ITEM 1. FINANCIAL
STATEMENTS
Expion360 Inc.
Balance Sheets
| |
| |
|
| |
March 31, 2023 (unaudited) | |
December 31, 2022 |
Assets | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 5,726,195 | | |
$ | 7,201,244 | |
Accounts receivable, net | |
| 628,762 | | |
| 298,035 | |
Inventory | |
| 3,926,566 | | |
| 4,530,136 | |
Prepaid/in-transit inventory | |
| 1,228,188 | | |
| 141,611 | |
Prepaid expenses and other current assets | |
| 238,783 | | |
| 171,791 | |
Total current assets | |
| 11,748,494 | | |
| 12,342,817 | |
| |
| | | |
| |
|
Property and equipment | |
| 1,403,898 | | |
| 1,394,619 | |
Accumulated depreciation | |
| (298,980 | ) | |
| (250,861 | ) |
Property and equipment, net | |
| 1,104,918 | | |
| 1,143,758 | |
| |
| | | |
| | |
Other Assets | |
| | | |
| | |
Operating leases – right-of-use asset | |
| 3,035,894 | | |
| 3,148,455 | |
Deposits | |
| 58,896 | | |
| 63,901 | |
Total other assets | |
| 3,094,790 | | |
| 3,212,356 | |
Total assets | |
$ | 15,948,202 | | |
$ | 16,698,931 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,126,095 | | |
$ | 230,250 | |
Customer deposits | |
| 208,611 | | |
| 58 | |
Accrued expenses and other current liabilities | |
| 325,802 | | |
| 306,164 | |
Current portion of operating lease liability | |
| 475,738 | | |
| 465,055 | |
Current portion of stockholder promissory notes | |
| 625,000 | | |
| 500,000 | |
Current portion of long-term debt | |
| 53,975 | | |
| 71,426 | |
Total current liabilities | |
| 2,815,221 | | |
| 1,572,953 | |
| |
| | | |
| | |
Long-term debt, net of current portion and discount | |
| 363,646 | | |
| 439,049 | |
Operating lease liability, net of current portion | |
| 2,638,181 | | |
| 2,754,964 | |
Stockholder promissory notes, net of current portion | |
| 200,000 | | |
| 325,000 | |
Total liabilities | |
$ | 6,017,048 | | |
$ | 5,091,966 | |
| |
| | | |
| | |
(continued on next page)
Expion360 Inc.
Balance Sheets
– Continued
| |
March 31, 2023 (unaudited) | |
December 31, 2022 |
Stockholders’ equity | |
| | | |
| | |
Preferred stock, par value $.001; 20,000,000 shares authorized; zero
shares issued and outstanding | |
| — | | |
| — | |
Common stock, par value $.001; 200,000,000 shares authorized; 6,900,566 and 6,802,464 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | |
| 6,901 | | |
| 6,802 | |
Additional paid-in capital | |
| 25,541,022 | | |
| 25,239,654 | |
Accumulated deficit | |
| (15,616,769 | ) | |
| (13,639,491 | ) |
Total stockholders’ equity | |
| 9,931,154 | | |
| 11,606,965 | |
Total liabilities and stockholders’ equity | |
$ | 15,948,202 | | |
$ | 16,698,931 | |
The accompanying notes are an integral
part of these financial statements
Expion360 Inc.
Statements of Operations
(Unaudited)
| |
| |
|
For the Three Months Ended March 31, | |
2023 | |
2022 |
Sales, net | |
$ | 1,507,177 | | |
$ | 2,155,345 | |
Cost of sales | |
| 1,063,730 | | |
| 1,293,490 | |
Gross profit | |
| 443,447 | | |
| 861,855 | |
Selling, general and administrative | |
| 2,120,894 | | |
| 1,196,376 | |
Loss from operations | |
| (1,677,447 | ) | |
| (334,521 | ) |
| |
| | | |
| | |
Other (Income) | |
| | | |
| | |
Interest income | |
| (20,133 | ) | |
| — | |
Interest expense | |
| 38,178 | | |
| 362,114 | |
Settlement expense | |
| 281,680 | | |
| — | |
Other expense | |
| 106 | | |
| 68 | |
Total other expense | |
| 299,831 | | |
| 362,182 | |
| |
| | | |
| | |
Franchise taxes | |
| — | | |
| 150 | |
Net loss | |
$ | (1,977,278 | ) | |
$ | (696,853 | ) |
| |
| | | |
| | |
Net loss per share (basic and diluted) | |
$ | (0.29 | ) | |
$ | (0.16 | ) |
Weighted-average number of common shares outstanding | |
| 6,815,002 | | |
| 4,300,000 | |
The accompanying notes are an integral
part of these financial statements
Expion360 Inc.
Statements of Stockholders’
Equity (Deficit) for Three Months ended March 31, 2023 and 2022 (Unaudited)
| |
| |
|
|
|
| | |
| | | |
| | | |
| | |
| |
| Common
Stock | | |
| | | |
| | | |
| | |
| |
| Shares | | |
| Amount | | |
| Additional
Paid-in Capital | | |
| Accumulated
Deficit | | |
| Total
Stock-holders’ Equity (Deficit) | |
Balance at December
31, 2021 | |
| 4,300,000 | | |
$ | 4,300 | | |
$ | 8,355,140 | | |
$ | (6,102,951 | ) | |
$ | 2,256,489 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (696,853 | ) | |
| (696,853 | ) |
Balance
at March 31, 2022 | |
| 4,300,000 | | |
$ | 4,300 | | |
$ | 8,355,140 | | |
$ | (6,799,804 | ) | |
$ | 1,559,636 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2022 | |
| 6,802,464 | | |
$ | 6,802 | | |
$ | 25,239,654 | | |
$ | (13,639,491 | ) | |
$ | 11,606,965 | |
Proceeds received from exercise
of warrants | |
| 46,102 | | |
| 47 | | |
| 49,740 | | |
| — | | |
| 49,787 | |
Stock issued as a result of
litigation settlement | |
| 52,000 | | |
| 52 | | |
| 251,628 | | |
| — | | |
| 251,680 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (1,977,278 | ) | |
| (1,977,278 | ) |
Balance
at March 31, 2023 | |
| 6,900,566 | | |
$ | 6,901 | | |
$ | 25,541,022 | | |
$ | (15,616,769 | ) | |
$ | 9,931,154 | |
The accompanying notes are an integral
part of these financial statements
Expion360 Inc.
Statements of Cash Flows (Unaudited)
| |
|
|
|
|
|
|
| |
For the Three Months Ended March 31, |
| |
2023 | |
2022 |
Cash flows from operating activities | |
| | | |
| | |
| |
| | | |
| | |
Net loss | |
$ | (1,977,278 | ) | |
$ | (696,853 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation | |
| 48,120 | | |
| 29,026 | |
Amortization of debt discount (sale of future revenues) | |
| — | | |
| 295 | |
Amortization of debt discount - notes | |
| — | | |
| 214,527 | |
Decrease in allowance for doubtful accounts | |
| (18,804 | ) | |
| — | |
Stock-based settlement | |
| 251,680 | | |
| — | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
(Increase) / Decrease in accounts receivable | |
| (311,923 | ) | |
| 195,522 | |
(Increase) / Decrease in inventory | |
| 603,570 | | |
| (251,617 | ) |
(Increase) / Decrease in prepaid/in-transit inventory | |
| (1,086,577 | ) | |
| 786,379 | |
Increase in prepaid expenses and other current assets | |
| (66,992 | ) | |
| (23,409 | ) |
Decrease in deposits | |
| 5,005 | | |
| — | |
Increase in accounts payable | |
| 895,845 | | |
| 278,520 | |
Increase / (Decrease) in customer deposits | |
| 208,553 | | |
| (12,663 | ) |
Increase / (Decrease) in accrued expenses and other current liabilities | |
| 19,638 | | |
| (22,088 | ) |
Increase in right-of-use assets and lease liabilities | |
| 6,461 | | |
| 8,789 | |
Net cash provided by / (used in) operating activities | |
| (1,422,702 | ) | |
| 506,428 | |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchases of property and equipment | |
| (9,280 | ) | |
| (32,938 | ) |
Net cash used in investing activities | |
| (9,280 | ) | |
| (32,938 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Increase in deferred IPO costs | |
| — | | |
| (423,634 | ) |
Payments on liability for sale of future revenues | |
| — | | |
| (11,797 | ) |
Principal payments on long-term debt | |
| (92,854 | ) | |
| (11,948 | ) |
Net proceeds from exercise of warrants | |
| 49,787 | | |
| — | |
Net cash used in financing activities | |
| (43,067 | ) | |
| (447,379 | ) |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| (1,475,049 | ) | |
| 26,111 | |
Cash and cash equivalents, beginning | |
| 7,201,244 | | |
| 773,238 | |
Cash and cash equivalents, ending | |
| 5,726,195 | | |
| 799,349 | |
The accompanying notes are an integral
part of these financial statements
Expion360 Inc.
