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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 March 31, 2025
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 (IRS 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
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 May 9, 2025, there were 3,374,468 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 the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions contained in 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, including, without limitation, any projections regarding the markets in which we operate, plans and objectives for future operations, estimates of future financial condition, results of operations or liquidity, proposed new products or services, expected capital expenditures, proposed financings, future economic conditions or performance, and any estimates or assumptions underlying any of the foregoing. 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 the negative thereof, or other comparable terminology. 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. Although we believe the expectations reflected in our forward-looking statements are reasonable, there can be no assurance that such expectations or any of our forward-looking statements will prove to be accurate. Actual results may differ, and could differ materially, from those results expressed in or implied by the forward-looking statements. Investors are cautioned not to unduly rely on any such forward-looking statements.
Forward-looking statements are neither statements of historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations, and assumptions regarding our business, industry, plans and strategies, anticipated events and trends, and other future conditions. Because forward-looking statements relate to the future, they are subject to considerable risks, uncertainties and changes in circumstances that are difficult to predict and may be outside our control. Our actual financial condition, results of operations, liquidity and business outcomes may differ materially from those expressed in or implied by these forward-looking statements.
Important factors that could cause our actual results to differ materially from those indicated in the forward-looking statements include, among others, the following:
| ● | We operate in an extremely competitive industry and are subject to pricing pressures. |
| ● | We have a history of losses. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability. |
| ● | Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern. |
| ● | Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers. |
| ● | Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts, could harm our business. |
| ● | Our business and future growth depends on the needs and success of our customers. |
| ● | We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our sales. |
| ● | If we fail to expand our sales and distribution channels, our business could suffer. |
| ● | The uncertainty in global economic conditions could negatively affect our results of operations. |
| ● | We are currently, and will likely continue to be, dependent on our two warehouse facilities. If our facilities become inoperable for any reason, our ability to produce our products could be negatively impacted. |
| ● | We could face potential product liability or warranty claims relating to our products, including the components thereof, which could reduce market adoption, result in reputation damage, and result in significant costs and liabilities, which would reduce our profitability. |
| ● | Our operations expose us to litigation, tax, environmental, and other legal compliance risks. |
| ● | Our failure to introduce new products and product enhancements that respond to customer and end consumer demand, and any broad market acceptance of new technologies introduced by our competitors, could adversely affect our business. |
| ● | We may not be able to adequately protect our proprietary intellectual property and technology and we may need to defend ourselves against intellectual property infringement claims. |
| ● | Any acquisitions that we complete may dilute stockholder ownership interests in the Company, may have adverse effects on our financial condition and results of operations and may cause unanticipated liabilities. |
| ● | If our electronic data is compromised, or we experience a failure in our information technology or storage systems, our business could be significantly harmed. |
| ● | Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements and our stockholders may be diluted by future securities offerings. |
| ● | We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. |
| ● | Our stock price may fluctuate significantly, and you may lose all or a part of your investment. |
| ● | Sales of substantial amounts of our securities in the public markets, or the perception that such sales might occur, could reduce the price of our securities and may dilute your voting power and your ownership interest in us. |
| ● | The exercise of outstanding warrants may result in a substantial increase in the number of shares of our common stock that are outstanding. |
| ● | The Series A Warrants and Series B Warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. |
| ● | The cash true-up payment provision in the Series A Warrants may have a material adverse impact on our financial condition, may impede our ability to raise additional capital, and may discourage an acquisition of us by a third party. |
| ● | Our long-term lease and debt obligations could adversely affect our ability to raise additional capital to fund operations and limit our ability to enter into certain transactions. |
Moreover, new risks and uncertainties emerge occasionally, and it is not possible for us to predict all risks and uncertainties, nor can we assess the impact of all factors on our business, or the extent to which any factor, or combination of factors, may cause our actual future results to be materially different from any results expressed in or implied by any forward-looking statements. Except as required by applicable law or the listing rules of the Nasdaq Stock Market, we expressly disclaim any intent or obligation to update any forward-looking statements. If we do update or correct any forward-looking statements, investors should not conclude we will make additional updates or corrections. We qualify all of our forward-looking statements by reference to these cautionary statements.
INDUSTRY AND MARKET DATA
This Quarterly 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 projections and estimates. All of the market data used in this report involve a number of assumptions and limitations, and investors are cautioned not to unduly rely on such data. Industry publications and 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 and research, and other surveys. While we believe our internal assumptions are reasonable, no independent source has verified such assumptions.
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
| As of March 31, 2025 (Unaudited) | As of December 31, 2024 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,092,607 | $ | 547,565 | ||||
| Accounts receivable, net | 592,625 | 613,022 | ||||||
| Inventory | 6,036,033 | 4,831,461 | ||||||
| Prepaid/in-transit inventory | 149,541 | 1,612,686 | ||||||
| Prepaid expenses and other current assets | 208,373 | 236,461 | ||||||
| Total current assets | 8,079,179 | 7,841,195 | ||||||
| Property and equipment | 909,603 | 914,081 | ||||||
| Accumulated depreciation | (460,866 | ) | (430,191 | ) | ||||
| Property and equipment, net | 448,737 | 483,890 | ||||||
| Other Assets | ||||||||
| Operating leases – right-of-use asset | 689,046 | 754,832 | ||||||
| Deposits | 25,471 | 27,471 | ||||||
| Total other assets | 714,517 | 782,303 | ||||||
| Total assets | $ | 9,242,433 | $ | 9,107,388 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 367,457 | $ | 338,091 | ||||
| Customer deposits | 41,920 | 48,474 | ||||||
| Accrued expenses and other current liabilities | 196,874 | 187,464 | ||||||
| Current portion of operating lease liability | 255,676 | 256,153 | ||||||
| Current portion of long-term debt | 31,275 | 31,758 | ||||||
| Suspended Liability | 4,485,948 | 4,985,948 | ||||||
| Total current liabilities | 5,379,150 | 5,847,888 | ||||||
| Long-term debt, net of current portion and discount | 190,564 | 198,412 | ||||||
| Operating lease liability, net of current portion | 476,115 | 542,764 | ||||||
| Total liabilities | $ | 6,045,829 | $ | 6,589,064 | ||||
| Stockholders’ equity | ||||||||
| Preferred stock, par value $0.001 per share; 20,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | — | — | ||||||
| Common stock, par value $0.001 per share; 200,000,000 shares authorized; 3,144,468 and 2,096,082 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | 3,144 | 2,096 | ||||||
| Additional paid-in capital | 38,920,698 | 37,091,468 | ||||||
| Accumulated deficit | (35,727,238 | ) | (34,575,240 | ) | ||||
| Total stockholders’ equity | 3,196,604 | 2,518,324 | ||||||
| Total liabilities and stockholders’ equity | $ | 9,242,433 | $ | 9,107,388 | ||||
The accompanying notes are an integral part of these financial statements.
EXPION360 INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net sales | $ | 2,049,331 | $ | 971,859 | ||||
| Cost of sales | 1,547,764 | 749,337 | ||||||
| Gross profit | 501,567 | 222,522 | ||||||
| Selling, general and administrative | 1,649,435 | 2,189,475 | ||||||
| Loss from operations | (1,147,868 | ) | (1,966,953 | ) | ||||
| Other (income) / expense: | ||||||||
| Interest income | (1 | ) | (26,865 | ) | ||||
| Interest expense | 5,668 | 253,286 | ||||||
| (Gain) / Loss on sale of property and equipment | (1,625 | ) | 306 | |||||
| Other (income) / expense | 50 | (1,200 | ) | |||||
| Total other expense | 4,092 | 225,527 | ||||||
| Loss before taxes | (1,151,960 | ) | (2,192,480 | ) | ||||
| Franchise taxes | 38 | 460 | ||||||
| Net loss | $ | (1,151,998 | ) | $ | (2,192,940 | ) | ||
| Net loss per share (basic and diluted) | $ | (0.37 | ) | $ | (31.30 | ) | ||
| Weighted-average number of common shares outstanding | 3,109,522 | 70,057 | ||||||
The accompanying notes are an integral part of these financial statements.
EXPION360 INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit |
Total Stockholders’ Equity |
||||||||||||||
| Shares | Amount | ||||||||||||||||
| Balance at December 31, 2023 | 69,230 | $ | 69 | $ | 26,445,378 | $ | (21,095,765 | ) | $ | 5,349,682 | |||||||
| Stock issued under equity line of credit | 382 | — | 125,153 | — | 125,153 | ||||||||||||
| Proceeds received from cashless exercise of warrants | 16 | — | (4 | ) | — | (4 | ) | ||||||||||
| Stock issued for interest payment | 107 | — | 41,250 | — | 41,250 | ||||||||||||
| Stock-based compensation | — | — | 35,127 | — | 35,127 | ||||||||||||
| Issuance of stock options | — | — | 218,219 | — | 218,219 | ||||||||||||
| Issuance of restricted stock units | — | — | 51,647 | — | 51,647 | ||||||||||||
| Settlement of vested restricted stock units | 99 | — | 46,890 | — | 46,890 | ||||||||||||
| Settlement of commitment shares | 635 | 1 | (1 | ) | — | — | |||||||||||
| Net loss | — | — | — | (2,192,940 | ) | (2,192,940 | ) | ||||||||||
| Balance at March 31, 2024 | 70,469 | $ | 70 | $ | 26,963,659 | $ | (23,288,705 | ) | $ | 3,675,024 | |||||||
| Balance at December 31, 2024 | 2,096,082 | $ | 2,096 | $ | 37,091,468 | $ | (34,575,240 | ) | $ | 2,518,324 | |||||||
| Issuance of shares, net of issuance costs | 474,193 | 474 | 355,084 | — | 355,558 | ||||||||||||
| Issuance of pre-funded warrants | 574,193 | 574 | 1,423,425 | — | 1,423,999 | ||||||||||||
| Issuance of stock options | — | — | 50,721 | — | 50,721 | ||||||||||||
| Net loss | — | — | — | (1,151,998 | ) | (1,151,998 | ) | ||||||||||
| Balance at March 31, 2025 | 3,144,468 | $ | 3,144 | $ | 38,920,698 | $ | (35,727,238 | ) | $ | 3,196,604 | |||||||
The accompanying notes are an integral part of these financial statements.
EXPION360 INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (1,151,998 | ) | $ | (2,192,940 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | 34,028 | 49,444 | ||||||
| Amortization of convertible note costs | — | 166,786 | ||||||
| (Gain) / Loss on sale of property and equipment | (1,625 | ) | 306 | |||||
| Stock-based compensation | 50,721 | 315,853 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) / Decrease in accounts receivable | 20,397 | (83,986 | ) | |||||
| (Increase) / Decrease in inventory | (1,204,572 | ) | 44,773 | |||||
| Decrease in prepaid/in-transit inventory | 1,463,145 | 45,137 | ||||||
| (Increase) / Decrease in prepaid expenses and other current assets | 28,088 | (43,753 | ) | |||||
| Decrease in deposits | 2,000 | — | ||||||
| Increase / (Decrease) in accounts payable | 29,366 | (4,565 | ) | |||||
| Decrease in customer deposits | (6,554 | ) | (6,497 | ) | ||||
| Increase in accrued expenses and other current liabilities | 9,410 | 33,669 | ||||||
| Increase / (Decrease) in right-of-use assets and lease liabilities | (1,340 | ) | 3,855 | |||||
| Decrease in suspended liability | (500,000 | ) | — | |||||
| Net cash used in operating activities | (1,228,934 | ) | (1,671,918 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | — | (10,550 | ) | |||||
| Net proceeds from sale of property and equipment | 2,750 | 87,684 | ||||||
| Net cash provided by investing activities | 2,750 | 77,134 | ||||||
| Cash flows from financing activities | ||||||||
| Principal payments on convertible note | — | (43,575 | ) | |||||
| Principal payments on long-term debt | (8,331 | ) | (93,855 | ) | ||||
| Principal payments on stockholder promissory notes | — | (62,500 | ) | |||||
| Net proceeds from exercise of warrants | — | (4 | ) | |||||
| Net proceeds from issuance of common stock | 1,779,557 | 125,153 | ||||||
| Net cash provided by / (used in) financing activities | 1,771,226 | (74,781 | ) | |||||
| Net change in cash and cash equivalents | 545,042 | (1,669,565 | ) | |||||
| Cash and cash equivalents, beginning | 547,565 | 3,932,698 | ||||||
| Cash and cash equivalents, ending | 1,092,607 | 2,263,133 | ||||||
(continued on next page)
EXPION360 INC.
STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
| For the Three Months Ended March 31, | ||||||||
| Supplemental disclosure of cash flow information: | 2025 | 2024 | ||||||
| Cash paid for interest | $ | 6,001 | $ | 12,748 | ||||
| Cash paid for franchise taxes | $ | — | $ | — | ||||
| Non-cash financing activities: | ||||||||
| Issuance of common stock for payment on accrued interest | $ | — | $ | 41,250 | ||||
| Issuance of common stock for payment on accrued compensation | $ | — | $ | 36,029 | ||||
| Issuance of common stock in exchange for short-term loan costs | $ | — | $ | 63 | ||||
The accompanying notes are an integral part of these financial statements.
EXPION360, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Nature of Operations
Expion360 Inc. (formerly Yozamp Products Company, LLC) (the “Company”) was incorporated in the State of Nevada in November 2021. Effective November 1, 2021, the Company converted to a C corporation. Upon conversion, all of the members were issued shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), and became stockholders of the Company.
The Company designs, assembles, and distributes premium lithium batteries for recreational vehicles (“RVs”), marine, golf, industrial, residential, and off-the-grid needs. The Company uses lithium iron phosphate (“LiFePO4”) batteries. LiFePO4 batteries are considered a top choice for high energy density, dependability, longevity, and safety, providing the ability to power anything, anywhere. The Company is located in Redmond, Oregon.
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.
Results of operations for the three-month periods ended March 31, 2025 and 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025 or for any other reporting period. The unaudited interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025 (the “Annual Report”).
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
The Company’s activities are subject to significant risks and uncertainties, including the potential that it may continue to incur significant losses and fail to secure additional funding before achieving or sustaining profitability or positive cash flow from operations. Historically, the Company’s growth has been funded through a combination of equity financing, third-party debt, and working capital loans. The Company may need to raise additional debt or equity financing to expand its presence in the marketplace, acquire inventory, develop and commercialize new products, achieve operating efficiencies, and accomplish its long-term business plan. There can be no assurance as to the availability of financing or the terms upon which it might be available.
