UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐

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, $.001 par value	XPON	The NASDAQ Stock Market LLC

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 ☒

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Title or class	Shares outstanding as of November 7, 2023
Common Stock, $.001 par	6,910,717

TABLE OF CONTENTS

Contents

PART I - FINANCIAL INFORMATION	5
ITEM 1. FINANCIAL STATEMENTS	5
1. Organization and Nature of Operations	11
2. Summary of Significant Accounting Policies	11
3. Property and Equipment, Net	19
4. Accrued Expenses and Other Current Liabilities	19
5. Liabilities for Sale of Future Revenues	20
6. Short-Term Revolving Loans	20
7. Long-Term Debt	21
8. Stockholder Promissory Notes	22
9. Commitments and Contingencies	22
10. Stockholders’ Equity	24
11. Income Taxes	27
12. 401(k) Plan	27
13. Related Party Transactions	28
14. Subsequent Events	28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS	29
OVERVIEW	29
COMPETITIVE STRENGTHS	30
RECENT DEVELOPMENTS AND TRENDS	31
KEY LINE ITEMS	33
RESULTS OF OPERATIONS	34
LIQUIDITY AND CAPITAL RESOURCES	36
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	39
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS	41
NOTICE REGARDING TRADEMARKS	42
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	43
ITEM 4. CONTROLS AND PROCEDURES	43

PART II - OTHER INFORMATION	43
ITEM 1. LEGAL PROCEEDINGS	43
ITEM 1A. RISK FACTORS	44
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	44
ITEM 4. MINE SAFETY DISCLOSURES	44
ITEM 5. OTHER INFORMATION	44
ITEM 6. EXHIBITS	44
SIGNATURES	45

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Expion360 Inc.

Balance Sheets

	September 30, 2023 (unaudited)			December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	2,910,896		$	7,201,244
Accounts receivable, net		473,284			298,035
Inventory		4,158,483			4,530,136
Prepaid/in-transit inventory		102,646			141,611
Prepaid expenses and other current assets		217,550			171,791
Total current assets		7,862,859			12,342,817

Property and equipment		1,348,326			1,394,619
Accumulated depreciation		(378,286	)		(250,861	)
Property and equipment, net		970,040			1,143,758

Other Assets
Operating leases – right-of-use asset		2,789,160			3,148,455
Deposits		58,896			63,901
Total other assets		2,848,056			3,212,356
Total assets	$	11,680,955		$	16,698,931

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	437,236		$	230,250
Customer deposits		46,248			58
Accrued expenses and other current liabilities		299,793			306,164
Current portion of operating lease liability		506,743			465,055
Current portion of stockholder promissory notes		625,000			500,000
Current portion of long-term debt		50,058			71,426
Total current liabilities		1,965,078			1,572,953

Long-term debt, net of current portion and discount		311,431			439,049
Operating lease liability, net of current portion		2,376,474			2,754,964
Stockholder promissory notes, net of current portion		200,000			325,000
Total liabilities	$	4,852,983		$	5,091,966

(continued on next page)

Expion360 Inc.

Balance Sheets – Continued

	September 30, 2023 (unaudited)			December 31, 2022
Stockholders’ equity
Preferred stock, par value $.001; 20,000,000 shares authorized; zero shares issued and outstanding		—			—
Common stock, par value $.001; 200,000,000 shares authorized; 6,910,717 and 6,802,464 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		6,911			6,802
Additional paid-in capital		25,730,833			25,239,654
Accumulated deficit		(18,909,772	)		(13,639,491	)
Total stockholders’ equity		6,827,972			11,606,965
Total liabilities and stockholders’ equity	$	11,680,955		$	16,698,931

The accompanying notes are an integral part of these financial statements

Expion360 Inc.