Statements of Cash
Flows (Unaudited) - Continued
| |
For the Three Months Ended March 31, |
Supplemental disclosure of cash flow information: | |
2023 | |
2022 |
Cash paid for interest | |
$ | 38,399 | | |
$ | 119,854 | |
Cash paid for franchise taxes | |
$ | — | | |
$ | 150 | |
| |
| | | |
| | |
Non-cash financing activities: | |
| | | |
| | |
Purchased of property and equipment in exchange for accrued expenses and other current liability | |
$ | — | | |
$ | 148,170 | |
Acquisition/modification of operating lease right-of-use asset and lease liability | |
$ | 13,993 | | |
$ | 2,348,509 | |
The accompanying notes are an integral
part of these 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 common
stock and became shareholders 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.
Beginning
in March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic disrupted and may continue to impact the Company’s
business. While certain restrictions have eased recently, the magnitude of the impact of any new measures from a resurgence in the COVID-19
pandemic on the Company’s productivity, results of operations, and financial position, and its disruption to the Company’s
business and battery development and timeline will depend in part on the length and severity of these restrictions and on the Company’s
ability to conduct business in the ordinary course.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The
accompanying unaudited 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.
Operating
results for the three-month periods ended March 31, 2023 and 2022 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2023. The unaudited interim financial statements should be read in conjunction with our Annual Report
on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023.
Unless
otherwise noted, all references to shares and shareholders in the accompanying financial statements have been restated retrospectively,
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 revenues 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 three months ended March 31, 2023 are issued. However, management is working to address its
cash flow challenges, including raising additional capital, alternative supply chain resources, and in-house assembly lines.
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 the three months ended March 31, 2023 decreased 30.1% compared to the same period in 2022. Through
March 31, 2023, we received net proceeds of $49,787 from warrant exercises. On April 1, 2022, the Company completed an initial public
offering and listing of its shares on the Nasdaq Stock Market (IPO). Proceeds from the IPO, net of costs, totaled $14,772,487, of which
approximately $2,464,000 was used to pay down principal and accrued interest on high interest-bearing debt. The remaining proceeds will
be used, in part, to stock inventory to keep up with demand and to build in-house assembly lines to improve the cash-flow cycle and help
reduce the four-month turnaround that the Company currently experiences from suppliers in China. In the first half of 2022, a distribution
warehouse was set up in Indiana to better service customers throughout the U.S. and an assembly facility was leased in Redmond, Oregon
for future expansion of the in-house assembly lines. Additionally, management has secured a secondary source for lithium iron phosphate
cells used in its batteries that is based in Denmark, should supply disruption issues with China arise. Management believes that these
factors will contribute to achieving operating efficiency and profitability. However, there can be no assurance that the Company will
be successful in achieving its objectives, including achieving operating efficiency and profitability.
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 revenues 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. 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
March 31, 2023, cash balances exceeded FDIC limits by $388,011 and investment accounts totaling $5,019,907 are invested in US Treasury
related ultra-short paper.
The
Company has two accounts at Silicon Valley Bank (SVB). As of March 31, 2023 all funds were transferred to another banking institution
and no exposure currently exists.
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. For the three months
ended March 31, 2023 the Company wrote off $18,804. There was no allowance for doubtful accounts as of March 31, 2023 or December 31,
2022, as management believed all outstanding amounts to be fully collectible.
Customer Deposits
As of March 31, 2023 and December 31,
2022, the Company had customer deposits totaling $208,611 and $58, respectively.
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 March 31, 2023 and December 31, 2022, the Company had inventory that consisted of finished
assemblies totaling $2,153,057 and $2,722,765, respectively, and raw materials (inventory components, parts, and packaging) totaling
$1,773,509 and $1,807,371, respectively. The valuation of inventory includes fixed production overhead costs based on normal capacity
of the assembly warehouse.
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 March 31, 2023 or December 31, 2022. The Company prepays for
inventory purchases from foreign suppliers. Prepaid inventory totaled $1,228,188 and $141,611 at March 31, 2023 and December 31, 2022,
respectively, and included inventory in transit where title had passed to the Company but had not yet been physically received.
Vendor and Foreign
Concentrations of Inventory Suppliers
During
the three months ended March 31, 2023 and 2022, respectively, approximately 86% and 60%, respectively, of inventory purchases were made
from foreign suppliers in China and Hong Kong. Any adverse change in either the economic or political conditions abroad could negatively
impact the Company’s supply chain. The inability to obtain product to meet sales demand could adversely affect results of operations.
However, the Company has secured a secondary source for lithium iron phosphate cells used in its batteries from a supplier in Denmark,
enabling the Company to source materials outside of China in the event it becomes necessary to do so.
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 |
|
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.
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.
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. No long-lived asset impairment was
recognized during the three months ended March 31, 2023 or 2022.
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 March 31, 2023 and December 31, 2022 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.
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 three months ended March 31, 2023, sales to two customers totaled $381,048, comprising approximately 25% of total sales. These customers
represented 43% of total accounts receivable as of March 31, 2023. Accounts receivable from one additional customer totaled $72,184,
representing approximately 12% of total accounts receivable as of March 31, 2023.
During
the three months ended March 31, 2022, sales to one customer totaled $896,984, comprising approximately 42% of total sales. Accounts
receivable for this customer totaled $114,674, representing approximately 20% of total accounts receivable as of March 31, 2022. Accounts
receivable from two additional customers totaled $151,494 and $73,065, representing in aggregate approximately 39% of total accounts
receivable as of March 31, 2022.
Shipping and Handling
Costs
Shipping
and handling fees billed to customers are classified on the Statement of Operations as “Sales, net” and totaled $9,532 and
$4,151 during the three months ended March 31, 2023 and 2022, respectively. Shipping and handling costs for shipping product to customers
totaled $43,208 and $38,724 during the three months ended March 31, 2023 and 2022, respectively, and are classified in selling, general,
and administrative expense in the accompanying Statements of Operations.
Advertising and
Marketing Costs
The
Company expenses advertising and marketing costs as incurred. Advertising and marketing expense totaled $155,159 and $160,038 for the
three months ended March 31, 2023 and 2022, respectively, and is included in selling, general and administrative expense in the accompanying
Statements of Operations.
Research and Development
Research
and development costs are expensed as incurred. Research and development costs charged to expense amounted to $77,180 and $5,316 for
the three months ended March 31, 2023 and 2022, and are included in selling, general and administrative expenses in the accompanying
Statements of Operations.
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 (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 March 31, 2023 and December 31, 2022, 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 (“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 2023 and beyond.
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, shareholder 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 shareholder 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.