As presented in the financial statements, the Company has sustained recurring losses and negative cash flows from operations. The Company incurred a net loss of $1.2 million for the three months ended March 31, 2025 and has incurred an accumulated deficit of $35.7 million through March 31, 2025. The Company expects to continue to incur additional losses for the foreseeable future. In addition, the Company had a cash and cash equivalents balance of $1.1 million as of March 31, 2025. These factors raise substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date the financial statements in this Quarterly Report were issued. However, management is working to address these challenges, including increasing revenue from the sale of products, managing inventory levels, identifying alternative supply chain resources, managing operational expenses, and raising additional capital.
The Company’s sales for the three months ended March 31, 2025 increased 111% compared to the same period in 2024, which the Company believes was primarily the result of the RV market recovering from its previous slowdown. Selling, general, and administrative expenses decreased by 25% for the three months ended March 31, 2025, primarily due to savings in salaries and benefits, and legal and professional fees, and other expenses decreased by 98%, primarily due to decreased interest expense, resulting in a 48% improvement in its net loss for the three months ended March 31, 2025 compared to the same period in 2024. In January 2025, the Company sold in a public offering (i) 474,193 shares of common stock, (ii) pre-funded warrants to purchase 574,193 shares of common stock, which were exercised immediately upon closing, and (iii) warrants to purchase 1,048,386 shares of common stock for aggregate gross proceeds of approximately $2,599,997 (the “January 2025 Public Offering”). However, there can be no assurance that the Company’s financial performance will continue to improve or that it will be able to raise additional equity or debt financing to finance its operations. If the Company is unable to increase sales of its products to levels sufficient to achieve profitability and positive cash flows from operations, it may be required to pursue alternative business strategies, sell assets, seek additional equity or debt financing, or cease operations.
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.
For additional information regarding the significant risks and uncertainties that may impact our business and financial results, see Part II, Item 1A, “Risk Factors” in this Quarterly Report.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include the depreciable lives of fixed assets, right-of-use asset and liability for operating leases, revenue recognition, valuation of warrants, stock-based compensation, and deferred assets and liability for income tax purposes. Management makes its estimates and assumptions on an ongoing basis using 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, tariff levels, interest rates, 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.
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 U.S. Treasury securities. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents. As of March 31, 2025, investment accounts totaling $713 are invested in U.S. Treasury securities.
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 may be recorded to reduce accounts receivable to the estimated amount that management expects will be collected. The allowance is based upon management’s review of the accounts receivable aging, specific identification of potentially uncollectible balances and other factors deemed relevant. Recoveries of accounts previously written off and adjustments to the allowance for uncollectible accounts are recorded as adjustments to bad debt expense. For the three months ended March 31, 2025 and 2024, the Company wrote off $0 to bad debt expense. The Company has not accrued an allowance for doubtful accounts as of March 31, 2025 or December 31, 2024, as management believed all outstanding amounts to be fully collectible.
Customer Deposits
As of March 31, 2025 and December 31, 2024, the Company had customer deposits totaling $41,920 and $48,474, respectively.
Inventory
Inventory generally consists of batteries and accessories, resale items, components, and related landing costs. Inventory is stated at the lower of cost (first in, first out) or net realizable value.
As of March 31, 2025 and December 31, 2024, the Company had inventory that consisted of finished assemblies totaling $5,281,017 and $4,077,013, respectively, and raw materials (inventory components, parts, and packaging) totaling $755,016 and $754,448, respectively. The stated inventory value is inclusive of fixed production overhead costs based on normal capacity of the assembly warehouse.
The Company periodically reviews its inventory for evidence of slow-moving or obsolete inventory and provides for an allowance when considered necessary. The Company determined that no such reserve was necessary as of March 31, 2025 or December 31, 2024.
The Company prepays for inventory purchases from foreign suppliers. Prepaid inventory totaled $149,541 and $1,612,686 as of March 31, 2025 and December 31, 2024, respectively, and included inventory in transit where title had passed to the Company but had not yet been physically received.
Vendor and Foreign Concentrations of Inventory Suppliers
During the three months ended March 31, 2025 and 2024, approximately 71% of inventory purchases were made from suppliers located in various countries in Asia. Management expects products shipped from our third-party manufacturers located in Asia will be subject to additional tariffs. We intend to maintain our gross margins through a combination of supplier concessions, customer price increases, and operational efficiencies as sales continue to grow.
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 | |
| Manufacturing equipment | 3 - 10 years | |
| Office furniture and equipment | 3 - 7 years | |
| Warehouse equipment | 3 - 10 years | |
| Quality Assurance (“QA”) equipment | 3 - 10 years | |
| Tooling and molds | 5 - 10 years |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.
Betterments, renewals, and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized on the statements of operations.
Leases
The Company determines if an arrangement is a lease at inception. Leases may be categorized as operating leases or finance leases The Company does not have any finance leases.
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 balance sheets.
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. The Company’s incremental borrowing rate represents the interest rate that the Company would expect to incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. ROU assets 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 balance sheets. The Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company accounts for lease and non-lease components as a single lease component for all its leases.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. When events or circumstances indicate the carrying value of a long-lived asset may be impaired, the Company estimates the future undiscounted cash flows to be derived from the use and eventual disposition of the asset to assess whether or not a potential impairment exists. If the carrying value exceeds the estimate of future undiscounted cash flows, the impairment is calculated as the excess of the carrying value of the asset over the estimate of its fair value. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. No long-lived asset impairment was recognized during the three months ended March 31, 2025 or 2024.
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 historical experience with the amount of claims actually made. The Company has not accrued any liability for product warranties as of March 31, 2025 and December 31, 2024 because, historically, there have been very few warranty claims, and any costs for repairs or replacement parts have been nominal.
Liability for Refunds
The Company does not have a formal product return policy but does accept returns under its warranty policies. Returns have historically been minimal. The Company has not accrued a refund liability as of March 31, 2025 or December 31, 2024. If a refund liability was recognized, revenue would be 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 Company recognizes revenue based on 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 the accounts receivable balance attributable to the customer exceeds 10% of total accounts receivables.
During the three months ended March 31, 2025, sales to four customers totaled $1,010,058, comprising approximately 49.6% of total sales. These customers represented approximately 53% of total accounts receivable as of March 31, 2025. Accounts receivable from one additional customer totaled $91,001, representing approximately 17% of total accounts receivable as of March 31, 2025.
During the three months ended March 31, 2024, sales to one customer totaled $101,984, comprising approximately 11% of total sales. This customer represented approximately 2% of total accounts receivable as of March 31, 2024. Accounts receivable from three additional customers totaled $90,827, representing approximately 39% of total accounts receivable as of March 31, 2024.
Shipping and Handling Costs
Shipping and handling fees billed to customers totaled $14,918 and $22,690 during the three months ended March 31, 2025 and 2024, respectively, and are classified as net sales on the statements of operations. Shipping and handling costs for shipping product to customers totaled $83,177 and $43,043 during the three months ended March 31, 2025 and 2024, respectively, and are classified as selling, general, and administrative expense on the statements of operations.
Advertising and Marketing Costs
The Company expenses advertising and marketing costs as incurred. Advertising and marketing expenses totaled $246,643 and $240,076 for the three months ended March 31, 2025 and 2024, respectively, and are included in selling, general and administrative expense on the statements of operations.
Research and Development
Research and development costs are expensed as incurred. Research and development costs charged to expense amounted to $113,740 and $75,502 for the three months ended March 31, 2025 and 2024, and are included in selling, general and administrative expenses on the statements of operations.
Income Taxes
The Company’s 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, and long-term debt approximates their respective carrying values because the interest rates applicable to these instruments approximate market rates available to the Company for similar obligations with the same maturities.
The basic net earnings or loss per share is calculated by dividing the net earnings or 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 earnings or loss per share using the weighted average number of common shares outstanding during the periods presented. For the diluted earnings per share calculation, we adjust the weighted average number of common shares outstanding to include stock options, warrants, unvested restricted stock units (“RSUs”), and shares associated with the conversion of any convertible notes or convertible preferred stock, n each case as applicable. We use the if-converted method for calculating any potential dilutive effect of convertible notes and convertible preferred stock on diluted net earnings or loss per share. For periods in which we have a net loss position, we exclude these potentially dilutive securities from the weighted average number shares because their inclusion would be anti-dilutive. Accordingly, for periods in which we have a net loss position, basic and diluted net loss per share are the same.
The following shows the amounts used in computing net loss per share:
| Schedule of net loss per share | ||||||||
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | (1,151,998 | ) | $ | (2,192,940 | ) | ||
| Weighted average common shares outstanding – basic and diluted | 3,109,522 | 70,057 | ||||||
| Net loss per share – basic and diluted | $ | (0.37 | ) | $ | (31.30 | ) | ||
As of March 31, 2025 and December 31, 2024, the Company had outstanding warrants, options, and RSUs convertible into or exercisable for an aggregate of 6,440,723 and 5,392,395 shares of common stock, respectively.
The following table sets forth the number of shares excluded from the computation of diluted loss per share since their inclusion would have been anti-dilutive.
| Schedule of anti-dilutive share | ||||||||
| As of | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| 2021-2023 Warrants | 6,889 | 6,889 | ||||||
| August 2024 Warrants – Series A | 5,286,692 | 5,286,692 | ||||||
| August 2024 Warrants – Series B | 87,384 | 87,384 | ||||||
| January 2025 Warrants | 1,048,386 | — | ||||||
| Stock Options | 11,372 | 11,430 | ||||||
| Total | 6,440,723 | 5,392,395 | ||||||
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. Certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield, and expected life of the stock option. Changes to these assumptions could cause significant adjustments to the valuations.
Accounting Guidance Issued but Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40).” This ASU was issued to improve the disclosures about an entity’s expenses and require certain types of expenses to be disclosed individually. The Company is currently evaluating the impact of this standard on its financial 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.
3. Property and Equipment, Net
Property and equipment consist of the following:
| Schedule of property and equipment | ||||||||
| As of | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| Vehicles and transportation equipment | $ | 401,535 | $ | 406,013 | ||||
| Manufacturing equipment | 168,099 | 168,099 | ||||||
| Office furniture and equipment | 153,698 | 153,698 | ||||||
| Warehouse equipment | 72,964 | 72,964 | ||||||
| Leasehold improvements | 69,725 | 69,725 | ||||||
| QA equipment | 43,582 | 43,582 | ||||||
| Tooling and Molds | — | — | ||||||
| $ | 909,603 | $ | 914,081 | |||||
| Less: accumulated depreciation | (460,866 | ) | (430,191 | ) | ||||
| Property and equipment, net | $ | 448,737 | $ | 483,890 | ||||
Depreciation expense was $34,028 and $49,444 for the three months ended March 31, 2025 and 2024, respectively. There were disposals and sales of fixed assets during the three months ended March 31, 2025 and 2024 resulting in net cash received of $2,750 and $87,684, respectively. As a result of disposals and sales of fixed assets, the Company recognized a gain of $1,625 during the three months ended March 31, 2025 and a loss of $306 during the three months ended March 31, 2024.
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
| Schedule of accrued expenses and other current liabilities | ||||||||
| As of March 31, 2025 | As of December 31, 2024 | |||||||
| Accrued salaries and payroll liabilities | $ | 165,678 | $ | 145,686 | ||||
| Accrued commissions | 30,580 | 30,913 | ||||||
| Accrued interest | 427 | 760 | ||||||
| Accrued income taxes | 188 | 150 | ||||||
| Deferred income and deposit (sublease) | — | 4,549 | ||||||
| Other | 1 | 5,406 | ||||||
| Accrued expenses and other current liabilities | $ | 196,874 | $ | 187,464 | ||||
5. Long-Term Debt
Long-term debt consisted of the following as of March 31, 2025 and December 31, 2024:
| Schedule of long term debt payment | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| Note payable – Bank: The notes are payable in monthly installments of $332, including interest at 5.8% per annum, mature in August 2025, and are secured by equipment. | $ | 1,694 | $ | 2,657 | ||||
| Note payable – SBA: The Economic Injury Disaster Loan is payable in monthly installments of $731, including interest at 3.75% per annum, mature in May 2050, and are unsecured. | 142,013 | 143,144 | ||||||
| Notes payable – GM Financial: The Company acquired six notes payable to GM Financial for vehicles in April 2022. As of March 31, 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 of 2028, and are secured by the related vehicles. | 78,132 | 84,369 | ||||||
| Total | $ | 221,839 | $ | 230,170 | ||||
| Less current portion | (31,275 | ) | (31,758 | ) | ||||
| Long-term debt, net of unamortized debt discount and current portion | $ | 190,564 | $ | 198,412 | ||||
Future maturities of long-term debt are as follows:
| Schedule of maturities of long-term debt | |||
| 12 Months Ending March 31, | |||
| 2026 | $ | 31,275 | |
| 2027 | 31,572 | ||
| 2028 | 26,072 | ||
| 2029 | 5,636 | ||
| 2030 | 4,040 | ||
| Thereafter | 123,244 | ||
| Total | $ | 221,839 | |
The Company previously issued unsecured promissory notes to certain stockholders (the “Notes”). As of March 31, 2025 and December 31, 2024, the Company had no outstanding principal balance due to pursuant to the Notes. The Notes were fully repaid in August 2024.
Interest paid to stockholders under the Notes totaled $0 and $12,164 during the three months ended March 31, 2025 and 2024, respectively. There was no accrued interest as of March 31, 2025 and December 31, 2024, respectively, related to the Notes.
7. Equity and Debt Financings
January 2025 Public Offering
In January 2025, the Company sold in a public offering (i) 474,193 shares of common stock, (ii) pre-funded warrants to purchase 574,193 shares of common stock, which were exercised immediately upon closing, and (iii) warrants to purchase 1,048,386 shares of common stock (the “January 2025 Public Offering”). Gross proceeds from the January 2025 Public Offering were $2,599,997.
The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and following assumptions: per share price of common stock on date of grant $2.22, expected dividend yield of 0%, expected volatility of 158.64%, risk-free interest rate of 4.41% and expected life of 5 years. The warrants were valued at $2.064 per share, with a total value of $2,163,869. All of the warrants remain outstanding.
The offering of securities in the public offering 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.
Reverse Stock Split True-Up Payment
On October 8, 2024, the Company effected a 1-for-100 reverse stock split of its issued and outstanding common stock, which was approved by the Board on September 27, 2024, following stockholder approval at its annual meeting of stockholders held on September 27, 2024 (the “Reverse Stock Split”).
