Expion360 (XPON) - 2025 Q2 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This section provides disclaimers regarding forward-looking statements, industry data, and trademarks, cautioning against undue reliance Forward-Looking Statements This section highlights that the report contains forward-looking statements, which are subject to significant risks and uncertainties that could cause actual results to differ materially from projections. Investors are cautioned against undue reliance on these statements, and the company disclaims any obligation to update them - The report includes forward-looking statements based on current beliefs, expectations, and assumptions, covered by safe harbor provisions[9][10] - Actual results may differ materially from forward-looking statements due to considerable risks, uncertainties, and changes in circumstances outside the company's control[10] - Key risk factors include intense industry competition, history of losses, going concern doubts, dependence on raw materials and third-party manufacturers, customer concentration, global economic conditions, product liability, intellectual property protection, and capital raising ability[11][12] Industry and Market Data The report incorporates statistical and market data from third-party publications and internal estimates, noting that such data involves assumptions and limitations, and investors should not unduly rely on it - Industry and market data are sourced from third-party publications, research, surveys, and the company's own projections and estimates[15] - All market data involves assumptions and limitations, cautioning investors against undue reliance[15] - The company's internal assumptions for market opportunities are considered reasonable but have not been independently verified[16] Trademarks This section clarifies that trademarks, tradenames, and service marks used in the report are the property of the company or others, and their appearance without symbols does not waive ownership rights - The report includes trademarks, tradenames, and service marks owned by the company or others[18] - Omission of '™' or '®' symbols does not imply a waiver of rights to these trademarks and tradenames[18] PART I - FINANCIAL INFORMATION This part presents the company's unaudited interim financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited interim financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with comprehensive notes detailing the company's organization, significant accounting policies, and specific financial accounts BALANCE SHEETS The balance sheet shows a decrease in total assets and stockholders' equity, while cash and cash equivalents increased from December 2024 to June 2025 Balance Sheet Highlights (Unaudited) | Metric | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------- | :---------------------- | | Cash and cash equivalents | $684,920 | $547,565 | | Accounts receivable, net | $715,724 | $613,022 | | Inventory | $5,138,263 | $4,831,461 | | Total current assets | $7,375,262 | $7,841,195 | | Total assets | $8,605,089 | $9,107,388 | | Accounts payable | $675,351 | $338,091 | | Suspended Liability | $4,485,948 | $4,985,948 | | Total current liabilities | $5,809,489 | $5,847,888 | | Total liabilities | $6,537,866 | $6,589,064 | | Total stockholders' equity | $2,067,223 | $2,518,324 | - Cash and cash equivalents increased by $137,355 from December 31, 2024, to June 30, 2025[20] - Total assets decreased by $502,299, and total stockholders' equity decreased by $451,101 from December 31, 2024, to June 30, 2025[20] STATEMENTS OF OPERATIONS (UNAUDITED) The statements of operations show significant net sales growth and an improved net loss for both the three and six months ended June 30, 2025, compared to the prior year Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $2,989,947 | $1,278,109 | $5,039,278 | $2,249,967 | | Cost of sales | $2,367,337 | $952,646 | $3,915,101 | $1,701,982 | | Gross profit | $622,610 | $325,463 | $1,124,177 | $547,985 | | Selling, general and administrative | $1,972,806 | $2,004,260 | $3,622,241 | $4,193,734 | | Loss from operations | $(1,350,196) | $(1,678,797) | $(2,498,064) | $(3,645,749) | | Net loss | $(1,368,860) | $(2,220,231) | $(2,520,858) | $(4,413,172) | | Net loss per share (basic and diluted) | $(0.41) | $(30.20) | $(0.78) | $(61.48) | - Net sales increased by 133.9% for the three months and 124.0% for the six months ended June 30, 2025, compared to the same periods in 2024[22] - Net loss improved by 38.3% for the three months and 42.9% for the six months ended June 30, 2025, compared to the same periods in 2024[22] STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) Stockholders' equity decreased from December 2024 to June 2025, despite an increase in common stock and additional paid-in capital from new issuances, due to the accumulated deficit Stockholders' Equity Changes (Unaudited) | Metric | As of December 31, 2024 | As of June 30, 2025 | | :-------------------------- | :---------------------- | :------------------ | | Common Stock Shares | 2,096,082 | 3,374,468 | | Common Stock Amount | $2,096 | $3,374 | | Additional Paid-in Capital | $37,091,468 | $39,159,947 | | Accumulated Deficit | $(34,575,240) | $(37,096,098) | | Total Stockholders' Equity | $2,518,324 | $2,067,223 | - The company issued 474,193 shares of common stock and 574,193 pre-funded warrants (exercised immediately) in January 2025, increasing common stock and additional paid-in capital[25] - Net loss for the six months ended June 30, 2025, increased the accumulated deficit by $2,520,858[25] STATEMENTS OF CASH FLOWS (UNAUDITED) Cash flows from operating activities significantly improved, while financing activities provided substantially more cash due to common stock issuance, leading to a net increase in cash Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(1,629,896) | $(3,406,266) | | Net cash provided by investing activities | $4,250 | $77,134 | | Net cash provided by financing activities | $1,763,001 | $298,757 | | Net change in cash and cash equivalents | $137,355 | $(3,030,375) | | Cash and cash equivalents, ending | $684,920 | $902,323 | - Net cash used in operating activities significantly decreased by $1.78 million, indicating improved operational efficiency or working capital management[28] - Net cash provided by financing activities increased substantially to $1.76 million in 2025, primarily due to proceeds from common stock issuance[28] NOTES TO FINANCIAL STATEMENTS (UNAUDITED) These notes provide detailed disclosures on the company's organization, significant accounting policies, and specific financial accounts, offering context to the unaudited interim financial statements 1. Organization and Nature of Operations Expion360 Inc. designs, assembles, and distributes premium lithium iron phosphate batteries for various applications including RVs, marine, golf, industrial, residential, and off-the-grid needs - Expion360 Inc. specializes in designing, assembling, and distributing premium LiFePO4 batteries[33] - The company's products serve recreational vehicles, marine, golf, industrial, residential, and off-the-grid markets[33] 2. Summary of Significant Accounting Policies This section outlines the company's significant accounting policies, including the basis of presentation, going concern considerations due to recurring losses, use of estimates, and specific policies for cash, receivables, inventory, property, leases, revenue recognition, and stock-based compensation Going Concern The company has sustained recurring losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern. Management is addressing these challenges through revenue growth, expense management, and capital raising, which have led to improved net loss and sales growth - The company incurred a net loss of $1.4 million for the three months and $2.5 million for the six months ended June 30, 2025, with an accumulated deficit of $37.1 million[38] - Net sales increased by 134% for the three months and 124% for the six months ended June 30, 2025, driven by RV market recovery, enhanced sales efforts, and new customer onboarding[39] - Selling, general, and administrative expenses decreased by 2% for the three months and 14% for the six months ended June 30, 2025, contributing to a 38% and 43% improvement in net loss, respectively[39] Use of Estimates The preparation of financial statements requires management to make estimates and assumptions, such as depreciable lives of assets, lease valuations, revenue recognition, and stock-based compensation, which are based on historical experience and current circumstances, but actual results may vary - Significant accounting estimates include depreciable lives of fixed assets, right-of-use assets and liabilities for operating leases, revenue recognition, warrant valuation, stock-based compensation, and deferred tax assets and liabilities[43] - Management considers macroeconomic factors like tariffs, inflation, interest rates, and commodity pricing when making estimates[43] Cash and Cash Equivalents The company defines cash equivalents as highly liquid investments with original maturities of three months or less, maintaining balances with high-quality financial institutions and investing in U.S. Treasury securities, with minimal credit risk - Cash equivalents include highly liquid investments with original maturities of three months or less[44] - The company holds cash balances with high-quality U.S. financial institutions and invests in U.S. Treasury securities, with $714 invested as of June 30, 2025[44] Accounts Receivable Accounts receivable are recorded at invoiced amounts, due within a year, and do not bear interest. The company performs credit evaluations and has not accrued an allowance for doubtful accounts as all outstanding amounts were deemed collectible - Accounts receivable are recorded at invoiced amounts, due within a year, and do not bear interest[45] - No allowance for doubtful accounts was accrued as of June 30, 2025, or December 31, 2024, as all amounts were believed to be fully collectible[45] Customer Deposits Customer deposits totaled $48,693 as of June 30, 2025, a slight increase from $48,474 as of December 31, 2024 Customer Deposits | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $48,693 | | December 31, 2024 | $48,474 | Inventory Inventory, consisting of batteries, accessories, and components, is valued at the lower of cost (FIFO) or net realizable value. The company had finished assemblies of $4.4 million and raw materials of $0.74 million as of June 30, 2025, and did not deem a reserve for slow-moving or obsolete inventory necessary - Inventory is stated at the lower of cost (first in, first out) or net realizable value[47] Inventory Composition | Category | As of June 30, 2025 | As of December 31, 2024 | | :-------------------- | :------------------- | :---------------------- | | Finished assemblies | $4,396,037 | $4,077,013 | | Raw materials | $742,226 | $754,448 | - Prepaid inventory, including in-transit items, decreased from $1,612,686 to $485,507 between December 31, 2024, and June 30, 2025[50] Vendor and Foreign Concentrations of Inventory Suppliers The company's inventory purchases from foreign suppliers in Asia significantly decreased in 2025 compared to 2024. Management anticipates tariffs on products from Asian manufacturers and plans to maintain gross margins through supplier concessions, price increases, and lobbying for tariff relief - Inventory purchases from foreign suppliers in Asia decreased from 83% to 22% for the three months and from 79% to 38% for the six months ended June 30, 2025, compared to the same periods in 2024[51] - The company expects products from Asian manufacturers to be subject to tariffs and plans to mitigate impact through supplier concessions, customer price increases, and lobbying[51] Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from 3 to 10 years depending on the asset type. Betterments are capitalized, while routine repairs are