Segment Reporting
The
Company currently operates in one reportable segment. An operating segment is defined as a component of an enterprise for which discrete
financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance
and make operating decisions. The Company has identified its CODM as the Chief Executive Officer.
Basic and Diluted
Net Loss Per Share
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
| |
|
|
|
|
|
|
| |
Three Months Ended March 31, |
| |
2023 | |
2022 |
Net loss | |
$ | (1,977,278 | ) | |
$ | (696,853 | ) |
Weighted average common shares outstanding – basic and diluted | |
| 6,815,002 | | |
| 4,300,000 | |
Basic and diluted net loss per share | |
$ | (0.29 | ) | |
$ | (0.16 | ) |
As
of March 31, 2023 and December 31, 2022, the Company has outstanding warrants and options convertible into 1,629,936 and 1,717,936 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.
Schedule of anti-dilutive share
As of: | |
March 31, 2023 | |
December 31, 2022 |
Stock options | |
| 829,500 | | |
| 829,500 | |
Warrants | |
| 800,436 | | |
| 888,436 | |
| |
| 1,629,936 | | |
| 1,717,936 | |
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
September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier
Finance Program Obligations,” which is intended to enhance the transparency surrounding the use of supplier finance programs in
connection with the purchase of goods and services. Supplier finance programs may also be referred to as reverse factoring, payables
finance, or structured payables arrangements. The amendments in ASU 2022-04 require a buyer that uses supplier finance programs to disclose
sufficient qualitative and quantitative information about the program to allow a user of financial statements to understand the program’s
nature, activity during the period, changes from period to period, and potential magnitude. ASU 2022-04 is effective for all entities
for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods with those fiscal years, except
for the requirement to disclose roll forward information, which is effective prospectively for fiscal years beginning after December
15, 2023. The Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have an impact on the
Company’s financial statements or disclosures.
In
March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures,” which addresses and amends areas identified by the FASB as part of its post-implementation review of the
accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting
guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan
refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure
of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.
For entities, such as Expion360 Inc., that have not yet adopted the CECL accounting model in ASU 2016-13, the effective date for
the amendments in ASU 2022-02 is the same as the effective date in ASU 2016-13 (i.e., fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years). The Company adopted this standard effective January 1, 2023, and the adoption of
this guidance did not have an impact on the Company’s financial statements or disclosures.
In
October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers.” ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination
to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, on the acquisition date as if the
acquirer had entered into the original contract at the same date and on the same terms as the acquiree. ASU 2021-08 is effective for
fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for public business entities. The
Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have an impact on the Company’s
financial statements or disclosures.
In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss impairment
methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade receivables.
In addition, new disclosures are required. The ASU, as subsequently amended, is effective for the Company for fiscal years beginning
after December 15, 2022. The Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have
an impact on the Company’s financial statements or disclosures.
Accounting Guidance
Issued but Not Yet Adopted
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 is currently evaluating the impact of this standard on our financial statements.
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 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
| |
March 31,
2023 | |
December 31, 2022 |
| |
| |
|
Vehicles and transportation equipment | |
$ | 602,376 | | |
$ | 593,097 | |
Leasehold improvements | |
| 314,819 | | |
| 314,819 | |
Office furniture and equipment | |
| 188,131 | | |
| 188,131 | |
Manufacturing equipment | |
| 179,274 | | |
| 179,274 | |
Warehouse equipment | |
| 81,164 | | |
| 81,164 | |
QA equipment | |
| 22,142 | | |
| 22,142 | |
Tooling and Molds | |
| 15,992 | | |
| 15,992 | |
| |
$ | 1,403,898 | | |
$ | 1,394,619 | |
| |
| | | |
| | |
Less: accumulated depreciation | |
| (298,980 | ) | |
| (250,861 | ) |
Property and equipment, net | |
$ | 1,104,918 | | |
$ | 1,143,758 | |
Depreciation
expense was $48,120 and $29,026 for the three months ended March 31, 2023 and 2022, respectively.
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
| |
| |
|
| |
As of March 31, 2023 | |
As of December 31, 2022 |
Accrued salaries and payroll liabilities | |
$ | 227,199 | | |
$ | 169,337 | |
Commissions | |
| 34,979 | | |
| 9,720 | |
Rebate liability | |
| 26,015 | | |
| 26,015 | |
Deferred income and deposit (sublease) | |
| 4,445 | | |
| 14,168 | |
Franchise tax | |
| 400 | | |
| 400 | |
Accrued interest | |
| 68 | | |
| 222 | |
Other | |
| 32,696 | | |
| 86,302 | |
Accrued expenses and other current liabilities | |
$ | 325,802 | | |
$ | 306,164 | |
5.
Liabilities for Sale of Future Revenues
On
December 8, 2020 and January 26, 2021, Reliant Funding, under two separate ACH Total Receipts Purchase Agreements (“Purchase Agreements”),
purchased a 50% interest in the Company’s future revenues for a total aggregate purchase price of $250,000. Pursuant to the terms
of the Purchase Agreements, the purchased percentage continued to be owned by Reliant Funding, until the Company paid the full purchased
amount of $349,750. Repayment of the purchased amount was achieved through 252 daily bank account withdrawals of $1,388 through December
15, 2021 and $694 thereafter through January 26, 2022. During the three months ended March 31, 2022, the Company repaid a total of $11,797,
including $295 of interest. There were no payments made in the three months ended March 31, 2023. Interest was recognized at an effective
annual interest rate of approximately 71%. The Purchase Agreements were secured by substantially all of the assets of the Company. As
of March 31, 2023 and December 31, 2022, the Company had no remaining liability related to the Purchase Agreements.
6.
Short-Term Revolving Loans
In
2020, the Company received funds under four unsecured Working Capital Loan Agreements (“WC Loans”). As of December 31, 2022,
the loans had been repaid and a balance of $0 was outstanding. Under the WC Loan Agreements and
in accordance with the modified terms, the Company was subject to monthly extended maturity interest of one percent on the ending outstanding
monthly balance which increased one percent for each month beyond the extended maturity date. The WC Loans were repaid in full in April
2022.
The terms of each WC Loan are summarized
below:
|
· |
$200,000 limit –
dated March 22, 2020; monthly interest-only payments at 15% annual interest; principal due 12 months from date of issue. This note
was modified effective January 1, 2021 to extend the maturity date to December 31, 2021. The Company paid $50,000 towards the principal
balance in November 2021. The balance of $150,000 was paid in full in April 2022 (see below). |
|
· |
$400,000 limit –
dated August 31, 2020; monthly interest-only payments at 10% annual interest; pursuant to the WC Loan, the maturity was to be determined
by mutual agreement and was to be at least 30 days after a maturity date is agreed upon. The note was modified effective January
1, 2021 to establish a maturity date of December 31, 2021, and was paid in full in April 2022 (see below). |
All
fees incurred in connection with obtaining and modifying these agreements were nominal and, given the short-term maturity of one year,
were expensed as incurred. There was no accounting impact to the financial statements related to the modifications.
