6 million for the year ended December 31, 2023. Gross profit as a percentage of sales decreased by 5.8% for the year ended December 31, 2024, to 20.5% compared to 26.3% for the year ended December 31, 2023. The decrease in gross profit for the year ended December 31, 2024 was primarily attributable to lower sales volumes due to the slowdown in the RV industry resulting in lower economies of scale on our fixed costs, as well as the liquidation of non-core product increasing our cost of sales above what they would have been without the liquidation.
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Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the year ended December 31, 2024 decreased by $836,000, or 9.6%, compared to the year ended December 31, 2023. Selling, general, and administrative expenses were $7.9 million for the year ended December 31, 2024 and $8.7 million for the year ended December 31, 2023. The decrease in selling, general, and administrative expenses was primarily due to decreases in legal and professional fees as well as salaries and benefits, which was partially offset by an increase in licenses and fees, due to cash premium fees paid when making repayment on our convertible note as well as fees for exiting the warehouse lease.
Presented in the table below is the composition of selling, general and administrative expenses:
| Fiscal Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Salaries and benefits | $ | 3,260,866 | $ | 3,681,410 | ||||
| Legal and professional | 1,584,589 | 2,034,374 | ||||||
| Sales and marketing | 926,430 | 929,220 | ||||||
| Rents, maintenance, utilities | 449,997 | 573,652 | ||||||
| Research and development | 295,292 | 397,662 | ||||||
| Software, fees, tech support | 274,780 | 234,285 | ||||||
| Insurance | 263,930 | 179,989 | ||||||
| Depreciation | 155,315 | 182,825 | ||||||
| Travel expenses | 137,298 | 199,845 | ||||||
| Supplies, office | 23,876 | 58,049 | ||||||
| Other | 536,846 | 273,824 | ||||||
| Total | $ | 7,909,219 | $ | 8,745,135 | ||||
Other Expense
Other expense for the years ended December 31, 2024 and 2023 was $6.7 million and $283,000, respectively. Other expense for the year ended December 31, 2024 was made up of $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, as well as $977,000 in interest expense and $709,000 in settlement expense. Other expense for the year ended December 31, 2023 was made up almost entirely of settlement expense, with interest income and interest expense offsetting each other at $126,000 and $125,000, respectively.
Net Loss
Our net loss for the years ended December 31, 2024 and 2023 was $13.5 million and $7.5 million, respectively. The net loss in the year ended December 31, 2024 was primarily the result of the $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, as well as the increased interest due to the 3i Note (as defined in Note 7, “Equity and Debt Financings—Convertible Note Financing”) and increased settlement expense.
Liquidity and Capital Resources
Overview
Our operations have been financed primarily through net proceeds from sales of our common stock and equity and debt financings. As of December 31, 2024 and 2023, our current assets exceeded current liabilities by $2.0 million and $4.3 million, respectively, and we had cash and cash equivalents of $548,000 and $3.9 million, respectively.
We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest and principal payments on our debt.
As of December 31, 2024, our short-term liquidity requirements included (a) principal debt payments totaling approximately $32,000 net of amortization, (b) lease obligation payments of approximately $256,000, including imputed interest, and (c) $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering.
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We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenue and profit from operations. We expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional debt or equity financing to expand our presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business plans over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might be available to us. For the years ended December 31, 2024 and 2023, we sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date the financial statements for the year ended December 31, 2024 are issued. However, management is working to address its cash flow challenges, including by raising additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses. For additional information regarding risks associated with our ability to continue as a going concern, please see the risk factor titled “Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern” in Item 1A, “Risk Factors” of this Annual Report.
Financing Obligations
As of December 31, 2024, our long-term debt totaled $230,000, comprised of $143,000 outstanding under a COVID-19 Economic Injury Disaster Loan, $84,000 outstanding under vehicle financing arrangements, and an equipment loan for $3,000. In January 2024, we repaid $62,500 in principal on a stockholder promissory note with an interest rate of 10.0%, and in August 2024, we repaid two shareholder loans with principal of $500,000 and $200,000, respectively, both with interest rates of 10.0%. In February and March 2024, we sold three vehicles including repayment of the related vehicle loans with interest rates of 5.5%-5.9% in the total amount of approximately $88,000, which included principal and interest. In August 2024, we repaid a short-term convertible note for a total of $2.7 million including principal, interest, and fees.
Stockholder Promissory Notes
Stockholder promissory notes had an outstanding principal balance of $0 as of December 31, 2024, as they were repaid in August 2024. See Note 6 - Stockholder Promissory Notes for further information on stockholder promissory notes.
Vehicle Financing Arrangements
As of December 31, 2024, the Company has three notes payable to GM Financial for vehicles. In addition, in April 2022, the Company secured a commercial line of up to $300,000 to be used to finance vehicle purchases, which was increased to $350,000 in April 2023, renewed in April 2024 for the same amount, and expires in April 2025, which we plan to renew again. The notes are payable in aggregate monthly installments of approximately $2,560, including interest at rates ranging from 6.1% to 7.3% per annum, mature at various dates from October 2027 to May 2028, and are secured by the related vehicles. Two of the notes are personally guaranteed by a co-founder of the Company. A separate vehicle financing note has been repaid in connection with the sale of the related vehicle. See Note 5, Long-Term Debt.
Convertible Note Financing
On December 27, 2023, we entered into a securities purchase agreement with 3i, LP (“3i”) pursuant to which we sold, and 3i purchased, the 3i Note in the aggregate original principal amount of $2,750,000, for gross proceeds of $2.5 million. On August 8, 2024, in connection with the closing of the August 2024 Public Offering, we repaid the 3i Note, and our obligations under the 3i Note were fully satisfied and discharged. Prior to the closing of the August 2024 Public Offering, we had issued 415 shares of common stock (post-Reverse Stock Split) for the payment of $90,839 in interest.
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Equity Line of Credit
On December 27, 2023, we entered into the Common Stock Purchase Agreement, pursuant to which we had the right, but not the obligation, to sell to Tumim Stone Capital, LLC (“Tumim”), and Tumim was obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price of newly issued common stock and (b) the Exchange Cap (as defined in the purchase agreement) (the “Equity Line of Credit”). In connection with the August 2024 Public Offering, we mutually agreed with Tumim to terminate the Equity Line of Credit, effective immediately upon the closing of the August 2024 Public Offering. Prior to the closing of the August 2024 Public Offering, we had sold 4,336 shares of common stock (post-Reverse Stock Split) under the Equity Line of Credit for an aggregate amount of $828,491, of which $434,958 was used to repay a portion of the balance under the 3i Note, consisting of $380,042 to the loan principal, $34,204 to interest, and $20,712 as a redemption premium.
Operating Lease Liabilities
Our estimated future obligations consist of total operating lease liabilities. As of December 31, 2024, we had $799,000 in total operating lease liabilities, including the current portion.
Other Indebtedness
As of December 31, 2024, our long-term debt totaled $230,170, including the current portion, which consists of $31,758.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (9,562,545 | ) | $ | (5,531,232 | ) | ||
| Net cash provided by investing activities | $ | 113,408 | $ | 16,578 | ||||
| Net cash provided by financing activities | $ | 6,064,004 | $ | 2,246,108 | ||||
Cash flows used in operating activities
Our largest source of operating cash is cash collection from sales of our products. Our primary use of cash for operating activities are related to legal and professional fees, sales and marketing expenses, and research and development. In the last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from sales of our common stock.
We generated negative cash flows from operating activities of $9.6 million for the year ended December 31, 2024, compared to negative cash flows of $5.5 million for the corresponding period in 2023. Factors affecting operating cash flows during the periods included:
| · | For the year ended December 31, 2024, our net loss of $13.5 million was reduced by non-cash transactions including approximately $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, amortization of convertible note costs of approximately $667,000, stock-based compensation of $617,000, stock-based settlement of $209,000, and depreciation of $174,000. For the year ended December 31, 2023, our net loss of $7.5 million was reduced by non-cash transactions including stock-based compensation of $560,000, stock-based settlement of $252,000, and depreciation of $206,000. |
| · | Cash provided / (used) by accounts receivable was ($458,000) and $162,000 for the years ended December 31, 2024 and 2023, respectively, representing an increase in accounts receivable for the year ended December 31, 2024 and a decrease in accounts receivable for the year ended December 31, 2023. Sales are generally collected within 30 to 45 days. These changes are mainly due to timing between sales being recognized and payment being received. |
| · | Cash used for increases in (or provided by decreases in) inventory and prepaid inventories were $2.5 million and ($682,000) for the years ended December 31, 2024 and 2023, respectively. These changes are primarily due to the timing of significant purchases and prepayments of inventory. Turnaround time for receiving inventory from foreign sources can take up to 120 days, with prepayments required. |
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Cash flows provided by / (used in) investing activities
Cash provided by investing activities was $113,000 for the year ended December 31, 2024. Cash used for capital purchases of property and equipment for quality assurance and leasehold improvements to our testing lab totaled $19,000 during the year ended December 31, 2023. This was offset by net proceeds of $132,000 received for the sale and disposal of property and equipment during the year ended December 31, 2024, which included property and equipment and leasehold improvements related to the warehouse lease terminated in September 2024, as well as the sale of three vehicles.
Cash provided by investing activities was $17,000 for the year ended December 31, 2023. Cash used for capital purchases of property and equipment related to research and development, quality assurance, and logistics equipment was $20,000 during the year ended December 31, 2023. This was offset by net proceeds of $37,000 received for the sale and disposal of property and equipment during the year ended December 31, 2023.
Cash flows provided by financing activities
Cash provided by financing activities was $6.1 million for the year ended December 31, 2024. For the year ended December 31, 2024, we paid down debt principal of $3.6 million, which was offset by net cash proceeds of $9.5 million from issuance of common stock and $185,000 net cash proceeds from exercise of warrants.