Statements of Operations (Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022
Sales, net	$	1,890,115		$	1,383,011		$	5,122,415		$	5,741,075
Cost of sales		1,417,552			980,141			3,752,006			3,770,025
Gross profit		472,563			402,870			1,370,409			1,971,050
Selling, general and administrative		2,290,955			1,662,005			6,363,514			6,479,954
Loss from operations		(1,818,392	)		(1,259,135	)		(4,993,105	)		(4,508,904	)

Other (Income) / Expense
Interest income		(33,048	)		(64	)		(100,945	)		(158	)
Interest expense		27,491			34,016			92,067			1,571,848
(Gain) / Loss on sale of property & equipment		—			(13,312	)		3,426			(13,312	)
Settlement expense		—			—			281,680			—
Other (income) / expense		—			(471	)		(394	)		(389	)
Total other (income) / expense		(5,557	)		20,169			275,834			1,557,989
Loss before taxes		(1,812,835	)		(1,279,304	)		(5,268,939	)		(6,066,893	)

Franchise taxes / (refund)		1,380			—			1,342			300
Net loss	$	(1,814,215	)	$	(1,279,304	)	$	(5,270,281	)	$	(6,067,193	)

Net loss per share (basic and diluted)	$	(0.26	)	$	(0.19	)	$	(0.77	)	$	(1.03	)
Weighted-average number of common shares outstanding		6,910,717			6,802,464			6,878,737			5,913,763

The accompanying notes are an integral part of these financial statements

Expion360 Inc.

Statements of Stockholders’ Equity (Deficit) for Nine Months ended September 30, 2023 and 2022 (Unaudited)


	Common Stock				Additional Paid-in			Accumulated			Total Stock-holders’ Equity
	Shares		Amount		Capital			Deficit			(Deficit)
Balance at December 31, 2021		4,300,000	$	4,300	$	8,355,140		$	(6,102,951	)	$	2,256,489
Net loss		—		—		—			(696,853	)		(696,853	)
Balance at March 31, 2022		4,300,000	$	4,300	$	8,355,140		$	(6,799,804	)	$	1,559,636
Issuance of shares, net of issuance costs		2,466,750		2,466		14,770,021			—			14,772,487
Issuance of shares in exchange for IPO services		35,714		36		(36	)		—			—
Issuance of stock options		—		—		2,114,529			—			2,114,529
Net loss		—		—		—			(4,091,036	)		(4,091,036	)
Balance at June 30, 2022		6,802,464	$	6,802	$	25,239,654		$	(10,890,840	)	$	14,355,616
Net loss		—		—		—			(1,279,304	)		(1,279,304	)
Balance at September 30, 2022		6,802,464	$	6,802	$	25,239,654		$	(12,170,144	)	$	13,076,312

Balance at December 31, 2022		6,802,464	$	6,802	$	25,239,654		$	(13,639,491	)	$	11,606,965
Proceeds received from exercise of warrants		46,102		47		49,740			—			49,787
Stock issued as a result of litigation settlement		52,000		52		251,628			—			251,680
Net loss		—		—		—			(1,977,278	)		(1,977,278	)
Balance at March 31, 2023		6,900,566	$	6,901	$	25,541,022		$	(15,616,769	)	$	9,931,154
Exercise of warrants		10,151		10		(20	)		—			(10	)
Net loss		—		—		—			(1,478,788	)		(1,478,788	)
Balance at June 30, 2023		6,910,717	$	6,911	$	25,541,002		$	(17,095,557	)	$	8,452,356
Issuance of warrants		—		—		65,046			—			65,046
Issuance of stock options		—		—		119,525			—			119,525
Issuance of RSUs		—		—		5,260			—			5,260
Net loss		—		—		—			(1,814,215	)		(1,814,215	)
Balance at September 30, 2023		6,910,717	$	6,911	$	25,730,833		$	(18,909,772	)	$	6,827,972

The accompanying notes are an integral part of these financial statements

Expion360 Inc.
Statements of Cash Flows (Unaudited)


	For the Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities

Net loss	$	(5,270,281	)	$	(6,067,193	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		153,714			115,670
Amortization of debt discount (sale of future revenues)		—			295
Amortization of debt discount - notes		—			1,196,843
(Gain) / Loss on sale of property and equipment		3,426			(13,312	)
Increase / (Decrease) in allowance for doubtful accounts		(18,804	)		19,604
Stock-based settlement		251,680			—
Stock-based compensation		189,831			2,114,529

Changes in operating assets and liabilities:
(Increase) / Decrease in accounts receivable		(156,445	)		475,091
(Increase) / Decrease in inventory		371,653			(2,984,177	)
Decrease in prepaid/in-transit inventory		38,964			812,562
Increase in prepaid expenses and other current assets		(45,759	)		(134,191	)
(Increase) / Decrease in deposits		5,005			(10,976	)
Increase / (Decrease) in accounts payable		206,986			(87,369	)
Increase / (Decrease) in customer deposits		46,190			(274,857	)
Increase / (Decrease) in accrued expenses and other current liabilities		(6,371	)		107,407
Increase in right-of-use assets and lease liabilities		22,494			30,454
Net cash used in operating activities		(4,207,717	)		(4,699,620	)