expensed - Property and equipment are stated at cost less depreciation, calculated on a straight-line basis[52] Estimated Useful Lives of Property and Equipment | Asset Type | Useful Life | | :-------------------------------- | :---------- | | 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 | Leases The company classifies leases as operating leases and recognizes right-of-use (ROU) assets and lease liabilities based on the present value of future minimum lease payments, using its incremental borrowing rate. Leases with terms of 12 months or less are not recognized on the balance sheet - Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments, discounted using the company's incremental borrowing rate[55][56] - Leases with a term of 12 months or less are not recognized on the balance sheets[56] Impairment of Long-Lived Assets The company assesses long-lived assets for impairment when circumstances indicate carrying value may not be recoverable, comparing carrying value to future undiscounted cash flows. No impairment was recognized for the three or six months ended June 30, 2025 or 2024 - Impairment of long-lived assets is assessed when events indicate the carrying value may be impaired, by comparing it to future undiscounted cash flows[58] - No long-lived asset impairment was recognized during the three or six months ended June 30, 2025 or 2024[58] Product Warranties The company provides conditional repair or replacement warranties for its products, with specific terms for chargers (two years) and batteries (12 years, gradually lesser levels). No liability for product warranties was accrued due to historically minimal claims - The company offers two-year warranties for DC mobile chargers and 12-year warranties (gradually lesser levels) for VPR 4EVER Classic and Platinum batteries[59] - No liability for product warranties was accrued as of June 30, 2025, or December 31, 2024, due to historically nominal claims[59] Liability for Refunds The company does not have a formal product return policy outside of warranty claims, and historically, returns have been minimal. Consequently, no refund liability was accrued as of June 30, 2025, or December 31, 2024 - The company does not have a formal product return policy, but accepts returns under its warranty policies[60] - Returns have historically been minimal, and no refund liability was accrued as of June 30, 2025, or December 31, 2024[60] Revenue Recognition Revenue from product sales, primarily batteries and accessories, is recognized when control of goods is transferred to customers, typically upon shipment or delivery, and the company's performance obligation is satisfied - Revenue is generated from the sale of products, primarily batteries and accessories[61] - Revenue is recognized when control of goods or services is transferred to customers, usually upon shipment or delivery[61] Concentration of Major Customers The company has significant customer concentration, with a few major customers accounting for a substantial portion of sales and accounts receivable in both 2025 and 2024 - For the three months ended June 30, 2025, two customers accounted for approximately 53% of total sales and 27% of total accounts receivable[63] - For the six months ended June 30, 2025, three customers accounted for approximately 56% of total sales and 36% of total accounts receivable[63] - Customer concentration was also significant in 2024, with one customer representing 19% of sales for the three months and 12% for the six months ended June 30, 2024[64] Shipping and Handling Costs Shipping and handling fees billed to customers are classified as net sales, while costs for shipping products to customers are classified as selling, general, and administrative expenses Shipping and Handling Costs and Fees | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fees billed to customers | $12,766 | $29,199 | $27,684 | $51,889 | | Costs for shipping products | $59,423 | $59,651 | $142,600 | $102,694 | Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and included in selling, general and administrative expenses. These costs increased slightly for both the three and six months ended June 30, 2025, compared to the prior year Advertising and Marketing Expenses | Period | 2025 | 2024 | | :-------------------- | :--------- | :--------- | | Three months ended June 30 | $242,557 | $228,308 | | Six months ended June 30 | $489,199 | $468,384 | Research and Development Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. These costs remained relatively stable for the three months ended June 30, 2025, but increased for the six-month period compared to 2024 Research and Development Expenses | Period | 2025 | 2024 | | :-------------------- | :--------- | :--------- | | Three months ended June 30 | $78,816 | $82,790 |\ | Six months ended June 30 | $165,978 | $156,465 | Income Taxes Deferred tax assets and liabilities are recognized for temporary differences between financial statement and tax bases, measured using enacted tax rates. A valuation allowance is applied when realization of deferred tax assets is not more likely than not - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences[68] - Deferred tax assets are reduced by a valuation allowance if their realization is not considered more likely than not[68] Fair Value of Financial Instruments The company categorizes financial instruments into a three-level fair value hierarchy. Most financial instruments, including cash, receivables, payables, and short-term loans, approximate their carrying values due to their short-term nature or market-rate interest - The company uses a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: observable prices not in active markets; Level 3: unobservable inputs)[69][70][71] - The fair value of cash, accounts receivable, accounts payable, short-term revolving loans, stockholder promissory notes, and long-term debt approximates their carrying values[72] Basic and Diluted Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted average common shares outstanding. Diluted net loss per share is the same as basic when the company is in a net loss position, as potentially dilutive securities would be anti-dilutive Net Loss Per Share (Basic and Diluted) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(1,368,860) | $(2,220,232) | $(2,520,858) | $(4,413,172) | | Weighted average common shares outstanding | 3,335,237 | 73,517 | 3,223,003 | 71,787 | | Net loss per share | $(0.41) | $(30.20) | $(0.78) | $(61.48) | - As of June 30, 2025, and December 31, 2024, the company had 6,440,677 and 5,392,395 potentially dilutive shares (warrants, options, RSUs) respectively, excluded from diluted EPS due to net loss[75][77] Stock-Based Compensation Stock-based compensation is recognized at grant date fair value over the service period, with forfeitures recognized as they occur. The Black-Scholes-Merton model is used to determine the fair value of stock options, requiring assumptions about volatility, risk-free interest rates, and expected life - Stock-based compensation costs are recognized at grant date fair value over the requisite service period[78] - The Black-Scholes-Merton option-pricing model is used to determine the fair value of stock options, requiring assumptions for risk-free interest rate, volatility, expected dividend yield, and expected life[79] Accounting Guidance Issued but Not Yet Adopted The company is currently evaluating the impact of recently issued FASB ASUs 2024-03 (Expense Disaggregation Disclosures) and 2024-01 (Compensation—Stock Compensation) on its financial statements - The company is evaluating ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' which aims to improve expense disclosures[80] - The company is also evaluating ASU 2024-01, 'Compensation—Stock Compensation,' which provides an illustrative example for applying existing guidance[81] 3. Property and Equipment, Net Net property and equipment decreased to $379,623 as of June 30, 2025, from $483,890 as of December 31, 2024. Depreciation expense for the six months ended June 30, 2025, was $65,242, and the company recognized a loss on the sale of fixed assets Property and Equipment, Net | Category | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------- | :---------------------- | | Vehicles and transportation equipment | $299,014 | $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 | | Total | $807,082 | $914,081 | | Less: accumulated depreciation | $(427,459) | $(430,191) | | Property and equipment, net | $379,623 | $483,890 | - Depreciation expense was $31,215 for the three months and $65,242 for the six months ended June 30, 2025[82] - The company recognized a loss of $14,978 for the three months and $13,353 for the six months ended June 30, 2025, from disposals and sales of fixed assets[82] 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities increased to $250,390 as of June 30, 2025, from $187,464 as of December 31, 2024, primarily due to higher accrued salaries, payroll liabilities, and commissions Accrued Expenses and Other Current Liabilities | Category | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------- | :---------------------- | | Accrued salaries and payroll liabilities | $197,494 | $145,686 | | Accrued commissions | $46,719 | $30,913 | | Accrued interest | $294 | $760 | | Accrued income taxes | $75 | $150 | | Accrued rebate liability | $73 | — | | Deferred income and deposit (sublease) | — | $4,549 | | Other | $5,735 | $5,406 | | Total | $250,390 | $187,464 | - Accrued salaries and payroll liabilities increased by $51,808, and accrued commissions increased by $15,806 from December 31, 2024, to June 30, 2025[83] 5. Long-Term Debt Total long-term debt decreased to $213,614 as of June 30, 2025, from $230,170 as of December 31, 2024, primarily consisting of an SBA Economic Injury Disaster Loan and notes payable for vehicles. The current portion of long-term debt is $30,772 Long-Term Debt Composition | Debt Type | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------- | :---------------------- | | Note payable – Bank | $716 | $2,657 | | Note payable – SBA | $141,156 | $143,144 | | Notes payable – GM Financial | $71,742 | $84,369 | | Total | $213,614 | $230,170 | | Less current portion | $(30,772) | $(31,758) | | Long-term debt, net | $182,842 | $198,412 | Future Maturities of Long-Term Debt (as of June 30, 2025) | 12 Months Ending June 30, | Amount | | :------------------------ | :------- | | 2026 | $30,772 | | 2027 | $32,078 | | 2028 | $20,547 | | 2029 | $3,928 | | 2030 | $4,078 | | Thereafter | $122,211 | | Total | $213,614 | 6. Stockholder Promissory Notes The company had no outstanding principal balance due on stockholder promissory notes as of June 30, 2025, as these notes were fully repaid in August 2024. No interest was paid on these notes in 2025, compared to $35,499 in the first six months of 2024 - All stockholder promissory notes were fully repaid in August 2024, with no outstanding principal balance as of June 30, 2025[88] - No interest was paid on stockholder notes during the three and six months ended June 30, 2025, compared to $17,501 and $35,499 for the same periods in 2024, respectively[89] 7. Equity and Debt Financings This section details recent financing activities, including a January 2025 public offering that raised $1.78 million net, the partial satisfaction of a $5.0 million Reverse Stock Split cash true-up payment liability, and the August 2024 public offering of common units and warrants. It also covers the repayment of a convertible note and the termination of an equity line of credit January 2025 Public Offering In January 2025, the company completed a public offering, selling common stock, pre-funded warrants, and warrants, generating aggregate gross proceeds of $2.6 million and net proceeds of $1.78 million - The January 2025 Public Offering included the sale of 474,193 shares of common stock, 574,193 pre-funded warrants (immediately exercised), and 1,048,386 warrants[90] January 2025 Public Offering