7. Long-Term
Debt
Long-term debt consisted
of the following at March 31, 2023 and December 31, 2022:
Schedule of long-term debt
| |
March 31, 2023 | |
December 31, 2022 |
Senior secured promissory notes – various investors. Monthly payments of interest only at 10% plus deferred interest of 5% accrued monthly to be paid at maturity. A minimum of one year interest is due at maturity. Matures the earlier of (a) May 15, 2023, (b) the closing of a qualified subsequent financing or (c) the closing of a change of control. The notes are senior to all other debt and are secured by substantially all assets of the Company. The notes included detachable warrants to purchase 482,268 shares of common stock at an exercise price of $3.32 per share (see Note 10 – Stockholders’ Equity). Debt issuance costs and discount totaling $1,287,160 at date of issuance were being amortized and recognized as additional interest expense over the term of the notes using the straight-line method because it was not substantially different from the effective interest rate method. We determined the expected life of the notes to be the contractual term. Interest expense related to these notes includes amortization of debt issuance costs and discount in the amount of $0 and $214,527, respectively, for the three months ended March 31, 2023 and 2022, respectively. The notes were paid in full in April 2022. | |
$ | — | | |
$ | — | |
Note payable – bank. Payable in monthly installments of $332, including interest at 5.8% per annum, due August 2025, secured by equipment and personally guaranteed by a co-founder. | |
| 8,967 | | |
| 9,825 | |
Note payable – credit union. Payable in monthly installments of $508, including interest at 5.45% per annum, due July 2026, secured by a vehicle and personally guaranteed by a co-founder. | |
| 18,098 | | |
| 19,364 | |
Note payable – SBA. Economic Injury Disaster Loan payable in monthly installments of $731, including interest at 3.75% per annum, due May 2050, and personally guaranteed by a co-founder. | |
| 149,328 | | |
| 150,114 | |
Note payable – individual. Monthly payments of interest only at 10% per annum, matured December 31, 2021 resulting in the entire principal balance recorded in current portion of long-term debt on the accompanying Balance Sheets for the year ending December 31, 2021; pursuant to the note, the past due balance is subject to 1% additional monthly interest which increases one percent for each month beyond maturity date, unsecured. The Company remained in compliance with the extended maturity interest payments and paid the note in full in April 2022. | |
— | |
— |
Note payable – finance company. Payable in monthly installments of $994, including interest at 8.5% per annum, due July 2026, secured by a vehicle and personally guaranteed by a shareholder. The Note was paid in full September 2022. | |
— | |
— |
Note payable – finance company. Payable in monthly installments of $2,204, including interest at 11.21% per annum, due August 2026, secured by a vehicle and personally guaranteed by a co-founder. The note was paid in full January 2023. | |
| — | |
| 79,963 |
Notes payable – The Company has six notes payable to GM Financial for vehicles at March 31, 2023 and December 31, 2022. In April 2022, the Company secured a commercial line up to $300,000 to be used to finance vehicle purchases. The agreementexpired in April 2023 but
was renewed for a commercial line up to $350,000 and prevailing GM Financial existing term notes will remain. The new agreement expires in April 2024. The notes are payable in aggregate monthly installments of $4,679, including interest at rates ranging from 5.89% to 7.29% per annum, mature at various dates from October 2027 to May of 2028, and are secured by the related vehicles. Two of the notes are personally guaranteed by a co-founder. | |
| 241,228 | | |
| 251,209 | |
Total | |
$ | 417,621 | | |
$ | 510,475 | |
Less current portion | |
| (53,975 | ) | |
| (71,426 | ) |
Long-term debt, net of unamortized debt discount and current portion | |
$ | 363,646 | | |
$ | 439,049 | |
Future maturities of long-term debt are
as follows:
Schedule of long term debt payment
|
|
|
Twelve months ending March 31, |
2024 |
$ |
53,975 |
|
2025 |
|
57,346 |
|
2026 |
|
58,648 |
|
2027 |
|
55,953 |
|
2028 |
|
51,143 |
|
Thereafter |
|
140,556 |
|
Total |
$ |
417,621 |
|
8. Shareholder
Promissory Notes
As
of both March 31, 2023 and December 31, 2022, the Company had an outstanding principal balance of $825,000 due to shareholders under
unsecured Promissory Notes Agreements (“Notes”). The Notes require monthly interest-only payments at 10% per annum. The Notes
mature at various dates from August 2023 to December 2024 as follows: August 2023 - $500,000; January 2024 - $125,000; and December 2024
- $200,000.
Interest
paid to the shareholders under the Notes totaled $20,627 and $20,627 during the three months ended March 31, 2023 and March 31, 2022,
respectively. There was no accrued interest as of March 31, 2023 or December 31, 2022 related to these Notes.
9.
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 (FRED) 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 totaling of $2,348,509, representing the present value of the
lease payments discounted using an effective interest rate of 8.07% and 8.86%, and corresponding right-of-use assets of $2,348,509. The
leases expire in December 2026 and December 2028. The second lease contains one three-year option to renew. The lease is guaranteed by
a co-founder.
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 $1,268,089, representing the present value of the lease
payments discounted using an effective interest rate of 7.47% and a corresponding right-of-use asset of $1,268,089. The lease expires
in January 2028 and contains one three-year option to renew. The lease is guaranteed by the a co-founder.
The
Company has two other leases—one that expired in January 2023 and one 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. Both
leases are guaranteed by the a co-founder.
The following is
a summary of total lease costs during the three months ended March 31, 2023 and 2022:
Schedule of lease cost
| |
|
|
|
|
|
|
| |
Three Months Ended March 31, |
| |
2023 | |
2022 |
Operating lease cost | |
$ | 188,029 | | |
$ | 164,360 | |
Short-term lease costs | |
| 150 | | |
| 1,838 | |
Variable lease costs | |
| — | | |
| — | |
Sublease income | |
| (18,596 | ) | |
| (48,599 | ) |
| |
$ | 169,583 | | |
$ | 117,599 | |
The
weighted-average remaining lease term was 5.25 years and 5.49 years as of March 31, 2023 and December 31, 2022, respectively. The weighted
average discount rate was 8.49% and 8.48%, as of March 31, 2023 and December 31, 2022, respectively. Operating cash flows from the operating
leases totaled $92,107 and $93,756 for the three months ended March 31, 2023 and 2022, respectively.
The
total lease liability as of March 31, 2023 and December 31, 2022 was $3,113,919 and $3,220,019, respectively.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2023, for years
ending March 31:
Schedule
of future minimum lease payment
|
Total |
2024 |
$ |
721,358 |
|
2025 |
|
737,560 |
|
2026 |
|
717,328 |
|
2027 |
|
722,542 |
|
2028 |
|
655,027 |
|
Thereafter |
|
337,708 |
|
Total future minimum lease payments |
$ |
3,891,523 |
|
Less imputed interest |
$ |
(777,604 |
) |
Total |
$ |
3,113,919
|
|
|
|
|
|
Current lease liability |
$ |
475,738 |
|
Noncurrent lease liability |
|
2,638,181 |
|
Total |
$ |
3,113,919
|
|
Subleases
The
Company subleases office and warehouse space under three of its existing operating leases with similar terms as the Company’s lease
agreements. 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 $20,161 and $36,113 during the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023 and December 31, 2022, deferred income and a sublease deposit totaled $4,445 and $14,168, respectively, and is included
in accrued expenses and other current liabilities on the accompanying Balance Sheets.
The following
are the total future minimum sublease payments as of March 31, 2023:
Schedule of future minimum sublease payments
Twelve months ending March 31, |
|
|
|
2024 |
$ |
41,864 |
|
2025 |
|
39,428 |
|
Total future minimum lease
payments |
$ |
81,292 |
|
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, Expion360 Inc. (the “Company”) received notice of a complaint (the
“Complaint”) filed against it in Oregon state court by Ravi Sinha. The Complaint alleges, inter alia,
that Mr. Sinha is entitled to 282,284 shares of the Company’s common stock, or in the alternative, $300,000 plus interest in connection
with services he previously rendered the Company as its chief executive officer. On March 21, 2023, the Company entered into a settlement
agreement with Mr. Sinha and the matter has been resolved with cash and the issuance of common stock (see Note 10 – Stockholders’
Equity).
10.
