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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended June 30, 2024
OR
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from ______ to ______.
Commission
File Number: 001-41347
EXPION360 INC.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction of incorporation or organization)
|
81-2701049
(I.R.S
Employer Identification No.)
|
2025 SW Deerhound Ave. Redmond, OR 97756
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (541) 797-6714
N/A
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
Trading
Symbol(s) |
Name
of each exchange on which registered |
Common
Stock, par value $0.001 per share |
XPON |
The
Nasdaq Capital Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)
and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting
company |
☒ |
|
|
Emerging growth
company |
☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No ☒
As
of August 9, 2024, there were 55,576,947
shares of the registrant’s common stock, par value $0.001
per share, outstanding.
Table
of Contents
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This
quarterly report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Quarterly 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 Quarterly 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 execute on our anticipated growth strategies and manage
the expansion of our business operations effectively. |
| ● | We
may fail to expand our sales and distribution channels and increase market penetration
into target markets. |
| ● | We
are dependent on third-party manufacturers and suppliers, including suppliers located
outside of 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. |
| ● | Changes
in the economic conditions or political climate abroad could negatively impact our supply
chain or result in tariffs that would apply to our imported goods, which would impact
our operating margins. |
| ● | We
may not be able to successfully onshore our semi-automated pack assembly in a timely
manner or at all, or scale to mass production. |
| ● | 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 successfully enter into new partnerships which may negatively impact
the development of our home energy storage products and subsequent sales growth. There are significantly larger companies within the home energy storage
market and we may also lack sufficient resources to bring a commercially viable home energy product to market and successfully market
and sell to end users. |
| ● | Quality
problems with our products could harm our reputation and erode our competitive position. |
| ● | We
may need to raise additional capital to support our business, and our ability to raise
necessary capital in the future may be limited and our stockholders may be diluted by
future securities offerings. |
| ● | 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. |
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.
This
report includes statistical and other industry and market data that we obtained from industry publications and research, surveys,
and studies conducted by third parties as well as our own estimates. All of the market data used in this report involve a number
of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party
research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable,
although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities
for our products include several key assumptions based on our industry knowledge, industry publications, third-party research,
and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we
believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
Notice
Regarding Trademarks
This
Quarterly 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.
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Expion360
Inc.
Balance
Sheets
| |
| | | |
| | |
| |
June 30, 2024 (unaudited) | | |
December 31, 2023 | |
Assets | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 902,323 | | |
$ | 3,932,698 | |
Accounts receivable, net | |
| 353,006 | | |
| 154,935 | |
Inventory | |
| 3,361,832 | | |
| 3,825,390 | |
Prepaid/in-transit inventory | |
| 719,286 | | |
| 163,948 | |
Prepaid expenses and other current assets | |
| 216,660 | | |
| 189,418 | |
Total current assets | |
| 5,553,107 | | |
| 8,266,389 | |
| |
| | | |
| | |
Property and equipment | |
| 1,212,984 | | |
| 1,348,326 | |
Accumulated depreciation | |
| (467,259 | ) | |
| (430,295 | ) |
Property and equipment, net | |
| 745,725 | | |
| 918,031 | |
| |
| | | |
| | |
Other Assets | |
| | | |
| | |
Operating leases - right-of-use asset | |
| 2,399,736 | | |
| 2,662,015 | |
Deposits | |
| 58,896 | | |
| 58,896 | |
Total other assets | |
| 2,458,632 | | |
| 2,720,911 | |
Total assets | |
$ | 8,757,464 | | |
$ | 11,905,331 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 432,550 | | |
$ | 286,985 | |
Customer deposits | |
| 14,094 | | |
| 17,423 | |
Accrued expenses and other current liabilities | |
| 278,843 | | |
| 292,515 | |
Convertible note payable | |
| 2,050,757 | | |
| 2,082,856 | |
Current portion of operating lease liability | |
| 541,145 | | |
| 522,764 | |
Current portion of stockholder promissory notes | |
| 700,000 | | |
| 762,500 | |
Current portion of long-term debt | |
| 31,990 | | |
| 50,839 | |
Total current liabilities | |
| 4,049,379 | | |
| 4,015,882 | |
| |
| | | |
| | |
Long-term-debt, net of current portion | |
| 215,731 | | |
| 298,442 | |
Operating lease liability, net of current portion | |
| 1,967,593 | | |
| 2,241,325 | |
Total liabilities | |
$ | 6,232,703 | | |
$ | 6,555,649 | |
(continued
on next page)
Expion360
Inc.
Balance
Sheets - Continued
Stockholders’ equity | |
| | |
| |
Preferred stock, par value $0.001 per share; 20,000,000 authorized; zero 0shares issued and outstanding | |
| — | | |
| — | |
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 7,559,530 and 6,922,912 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| 7,560 | | |
| 6,923 | |
Additional paid-in capital | |
| 28,026,138 | | |
| 26,438,524 | |
Accumulated deficit | |
| (25,508,937 | ) | |
| (21,095,765 | ) |
Total stockholders’ equity | |
| 2,524,761 | | |
| 5,349,682 | |
Total liabilities and stockholders’ equity | |
$ | 8,757,464 | | |
$ | 11,905,331 | |
The
accompanying notes are an integral part of these financial statements.
Expion360
Inc.
Statements
of Operations (Unaudited)
| |
| | | |
| | | |
| | | |
| | |
| |
For the Three Months Ended June 30, | | |
For the Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Net sales | |
$ | 1,278,109 | | |
$ | 1,725,123 | | |
$ | 2,249,967 | | |
$ | 3,232,300 | |
Cost of sales | |
| 952,646 | | |
| 1,270,724 | | |
| 1,701,982 | | |
| 2,334,454 | |
Gross profit | |
| 325,463 | | |
| 454,399 | | |
| 547,985 | | |
| 897,846 | |
Selling, general and administrative | |
| 2,004,260 | | |
| 1,951,664 | | |
| 4,193,734 | | |
| 4,072,559 | |
Loss from operations | |
| (1,678,797 | ) | |
| (1,497,265 | ) | |
| (3,645,749 | ) | |
| (3,174,713 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expense | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| (18,596 | ) | |
| (47,764 | ) | |
| (45,460 | ) | |
| (67,897 | ) |
Interest expense | |
| 250,560 | | |
| 26,399 | | |
| 503,846 | | |
| 64,576 | |
Loss on sale of property and equipment | |
| — | | |
| 3,426 | | |
| 306 | | |
| 3,426 | |
Settlement expense | |
| 309,000 | | |
| — | | |
| 309,000 | | |
| 281,680 | |
Other (income) / expense | |
| 11 | | |
| (500 | ) | |
| (1,189 | ) | |
| (394 | ) |
Total other (income) / expense | |
| 540,975 | | |
| (18,439 | ) | |
| 766,503 | | |
| 281,391 | |
| |
| | | |
| | | |
| | | |
| | |
Franchise taxes / (refund) | |
| 460 | | |
| (38 | ) | |
| 920 | | |
| (38 | ) |
Net loss | |
$ | (2,220,232 | ) | |
$ | (1,478,788 | ) | |
$ | (4,413,172 | ) | |
$ | (3,456,066 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share (basic and diluted) | |
$ | (0.30 | ) | |
$ | (0.21 | ) | |
$ | (0.61 | ) | |
$ | (0.50 | ) |
Weighted-average number of common shares outstanding | |
| 7,357,300 | | |
| 6,910,491 | | |
| 7,182,121 | | |
| 6,862,747 | |
| |
| | | |
| | | |
| | | |
| | |
The
accompanying notes are an integral part of these financial statements.
Expion360
Inc.
Statements
of Stockholders’ Equity (Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Common Stock | | |
| | |
| | |
| |
| |
Shares | | |
Amount | | |
Additional Paid-In Capital | | |
Accumulated Deficit | | |
Total Stockholders’ Equity (Deficit) | |
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 | |
Exercise of warrants | |
| 10,151 | | |
| 10 | | |
| (20 | ) | |
| — | | |
| (10 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| (1,478,788 | ) | |
| (1,478,788 | ) |
Balance at June 30, 2023 | |
| 6,910,717 | | |
$ | 6,911 | | |
$ | 25,541,002 | | |
$ | (17,095,557 | ) | |
$ | 8,452,356 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2023 | |
| 6,922,912 | | |
$ | 6,923 | | |
$ | 26,438,524 | | |
$ | (21,095,765 | ) | |
$ | 5,349,682 | |
Stock issued for ELOC | |
| 38,224 | | |
| 38 | | |
| 125,115 | | |
| — | | |
| 125,153 | |
Proceeds received from cashless exercise of warrants | |
| 1,606 | | |
| 2 | | |
| (6 | ) | |
| — | | |
| (4 | ) |
Stock issued for interest payment | |
| 10,698 | | |
| 11 | | |
| 41,239 | | |
| — | | |
| 41,250 | |
Stock-based compensation | |
| — | | |
| — | | |
| 35,127 | | |
| — | | |
| 35,127 | |
Issuance of stock options | |
| — | | |
| — | | |
| 218,219 | | |
| — | | |
| 218,219 | |
Issuance of RSUs | |
| — | | |
| — | | |
| 51,647 | | |
| — | | |
| 51,647 | |
Settlement of vested RSUs | |
| 9,916 | | |
| 10 | | |
| 46,880 | | |
| — | | |
| 46,890 | |
Settlement of commitment shares | |
| 63,497 | | |
| 63 | | |
| (63 | ) | |
| — | | |
| — | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,192,940 | ) | |
| (2,192,940 | ) |
Balance at March 31, 2024 | |
| 7,046,853 | | |
$ | 7,047 | | |
$ | 26,956,682 | | |
$ | (23,288,705 | ) | |
$ | 3,675,024 | |
Stock issued for ELOC | |
| 395,367 | | |
| 396 | | |
| 702,943 | | |
| — | | |
| 703,339 | |
Stock issued for interest payment | |
| 15,327 | | |
| 15 | | |
| 34,546 | | |
| — | | |
| 34,561 | |
Issuance of stock options | |
| — | | |
| — | | |
| 69,416 | | |
| — | | |
| 69,416 | |
Issuance of RSUs | |
| — | | |
| — | | |
| 53,653 | | |
| — | | |
| 53,653 | |
Settlement of vested RSUs | |
| 1,983 | | |
| 2 | | |
| (2 | ) | |
| — | | |
| — | |
Stock issued as a result of settlement | |
| 100,000 | | |
| 100 | | |
| 208,900 | | |
| — | | |
| 209,000 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,220,232 | ) | |
| (2,220,232 | ) |
Balance at June 30, 2024 | |
| 7,559,530 | | |
$ | 7,560 | | |
$ | 28,026,138 | | |
$ | (25,508,937 | ) | |
$ | 2,524,761 | |
The
accompanying notes are an integral part of these financial statements.
Expion360
Inc.