As a result of the daily VWAP of the common stock during the five trading days before and after the Reverse Stock Split, a Reverse Stock Split cash true-up payment provision in the Series A Warrants, which is capped at $5.0 million in the aggregate under all Series A Warrants, was triggered, but the payment of the Reverse Stock Split cash true-up payment was suspended in accordance with the terms of the Series A Warrants (the “Cash True-up Payment”).
During the year ended December 31, 2024, $14,052 of the Cash True-up Payment was relieved in connection with the exercise of Series A Warrants, leaving a remaining liability of $4,985,948 as of December 31, 2024. The Company used $500,000 of the net proceeds from the January 2025 Public Offering to satisfy a portion of the Cash True-up Payment leaving a remaining liability of $4,485,948 as of March 31, 2025.
August 2024 Public Offering
On August 8, 2024, the Company sold in a public offering, (i) 33,402,000 Common Units, (pre-Reverse Stock Split), each consisting of one share of common stock, two Series A Warrants and one Series B Warrant, and (ii) 16,598,000 Pre-Funded Units (pre-Reverse Stock Split), each consisting of one Pre-Funded Warrant, two Series A Warrants, and one Series B Warrant (the “August 2024 Public Offering”).
In addition, the Company granted the underwriter a 45-day option to purchase additional shares of common stock and/or Pre-Funded Warrants and/or Series A Warrants and/or Series B Warrants, representing up to 15% of the number of the respective securities sold in the August 2024 Public Offering, solely to cover over-allotments, if any. The underwriter partially exercised its over-allotment option with respect to 15,000,000 Series A Warrants (pre-Reverse Stock Split) and 7,500,000 Series B Warrants (pre-Reverse Stock Split).
The Common Units were sold at a price of $0.20 per unit and the Pre-Funded Warrants were sold at a price of $0.199 per unit (pre-Reverse Stock Split).
The Pre-Funded Warrants were immediately exercisable at an exercise price of $0.001 per share (pre-Reverse Stock Split) and could be exercised at any time until all Pre-Funded Warrants are exercised in full. As of March 31, 2025 and December 31, 2024, all Pre-Funded Warrants had been exercised.
Each Series A Warrant is exercisable at any time or times beginning on September 30, 2024, which was the first trading day following the Company’s notice to the Series A Warrant holders of stockholder approval received at the Company’s annual meeting of stockholders held on September 27, 2024 (the “2024 Annual Meeting”), and will expire five years from such date. Each Series A Warrant was initially exercisable at an exercise price of $24.00 per share of common stock (post-Reverse Stock Split). The exercise price of the Series A Warrants was subject to reduction on the 11th trading day after stockholder approval to the greater of the lowest daily volume weighted average price (“VWAP”) during the ten trading day period following stockholder approval and the floor price of $5.206 (representing 20% of the lower of the closing price of the common stock on The Nasdaq Capital Market on the date the Company priced the August 2024 Public Offering and the average closing price of the common stock on The Nasdaq Capital Market for the five trading days ending on such date (such lower price, without giving effect to such 20% reduction, the “Nasdaq Minimum Price”), and the number of shares issuable upon exercise was proportionately adjusted such that the aggregate exercise price remained unchanged. As of September 30, 2024, there were5,301,592 shares of common stock (post-Reverse Stock Split and assuming the adjustment had occurred on September 30, 2024) issuable upon exercise of the Series A Warrants. Subsequent to September 30, 2024, the exercise price under the Series A Warrants was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price, post-Reverse Stock Split), beginning on October 14, 2024, the 11th trading day following stockholder approval. As of March 31, 2025 and December 31, 2024, 14,900 shares of common stock had been issued upon exercise of Series A Warrants and 5,286,692 shares of common stock remained issuable upon exercise of Series A Warrants.
Each Series B Warrant was exercisable immediately upon issuance at an exercise price of $0.10 per share (post-Reverse Stock Split). The number of shares of common stock issuable under the Series B Warrants were subject to adjustment using a reset price based on the weighted average price of common stock over a rolling five-trading-day period between the issuance date of the Class B Warrants and the close of trading on the tenth trading day following stockholder approval, subject to certain floor prices. Effective October 8, 2024, the Reverse Stock Split occurred. As of November 12, 2024, 87,384 shares of common stock remained issuable upon exercise of Series B Warrants using the reset price, which was reduced to the floor price of $5.206 (representing 20% of the Nasdaq Minimum Price (post-Reverse Stock Split).
Pursuant to an underwriting agreement, the Company paid the underwriter a cash underwriting discount of 7% of gross proceeds received in the August 2024 Public Offering, reimbursement for Underwriter expenses of $100,000, and reimbursement for legal fees and disbursements of $100,000.
The offering of securities in the August 2024 Public Offering 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.
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 a 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 were payable, subject to the fulfillment of certain conditions set forth in the 3i Note, to satisfy interest payments under the 3i Note, and (iii) 635 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 $2,500,000.
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.
On August 8, 2024, in connection with the closing of the August 2024 Public Offering, the Company repaid the 3i Note, and the Company’s obligations under the 3i Note were fully satisfied and discharged.
Equity Line of Credit
On December 27, 2023, the Company entered into a common stock Purchase Agreement (the “Purchase Agreement”) with Tumim Stone Capital, LLC (“Tumim”), pursuant to which the Company 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”).
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.
In connection with the August 2024 Public Offering, the Company and Tumim mutually agreed to terminate the Equity Line of Credit, effective immediately upon the closing of the August 2024 Public Offering. Prior to the closing of the August 2024 Public Offering, the Company had sold 4,336 shares of common stock (post-Reverse Stock Split) under the Equity Line of Credit for an aggregate amount of $828,491, of which $434,958 was used to repay a portion of the balance under the 3i Note.
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 sheets, 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 $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 initially expired in December 2026 and December 2028. One of the leases terminated early in September of 2024, to consolidate our warehouses and save on monthly expenses.
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 $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 signed a lease for warehouse space in close proximity to its existing headquarters and main warehouse with a term commencing May 1, 2025.
The following is a summary of total lease costs during the three months ended March 31, 2025 and 2024:
| Schedule of lease cost | ||||||||
| Three Months Ended March 31, |
||||||||
| 2025 | 2024 | |||||||
| Operating lease cost | $ | 80,479 | $ | 186,344 | ||||
| Short-term lease costs | 1,194 | — | ||||||
| Variable lease costs | — | — | ||||||
| Sublease income | (7,169 | ) | (10,544 | ) | ||||
| Total lease costs | $ | 74,504 | $ | 175,800 | ||||
The weighted-average remaining lease term was 2.69 years and 2.91 years as of March 31, 2025 and December 31, 2024, respectively. The weighted average incremental borrowing rate was 7.55% and 7.60%, as of March 31, 2025 and December 31, 2024, respectively.
The total lease liability as of March 31, 2025 and December 31, 2024 was $731,791 and $798,917, respectively.
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2025, for years ending March 31:
| Schedule of future minimum lease payment | ||||
| Total | ||||
| 2026 | $ | 302,171 | ||
| 2027 | 294,930 | |||
| 2028 | 214,585 | |||
| Thereafter | — | |||
| Total future minimum lease payments | $ | 811,686 | ||
| Less imputed interest | $ | (79,895 | ) | |
| Total | $ | 731,791 | ||
| Current lease liability | $ | 255,676 | ||
| Noncurrent lease liability | 476,115 | |||
| Total | $ | 731,791 | ||
Subleases
The Company has subleased office and warehouse space under one of its existing operating leases on similar terms as the Company’s lease agreements. The sublease terminated in February 2025. Because the Company is not relieved of its primary obligations under the original lease, it 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 $7,169 and $10,544 during the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025 and December 31, 2024, deferred income and a sublease deposit totaled $0 and $4,549, respectively, and is included in accrued expenses and other current liabilities on the balance sheets.
There were no future minimum sublease payments as of March 31, 2025.
Legal Proceedings
From time to time, the Company is subject to legal claims, regulatory matters and contingencies in the ordinary course of business. Accruals for these matters are reflected in the financial statements based on management’s assessment of the expected outcome of these matters. Liabilities for estimated losses are accrued if the potential losses from any legal proceedings, regulatory matters or contingencies are considered probable and the amounts can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount can be reasonably estimated. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to legal claims, regulatory matters and contingencies, and may revise its previous estimates, which could materially affect the Company’s results of operations.
As of March 31, 2025 and December 31, 2024, the Company was not a party to any legal proceedings, regulatory matters, or other disputes or claims which, if determined adversely, would, individually or taken together, have a material adverse effect on the Company’s business, financial condition, operating results, liquidity, or future prospects.
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 March 31, 2025 and December 31, 2024, 3,144,468 and 2,096,082 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.
In January 2025, the Company sold in the January 2025 Public Offering (i) 474,193 shares of common stock, (ii) pre-funded warrants to purchase 574,193 shares of common stock, which were exercised immediately upon closing, and (iii) warrants to purchase 1,048,386 shares of common stock. The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and following assumptions: per share price of common stock on date of grant $2.22, expected dividend yield of 0%, expected volatility of 158.64%, risk-free interest rate of 4.41% and expected life of 5 years. The warrants were valued at $2.064 per share, with a total value of $2,163,868.70.
During the three months ended March 31, 2024, the Company issued 107 shares of common stock for the payment of $41,250 in interest incurred under the 3i Note. and sold 382 shares of common stock for an aggregate amount of $125,153. During the three months ended March 31, 2024, 750 shares were issued due to settlement and exercise of various securities.
Warrants / Options
During the three months ending March 31, 2025, a total of 574,193 pre-funded warrants were issued and immediately exercised for $2.48 per share, and 1,048,386 warrants were issued, which have an exercise price of $2.36 per share. These warrants have not been exercised and remain outstanding as of March 31, 2025.
During the year ended December 31, 2023, 73,000 warrants exercisable for 730 shares at $290.00 per share were exercised using the cashless conversion option which resulted in the issuance of 311 shares of common stock (post-Reverse Stock Split). This left 78,000 warrants remaining, which expired on November 9, 2024, without being exercised, and there are no warrants remaining at $290.00 per share as of March 31, 2025.
During the year ended December 31, 2023, 22,606 warrants exercisable for 226 shares of common stock at $332.00 per share were exercised using the cashless conversion option, which resulted in the issuance of 102 shares of common stock, and 15,000 warrants exercisable for 150 shares of common stock at $332.00 per share were exercised on a cash basis, which resulted in the issuance of 150 shares of common stock. During the year ended December 31, 2024, 7,535 warrants exercisable for 75 shares of common stock at $332.00 per share were exercised using the cashless conversion option which resulted in the issuance of 16 shares of common stock. This leaves 514,290 warrants remaining convertible into 5,149 shares of common stock with an exercise price of $332.00 per share as of March 31, 2025.
On August 10, 2023, the Company issued 25,000 warrants to its investor relations firm in accordance with a letter of engagement signed July 22, 2022, to purchase 250 shares of common stock at an exercise price of $500.00 per share. The warrants expire two years from the date of grant on August 9, 2025. The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and following assumptions: per share price of common stock on date of grant $5.20, expected dividend yield of 0%, expected volatility of 88%, risk-free interest rate of 4.82% and expected life of two years. The fair value of $65,045 was recorded as an increase in additional paid-in capital and expensed to legal and professional services.
As part of a settlement agreement on May 2, 2024, the Company agreed to modify the exercise price of 88,803 warrants convertible into 891 shares from $910.00 to $450.00.
8,125,000 Series B Warrants exercisable for 496,232 shares at $0.10 per share were exercised using the cashless conversion option which resulted in the issuance of 215,678 shares of common stock (based on a $5.206 reset price). Another 46,300,000 Series B Warrants were exercised on a cash basis which resulted in the issuance of 1,078,689 shares of common stock (based on a $5.206 reset price). This leaves 3,075,000 Series B warrants remaining, which are exercisable for 87,384 shares (post-Adjustment), as of March 31, 2025. In addition, 323,203 Series A Warrants were exercised on a cash basis which resulted in the issuance of 14,900 of common stock. This leaves 114,676,797 Series A Warrants remaining, which are exercisable for 5,286,692 shares of common stock, as of March 31, 2025.
As of both March 31, 2025 and December 31, 2024, a total of 687,295 regular warrants to purchase 6,889 shares of common stock were issued and outstanding.
Below is a summary of warrants issued and outstanding as of March 31, 2025:
| Schedule of various warrants/options issued and outstanding | ||||||||||||||
| Number of Warrants | Issuable Shares | Exercise Price per share | Weighted Average Remaining Life (Years) | |||||||||||
| 3,075,000 | (1) | 87,384 | $ | 0.10 | N/A | (3) | ||||||||
| 114,676,797 | (2) | 5,286,692 | $ | 5.206 | 4.49 | |||||||||
| 514,290 | 5,149 | $ | 332.00 | 6.65 | ||||||||||
| 88,803 | 891 | $ | 450.00 | 2.00 | ||||||||||
| 25,000 | 250 | $ | 500.00 | 0.36 | ||||||||||
| 59,202 | 599 | $ | 910.00 | 2.00 | ||||||||||
| 118,439,092 | 5,380,965 | |||||||||||||
| (1) | Series B Warrants are subject to reset pricing to determine the number of shares issuable. |
| (2) | Series A Warrants are subject to reset pricing to determine the number of shares issuable. | |
| (3) | Series B warrants do not have an expiration date. |
Equity Plans
As of March 31, 2025, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan (the “2021 Plan”) and the 2021 Employee Stock Purchase Plan (the “2021 ESPP”).
2021 Incentive Award Plan
The purpose of the 2021 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 Plan to eligible employees, consultants, and non-employee directors.
During the three months ended March 31, 2025, no shares were issued pursuant to the 2021 Plan. During the three months ended March 31, 2024, the Company granted 104,500 options to purchase 1,045 (post-Reverse Split) shares at an exercise price of $345.00, of which no options have been exercised, and 179 options have been cancelled.
As of March 31, 2025, the aggregate number of shares that can be issued under the 2021 Plan is 122,762, of which 11,372 options and 649 RSUs have been granted.
The stock-based compensation expense that has been charged against operations for awards issued under the 2021 Plan was $50,721 and $315,853 for the three months ended March 31, 2025 and 2024, respectively.
2021 Employee Stock Purchase Plan
The purpose of the 2021 ESPP 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 ESPP 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.
No shares have been issued to date under the 2021 ESPP.
See Note 9 – “Stockholders’ Equity” in the Company’s financial statements in Part IV of the Annual Report for further information regarding the 2021 Plan and 2021 ESPP.