Stockholders Equity
The
Company is authorized to issue an aggregate of 220,000,000 shares of capital stock, par value $0.001 per share, consisting of 200,000,000
shares of common stock and 20,000,000 shares of preferred stock. On March 31, 2023, at the closing price of $4.84 per share, the Company
issued 52,000 shares of common stock as part of the settlement agreement with Mr. Sinha dated March 21, 2023. As of March 31, 2023 and
December 31, 2022, 6,900,566 and 6,802,464 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 2,466,750 shares of common stock were
sold at $7.00 per share in the IPO, for total gross proceeds of $17,267,250. The Company incurred IPO costs of $2,494,763 resulting in
net proceeds of $14,772,487. Additionally, during the year ended December 31, 2022, the Company issued 35,714 shares of common stock
at $7.00 per share to an outside third party in exchange for IPO services. The fair value of the shares of $249,998 were recorded as
an increase to common stock of $36 (35,714 shares at $.001 par value) and additional paid in capital of $249,962 and a corresponding
reduction to additional paid in capital of $249,998, resulting in a net decrease in additional paid in capital of $36.
Warrants/Options
On
April 1, 2022, the Company issued warrants to IPO underwriters to purchase 148,005 shares of common stock at an exercise price of $9.10
per share. The warrants are exercisable 180 days after grant (September 27, 2022) and expire 5 years from date of grant (March 31, 2027).
The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and the following assumptions:
per share price of common stock on date of grant of $7, expected dividend yield of 0%, expected volatility of 110.03%, risk-free interest
rate of 2.55% and expected life based on contractual life of 5 years. The fair value of $916,238 was recorded as an increase in additional-paid-in
capital and a reduction to additional paid-in capital since the warrants were issued as IPO fees to underwriters, resulting in a zero
impact to additional paid-in capital.
During
the period ending March 31, 2023, 15,000 warrants exercisable at $3.32 per share were exercised on a cash basis which resulted in the
issuance of 15,000 shares of common stock. This leaves 544,431 warrants remaining with an exercise price of $3.32.
During
the period ending March 31, 2023, 73,000 warrants exercisable at $2.90 per share were exercised using the cashless conversion option
which resulted in the issuance of 31,102 shares of common stock. This leaves 78,000 warrants remaining with an exercise price of $2.90.
As
of March 31, 2023 and December 31, 2022, a total of 770,436 and 858,436 warrants were issued and outstanding, respectively. As of March
31, 2023 and December 31, 2022, a total of 30,000 options, which were not issued under a specified plan, were outstanding. As of March
31, 2023, below is a summary of the various warrants/options issued and outstanding:
Schedule of various warrants/options issued and outstanding
Number of
warrants/non-plan options |
Exercise
Price |
Weighted
Average Remaining Life (Yrs) |
544,431 |
$3.32
|
8.65 |
78,000 |
$2.90
|
1.61 |
30,000 |
$3.32
|
1.61 |
148,005 |
$9.10
|
4.00 |
800,436 |
|
|
Stock Option Plans
As
of March 31, 2023, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan and the 2021 Employee Stock
Purchase Plan, both of which are described below and became effective upon the initial public offering. On May 2, 2022, the Company granted
829,500 options under the 2021 Incentive Award Plan. No shares have been issued to date under the 2021 Employee Stock Purchase Plan.
The compensation cost that has been charged against operations was $2,114,529 for the year ended December 31, 2022.
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 plan to eligible employees, consultants, and non-employee directors. The number of
shares issued under the 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 March 31, 2023, the aggregate number of shares that
can be issued under the Plan is 1,199,623 of which 829,500 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% shareholders) and the term shall not exceed ten years.
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 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 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 plan shall not exceed 2,500,000 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 all options granted during the year ended December 31, 2022 using the following assumptions:
Schedule of assumptions used
Expected
volatility |
|
|
109.48% - 113.32% |
Expected
dividends |
|
|
None |
Expected
term (in years) |
|
|
2.5 – 5.01 |
Risk free
rate |
|
|
2.83% – 3.01% |
The
Company did not grant any options during the three months ending March 31, 2023.
The following table
summarizes the Company’s stock option activity under the 2021 Incentive 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 (1) |
|
Outstanding at beginning of period |
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
Granted |
|
829,500 |
|
|
|
3.43 |
|
|
|
— |
|
|
|
1,173,130 |
|
Exercised |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding at end of period |
|
829,500 |
|
|
$ |
3.43 |
|
|
|
8.01 |
|
|
$ |
1,173,130 |
|
Exercisable at end of period |
|
829,500 |
|
|
$ |
3.43 |
|
|
|
8.01 |
|
|
$ |
1,173,130 |
|
|
(1) |
The aggregate intrinsic
value of options outstanding and options exercisable as of March 31, 2023 is $1,173,130, as all options are in the money. |
The weighted-average
grant-date fair value of the options granted during the three months ended March 31, 2023 to employees and non-employees was $1,847,193
and $267,336, respectively. All options were immediately vested and there was no unrecognized compensation expense as of March 31, 2023.
Common Stock Reserved
for Future Issuance
The
following is a summary of common stock shares reserved for future issuance as of March 31, 2023:
Schedule of common stock shares reserved for future issuance
| |
| | |
Exercise of warrants | |
| 770,436 | |
Exercise of options unrelated to any Plan | |
| 30,000 | |
Exercise of stock options – 2021 Incentive Award Plan | |
| 829,500 | |
Total shares of common stock reserved for future issuances | |
| 1,629,936 | |
11.
Income Taxes
The
Company has incurred losses and consequently recorded no provision for state or federal income taxes for the three months ended March
31, 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 March 31, 2023 and December 31, 2022, there were no material unrecognized tax benefits
included in the accompanying balance sheets that would, if recognized, affect the effective tax rate. For the three months ended March
31, 2023 and 2022, the Company incurred a provision for state franchise fees of $0 and $150, respectively.
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 March 31, 2023 and December 31, 2022, related party transactions consisted of Shareholder Promissory Notes (see Note 8 – Shareholder
Promissory Notes).
14.
Subsequent Events
The
date to which events occurring after March 31, 2023, the date of the most recent Balance Sheets, have been evaluated for possible adjustment
to the financial statements or disclosures is May 10, 2023, which is the date the financial statements were issued.
In
April 2023, the Company had 22,606 cashless warrants exercised resulting in 10,151 additional shares of common stock issued.
ITEM 2. 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 the unaudited
interim financial statements and related notes for the three months ended March 31, 2023 and 2022 included elsewhere in this Quarterly
Report on Form 10-Q (“Quarterly Report”) as well as our audited financial statements and related notes for the fiscal years
ended December 31, 2022 and 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC
on March 30, 2023 (the “2022 Form 10-K”). 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 Quarterly Report, including in Item 1A “Risk Factors” of Part II Other Information
and “Cautionary Notice Regarding Forward-Looking Statements” below. 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 Quarterly Report on Form 10-Q. Certain other amounts that appear in this section may not sum due
to rounding.
OVERVIEW
We
focus on the design, assembly, manufacturing, and sales of lithium iron phosphate (LiFePO4) batteries and supporting accessories for
recreational vehicles (“RVs”) and marine applications with plans to expand into home energy storage products and industrial
applications. We design, assemble, and distribute high-powered, lithium battery solutions using ground-breaking concepts with a creative
sales and marketing approach. We believe that our product offerings include some of the most dense and minimal-footprint batteries in
the RV & Marine industry. We are developing the e360 Home Energy Storage: a system that we expect to significantly change the industry
in barrier price, flexibility, and integration. We are deploying multiple IP strategies with cutting-edge research and unique products
to sustain and scale the business. We currently have customers consisting of dealers, wholesalers, private label customers and original
equipment manufacturers who are driving revenue and brand awareness nationally.
Our
corporate headquarters are based in Redmond, Oregon, with assembly in the United States and suppliers based in Asia and Europe. We are
currently in the process of building out manufacturing capacity at our corporate headquarters. Our long-term target is to onshore the
manufacturing of most of our components and assemblies, including cell manufacturing, to the United States.