Statements
of Cash Flows (Unaudited)
| |
| | | |
| | |
| |
For the Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities | |
| | | |
| | |
| |
| | | |
| | |
Net loss | |
$ | (4,413,172 | ) | |
$ | (3,456,066 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 94,866 | | |
| 101,992 | |
Amortization of convertible note costs | |
| 333,572 | | |
| — | |
Loss on sales of property and equipment | |
| 306 | | |
| 3,426 | |
Decrease in allowance for doubtful accounts | |
| — | | |
| (18,804 | ) |
Stock-based settlement | |
| 209,000 | | |
| 251,680 | |
Stock-based compensation | |
| 438,923 | | |
| — | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Increase in accounts receivable | |
| (198,071 | ) | |
| (92,359 | ) |
(Increase) / decrease in inventory | |
| 463,558 | | |
| (437,190 | ) |
Increase in prepaid/in-transit inventory | |
| (555,338 | ) | |
| (19,243 | ) |
Increase in prepaid expenses and other current assets | |
| (27,242 | ) | |
| (12,178 | ) |
Increase in deposits | |
| — | | |
| (2,795 | ) |
Increase / (decrease) in accounts payable | |
| 145,566 | | |
| (10,759 | ) |
Increase / (decrease) in customer deposits | |
| (3,329 | ) | |
| 156,881 | |
Increase / (decrease) in accrued expenses and other current liabilities | |
| 98,166 | | |
| (589 | ) |
Increase in right-of-use assets and lease liabilities | |
| 6,929 | | |
| 14,477 | |
Net cash used in operating activities | |
| (3,406,266 | ) | |
| (3,521,527 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchases of property and equipment | |
| (10,550 | ) | |
| (34,250 | ) |
Net proceeds from sales of property and equipment | |
| 87,684 | | |
| 37,964 | |
Net cash provided by investing activities | |
| 77,134 | | |
| 3,714 | |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Principal payments on convertible note | |
| (365,671 | ) | |
| — | |
Principal payments on long-term debt | |
| (101,560 | ) | |
| (136,965 | ) |
Principal payments on stockholder promissory notes | |
| (62,500 | ) | |
| — | |
Net proceeds from exercise of warrants | |
| (4 | ) | |
| 49,777 | |
Net proceeds from issuance of common stock | |
| 828,492 | | |
| — | |
Net cash provided by / (used in) financing activities | |
| 298,757 | | |
| (87,188 | ) |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| (3,030,375 | ) | |
| (3,605,001 | ) |
Cash and cash equivalents, beginning | |
| 3,932,698 | | |
| 7,201,244 | |
Cash and cash equivalents, ending | |
$ | 902,323 | | |
$ | 3,596,243 | |
(continued
on next page)
Expion360
Inc.
Statements
of Cash Flows (Unaudited) – Continued
| |
For the Six Months Ended June 30, | |
Supplemental disclosure of cash flow information: | |
2024 | | |
2023 | |
Cash paid for interest | |
$ | 67,070 | | |
$ | 64,798 | |
Cash paid / (refunded) for franchise taxes | |
$ | — | | |
$ | (39 | ) |
| |
| | | |
| | |
Non-cash financing activities: | |
| | | |
| | |
Acquisition/modification of operating lease right-of-use asset and lease liability | |
$ | — | | |
$ | (13,993 | ) |
Issuance of common stock for payment on accrued interest | |
$ | 75,811 | | |
$ | — | |
Issuance of common stock for payment on accrued compensation | |
$ | 36,029 | | |
$ | — | |
Issuance of common stock for settlement shares and vested RSUs | |
$ | 65 | | |
$ | — | |
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 (the “LLC”) with an indefinite life organized in the State of Oregon in June 2016. The LLC
elected to be treated as a Subchapter S corporation effective January 1, 2017. Net profits and losses of the LLC and all distributions
were allocated among the members in proportion to the ownership units held. The original LLC Agreement was amended and restated
on January 1, 2021 to add additional members and a non-voting class of member units. Upon conversion to a C corporation, all existing
LLC members at the time of conversion were issued shares of the Company’s common stock, par value $0.001 per share, and
became stockholders of the Company.
The
Company designs, assembles, and distributes premium lithium iron phosphate (“LiFePO4”) batteries and supporting accessories
for recreational vehicle (“RV”), marine, golf, industrial, and residential needs. LiFePO4 batteries are considered
a top choice for high energy density, dependability, longevity, and safety, providing the ability to power anything, anywhere.
2
– Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying 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- and six-month periods ended June 30, 2024 and 2023 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2024. The unaudited interim financial statements should be read in conjunction with
our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 28, 2024.
Unless
otherwise noted, all references to shares and stockholders 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 12 months after
the date that the financial statements for the three and six months ended June 30, 2024 are issued. However, management is working
to address its cash flow challenges, including raising additional capital, managing inventory levels, identifying alternative
supply chain resources, and managing operational expenses.
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 June 30, 2024 decreased 25.9% and sales for the six months ended June
30, 2024 decreased 30.4% compared to the same period in 2023, as the overall RV market experienced a severe slowdown. Through
June 30, 2024, the Company distributed $4 for the settlement of fractional shares related to warrant exercises compared to receiving
net proceeds of $49,777 from warrant exercises during the same period in 2023. On February 9, 2024, a registration statement on
Form S-1 (File No. 333-276663) was declared effective for the resale, from time to time, of up to 1,781,978 shares of the Company’s
common stock by a selling stockholder in connection with an equity line of credit financing. During the three months ended June
30, 2024, the Company sold 395,367 shares of common stock to the stockholder under the equity line of credit and received proceeds
of $703,339 compared to $0 in the same prior year period. During the six months ended June 30, 2024, the Company sold 433,591
shares of common stock to the stockholder under the equity line of credit and received proceeds of $828,492 compared to $0 in
the same prior year period. In addition, during the three months ended June 30, 2024, the Company issued 15,327 shares of common
stock to satisfy interest payments to a note holder in connection with a short-term convertible note, totaling $34,561. During
the six months ended June 30, 2024, the Company issued 26,025 shares of common stock to satisfy interest payments to a note holder
in connection with a short-term convertible note, totaling $75,811 and issued 7,936 shares of common stock for payment on accrued
compensation totaling $36,029, compared to zero shares issued during the same prior year period. 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 the Company’s 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. Management
bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements,
and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of macroeconomic
factors, including inflation, changes in interest rates, changes in commodity pricing, and recessionary concerns on its business
and operations. Although the full impact of these factors is unknown and cannot be reasonably estimated, the Company believes
it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting
date. However, actual results could vary materially from the estimates and assumptions that were used, which may result in material
effects on the Company’s financial condition, results of operations, and liquidity. 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. To the extent there are differences between these estimates and actual results, the Company’s financial statements
may be materially affected.
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 June 30, 2024, cash balances exceeded FDIC limits by $102,933 and investment accounts
totaling $521,214 are invested in US Treasury related ultra-short paper.
Accounts
Receivable
Accounts
receivable are recorded at the invoiced amount, are due within a year or less, and generally do not bear any interest. The Company
performs ongoing credit evaluations of its customers and generally requires no collateral. An allowance for uncollectible accounts
is recorded to reduce accounts receivable to the estimated amount that will be collected. The allowance is based upon management’s
review of the accounts receivable aging and specific identification of potentially uncollectible balances. Recoveries of accounts
previously written off and adjustments to the allowance for uncollectible accounts are recorded as adjustments to bad debt expense.
For the three months ended June 30, 2024 and 2023, the Company wrote off $0 and $0 to bad debt expense. For the six months ended
June 30, 2024 and 2023, the Company collected $0 and $800 of bad debt that had been written off previously. There was no allowance
for doubtful accounts as of June 30, 2024 or December 31, 2023, as management believed all outstanding amounts to be fully collectible.
Customer
Deposits
As
of June 30, 2024 and December 31, 2023, the Company had customer deposits totaling $14,094 and $17,423, 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 June 30, 2024 and December 31, 2023, the Company had inventory that consisted
of finished assemblies totaling $2,306,036 and $2,967,021, respectively, and raw materials (inventory components, parts, and packaging)
totaling $1,055,796 and $858,369, 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 June 30, 2024 or December 31, 2023. The Company prepays for
inventory purchases from foreign suppliers. Prepaid inventory totaled $719,286
and $163,948
as of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and 2023, respectively, approximately 83% and 74%, respectively, of inventory purchases were
made from foreign suppliers in Asia. During the six months ended June 30, 2024 and 2023, respectively, approximately 79% and 80%,
respectively, of inventory purchases were made from foreign suppliers in Asia. 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 Europe, enabling the Company to source materials outside of Asia 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 |
3-10
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 or six months ended June 30, 2024 or 2023.
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 12-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 June 30, 2024 and December 31, 2023 because, historically, there have been very few claims and costs for repairs or replacement
parts have been nominal. It is possible that the Company’s estimate of liability for product liability claims will change
in the near term.
Liability
for Refunds
The
Company does not have a formal return policy but does accept returns under its warranty policies. Returns have historically been
minimal. No refund liability was recognized as of June 30, 2024 or December 31, 2023. Revenue is recorded net of this amount.
Any returns of discontinued product are not added back to inventory and therefore related costs are nominal and not recorded as
an asset.
Revenue
Recognition
The
Company’s revenue is generated from the sale of products consisting primarily of batteries and accessories. The Company
recognizes revenue when control of goods or services is transferred to its customers in an amount that reflects the consideration
it is expected to be entitled to in exchange for those goods or services. To determine revenue recognition, the Company performs
the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and
(v) recognize revenue when (or as) the performance obligation(s) are satisfied. Revenue is recognized upon shipment or delivery
to the customer, as that is when the customer obtains control of the promised goods and the Company’s performance obligation
is considered satisfied. As such, accounts receivable is recorded at the time of shipment or will call, when the Company’s
right to the consideration becomes unconditional and the Company determines there are no uncertainties regarding payment terms
or transfer of control.
Concentration
of Major Customers
A
customer is considered a major customer when net revenue attributable to the customer exceeds 10% of total revenue for the period
or outstanding receivable balances exceed 10% of total receivables.
During
the three months ended June 30, 2024, sales to one customer totaled $232,513, comprising approximately 19% of total sales. This
customer represented 12% of total accounts receivable as of June 30, 2023. During the six months ended June 30, 2024, sales to
one customer totaled $284,571, comprising approximately 12% of total sales. This customer represented 12% of total accounts receivable
as of June 30, 2024. Accounts receivable from two additional customers totaled $134,362, representing approximately 38% of accounts
receivable as of June 30, 2024.
During
the three months ended June 30, 2023, sales to two customers totaled $504,334, comprising approximately 30% of total sales. These
customers represented 29% of total accounts receivable as of June 30, 2023. During the six months ended June 30, 2023, sales to
two customers totaled $708,042, comprising approximately 22% of total sales. These customers represented 29% of total accounts
receivable as of June 30, 2023. Accounts receivable from one additional customer totaled $63,388, representing approximately 16%
of accounts receivable as of June 30, 2023.
Shipping
and Handling Costs
Shipping
and handling fees billed to customers are classified on the Statement of Operations as “Net sales” and totaled $29,199
and $15,365 during the three months ended June 30, 2024 and 2023, respectively, and $51,889 and $24,898 during the six months
ended June 30, 2024 and 2023, respectively. Shipping and handling costs for shipping product to customers totaled $59,651 and
$48,549 during the three months ended June 30, 2024 and 2023, respectively, and $102,694 and $91,757 during the six months ended
June 30, 2024 and 2023, 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 $228,308 and $297,673
for the three months ended June 30, 2024 and 2023, respectively and $468,384 and $452,832 for the six months ended June 30, 2024
and 2023, 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 $84,663 and $94,078
for the three months ended June 30, 2024 and 2023, respectively, and $160,165 and $171,258 for the six months ended June 30, 2024
and 2023, respectively, and are included in selling, general and administrative expenses in the accompanying Statements of Operations.
Income
Taxes
The Company is a C corporation and its 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.