Proceeds | Metric | Amount | | :---------------- | :----------- | | Gross Proceeds | $2,599,997 | | Net Proceeds | $1,779,557 | - The warrants issued were valued at $2.064 per share, totaling $2,163,869, using the Black-Scholes model[91] Reverse Stock Split True-Up Payment A Reverse Stock Split cash true-up payment provision in the Series A Warrants was triggered, with a $5.0 million cap. The company used $500,000 from the January 2025 offering to partially satisfy this, leaving a remaining liability of $4,485,948 as of June 30, 2025 - A Reverse Stock Split cash true-up payment provision in the Series A Warrants was triggered, capped at $5.0 million[94] - The company used $500,000 from the January 2025 Public Offering proceeds to partially satisfy this liability[95] - The remaining suspended liability for the Cash True-up Payment was $4,485,948 as of June 30, 2025[95] August 2024 Public Offering In August 2024, the company conducted a public offering of Common Units and Pre-Funded Units, including Series A and Series B Warrants. All Pre-Funded Warrants have been exercised, and the exercise prices for Series A and B Warrants were adjusted post-Reverse Stock Split - The August 2024 Public Offering included 33,402,000 Common Units and 16,598,000 Pre-Funded Units (pre-Reverse Stock Split), along with Series A and Series B Warrants[96] - All Pre-Funded Warrants have been exercised as of June 30, 2025[98] - As of June 30, 2025, 5,286,692 shares of common stock remained issuable upon exercise of Series A Warrants (exercise price $5.206) and 87,384 shares for Series B Warrants (exercise price $0.10)[99][100] Convertible Note Financing In December 2023, the company entered into a convertible note financing agreement for $2.5 million gross proceeds. The 3i Note was fully repaid and discharged in August 2024 in connection with the August 2024 Public Offering - The company sold a senior unsecured convertible note for $2,750,000 principal amount, with gross proceeds of $2,500,000, in December 2023[103] - The convertible note was fully repaid and discharged on August 8, 2024, in connection with the August 2024 Public Offering[104] Equity Line of Credit The company had an Equity Line of Credit with Tumim Stone Capital, LLC, allowing it to sell up to $20 million in common stock. This agreement was mutually terminated in August 2024, prior to which $828,491 was raised, with a portion used to repay the 3i Note - The company had an Equity Line of Credit to sell up to $20,000,000 in common stock to Tumim Stone Capital, LLC[105] - The Equity Line of Credit was mutually terminated in August 2024[107] - Prior to termination, $828,491 was raised, and $434,958 was used to repay a portion of the 3i Note[107] 8. Commitments and Contingencies This section details the company's operating lease commitments for warehouses and office space, including a new lease commencing May 2025 and the termination of a sublease. It also addresses legal proceedings, notably a Nasdaq delisting staff determination which the company is appealing Operating Leases The company leases warehouses and office space under long-term operating leases, recognizing ROU assets and liabilities based on the present value of lease payments. Total lease costs decreased for both the three and six months ended June 30, 2025, compared to 2024, partly due to consolidation - The company leases warehouses and office space under long-term operating lease arrangements[108] Operating Lease Costs | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $91,266 | $187,316 | $171,745 | $373,661 | | Short-term lease costs | $1,264 | — | $2,458 | — | | Sublease income | — | $(10,753) | $(7,169) | $(21,298) | | Total | $92,530 | $176,563 | $167,034 | $352,363 | - The total lease liability as of June 30, 2025, was $863,870, with a weighted-average remaining lease term of 2.54 years[113][112] Subleases The company's sublease for office and warehouse space terminated in February 2025, with no remaining income or liabilities associated with it as of June 30, 2025 - The company's sublease for office and warehouse space terminated in February 2025[114] - As of June 30, 2025, there were no remaining income or liabilities related to the sublease[114] Legal Proceedings The company received a Nasdaq Staff Determination for delisting due to its common stock bid price falling below $1.00. The company has requested a hearing to appeal and will present a plan to regain compliance - On July 1, 2025, the company received a Nasdaq Staff Determination for delisting due to its common stock bid price closing below the $1.00 minimum requirement for 30 consecutive business days[117] - The company has requested a hearing before a Nasdaq Hearings Panel, scheduled for August 19, 2025, to appeal the determination and present a compliance plan[118] 9. Stockholders' Equity The company is authorized to issue 200 million shares of common stock and 20 million shares of preferred stock. Common stock outstanding increased to 3,374,468 shares as of June 30, 2025, from 2,096,082 shares as of December 31, 2024, due to public offerings, RSU settlements, and shares issued for services Warrants / Options The company issued 574,193 pre-funded warrants (immediately exercised) and 1,048,386 warrants in the first six months of 2025. As of June 30, 2025, a total of 6,429,351 shares were issuable upon exercise of various outstanding warrants - During the six months ended June 30, 2025, 574,193 pre-funded warrants were issued and immediately exercised, and 1,048,386 warrants were issued with an exercise price of $2.36 per share[123] - As of June 30, 2025, 5,286,692 shares were issuable from Series A Warrants and 87,384 shares from Series B Warrants[128] Summary of Warrants Issued and Outstanding (as of June 30, 2025) | Number of Warrants | Issuable Shares | Exercise Price per share | Weighted Average Remaining Life (Years) | | :------------------- | :-------------- | :----------------------- | :-------------------------------------- | | 3,075,000 | 