Our
main target markets are currently the RV & Marine industry. We believe that 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. Additional focus markets
include home energy storage, where we aim to provide a cost-effective, low barrier of entry, and a do-it-yourself (“DIY”)
flexible system for those looking to power their homes via solar energy, wind, or grid back-up. Along with RV/Marine and home energy
storage markets, we aim to provide additional capacities to the ever-expanding electric forklift and industrial material handling markets.
Expion360’s
e360 product line, which is manufactured for the RV/Marine industry, was launched in December 2020. The e360 product line, through its
rapid sales growth, has shown to be a preferred conversion solution for lead-acid batteries. We believe that our e360 Home Energy Storage
system has strong revenue potential with recurring income opportunities for us and our associated sales partners.
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 and strong case materials and internal and structural layouts and are backed by responsive customer
service.
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 always been the standard in RV and marine transportation vehicles. Our lithium-ion batteries offer superior capacity to
our lead-acid 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 with ten times the number of charging cycles. Furthermore,
our typical battery provides 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 .1C rate).
Battery Pack Flexibility
Our
battery packs are also highly flexible, designed to be moved and used in various applications seamlessly. We plan to onshore our semi-automated
pack assembly in Redmond, Oregon. The initial equipment has arrived and subject to market conditions, we are working on the setup and
development of additional equipment to automate the line. This should allow us to use a more flexible approach to forming and creating
new battery packs. By onshoring, we expect to be able to react to market demands at a much quicker pace and increase profit levels over
our competition.
Long-time RV and
Marine Industry Experience and Relationship
Expion360
is managed by a team with a strong track record in the RV and clean energy spaces. John Yozamp, Co-Founder of Expion360, pioneered multiple
new recreational concepts in the RV industry. As the founder and previous owner of Zamp Solar, he has extensive relationships in the
RV OEM industry. In addition, our co-founders own significant equity in the Company, signaling a strong commitment and personal investment.
Expansion into New Markets
While
RV and marine applications currently drive revenue, Expion360 has plans to expand into the home energy market in the coming years. Our
e360 Home Energy Storage system is planned to target entry level customers with its modular design that will allow for DIY expansion.
We see the vision of stored energy as a portable, moving concept, where stored energy can be transported from the home to other devices
outside of it.
In
furtherance of our vision of stored energy, in January 2023, Expion360 introduced two portable power generator products: the AURA POWERCAP™
600 and AURA POWERCAP™ 800 (together, the “Aura”). The AURA POWERCAP™
600 is designed to fit and convert any one of Expion360’s group 24 lithium batteries into a 600W mobile power station while the
AURA POWERCAP™ 800 is designed to fit and convert any one of Expion360’s group 27 lithium batteries into an 800W mobile power
station. The Aura’s proprietary patent pending design allows the AURA POWERCAP™ 600 to join seamlessly to 60Ah, 80Ah, and
95Ah Expion360 batteries and the AURA POWERCAP™ 800 to join to 100Ah and 120Ah Expion360 batteries. The AURA POWERCAP™ 600
and AURA POWERCAP™ 800 are an exclusive fit to Expion360 batteries and will not fit other brands. The AURA POWERCAP™ 600
and AURA POWERCAP™ 800 contain beneficial features and functions for a compact portable power unit, including the ability to recharge
the battery from the input charge port using the included 7 Amp household charger and the ability to recharge remotely with Expion360’s
lightweight portable solar panel options, which are sold separately.
Strong National Retail Customers and
Distribution Channels
Expion360
has sales relationships with many major RV retailers and with marine retailers and plans to use what we believe is a strong reputation
in the lithium battery space to create an even stronger distribution channel. The Company’s Co-Founder, John Yozamp, has used his
decades of experience in the energy and RV industries to cultivate relationships with numerous retailers in the space. Expion360 has
already established a sales relationship with several large retail customers, including Camping World, a leading national RV retailer,
as well as NTP-STAG, a leading distributor of aftermarket RV parts.
RECENT DEVELOPMENTS
AND TRENDS
Warrant Exercises
In
April 2023, holders of 22,606 warrants previously issued by the Company with an exercise price of $3.32 exercised their warrants on a
cashless basis, which resulted in the issuance of an additional 10,151 shares of the Company’s common stock. As of the date of
this Quarterly Report on Form 10-Q, the Company had 747,830 outstanding warrants.
Key Factors Affecting Our Operating
Results
Our operating results and financial performance
are significantly dependent on the following factors:
Consumer Demand
Although
most of our current sales are generated through dealers, wholesalers and original equipment manufacturers (“OEM”) focused
on the RV and marine markets, ultimate demand for our products is reliant on demand from consumers. 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.
Therefore, our future sales will be subject to risks and uncertainties related to end user demand.
Demand
from end users is affected by a number of factors which may include fuel costs, overall macroeconomic conditions, and travel restrictions
(resulting from COVID-19 or otherwise). During the COVID-19 pandemic, the increased adoption of the RV lifestyle benefited battery suppliers.
However, more recently we have seen a rise in fuel costs and other changes in macroeconomic conditions which has created a decrease in
end user spending decisions which is affecting our markets.
While
RV and marine applications drive current revenues, Expion360 has plans to expand into the home energy market in the coming years. Our
e360 Home Energy Storage system is planned to target entry level customers with its modular design that will allow for DIY expansion.
We see the vision of stored energy as a portable, moving concept, where stored energy can be transported from the home to other devices
outside of it. The success of our strategy requires (1) continued growth of these addressable markets in line with our expectations and
(2) our ability to successfully enter these markets. We expect to incur significant marketing costs understanding these new markets,
and researching and targeting customers in these end markets, which may not result in sales. If we fail to execute on this growth strategy
in accordance with our expectations, our sales growth would be limited to the growth of existing products and existing end markets.
Manufacturing
and Supply Chain
Our
batteries are manufactured by multiple third-party manufacturers located in China, who also produce our battery cells. We then assemble
and package the batteries in the United States for sale to our customers. While we do not have long-term purchase arrangements with our
third-party manufacturers and our purchases are completed on a purchase order basis, we have had strong relationships with our third-party
manufacturers spanning many years. Our close working relationships with our China-based third-party manufacturers and cell suppliers,
reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts) and to order and receive
delivery of cells in anticipation of required demand, has helped us moderate increased supply-related costs associated with inflation,
currency fluctuations, and U.S. government tariffs imposed on our imports and to avoid potential shipment delays. We aim to maintain
an appropriate level of inventory to satisfy our expected supply requirements. We believe that we could locate alternative third-party
manufacturers to fulfill our needs.
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.
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. 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. Our battery cell manufacturers also have joint venture factories outside of China and have
secured sourcing contracts from lithium suppliers in South America and Australia. In addition, the Company has secured a secondary source
for lithium iron phosphate cells used in its batteries from a supplier in Denmark, enabling the Company to source materials outside of
China in the event it becomes necessary to do so.
Product and Customer Mix
We
sell six models of LiFEPO4 batteries, the AURA POWERCAP, and individual or bundled accessories for battery systems. Our products are
sold to different customers (i.e., dealers, wholesalers, 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 therefore 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 operation. 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 or components
or manufacture products 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 a lower cost 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, to address the needs of our customers, to further develop and enhance our service, and to 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
and marine 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.
As a result, we may need to raise additional funds for these research and development efforts.
KEY LINE ITEMS
Revenue
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. Materially, all of our sales are within the United States.
Cost of Sales
Our
primary cost 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, benefits, and sales and marketing costs. Other costs include facility
and related costs, professional fees and other legal expenses, consulting, and tax and accounting services.
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 debt issuance costs.
As of March 31, 2023, all debt issuance costs have been fully amortized.
Provision for
Income Taxes
The
Company is 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.