Fair
Value of Financial Instruments
The
Company accounts for its financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement. ASC Topic
820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows:
Level
1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.
The fair value hierarchy gives the highest priority to Level 1 inputs.
Level
2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. These inputs include
quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority
to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in the assessment of fair
value.
The
Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable,
short-term revolving loans, stockholder promissory notes, and long-term debt. The fair value of cash and cash equivalents, accounts
receivable, accounts payable, and short-term revolving loans approximates their respective carrying values because of the short-term
nature of those instruments. The fair value of the stockholder promissory notes, convertible notes, and long-term debt approximates
their respective carrying values because the interest rate approximates market rates available to the Company for similar obligations
with the same maturities.
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 Chief Executive Officer as the CODM.
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 June 30, | | |
Six Month Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Net loss | |
$ | (2,220,232 | ) | |
$ | (1,478,788 | ) | |
$ | (4,413,172 | ) | |
$ | (3,456,066 | ) |
Weighted average common shares outstanding – basic and diluted | |
| 7,357,300 | | |
| 6,910,491 | | |
| 7,182,121 | | |
| 6,862,747 | |
Basic and diluted net loss per share | |
$ | (0.30 | ) | |
$ | (0.21 | ) | |
$ | (0.61 | ) | |
$ | (0.50 | ) |
As
of June 30, 2024 and December 31, 2023, the Company has outstanding warrants, options, and RSUs convertible into 2,010,346 and
1,914,415 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 | |
| |
June 30,
2024 | | |
December 31,
2023 | |
Warrants | |
| 795,295 | | |
| 802,830 | |
Stock Options | |
| 1,174,500 | | |
| 1,075,000 | |
RSUs | |
| 40,551 | | |
| 36,585 | |
| |
| 2,010,346 | | |
| 1,914,415 | |
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 (“Black-Scholes”) 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
July 2023, the FASB issued ASU 2023-03, amending “Presentation of Financial Statements (Topic 205),” “Income
Statement – Reporting Comprehensive Income (Topic 220),” “Distinguishing Liabilities from Equity (Topic 480),”
“Equity (Topic 505),” and “Compensation – Stock Compensation (Topic 718).” The Company adopted this
standard effective December 15, 2023, and the adoption of this guidance did not have an impact on the Company’s financial
statements or disclosures.
In
March 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Updated (“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 adopted this standard effective January 1, 2024, and the adoption of this guidance did not have an impact on the Company’s
financial statements or disclosures.
In
June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions,” which amends the guidance in Topic 820, Fair Value Measurement, to clarify that
a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security
and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit
of account, recognize and measure a contractual sale restriction. In addition, the ASU introduces new disclosure requirements
for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal
years beginning after December 15, 2023, including interim periods within those fiscal years for public business entities. The
Company adopted this standard, effective January 1, 2024, 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 2024, the FASB issued ASU 2024-02, “Codification Improvements—Amendments to Remove References to the Concepts
Statements,” to address suggestions received from stakeholders. The Company is currently evaluating the impact of this standard
on its financial statements.
In
March 2024, the FASB issued ASU 2024-01, “Compensation—Stock Compensation,” which adds an illustrative example
to demonstrate how to apply the guidance in paragraph 718-10-15-3. The Company is currently evaluating the impact of this standard
on its financial statements.
In October 2023, the FASB issued ASU 2023-06, “Disclosure
Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative,” which affects
a variety of Topics in the Codification. The Company is currently evaluating the impact of this standard on its financial statements.
3
– Property and Equipment, Net
Property
and equipment consist of the following:
Schedule of property and equipment | |
As of | |
| |
June 30, 2024 | | |
December 31, 2023 | |
Vehicles and transportation equipment | |
$ | 406,013 | | |
$ | 551,906 | |
Leasehold improvements | |
| 314,819 | | |
| 314,819 | |
Office furniture and equipment | |
| 188,131 | | |
| 188,131 | |
Manufacturing equipment | |
| 179,274 | | |
| 179,274 | |
Warehouse equipment | |
| 81,165 | | |
| 81,164 | |
QA equipment | |
| 43,582 | | |
| 33,032 | |
Tooling and molds | |
| — | | |
| — | |
| |
$ | 1,212,984 | | |
$ | 1,348,326 | |
Less: accumulated depreciation | |
| (467,259 | ) | |
| (430,295 | ) |
Property and equipment, net | |
$ | 745,725 | | |
$ | 918,031 | |
Depreciation
expense was $45,422 and $53,872 for the three months ended June 30, 2024 and 2023, respectively. Depreciation expense was $94,866
and $101,992 for the six months ended June 30, 2024 and 2023, respectively. There were disposals and sales of fixed assets during
the six months ended June 30, 2024 and 2023 resulting in the net cash received of $87,684 and $37,964, respectively. As a result
of disposals and sales of fixed assets, the Company recognized a loss of $0 and $306 during the three and six months ended June
30, 2024, respectively, and $3,426 and $3,426 during the three and six months ended June 30, 2023, 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 | |
| |
June 30, 2024 | | |
December 31, 2023 | |
Accrued salaries and payroll liabilities | |
$ | 199,922 | | |
$ | 225,685 | |
Rebate liability | |
| 40,035 | | |
| 31,411 | |
Commissions | |
| 15,699 | | |
| 12,608 | |
Accrued Interest | |
| 15,203 | | |
| 2,839 | |
Deferred income and deposit (sublease) | |
| 4,549 | | |
| 4,445 | |
Franchise tax | |
| 3,435 | | |
| 5,262 | |
Other | |
| — | | |
| 10,265 | |
Accrued expenses and other current liabilities | |
$ | 278,843 | | |
$ | 292,515 | |
5
– Long-Term Debt
Long-term
debt consisted of the following as of June 30, 2024 and December 31, 2023:
Schedule of long term debt payment | |
As of | |
| |
June 30, 2024 | | |
December 31, 2023 | |
Note payable – bank. Payable in monthly installments of $332, including interest at 5.8% per annum, due August 2025 and are secured by equipment. | |
$ | 4,485 | | |
$ | 6,317 | |
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. This note was paid in full in March 2024. | |
| — | | |
| 14,196 | |
Note payable – SBA. Economic Injury Disaster Loan payable in monthly installments of $731, including interest at 3.75% per annum, due May 2050. | |
| 145,288 | | |
| 146,926 | |
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. | |
| — | | |
| — | |
Notes payable – The Company acquired six notes payable to GM Financial for vehicles. In April 2022, the Company secured a commercial line up to $300,000 to be used to finance vehicle purchases. The agreement expired in April 2023 but was renewed for a commercial line up to $350,000 and prevailing GM Financial existing term notes will remain. That agreement was due to expire in April 2024, but was renewed for the same limit and terms and will expire in April 2025. One note was paid off in May 2023 and two more were paid off in February 2024 when the corresponding vehicles were sold. As of June 30, 2024, the notes are currently payable in aggregate monthly installments of $2,560.15, including interest at rates ranging from 6.14% to 7.29% per annum, mature at various dates from October 2027 to May of 2028, and are secured by the related vehicles. | |
| 97,948 | | |
| 181,842 | |
Total | |
$ | 247,721 | | |
$ | 349,281 | |
Less current portion | |
| (31,990 | ) | |
| (50,839 | ) |
Long-term debt, net of unamortized debt discount and current portion | |
$ | 215,731 | | |
$ | 298,442 | |
Future
maturities of long-term debt are as follows:
Schedule of maturities of long-term debt | | |
| | |
Twelve months ending June 30, | |
2025 | | |
$ | 31,990 | |
2026 | | |
| 30,715 | |
2027 | | |
| 32,078 | |
2028 | | |
| 21,971 | |
2029 | | |
| 3,928 | |
Thereafter | | |
| 127,039 | |
Total | | |
$ | 247,721 | |
6
– Stockholder Promissory Notes
As
of June 30, 2024 and December 31, 2023, the Company had an outstanding principal balance of $700,000 and $762,500, respectively,
due to stockholders under unsecured promissory note agreements (“Notes”). The Notes require monthly interest-only
payments at 10% per annum. The Notes mature in September 2024 and December 2024 as follows: September 2024 - $500,000 (this note
would have matured in August 2023, but in June 2023, an agreement was signed extending the maturity date to August 2024, and in
June 2024, an agreement was signed further extending the maturity date to September 2024); and December 2024 - $200,000. A note
for $62,500 that matured in January 2024 was paid in January 2024.
Interest
paid to the stockholders under the Notes totaled $17,501 and $20,627 during the three months ended June 30, 2024 and June 30,
2023, respectively. Interest paid to the stockholders under the Notes totaled $35,499 and $41,254 during the six months ended
June 30, 2024 and June 30, 2023, respectively. There was no accrued interest as of June 30, 2024 or December 31, 2023 related
to these Notes.
7
– Convertible Note and Equity Line of Credit
Convertible
Note Financing
On
December 27, 2023, the Company entered into a securities purchase agreement with 3i, LP (“3i”), pursuant to which
the Company sold and 3i purchased: (i) a senior unsecured convertible note issued in the aggregate principal amount of $2,750,000,
with an 10.0% original issue discount and an interest rate of 9.0% per annum (the “3i Note”), (ii) up to $247,500
in newly issued shares of Common Stock (the “Interest Shares”), which may be payable, subject to the fulfillment of
certain conditions set forth in the 3i Note, to satisfy interest payments under the 3i Note, and (iii) 63,497 shares of Common
Stock issued to 3i as consideration for its commitment to purchase the 3i Note (collectively, the “Convertible Note Financing”).
The gross proceeds to the Company from the Convertible Note Financing were $2.5 million prior to the payment of legal fees and
transaction expenses. The offering of securities in the Convertible Note Financing was made pursuant to an effective shelf registration
statement on Form S-3 (File No. 333-272956), which the Company filed with the SEC on June 27, 2023 and was declared effective
on July 10, 2023. As of June 30, 2024, the Company has issued 26,025 shares of Common Stock for the payment of $75,811 in interest.
Equity
Line of Credit
On
December 27, 2023, the Company entered into a common stock purchase agreement with Tumim Stone Capital, LLC (“Tumim”),
pursuant to which the Company has the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase, up
to the lesser of (a) $20,000,000 in aggregate gross purchase price of newly issued Common Stock and (b) the Exchange Cap (as defined
in the purchase agreement) (the “Equity Line of Credit”). In connection with the Equity Line of Credit, the Company
filed a Registration Statement on Form S-1 (File No. 333-276663) with the SEC on January 23, 2024, which was declared effective
on February 9, 2024. As of June 30, 2024, the Company has sold 433,591 shares of Common Stock under the Equity Line of Credit
for an aggregate amount of $828,492, of which $418,511 was used to repay a portion of the balance under the 3i Note, consisting
of $365,671 to the loan principal, $32,910 to interest, and $19,929 as a redemption premium.
See
Note 9 – “Convertible Note and Equity Line of Credit” in the Company’s consolidated financial statements
in Part IV of the Annual Report for further information on the 3i Note and Equity Line of Credit, and see Note 13 – “Subsequent
Events” in this Quarterly Report for information relating to the payoff of the 3i Note and termination of the Equity Line
of Credit.
8
– Commitments and Contingencies
Operating
Leases
The
Company leases its warehouses and office space under long-term lease arrangements. None of its leases include characteristics
specified in ASC 842, Leases, that require classification as financing leases, and accordingly, these leases are accounted for
as operating leases. The Company does not recognize an ROU 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 ROU asset
and lease liability are initially measured at the commencement date based upon the present values of the lease payments due under
the leases.