Stock Options
The fair value of each option granted pursuant to the 2021 Plan 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 Company trading 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 has no foreseeable plans to pay dividends.
The Company has computed the fair value of the options granted during the year ended December 31, 2024 using the following assumptions:
| Schedule of fair value of assumptions | ||||
| Expected volatility | 124.35 | % | ||
| Expected dividends | None | |||
| Expected term (in years) | 5.42 | |||
| Risk free rate | 4.08% | |||
There were no options granted during the three months ended March 31, 2025.
The following table summarizes the Company’s stock option activity during the three months ended March 31, 2025 under the 2021 Plan:
| Schedule of stock option activity | ||||||||||
| Number of options | Weighted average exercise price | Weighted average remaining contractual term (in years) | Aggregate intrinsic value (1) | |||||||
| Outstanding at January 1, 2025 | 11,430 | $ | 372.16 | — | $ | — | ||||
| Granted | — | — | — | — | ||||||
| Exercised | — | — | — | — | ||||||
| Canceled | (58 | ) | 345.00 | — | — | |||||
| Outstanding at end of period | 11,372 | $ | 372.30 | 7.09 | $ | — | ||||
| Exercisable at March 31, 2025 | 10,572 | $ | 367.10 | 6.98 | $ | — |
| (1) | The aggregate intrinsic value of options outstanding and exercisable as of January 1, 2025 and March 31, 2025 was $0, as all options are out of the money. |
During the three months ended March 31, 2025 and 2024, the weighted-average grant-date fair value of the options granted was $0, and $312,873, respectively. 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 Company granted 649 RSUs in 2024, all of which were vested and settled as of December 31, 2024 and March 31, 2025.
Common Stock Reserved for Future Issuance
The following is a summary of shares of common stock reserved for future issuance as of March 31, 2025:
| Schedule of common stock shares reserved for future issuance | ||
| Exercise of warrants | 6,889 | |
| Exercise of stock options – 2021 Plan | 11,372 | |
| Exercise of Series A warrants | 5,286,692 | |
| Exercise of Series B warrants | 87,384 | |
| Exercise of January 2025 warrants | 1,048,386 | |
| Total shares of common stock reserved for future issuances | 6,440,723 |
10. Segment Reporting
The Company focuses on the design, assembly, manufacturing, and sale of LiFePO4 batteries and supporting accessories for RVs, marine applications and home energy storage products with plans to expand into industrial applications. The Company sells to wholesalers, distributors, and OEMs, as well as directly to consumers.
The Company has identified one reportable segment: Energy Storage. This segment generates revenue in North America, and the Company manages its product sales and associated expenses on a total basis. The accounting policies for this segment align with those outlined in the summary of significant accounting policies. The Chief Executive Officer is the Chief Operating Decision Maker (CODM) and assesses the performance of this segment and allocates resources based on net income or loss, which is reflected on the statements of operations, and the measure of segment assets is represented as total assets on the balance sheets.
The CODM evaluates the net income or loss from our reportable segment. Net income or loss is also utilized to monitor the difference between budgeted and actual results, offering insights into financial performance and guiding any necessary corrective actions. Additionally, the CODM employs net income or loss for competitive analysis by comparing the Company’s financial performance with competitors in the Energy Storage space.
The Company does not engage in any intra-entity sales or transfers.
11. 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 months ended March 31, 2025. The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded that it is more likely than not that these assets will not be realized. As of March 31, 2025 and December 31, 2024, there were no material unrecognized tax benefits included in the balance sheets that would, if recognized, affect the effective tax rate. For the three months ended March 31, 2025, the Company accrued $38 for income taxes, and for the three months ended March 31, 2024, the Company accrued income taxes of $460.
12. Related-Party Transactions
As of March 31, 2025 and December 31, 2024, related-party transactions consisted of the repayment of the Notes (see Note 6 – “Stockholder Promissory Notes”).
13. Subsequent Events
On April 9, 2025, the board of directors approved, by unanimous written consent, (i) the immediate grant of 105,000 RSUs to certain employees, which vested immediately upon issuance, as well as the payment of 25% of the value of these RSUs to these employees in cash to cover a portion of the taxes incurred, (ii) the conditional grant of 188,278 options to certain employees (conditional on approval of an increase in the share reserve under the 2021 Plan by the Company’s stockholders at the 2025 Annual Meeting), which shall vest immediately upon their issuance, and (iii) a cash incentive plan applicable to the executive officers that provides for the payment of cash bonuses upon the achievement of specified performance milestones, assuming certain liquidity thresholds are met at the time of payment.
On April 28, 2025, the board of directors approved, by unanimous written consent, (i) the conditional grant of 15,000 RSUs to the non-employee directors, which shall vest immediately upon their issuance, as well as the payment of 25% of the value of these RSUs in cash to these directors to cover a portion of the taxes incurred, and (ii) the conditional grant of 15,000 options to the non-employee directors, which shall vest immediately upon their issuance. The grant of these RSUs and options is conditioned on approval of an increase in the share reserve under the 2021 Plan by the Company’s stockholders at the 2025 Annual Meeting.
On April 18, 2025, the Company entered into a Consulting Agreement for management consulting services, which provided for the issuance to the consultant of 125,000 shares of restricted common stock, which were issued on April 21, 2025.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and related notes for the three months ended March 31, 2025 and 2024 included elsewhere in this Quarterly Report, as well as our audited financial statements and related notes for the fiscal years ended December 31, 2024 and 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025 (the “Annual Report”). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Quarterly Report, including in Part II, Item 1A “Risk Factors” of this Quarterly Report and “Cautionary Note Regarding Forward-Looking Statements and Industry Data,” as well as in Part I, Item 1A, “Risk Factors” of the Annual 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 financial statements included elsewhere in this Quarterly Report. Certain other amounts that appear in this section may not sum due to rounding.
Unless otherwise noted, all references to shares and per share amounts presented in this section have been adjusted retroactively to reflect a 1-for-100 reverse stock split, which was effective at 5:00 p.m. Pacific Time on October 8, 2024 (the “Reverse Stock Split”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reverse Stock Split and Reverse Stock Split True-Up Payment” in the Annual Report for additional information about the Reverse Stock Split.
OVERVIEW
Expion360 focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate (“LiFePO4”) batteries and supporting accessories for recreational vehicles (“RVs”), marine applications and home energy storage products with plans to expand into industrial applications. Our high-powered, lithium battery solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. In addition, in January 2025 we began selling our e360 Home Energy Storage Solutions, which consist of two LiFePO4 battery storage solutions and seek to provide consumers with a cost-effective, low barrier of entry, flexible system to power their homes utilizing solar energy, wind, or grid back-up. We are deploying multiple intellectual property strategies with research and products to sustain and scale our business. This includes design, development and collaboration, using our IP to bring safety, quality and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers (“OEMs”) who then sell our products to end consumers and drive brand awareness nationally.
Our primary target markets are currently the RV, marine, and home energy storage industries. We believe we are well-positioned to capitalize on the rapid market conversion from lead-acid to lithium batteries as the primary method of power sourcing in these industries. We are primarily focused on expanding within the home energy storage market with the introduction of our e360 Home Energy Storage Solutions, and we believe we have established a new standard in the industry for barrier price, flexibility, and integration with this offering. Along with the RV, marine and home energy storage markets, we aim to provide additional capacities to the expanding electric forklift and industrial material handling markets.
We launched our e360 product line, which is manufactured for the RV and marine industries, in December 2020. The e360 product line, through its sales growth, has shown to be a preferred conversion solution for lead-acid batteries. In December 2023, we announced our entrance into the home energy storage market with our introduction of two LiFePO4 battery storage solutions that enable residential and small business customers to create their own stable micro-energy grid and lessen the impact of increasing power fluctuations and outages. As of January 2025, we have begun shipping orders of our e360 Home Energy Storage Solutions.
Our products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed-oriented design and engineering, strong case materials, and internal and structural layouts, and are backed by responsive customer service.
We currently operate Expion360 as one reportable business segment, Energy Storage.
COMPETITIVE STRENGTHS
We believe the following strengths differentiate Expion360 and create long-term, sustainable competitive advantages:
Superior Capacity to Lead-Acid Competitors
Lead-acid batteries have historically been the standard in RV and marine transportation vehicles, but these industries are experiencing a rapid conversion from lead-acid to lithium batteries as the primary method of power sourcing. Our lithium-ion batteries offer superior capacity to our lead-acid competitors with an expected lifespan of approximately 12 years—three to four times the lifespan of certain lead-acid batteries—and ten times the number of charging cycles. Furthermore, our typical battery may provide three times the power of the typical, lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid battery like the Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a 1C rate).
In addition, we offer a 4.5 Ah 26650 lithium-ion phosphate battery cell, which allows us to increase energy density by over 32% compared to traditional 3.4 Ah 26650 cells.
Expansion into New Markets
Our proprietary e360 SmartTalk mobile app is included in many of our battery models and allows the seamless integration and management of e360 Bluetooth-enabled LiFePO4 batteries. The technology enables users to wirelessly monitor and manage e360 batteries, providing a comprehensive view of both individual battery conditions and performance, and a power bank consisting of multiple e360 batteries. The 48 Volt GC2 LiFePO4 battery was our first e360 SmartTalk Battery for powering electric golf carts and other light electric vehicles.
In December 2023, we entered the home energy storage market with our introduction of two LiFePO4 battery storage solutions comprising our e360 Home Energy Storage Solution: a wall mounted all-in-one inverter and 10kWh battery and an expandable server rack style battery cabinet system. We believe our new home energy storage product line will benefit from a fast-growing battery energy storage market, which is forecasted by Markets and Markets to grow at a 26.4% CAGR to reach $17.5 billion by 2028. Further, according to Clean Energy Group, approximately 3.2 million homes in the United States have solar panels installed, but only about 6% of residential solar systems have battery storage. Our home energy storage products are currently completing UL testing and certification, as well as other requirements for various Authorities Having Jurisdiction. Shipments of our two LiFePO4 battery solutions comprising our home energy storage product line began in January 2025.
In January 2024, we introduced our next generation 12V GC2 and Group 27 series LiFePO4 batteries. These new versions include higher amp-hour options (4.0Ah and 4.5Ah cell technology) and the latest advancements in power technology features, including Expion360’s proprietary Vertical Heat Conduction™ internal heating, Bluetooth®, and controller area network (“CANBus”) communication. We began delivering the new 12V GC2 and Group 27 batteries to customers in the second quarter of 2024.
In July 2024, we launched our new Edge battery, which offers a slim design and adds greater flexibility during installation. The Edge is offered in both 12V and 48V versions. We are experiencing high customer interest and are actively shipping Edge batteries.
In December 2024, we announced a letter of intent to collaborate with another leading innovator in energy storage solutions to pursue funding for and to establish a state-of-the-art manufacturing facility in the United States and to collaborate on battery cell and product designs to make a lasting impact on the energy storage industry.
Strong National Retail Customers and Distribution Channels
We have sales relationships with many major RV and marine retailers and plan to use our strong reputation in the lithium battery space to create an even stronger distribution channel. Current and former members of management have used their decades of experience in the energy and RV industries to cultivate relationships with numerous retailers in the space, including Camping World, a leading national RV retailer; and Meyer Distributing, Inc., a leading national marketer and distributor of automotive and RV specialty products.
Home Energy Integration
We are currently having discussions with integration partners. This is key for the development of our home energy storage products and subsequent sales growth.
RECENT DEVELOPMENTS
Chief Operating Officer Resignation and Appointment
Paul Shoun, our Co-Founder, President, Chief Operating Officer, and Chairman of the Board, resigned from his role as Chief Operating Officer, effective April 1, 2025. Mr. Shoun has continued to perform his duties as President and Chairman of the Board. In connection with Mr. Shoun’s resignation, the Board appointed Carson Heagen, who was serving as our Vice President of Operations, to serve as our Chief Operating Officer, effective April 1, 2025.
January 2025 Registered Direct Offering and Warrant Private Placement
On January 3, 2025, we sold to certain institutional investors, in a registered direct offering, an aggregate of (i) 474,193 shares of common stock; and (ii) 574,193 pre-funded warrants (the “January 2025 Pre-Funded Warrants”) to purchase up to 574,193 shares of common stock (the “January 2025 Pre-Funded Warrant Shares”). The offering price per share was $2.48 and the offering price per January 2025 Pre-Funded Warrant was $2.479. Each January 2025 Pre-Funded Warrant was exercisable for one share of common stock for $0.001 immediately and the January 2025 Pre-Funded Warrants were all exercised immediately upon issuance. The number of January 2025 Pre-Funded Warrant Shares are subject to adjustments for stock splits, recapitalizations, and reorganizations.
In a concurrent private placement that closed January 3, 2025, we also issued to the institutional investors unregistered warrants (the “January 2025 Warrants”) to purchase up to an aggregate of 1,048,386 shares of common stock (the “January 2025 Warrant Shares”) at an exercise price of $2.36 per share, subject to adjustment for reverse stock splits, recapitalizations, and reorganizations. The January 2025 Warrants were immediately exercisable and can be exercised until January 3, 2030. In connection with the private placement, we filed a registration statement on Form S-1 (File No. 333-284354), which was declared effective by the SEC on February 11, 2025, covering the resale of the January 2025 Warrant Shares.
We received net proceeds of approximately $1.8 million from the offering and used approximately $0.5 million of the net proceeds to satisfy a portion of certain amounts owed to our Series A Warrant holders pursuant to the terms of the outstanding Series A Warrants.
KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Our results of operations and financial performance are significantly dependent on the following factors:
Consumer Demand
Although our sales are primarily generated from dealers, wholesalers, private-label customers and OEMs focused on the RV, marine, and home energy markets, the demand for our products from these customers depends on consumer demand. Our sales are completed on a purchase order basis, and most are without firm, long-term revenue commitments or sales arrangements, which we expect to continue going forward. Accordingly, our growth prospects and future sales are subject to risks and uncertainties related in part to consumer demand for our products, which is affected by a number of factors, including fuel costs, discretionary spending, macroeconomic conditions, including inflation, changes in tariffs and interest rates, geopolitical pressures, and volatility in the RV, marine, and home energy markets. In recent years we have seen a rise in fuel costs, higher interest rates, and other changes in macroeconomic conditions, which have resulted in decreased consumer spending decisions and affecting our industry as a whole. In addition, we expect escalating tensions between the U.S. and China, where several of our key manufacturers and suppliers are located, as well as the ongoing risk of new or additional tariffs impacting lithium-ion batteries or related parts, to increase our cost of goods sold, which could require us to increase prices to our customers or result in lower gross margins on our products. These conditions have had, and may continue to have, a negative effect on our business, financial condition, and results of operations.