The
Company has adopted the provisions in ASC 740, Income Taxes, related to accounting for uncertain tax positions. It requires that the
Company recognize 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. Management has concluded that there were no material unrecognized tax benefits
as of March 31, 2023 or December 31, 2022.
The
Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had
no accrual for interest or penalties on the Company’s balance sheet at March 31, 2023 or December 31, 2022 and did not recognize
interest and/or penalties in the statement of operations for the years ended March 31, 2023 and 2022, since there are no material unrecognized
tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.
Off-Balance Sheet
Arrangements
We
have no material off-balance sheet arrangements.
RESULTS OF OPERATIONS
The
following table sets forth certain operational data as a percentage of sales:
For the Three Months Ended: | |
March 31, 2023 | |
March 31, 2022 |
| |
$ | |
% of Net sales | |
$ | |
% of Net sales |
Net sales | |
$ | 1,507,177 | | |
| 100.0 | % | |
$ | 2,155,345 | | |
| 100.0 | % |
Cost of sales | |
| 1,063,730 | | |
| 70.6 | | |
| 1,293,490 | | |
| 60.0 | |
Gross profit | |
| 443,447 | | |
| 29.4 | | |
| 861,855 | | |
| 40.0 | |
Selling, general, and administrative expenses | |
| 2,120,894 | | |
| 140.7 | | |
| 1,196,376 | | |
| 55.5 | |
Loss from operations | |
| (1,677,447 | ) | |
| (111.3 | ) | |
| (334,521 | ) | |
| (15.5 | ) |
Other expense - net | |
| (299,831 | ) | |
| (19.9 | ) | |
| (362,182 | ) | |
| (16.8 | ) |
Loss before income taxes | |
| (1,977,278 | ) | |
| (131.2 | ) | |
| (696,703 | ) | |
| (32.3 | ) |
Net loss | |
| (1,977,278 | ) | |
| (131.2 | ) | |
| (696,853 | ) | |
| (32.3 | ) |
Sales, net
Sales,
net for the three months ended March 31, 2023 decreased by $648,000, or 30.1%, compared to the three months ended March 31, 2022. Sales
were $2.2 million for the three months ended March 31, 2022 and $1.5 million for the three months ended March 31, 2023. The year over
year decrease was primarily attributable to a large initial stocking order for one of our resellers that was placed in 2022.
Cost of Sales
Total
cost of sales for the three months ended March 31, 2023 decreased by $230,000, or 17.8%, compared to the three months ended March 31,
2022. Cost of sales were $1.3 million for the three months ended March 31, 2022 and $1.1 million for the three months ended March 31,
2023. Cost of sales as a percentage of sales increased by 10.6% in that period. The percentage increase in cost of sales was primarily
related to increases in fixed facilities costs and labor, changes in product mix related to sales, discount levels related to specific
customer groups, and supplier and shipping costs, which the Company is currently monitoring.
Gross Profit
Our
gross profit for the three months ended March 31, 2023 decreased by $418,000, or 17.8%, compared to the three months ended March 31,
2022. Gross profit was $862,000 for the three months ended March 31, 2022 and $443,000 for the three months ended March 31, 2023. Gross
profit as a percentage of sales decreased by 10.6% for that period, from 40.0% for the three months ended March 31, 2022 to 29.4% for
the three months ended March 31, 2023. The decrease in gross profit for the three months ended March 31, 2023 was primarily attributable
to increases in fixed facilities costs and labor, changes in product mix related to sales, discount levels related to specific customer
groups, and supplier and shipping costs, which the Company is currently monitoring.
Selling, General and
Administrative Expenses
Selling,
general and administrative expenses increased by $925,000, or 77.3%, to $2.1 million for the three months ended March 31, 2023 compared
to $1.2 million for the three months ended March 31, 2022, primarily due to legal and professional costs related to changes in management,
enhancement of key legal documents, litigation expenses, and payment of key advisory services. The most substantial increases were in
legal and professional services, salaries and benefits, and research and development.
Presented
in the table below is the composition of selling, general and administrative expenses:
| |
Three Months Ended 3/31/23 | |
Three Months Ended 3/31/22 |
Salaries and benefits | |
$ | 780,259 | | |
$ | 626,363 | |
Legal and professional | |
| 703,584 | | |
| 106,568 | |
Sales and marketing | |
| 155,159 | | |
| 160,038 | |
Rents, maintenance, utilities | |
| 149,653 | | |
| 133,004 | |
Research and development | |
| 77,180 | | |
| 5,316 | |
Travel expenses | |
| 69,484 | | |
| 36,648 | |
Software, fees, tech support | |
| 49,086 | | |
| 38,924 | |
Depreciation | |
| 40,527 | | |
| 27,434 | |
Insurance | |
| 31,866 | | |
| 19,587 | |
Supplies, office | |
| 24,401 | | |
| 30,891 | |
Other | |
| 39,695 | | |
| 11,603 | |
Total | |
$ | 2,120,894 | | |
$ | 1,196,376 | |
Other Expense
Our
other expense for the three months ended March 31, 2023 and 2022 was $300,000 and $362,000, respectively. Other expense for the three
months ended March 31, 2023 was made up almost entirely of settlement expense. Other expense for the three months ended March 31, 2022
was primarily attributable to interest expense of debt obligations and the amortization of debt discount.
During
the three months ended March 31, 2023 and 2022, non-cash amortization of debt discount totaled $0 and $215,000, respectively. Interest
expense attributable to debt obligations totaled $38,000 and $148,000 during the three months ended March 31, 2023 and 2022, respectively.
In April 2022, with the use of proceeds from the IPO, the Company paid off approximately $2.46 million in debt with interest rates ranging
from 10 to 15%.
Net Loss
Our
net loss for the three months ended March 31, 2023 and 2022 was $2.0 million and $697,000, respectively. The increase in net loss was
primarily the result of increased selling, general, and administrative expenses as we incurred higher legal and professional costs. Additionally,
for the period ended March 31, 2023, the Company recognized $251,680 in non-cash stock-based settlement expenses, compared to $0 for
the period ended March 31, 2022. See Item 1 “Legal Proceedings” of Part II Other Information.
LIQUIDITY AND
CAPITAL RESOURCES
Overview
Our
operations have been financed primarily through net proceeds from the sale of securities and from borrowings. As of March 31, 2023 and
December 31, 2022, our current assets exceeded current liabilities by $8.9 million and $10.8 million, respectively, and we had cash and
cash equivalents of $5.7 million and $7.2 million, respectively. On April 1, 2022, we closed our initial public offering which resulted
in approximately $14.8 million of net proceeds.
We
generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next twelve
months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest and principal payments
on our debt, and capital expenditures related to assembly line expansion.
As
of March 31, 2023, we expect our short-term liquidity requirements to include (a) approximately $379,000 of capital additions; (b) principal
debt payments totaling approximately $679,000; and (c) lease obligation payments of approximately $721,000, including imputed interest.
We
generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next twelve
months and believe these requirements consist primarily of funds necessary for eighteen months.
The
Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before
the Company achieves sustainable revenues 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. For the year ended December
31, 2022 and the three months ended March 31, 2023, the Company 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 period ended March 31, 2023 are issued. However, management is working to address its cash flow
challenges, including raising additional capital, alternative supply chain resources, and in-house assembly lines. See also the risk
factor entitled “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 our 2022 From 10-K.
Financing Obligations
On
April 1, 2022, we closed our initial public offering which resulted in approximately $14.8 million of net proceeds, of which approximately
$2,464,000 was used to pay down principal and accrued interest on high interest-bearing debt.
As
of March 31, 2023, the Company’s long-term debt totaled $418,000, comprised of $149,000 outstanding under a COVID-19 Economic Injury
Disaster Loan, $241,000 outstanding under vehicle financing arrangements, and an equipment loan for $9,000. In January 2023, the Company
repaid a vehicle loan with an interest rate of 11.21% in the amount of $89,360 which included principal, interest, and fees. In addition,
as of March 31, 2023, the Company had outstanding shareholder loans totaling $825,000.