Cash provided by financing activities was $2.2 million for the year ended December 31, 2023. For the year ended December 31, 2023, we paid down debt principal of $224,000, which was offset by net cash proceeds of $2.4 million from incurrence of short-term debt and net cash proceeds of $50,000 from the exercise of warrants.
Critical Accounting Estimates
The above discussion and analysis of our financial condition and results of operations is based upon our financial statements. The preparation of financial statements in conformity with the generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, will be reflected in the consolidated financial statements prospectively from the date of the change in the estimate.
Critical accounting estimates are those that we consider to be the most important in portraying our financial condition and results of operations and also require the greatest number of judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the financial statements.
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Property and Equipment
Property and equipment are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related assets as follows:
| Vehicles and transportation equipment | 5 – 7 years | ||
| Office furniture and equipment | 3 – 7 years | ||
| Manufacturing equipment | 3 – 10 years | ||
| Warehouse equipment | 3 – 10 years | ||
| QA equipment | 3 – 10 years | ||
| Tooling and molds | 5 – 10 years |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.
Useful life is estimated for each item at the time of purchase based on the typical useful life in our experience and best judgment, and remaining useful life of existing assets is evaluated regularly. If an estimated useful life were to be inaccurate, there would not be a material effect on our financials, and the estimated depreciation would be trued up at the time of disposal or impairment. It is our experience that the estimated useful lives of our assets are generally materially accurate.
Leases
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our balance sheets. We do not have any finance leases.
We recognize operating lease assets and lease liabilities in the consolidated balance sheets on the lease commencement date, based on the present value of the outstanding lease payments over the reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, plus any additional periods covered by an option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or not to terminate) a lease that is controlled by the lessor.
We discount unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, our incremental borrowing rate (IBR).
See Note 8, “Commitments and Contingencies,” of our consolidated financial statements within this Annual Report for further information, including more details of our accounting policy elections and disclosures and remaining minimum operating lease commitments.
Revenue Recognition
Our revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers in an amount that reflects the consideration we are expected to be entitled to in exchange for those goods or services. Revenue is recognized upon shipment or delivery to the customer, as that is when the customer obtains control of the promised goods and our performance obligation is considered satisfied.
Warrants
Warrants are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See “Note 7—Equity and Debt Financings” and “Note 9—Stockholders’ Equity” in our accompanying consolidated financial statements for information on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in market interest rates which can result in materially different results.
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Stock-Based Compensation
We use the Black-Scholes option-pricing model to determine the fair value of option grants. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of our future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common stock on the date of grant. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in market interest rates which can result in materially different results.
Income Taxes
Effective November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to recover our deferred tax assets. In the event that we determine all, or part of our net deferred tax assets are not realizable in the future, we will record an adjustment to the valuation allowance and a corresponding charge to earnings in the period such determination is made.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of US GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and results of operations. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recorded in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). As of December 31, 2024 and 2023, we have not recorded any income tax provision/(benefit) resulting from the CARES Act, mainly due to our history of net operating losses.
See “Note 11—Income Taxes” of our consolidated financial statements within this Annual Report for further information on our income taxes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 305 of Regulation S-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is found in a separate section of this Annual Report starting on page F-1. See the “Index to Financial Statements” on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, for our Company. Consequently, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2024. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level as of December 31, 2024.
48
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. “Internal control over financial reporting,” as defined in Rule 13a-15(f) under the Exchange Act, means a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management, with the participation and supervision of our principal executive officer and our principal financial and accounting officer, assessed the effectiveness of our internal control over financial reporting.
In making this assessment, our management used the criteria set forth in Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm due to an exemption established by SEC rules for emerging growth companies.
Changes in Internal Control Over Financial Reporting
During the three months ended December 31, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
Limitation on Effectiveness of Controls and Procedures
In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In assessing whether our disclosure controls and procedures were effective at a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications
Our directors and officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our common stock, which plans or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange Act or which may represent a non-Rule 10b5-1 trading arrangement, as defined under Item 408(a) of Regulation S-K.
During the three months ended
December 31, 2024, none of our directors or officers
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
49
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Insider Trading Policy
We have
The remaining information for this item will be included in our definitive proxy statement for our 2025 annual meeting of stockholders (the “2025 Proxy Statement"), to be filed with the SEC no later than 120 days after December 31, 2024, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference.
50
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Our financial statements are listed in the “Index to the Financial Statements,” which appears on page F-1 of this Annual Report.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto.
(a)(3) Exhibits
The following is a list of exhibits filed as part of this Annual Report.
51
† Indicates a management contract or compensatory plan or arrangement.
| # | This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
| * | The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
ITEM 16. FORM 10-K SUMMARY
None.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
| Expion360 Inc. | |||
| By: | /s/ Brian Schaffner | ||
| Brian Schaffner | |||
|
Chief Executive Officer and Interim Chief Financial Officer (Principal Executive, Financial and Accounting Officer) | |||
| Date: | March 31, 2025 | ||
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Brian Schaffner as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with any exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ Brian Schaffner | Chief Executive Officer, Interim Chief Financial Officer and Director | March 31, 2025 | ||
| Brian Schaffner | (Principal Executive, Financial and Accounting Officer) | |||
| /s/ George Lefevre | Director | March 31, 2025 | ||
| George Lefevre | ||||
| /s/ Steven M Shum | Director | March 31, 2025 | ||
| Steven M. Shum | ||||
| /s/ Tien Q. Nguyen | Director | March 31, 2025 | ||
| Tien Q. Nguyen | ||||
| /s/ Paul Shoun | Chief Operating Officer, President and Chairman of the Board of Directors | March 31, 2025 | ||
| Paul Shoun |
53
Index to Consolidated Financial Statements
54
FINANCIAL INFORMATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Expion360, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Expion360, Inc. (the Company) as of December 31, 2024 and 2023, and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-1
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Going Concern
Due to the recurring net loss for the year and net cash used in operating activities, the Company evaluated the need for a going concern. See discussion in Note 2.
Auditing management’s evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses which are not able to be substantiated.
To evaluate the appropriateness of the lack of going concern, we examined and evaluated the financial information that was the initial cause along with management’s plans to mitigate the going concern and managements lack of disclosure on going concern.
/s/
We have served as the Company’s auditor since 2021.
March 31, 2025
F-2
Expion360 Inc.
Balance Sheets
| As of December 31, 2024 | As of December 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid/in-transit inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
| Other Assets | ||||||||
| Operating leases – right-of-use asset | ||||||||
| Deposits | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Convertible note | ||||||||
| Current portion of operating lease liability | ||||||||
| Current portion of stockholder promissory notes | ||||||||
| Current portion of long-term debt | ||||||||
| Suspended Liability | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion and discount | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock, par value $; shares authorized; zero shares issued and outstanding | ||||||||
| Common stock, par value $; shares authorized; and issued and outstanding as of December 31, 2024 and 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-3
Expion360 Inc.
Statements of Operations
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (Income) / Expense | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Interest expense | ||||||||
| Loss on sale of property and equipment | ||||||||
| Settlement expense | ||||||||
| Suspended liability expense | ||||||||
| Other income | ( | ) | ( | ) | ||||
| Total other expense | ||||||||
| Loss before taxes | ( | ) | ( | ) | ||||
| Tax (income) / expense | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share (basic and diluted) | $ | ) | $ | ) | ||||
| Weighted-average number of common shares outstanding | ||||||||
The accompanying notes are an integral part of these financial statements.
F-4
Expion360 Inc.
Statements of Stockholders’ Equity (Deficit) for Years Ended December 31, 2024 and 2023
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Proceeds received from cashless exercise of warrants | ( | ) | ( | ) | ||||||||||||||||
| Proceeds received from cash exercise of warrants | ||||||||||||||||||||
| Stock issued as a result of litigation settlement | ||||||||||||||||||||
| Issuance of warrants | — | |||||||||||||||||||
| Issuance of stock options | — | |||||||||||||||||||
| Issuance of RSUs | — | |||||||||||||||||||
| Settlement of vested RSUs | ||||||||||||||||||||
| Issuance of common stock in exchange for short-term loan costs | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock issued for ELOC | ||||||||||||||||||||
| Proceeds received from cashless exercise of warrants | ( | ) | ( | ) | ||||||||||||||||
| Proceeds received from cash exercise of warrants | — | |||||||||||||||||||
| Stock issued for interest payment | ||||||||||||||||||||
| Issuance of stock options | — | |||||||||||||||||||
| Issuance of RSUs | — | |||||||||||||||||||
| Settlement of vested RSUs | ||||||||||||||||||||
| Settlement of commitment shares | ( | ) | ||||||||||||||||||
| Stock issued as a result of litigation settlement | ||||||||||||||||||||
| Issuance shares and pre-funded warrants, follow-on offering, net of issuance costs | ||||||||||||||||||||
| Proceeds from exercise of Series A warrants | ||||||||||||||||||||
| Proceeds from exercise of Series B warrants | ||||||||||||||||||||
| Shares issued for true-up upon reverse stock split | ( | ) | ||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
Expion360 Inc.
Statements of Cash Flows
| For the Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of convertible note costs | ||||||||
| Loss on sale of property and equipment | ||||||||
| Decrease in allowance for doubtful accounts | ( | ) | ||||||
| Stock-based settlement | ||||||||
| Stock-based compensation | ||||||||
| Decrease in right-of-use assets and lease liabilities | ( | ) | ||||||
| Increase in suspended liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) / Decrease in accounts receivable | ( | ) | ||||||
| (Increase) / Decrease in inventory | ( | ) | ||||||
| Increase in prepaid/in-transit inventory | ( | ) | ( | ) | ||||
| Increase in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Decrease in deposits | ||||||||
| Increase in accounts payable | ||||||||
| Increase in customer deposits | ||||||||
| Increase / (Decrease) in accrued expenses and other current liabilities | ( | ) | ||||||
| Increase in right-of-use assets and lease liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net proceeds from sale of property and equipment | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities | ||||||||
| Proceed from / (Principal payment on) convertible note | ( | ) | ||||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Principal payments on stockholder promissory notes | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Settlement of fractional shares for cashless warrant exercise | ( | ) | ||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning | ||||||||
| Cash and cash equivalents, ending | ||||||||
F-6
Expion360 Inc.