87,384 | $0.10 | N/A (Series B warrants do not expire) | | 1,048,386 | 1,048,386 | $2.36 | 4.51 | | 114,676,797 | 5,286,692 | $5.206 | 4.24 | | 514,290 | 5,149 | $332.00 | 6.39 | | 88,803 | 891 | $450.00 | 1.75 | | 25,000 | 250 | $500.00 | 0.11 | | 59,202 | 599 | $910.00 | 1.75 | | Total | 6,429,351 | | | Equity Plans The company has two stock-based compensation plans: the 2021 Incentive Award Plan (2021 Plan) and the 2021 Employee Stock Purchase Plan (2021 ESPP). Under the 2021 Plan, 105,000 shares were issued during the three months ended June 30, 2025, and stock-based compensation expense was $133,229 for the quarter - The company operates the 2021 Incentive Award Plan and the 2021 Employee Stock Purchase Plan[131] - During the three months ended June 30, 2025, 105,000 shares were issued under the 2021 Plan[133] Stock-Based Compensation Expense (2021 Plan) | Period | 2025 | 2024 | | :-------------------- | :--------- | :--------- | | Three months ended June 30 | $133,229 | $123,069 | | Six months ended June 30 | $183,951 | $438,923 | Stock Options The fair value of stock options granted under the 2021 Plan is estimated using the Black-Scholes model. No options were granted during the six months ended June 30, 2025. As of June 30, 2025, 11,326 options were outstanding, with a weighted average exercise price of $372.41 - The fair value of stock options is estimated using the Black-Scholes option pricing model, based on assumptions including expected volatility, expected term, and risk-free interest rate[137][138] - No stock options were granted during the six months ended June 30, 2025[138] Stock Option Activity (Three Months Ended June 30, 2025) | Metric | Number of options | Weighted average exercise price | | :------------------------ | :---------------- | :------------------------------ | | Outstanding at April 1, 2025 | 11,372 | $372.30 | | Canceled | (46) | $345.00 | | Outstanding at June 30, 2025 | 11,326 | $372.41 | | Exercisable at June 30, 2025 | 10,664 | $368.35 | Common Stock Reserved for Future Issuance As of June 30, 2025, a total of 6,440,677 shares of common stock were reserved for future issuance, primarily for the exercise of various warrants and stock options under the 2021 Plan Common Stock Reserved for Future Issuance (as of June 30, 2025) | Purpose | Shares Reserved | | :-------------------------------- | :-------------- | | Exercise of warrants | 6,889 | | Exercise of stock options – 2021 Plan | 11,326 | | Exercise of Series A warrants | 5,286,692 | | Exercise of Series B warrants | 87,384 | | Exercise of January 2025 warrants | 1,048,386 | | Total | 6,440,677 | 10. Segment Reporting The company operates as a single reportable segment, Energy Storage, focusing on LiFePO4 batteries and accessories for RVs, marine, and home energy storage. The CEO, as CODM, assesses performance and allocates resources based on net income or loss - The company has identified one reportable segment: Energy Storage[143] - The segment generates revenue in North America from the design, assembly, manufacturing, and sale of LiFePO4 batteries and accessories[142][143] - The Chief Executive Officer acts as the Chief Operating Decision Maker (CODM) and evaluates segment performance based on net income or loss[143][144] 11. Income Taxes Due to incurred losses, the company recorded no provision for state or federal income taxes beyond the minimum base rate and maintains a full valuation allowance on deferred tax assets. No material unrecognized tax benefits were identified - The company recorded no provision for state or federal income taxes beyond the minimum base rate due to incurred losses[146] - A full valuation allowance is maintained on all deferred tax assets, as their realization is not considered more likely than not[146] - No material unrecognized tax benefits were included in the balance sheets as of June 30, 2025, or December 31, 2024[146] 12. Related-Party Transactions As of June 30, 2025, and December 31, 2024, related-party transactions primarily consisted of the repayment of stockholder promissory notes, which were fully settled in August 2024 - Related-party transactions as of June 30, 2025, and December 31, 2024, consisted of the repayment of stockholder promissory notes[147] 13. Subsequent Events Subsequent events include the exercise of Series B Warrants in July 2025, generating $8,525 in proceeds, and the Annual Meeting on July 31, 2025, where stockholders approved director re-election, auditor ratification, and amendments to equity plans, including the immediate vesting of 15,000 RSUs - On July 18, 2025, 3,000,000 Series B warrants were exercised, resulting in the issuance of 85,252 shares and proceeds of $8,525[148] - The Annual Meeting on July 31, 2025, approved amendments to the 2021 Incentive Award Plan and 2021 Employee Stock Purchase Plan, increasing the number of shares available for issuance[149] - An award of 15,000 RSUs was approved and immediately vested effective July 31, 2025[149] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results for the three and six months ended June 30, 2025 and 2024, discussing key factors, competitive strengths, and critical accounting estimates OVERVIEW Expion360 designs, assembles, manufactures, and sells LiFePO4 batteries and accessories for RV, marine, and home energy storage markets, with plans to expand into industrial applications. The company launched its e360 Home Energy Storage Solutions in January 2025, aiming to capitalize on the market shift from lead-acid to lithium batteries - Expion360 focuses on LiFePO4 batteries and accessories for RV, marine, and home energy storage, with plans for industrial expansion[152][153] - The company launched its e360 Home Energy Storage Solutions in January 2025, targeting a cost-effective, flexible system for residential power[152][154] - The company aims to leverage its position in the rapid market conversion from lead-acid to lithium batteries[153] COMPETITIVE STRENGTHS Expion360's competitive strengths include superior