The
implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company
applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date,
to determine the present value of lease payments due under the arrangement. Under ASC 842, the incremental borrowing rate (“IBR”)
for leases must be (1) a rate of interest over a similar term, and (2) for an amount that is equal to the lease payments. The
Company uses both the Federal Reserve Economic Data U.S. corporate debt effective yield and the U.S. Treasury rates adjusted for
credit spread as the primary data points for purposes of determining the IBR.
In the first quarter of 2022, the Company entered
into two new long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the Company recognizing
an additional lease liability 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 ROU assets of $2,348,509. The leases expire in December 2026 and December 2028, the
latter of which contains one three-year option to renew.
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 ROU asset of $1,268,089. The lease
expires in January 2028 and contains one three-year option to renew.
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.
The
following is a summary of total lease costs during the three and six months ended June 30, 2024 and 2023:
Schedule of lease cost | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Operating lease cost | |
$ | 187,316 | | |
$ | 187,315 | | |
$ | 373,661 | | |
$ | 375,344 | |
Short-term lease costs | |
| — | | |
| — | | |
| — | | |
| 150 | |
Variable lease costs | |
| — | | |
| — | | |
| — | | |
| — | |
Sublease income | |
| (10,753 | ) | |
| (10,440 | ) | |
| (21,298 | ) | |
| (29,036 | ) |
Total lease costs | |
$ | 176,563 | | |
$ | 176,875 | | |
$ | 352,363 | | |
$ | 346,458 | |
The
weighted-average remaining lease term was 4.07 years and 4.54 years as of June 30, 2024 and December 31, 2023, respectively. The
weighted average discount rate was 8.45% and 8.47%, as of June 30, 2024 and December 31, 2023, respectively. Operating cash flows
from the operating leases totaled $129,442 and $114,110 for the three months ended June 30, 2024 and 2023, respectively, and $255,351
and $206,217 for the six months ended June 30, 2024 and 2023, respectively.
The
total lease liability as of June 30, 2024 and December 31, 2023 was $2,508,738 and $2,764,089, respectively.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of June 30, 2024,
for years ending June 30:
Schedule of future minimum lease payment | | |
Total | |
2025 | | |
$ | 731,576 | |
2026 | | |
| 722,239 | |
2027 | | |
| 713,041 | |
2028 | | |
| 593,930 | |
2029 | | |
| 225,139 | |
Thereafter | | |
| — | |
Total future minimum lease payments | | |
$ | 2,985,925 | |
Less imputed interest | | |
| (447,187 | ) |
Total | | |
$ | 2,508,738 | |
| | |
| | |
Current lease liability | | |
$ | 541,145 | |
Non-current lease liability | | |
| 1,967,593 | |
Total | | |
$ | 2,508,738 | |
Subleases
As
of June 30, 2024, the Company subleases office and warehouse space under one of its existing operating leases with similar terms
as the Company’s lease agreements. Two additional leases terminated in February 2023. Because the Company is not relieved
of its primary obligations under the original lease, the Company accounts for the subleases as a lessor. Sublease rental income
is recorded based on the contractual rental payments which are not substantially different from recognition on a straight-line
basis over the lease term and totaled $10,753 and $10,440 during the three months ended June 30, 2024 and 2023, respectively,
and $21,298 and $29,036 during the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31,
2023, deferred income and a sublease deposit totaled $4,549 and $4,445, respectively, and is included in accrued expenses and
other current liabilities on the accompanying Balance Sheets.
The
total future minimum sublease payments are $28,675, all due in the twelve months ending June 30, 2024.
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.
SEC
Investigation
As
previously disclosed, on May 6, 2024, the Company received a subpoena from the SEC requesting documents and communications concerning
certain press releases. On May 23, 2024, the SEC staff notified the Company that they have concluded their investigation, and
based on the information acquired to date, do not intend to recommend an enforcement action against the Company.
9
– 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.
As
of June 30, 2024, the Company has issued 26,025 shares of common stock for the payment of $75,811 in interest applied to the 3i
Note. As of June 30, 2024, the Company has sold 433,591 shares of common stock for an aggregate amount of $828,492 of which $418,511
was used to repay a portion of the balance under the 3i Note, consisting of $365,671 to the loan principal, $32,910 to interest
and $19,929 as a redemption premium.
On
May 2, 2024, at the closing price of $2.09 per share, the Company agreed to issue 100,000 shares of common stock valued at $209,000
as well as $100,000 in cash as part of a settlement agreement for a total value of $309,000.
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 a settlement
agreement for a total value of $251,680.
On
January 16, 2023, at the closing price of $4.54 per share, the Company issued 7,936 shares of common stock for stock-based compensation
that had been accrued in 2023, for a total value of $36,029.
As
of June 30, 2024 and December 31, 2023, 7,559,530 and 6,922,912 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.
Warrants/Options
During
the six months ending June 30, 2024, 7,535 warrants exercisable at $3.32 per share were exercised using the cashless conversion
option which resulted in the issuance of 1,606 shares of common stock. This leaves 514,290 warrants remaining with an exercise
price of $3.32. As part of a settlement agreement on May 2, 2024, the Company agreed to modify the exercise price of 88,803 shares
from $9.10 to $4.50.
During
the six months ended June 30, 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. In addition, 22,606 warrants exercisable at $3.32 per share were exercised using
the cashless conversion option, which resulted in the issuance of 10,151 shares of common stock. This leaves 521,825 warrants
remaining with an exercise price of $3.32.
During
the six months ended June 30, 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 June 30, 2024 and December 31, 2023, a total of 765,295 and 772,830 warrants were issued and outstanding, respectively. As
of June 30, 2024 and December 31, 2023, a total of 30,000 options, which were not issued under a specified plan, were outstanding.
Below is a summary of warrants and stock options issued and outstanding as of June 30, 2024:
Schedule of various warrants/options issued and outstanding |
|
|
|
|
|
Number
of Warrants / Non-plan Options |
|
Exercise
Price |
|
Weighted
Average Remaining Life (Years) |
78,000 |
|
|
$2.90 |
|
0.36 |
544,290 |
(1) |
|
$3.32 |
|
7.01 |
88,803 |
|
|
$4.50 |
|
2.75 |
25,000 |
|
|
$5.00 |
|
1.11 |
59,202 |
|
|
$9.10 |
|
2.75 |
795,295 |
|
|
|
|
|
See
Note 11 – “Stockholders’ Equity” in the Company’s consolidated financial statements in Part IV of
the Annual Report for further information regarding the Company’s outstanding warrants and stock options.
Equity
Plans
As
of June 30, 2024, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan and the 2021 Employee
Stock Purchase Plan.
During
the three months ended June 30, 2024, the Company granted 0 RSUs, granted 0 options, and canceled 2,500 options under the 2021
Incentive Award Plan. During the six months ended June 30, 2024, the Company granted 15,865 RSUs, granted 104,500 options, and
canceled 5,000 options under the 2021 Incentive Award Plan. The compensation costs that have been charged against operations were
$123,069 and $0 for the three months ended June 30, 2024 and 2023, and were $438,923 and $0 for the six months ended June 30,
2024 and 2023.
No
shares have been issued to date under the 2021 Employee Stock Purchase Plan.
See
Note 11 – “Stockholders’ Equity” in the Company’s consolidated financial statements in Part IV of
the Annual Report for further information regarding the 2021 Incentive Award Plan and 2021 Employee Stock Purchase Plan.
2021
Incentive Award Plan
The
purpose of the Company’s 2021 Incentive Award Plan is to enhance the Company’s ability to attract, retain and motivate
persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership
opportunities. Various stock-based awards may be granted under the 2021 Incentive Award Plan to eligible employees, consultants,
and non-employee directors. The number of shares issued under the 2021 Incentive Award Plan is subject to limits and is adjusted
annually. As of June 30, 2024, the aggregate number of shares that can be issued under the 2021 Incentive Award Plan is 1,795,768,
of which 1,174,500 options and 64,645 RSUs have been granted.
2021
Employee Stock Purchase Plan
The
purpose of the Company’s 2021 Employee Stock Purchase Plan is to assist eligible employees of the Company in acquiring a
stock ownership in the Company and to help such employees provide for their future security and to encourage them to remain in
the employment of the Company. The 2021 Employee Stock Purchase Plan consists of a Section 423 Component and Non-Section 423 Component.
The Section 423 Component is intended to qualify as an employee stock purchase plan and authorizes the grant of options. Options
granted under the Non-Section 423 Component are granted pursuant to separate offerings containing sub-plans. Option awards are
generally granted with an exercise price equal to 85% of the lesser of the fair market value of a share on (a) the applicable
grant date and (b) the applicable exercise date, or such other price as designated by the administrator, provided that in no event
shall the option price be less that the per share par value price. The maximum number of shares granted under the 2021 Employee
Stock Purchase Plan may 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 through June 30, 2024 using the following assumptions:
Schedule of fair value of assumptions |
|
|
Expected
volatility |
110.51 |
% |
Expected dividends |
None |
|
Expected term (in
years) |
4.87 |
|
Risk free rate |
3.35 |
% |
The
following table summarizes the Company’s stock option activity under the 2021 Incentive Award Plan:
Schedule of stock option activity | | |
| | | |
| | | |
| | | |
| | |
| | |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (Years) | | |
Aggregate Intrinsic Value (1) | |
Outstanding at beginning of period | | |
| 1,177,000 | | |
$ | 3.75 | | |
| — | | |
$ | — | |
Granted | | |
| — | | |
| 3.45 | | |
| — | | |
| — | |
Exercised | | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited | | |
| 2,500 | | |
| — | | |
| — | | |
| — | |
Outstanding at end of period | | |
| 1,174,500 | | |
$ | 3.75 | | |
| 8.96 | | |
$ | — | |
Exercisable at end of period | | |
| 1,012,222 | | |
$ | 3.62 | | |
| 8.90 | | |
$ | — | |
During
the three and six months ended June 30, 2024, the weighted-average grant-date fair value of the options granted to employees and
non-employees was $0 and $312,873, and was $0 and $0 for the three and six months ended June 30, 2023. Unrecognized compensation
expense related to employees and non-employees was $687,397 as of December 31, 2023. The options granted in May 2022 were vested
100% at time of grant. The options granted in August 2023 began to vest in equal quarterly installments beginning September 30,
2023 and ending June 30, 2026. The options granted in March 2024 vested 50% at time of grant with the remaining shares vesting
in 12 equal consecutive quarterly installments commencing June 30, 2024 and becoming fully vested on March 31, 2027.
The
following table summarizes the Company’s RSU activity under the 2021 Incentive Award Plan:
Schedule of RSU activity | |
| | | |
| | |
| |
Number of restricted stock awards | | |
Weighted average grant-date fair value | |
Nonvested at beginning of year | |
$ | 36,585 | | |
$ | 179,998 | |
Granted | |
| 15,865 | | |
| 72,027 | |
Vested | |
| (11,889 | ) | |
| (54,021 | ) |
Forfeited | |
| — | | |
| — | |
Nonvested as of June 30, 2024 | |
$ | 40,551 | | |
$ | 198,004 | |
There
was $35,585 of total unrecognized compensation cost related to non-vested RSUs that are expected to be recognized over a period
of up to 0.16 years.