Statements of Cash Flows - Continued
| For the Years Ended December 31, | ||||||||
| Supplemental disclosure of cash flow information: | 2024 | 2023 | ||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid / (received) for franchise taxes | $ | ( | ) | $ | ||||
| Non-cash financing activities: | ||||||||
| Acquisition/modification of operating lease right-of-use asset and lease liability | $ | $ | ( | ) | ||||
| Issuance of common stock for payment on accrued interest | $ | $ | ||||||
| Issuance of common stock for payment on accrued compensation | $ | $ | ||||||
| Issuance of common stock in exchange for short-term loan costs | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these financial statements.
F-7
NOTES TO THE FINANCIAL STATEMENTS
1. Organization and Nature of Operations
Expion360 Inc. (formerly Yozamp Products Company, LLC dba Expion360) (the “Company”) was incorporated in the state of Nevada in November 2021. Effective November 1, 2021, the Company converted to a C corporation. Prior to conversion, the Company was a limited liability company (“LLC”) with an indefinite life organized in the State of Oregon in June 2016. The LLC elected to be treated as a Subchapter S corporation effective January 1, 2017. Net profits and losses of the LLC and all distributions were allocated among the members in proportion to the ownership units held. The Original LLC Agreement was amended and restated on January 1, 2021 to add additional members and a non-voting class of member units. Upon conversion to a C corporation, all existing LLC members at the time of conversion were issued shares of the Company’s common stock, par value $0.001 per share and became stockholders of the Company.
The Company designs, assembles, and distributes premium lithium batteries for RV, Marine, Golf, Industrial, Residential, and Off-The-Grid needs. The Company uses lithium iron phosphate (“LiFePO4”) batteries. LiFePO4 batteries are considered a top choice for high energy density, dependability, longevity, and safety, providing the ability to power anything, anywhere.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying audited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.
Unless otherwise noted, all references to shares and stockholders in the accompanying financial statements have been restated retroactively, to reflect the equity structure of the C corporation as of the beginning of the first period presented.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported results of operations.
Going Concern, Liquidity and Capital Resources
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenue and profit from operations. The Company expects to continue to incur additional losses for the foreseeable future, and the Company may need to raise additional debt or equity financing to expand its presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish its long-term business plan over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
As presented in the accompanying financial statements, the Company has sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the financial statements for the year ended December 31, 2024 are issued. However, management is working to address its cash flow challenges, including raising additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses.
F-8
Historically, the Company’s growth has been
funded through a combination of sales of equity interests, third party debt, and working capital loans. The Company’s sales for
2024 decreased
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could vary materially from the estimates that were used. The Company’s significant accounting estimates include the carrying value of accounts receivable and inventory, the depreciable lives of fixed assets, and stock-based compensation.
Future events, including the extent and the duration of the COVID-19-related economic impacts and their effects, cannot be predicted with certainty and, accordingly, the Company’s accounting estimates require the exercise of judgment.
Cash and Cash Equivalents
The Company considers all cash amounts which are not subject to withdrawal restrictions or penalties and all highly liquid investments purchased with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains its cash balances with high-quality financial institutions located in the United States. Cash accounts are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. At times, balances may exceed federally insured limits. Investment accounts are placed in funds consisting of US Treasury-related ultra-short paper, which earned $86,121 and $125,755 during the years ended December 31, 2024 and 2023, respectively. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents. As of December 31, 2024, cash balances exceeded FDIC limits by $277,522 and investment accounts totaling $712 are invested in US Treasury-related ultra-short paper.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount,
are due within a year or less, and generally do not bear any interest. The Company performs ongoing credit evaluations of its customers
and generally requires no collateral. An allowance for uncollectible accounts is recorded to reduce accounts receivable to the estimated
amount that will be collected. The allowance is based upon management’s review of the accounts receivable aging and specific identification
of potentially uncollectible balances. Recoveries of accounts previously written off and adjustments to the allowance for uncollectible
accounts are recorded as adjustments to bad debt expense. There was
Customer Deposits
As of December 31, 2024 and December 31, 2023, the
Company had customer deposits totaling $
F-9
Inventory
Inventory is stated at the lower of cost (first in,
first out) or net realizable value and consists of batteries and accessories, resale items, components, and related landing costs. As
of December 31, 2024 and December 31, 2023, the Company had inventory that consisted of finished assemblies totaling $
The Company periodically reviews its inventory for
evidence of slow-moving or obsolete inventory and provides for an allowance when considered necessary. The Company determined that no
such reserve was necessary as of December 31, 2024 or December 31, 2023. The Company prepays for inventory purchases from foreign suppliers.
Prepaid inventory totaled $
Vendor and Foreign Concentrations of Inventory Suppliers
During the years ended December 31, 2024 and 2023,
approximately
Property and Equipment
Property and equipment are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related assets as follows:
| Schedule of estimated useful lives | |||
| Vehicles and transportation equipment | |||
| Manufacturing equipment | |||
| Office furniture and equipment | |||
| Warehouse equipment | |||
| QA equipment | |||
| Tooling and molds |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.
Betterments, renewals, and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized in the Statements of Operations.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent
the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on the Company’s Balance Sheets. The Company does not have any finance leases.
Lease ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the Company’s Balance Sheet. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
F-10
The Company accounts for lease and non-lease components as a single lease component for all its leases.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and
equipment. When events or circumstances indicate the carrying value of a long-lived asset may be impaired, the Company estimates the future
undiscounted cash flows to be derived from the use and eventual disposition of the asset to assess whether or not a potential impairment
exists. If the carrying value exceeds the estimate of future undiscounted cash flows, the impairment is calculated as the excess of the
carrying value of the asset over the estimate of its fair value. Fair value is determined primarily using the estimated cash flows discounted
at a rate commensurate with the risk involved.
Product Warranties
The Company sells the majority of its products to customers along with conditional repair or replacement warranties. The Company’s branded DC mobile chargers are warrantied for two years from the date of sale and its branded VPR 4EVER Classic and Platinum batteries are warrantied at gradually lesser levels over a twelve-year period from date of sale. The Company determines its estimated liability for warranty claims based on the Company’s experience of the amount of claims actually made. Management estimates no liability as of December 31, 2024 and 2023 because, historically, there have been very few claims and costs for repairs or replacement parts have been nominal. It is possible that the Company’s estimate of liability for product liability claims will change in the near term.
Liability for Refunds
The Company does not have a formal return policy but does accept returns under its warranty policies. Returns have historically been minimal. No refund liability was recognized in the year ended December 31, 2023 or December 31, 2024. Revenue is recorded net of this amount. Any returns of discontinued product are not added back to inventory and therefore related costs are nominal and not recorded as an asset.
Revenue Recognition
The Company’s revenue is generated from the sale of products consisting primarily of batteries and accessories. The Company recognizes revenue when control of goods or services is transferred to its customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods or services. To determine revenue recognition, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the performance obligation(s) are satisfied. Revenue is recognized upon shipment or delivery to the customer, as that is when the customer obtains control of the promised goods and the Company’s performance obligation is considered satisfied. As such, accounts receivable is recorded at the time of shipment or will call, when the Company’s right to the consideration becomes unconditional and the Company determines there are no uncertainties regarding payment terms or transfer of control.
Concentration of Major Customers
A customer is considered a major customer when net revenue attributable to the customer exceeds 10% of total revenue for the period or outstanding receivable balances exceed 10% of total receivables.
During the year ended December 31, 2024, sales to
one customer totaled $
F-11
Shipping and Handling Costs
Shipping and handling fees billed to customers are
classified on the Statement of Operations as “Net sales” and totaled $
Advertising and Marketing Costs
The Company expenses advertising and marketing costs
as incurred. Advertising and marketing expense totaled $
Research and Development
Research and development costs are expensed as incurred.
Research and development costs charged to expense amounted to $
Income Taxes
Effective November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of exiting assets and liabilities and their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more significant provisions are removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and JOBS Act. As of December 31, 2024 and December 31, 2023, the Company has not recorded any income tax provision/(benefit) resulting from the CARES Act, mainly due to the Company’s history of net operating losses.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021 (the “CAA”). The CAA includes provisions extending certain CARES Act provisions and adds coronavirus relief, tax and health extenders. The Company will continue to evaluate the impact of the CAA and its impact on its financial statements in 2024 and beyond.
F-12
Fair Value of Financial Instruments
The Company accounts for its financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. These inputs include quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in the assessment of fair value.
The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, short-term revolving loans, stockholder promissory notes, and long-term debt. The fair value of cash and cash equivalents, accounts receivable, accounts payable, and short-term revolving loans approximates their respective carrying values because of the short-term nature of those instruments. The fair value of the stockholder promissory notes, convertible notes, and long-term debt approximates their respective carrying values because the interest rate approximates market rates available to the Company for similar obligations with the same maturities.
The basic net loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the period. Diluted earnings or loss per share adjusts the basic earnings or loss per share for the potentially dilutive impact of securities (e.g., options and warrants).