While RV and marine applications have historically driven our revenue, in January 2025, we began shipping orders of our e360 Home Energy Storage Solution, comprised of two LiFePO4 battery storage solutions. Our e360 Home Energy Storage Solutions aim to provide consumers with a cost-effective, low barrier of entry, flexible system to power their homes utilizing solar energy, wind, or grid back-up. The success of our strategy depends on (i) the continued growth of these addressable markets in line with our expectations, and (ii) our ability to successfully enter and maintain a competitive position in the RV, marine, and home energy markets with commercially viable products. We expect to incur significant marketing costs understanding and growing our presence within these markets, and researching and targeting customers in these markets, and our efforts may not be successful in generating sales. If we fail to execute on this growth strategy in accordance with our expectations, our sales growth could be limited to the growth of existing products and existing end markets.
Expion360 has recently added several new distributors and OEM customers in RV and marine markets. Management believes that orders resulting from these new relationships will result in significant new revenue streams in the year ending December 31, 2025.
Manufacturing and Supply Chain
Our batteries are manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers and our purchases are completed on a purchase-order basis, we maintain strong relationships with our manufacturers and cell suppliers, reflected in our ability to increase our purchase order volumes (qualifying us for related volume-based discounts). The strength of these relationships has helped us moderate increased supply-related costs associated with inflation, currency fluctuations, and U.S. government tariffs imposed on our imports, and avoid potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our expected supply requirements. We believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if needed.
Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality standards and, as a result, we may have limited control over the agreed pricing for these raw materials and battery components. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material used to produce our battery cells and, as a result, the cost of our battery cells is dependent on the price and availability of lithium, which may be volatile and unpredictable and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Our battery cell manufacturers have joint venture factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells used in our batteries from a supplier in Europe, enabling us to source materials outside of Asia in the event it becomes necessary to do so.
In addition to increased mining and newly located reserves, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past few years is lithium cell recycling. This process recaptures raw lithium from the cell for reuse in future cells. However, notwithstanding efforts to improve the sustainability and efficiency of lithium mining, the price of lithium is volatile. We continue to monitor developments that may adversely affect our supply chain.
Management expects that products from our Asian third-party manufacturers will be subject to additional tariffs in 2025. We believe that we can protect our margins through a combination of supplier concessions, customer price increases and efficiencies gained as sales continue to grow.
For additional information regarding supply chain risks, see the information in Part I, Item 1A of the Annual Report titled “Risk Factors—Our results of operations could be adversely affected by changes in the cost and availability of raw materials and we are dependent on third-party manufacturers and suppliers” and “—Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.”
Product and Customer Mix
As of March 31, 2025, we sell 15 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to different customers (e.g., dealers, wholesalers, private-label customers, OEMs, etc.) at differing prices and have varying costs. The average selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs. Accessory and OEM sales typically have lower average selling prices and resulting margins, which could decrease our margins and negatively affect our growth or require us to increase the prices of our products. However, the benefits of increased sales volumes typically offset these reductions. The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin.
Competition
We compete with both traditional lead-acid and lithium-ion battery manufacturers that primarily either import their products and/or components or manufacture their products and/or components under a private label. As we develop new products and expand into new markets, we may experience competition with a broader range of companies. These companies may have more resources than us and be able to allocate more resources to their current and future products. Our competitors may source products or components at lower costs than us, which may require us to evaluate our own costs, lower our product prices, or increase our sales volume to maintain our expected profitability levels.
Research and Development
We anticipate that additional investments in our infrastructure and research and development spending will be required to scale our operations and increase productivity, address the needs of our customers, further develop and enhance our products and services, and expand into new geographic areas and market segments.
New technologies are rapidly emerging in the markets where we conduct business and many new energy storage technologies have been introduced over the past several years. Our ability to achieve significant and sustained penetration of key developing markets, including the RV, marine, residential energy storage, and small commercial energy storage markets, will depend upon our success in developing these and other technologies, either independently, through joint ventures, or through acquisitions, which in each case may require significant capital and commitment of resources to research and development. Accordingly, we may need to seek additional debt and equity financing to fund our research and development efforts and planned growth.
Certifications
We completed the final requirements to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and on our 12V GC2 battery. Now that these certifications have been completed, all of the batteries produced by us have a UL Safety Certification, emphasizing our commitment to quality, safety and service for our customers.
KEY LINE ITEMS
Net Sales
Our revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods or services. All of our sales are primarily within the United States.
Cost of Sales
Our primary cost of sales as a percentage of sales is related to our direct product and landing costs. Direct labor costs consist of payroll costs (including taxes and benefits) of employees directly engaged in assembly activities. Per full absorption cost accounting, overhead related to our cost of sales is added, consisting primarily of warehouse rent and utilities. The costs can increase or decrease based on costs of product and assembly parts (purchased at market pricing), customer supply requirements, and the amount of labor required to assemble a product, along with the allocation of fixed overhead.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, legal and professional fees, and sales and marketing costs. Other costs include facility and related costs, research and development, software and tech support, and travel expenses.
Other (Income) Expense
Our other (income) and expense typically consist of interest expense, interest income, and gain or loss on sale of property and equipment.
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. It requires that the Company recognize the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination and on the technical merits of the position. Management has concluded that there were no material unrecognized tax benefits as of March 31, 2025 or December 31, 2024.
Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our balance sheets at March 31, 2025 or December 31, 2024 and did not recognize interest and/or penalties in the statement of operations for the three months ended March 31, 2025 and 2024, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of sales:
| For the Three Months Ended: | March 31, 2025 | March 31, 2024 | ||||||||||||||
| $ | % of Net sales | $ | % of Net sales | |||||||||||||
| Net sales | $ | 2,049,331 | 100.0 | % | $ | 971,859 | 100.0 | % | ||||||||
| Cost of sales | 1,547,764 | 75.5 | 749,337 | 77.1 | ||||||||||||
| Gross profit | 501,567 | 24.5 | 222,522 | 22.9 | ||||||||||||
| Selling, general, and administrative expenses | 1,649,435 | 80.5 | 2,189,475 | 225.3 | ||||||||||||
| Loss from operations | (1,147,868 | ) | (56.0 | ) | (1,966,953 | ) | (202.4 | ) | ||||||||
| Other expense - net | (4,092 | ) | (0.2 | ) | (225,527 | ) | (23.2 | ) | ||||||||
| Loss before income taxes | (1,151,960 | ) | (56.2 | ) | (2,192,480 | ) | (225.6 | ) | ||||||||
| Net loss | (1,151,998 | ) | (56.2 | ) | (2,192,940 | ) | (225.6 | ) | ||||||||
Net Sales
Net sales for the three months ended March 31, 2025 increased by $1.1 million, or 111%, compared to the three months ended March 31, 2024. Net sales were $2.0 million for the three months ended March 31, 2025 and $972,000 for the three months ended March 31, 2024. The increase in net sales was due, in part, to a rebound in the RV market overall, which fueled demand for our product, as well as commencing sales of our e360 Home Energy Storage Solutions in the home energy market.
Cost of Sales
Total cost of sales for the three months ended March 31, 2025 increased by $798,000, or 107%, compared to the three months ended March 31, 2024. However, cost of sales as a percent of sales decreased by 1.6% compared to the prior year period, from 77.1% to 75.5%. Cost of sales was $1.5 million for the three months ended March 31, 2025 and $749,000 for the three months ended March 31, 2024. The percentage decrease in cost of sales was primarily related to the increase in net sales resulting in lower fixed overhead costs per unit.
Gross Profit
Our gross profit for the three months ended March 31, 2025 increased by $279,000, or 125%, compared to the three months ended March 31, 2024. Gross profit was $502,000 for the three months ended March 31, 2025 and $223,000 for the three months ended March 31, 2024. Gross profit as a percentage of sales increased by 1.6% compared to the prior year period. The increase in gross profit for the three months ended March 31, 2025 was primarily attributable to the increase in net sales and lower cost of goods sold as a percentage of sales.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the three months ended March 31, 2025 decreased by $540,000, or 24.7%, compared to the three months ended March 31, 2024. Selling, general, and administrative expenses were $1.6 million for the three months ended March 31, 2025 and $2.2 million for the three months ended March 31, 2024. The decrease in selling, general, and administrative expense is primarily due to decreases in salaries and benefits, including non-cash stock-based compensation, as well as reduction in headcount. Legal and professional fees also had a significant decrease, as did rent expense due to the termination of the lease on our second warehouse.
Presented in the table below is the composition of selling, general and administrative expenses:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Salaries and benefits | $ | 672,664 | $ | 1,005,941 | ||||
| Legal and professional | 311,042 | 446,257 | ||||||
| Sales and marketing | 246,643 | 240,076 | ||||||
| Research and development | 113,740 | 75,502 | ||||||
| Software, fees, tech support | 70,472 | 74,210 | ||||||
| Insurance | 63,105 | 70,194 | ||||||
| Rents, maintenance, utilities | 56,679 | 138,218 | ||||||
| Travel expenses | 40,851 | 41,738 | ||||||
| Depreciation | 29,813 | 44,779 | ||||||
| Supplies | 8,222 | 8,329 | ||||||
| Other | 36,204 | 44,231 | ||||||
| Total | $ | 1,649,435 | $ | 2,189,475 | ||||
Other Expense
Our other expense for the three months ended March 31, 2025 and 2024 was $4,000 and $226,000, respectively. Other expense for the three months ended March 31, 2025 was made up almost entirely of interest expense, partially offset by a gain on sale of property and equipment, while the same period for 2024 was made up almost entirely of interest expense.
During the three months ended March 31, 2025 and 2024, interest expense totaled $6,000 and $253,000, respectively. Interest expense during the three months ended March 31, 2025 was entirely paid in cash, while interest expense during the three months ended March 31, 2024 was made up of non-cash interest expense of $225,000 and interest expense paid in cash of $28,000. Interest expense was primarily due to the convertible note, which was paid off in full in August 2024.
Net Loss
Our net loss for the three months ended March 31, 2025 and 2024 was $1.2 million and $2.2 million, respectively. The decrease in net loss was primarily the result of higher net sales for the period ended March 31, 2025. Additionally, for the period ended March 31, 2025, we recognized reductions in salaries and benefits as well as legal and professional fees and rent expense.
CASH FLOWS
The following table shows a summary of our cash flows for the periods presented:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (1,228,934 | ) | $ | (1,671,918 | ) | ||
| Net cash provided by investing activities | $ | 2,750 | $ | 77,134 | ||||
| Net cash provided by / (used in) financing activities | $ | 1,771,226 | $ | (74,781 | ) | |||
Net cash used in operating activities
Our largest source of operating cash is cash received from the sales of our products. We primarily use cash in operating activities 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 have supplemented working capital requirements through net proceeds from the sales of common stock.
Net cash used in operating activities was $1.2 million for the three months ended March 31, 2025, compared to $1.7 million for the prior year period. The decrease in cash used was primarily driven by improved operating performance and favorable changes in working capital, including:
| ● | For the three months ended March 31, 2025, our loss of $1.2 million was reduced by non-cash transactions including stock-based compensation of $51,000 and depreciation of $34,000. For the three months ended March 31, 2024, our loss of $2.2 million was reduced by non-cash transactions including stock-based compensation of $316,000, amortization of convertible note costs of $167,000, and depreciation of $49,000. |
| ● | For the three months ended March 31, 2025, cash used by an increase in inventory of $1.2 million was more than offset by cash provided by a decrease in prepaid and in-transit inventory of $1.5 million, as orders requiring prepayment or orders in transit prior to December 31, 2024 were received into inventory during the three months ended March 31, 2025. |
| ● | Cash used in decreasing our suspended liability for the three months ended March 31, 2025 was primarily due to the company using $500,000 of proceeds from the January 2025 offering to partially satisfy payments owed under the Series A Warrants, resulting in a corresponding reduction to the suspended liability, while there was no cash flow for this liability in the three months ended March 31, 2024. |
| ● | Cash used by an increase in accounts payable was $29,000 for the three months ended March 31, 2025, while cash provided by a decrease in accounts receivable was $5,000 for the three months ended March 31, 2024. Sales are generally collected within 30 to 45 days. These changes are mainly due to timing of invoices and payments before and after the end of the period. |
| ● | Cash provided by a decrease in accounts receivable was $20,000 for the three months ended March 31, 2025, while cash used by an increase in accounts receivable was $84,000 for the three months ended March 31, 2024. Sales are generally collected within 30 to 45 days. These changes are mainly due to timing of invoices and payments before and after the end of the period. |
Net cash provided by investing activities
Cash provided by investing activities was $3,000 and $77,000 for the three months ended March 31, 2025 and 2024, respectively. We sold one vehicle in the three months ended March 31, 2025, and sold three vehicles during the three months ended March 31, 2024, for net proceeds of $3,000 and $88,000, respectively.
Net cash provided by / (used in) financing activities
Cash provided by financing activities in the three months ended March 31, 2025 was $1.3 million , while cash used in financing activities was $75,000 for the three months ended March 31, 2024. For the three months ended March 31, 2025, we received net proceeds of $1.8 million from issuance of common stock, offset by payments of $8,000 toward principal on long-term debt. For the three months ended March 31, 2024, we paid down long-term debt principal of $94,000, paid off a stockholder note in the principal amount of $62,500, and made principal payments toward the short-term convertible note of $44,000, which were offset by net cash proceeds of $125,000 from issuance of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our operations have been financed primarily through net proceeds from the sale of securities and from borrowings. As of March 31, 2025, our working capital improved to $2.7 million compared to $2.0 million as of December 31, 2024, and we had cash and cash equivalents of $1.1 million and $548,000, as of March 31, 2025 and December 31, 2024, respectively.
We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest, and principal payments on our debt.
As of March 31, 2025, we expect our short-term liquidity requirements to include (a) scheduled principal debt payments of approximately $31,000, (b) lease obligation payments of approximately $256,000, including imputed interest, and (c) a suspended liability payment of $4.5 million, which represents an obligation under our Series s Warrants subject to payment deferral mechanisms that are being actively managed.
We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. We continue to experience recurring operating losses and negative cash flows from operations, with $1.2 million used in operating activities during the three months ended March 31, 2025. While management has implemented cost containment measures and is working to address its cash flow challenges, including by raising additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses, material uncertainty remains. Without additional funding or a material increase in revenue generation, we may not be able to meet our obligations as they become due. These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements for the year ended March 31, 2025 are issued. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves 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 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. See also the risk factor entitled “Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern” in Part I, Item 1A, “Risk Factors” of the Annual Report.