Common
Stock Reserved for Future Issuance
The
following is a summary of common stock shares reserved for future issuance as of June 30, 2024:
Schedule of common stock shares reserved for future issuance | |
| | |
Exercise of warrants | |
| 765,295 | |
Exercise of options unrelated to any Plan | |
| 30,000 | |
Exercise of stock options – 2021 Incentive Award Plan | |
| 1,174,500 | |
Exercise of restricted stock units – 2021 Incentive Award Plan | |
| 40,551 | |
Total shares of common stock reserved for future issuances | |
| 2,010,346 | |
10
– Income Taxes
The
Company has incurred losses and consequently recorded no provision beyond the minimum or base tax rate for state or federal income
taxes for the three and six months ended June 30, 2024. 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 June 30, 2024 and December 31,
2023, 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 and six months ended June 30, 2024, the Company accrued $460 and $920 for 2024 state
income taxes, respectively, and for the three and six months ended June 30, 2023, the Company received a refund of state taxes
of $38 and $38.
11
– 401(k) Plan
The
Company adopted a 401(k) Plan for the benefit of its employees. Employees may contribute to the 401(k) 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.
12
– Related Party Transactions
As
of June 30, 2024 and December 31, 2023, related-party transactions consisted of the issuance of the Notes. See Note 6 –
“Stockholder Promissory Notes” in this Quarterly Report for additional information about the Notes.
13
– Subsequent Events
The
Company evaluated all events and transactions that occurred after June 30, 2024, the date of the most recent Balance Sheets, through
August 14, 2024, the date the unaudited financial statements were issued.
Share Issuances
In
July 2024, 15,434 shares were issued for non-cash payment of interest on the 3i Note of $15,028. In addition, 1,983 shares valued
at $9,000 were issued due to vesting of RSUs that had been awarded as stock-based compensation.
August
2024 Public Offering
On
August 7, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp., the underwriter, in connection with
a firm commitment underwritten public offering (such transaction, the “2024 Public Offering”) of 50,000,000 units
(“Units”) based on a public offering price of $0.20 per Unit, resulting in net proceeds of approximately $8.7 million,
after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. Each Unit consists
of one share (each, a “Share”) of Common Stock (or one pre-funded warrant to purchase one share of Common Stock (in
lieu of one Share, each a “Pre-Funded Warrant”), two Series A warrants each to purchase one share of Common Stock
and one Series B Warrant to purchase such number of shares of Common Stock as determined in the Series B Warrant. The 2024 Public
Offering closed on August 8, 2024. See “August 2024 Public Offering” in Management’s Discussion and Analysis
of Financial Condition and Results of Operations in this Quarterly Report for more information on the 2024 Public Offering.
Payoff
of 3i Note
On
August 8, 2024, in connection with the closing of the 2024 Public Offering, the Company repaid the 3i Note, and the Company’s
obligations under the 3i Note were fully satisfied and discharged.
Termination
of Equity Line of Credit
In
connection with the 2024 Public Offering, the Company and Tumim mutually agreed to terminate the Equity Line of Credit, effective
immediately upon the closing of the 2024 Public Offering.
Termination
of Right of First Refusal
On July 1, 2024, the Company entered into a Mutual
Termination Agreement with Alexander Capital L.P. (“Alexander”) (the “Termination Agreement”), pursuant to which
the parties agreed to terminate a certain provision in that certain underwriting agreement, dated March 31, 2022, between the Company
and Alexander, as representative of the underwriters, which granted Alexander a right of first refusal to act as the Company’s financial
advisor, book-runner, book-running manager, manager, placement agent, or underwriter in connection with any transaction contemplated or
consummated by us (the “ROFR Provision”). In exchange for the termination of the ROFR Provision, and in connection with the
closing of the 2024 Public Offering, the Company made a cash payment to Alexander in the amount of $400,900.
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 our condensed consolidated financial statements and the related
notes for the three and six months ended June 30, 2024 and 2023 included in Part 1, Item 1, “Financial Statements,” within
this Quarterly Report on Form 10-Q (this “Quarterly Report”) and our audited consolidated financial statements and related
notes for the fiscal years ended December 31, 2023 and 2022, included in Part II, Item 8, “Financial Statements and Supplementary
Data,” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission
(“SEC”) on March 28, 2024 (the “Annual Report”). Certain statements included in this discussion and analysis constitute
“forward-looking statements” that are subject to inherent risks and uncertainties that may adversely impact our operations
and financial results. These risks and uncertainties are described in Item 1A, “Risk Factors”
in our Annual Report, as well as in our other public filings with the SEC. Please also see the information under the heading “Cautionary
Note Regarding Forward-Looking Statements and Industry Data” in this Quarterly Report. 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. Certain other amounts that appear in this section may not sum due to
rounding.
OVERVIEW
Expion360
focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting
accessories for recreational vehicles (“RVs”), marine applications and home energy storage products with plans to
expand into industrial applications. 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 and marine industries. We are developing our e360 Home Energy Storage System, which we expect
to change the industry in barrier price, flexibility, and integration. We are deploying multiple intellectual property strategies
with research and products to sustain and scale the business. We currently have customers consisting of dealers, wholesalers,
private label customers, and original equipment manufacturers (“OEMs”) who are driving revenue and brand awareness
nationally.
Our
primary target markets are currently the RV and marine industries. 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. We are
also focused on expanding into the home energy storage market with the introduction of our two LiFePO4 battery storage solutions,
where we aim to provide a cost-effective, low barrier of entry, 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.
Our
e360 product line, which is manufactured for the RV and marine industries, was launched in December 2020. The e360 product line,
through its sales growth, has shown to be a preferred conversion solution for lead-acid batteries. In December 2023, we announced
our entrance into the home energy storge market with our introduction of two LiFePO4 battery storage solutions that enable residential
and small business customers to create their own stable micro-energy grid and lessen the impact of increasing power fluctuations
and outages. 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 the lifespan of certain lead-acid batteries and with ten times the number of charging
cycles. Furthermore, we believe that 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 the Renogy Deep Cycle AGM, which is rated at 100Ah,
to our own LFP 100Ah battery and assuming slow discharge at a 1C rate).
In addition, in September 2023, we introduced a new
4.5 Ah 26650 lithium-ion phosphate battery cell, which will allow us to increase energy density by over 32% compared to traditional 3.4
Ah 26650 cells. The 12 volt 450 Ah battery, our first e360 battery incorporating our 4.5 Ah cell technology, was also introduced in September
2023.
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 intend to complete 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.
Expansion
into New Markets
In
furtherance of our vision of stored energy, in the second quarter of 2023, we commenced deliveries of a portable power generator
product, the AURA POWERCAP™ 600 (the “Aura 600”). The Aura 600 is designed to fit and convert any one of our
Group 24 lithium batteries into a 600W mobile power station. The Aura 600’s proprietary patent pending design allows it
to join seamlessly to 60Ah, 80Ah, and 95Ah Expion360 batteries. The Aura 600 is an exclusive fit to Expion360 batteries and is
not compatible with other brands. The Aura 600 contains 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 our lightweight portable solar panel options, which are sold separately.
Additionally,
in June 2023, we unveiled e360 SmartTalk, an innovative mobile app that allows the seamless integration and management of e360
Bluetooth-enabled LiFePO4 batteries. The technology enables users to wirelessly monitor and manage e360 batteries, providing a
view of individual battery conditions and performance as well as a comprehensive view of an entire power bank consisting of multiple
e360 batteries. The 48 Volt GC2 LiFePO4 battery was also introduced in June 2023 as our first e360 SmartTalk Battery for powering
electric golf carts and other light electric vehicles (“LEVs”).
In December 2023, we entered the home energy
storage market with our introduction of two LiFePO4 battery storage solutions: a wall mounted all-in-one inverter and 10kW battery and
an expandable server rack style battery cabinet system. We believe our new home energy storage product line will benefit from a fast-growing
battery energy storage market, which is forecasted by Markets and Markets to grow at a 26.4% CAGR to reach $17.5 billion by 2028. Further,
according to Clean Energy Group, approximately 3.2 million homes in the United States have solar panels installed, but only about 6.0%
of residential solar systems have battery storage. Our home energy storage products are currently under development including UL testing
and certification, in addition to other requirements for various Authorities Having Jurisdiction (“AHJ”).
In January 2024, we introduced our next generation
GC2 and Group 27 series LiFePO4 batteries. The new versions now include higher amp-hour options (4.0Ah and 4.5Ah cell technology) and
the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction™ internal
heating, Bluetooth® and controller area network communication. We began taking pre-orders for the new GC2 and Group 27 batteries in
the first quarter of 2024 with deliveries beginning in the second quarter of 2024.
Strong National Retail Customers and Distribution
Channels
We have sales relationships with many major RV and
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. Current and former members of management have used their decades of experience in the energy and RV industries to cultivate relationships
with numerous retailers in the space, including Camping World, a leading national RV retailer; and Meyer Distributing, Inc., a leading
national marketer and distributor of automotive and RV specialty products.
Home Energy Integration
We are currently having discussions with integration
partners. This is key for the development of our home energy storage products and subsequent sales growth.
RECENT
DEVELOPMENTS
August
2024 Public Offering
On
August 7, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital
Corp., the underwriter (“Aegis”), in connection with a firm commitment underwritten public offering (such transaction,
the “2024 Public Offering”) of 50,000,000 units (“Units”), each Unit consisting of one share (each, a
“Share”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), two Series
A warrants each to purchase one share of Common Stock (each, a “Series A Warrant”) and one Series B Warrant to purchase
such number of shares of Common Stock as determined in the Series B Warrant (each, a “Series B Warrant”).
Purchasers
of Units whose purchase would otherwise have resulted in the purchaser’s beneficial ownership exceeding 4.99% of the Company’s
outstanding Common Stock immediately following the closing of the 2024 Public Offering were able to purchase Units consisting
of one pre-funded warrant to purchase one share of Common Stock (in lieu of one Share, each a “Pre-Funded Warrant”),
two Series A Warrants and one Series B Warrant. For each Unit including a Pre-Funded Warrant (without regard to any limitation
on exercise set forth therein), the number of Units including a Share were offered decreased on a one-for-one basis.
In
addition, the Company granted Aegis a 45-day option to purchase additional Shares and/or Pre-Funded Warrants and/or Series A Warrants
and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the 2024 Public Offering,
solely to cover over-allotments, if any. Aegis partially exercised its over-allotment option with respect to an additional 15,000,000
Series A Warrants and 7,500,000 Series B Warrants.
The
2024 Public Offering closed on August 8, 2024. Of the 50,000,000 Units sold in the 2024 Public Offering, 33,402,000 were issued with
Shares and 16,598,000 were issued with Pre-Funded Warrants. Subsequent to the closing of the 2024 Public Offering, 14,598,000 of the
Pre-Funded Warrants have been exercised for Shares.
The
Units were offered at a public offering price of $0.20 per Unit, resulting in total gross proceeds of $10.0 million. The Company
estimates that the net proceeds from the 2024 Public Offering, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, are approximately $8.7 million. The Company has used a portion of the net proceeds from
the 2024 Public Offering to repay approximately $2.7 million due under the3i Note, and intends to use a portion of the net proceeds
to repay an aggregate of approximately $0.7 million due to stockholders under certain unsecured promissory note agreements, as
well as for working capital and general corporate purposes.