We calculate basic and diluted net loss per share using the weighted average number of common shares outstanding during the periods presented. In periods of a net loss position, basic and diluted weighted average common shares are the same. For the diluted earnings per share calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants, unvested restricted stock units and shares associated with the conversion of any convertible notes or preferred stock, when applicable. We use the if-converted method for calculating any potential dilutive effect of convertible notes and convertible preferred stock on diluted net loss per share.
The following shows the amounts used in computing net loss per share:
| Schedule of net loss per share | ||||||||
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding – basic and diluted | ||||||||
| Basic and diluted net loss per share | $ | ) | $ | ) | ||||
As of December 31, 2024 and 2023, the Company has outstanding warrants, options, and restricted stock units (“RSUs”) convertible into and shares of common stock, respectively. The following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive.
| Years ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Warrants – Series A | ||||||||
| Warrants – Series B | ||||||||
| Stock options | ||||||||
| RSUs | ||||||||
F-13
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation”, which requires compensation costs to be recognized at grant date fair value over the requisite service period of each of the awards. The Company recognizes forfeitures of awards as they occur.
The fair value of stock options is determined using the Black-Scholes-Merton option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected life. Changes to assumptions could cause significant adjustments to the valuation.
New Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU was issued to clarify reporting requirements for public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. The Company will adopt this standard effective January 1, 2024, but does not anticipate an impact on the Company’s financial statements or disclosures in this Report, as we currently have one reportable segment.
In March 2023, the FASB issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” This ASU was issued to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company will adopt this standard effective January 1, 2024, but does not anticipate an impact on the Company’s financial statements or disclosures.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which amends the guidance in Topic 820, Fair Value Measurement, to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, the ASU introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years for public business entities. The Company will adopt this standard effective January 1, 2024, but does not anticipate an impact on the Company’s financial statements or disclosures.
In July 2023, the FASB issued ASU 2023-03, amending “Presentation of Financial Statements (Topic 205),” “Income Statement – Reporting Comprehensive Income (Topic 220),” “Distinguishing Liabilities from Equity (Topic 480),” “Equity (Topic 505),” and “Compensation – Stock Compensation (Topic 718).” The company adopted this standard effective December 15, 2023.
Accounting Guidance Issued but Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40).” This ASU was issued to improve the disclosures about an entity’s expenses, and require certain types of expenses to be disclosed individually. The Company is currently evaluating the impact of this standard on its financial statement.
F-14
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements—Amendments to Remove References to the Concepts Statements,” to address suggestions received from stakeholders. The Company is currently evaluating the impact of this standard on its financial statements.
In March 2024, the FASB issued ASU 2024-01, “Compensation—Stock Compensation,” which adds an illustrative example to demonstrate how to apply the guidance in paragraph 718-10-15-3. The Company is currently evaluating the impact of this standard on its financial statements.
In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which affects a variety of Topics in the Codification. The company is currently evaluating the impact of this standard on our financial statements.
3. Property and Equipment, Net
Property and equipment consist of the following:
| Schedule of property and equipment | ||||||||
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Vehicles and transportation equipment | $ | $ | ||||||
| Manufacturing equipment | ||||||||
| Office furniture and equipment | ||||||||
| Warehouse equipment | ||||||||
| Leasehold improvements | ||||||||
| QA equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| Schedule of accrued expenses and other current liabilities | ||||||||
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accrued salaries and payroll liabilities | $ | $ | ||||||
| Rebate liability | ||||||||
| Commissions | ||||||||
| Deferred income and deposit (sublease) | ||||||||
| Accrued interest | ||||||||
| Franchise tax | ||||||||
| Other | ||||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
F-15
5. Long-Term Debt
Long-term debt consisted of the following at December 31, 2024 and 2023:
| Schedule of long term debt payment | ||||||||
| December 31, 2024 | December 31, 2023 | |||||||
| Note payable – bank. Payable in monthly installments of $ | ||||||||
| Note payable – credit union. Payable in monthly installments of $ | ||||||||
| Note payable – SBA. Economic Injury Disaster Loan payable in monthly installments of $ | ||||||||
| Notes payable – The Company has acquired six notes payable to GM Financial for vehicles. | ||||||||
| Total | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of unamortized debt discount and current portion | $ | $ | ||||||
Future maturities of long-term debt are as follows:
| Schedule of maturities of long-term debt | ||
| Years ending December 31, | ||
| 2025 | $ | |
| 2026 | ||
| 2027 | ||
| 2028 | ||
| 2029 | ||
| Thereafter | ||
| Total | $ | |
As of December 31, 2024 and December 31, 2023, the
Company had an outstanding principal balance of $
F-16
Interest paid to the stockholders under the Notes
totaled $
7. Equity and Debt Financings
August 2024 Public Offering
On August 8, 2024, the Company sold
in the August 2024 Public Offering, (i)
In addition, the Company granted the Underwriter a 45-day option to purchase additional shares of common stock and/or Pre-Funded Warrants and/or Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 Public Offering, solely to cover over-allotments, if any. The Underwriter partially exercised its over-allotment option with respect to Series A Warrants and Series B Warrants (pre-Reverse Stock Split).
The Common Units were sold at a price of $ per unit and the Pre-Funded Warrants were sold at a price of $ per unit (pre-Reverse Stock Split).
The Pre-Funded Warrants were immediately
exercisable at an exercise price of $
Each Series A Warrant is exercisable
at any time or times beginning on September 30, 2024, which was the first trading day following the Company’s notice to the Series
A Warrant holders of stockholder approval received at the Company’s annual meeting of stockholders held on September 27, 2024 (the
“2024 Annual Meeting”), and will expire five years from such date. Each Series A Warrant was initially exercisable at an exercise
price of $
Each Series B Warrant was exercisable
immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). The number of shares of common stock issuable
under the Series B Warrants were subject to adjustment using a reset price based on the weighted average price of common stock over a
rolling five-trading-day period between the issuance date of the Class B Warrants and the close of trading on the tenth trading day following
stockholder approval, subject to certain floor prices. As of September 30, 2024, shares of Common stock (post-Reverse Stock Split)
had been issued upon exercise of Series B Warrants and there were
F-17
Pursuant to an underwriting agreement
by and between the Company and the Underwriter, the Company paid the Underwriter a total cash underwriting discount of $
Convertible Note Financing
On December 27, 2023,
On August 8, 2024, in connection with the closing
of the August 2024 Public Offering, the Company repaid the 3i Note, and the Company’s obligations under the 3i Note were fully satisfied
and discharged. Prior to the closing of the August 2024 Public Offering, the Company had issued 414 shares of common stock (post-Reverse
Stock Split) for the payment of $
Equity Line of Credit
On December 27, 2023,
In connection with the August 2024 Public Offering,
the Company and Tumim mutually agreed to terminate the Equity Line of Credit, effective immediately upon the closing of the August 2024
Public Offering. Prior to the closing of the August 2024 Public Offering, the Company had sold shares of common stock (post-Reverse
Stock Split) under the Equity Line of Credit for an aggregate amount of $
Reverse Stock Split True-Up Payment
Effective as of 5:00 p.m. Pacific Time on October 8, 2024 (the “Effective Date”), The Company effected a 1-for-100 reverse stock split of our common stock (the “Reverse Stock Split”), which was approved by the Board on September 27, 2024, following stockholder approval at our annual meeting of stockholders held on September 27, 2024.
As a result of the daily VWAP of the common stock during the five trading days before and after the Reverse Stock Split, a Reverse Stock Split cash true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was triggered, but the payment of the Reverse Stock Split cash true-up payment was suspended in accordance with the terms of the Series A Warrants.
F-18
During the
year ended December 31, 2024, $14,052 of this liability was relieved in connection with the exercise of Series A Warrants, leaving a remaining
liability of $
8. Commitments and Contingencies
Operating Leases
The Company leases its warehouses and office space under long-term lease arrangements. None of its leases include characteristics specified in ASC 842, Leases, that require classification as financing leases, and accordingly, these leases are accounted for as operating leases. The Company does not recognize a right-of-use asset and lease liability for short term leases, which have terms of 12 months or less. For longer-term lease arrangements that are recognized on the Company’s Balance Sheet, the right-of-use asset and lease liability are initially measured at the commencement date based upon the present values of the lease payments due under the leases.
The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under the arrangement. Under ASC 842, the incremental borrowing rate (“IBR”) for leases must be (1) a rate of interest over a similar term, and (2) for an amount that is equal to the lease payments. The Company uses both the Federal Reserve Economic Data U.S. corporate debt effective yield and the U.S. Treasury rates adjusted for credit spread as the primary data points for purposes of determining the IBR.
In the first quarter of 2022, the Company entered
into two new long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the Company recognizing
an additional lease liability of $
In the first quarter of 2021, the Company entered
into a long-term, non-cancelable operating lease agreement for office and warehouse space resulting in the Company recognizing an additional
lease liability totaling of $
The Company had another lease that expired in January 2023 and was terminated at that time. The relating right of use asset and lease liability were written off at that time. The company has one further lease that expires in February 2025. The leases generally provide for annual increases based on a fixed amount and generally require the Company to pay real estate taxes, insurance, and repairs.
On September 19, 2024, the Company signed a Termination of Commercial Lease Agreement regarding the lease previously contracted to end in December 2028. The cancelation was effective September 30, 2024. The corresponding ROU asset and lease liability were therefore removed from the Company’s balance sheet effective September 30, 2024.