Shareholder
Promissory Notes
Unsecured
promissory notes due to shareholders had an outstanding principal balance of $825,000 as of March 31, 2023. The unsecured promissory
notes require monthly interest-only payments at 10% per annum and mature at various dates from August 2023 to December 2024. See Note
8 – Shareholder Promissory Notes of our unaudited interim financial statements and related notes for the three months ended March
31, 2023 and 2022 included elsewhere in this Quarterly Report for more information about the unsecured promissory notes.
Vehicle Financing
Arrangements
As
of March 31, 2023, the Company has six notes payable to GM Financial for vehicles. In addition, the commercial line secured in April
2022 for $300,000 was renewed in April 2023 and increased to $350,000. This commercial line may be used to finance vehicle purchases
and expires in April 2024. The notes are payable in aggregate monthly installments of $4,679, including interest at rates ranging from
5.89% to 7.29% per annum, mature at various dates from October 2027 to May of 2028, and are secured by the related vehicles. Two of the
notes are personally guaranteed by a co-founder of the Company.
Cash Flows
The
following table shows a summary of our cash flows for the periods presented:
| |
Three Months Ended March 31, |
| |
| 2023 | | |
| 2022 | |
| |
| | | |
| | |
Net cash provided by / (used in) operating activities | |
$ | (1,422,702 | ) | |
$ | 506,428 | |
Net cash used in investing activities | |
$ | (9,280 | ) | |
$ | (32,938 | ) |
Net cash used in financing activities | |
$ | (43,067 | ) | |
$ | (447,379 | ) |
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 in operating activities are for
increases in inventory purchases, legal and professional services, increased marketing, 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 the sales of common stock.
We
generated negative cash flows from operating activities of $1.4 million for the three months ended March 31, 2023, compared to positive
cash flows of $506,000 for the corresponding period in 2022. Factors affecting operating cash flows during the periods included:
|
· |
For the three months ended
March 31, 2023, our loss of $2.0 million was reduced by non-cash transactions including a stock-based settlement of $252,000 and
depreciation of $48,000. For three months ended March 31, 2022, our loss of $697,000 was adjusted and reduced by non-cash transactions
including amortization of debt discount on convertible notes of $215,000 and depreciation of $29,000. |
|
· |
Cash provided/(used) by
accounts receivable was ($312,000) and $196,000 for the three months ended March 31, 2023 and 2022, respectively, representing an
increase in accounts receivable for the three months ended March 31, 2023 and a decrease in accounts receivable for the three months
ended March 31, 2022. Sales are generally collected within 30 to 45 days. These changes are mainly due to timing where a few large
orders were placed and had open balances at a given date. |
|
· |
Cash used by accounts payable
was $896,000 and $279,000 for the three months ended March 31, 2023 and 2022, respectively, representing an increase in accounts
payable for both three-month periods. These changes are mainly due to orders shipping from our suppliers in China, where pre-payments
had been made but final payments were still pending. |
|
· |
Other significant changes
include an increase in customer deposits of $209,000 during the three months ended March 31, 2023, representing deposits for custom
orders placed in early 2023 for orders that will be shipped and invoiced throughout 2023. |
|
· |
Cash used for inventory
and prepaid inventories increased by $483,000 and decreased by $535,000 for the three months ended March 31, 2023 and 2022, respectively.
The increase in 2023 is primarily due to timing of significant purchases and prepayments of inventory to Chinese suppliers. Turnaround
time for receiving inventory from foreign sources can take up to 120 days, with prepayments required. The decrease in
2022 was primarily due to the Company placing limited orders in the lead-up to the IPO, which took place in April, 2022. |
Cash flows used
in investing activities
We
used cash in investing activities of $9,000 and $33,000 for the three months ended March 31, 2023 and 2022, respectively. Purchases in
2023 were for improvements of existing vehicles and purchases in 2022 were for capital purchases of property and equipment related to
expanding and improving our facilities and infrastructure. We anticipate that we
will spend up to $379,000 in 2023 as we continue to automate our new assembly line and enhance our quality control measures.
Cash flows provided by
financing activities
Cash
used in financing activities was $43,000 and $447,000 for the three months ended March 31, 2023 and 2022, respectively. For the three
months ended March 31, 2023, we paid down debt principal of $93,000, which was offset by net cash proceeds of $50,000 from the exercise
of warrants. For the three months ended March 31, 2022, we had an increase in deferred IPO costs of $424,000, paid down debt principal
of $12,000, and paid on liability for sale of future revenues of $12,000.
Contractual
and Other Obligations
Our
estimated future obligations consist of long-term operating lease liabilities. As of March 31, 2023, the Company had $3.1 million in
long-term operating lease liabilities.
CRITICAL ACCOUNTING
POLICIES AND 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 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. Our significant accounting policies
are described in Note 2 of the accompanying unaudited interim financial statements. Critical accounting policies 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.
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 March 31, 2023 and December 31, 2022, the Company had inventory that consisted of finished
assemblies totaling $2,153,057 and $2,722,765, respectively, and raw materials (inventory components, parts, and packaging) totaling
$1,773,509 and $1,807,371, respectively. The valuation of inventory includes fixed production overhead costs based on normal capacity
of the assembly warehouse.
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.
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.
The
Company accounts for lease and non-lease components as a single lease component for all its leases.
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.
Shipping and Handling
Costs
Shipping
and handling fees billed to customers are classified on the Statement of Operations as “Sales, net” and totaled $9,532 and
$4,151 during the three months ended March 31, 2023 and 2022, respectively. Shipping and handling costs for shipping product to customers
totaled $43,208 and $38,724 during the three months ended March 31, 2023 and 2022, respectively, and are classified in selling, general,
and administrative expense in the accompanying Statements of Operations.
Research and Development
Research
and development costs are expensed as incurred. Research and development costs charged to expense amounted to $77,180 and $5,316 for
the three months ended March 31, 2023 and 2022, and are included in selling, general and administrative expenses in the accompanying
Statements of Operations.
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 (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 March 31, 2023 and December 31, 2022, 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 (“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 2023 and beyond.
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This report includes
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this 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 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
that 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 and our audited financial statements include a statement that there is a substantial doubt about our ability
to continue as a going concern. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability. |
|
· |
Our
business and future growth depends on the needs and success of our customers, and we have substantial customer concentration. |
|
· |
We
may not be able to successfully manage our growth. |
|
· |
We
may be negatively impacted by public health epidemics or outbreaks, including the novel coronavirus (“COVID-19”) as well
as uncertainty in global economic conditions. |
|
· |
We
may fail to expand our sales and distribution channels and our ability to expend into international markets is uncertain. |
|
· |
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 delivery difficulties could interfere with our distribution plans
and reduce our revenue. |
|
· |
Government
reviews, inquiries, investigations, and actions could harm our business or reputation. |
|
· |
We
are dependent on third-party manufacturers and suppliers, including suppliers located outside the United States, and our operating
results could be adversely affected by changes in the cost and availability of raw materials as well as 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. |
|
· |
We
rely on two warehouse facilities and if any of our facilities becomes inoperable for any reason or if our expansion plans fail, our
ability to produce our products could be negatively impacted. |
|
· |
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. |
|
· |
We
could face potential product liability claims relating to our products, which could 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 and 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. |
|
· |
Quality
problems with our products could harm our reputation and erode our competitive position. |
|
· |
Our
ability to raise capital in the future may be limited 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. |
|
· |
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. |
|
· |
Such
other factors as discussed in Item 1A “Risk Factors” of our 2022 Form 10-K. |
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 operating results, 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.
NOTICE REGARDING
TRADEMARKS
This
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.