The
Shares, the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants and the shares of Common Stock issuable upon
exercise of the Pre-Funded Warrants, the Series A Warrants and the Series B Warrants described above, were offered by the Company
pursuant to a Registration Statement on Form S-1 (File No. 333-280996), initially filed on July 25, 2024 with the SEC under the
Securities Act of 1933, as amended (the “Securities Act”), as amended on August 2, 2024, and declared effective by
the SEC on August 6, 2024.
Termination
of Equity Line of Credit
In
connection with the 2024 Public Offering, the Company and Tumim Stone Capital, LLC (“Tumim”) mutually agreed to terminate
that certain Common Stock Purchase Agreement, dated December 27, 2023 (the “Common Stock Purchase Agreement”), effective
immediately upon the closing of the 2024 Public Offering.
Settlement
with Alexander Capital L.P.
On
May 2, 2024, the Company entered into a Settlement and Mutual Release with Alexander Capital L.P. (“Alexander”), pursuant
to which the parties resolved certain disputes while not admitting any liability or wrongdoing (the “Settlement Agreement”).
We agreed to (i) make a single cash payment of $100,000, (ii) issue 100,000 shares of Common Stock, and (iii) amend certain outstanding
warrants to reduce the per share exercise price from $9.10 to $4.50. The shares of Common Stock were issued pursuant to an effective
Registration Statement on Form S-3 (File No. 333-272956). The Settlement Agreement also contains other customary provisions, including
a mutual release of claims and mutual non-disparagement provision.
Termination
of Right of First Refusal
On
July 1, 2024, the Company entered into a Mutual Termination Agreement with Alexander (the “Termination Agreement”),
pursuant to which the parties agreed to terminate a certain provision in that certain underwriting agreement, dated March 31,
2022, between the Company and Alexander, as representative of the underwriters, which granted Alexander a right of first refusal
to act as the Company’s financial advisor, book-runner, book-running manager, manager, placement agent, or underwriter in
connection with any transaction contemplated or consummated by us (the “ROFR Provision”). In exchange for the termination
of the ROFR Provision, and in connection with the closing of the 2024 Public Offering, the Company made a cash payment to Alexander
in the amount of $400,900.
New
Products
In May 2024, we announced the launch of our Edge™
battery, which is designed for off-grid enthusiasts, bringing a new Expion360 option designed with performance, reliability, and versatility
in mind. We began taking pre-orders for our Edge battery in the second quarter of 2024, with deliveries beginning in the third quarter
of 2024.
Key
Factors Affecting Our BUSINESS AND Results OF OPERATIONS
We
believe there are several important factors that have impacted and will continue to impact our business, financial condition,
and results of operations.
Consumer
Demand
Although
most of our current sales are generated through dealers, wholesalers, and OEMs 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, including, but not limited to, fuel costs, overall macroeconomic conditions,
inflation, interest rates, and geopolitical pressures. 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, higher interest rates, and other changes
in macroeconomic conditions, which have resulted in decreased end user spending decisions which is affecting our industry. These
conditions may continue to have a negative effect on our business, financial condition, and results of operations.
While RV and marine applications drive current revenues,
in December 2023, we announced our plans to enter the home energy storage market with our introduction of two LiFePO4 battery storage
solutions. Our e360 Home Energy Storage System aims to provide a cost-effective, low barrier of entry, flexible system for those looking
to power their homes via solar energy, wind, or grid back-up. 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 the home. The success of our strategy depends on (i) our continued
growth of these addressable markets in line with our expectations, and (ii) our ability to successfully enter these markets with commercially
viable 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. We may lack the resources to execute our plans in home energy storage. 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 Asia, 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 foreign 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 components 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. Our battery cell manufacturers have joint venture factories outside of Asia
and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, we secured a secondary
source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us to source materials outside
of Asia in the event it becomes necessary or desirable to do so.
Product
and Customer Mix
As
of June 30, 2024, we sell 14 models of LiFEPO4 batteries, the Aura 600, and individual or bundled accessories for battery systems,
seven of which we have released over the last 12 months. 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 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 and/or
components or manufacture their products and/or components under a private label. As we develop new products and expand into new
markets, we may experience competition with a broader range of companies. These companies may have more resources than us and
be able to allocate more resources to their current and future products. Our competitors may source products or components at
lower costs than us, which may require us to evaluate our own costs, lower our product prices, or increase our sales volume to
maintain our expected profitability levels.
Research
and Development
We
anticipate that additional investments in our infrastructure and research and development spending will be required to scale our
operations and increase productivity, address the needs of our customers, further develop and enhance our products and services,
and expand into new geographic areas and market segments.
New
technologies are rapidly emerging in the markets where we conduct business and many new energy storage technologies have been
introduced over the past several years. Our ability to achieve significant and sustained penetration of key developing markets,
including the RV 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. Accordingly, we may need to seek additional debt and equity financing to fund our research and development
efforts and planned growth.
Certifications
We
are completing the final requirements to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and
on our 48V GC2 battery. We anticipate receiving the UL Safety Certifications, and once this milestone has been achieved, all of
the batteries produced by us will have a UL Safety Certification, emphasizing our commitment to quality, safety and service for
our customers.
COMPONENTS
OF OUR RESULTS OF OPERATIONS
Revenue
Our
revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control
of goods or services is transferred to our customers in an amount that reflects the consideration it is expected to be entitled
to in exchange for those goods or services. All of our sales are primarily within the United States.
Cost
of Sales
Our
primary cost of sales as a percentage of sales is related to our direct product and landing costs. Direct labor costs consist
of payroll costs (including taxes and benefits) of employees directly engaged in assembly activities. Per full absorption cost
accounting, overhead related to our cost of sales is added, consisting primarily of warehouse rent and utilities. The costs can
increase or decrease based on costs of product and assembly parts (purchased at market pricing), customer supply requirements,
and the amount of labor required to assemble a product, along with the allocation of fixed overhead.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist primarily of salaries and benefits, legal and professional fees, and sales and marketing
costs. Other costs include facility and related costs, research and development, software and information technology, and travel
expenses.
Interest
Expense and Other Expense (Income)
Interest
expense consists of interest costs on loans with interest rates ranging from 3.75% to 10.0% and amortization of convertible note
costs. The amortized convertible note costs were $167,000 and $334,000 for the three and six months ended June 30, 2024, and $0
for each of the same periods in the prior year.
Provision
for Income Taxes
We
are subject to corporate federal and state income taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using
the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. Deferred income tax expense represents the change during the period in the deferred tax
assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We
have adopted the provisions in ASC 740, Income Taxes, related to accounting for uncertain tax positions, which require recognition
of the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination
and on the technical merits of the position. We have concluded that there were no material unrecognized tax benefits as of June
30, 2024 or December 31, 2023.
Our
practice is to recognize interest and/or penalties related to income tax matters as income tax expense. We had no accrual for
interest or penalties on our balance sheet at June 30, 2024 or December 31, 2023 and did not recognize any interest and/or penalties
in our statement of operations for the three and six months ended June 30, 2024 and 2023, since there are no material unrecognized
tax benefits. We do not expect any material change to the amount of unrecognized tax benefits to occur within the next 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 periods presented:
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Net sales | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
Cost of sales | |
| 74.5 | | |
| 73.7 | | |
| 75.6 | | |
| 72.2 | |
Gross profit | |
| 25.5 | | |
| 26.3 | | |
| 24.4 | | |
| 27.8 | |
Selling, general, and administrative expenses | |
| 156.8 | | |
| 113.1 | | |
| 186.4 | | |
| 126.0 | |
Loss from operations | |
| (131.4 | ) | |
| (86.8 | ) | |
| (162.0 | ) | |
| (98.2 | ) |
Other expense — net | |
| 42.3 | | |
| (1.1 | ) | |
| 34.1 | | |
| 8.7 | |
Loss before income taxes | |
| (173.7 | ) | |
| (85.7 | ) | |
| (196.1 | ) | |
| (106.9 | ) |
Net loss | |
| (173.7 | ) | |
| (85.7 | ) | |
| (196.1 | ) | |
| (106.9 | ) |
Net
sales
Net
sales for the three months ended June 30, 2024 decreased by $447,000, or 25.9%, compared to the three months ended June 30, 2023.
Sales were $1.7 million for the three months ended June 30, 2023 and $1.3 million for the three months ended June 30, 2024.
Net
sales for the six months ended June 30, 2024 decreased by $982,000, or 30.4%, compared to the six months ended June 30, 2023.
Sales were $3.2 million for the six months ended June 30, 2023 and $2.2 million for the six months ended June 30, 2024.
The
decrease in net sales was primarily attributable to the lingering effects of the downturn in the RV market, combined with customers
limiting orders in anticipation of the availability of our new products with enhanced features.
Cost
of Sales
Total
cost of sales for the three months ended June 30, 2024 decreased by $318,000, or 25.0%, compared to the three months ended June
30, 2023. Cost of sales were $1.3 million for the three months ended June 30, 2023 and $953,000 for the three months ended June
30, 2024. Cost of sales as a percentage of sales increased by 0.9% in that period.
Total
cost of sales for the six months ended June 30, 2024 decreased by $632,000, or 27.1%, compared to the six months ended June 30,
2023. Cost of sales were $2.3 million for the six months ended June 30, 2023 and $1.7 million for the six months ended June 30,
2024. Cost of sales as a percentage of sales increased by 3.4% in that period.
The
percentage increase in cost of sales was primarily related to the decrease in net sales resulting in higher fixed overhead costs
per unit.
Gross
Profit
Our
gross profit for the three months ended June 30, 2024 decreased by $129,000, or 28.4%, compared to the three months ended June
30, 2023. Gross profit was $454,000 for the three months ended June 30, 2023 and $325,000 for the three months ended June 30,
2024. Gross profit as a percentage of sales decreased by 0.9% for that period, from 26.3% for the three months ended June 30,
2023 to 25.5% for the three months ended June 30, 2024.
Our
gross profit for the six months ended June 30, 2024 decreased by $350,000, or 39.0%, compared to the six months ended June 30,
2023. Gross profit was $898,000 for the six months ended June 30, 2023 and $548,000 for the six months ended June 30, 2024. Gross
profit as a percentage of sales decreased by 3.4% for that period, from 27.8% for the six months ended June 30, 2023 to 24.4%
for the six months ended June 30, 2024.
The
decrease in gross profit for both periods was primarily attributable to decreases in sales which drove higher fixed overhead costs
per unit.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses for the three months ended June 30, 2024 increased by $53,000, or 2.7%, compared to the three
months ended June 30, 2023. Selling, general and administrative expenses were $2.0 million for the three months ended June 30,
2024 and 2023. For the three months ended June 30, 2024, increases in legal fees and insurance costs were largely offset by decreases
in sales and marketing expenses and salaries and benefits.
Selling,
general and administrative expenses for the six months ended June 30, 2024 increased by $121,000, or 3.0%, compared to the six
months ended June 30, 2023. Selling, general and administrative expenses were $4.1 million for the six months ended June 30, 2023
and $4.2 million for the six months ended June 30, 2024. For the six months ended June 30, 2024, increases in salaries and benefits
and insurance costs were largely offset by a decrease in legal fees and travel expenses.