The following is a summary of total lease costs for the years ending December 31, 2024 and 2023:
| Schedule of lease cost | ||||||||
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease costs | ||||||||
| Variable lease costs | ||||||||
| Sublease income | ( | ) | ( | ) | ||||
| Total lease costs | $ | $ | ||||||
F-19
The weighted-average remaining lease term was
The total lease liability as of December 31, 2024
and 2023 was $
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2024, for years ending December 31:
| Schedule of future minimum lease payment | ||
| Total | ||
| 2025 | $ | |
| 2026 | ||
| 2027 | ||
| 2028 | ||
| 2029 | ||
| Thereafter | ||
| Total future minimum lease payments | ||
| Less imputed interest | ( |
|
| Total | $ | |
| Current lease liability | $ | |
| Noncurrent lease liability | ||
| Total | $ | |
Subleases
As of December 31, 2024, the Company subleases office
and warehouse space under one of its existing operating leases with similar terms as the Company’s lease agreements. Two additional
leases ended in February, 2023. Because the Company is not relieved of its primary obligations under the original lease, the Company accounts
for the subleases as a lessor. Sublease rental income is recorded based on the contractual rental payments which are not substantially
different from recognition on a straight-line basis over the lease term and totaled $
The total future minimum sublease payments are $
Litigation
The Company may be involved from time to time in litigation or claims arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be determined with certainty, the Company believes that the resolution of any such matters will not likely have a material adverse effect on the Company’s financial statements.
On November 22, 2022, the Company received
notice of a complaint (the “Complaint”) filed against it in Oregon state court by Ravi Sinha. The Complaint alleged, inter
alia, that
F-20
On May 2, 2024,
the Company entered into a Settlement and Mutual Release with Alexander Capital L.P. (“Alexander”), pursuant to which the
parties resolved certain disputes while not admitting any liability or wrongdoing (the “Settlement Agreement”).
On July 1, 2024,
the Company entered into a Mutual Termination Agreement with Alexander (the “Termination Agreement”), pursuant to which the
parties agreed to terminate a certain provision in that certain underwriting agreement, dated March 31, 2022, between the Company and
Alexander, as representative of the underwriters, which granted Alexander a right of first refusal to act as the Company’s financial
advisor, book-runner, book-running manager, manager, placement agent, or underwriter in connection with any transaction contemplated or
consummated by us (the “ROFR Provision”). In exchange for the termination of the ROFR Provision, and in connection with the
closing of the 2024 Public Offering, the Company made a cash payment to Alexander in the amount of $
Nasdaq Listing Requirement
On September 6, 2024, the Company received a staff determination from The Nasdaq Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) to delist the Company’s common stock from The Nasdaq Capital Market indicating that (i) the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for the Company’s common stock had closed below $1.00 for the previous 30 consecutive business days, and (ii) the Company is subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) because, as of September 5, 2024, the Company’s common stock had a closing bid price of $0.10 or less for at least ten consecutive trading days (the “Staff Determination”).
On September 12, 2024, the Company requested an appeal hearing on the Staff Determination from a Hearings Panel (the “Panel”) by filing a hearing request with Nasdaq pursuant to the procedures set forth in the Nasdaq Listing Rules, staying the delisting of the common stock pending the Panel’s decision.
Upon successful completion of the Reverse Stock Split, the Company received a letter from the Nasdaq Office of General Counsel on October 23, 2024, advising the Company that it had regained compliance with the minimum bid price continued listing requirements in Listing Rule 5550(a)(2) and that the Company is therefore in compliance with Nasdaq’s listing requirements. Consequently, the scheduled hearing before the Panel on October 24, 2024, was cancelled. The Company’s common stock continues to be listed and traded on The Nasdaq Capital Market.
See Note 14 – “Subsequent Events” in this Quarterly Report for additional information about the Reverse Stock Split and the Nasdaq Listing Requirement.
9. Stockholders’ Equity
The Company is authorized to issue an aggregate of
As of December 31, 2024, of the
Prior to the Company’s payoff of the 3i Note
in connection with the closing of the August 2024 Public Offering, the Company had issued shares of common stock for the payment of
$
F-21
On May 2, 2024, at the closing price of $ per
share, the Company agreed to issue shares of common stock valued at $
On March 31, 2023, at the closing price of $
per share, the Company issued shares of common as part of a settlement agreement for a total value of $
On January 16, 2023, at the closing price of $
per share, the Company issued shares of common stock for stock-based compensation that had been accrued in 2023, for a total value
of $
As of December 31, 2024 and December 31, 2023, and shares, respectively, of common stock were issued and outstanding. No shares of preferred stock have been issued.
A holder of common stock is entitled to one vote for each share of common stock. The holders of common stock have no conversion, redemption or preemptive rights and shall be entitled to receive dividends when, as, and if declared by the board of directors. Upon dissolution, liquidation, or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, subject to the rights, if any, of the holders of any class or series stock having a preference over the right to participate with common stock with respect to the distribution of assets of the Company upon such dissolution, liquidation, or winding up of the Company, the holders of common stock shall be entitled to receive the remaining assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares of common stock held.
Since no shares of preferred stock have been issued, no rights and privileges of preferred stockholders have been defined.
Initial Public Offering
On April 1, 2022, the Company completed an initial
public offering (“IPO”). A total of shares of common stock were sold at $ per share in the IPO, for total gross
proceeds of $
Warrants/Options
During the year ended December 31, 2023,
During the year ended December 31, 2023,
On August 10, 2023,
As part of a settlement agreement on May 2, 2024,
the Company agreed to modify the exercise price of
F-22
As of December 31, 2024 and December 31, 2023, a total
of
Below is a summary of warrants and stock options issued and outstanding as of December 31, 2024:
| Schedule of various warrants/options issued and outstanding | ||||||||||||||
| Number of Warrants | Issuable Shares | Exercise Price per share | Weighted Average Remaining Life (Years) | |||||||||||
| (1) | $ | N/A | (3) | |||||||||||
| (2) | $ | |||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| (1) |
| (2) | ||
| (3) | Series B warrants do not have an expiration date. |
Equity Plans
As of December 31, 2024, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan and the 2021 Employee Stock Purchase Plan.
During the year ended December 31, 2024, the Company
granted RSUs, granted options, and canceled options (post-Reverse Stock Split) under the 2021 Incentive Award Plan. The
compensation costs that have been charged against operations were $
No shares have been issued to date under the 2021 Employee Stock Purchase Plan.
2021 Incentive Award Plan
The purpose of the Company’s 2021 Incentive Award Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities. Various stock-based awards may be granted under the 2021 Incentive Award Plan to eligible employees, consultants, and non-employee directors. The number of shares issued under the 2021 Incentive Award Plan is subject to limits and is adjusted annually. No more than 1,000,000 shares may be issued pursuant to the exercise of incentive stock options. The aggregate share limit will be subject to an annual increase on the first day of each calendar year ending on and including January 1, 2031, by a number of shares equal to the lesser of (i) a number equal to 5% of the aggregate number of shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the Company's board or committee. As of December 31, 2024, the aggregate number of shares that can be issued under the 2021 Incentive Award Plan is , of which options and RSUs have been granted. The number of shares granted, the exercise price, and the terms will be determined at date of grant; however, the exercise price shall not be less than 100% of the fair value on the grant date (110% for options granted to greater than 10% stockholders, except for options granted to Mr. Yozamp in August 2023, which were at 100%) and the term shall not exceed ten years.
F-23
2021 Employee Stock Purchase Plan
The purpose of the Company’s 2021 Employee Stock Purchase Plan is to assist eligible employees of the Company in acquiring a stock ownership in the Company and to help such employees provide for their future security and to encourage them to remain in the employment of the Company. The 2021 Employee Stock Purchase Plan consists of a Section 423 Component and Non-Section 423 Component. The Section 423 Component is intended to qualify as an employee stock purchase plan and also authorizes the grant of options. Options granted under the Non-Section 423 Component shall be granted pursuant to separate offerings containing sub-plans. The Company may make one or more offerings under the 2021 Employee Stock Purchase Plan. The duration and timing of each offering period may be established or changed by the board, but in no event may an offering period exceed 27 months and in no event may the purchase period for the option exceed the duration of the offering period under which it is established. On each exercise date for an offering period, each participant shall automatically be deemed to have exercised the option to purchase the largest number of whole shares which can be purchased under the offering. Option awards are generally granted with an exercise price equal to 85% of the lesser of the fair market value of a share on (a) the applicable grant date and (b) the applicable exercise date, or such other price as designated by the administrator, provided that in no event shall the option price be less that the per share par value price. The maximum number of shares granted under the 2021 Employee Stock Purchase Plan shall not exceed shares.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon similar traded companies’ historical share price movements as adequate historical experience is not available to provide a reasonable estimate. Expected term is calculated based on the simplified method as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is calculated based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and have no foreseeable plans to pay dividends.
The Company has computed the fair value of the options granted during the year ended December 31, 2023 using the following assumptions:
| Schedule of fair value of assumptions | ||||
| Expected volatility | % | |||
| Expected dividends | ||||
| Expected term (in years) | ||||
| Risk free rate | % | |||
The Company has computed the fair value of the options granted during the year ended December 31, 2023 using the following assumptions:
| Expected volatility | % | |||
| Expected dividends | ||||
| Expected term (in years) | ||||
| Risk free rate | % | |||
F-24
The following table summarizes the Company’s stock option activity under the 2021 Incentive Award Plan:
| Schedule of stock option activity | |||||||||||||||
| (in thousands except number of options and per options data) | Number of options | Weighted average exercise price | Weighted average remaining contractual term (in years) | Aggregate intrinsic value | |||||||||||
| Outstanding at beginning of period | $ | — | $ | ||||||||||||
| Granted | — | ||||||||||||||
| Exercised | — | — | — | ||||||||||||
| Canceled | — | — | |||||||||||||
| Outstanding at end of period | $ | $ | |||||||||||||
| Exercisable at end of period | $ | $ |
During the years ended December 31, 2024 and 2023,
the weighted-average grant-date fair value of the options granted to employees and non-employees was $ and $, respectively.