Financing Obligations
As of March 31, 2025, our long-term debt was approximately $222,000, of which $31,000 is due within the next 12 months. This balance includes $142,000 outstanding under a COVID-19 Economic Injury Disaster Loan, $78,000 outstanding under vehicle financing arrangements, and an equipment loan for $2,000.
Vehicle Financing Arrangements
As of March 31, 2025, 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 and increased to $350,000, and renewed again in April 2024 and April 2025 for the same $350,000 amount. This commercial line may be used to finance vehicle purchases and expires in April 2026. 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, LP (“3i”) pursuant to which we sold, and 3i purchased, the 3i Note in the aggregate original principal amount of $2,750,000, for gross proceeds of $2.5 million. On August 8, 2024, in connection with the closing of the August 2024 Public Offering, we repaid the 3i Note, and our obligations under the 3i Note were fully satisfied and discharged. Prior to the closing of the August 2024 Public Offering, we had issued 415 shares of common stock (post-Reverse Stock Split) for the payment of $90,839 in interest.
Equity Line of Credit
On December 27, 2023, we entered into the Common Stock Purchase Agreement, pursuant to which we had the right, but not the obligation, to sell to Tumim Stone Capital, LLC (“Tumim”), and Tumim was obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price of newly issued common stock and (b) the Exchange Cap (as defined in the purchase agreement) (the “Equity Line of Credit”). In connection with the August 2024 Public Offering, we mutually agreed with Tumim to terminate the Equity Line of Credit, effective immediately upon the closing of the August 2024 Public Offering. Prior to the closing of the August 2024 Public Offering, we had sold 4,336 shares of common stock (post-Reverse Stock Split) under the Equity Line of Credit for an aggregate amount of $828,491, of which $434,958 was used to repay a portion of the balance under the 3i Note, consisting of $380,042 to the loan principal, $34,204 to interest, and $20,712 as a redemption premium.
Contractual and Other Obligations
Our estimated future obligations consist of long-term operating lease liabilities. As of March 31, 2025, the Company had $732,000 in long-term operating lease liabilities.
CRITICAL ACCOUNTING ESTIMATES
The above discussion and analysis of our financial condition and results of operations is based upon our financial statements. The preparation of financial statements in conformity with the generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates involve judgments that are inherently uncertain and subject to change as future events and conditions evolve. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, will be reflected in the financial statements prospectively from the date of the change in the estimate.
A critical accounting estimate is one that involves a significant degree of judgment or complexity and where a different assumption could reasonably have a material impact on our financial condition or results of operations. The critical accounting estimates below 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. There were no material changes to our methodologies or underlying assumptions for these estimates compared to prior periods.
Property and Equipment
Property and equipment are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related assets as follows:
| Vehicles and transportation equipment | 5 – 7 years | |
| Manufacturing equipment | 3 – 10 years | |
| Office furniture and equipment | 3 – 7 years | |
| Warehouse equipment | 3 – 10 years | |
| QA equipment | 3 – 10 years | |
| Tooling and molds | 5 – 10 years |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.
Useful life is estimated for each item at the time of purchase based on the typical useful life in our experience and best judgment, and remaining useful life of existing assets is evaluated regularly. If an estimated useful life were to be inaccurate, there would not be a material effect on our financials, and the estimated depreciation would be trued up at the time of disposal or impairment. It is our experience that the estimated useful lives of our assets are generally materially accurate.
Leases
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset during the lease term, and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on our balance sheets. We do not have any finance leases.
We recognize operating lease assets and lease liabilities on the balance sheets on the lease commencement date, based on the present value of the outstanding lease payments over the reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, plus any additional periods covered by an option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or not to terminate) a lease that is controlled by the lessor.
We discount unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, our incremental borrowing rate (IBR).
See Note 8, “Commitments and Contingencies,” of our financial statements within the Annual Report for further information.
Revenue Recognition
Our revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers in an amount that reflects the consideration we are expected to be entitled to in exchange for those goods or services. Revenue is recognized upon shipment or delivery to the customer, as that is when the customer obtains control of the promised goods and our performance obligation is considered satisfied.
Warrants
Warrants are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See “Note 7—Equity and Debt Financings” and “Note 9—Stockholders’ Equity” in our accompanying financial statements for information on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in market interest rates which can result in materially different results.
Stock-Based Compensation
We use the Black-Scholes option-pricing model to determine the fair value of option grants. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of stock options, volatility of our stock price, risk-free interest rates, future dividend yields and estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common stock on the date of grant. Changes in assumptions used to estimate fair value could result in materially different results.
Income Taxes
Effective November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to recover our deferred tax assets. In the event that we determine all, or part of our net deferred tax assets are not realizable in the future, we will record an adjustment to the valuation allowance and a corresponding charge to earnings in the period such determination is made.
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of US GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and results of operations. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recorded in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
See “Note 11—Income Taxes” of our financial statements within the Annual Report for further information on our income taxes.
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 305 of Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive, financial, and accounting officer, evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025. 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. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our principal executive, financial, and accounting officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025.
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2025, 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
From time to time, we may become subject to legal claims, regulatory matters and contingencies in the ordinary course of our business. However, we are not currently party to any pending legal claims, regulatory matters or contingencies that we believe would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, liquidity or prospects.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before making a decision to purchase or sell our common stock, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors” of the Annual Report, which are incorporated herein by reference. The risks described in our Annual Report are not the only ones we face. Additional risks we currently do not know about or that we currently believe to be immaterial may also impair our business, financial condition, results of operations, liquidity, and prospects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
There were no sales of unregistered equity securities during the three months ended March 31, 2025.
On April 18, 2025, we entered into a Consulting Agreement for management consulting services, which provided for the issuance to the consultant of 125,000 shares of restricted common stock, which were issued on April 21, 2025.
Issuer Repurchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ITEM 4.
None.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Trading Plans
Our directors and officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our common stock, which plans or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange Act, or which may represent a non-Rule 10b5-1 trading arrangement as defined under Item 408(a) of Regulation S-K.
During the quarter ended March 31, 2025, no director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.
ITEM 6. EXHIBITS
† Indicates a management contract or compensatory plan or arrangement.
| # | The certification shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and shall not be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in any such filing. |
| * | 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 Securities and Exchange Commission
or its staff upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 15, 2025 | By: | /s/ Brian Schaffner |
| Brian Schaffner | ||
|
Chief Executive Officer and Interim Chief Financial Officer (Principal Executive, Financial, and Accounting Officer) |
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) dated April 1, 2025 is by and between Expion360 Inc., a Nevada corporation (the “Company”) and Carson Heagen (“Executive”).
RECITALS:
WHEREAS, the Company desires to employ Executive as its Chief Operations Officer (COO); and
WHEREAS, the Company and Executive desire to enter into this Agreement, which embodies the terms of such employment.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
1. Term of Employment. Subject to the provisions of Section 5 of this Agreement, Operating shall commence employment with the Company for a period (the “Employment Term”) commencing on the Effective Date and ending on the first anniversary of the Effective Date on the terms and subject to the conditions set forth in this Agreement; provided, however, the Employment Term shall be automatically extended for an additional one-year period commencing with the first anniversary of the Effective Date and, thereafter, on each such successive anniversary of the Effective Date (each, an “Extension Date”), unless the Company or Executive provides the other party at least 60 days’ prior written notice before the next Extension Date that the Employment Term shall not be so extended (a “Notice of Non-Renewal”).
| 2. | Position, Duties, Authority, and Policies. |
(a) Position. During the Employment Term, Executive shall serve as the COO of the Company. In such position, Executive shall have such duties, functions, responsibilities and authority as shall be determined from time to time by the Board and consistent with Executive’s position and title. Executive shall report directly to the President and the Chief Executive Officer.
(b) Time Commitments. Executive will devote substantially all of Executive’s business time and best efforts to the operation and oversight of the business of the Company Group and performance of Executive’s duties hereunder (excluding periods of vacation, approved time off or leave of absence) and will not, without the Company’s prior consent (which shall not be unreasonably withheld, conditioned or delayed), engage in any other business activities that could conflict with Executive’s duties or services to the Company Group. Executive shall be subject to the terms and conditions of the Company Group’s employee policies and codes of conduct as in effect from time to time to the extent not inconsistent with this Agreement.
| 3. | Compensation. |
(a) Base Salary. During the Employment Term, the Company shall pay (or cause to be paid) to Executive a base salary (“Base Salary”) at the annual rate of $180,000, payable in regular installments in accordance with the usual payment practices of the Company Group. Executive’s Base Salary shall be subject to annual review and subject to increase, but not decrease, as may be determined from time to time in the sole discretion of the Board.
(b) Any Annual Bonus shall be paid to Executive within two and one-half months after the end of the applicable fiscal year; provided, that if the applicable performance objectives and targets have not, if necessary, been verified by audit by such time, then the Annual Bonus, if any, shall be payable within 10 days following such verification, but not later than April 30 of such year (provided, that the Company shall use its reasonable best efforts to complete any such audit and pay such Annual Bonus as promptly as practicable). No Annual Bonus shall be payable in respect of any fiscal year in which Executive’s employment is terminated, except to the extent provided in Section 5.
| 4. | Benefits. |
(a) General. During the Employment Term, Executive shall be entitled to participate in the retirement, health and welfare benefit plans, practices, policies and arrangements of the Company Group as in effect from time to time (collectively, “Employee Benefits”), on terms and conditions no less favorable than each of the Employee Benefits are made available to any other senior executive of the Company Group (other than with respect to any terms and conditions specifically determined under this Agreement, the benefits for which shall be determined instead in accordance with this Agreement). For the avoidance of doubt, no new benefit plans shall be required to be adopted. Executive shall be entitled to the perquisites set forth on Exhibit I.
(b) Vacation. Executive shall be entitled to five weeks paid vacation pursuant to the applicable Company vacation policy, plan or regular practice, as may be modified from time to time.
(c) Reimbursement of Business Expenses. During the Employment Term, the Company shall reimburse Executive for reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder in accordance with its then-prevailing business expense policy (which shall include appropriate itemization and substantiation of expenses incurred); provided, that reimbursement for travel expenses incurred by Executive in the performance of Executive’s duties hereunder shall be made in accordance with the travel policy of the Company, which, with respect to Executive, shall be consistent with the travel policy in effect for Executive as of immediately prior to the Effective Date.
| 5. | Termination. |
(a) The Employment Term and Executive’s employment hereunder may be terminated by either party at any time and for any reason manner set forth in this Section 5; provided, that the terminating party shall be required to give the other party at least 30 days’ advance written notice (the “Notice Period”) of such termination (other than as a result of (i) a termination by the Company for Cause, which shall not require such advance notice, or (ii) a resignation by Executive for Good Reason, which shall require notice as set forth in Section 5(d)(iii)). Notwithstanding any other provision of this Agreement, the provisions of this Section 5 shall exclusively govern Executive’s rights upon termination of employment with Company; provided, that Executive’s rights under any equity plan, equity incentive award agreement or other employee benefit plan that provides for rights (other than severance payments) upon termination of employment shall, in each case, be governed exclusively by such plan or agreement, as applicable.
| (b) | By the Company for Cause or by Executive without Good Reason. |
(i) The Employment Term and Executive’s employment hereunder (A) may be terminated by the Company for Cause with immediate effect and (B) shall terminate automatically upon the effective date (following the Notice Period) of Executive’s resignation for any reason other than Good Reason.
(ii) For purposes of this Agreement, “Cause” shall mean (A) any willful act or omission that constitutes a material breach by Executive of any of Executive’s material obligations under this Agreement; (B) the willful and continued failure or refusal of Executive to substantially perform the material duties reasonably required of Executive as an employee of the Company Group; (C) Executive’s commission or conviction of, or plea of guilty or nolo contendere to, (1) a felony or (2) a crime involving fraud or moral turpitude (or any other crime relating to the Company Group which would reasonably be expected to be materially injurious to the Company Group; provided, that if the Company terminates Executive’s employment and withholds payments or benefits to Executive on the assertion that Executive committed a felony or crime described in this clause and Executive is subsequently acquitted of such felony or crime, then the Company shall promptly pay to Executive an amount sufficient to restore Executive to the same economic position Executive would have been in had Executive’s termination of employment been without Cause (including by paying an amount in severance that Executive would have been entitled to under this Agreement); (D) Executive’s willful theft, dishonesty or other misconduct that would reasonably be expected to be injurious to the Company Group; (E) Executive’s willful and unauthorized use, misappropriation, destruction or diversion of any material or intangible asset of the Company Group (including, without limitation, Executive’s willful and unauthorized use or disclosure of the Company Group’s confidential or proprietary information) that would reasonably be expected to be materially injurious to the Company Group; (F) any violation by Executive of any law regarding employment discrimination or sexual harassment that would reasonably be expected to be materially injurious to the Company Group; provided, that a termination of Executive’s employment for Cause that is susceptible to cure shall not be effective unless the Company first gives Executive written notice of its intention to terminate and the grounds for such termination, and Executive has not, within ten business days following receipt of such notice, cured such Cause; (iii) If Executive’s employment is terminated by the Company for Cause, Executive shall be entitled to receive:
| (A) | the Base Salary through the date of termination; |
(B) reimbursement, within 30 days following receipt by the Company of Executive’s claim for such reimbursement (including appropriate supporting documentation), for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to Executive’s termination; provided, that such claims for such reimbursement are submitted to the Company within 90 days following the date of Executive’s termination of employment; and
(C) such Employee Benefits (other than with respect to severance benefits), if any, to which Executive may be entitled, payable in accordance with the terms and conditions of and equity or other plan, program and policies (the amounts described in clauses (A) through (C) hereof being referred to as the “Accrued Rights”).
Following such termination of Executive’s employment by the Company for Cause, except as set forth in this Section 5(b)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement.