capacity and lifespan of its lithium-ion batteries compared to lead-acid, strategic expansion into new markets with innovative products, and strong national retail and distribution channels Superior Capacity to Lead-Acid Competitors Expion360's lithium-ion batteries offer superior capacity, a lifespan of approximately 12 years (3-4 times that of lead-acid), and ten times the charging cycles, providing three times the power at half the weight. The company also uses 4.5 Ah 26650 cells, increasing energy density by over 32% - Lithium-ion batteries offer superior capacity, 3-4 times the lifespan, and ten times the charging cycles compared to lead-acid batteries[157] - The company's batteries provide three times the power of typical lead-acid batteries while being half the weight[157] - Utilizing 4.5 Ah 26650 lithium-ion phosphate battery cells increases energy density by over 32% compared to traditional 3.4 Ah cells[158] Expansion into New Markets The company is expanding into new markets with products like the e360 SmartTalk mobile app for battery management, the 48 Volt GC2 LiFePO4 battery for golf carts, and the e360 Home Energy Storage Solution. New 12V GC2 and Group 27 series batteries with advanced features were introduced in January 2024, and the slim Edge battery in July 2024 - The proprietary e360 SmartTalk mobile app allows seamless integration and management of Bluetooth-enabled LiFePO4 batteries[159] - The company entered the home energy storage market in December 2023 with two LiFePO4 battery storage solutions, with shipments beginning in January 2025[160] - New 12V GC2 and Group 27 series LiFePO4 batteries, featuring higher amp-hour options and proprietary heating technology, were introduced in January 2024[161] Strong National Retail Customers and Distribution Channels Expion360 has established sales relationships with major RV and marine retailers, including Camping World and Meyer Distributing, leveraging management's industry experience to build a strong distribution network - The company has sales relationships with major RV and marine retailers, such as Camping World and Meyer Distributing, Inc.[164] - Management's decades of experience in the energy and RV industries have helped cultivate these relationships[164] Home Energy Integration The company is actively engaging in discussions with integration partners to support the development and sales growth of its home energy storage products - The company is in discussions with integration partners to develop and grow its home energy storage products[165] KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS The company's results are influenced by consumer demand, manufacturing and supply chain stability, product and customer mix, competition, and investments in R&D and certifications. Macroeconomic conditions, tariffs, and raw material costs pose significant risks Consumer Demand Consumer demand for the company's products, primarily from RV, marine, and home energy markets, is influenced by fuel costs, discretionary spending, and macroeconomic conditions. The success of the e360 Home Energy Storage Solution depends on market growth and competitive positioning - Consumer demand is affected by fuel costs, discretionary spending, macroeconomic conditions (inflation, interest rates), geopolitical pressures, and market volatility[166] - The success of the e360 Home Energy Storage Solution depends on market growth and the company's ability to maintain a competitive position[167] - New distributor and OEM relationships in RV and marine markets are expected to generate significant new revenue streams in 2025[168] Manufacturing and Supply Chain The company relies on third-party manufacturers in Asia for batteries and cells, maintaining strong relationships to mitigate supply-related costs and delays. Raw material costs, particularly for lithium, are volatile, but the company has diversified sourcing and is exploring recycling. Tariffs on Asian products are expected to continue, with mitigation strategies in place - The company's batteries are manufactured by multiple third-party suppliers in Asia, with strong relationships helping to moderate increased supply-related costs[169] - Raw material costs, especially for lithium, account for over half of the cost of goods sold and are subject to volatility[170] - The company has diversified lithium cell sourcing to Europe and is monitoring developments in lithium extraction and recycling[170][171] Product and Customer Mix The company sells 15 models of LiFEPO4 batteries and accessories to various customers (dealers, wholesalers, OEMs). Changes in sales channel mix, volume, and product prices, along with accessory and OEM sales having lower margins, can impact overall gross margin, though increased sales volumes typically offset these reductions - The company sells 15 models of LiFEPO4 batteries and accessories to diverse customers, including dealers, wholesalers, and OEMs[174] - Average selling prices and costs of goods sold vary with sales channel mix, volume, and product prices[174] - Accessory and OEM sales typically have lower average selling prices and margins, which could affect overall gross margin[174] Competition Expion360 competes with both traditional lead-acid and lithium-ion battery manufacturers, many of whom may have greater resources or lower sourcing costs. Expanding into new markets could intensify competition, potentially requiring price adjustments or increased sales volume to maintain profitability - The company competes with traditional lead-acid and lithium-ion battery manufacturers[175] - Competitors may have more resources or lower sourcing costs, potentially requiring the company to adjust prices or increase sales volume[175] Research and Development Additional investments in infrastructure and R&D are anticipated to scale operations, enhance products, and expand into new markets. The company's ability to penetrate developing markets depends on successful technology development, which may require