Unrecognized compensation expense related to employees and non-employees was $
The following table summarizes the Company’s RSU activity under the 2021 Incentive Award Plan:
| Schedule of RSU activity | |||||||||
| (in thousands except number of options and per options data) | Number of restricted stock awards | Weighted average grant-date fair value | |||||||
| Nonvested at beginning of year | $ | ||||||||
| Granted | |||||||||
| Vested | |||||||||
| Forfeited | |||||||||
| Nonvested at end of year | $ |
There was no unrecognized compensation cost related to non-vested RSUs as of December 31, 2024.
Common Stock Reserved for Future Issuance
The following is a summary of common stock shares reserved for future issuance as of December 31, 2024:
| Schedule of common stock shares reserved for future issuance | ||||
| Exercise of warrants | ||||
| Exercise of stock options – 2021 Incentive Award Plan | ||||
| Exercise of restricted stock units – 2021 Incentive Award Plan | ||||
| Exercise of Series A warrants | ||||
| Exercise of Series B warrants | ||||
| Total shares of common stock reserved for future issuances |
10. Segment Reporting
The Company focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), marine applications and home energy storage products with plans to expand into industrial applications. We sell to wholesalers, distributors, and OEMs, as well as directly to consumers, and cannot always determine which application our batteries are ultimately used in.
F-25
The accounting policies for this segment aligns with those outlined in the summary of significant accounting policies. The Chief Executive Officer is the Chief Operating Decision Maker (CODM) and assesses the performance of this segment and allocates resources based on net income or loss, which is reflected on the Statements of Operations, and the measure of segment assets is represented as total assets on the Balance Sheet, included in the Financial Statements section of this Annual Report.
The CODM evaluates the net income or loss from our one reportable segment. Net income or loss is also utilized to monitor the difference between budgeted and actual results, offering insights into financial performance and guiding any necessary corrective actions. Additionally, the CODM employs net income or loss for competitive analysis by comparing its financial performance with other competitors in the Energy Storage (ES) space.
The Company does not engage in any intra-entity sales or transfers.
The Company has identified one reportable segment: Energy Storage (ES). This segment generates revenue in North America, and the Company manages its product sales and associated expenses on a total basis.
11. Income Taxes
Our losses before income taxes for the years ended December 31, 2024 and 2023 were generated primarily from U.S. operations.
We have no current or deferred provision for income taxes from continuing operations for the years ended December 31, 2024 and 2023.
The significant differences between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows:
| Schedule of income before income tax, domestic and foreign | ||||||||
| Years Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Federal statutory tax rate | ( | ) | % | ( | )% | |||
| State taxes, net of federal tax benefit | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| NQSO Comp – Other | ||||||||
| EQ Comp – Other | ||||||||
| True-up Adjustment | ||||||||
| Effective tax rate | % | % | ||||||
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. Significant components of the Company’s deferred tax assets and liabilities are as follows for the year ended December 31, 2024 and 2023.
Deferred income tax assets and liabilities consist of the following:
| Schedule of components of income tax expense | ||||||||
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net Operating Losses | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Depreciation | ||||||||
| Other | ||||||||
| Subtotal | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax liabilities: | — | — | ||||||
| Net deferred tax asset | $ | $ | ||||||
F-26
For financial reporting purposes, the Company incurred
losses for the year ended December 31, 2024 and December 31, 2023 and for each period since inception. Accordingly,
Accrued income taxes as of the end of each year as follows:
| Schedule of accrued income taxes | ||||||||
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State Franchise Fees | ||||||||
A reconciliation between the amount of income tax benefit determined by applying the U.S statutory income tax rate to pre-tax loss is as follows:
| Summary of operating loss carryforward | ||||||||
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Income tax provision at federal statutory rate | $ | ( | ) | $ | ( | ) | ||
| State taxes | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Penalties and Fines | ||||||||
| Other | ||||||||
| Valuation allowance | ||||||||
| Net deferred tax asset | $ | $ | ||||||
Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes penalties and interest, for the year ended December 31, 2024 is zero.
The Company is subject to taxation in the United States and Oregon. There are no ongoing examinations by taxing authorities at this time. The Company’s various tax years 2018 through 2024 remain open for examination by various taxing jurisdictions.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024, the Company has not accrued any penalties or interest related to uncertain tax positions.
In anticipation of an initial public offering, the Company converted from a limited liability company to a C corporation, a taxable entity, effective November 1, 2021.
For the year ended December 31, 2023, the Company
accrued $
Since converting to a C corporation, the Company has
incurred losses and consequently recorded no provision for state or federal income taxes for the years ended December 31, 2024 and 2023.
The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded that it is more likely than not that
these assets will not be realized. As of December 31, 2024 and December 31, 2023, there were
F-27
12. 401(k) Plan
The Company adopted a 401(k) Plan (“Plan”) for the benefit of its employees. Employees may contribute to the Plan within defined limits as defined by the Internal Revenue Service. Substantially all employees are eligible to participate. The Company has the option to make profit sharing contributions at its discretion. No profit-sharing contributions have been made.
13. Related-Party Transactions
As of December 31, 2023, related party transactions consisted of the Notes (see Note 6, Stockholder Promissory Notes).
As of December 31, 2024, there were
14. Subsequent Events
January 2025 Registered Direct Offering and Warrant Private Placement
On January 3, 2025, the Company
sold to certain institutional investors, in a registered direct offering, an aggregate of
In a concurrent private placement
that closed January 3, 2025, the Company also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”)
to purchase up to an aggregate of shares of common stock (the “January 2025 Warrant Shares”) at an exercise price
of $
The Company received net proceeds of approximately
$
F-28
Exhibit 4.4
DESCRIPTION OF CAPITAL STOCK
Expion360 Inc. (the "Company,” “Expion360,” “we,” “us,” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: the Company’s common stock, par value $0.001 per share (the “Common Stock”).
The following description of our capital stock is a summary of the rights of our capital stock and summarizes certain provisions of our Articles of Incorporation and our Amended and Restated Bylaws (“Bylaws”). This summary does not purport to be complete and is qualified in its entirety by the provisions of our Articles of Incorporation and Bylaws, copies of which have been filed as exhibits to this Annual Report on Form 10-K, as well as to the applicable provisions of Nevada law.
Common Stock and Preferred Stock
Our authorized capital stock consists of 200,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, par value $0.001 per share.
The holders of our Common Stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our Common Stock do not have any cumulative voting rights. Holders of our Common Stock are entitled to receive ratably any dividends declared by the board of directors (“Board”) out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Our Common Stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions. We currently do not have any shares of, or securities convertible into, preferred stock outstanding.
In the event of our liquidation, dissolution or winding up, holders of our Common Stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock.
Warrants
$290.00 Warrants
On November 9, 2021, the Company issued warrants to purchase 151 of shares of the Company’s Common Stock with an exercise price of $290.00 per share (the “$290.00 Warrants”) (post-Reverse Stock Split). The $290.00 Warrants are exercisable for a period of three years from date of grant. If holders of the $290.00 Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their $290.00 Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the difference between the “fair market value” (defined below) multiplied by the number of shares underlying such holder’s $290.00 Warrants and the exercise price multiplied by the number of shares underlying such holder’s $290.00 Warrants by (y) the fair market value. The “fair market value” shall mean the prior five-day average closing price of the Common Stock on the date on which the holder elects to exercise their $290.00 Warrants. The $290.00 Warrants have certain adjustment rights upon certain events. As of December 31, 2024, all of the $290.00 Warrants have either been exercised or have expired, and no $290.00 Warrants remain outstanding.
$332.00 Warrants
On November 22, 2021, the Company issued warrants to purchase 5,602 shares of the Company’s Common Stock at an exercise price of $332.00 per share (the “$332.00 Warrants”) (post-Reverse Stock Split). The $332.00 Warrants are exercisable for a period of ten years from date of grant. If holders of the $332.00 Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their $332.00 Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the difference between the “fair market value” (defined below) multiplied by the number of shares underlying such holder’s $332.00 Warrants and the exercise price multiplied by the number of shares underlying such holder’s $332.00 Warrants by (y) the fair market value. The “fair market value” shall mean the volume weighted average of the closing sales price of the Common Stock averaged over 20 consecutive trading days ending on the trading day prior to the date on which “fair market value” is determined. The $332.00 Warrants have certain adjustment rights upon certain events. The Company is required to cause a registration statement registering the resale of the shares of our Common Stock issuable upon exercise of the $332.00 Warrants to become effective in connection with its initial public offering. As of the date of this Annual Report on Form 10-K, the Company has an effective registration statement which satisfies this requirement.
Underwriter Warrants
Concurrent with the closing of the initial public offering, the Company issued warrants to purchase an aggregate of 1,490 shares of its Common Stock to Alexander Capital LP and Paulson Investment Company LLC (as apportioned in accordance with agreements amongst them), or their designees, at an exercise price of $910.00 per share (the “Underwriter Warrants”) (post-Reverse Stock Split). On May 2, 2024, the Company entered into amendments to certain of the Underwriter Warrants to purchase an aggregate of 891 shares to reduce the exercise price from $910.00 to $450.00 per share (post-Reverse Stock Split). The Underwriter Warrants are initially exercisable on September 27, 2022 and expire on March 31, 2027.