(iv) If Executive resigns for any reason other than Good Reason, provided that Executive will be required to comply with the Notice Period requirement in Section 5(a), Executive shall be entitled to receive the Accrued Rights. During the Notice Period, and subject to the following sentence, Executive shall continue to perform Executive’s duties and obligations under Section 2 hereto as reasonably requested by the Company, and shall receive the Base Salary and Employee Benefits. In lieu of all or any portion of the Notice Period, the Company, at its sole election, may elect to pay to Executive the Base Salary in lieu of notice (in which case, Executive’s employment shall terminate on the date elected by the Company) or, if Executive resigns for any reason other than Good Reason, the Company may elect to place Executive on “garden leave” during the Notice Period (such period, if elected, the “Garden Leave Period”). If such Garden Leave Period is elected by the Company, then during the Garden Leave Period, Executive shall (x) remain an employee of the Company but not be required to perform any duties for the Company or attend work and (y) be eligible for continued Base Salary and medical and other employee benefits, but no other compensation, including no incentive compensation or continued vesting in equity incentives or other awards during the Garden Leave Period. Following such resignation by Executive for any reason other than Good Reason, except as set forth in this Section 5(b)(iv), Executive shall have no further compensation or any other benefits under this Agreement.
| (c) | Disability or Death. |
(i) During any period that Executive is unable to perform Executive’s duties hereunder as a result of a Disability, Executive shall continue to receive Executive’s full Base Salary set forth in Section 3(a) and Employee Benefits set forth in Section 4(a) until Executive’ employment is terminated pursuant to Section 5(a). For purposes of this Agreement, “Disability” shall mean any medically determinable physical or mental impairment resulting in Executive’s inability to engage in any substantial gainful activity, where such impairment can be expected to result in death or can be expected to last for a continuous period of inability to engage in any substantial gainful activity of not less than 12 months.
(ii) Upon termination of Executive’s employment hereunder as a result of Executive’s death or by the Company at a time when Executive has a Disability, Executive or Executive’s estate, survivors or beneficiaries (as the case may be) shall be entitled to receive:
| (A) | the Accrued Rights; |
(B) any Annual Bonus earned, but unpaid, as of the date of termination, paid in accordance with Section 3(b) (except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement with the Company, in which case such payment shall be made in accordance with the terms and conditions of such deferred compensation arrangement); and
(C) subject to Executive’s continued compliance in all material respects with Section 6 and Section 7 hereof, and the execution and non-revocation of the Release (as defined below) by Executive or Executive’s estate, survivors or beneficiaries (as the case may be), no later than two and one-half months after the end of the applicable fiscal year, a pro-rata portion of the Annual Bonus payable for the fiscal year in which such termination occurs, based on the achievement of the actual performance objectives and targets for such fiscal year and a fraction, the numerator of which is the number of days during the fiscal year up to and including the date of term of Executive’s employment and the denominator of which is the number of days in such fiscal year (the “Pro-Rated Bonus”).
Following such termination of Executive’s employment hereunder as a result of Executive’s death or by the Company at a time when Executive has a Disability, except as set forth in this Section 5(c), Executive shall have no further rights to any compensation or any other benefits under this Agreement.
(d) By the Company Without Cause (other than by reason of death or Disability) or Resignation by Executive for Good Reason.
(i) If Executive’s employment is terminated by the Company without Cause (other than as described in Section 5(c)) or by Executive for Good Reason, Executive shall be entitled to receive:
| (A) | the Accrued Rights; |
(B) any Annual Bonus earned, but unpaid, as of the date of termination, paid in accordance with Section 3(b) (except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement with the Company, in which case such payment shall be made in accordance with the terms and conditions of such deferred compensation arrangement); and Following such termination of employment without Cause by the Company or a resignation by Executive for Good Reason, except as set forth Section 5(d)(i), Executive shall have no further rights to any compensation or any other benefits under this Agreement.
(ii) Release. Amounts payable to Executive under Section 5(c)(ii)(B) and Section 5(c)(ii)(C) or Section 5(d)(i)(B) (collectively, the “Conditioned Benefits”) are subject to (i) Executive’s (or Executive’s estate’s) execution and non-revocation of a release of claims, within 60 days following the date of termination and (ii) the expiration of any revocation period contained in such Release. Further, to the extent that any of the Conditioned Benefits constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code”) or the 60 day period following the date of termination begins in one calendar year and ends in a second calendar year, any payment of any amount or provision of any benefit otherwise scheduled to occur prior to the 60th day following the date of Executive’s termination of employment hereunder, but for the condition on executing the Release as set forth herein, shall not be made until the first regularly scheduled payroll following such 60th day (regardless of when the Release is delivered), after which any remaining Conditioned Benefits shall thereafter be provided to Executive according to the applicable exhibit set forth herein.
(iii) For purposes of this Agreement, “Good Reason” shall mean any of the following (without Executive’s consent): (A) a decrease in Executive’s Base Salary or Target Bonus, or a failure by any member of the Company Group to pay any compensation or provide any benefits due and payable to Executive in connection with Executive’s employment; (B) a diminution of the title, responsibilities or authority of Executive; (C) any member of the Company Group’s requiring Executive to be based at any office or location that is inconsistent with the terms of this Agreement or other understanding with the Company, so long as Executive’s actual work location(s) are reasonably
appropriate (after reasonably taking into account Executive’s past practice as Controller of Company prior to the Effective Date), given Executive’s duties and responsibilities and the needs of the Company Group;
(D) a material breach by the Company of this Agreement; or (v) the Company’s delivery to Executive of a Notice of Non-Renewal; provided, that no event or condition described in clauses (A) – (D) above will constitute Good Reason unless (x) Executive gives the Board written notice of such event or condition giving rise to Good Reason within 30 days after Executive first learns of such event or condition, (y) the Company fails to cure such event or condition within 30 days after receipt of such notice and (z) Executive resigns from employment within 30 days following the expiration of such cure period.
| (iv) | If Executive’s employment with the Company is |
terminated by the Company without Cause (other than as described in Section 5(c)) the Company shall comply with the Notice Period requirement in Section 5(a). During such
Notice Period, and subject to the following sentence, Executive shall continue to perform Executive’s duties and obligations under Section 2 hereto as reasonably requested by the Company. In lieu of all or any portion of the Notice Period, the Company, at its sole election, may elect to pay to Executive the Base Salary in lieu of notice (in which case, Executive’s employment shall terminate on the date so elected by the Company).
(e) Expiration of Employment Term. Except as provided in Section 5(d)(i) in the case of a resignation by Executive for Good Reason, the continuation of Executive’s employment with the Company Group beyond the expiration of the Employment Term following the delivery of a Notice of Non-Renewal shall be deemed an employment at-will and shall not be deemed to extend any of the provisions of this Agreement and Executive’s employment may thereafter be terminated at will by either Executive or the Company; provided, that the provisions of Sections 5, 6, 7, and 8 of this Agreement shall survive any termination of this Agreement or Executive’s termination of employment hereunder.
(f) Notice of Termination; Board/Committee Resignation. Any purported termination of employment by the Company or by Executive (other than due to Executive’s death) pursuant to Section 5 of this Agreement shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. Upon termination of Executive’s employment for any reason, at the request of the Company, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board (and any committees thereof) and the board of directors or comparable governing bodies (and any committees thereof) of any other Company Group member, except to the extent Executive is entitled to serve or appoint himself as a member of the Board (and any committees thereof) and the board of directors or comparable governing bodies (and any committees thereof), as the case may be, pursuant to any other written agreement with a member of the Company Group.
6. Non-Competition; Non-Solicitation. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company Group and further acknowledges and recognizes that Executive has received, and will receive, Confidential Information (as defined below) and trade secrets of the Company Group, and accordingly agrees as follows:
| (a) | Non-Competition. |
(i) During the Employment Term and until the later of (i) the second anniversary of the Effective Date (the “Post-Closing Restricted Period”) and (ii) the second anniversary of Executive’s termination of employment with the Company Group (such actual period of restriction whether such period ends upon or after the expiration of the Post-Closing Restricted Period, the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or business organization, entity or enterprise whatsoever (“Person”), directly or indirectly solicit or assist in soliciting in competition with the Company Group the business of any then current or prospective client or customer with whom Executive (or Executive’s direct reports) had personal contact or dealings on behalf of the Company during the one-year period preceding Executive’s termination of employment.
| (ii) | During the Restricted Period, Executive will not directly or indirectly: |
(A) engage in any business activities involving any Competing Business, individually or through an entity, as an employee, director, officer, owner, investor, partner, member, consultant, contractor, agent, joint venture, or otherwise, in any geographical area where any member of the Company Group engages in its business;
(B) acquire a financial interest in, or otherwise become actively involved with, any Competing Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or
(C) interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the members of the Company Group and any of their clients, customers, suppliers, partners, members or investors.
(iii) Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly, own, solely as an investment, securities of a Competing Business which is publicly traded on a national or regional stock exchange or on the over-the-counter-market if Executive does not, directly or indirectly, own 5% or more of any class of securities of such Person.
(b) Employee Non-Solicitation. During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf or in conjunction with any Person, directly or indirectly:
(i) solicit or encourage any employee of the Company Group to leave the employment of the Company Group;
(ii) hire or solicit for employment any employee who was employed by the Company Group as of the date of Executive’s termination of employment with the Company Group for any reason or who left the employment of the Company Group coincident with, or within one year prior to, the date of Executive’s termination of employment with the Company Group for any reason; or
(iii) encourage any material consultant of the Company Group to cease working with the Company Group; and
(c) Non-Disparagement. During the Employment Term and following a termination of employment for any reason (i) Executive agrees not to make, or direct any other Person to make, any Disparaging Statement (as defined below) about the Company Group, (or any of their respective officers or directors) (it being understood that comments made in Executive’s good faith performance of Executive’s duties hereunder shall not be deemed disparaging or defamatory for purposes of this Agreement) and (ii) the Company shall instruct the members of the Board not to make, or direct any other Person to make, any Disparaging Statement about Executive. In addition, following the termination of Executive’s employment with the Company Group for any reason, the Company shall instruct the members of the Company Group’s management team and any other individual who is authorized to make any public statement on behalf of the Company Group not to make, or direct any other Person to make, any Disparaging Statement about Executive. For purposes of this Agreement, a “Disparaging Statement” shall mean any communication that is intended to defame or disparage, or has the effect of defaming or disparaging.
(d) It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 6 to be reasonable and necessary to protect the Company’s legitimate business interests and to be in consideration of Executive’s significant equity interests in the Company and the Company’s grant of equity interests to Executive, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
(e) The period of time during which the provisions of this Section 6 shall be in effect shall be extended by the length of time during which Executive is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company’s application for injunctive relief. The period of time during which the provisions of this Section 6 shall be in effect shall be reduced by the Garden Leave Period (if elected).
(f) The provisions of this Section 6 shall survive the termination of Executive’s employment for any reason, including but not limited to, any termination other than for Cause.
| 7. | Confidentiality; Intellectual Property. |
| (a) | Confidentiality. |
(i) Executive will not at any time (whether during or after Executive’s employment with the Company), (x) retain; or (y) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside any Company Group member (other than (A) Executive’s professional advisers who are bound by confidentiality obligations, (B) in performance of Executive’s duties under Executive’s employment pursuant to customary industry practice, (C) in connection with any litigation proceedings for enforcement by Executive of Executive’s rights under this Agreement and (D) to Executive’s representatives who have a need to know such information for tax or financial reporting reasons), any non-public, proprietary or confidential information (in any form or medium, including text, digital or electronic) – including, without limitation, trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals (in any form or medium, tangible or intangible) – concerning the past, current or future business, activities and operations of an Company Group member and/or any third party that has disclosed or provided any of same to any Company Group member on a confidential basis (“Confidential Information”) without the prior written authorization of the Board. Executive will not at any time (whether during or after Executive’s employment with the Company Group) use any Confidential Information for the benefit, purposes or account of Executive or any other Person, other than in the performance of Executive’s duties under this Agreement.
(ii) “Confidential Information” shall not include any information that is (A) generally known to the industry or the public other than as a result of Executive’s breach of this covenant;
(B) made available to Executive by a third party without breach of any confidentiality or other wrongful act of which Executive has knowledge; (C) required by law to be disclosed; provided, that with respect to subsection (C) Executive shall (to the extent legally permissible and reasonably practicable) give prompt written notice to the Company of such requirement, disclose no more information than is required, and reasonably cooperate with any attempts by any Company Group member to obtain a protective order or similar treatment; or (D) permitted to be disclosed pursuant to any organizational document of the Company Group.
(iii) Except as required by law, Executive will not disclose to anyone, other than Executive’s family (it being understood that, in this Agreement, the term “family” refers to Executive, Executive’s spouse, spouse equivalent, children, parents, spouse’s parents and spouse equivalent’s parents) and advisors, the existence or contents of this Agreement; provided, that Executive may disclose to any prospective future employer the provisions of Section 6 and Section 7 of this Agreement and, may disclose the existence or contents of this Agreement in connection with any litigation proceedings for enforcement by Executive of Executive’s rights under this Agreement (provided, that, in connection with any such litigation or proceedings not involving the Company Group or any of their Affiliates, Executive shall (to the extent legally permissible and reasonably practicable) disclose no more information than is required). This Section 7(a)(iii) shall terminate if the Company publicly discloses a copy of this Agreement (or, if the Company publicly discloses summaries or excerpts of this Agreement, to the extent so disclosed).
(iv) Upon termination of Executive’s employment with the Company for any reason, Executive shall, upon the Company’s request, promptly destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Executive’s possession or control (including any of the foregoing stored or located in Executive’s office, home, laptop or other computer, whether or not Company property) that contain Confidential Information, except that Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information and nothing herein shall require Executive to destroy any computer records or files containing Confidential Information which Executive required to maintain pursuant to applicable law or in connection with any litigation proceedings for enforcement by Executive of Executive’s rights under this Agreement; provided, that the provisions of this Agreement will continue to apply to such Confidential Information.
(v) Nothing in this Agreement shall prohibit or impede Executive from communicating, cooperating or filing a complaint with the U.S. federal, state or local governmental or law enforcement branch, agency or entity (or similar bodies of relevant foreign jurisdictions) (collectively, a “Governmental Entity”) with respect to possible violations of any applicable law or regulation, or from otherwise making disclosures to any Governmental Entity that are protected under the whistleblower provisions of any such law or regulation; provided, that in each case such communications and disclosures are consistent with applicable law, and nothing shall preclude Executive’s right to receive an award from a Governmental Entity for information provided under any whistleblower program. Executive does not need the prior authorization of (or to give notice to) the Company regarding any such communication or disclosure.