significant capital and resources - Additional investments in infrastructure and R&D are required to scale operations, enhance products, and expand into new markets[176] - Success in developing markets depends on successful technology development, potentially requiring additional debt and equity financing[177] Certifications The company has completed UL Safety Certifications for all its batteries, including the new 12V Group 27 100Ah and 132Ah batteries and the 12V GC2 battery, demonstrating a commitment to quality and safety - The company completed UL Safety Certifications for its new 12V Group 27 100Ah and 132Ah batteries, and the 12V GC2 battery[178] - All batteries produced by the company now have a UL Safety Certification[178] KEY LINE ITEMS This section defines the key financial statement line items: Net Sales (revenue from batteries and accessories), Cost of Sales (direct product, landing, and labor costs), Selling, General and Administrative Expenses (salaries, legal, marketing, R&D), Other (Income) Expense (interest, asset sales), and Provision for Income Taxes (deferred taxes and valuation allowance) Net Sales Net sales are generated from the sale of batteries and accessories, recognized when control of goods or services is transferred to customers, primarily within the United States - Revenue is generated from the sale of batteries and accessories[179] - Revenue is recognized upon transfer of control of goods or services to customers[179] Cost of Sales Cost of sales primarily includes direct product and landing costs, direct labor, and allocated fixed production overhead. These costs fluctuate based on product and assembly part costs, customer requirements, labor, and overhead allocation - Primary cost of sales components are direct product and landing costs, direct labor, and fixed production overhead[180] - Costs can increase or decrease based on product and assembly part costs, customer supply requirements, labor, and fixed overhead allocation[180] Selling, General and Administrative Expenses Selling, general and administrative expenses mainly comprise salaries and benefits, legal and professional fees, sales and marketing costs, facility costs, R&D, software support, and travel expenses - SG&A expenses primarily consist of salaries and benefits, legal and professional fees, and sales and marketing costs[181] - Other costs include facility and related costs, research and development, software and tech support, and travel expenses[181] Other (Income) Expense Other (income) and expense typically includes interest expense, interest income, and gains or losses from the sale of property and equipment - Other (income) and expense typically includes interest expense, interest income, and gain or loss on sale of property and equipment[182] Provision for Income Taxes The company is subject to corporate federal and state income taxes, recognizing deferred tax assets and liabilities for temporary differences. A valuation allowance is applied to deferred tax assets when realization is uncertain, and no material unrecognized tax benefits were identified - Deferred tax assets and liabilities are recognized for temporary differences between financial statement and tax carrying amounts[183] - Deferred tax assets are reduced by a valuation allowance if realization is not more likely than not[183] - No material unrecognized tax benefits were identified as of June 30, 2025, or December 31, 2024[184] RESULTS OF OPERATIONS The company experienced significant sales growth and a reduced net loss for the three and six months ended June 30, 2025, compared to 2024. Gross profit increased, but as a percentage of sales, it decreased due to product mix. Selling, general, and administrative expenses decreased, and other expenses saw a substantial reduction Net Sales Net sales for the three months ended June 30, 2025, increased by 133.9% to $3.0 million, and for the six months, increased by 124.0% to $5.0 million, primarily driven by growth in the RV market and accessory sales Net Sales Performance | Period | 2025 Sales | 2024 Sales | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Three months ended June 30 | $2,989,947 | $1,278,109 | 133.9% | | Six months ended June 30 | $5,039,278 | $2,249,967 | 124.0% | - The increase in net sales was primarily attributable to sales growth in the RV market and accessory sales through integrator partners[189] Cost of Sales Total cost of sales increased by 148.5% to $2.4 million for the three months and by 130.0% to $3.9 million for the six months ended June 30, 2025, compared to 2024. As a percentage of sales, cost of sales increased due to product mix Cost of Sales Performance | Period | 2025 Cost of Sales | 2024 Cost of Sales | Change (%) | | :-------------------- | :----------------- | :----------------- | :--------- | | Three months ended June 30 | $2,367,337 | $952,646 | 148.5% | | Six months ended June 30 | $3,915,101 | $1,701,982 | 130.0% | - Cost of sales as a percentage of sales increased by 4.6% for the three months and 2.1% for the six months ended June 30, 2025, primarily due to product mix[190][191][192] Gross Profit Gross profit increased by 91.3% to $623,000 for the three months and by 105.1% to $1.1 million for the six months ended June 30, 2025. However, gross profit as a percentage of sales decreased due to changes in product mix Gross Profit Performance | Period | 2025 Gross Profit | 2024 Gross Profit | Change (%) | | :-------------------- | :---------------- | :---------------- | :--------- | | Three months ended June 30 | $623,000 | $325,000 | 91.3% | | Six months ended June 30 | $1,124,177 | $548,000 | 105.1% | - Gross profit as a percentage of sales decreased by 4.6% for the three months (from 25.5% to 20.8%) and 2.1% for the six months (from 24.4% to 22.3%) due to product mix[193][194][195] Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by 1.6% for the three months and 13.6% for the six months ended June 30, 2025. As a percentage of sales, these expenses significantly