If there is not an effective registration statement registering the resale of the shares of Common Stock issuable upon exercise of the Underwriter Warrants, holders of the Underwriter Warrants may elect to exercise them on a cashless basis and pay the exercise price by surrendering their Underwriter Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Underwriter Warrants, multiplied by the difference between (i) the daily volume weighted average price of the Common Stock on the trading day immediately preceding the date of the exercise notice or on the date of the exercise notice (if delivered after regular trading hours) and (ii) the exercise price of the Underwriter Warrants and by (y) the daily volume weighted average price of the Common Stock on the trading day immediately preceding the date of the exercise notice or on the date of the exercise notice (if delivered after regular trading hours). If the Company does not deliver Common Stock to a holder upon such holder’s exercise of their Underwriter Warrants in compliance with the timing set out in the Underwriter Warrants, the Company will have to pay cash to such holder in accordance with the terms of the Underwriter Warrants. The Underwriter Warrants include anti-dilution provisions (for stock dividends, splits and recapitalizations and similar transactions), which results in the adjustment of the exercise price and entitles holders of the Underwriter Warrants to participate in subsequent rights offerings or distributions to holders of the Company’s Common Stock, as applicable. The Underwriter Warrants also have certain adjustment rights upon certain events. Further, the Underwriter Warrants provide for a one-time demand registration right, exercisable until March 31, 2027 and unlimited piggyback rights, exercisable until September 27, 2024.
August 2024 Warrants
On August 8, 2024, the Company sold in a public offering, (i) 33,402,000 common units (the “Common Units”), each consisting of one share of Common Stock, two Series A warrants each to purchase one share of Common Stock (each,
a “Series A Warrant”) and one Series B warrant to purchase such number of shares of Common Stock as determined in the Series B warrant (each, a “Series B Warrant”), and (ii) 16,598,000 pre-funded units (the “Pre-Funded Units,” and together with the Common Units, the “Units”), each consisting of one pre-funded warrant to purchase one share of Common Stock (each, a “Pre-Funded Warrant”), two Series A Warrants, and one Series B Warrant, through Aegis Capital Corp. (the “Underwriter”) (such transaction, the “August 2024 Public Offering”).
In addition, the Company granted the Underwriter a 45-day option to purchase additional shares of Common Stock and/or Pre-Funded Warrants and/or Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 Public Offering, solely to cover over-allotments, if any. The Underwriter partially exercised its over-allotment option with respect to 15,000,000 Series A Warrants and 7,500,000 Series B Warrants.
The Common Units were sold at a price of $0.20 per unit and the Pre-Funded Warrants were sold at a price of $0.199 per unit.
The Pre-Funded Warrants were immediately exercisable (subject to a beneficial ownership cap) at an exercise price of $0.001 per share and could be exercised at any time until all Pre-Funded Warrants are exercised in full. For each Unit including a Pre-Funded Warrant (without regard to any limitation on exercise set forth therein), the number of Units including a Share were offered decreased on a one-for-one basis. All Pre-Funded Warrants have been exercised.
Each Series A Warrant was exercisable at any time or times beginning on the first trading day following the Company’s notice to the Series A Warrant holders of Stockholder Approval (defined below), and will expire five years from such date. Each Series A Warrant is exercisable at an initial exercise price of $24.00 per share of Common Stock (post-Reverse Stock Split). On the 11th trading day after Stockholder Approval, the Series A Warrants’ exercise price will be reset to a price equal to the lower of (i) the exercise price then in effect and (ii) the greater of (a) the lowest daily weighted average price during the period commencing on the first trading day after the date of Stockholder Approval and ending following the close of trading on the tenth trading day thereafter and (b) a floor price determined in accordance with the terms of the Series A Warrants, and the number of shares issuable upon exercise will be increased such that the aggregate exercise price of the Series Warrant on the issuance date for the warrant shares then outstanding shall remain unchanged following such reset. Also after Stockholder Approval, the exercise price of the Series A Warrants will be reduced (such reduced price, the “Adjusted Exercise Price”) to a price equal to the lesser of (i) the exercise price then in effect and (ii) the lowest daily volume weighted average price during the period commencing five consecutive trading days immediately preceding through the five consecutive trading days commencing on the date the Company effects any share split, share dividend, share combination recapitalization or other similar transaction (which would include reverse stock splits) in the future (subject to a floor price determined in accordance with the terms of the Series A Warrants and the Nasdaq Listing Rules (the “Floor Price”)), with a proportionate adjustment to the number of shares underlying the Series A Warrants. Furthermore, if the Adjusted Exercise Price would have been below the Floor Price but for the Floor Price limitation, then the Company will make a payment to the Series A Warrant holder for the economic difference between the Adjusted Exercise Price and the Floor Price, subject to the exceptions and conditions set forth in the Series A Warrants. Finally, beginning on the date of Stockholder Approval, with certain exceptions, the Series A Warrants will provide for an adjustment to the exercise price and number of shares underlying the Series A Warrants upon the Company’s issuance of Common Stock or Common Stock equivalents at a price per share that is less than the exercise price of the Series A Warrants. As of December 31, 2024, 14,900 shares of Common Stock have been issued upon exercise of Series A Warrants and 5,286,692 shares of Common Stock remain issuable upon exercise of Series A Warrants.
Each Series B Warrant was exercisable immediately upon issuance at an exercise price of $0.10 per share. The number of shares of Common Stock issuable under the Series B Warrants are subject to adjustment using a reset price based on the weighted average price of common stock over a rolling five-trading-day period between the issuance date of the Series B Warrants and the close of trading on the tenth trading day following stockholder approval, subject to certain floor prices. As of December 31, 2024, 87,384 shares of Common Stock remain issuable upon exercise of Series B Warrants using the reset price, which was reduced to the floor price of $5.206 (post-Reverse Stock Split).
January 2025 Warrants
On January 3, 2025, the Company issued pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of Common Stock (the “Pre-Funded Warrant Shares”) to certain institutional investors. The offering price per Pre-Funded Warrant was $2.479. Each Pre-Funded Warrant is exercisable for one share of Common Stock for $0.001 immediately upon issuance and the January 2025 Pre-Funded Warrants were all exercised immediately upon issuance.
The Company also issued Common Warrants to purchase up to an aggregate of 1,048,386 shares of Common Stock to the selling stockholders. Each Common Warrant was exercised in full for one share of Common Stock at an exercise price of $2.36 per share.
Options
Prior to our initial public offering, we issued options to purchase 300 shares of Common Stock granted to one individual which had an exercise price of $332.00 (post-Reverse Stock Split).
Anti-Takeover Effects of Provisions of Our Charter Documents
The provisions of Nevada law and our bylaws may have the effect of delaying, deferring or preventing another party from acquiring control of the company. These provisions may discourage and prevent coercive takeover practices and inadequate takeover bids.
Nevada Law
Nevada law contains a provision governing “acquisition of controlling interest.” This law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights in whole or in part. The control share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that, but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges: 20 to 33-1/3%; 33-1/3 to 50%; or more than 50%.
Our Articles of Incorporation include a mandatory forum provision that, to the fullest extent permitted by law, the Nevada Eighth Judicial District of Clark County Nevada shall be the sole and exclusive forum for: (a) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (b) any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company's stockholders, (c) any action arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92Aor any provision of the Articles of Incorporation or Bylaws, (d) any action to interpret, apply, enforce or determine the validity of the Articles of Incorporation or Bylaws or (e) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or rules and regulations thereunder and would preempt the choice of forum provisions in our Articles of Incorporation with respect to such matters.
A “control share acquisition” is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control shares. The stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from the provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our Common Stock from the control share acquisition act.
The control share acquisition act is applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An Issuing Corporation is a Nevada corporation which: (i) has 200 or more stockholders, with at least 100 of such stockholders being both stockholders of record and residents of Nevada, and (ii) does business in Nevada directly or through an affiliated corporation.
At this time, we do not believe we have 100 stockholders of record resident of Nevada and we do not conduct business in Nevada directly. Therefore, the provisions of the control share acquisition act are believed not to apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control of us, regardless of whether such acquisition may be in the interest of our stockholders.
The Nevada “Combination with Interested Stockholders Statute” may also have an effect of delaying or making it more difficult to effect a change in control of us. This statute prevents an “interested stockholder” and a resident domestic Nevada corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination” to include any merger or consolidation with an “interested stockholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an “interested stockholder” having (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (iii) representing 10% or more of the earning power or net income of the corporation.
An “interested stockholder” means the beneficial owner of 10% or more of the voting shares of a resident domestic corporation, or an affiliate or associate thereof. A corporation affected by the statute may not engage in a “combination” within three years after the interested stockholder acquires its shares unless the combination or purchase is approved by the Board before the interested stockholder acquired such shares. If approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the Board or a majority of the voting power held by disinterested stockholders, or if the consideration to be paid by the interested stockholder is at least equal to the highest of: (i) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became an interested stockholder, whichever is higher, (ii) the market value per common share on the date of announcement of the combination or the date the interested stockholder acquired the shares, whichever is higher, or (iii) if higher for the holders of preferred stock, the highest liquidation value of the preferred stock.
Articles of Incorporation and Bylaws
Our Articles of Incorporation are silent as to cumulative voting rights in the election of our directors. Nevada law requires the existence of cumulative voting rights to be provided for by a corporation’s articles of incorporation. In the event that a few stockholders end up owning a significant portion of our issued and outstanding Common Stock, the lack of cumulative voting would make it more difficult for other stockholders to replace our Board or for a third party to obtain control of us by replacing our Board. Our Articles of Incorporation and Bylaws do not contain any explicit provisions that would have an effect of delaying, deferring or preventing a change in control of us.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Pacific Stock Transfer Company. Pacific Stock Transfer Company’s address and phone number is: 6725 Via Austi Pkwy, Suite 300, Las Vegas, Nevada 89119; telephone number (800) 785-7782.
Listing
Our Common Stock has been traded on Nasdaq under the symbol “XPON” since April 1, 2022.
Exhibit 19.1
Insider Trading Policy
1. General Purpose
Federal securities laws prohibit the purchase or sale of securities by persons who are aware of material nonpublic information about a company, as well as the disclosure of material, non-public information about a company to others who then trade in the company's securities. These transactions are commonly known as "insider trading".