(vi) Pursuant to the Defend Trade Secrets Act of 2016, the Company and Executive hereby confirm, understand and acknowledges that Executive shall not be held criminally or civilly liable under any applicable federal or state trade secret law for the disclosure of a trade secret that is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case solely for the purpose of reporting or investigating a suspected violation of law, or (B) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. The Company and Executive hereby confirm, understand and acknowledge further that if Executive files a lawsuit for retaliation by an employee or for reporting a suspected violation of law, Executive may disclose the trade secret to Executive’s attorney and use the trade secret information in the court proceeding, if Executive (x) files any document containing the trade secret under seal and (y) does not disclose the trade secret, except pursuant to court order. Moreover, Executive does not need the prior authorization of (or to give notice to) the Company regarding any such communication or disclosure. Except as required by applicable law, under no circumstance will Executive be authorized to disclose any information covered by attorney-client privilege or attorney work product of the Company, without prior written consent of the Company’s General Counsel or other officer designated by the Company.
| (b) | Intellectual Property. |
(i) If Executive creates, invents, designs, develops, contributes to or improves any works of authorship, inventions, concepts, intellectual property, materials, trademarks or similar whether or not patentable or registrable under patent, trademark, copyright or similar laws (“Works”), either alone or with third parties, at any time during Executive’s employment by the Company Group members and within the scope of such employment (it being understood that, for the avoidance of doubt, the activities set forth on EXHIBIT II shall not be considered within the scope of such employment for the purposes of this Section 7) and/or with the use of any resources of any Company Group member or their respective Affiliates, which Works shall be “Company Group Works” (it being understood that, notwithstanding anything herein to the contrary, in no event shall Executive’s name, likeness, image or any other rights of publicity be considered Company Group Works). Executive agrees that all such Company Group Works shall, as between the parties hereto, be the sole and exclusive property and intellectual property of the Company. Notwithstanding the foregoing, Executive hereby irrevocably assigns, transfers and conveys (and agrees to so assign, transfer and convey), to the maximum extent permitted by applicable law, all of Executive’s right, title, and interest therein (including rights under patent, industrial property, copyright, trademark, trade secret, unfair competition, other intellectual property laws, and related laws) to the Company Group members to the extent ownership of any such rights does not vest originally in such Company Group members whether as a “work made for hire” or by virtue of the prior sentence. If Executive creates any written records (in the form of notes, sketches, drawings, or any other tangible form or media) of any Company Group Works, such records will remain, as between the parties hereto, the sole property and intellectual property of the Company Group at all times. For clarity, any activities using Executive’s name, likeness, image or any other rights of publicity, to the extent such activities would not otherwise be prohibited by Section 6(a) of the Agreement and are outside of the ordinary course of business of the Company Group, as such business exists now or at any time in the future or (B) are otherwise approved by the Board (which approval shall not be unreasonably withheld, conditioned or delayed) shall not be considered within the scope of Executive’s employment for the purposes of this Section 7.
(ii) Executive shall take all reasonably requested actions and execute all reasonably requested documents (including any licenses or assignments required by a government contract) at the expense of any Company Group member (but without further remuneration) to assist the applicable Company Group member or its affiliates in validating, maintaining, protecting, enforcing, perfecting, recording, patenting or registering any of the Company Group members’ rights in the Company Group Works. Executive hereby designates and appoints the Company and its designees as Executive’s agent and attorney-in-fact, to act for and in Executive’s behalf and stead solely to the extent necessary to execute and file such documents and solely to the extent Executive is unable or unwilling to do so. This power of attorney is coupled with an interest and is irrevocable. Executive shall not knowingly take any actions inconsistent with the Company’s ownership rights set forth in this Section 7, including by filing to register any Company Group Works in Executive’s own name.
(iii) Executive shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with any Company Group member or their respective Affiliates any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. Executive shall comply with all relevant policies and guidelines of the Company Group that are from time to time previously disclosed to Executive, including regarding the protection of Confidential Information and intellectual property and potential conflicts of interest.
(iv) Executive has listed on the attached Exhibit II, Works that are owned by Executive, in whole or jointly with others prior to Executive’s employment with the Company (such Works, together with any other Works owned by Executive in whole or jointly with others prior to Executive’s employment with the Company Group, collectively, “Prior Works”). Executive shall not use any Prior Work in connection with Executive’s employment with the Company Group without prior written consent of the Company. If, in connection with Executive’s employment with the Company, Executive incorporates into any Company product, service or process any Prior Work (or any portion of a Prior Work), in any manner whatsoever, Executive grants the Company a non-exclusive, perpetual (or the maximum time period allowed by applicable law), sub-licensable, assignable, royalty-free right and worldwide license to use, modify, reproduce, reduce to practice, market, distribute, communicate and/or sell such Prior Work or portion of such Prior Work solely to the extent necessary for the Company to exploit such Company product, service or process. The Company, on behalf of itself and the other members of the Company Group, agrees that any and all Prior Works shall, as between the parties hereto, be and remain the sole and exclusive property and intellectual property of Executive. For the avoidance of doubt, notwithstanding anything herein to the contrary, in no event shall any Prior Works (or any portion thereof) be considered “Confidential Information” under this Agreement.
(c) The provisions of Section 7 hereof shall survive the termination of Executive’s employment for any reason (except as otherwise set forth in Section 7(a)(iii) hereof).
8. Specific Performance. Executive acknowledges and agrees that the remedies of the Company Group at law for a breach or threatened breach of any of the provisions of Section 6 and Section 7 of this Agreement would be inadequate and the Company Group would suffer irreparable damages as a result of such breach or threatened breach. In recognition of this fact, Executive agrees that, in the event of such a material breach, in addition to any remedies at law, any member of the Company Group, without posting any bond, shall be entitled, in addition to any other remedy available at law or equity, to cease making any payments or providing any benefit otherwise required by this Agreement, and may be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. Any determination as to whether Executive is in compliance with Section 6 and Section 7 hereof shall be determined without regard to whether the Company Group could obtain an injunction or other equitable relief under the law of any particular jurisdiction.
9. Miscellaneous.
(a) Indemnification; Directors’ and Officers’ Insurance. The Company shall indemnify and hold Executive harmless from and against any and all liabilities, obligations, losses, damages, fines, taxes and interest and penalties thereon (other than taxes based on fees or other compensation received by Executive from the Company), claims, demands, actions, suits, proceedings (whether civil, criminal, administrative, investigative or otherwise), costs, expenses and disbursements (including reasonable and documented legal and accounting fees and expenses, costs of investigation and sums paid in settlement) of any kind or nature whatsoever (collectively, “Claims and Expenses”), which may be imposed on, incurred by or asserted at any time against Executive that arises out of or relates to Executive’s service as an officer, director or employee, as the case may be, of any Company Group member, or Executive’s service in any such capacity or similar capacity with an affiliate of the Company Group or other entity at the request of the Company Group; provided, that Executive shall not be entitled to indemnification hereunder against any Claims or Expenses that are finally determined by a court of competent jurisdiction to have resulted from any act or omission that (i) is a criminal act by Executive or (ii) constitutes fraud or willful misconduct by Executive. The Company shall pay the expenses (including reasonable legal fees and expenses and costs of investigation) incurred by Executive in defending any such claim, demand, action, suit or proceeding as such expenses are incurred by Executive and in advance of the final disposition of such matter; provided, that Executive undertakes to repay such expenses if it is determined by agreement between Executive and the Company or, in the absence of such an agreement, by a final judgment of a court of competent jurisdiction that Executive is not entitled to be indemnified by the Company Group. The Company (or other Company Group member) will maintain directors’ and officers’ liability insurance providing coverage in such scope and subject to such limits as the Company determines, in its discretion, is appropriate.
(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to conflicts of laws principles thereof that would direct the application of the law of any other jurisdiction.
(c) Jurisdiction; Venue. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any federal or state court sitting in the State of Nevada over any suit, action or proceeding arising out of or relating to this Agreement and each of the parties agrees that any action relating in any way to this Agreement must be commenced only in the federal or state courts of Nevada. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. Each of the parties hereto hereby irrevocably consents to the service of process in any suit, action or proceeding by sending the same by certified mail, return receipt requested, or by recognized overnight courier service, to the address of such party set forth in Section 9(j).
(d) Entire Agreement; Amendments. This Agreement (including, without limitation, the exhibits attached hereto) contains the entire understanding of the parties with respect to the employment of Executive by any member of the Company Group, and supersedes all prior agreements and understandings between Executive and any member of the Company Group regarding the terms and conditions of Executive’s employment with the Company Group, with the exception of any applicable prior invention assignment or the protections that exist under the terms of any applicable long term incentive plan (or any earned compensation, including under any retirement or deferred compensation plans), the Company’s 2021 Incentive Stock Plan and any other equity, option or warrant plan entered into between the Company and Executive. In addition, if the Company Group is a party to one or more agreements with Executive related to the matters subject to Section 6 or Section 7, such other agreement(s) shall remain in full force and effect and continue in addition to this Agreement, including, without limitation, any covenants pertaining to confidentiality, nondisclosure, non-competition, non- solicitation and non-disparagement applicable to Executive. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement (including, without limitation, the exhibits attached hereto) may not be altered, modified, or amended except by written instrument signed by the parties hereto.
(e) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
(f) Set Off; No Mitigation. The Company’s obligation to pay Executive the amounts provided hereunder pursuant to Sections 5(c)(ii)(B), 5(c)(ii)(C), 5(d)(i)(B) and 5(d)(i)(C), as applicable, following the Employment Term shall be subject to set-off for amounts owed by Executive to any Company Group member. Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment, and such payments owed by the Company Group shall not be reduced by any compensation or benefits received from any subsequent employer (except as provided for in Section 5(d)(i)(C)), self-employment or other endeavor.
(g) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.
(h) Assignment. This Agreement and all of Executive’s rights and duties hereunder, shall not be assignable or delegable by Executive. Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect. This Agreement shall automatically be assigned by the Company to a person or entity which is a successor in interest (“Successor”) to all or substantially all of the then-business operations of the Company. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such Successor.
| (i) | Compliance with Code Section 409A. |
(i) The intent of the parties is that payments and benefits under this Agreement comply with or be exempt from Code Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under Code Section 409A, the Company shall, after consulting with and receiving the approval of Executive, reform such provision in a manner intended to avoid the incurrence by Executive of any such additional tax or interest.
(ii) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under Code Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A, and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” The determination of whether and when a separation from service has occurred for proposes of this Agreement shall be made in accordance with the presumptions set forth in Section 1.409A-1(h) of the Treasury Regulations.
(iii) Any provision of this Agreement to the contrary notwithstanding, if at the time of Executive’s separation from service, the Company determines that Executive is a “specified employee,” within the meaning of Code Section 409A, then to the extent any payment or benefit that Executive becomes entitled to under this Agreement on account of such separation from service would be considered nonqualified deferred compensation under Code Section 409A, such payment or benefit shall be paid or provided at the date which is the earlier of (x) six months and one day after such separation from service and (y) the date of Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 9(i) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or provided to Executive in a lump-sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified herein.
(iv) Any reimbursements and in-kind benefits provided under this Agreement that constitute deferred compensation within the meaning of Code Section 409A shall be made or provided in accordance with the requirements of Code Section 409A, including that (A) in no event shall any fees, expenses or other amounts eligible to be reimbursed by the Company under this Agreement be paid later than the last day of the calendar year that follows the calendar year in which the applicable fees, expenses or other amounts were incurred; (B) the amount of expenses eligible for reimbursement, or in- kind benefits that the Company is obligated to pay or provide, in any given calendar year shall not affect the expenses that the Company is obligated to reimburse, or the in-kind benefits that the Company is obligated to pay or provide, in any other calendar year, provided that the foregoing clause (B) shall not be violated with regard to expenses reimbursed under any arrangement covered by Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect; and
(C) Executive’s right to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit.
(v) For purposes of Code Section 409A, Executive’s right to receive any installment payments shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days (for example, “payment shall be made within 30 days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement, to the extent such payment is subject to Code Section 409A.
(j) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
If to the Company:
Expion360 Inc.
2025 SW Deerhound Ave. Redmond, OR 97756 Attention: Brian Schaffner
If to Executive:
To the most recent address of Executive set forth in the personnel records of the
Company.
(k) Executive Representation. Executive hereby represents to the Company that the execution and delivery of this Agreement by Executive and the performance by Executive of Executive’s duties hereunder shall not constitute a breach of the terms of any employment agreement or other agreement or written policy to which Executive is a party or otherwise bound. Executive hereby further represents that Executive is not subject to any agreement with a previous employer that is unaffiliated with the Company Group that contains any restrictions on Executive’s ability to solicit, hire or engage any employee or other service provider of such previous, unaffiliated employer that would restrict the ability of Executive to perform Executive’s duties hereunder. Executive agrees that the Company is relying on the foregoing representations in entering into this Agreement and related equity-based award agreements.
(l) Cooperation. Executive shall provide reasonable cooperation in connection with any pending claim, litigation, regulatory or administrative proceeding involving any Company Group member (or any appeal from any action or proceeding) arising out of or related to the period when Executive was employed by any Company Group member. In the event that Executive’s cooperation is requested after the termination of Executive’s employment, the applicable Company Group member shall (i) use its reasonable efforts to minimize interruptions to Executive’s personal and professional schedule and (ii) pay Executive an agreeable amount for Executive’s time and (iii) reimburse Executive for all reasonable out-of-pocket expenses actually incurred by Executive in connection with such cooperation upon reasonable substantiation of such expenses.
(m) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. Any amounts so withheld shall be properly paid over to the appropriate government authority.
(n) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties herein have duly executed this Agreement as of the day and year first above written.
EXPION360 INC.
By: /s/ Brian Schaffner Name: Brian Schaffner Executive may engage in the following activities:
Title: Chief Executive Officer
EXECUTIVE
/s/ Carson Heagen
Carson Heagen
EXHIBIT I
| • | Intentionally blank |
EXHIBIT II
| • | with the approval of the Board (which approval shall not be unreasonably withheld, conditioned or delayed), Executive may serve on the board of directors (or equivalent governing bodies) of other for-profit enterprises provided such companies do not compete with the Company Group; and |
Executive shall be entitled to retain all fees or other payments earned in connection with the activities set forth on this Exhibit II.
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES
13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Schaffner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025 (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. I am 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 my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me 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 my 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 my 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 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. I have disclosed, based on my 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: May 15, 2025 | /s/ Brian Schaffner |
| Brian Schaffner |
|
Chief Executive Officer and Interim Chief Financial Officer (Principal Executive, Financial, and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED 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 March 31, 2025 (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 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: May 15, 2025 | /s/ Brian Schaffner |
| Brian Schaffner | |
| Chief Executive Officer and Interim Chief Financial Officer | |
| (Principal Executive, Financial, and Accounting Officer) |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 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.