Presented
in the table below is the composition of selling, general and administrative expenses for the periods presented:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Salaries and benefits | |
$ | 806,115 | | |
$ | 845,479 | | |
$ | 1,812,056 | | |
$ | 1,625,738 | |
Legal and professional | |
| 471,193 | | |
| 318,661 | | |
| 917,450 | | |
| 1,022,246 | |
Sales and marketing | |
| 228,308 | | |
| 297,673 | | |
| 468,384 | | |
| 452,832 | |
Rents, maintenance, utilities | |
| 147,207 | | |
| 145,148 | | |
| 285,425 | | |
| 294,801 | |
Research and development | |
| 84,663 | | |
| 94,078 | | |
| 160,165 | | |
| 171,258 | |
Insurance | |
| 67,879 | | |
| 34,676 | | |
| 138,073 | | |
| 66,542 | |
Software, fees, tech support | |
| 64,421 | | |
| 56,095 | | |
| 138,631 | | |
| 105,181 | |
Depreciation | |
| 40,758 | | |
| 47,919 | | |
| 85,537 | | |
| 88,447 | |
Travel expenses | |
| 36,373 | | |
| 38,656 | | |
| 78,111 | | |
| 108,140 | |
Supplies | |
| 5,064 | | |
| 14,311 | | |
| 13,393 | | |
| 38,712 | |
Other | |
| 52,279 | | |
| 58,968 | | |
| 96,509 | | |
| 98,662 | |
Total | |
$ | 2,004,260 | | |
$ | 1,951,664 | | |
$ | 4,193,734 | | |
$ | 4,072,559 | |
Other
(Income)/Expense
Our
other (income)/expense for the three months ended June 30, 2024 and 2023 was $541,000 and ($18,000), respectively. Other expense
for the three months ended June 30, 2024 was made up of settlement expense and interest expense, including non-cash interest for
the convertible note and stock-based settlement expense. Other income for the three months ended June 30, 2023 was made up of
interest income from investments, partially offset by interest expense on long-term debt.
Our
other expense for the six months ended June 30, 2024 and 2023 was $767,000 and $281,000, respectively. Other expense for the six
months ended June 30, 2024 was made up of settlement expense and interest expense, including non-cash interest for the convertible
note and settlement of shares. Other expense for the six months ended June 30, 2023 almost entirely consisted of settlement expense;
the net of interest income and interest expense was immaterial.
During
the three months ended June 30, 2024 and 2023, settlement expense totaled $309,000 and $0, respectively, while interest expense
totaled $251,000 and $26,000, respectively. During the six months ended June 30, 2024 and 2023, settlement expense totaled $309,000
and $282,000, respectively, interest income totaled $45,000 and $68,000, respectively, and interest expense totaled $504,000 and
$65,000, respectively.
Net
Loss
Our
net loss for the three months ended June 30, 2024 and 2023 was $2.2 million and $1.5 million, respectively. Our net loss for the
six months ended June 30, 2024 and 2023 was $4.4 million and $3.5 million, respectively. The increase in net loss for both periods
was primarily the result of lower net sales for the period ended June 30, 2024. Additionally, for the six months ended June 30,
2024, we recognized $1.1 million in non-cash operating costs, including $439,000 for stock-based compensation, $334,000 for amortization
of convertible note costs, and $209,000 for stock-based settlement expense. For the six months ended June 30, 2023, we recognized
$338,000 in non-cash operating costs, including $252,000 for stock-based settlement expense and $102,000 for depreciation.
CASH
FLOWS
The
following table shows a summary of our cash flows for the periods presented:
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Net cash used in operating activities | |
$ | (3,406,266 | ) | |
$ | (3,521,527 | ) |
Net cash provided by investing activities | |
$ | 77,134 | | |
$ | 3,714 | |
Net cash provided by / (used in) financing activities | |
$ | 298,757 | | |
$ | (87,188 | ) |
Net
cash used in operating activities
Our
largest source of operating cash has been cash collected from sales of our products. Our primary use of cash in operating activities
has been for inventory purchases, salaries and benefits, legal and professional services, and sales and marketing. In the last
several years, we have generated negative cash flows from operating activities and supplemented working capital requirements through
net proceeds from sales of our Common Stock.
We
generated negative cash flows from operating activities of $3.4 million for the six months ended June 30, 2024, compared to negative
cash flows of $3.5 million for the same period in 2023. Factors affecting operating cash flows during both periods included:
| ● | For
the six months ended June 30, 2024, our loss of $4.4 million was reduced by non-cash
transactions including stock-based compensation of $439,000, amortization of convertible
note costs of $334,000, stock-based settlement costs of $209,000, and depreciation of
$95,000. For the six months ended June 30, 2023, our loss of $3.5 million was reduced
by non-cash transactions including a stock-based settlement of $252,000 and depreciation
of $102,000. |
| ● | Cash
used for an increase in accounts receivable was $198,000 and $92,000 for six months ended
June 30, 2024 and 2023, respectively. Sales are generally collected within 30 to 45 days.
These changes are mainly due to the timing of invoices and payments before and after
the end of the period. |
| ● | Cash
(provided by) / used in accounts payable was ($146,000) and $11,000 for the six months
ended June 30, 2024 and 2023, respectively, representing a increase in accounts payable
for the six months ended June 30, 2024, and a decrease in accounts payable for the six
months ended June 30, 2023. These changes are mainly due to the timing of invoices and
payments before and after the end of the period. |
| ● | Cash
used for inventory and prepaid inventories increased by $92,000 and increased by $456,000
for the six months ended June 30, 2024 and 2023, respectively. The increase in 2024 is
due to the timing of purchases—there was an increase of $555,000 of in-transit
inventory offset by a decrease of $464,000 of inventory. The increase in 2023 is primarily
due to the timing of significant purchases and prepayments of inventory to Asian suppliers.
Turnaround time for receiving inventory from foreign sources can take up to 120 days,
with prepayments required. |
| ● | Cash
provided by a decrease in accrued expenses and other current liabilities of $14,000 and
decreased by $1,000 for the six months ended June 30, 2024 and 2023, respectively. The
decrease in 2024 is due to accruals of $98,000, which were offset by non-cash payments
of prior accruals of $112,000. Non-cash payments include $76,000 in issuance of Common
Stock for payment on accrued interest, and $36,000 in Common Stock for payment on accrued
compensation. |
Net
cash provided by investing activities
Cash
provided by investing activities was $77,000 and $4,000 for the six months ended June 30, 2024 and 2023, respectively. Purchases
of $11,000 in 2024 were for quality assurance equipment and purchases of $34,000 in 2023 included $22,000 for tooling and molds
and $10,000 for improvements on vehicles. We sold three vehicles during the six months ended June 30, 2024, for net proceeds of
$88,000, compared to the sale of one vehicle for net proceeds of $38,000 for the six months ended June 30, 2023.
Net
cash provided by / (used in) financing activities
Cash
provided by financing activities was $299,000 for the six months ended June 30, 2024 and cash used in financing activities was
$87,000 for the six months ended June 30, 2023. For the six months ended June 30, 2024, we received net proceeds from issuance
of Common Stock of $828,000, offset by principal payments on a convertible note of $366,000, principal payments on long-term debt
of $102,000, and principal payments on stockholder promissory notes of $63,000. For the six months ended June 30, 2023, we made
principal payments on long-term debt of $137,000, which were offset by net cash proceeds of $50,000 from the exercise of warrants.
LIQUIDITY
AND CAPITAL RESOURCES
Overview
Our
operations have been financed primarily through net proceeds from sales of our Common Stock and equity and debt financings. As
of June 30, 2024 and December 31, 2023, our current assets exceeded current liabilities by $1.5 million and $4.3 million, respectively,
and we had cash and cash equivalents of $902,000 and $3.9 million, respectively.
We
generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the
next 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 June 30, 2024, we expect our short-term liquidity requirements to include (a) principal debt payments totaling approximately
$3.1 million net of amortization and (b) lease obligation payments of approximately $732,000, 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.
Our
activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve
sustainable revenues and profit from operations. We expect to continue to incur additional losses for the foreseeable future,
and we may need to raise additional debt or equity financing to expand our presence in the marketplace, develop new products,
achieve operating efficiencies, and accomplish our long-term business plans over the next several years. There can be no assurance
as to the availability or terms upon which such financing and capital might be available to us. For the three and six months ended
June 30, 2024 and 2023, we sustained recurring losses and negative cash flows from operations. These factors raise substantial
doubt about our ability to continue as a going concern within twelve months from the date of issuance of the financial statements
for the quarterly period ended June 30, 2024. However, we are working to address our cash flow challenges, including raising additional
capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses. Refer to
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” in our Annual Report.
Financings
August
2024 Public Offering
On
August 7, 2024, the Company entered into the Underwriting Agreement with Aegis for the 2024 Public Offering of 50,000,000 Units
based on a public offering price of $0.20 per Unit, resulting in net proceeds of approximately $8.7 million, after deducting underwriting
discounts and commissions and estimated offering expenses payable by the Company. Each Unit consists of one Share of Common Stock
(or one Pre-Funded warrant to purchase one share of Common Stock in lieu of one Share, two Series A warrants and one Series B
Warrant. The 2024 Public Offering closed on August 8, 2024. Of the 50,000,000 Units sold in the 2024 Public Offering, 33,402,000
were issued with Shares and 16,598,000 were issued with Pre-Funded Warrants.
Stockholder
Promissory Notes
Stockholder
promissory notes had an outstanding principal balance of $700,000 as of June 30, 2024. The stockholder promissory notes require
monthly interest-only payments at 10% per annum and mature at various dates from September 2024 to December 2024. See Note 6 –
“Stockholder Promissory Notes” in this Quarterly Report for further information on such stockholder promissory notes.
Vehicle
Financing Arrangements
As
of June 30, 2024, we had three notes payable to GM Financial for vehicles. In addition, a commercial line secured in April 2022
for $300,000 was renewed in April 2023 for an increased amount of $350,000 and renewed again in April 2024 for the same amount.
This commercial line may be used to finance vehicle purchases and expires in April 2025. The notes are payable in aggregate monthly
installments of $2,560, including interest at rates ranging from 6.14% to 7.29% per annum, mature at various dates from October
2027 to May 2028, and are secured by the related vehicles.
Convertible
Note Financing
On
December 27, 2023, we entered into a securities purchase agreement with 3i, pursuant to which we sold, and 3i purchased, the 3i
Note in the aggregate original principal amount of $2,750,000 (the “Convertible Note Financing”). The gross proceeds
to us were $2.5 million, prior to the payment of legal fees and transaction expenses. As of June 30, 2024, 26,025 shares of Common
Stock have been issued to 3i for the payment of $76,000 in interest under the 3i Note.
The
principal repayment amount of the 3i Note is $2,750,000. The associated costs and expenses incurred in connection with the Convertible
Note Financing of approximately $80,000 will be amortized over the 12-month period ending December 31, 2024. The 3i Note required
monthly interest-only payments at 9.0% per annum, payable in cash or, subject to certain conditions set forth in the Note, Common
Stock, and had a maturity date of December 27, 2024, unless earlier converted or redeemed. An interest payment of $2,750 was made
in December 2023 for the pro-rated interest due for December.
For
the quarter ended June 30, 2024, redemption amounts of $353,000 were used to repay a portion of the balance under the 3i Note,
consisting of payments of $308,000 to the loan principal, $28,000 to interest, and $17,000 as a redemption premium. As of June
30, 2024, the outstanding principal balance of the note was $2.4 million and the remaining interest was $136,000.
On
August 8, 2024, in connection with the 2024 Public Offering, the Company repaid the 3i Note, and the Company’s obligations
under the 3i Note were fully satisfied and discharged.