Insider trading violations are heavily pursued by the Securities and Exchange Commission and the U.S. Attorney General's Offices and are punished. While the regulatory authorities concentrate their efforts on individuals who trade, or who provide inside information to others who trade, the Federal securities laws also impose potential liability on companies and other "controlling persons" if they fail to take reasonable steps to prevent insider trading by company personnel.
The Board of Directors of Expion360 Inc., a Nevada corporation (the "Company"), has adopted this Insider Trading Policy (the "Policy") both to satisfy the Company's obligation to prevent insider trading and to help the Company's personnel avoid the consequences associated with violations of the insider trading laws.
This Policy is also intended to prevent even the appearance of improper conduct on the part of anyone employed by or associated with the Company, not just so-called "insiders." Everyone within the Company has worked very hard to establish the Company as a company known for integrity and ethical conduct, and the Company cannot afford to have that reputation damaged.
A copy of this Policy is to be delivered to all current and new employees and consultants upon the commencement of their relationships with the Company.
2. Persons Covered
This Policy applies to and refers to an "insider" and we wish to define it herein. Insiders of the Company are defined as (a) members of our Board of Directors, corporate officers and employees; (b) consultants to the Company or other persons associated with the Company and/or its subsidiaries, including distributors, sales agents or other partners that may, in the course of their work with the Company, receive access to confidential, material non-public information; and (c) household and immediate family members of those listed in (a) and (b) above.
3. Definitions
A) Material non-public information: Material non-public information is defined to be information that is not known to persons outside the immediate company that could be relied upon or considered significant to an investor making a decision to buy or sell the Company's securities. It is currently very difficult to define each and every category under this heading. However, any information that should be considered sensitive and nonpublic material includes but is not limited to the following:
i) Financial results;
ii) Future Earnings or Losses;
iii) News of a pending or proposed sale, merger or acquisition;
iv) Acquisitions, Mergers or Divestitures;
v) Impending bankruptcy or financial liquidity problems;
vi) Major changes in senior management;
vii) Stock dividends or splits;
viii) New equity or debt offerings;
ix) Large contracts in a pending status or in discussion.
Remember, anyone who is reviewing your securities transactions will be doing so after the fact, with the benefit of hindsight. As such, before engaging in any transaction, you should carefully consider how the others might view the transaction.
B) Black-Out Periods: A "Black-Out Period" is a time before and after a significant event wherein an insider may not buy or sell the Company's securities without violating this Policy.
There are four Black-Out Periods for insiders of the Company. These Black-Out Periods begin twenty (20) days prior to the release of financial results for the periods ending March 31, June 30, September 30, and December 31. These Black-Out Periods end three (3) full trading days after the financial results have been announced for the preceding period.
Additional Black-Out Periods may occur when other material events occur, such as a press release sent out to the public, wherein only a select few persons have knowledge of the event. If you are one of these individuals, or if it would appear to an outsider that you were likely to have had access to such information related to the event, then you will not be allowed to purchase or sell the Company's securities so long as the event remains non-public information and for three full trading days after the release of the previous nonpublic information.
Also, the Company may occasionally issue interim earnings guidance or other potentially material information by filing with the Securities and Exchange Commission a Form 8-K or by other means designed to achieve widespread dissemination of the information. You should anticipate that trades are unlikely to be pre-cleared while the Company is in the process of assembling the information to be released and until the information has been released and fully absorbed by the public market which should take a minimum of three business days. The existence of an additional Black-Out Period will not be announced. If you request pre-clearance of a transaction in the Company's securities during an additional Black-Out Period, you will be informed of the existence of a Black-Out Period, but you may not be advised of the reason for the Black-Out Period.
If you are made aware of the existence of an additional Black-Out Period, you should not disclose the existence of the Black-Out Period to any other person. Whether or not you are designated as being subject to an additional Black-Out Period, you still have the obligation not to purchase or sell the Company's securities while you are aware of the material non-public information.
C) Securities: Securities of the Company are defined as common stock, preferred stock, options to purchase stock, warrants, convertible debt and/or derivative securities. These Black-Out Periods may not apply to the exercise of Stock Option Agreements for Rule 144 common stock of the Company that are issued by the Company or other stock issuances approved by the Board of Directors.
4. Policy
| · | No insider may buy or sell the Company's securities at any time when they have material non-public information relating to the Company. |
| · | No insider may buy or sell securities of another company at any time when they have material nonpublic information about that company, including, without limitation, any company that we conduct ordinary business with, such as customers, vendors or suppliers, when that information is obtained during the course of his/her employment with the Company. |
| · | No insider may disclose material non-public information to third parties, to any other person, including family members, or make recommendations or express opinions on the basis of material non-public information with regard to trading securities. |
| · | No insider who receives or has access to our material non-public information may comment on the stock price movement or rumors of other corporate developments that are of possible significance to the investing public, unless it is part of his/her job description (e.g. Investor Relations) or you have been specifically pre-authorized by the Company's CEO or CFO in each instance. |
| · | If you comment on stock price movement or rumors and/or disclose material non-public information, you should immediately contact either the Company's CEO or CFO. |
| · | No insider may buy or sell our securities during any of the four Black-Out Periods that occur each fiscal year or any other Black-Out Period. |
| · | This Policy will continue in effect until the end of the first Black-Out Period after termination of employment or other relationship with the Company. |
5. Special Rules
If a concern or question relating to your status within the Company (insider or not, etc.) should arise, please contact the CEO or CFO.
A) Special Rules applicable to the Board of Directors, those officers of the Company who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (persons subject to reports on Forms 3, 4, and 5), and other employees who may be designated from time to time by the CEO, CFO, Board of Directors, or the Company's legal counsel.
1. In addition to the restrictions related to the trading of the Company's securities as defined in Section 4 above, insiders shall not purchase or sell any of the Company's securities, except:
a. After first consulting with and pre-clearing such transaction with the Company's legal counsel;
b. Only during the period commencing at the opening of the fourth full day after earnings are released with respect to the preceding fiscal quarter and ending twenty (20) days prior to the end of the current fiscal quarter.
2. In addition to the restrictions related to the trading of the Company's securities as defined in Section 4 above, insiders shall:
a. Not engage in short sales of the Company's securities;
b. Not buy or sell put options, call options or other derivatives of the Company's securities.
3. In addition to the restrictions related to the trading of the Company's securities as defined in Section 4 above, insiders shall comply with SEC Rule 1 0b-5 with his/her broker when placing purchase or sales orders of the Company's securities near a Black-Out Period Date.
B) Special Rules applicable to officers of the Company that are not subject to Section 16 of the Exchange Act, and assistants and secretaries of insiders, and certain other employees that may be designated from time to time by the CEO, CFO, Board of Directors or the Company's legal counsel.
1. In addition to the restrictions related to the trading of the Company's securities as defined in Section 4 above, insiders shall not:
a. Purchase or sell any the Company's securities except during the period commencing at the opening of the fourth full day after earnings are released with respect to the preceding fiscal quarter and ending twenty (20) days prior to the end of the current fiscal quarter;
b. Not engage in short sales of the Company's securities.
6. Exceptions to the Policy
The restriction related to the trading of the Company's securities as defined in Section 4 above does not apply to the following item:
A) The exercise of stock options for cash under any equity, pension or stock option plan or any other plan later defined; but it will or may apply to the sale of the shares, since the market price does not affect the exercise price stated in the agreement.
7. Potential Criminal and/or Civil Liability and/or Disciplinary Action
The items set forth in this Policy are to be viewed as guidelines, not as comprehensive coverage of all potential instances. Appropriate judgment should be exercised by each individual in connection with the purchase or sale of securities.
Insiders found liable for insider trading may be subject to criminal penalties of up to $5,000,000 and up to twenty (20) years in jail for trading of securities based on material non-public information. In addition, insiders may also be liable for transactions improperly conducted by any person to whom they have disclosed the material non-public information. The Securities and Exchange Commission has imposed large penalties even when the disclosing person did not profit, directly or indirectly, from the trade(s). There are also civil penalties of up to three times the profit gained or loss avoided that may be imposed.
The Company may also be found liable for insider trading by any insider. The Company may be fined up to $25 million dollars as a criminal penalty, as well as civil penalties of up to $1.0 million or three times the profit gained or loss avoided as a result of the violation.
Furthermore, any employee who is found in violation of this Policy will be subject to disciplinary action, including criminal and civil liability, ineligibility of future participation in equity incentive plans and/or termination of employment.
For all questions or the reporting of any violations, please contact either:
Paul Shoun, 541-797-6714
Brian Schaffner, 541-797-6714
Greg Aydelott, 541-797-6714
Ryan Wilkins, 949-725-4000
Amanda McFall, 949-725-4000
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-272956), the Registration Statement on Form S-1 (No. 333-276663), the Registration Statement on Form S-1 (No. 333-280996), the Registration Statement on Form S-8 (No. 333-278441), and the Registration Statement on Form S-8 (No. 333-268016) of our report dated March 31, 2025, with respect to the consolidated financial statements of Expion360 Inc. included in this Annual Report on Form 10-K for the year ended December 31, 2024.
/s/ M&K CPAS, PLLC
www.mkacpas.com
The Woodlands, Texas
March 31, 2025
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Schaffner, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2024 (the “Report”) of Expion360 Inc. (the “Company”); |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
| d. | Disclosed in this Report any change in the Company’s internal control over financial reporting that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
| Date: March 31, 2025 | /s/ Brian Schaffner |
|
Brian Schaffner Chief Executive Officer and Interim Chief Financial Officer | |
| (Principal Executive, Financial, and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Expion360 Inc. (the “Company”), hereby certifies, that, to his knowledge:
| 1. | The Annual Report on Form 10-K for the year ended December 31, 2024 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 31, 2025 | /s/ Brian Schaffner |
|
Brian Schaffner Chief Executive Officer and Interim Chief Financial Officer | |
| (Principal Executive, Financial, and Accounting Officer) |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.