Equity
Line of Credit
On
December 27, 2023, we entered into the Common Stock Purchase Agreement, pursuant to which we had the right, but not the obligation,
to sell to Tumim, and Tumim was obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price of
newly issued Common Stock and (b) the Exchange Cap (as defined in the purchase agreement) (the “Equity Line of Credit”).
For the three and six months ended June 30, 2024, we sold 38,224 and 433,591 shares of Common Stock for an aggregate amount of
$125,153 and $828,491.
Effective
as of August 8, 2024, in connection with the 2024 Public Offering, the Company and Tumim mutually agreed to terminate the Common
Stock Purchase Agreement.
Operating
Lease Liabilities
Our
estimated future obligations consist of long-term operating lease liabilities. As of June 30, 2024, we had $2.5 million in long-term
operating lease liabilities.
Other
Long-Term Indebtedness
As
of June 30, 2024, our long-term debt totaled $248,000, which consists of $145,000 outstanding under a COVID-19 Economic Injury
Disaster Loan, $98,000 outstanding under vehicle financing arrangements, and an equipment loan for $5,000.
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 the generally accepted accounting principles in the United States (“GAAP”)
requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses,
and disclosures of contingent assets and liabilities. Our significant accounting policies are described in Note 2 – “Summary
of Significant Accounting Policies.” 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. The valuation of inventory includes fixed production overhead costs based on normal
capacity of the assembly warehouse.
We periodically review our inventory for evidence
of slow-moving or obsolete inventory and provide for an allowance when considered necessary. We have determined that no such reserve was
necessary as of June 30, 2024 or December 31, 2023. We prepay for inventory purchases from foreign suppliers and include inventory in
transit where title had passed to us but had not yet been physically received.
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. 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
We determine if an arrangement is a lease at inception.
Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and operating
lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in ROU assets,
current operating lease liabilities, and long-term operating lease liabilities on our Balance Sheets. We do not have any finance leases.
We account for lease and non-lease components as a single lease component for all its leases.
Revenue Recognition
Revenue is generated from the sale of products consisting
primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to its customers in an amount
that reflects the consideration it is expected to be entitled to in exchange for those goods or services. As such, accounts receivable
is recorded at the time of shipment or will call, when our right to the consideration becomes unconditional, and we determine 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 “Net sales.” Shipping and handling
costs for shipping product to customers are classified in selling, general, and administrative expense on the Statements of Operations.
Research
and Development
Research
and development costs are expensed as incurred and are included in selling, general and administrative expenses on the Statements
of Operations.
Income
Taxes
The
Company is a C corporation and its 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.
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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called
for by Item 304 of Regulation S-K.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated
our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
June 30, 2024. The term “disclosure controls and procedures,” means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours is designed to do, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. In addition, the design of any system of controls is
also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Based
on this evaluation, our principal executive officer and principal financial and accounting officer concluded that our disclosure
controls and procedures were effective at a reasonable assurance level as of June 30, 2024.
Changes
in Internal Control Over Financial Reporting
During
the quarter ended June 30, 2024, there were no changes in our internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
We
may become, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities.
We are not currently party to any pending legal proceedings that we believe would, individually or in the aggregate, have a material
adverse effect on our financial condition, cash flows or results of operations.
ITEM
1A. RISK FACTORS
An
investment in our Common Stock involves risks. Before making an investment decision, you should carefully consider all the information
within the section titles “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
as well as in our condensed consolidated financial statements and the related notes contained within this Quarterly Report. In
addition, you should carefully consider the risks and uncertainties described in
Item 1A, “Risk Factors” in our Annual Report, as well as in our other public
filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity,
and future prospects could be materially and adversely affected. In that case, the trading price of our Common Stock may decline,
and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do
not currently view as material, could have a material adverse effect on our business, results of operations, financial condition,
liquidity and future prospects.
We
are not aware of any material changes to the risks and uncertainties described in Item 1A, “Risk Factors” in our Annual
Report, which are incorporated herein by reference.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use
of Proceeds
Not
applicable.
Recent
Sales of Unregistered Securities
None.
Issuer
Repurchases of Equity Securities
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM
5. OTHER INFORMATION
Trading
Plans
Our directors and officers (as defined in Rule 16a-1(f)
under the Exchange Act) may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our
Common Stock. These plans or arrangements may be intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange
Act, which are referred to as Rule 10b5-1 trading arrangements, or they may represent non-Rule 10b5-1 trading arrangements.
During the quarter ended June 30, 2024, none of our
directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.
ITEM
6. EXHIBITS
|
#
* |
This certification is deemed not filed for purpose
of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference
into any filing under the Securities Act or the Exchange Act.
Certain of the schedules (and similar attachments)
to this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K under the Securities Act because they do not contain
information material to an investment or voting decision and that information is not otherwise disclosed in the exhibit or the disclosure
document. The registrant agrees to furnish a copy of all omitted schedules (or similar attachments) to the SEC upon request.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date:
August 14, 2024 |
By: |
/s/
Brian Schaffner |
|
|
Brian
Schaffner |
|
|
Chief
Executive Officer
(Principal
Executive Officer) |
|
|
|
|
|
|
Date:
August 14, 2024 |
By: |
/s/
Greg Aydelott |
|
|
Greg
Aydelott |
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer) |
EXHIBIT
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Brian Schaffner, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2024 (the “Report”) of Expion360 Inc. (the “Registrant”); |
| 2. | Based
on my knowledge, this Report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this Report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for, the periods presented
in this Report; |
| 4. | The
Registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a. | designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this Report is being prepared; |
| b. | designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with general accepted accounting principles; |
| c. | evaluated
the effectiveness of the Registrant’s disclosure controls and procedures and presented
in this Report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this Report based on such evaluation;
and |
| d. | disclosed
in this Report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and |
| 5. | The
Registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrant’s auditors
and the audit committee of the Registrant’s board of directors (or persons performing
the equivalent functions): |
| a. | all
significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
Registrant’s ability to record, process, summarize and report financial information;
and |
| b. | any
fraud, whether or not material, that involves management or other employees who have
a significant role in the Registrant’s internal control over financial reporting. |
Date:
August 14, 2024 |
/s/
Brian Schaffner |
|
Brian Schaffner |
|
Chief
Executive Officer
(Principal
Executive Officer) |
EXHIBIT
31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Greg Aydelott, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2024 (the “Report”) of Expion360 Inc. (the “Registrant”); |
| 2. | Based
on my knowledge, this Report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this Report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this Report, fairly present in all material respects the financial condition, results
of operations and cash flows of the Registrant as of, and for, the periods presented
in this Report; |
| 4. | The
Registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a. | designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this Report is being prepared; |
| b. | designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with general accepted accounting principles; |
| c. | evaluated
the effectiveness of the Registrant’s disclosure controls and procedures and presented
in this Report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this Report based on such evaluation;
and |
| d. | disclosed
in this Report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and |
| 5. | The
Registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrant’s auditors
and the audit committee of the Registrant’s board of directors (or persons performing
the equivalent functions): |
| a. | all
significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
Registrant’s ability to record, process, summarize and report financial information;
and |
| b. | any
fraud, whether or not material, that involves management or other employees who have
a significant role in the Registrant’s internal control over financial reporting. |
Date:
August 14, 2024 |
/s/
Greg Aydelott |
|
Greg Aydelott |
|
Chief Financial
Officer |
|
(Principal Financial
and Accounting Officer) |
EXHIBIT
32.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Expion360 Inc. (the “Company”) for the quarterly period ended
June 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission, the undersigned officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of his knowledge:
| 1. | The
Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities
Exchange Act of 1934, as amended; and |
| 2. | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company, as of, and for, the periods presented
in the Report. |
Date:
August 14, 2024 |
/s/
Brian Schaffner |
|
Brian Schaffner |
|
Chief Executive
Officer |
|
(Principal Executive
Officer) |
The
foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference
into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language
in such filing.
A
signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section
906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
EXHIBIT
32.2
CERTIFICATION
OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Expion360 Inc. (the “Company”) for the quarterly period ended
June 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission, the undersigned officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of his knowledge:
| 1. | The
Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities
Exchange Act of 1934, as amended; and |
| 2. | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company, as of, and for, the periods presented
in the Report. |
Date:
August 14, 2024 |
/s/
Greg Aydelott |
|
Greg Aydelott |
|
Chief Financial
Officer |
|
(Principal Financial
and Accounting Officer) |
The
foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference
into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language
in such filing.
A
signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section
906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
v3.24.2.u1
Cover - shares
|
6 Months Ended |
|
Jun. 30, 2024 |
Aug. 09, 2024 |
Cover [Abstract] |
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|
|
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|
|
Document Fiscal Year Focus |
2024
|
|
Current Fiscal Year End Date |
--12-31
|
|
Entity File Number |
001-41347
|
|
Entity Registrant Name |
EXPION360 INC.
|
|
Entity Central Index Key |
0001894954
|
|
Entity Tax Identification Number |
81-2701049
|
|
Entity Incorporation, State or Country Code |
NV
|
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Entity Address, Address Line One |
2025 SW Deerhound Ave
|
|
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Redmond
|
|
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OR
|
|
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|
|
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|
|
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|
|
Title of 12(b) Security |
Common
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|
|
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XPON
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NASDAQ
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v3.24.2.u1
Balance Sheets - USD ($)
|
Jun. 30, 2024 |
Dec. 31, 2023 |
Current Assets |
|
|
Cash and cash equivalents |
$ 902,323
|
$ 3,932,698
|
Accounts receivable, net |
353,006
|
154,935
|
Inventory |
3,361,832
|
3,825,390
|
Prepaid/in-transit inventory |
719,286
|
163,948
|
Prepaid expenses and other current assets |
216,660
|
189,418
|
Total current assets |
5,553,107
|
8,266,389
|
Property and equipment |
1,212,984
|
1,348,326
|
Accumulated depreciation |
(467,259)
|
(430,295)
|
Property and equipment, net |
745,725
|
918,031
|
Other Assets |
|
|
Operating leases - right-of-use asset |
2,399,736
|
2,662,015
|
Deposits |
58,896
|
58,896
|
Total other assets |
2,458,632
|
2,720,911
|
Total assets |
8,757,464
|
11,905,331
|
Current liabilities |
|
|
Accounts payable |
432,550
|
286,985
|
Customer deposits |
14,094
|
17,423
|
Accrued expenses and other current liabilities |
278,843
|
292,515
|
Convertible note payable |
2,050,757
|
2,082,856
|
Current portion of operating lease liability |
541,145
|
522,764
|
Current portion of stockholder promissory notes |
700,000
|
762,500
|
Current portion of long-term debt |
31,990
|
50,839
|
Total current liabilities |
4,049,379
|
4,015,882
|
Long-term-debt, net of current portion |
215,731
|
298,442
|
Operating lease liability, net of current portion |
1,967,593
|
2,241,325
|
Total liabilities |
6,232,703
|
6,555,649
|
Stockholders’ equity |
|
|
Preferred stock, par value $0.001 per share; 20,000,000 authorized; zero 0shares issued and outstanding |
|
|
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 7,559,530 and 6,922,912 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively |
7,560
|
6,923
|
Additional paid-in capital |
28,026,138
|
26,438,524
|
Accumulated deficit |
(25,508,937)
|
(21,095,765)
|
Total stockholders’ equity |
2,524,761
|
5,349,682
|
Total liabilities and stockholders’ equity |
$ 8,757,464
|
$ 11,905,331
|
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