Cash flows from investing activities
Purchases of property and equipment		(20,170	)		(434,458	)
Net proceeds from sale of property and equipment		36,748			51,679
Net cash provided by / (used in) investing activities		16,578			(382,779	)

Cash flows from financing activities
Payments on line-of-credit and short-term revolving loans		—			(550,000	)
Payments on liability for sale of future revenues		—			(11,797	)
Principal payments on long-term debt		(148,986	)		(1,784,500	)
Net proceeds from exercise of warrants		49,777			—
Net proceeds from issuance of common stock		—			14,772,487
Net cash provided by / (used in) financing activities		(99,209	)		12,426,190

Net change in cash and cash equivalents		(4,290,348	)		7,343,791
Cash and cash equivalents, beginning		7,201,244			773,238
Cash and cash equivalents, ending	$	2,910,896		$	8,117,029

Expion360 Inc.

Statements of Cash Flows (Unaudited) - Continued

	For the Nine Months Ended September 30,
Supplemental disclosure of cash flow information:	2023			2022
Cash paid for interest	$	92,136		$	401,037
Cash paid / (refunded) for franchise taxes	$	1,341		$	300

Non-cash financing activities:
Acquisition/modification of operating lease right-of-use asset and lease liability	$	(13,993	)	$	2,348,509
Cashless warrant exercises	$	41		$	—
Purchases of property and equipment in exchange for long-term debt	$	—		$	181,430
Purchased of property and equipment in exchange for short-term payable	$	—		$	170,863

The accompanying notes are an integral part of these financial statements

1. Organization and Nature of Operations

Expion360 Inc. (formerly Yozamp Products Company, LLC dba Expion360) (“the Company”) was incorporated in the state of Nevada in November 2021. Effective November 1, 2021, the Company converted to a C corporation. Prior to conversion, the Company was a limited liability company (LLC) with an indefinite life organized in the State of Oregon in June 2016. The LLC elected to be treated as a Subchapter S corporation effective January 1, 2017. Net profits and losses of the LLC and all distributions were allocated among the members in proportion to the ownership units held. The Original LLC Agreement was amended and restated on January 1, 2021 to add additional members and a non-voting class of member units. Upon conversion to a C corporation, all existing LLC members at the time of conversion were issued shares of common stock and became stockholders of the Company.

The Company designs, assembles, and distributes premium lithium batteries for RV, Marine, Golf, Industrial, Residential, and Off-The-Grid needs. The Company uses lithium iron phosphate (LiFePO4) batteries. LiFePO4 batteries are considered a top choice for high energy density, dependability, longevity, and safety, providing the ability to power anything, anywhere.

Beginning in March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic disrupted and may continue to impact the Company’s business. While certain restrictions have eased recently, the magnitude of the impact of any new measures from a resurgence in the COVID-19 pandemic on the Company’s productivity, results of operations, and financial position, and its disruption to the Company’s business and battery development and timeline will depend in part on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information, and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three- and nine-month periods ended September 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The unaudited interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023.

Unless otherwise noted, all references to shares and stockholders in the accompanying financial statements have been restated retrospectively, to reflect the equity structure of the C corporation as of the beginning of the first period presented.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported results of operations.

Going Concern, Liquidity and Capital Resources

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenues and profit from operations. The Company expects to continue to incur additional losses for the foreseeable future, and the Company may need to raise additional debt or equity financing to expand its presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish its long-term business plan over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might be available.

As presented in the accompanying financial statements, the Company has sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the financial statements for the three and nine month periods ended September 30, 2023 are issued. However, management is working to address its cash flow challenges, including raising additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses.

Historically, the Company’s growth has been funded through a combination of sales of equity interests, third party debt, and working capital loans. The Company’s sales for the three months ended September 30, 2023 increased 36.7% and sales for the nine months ended September 30, 2023 decreased 10.8% compared to the same periods in 2022. For the nine months ended September 30, 2023, we received net proceeds of $49,777 from warrant exercises. On April 1, 2022, the Company completed an initial public offering and listing of its shares on the Nasdaq Stock Market (IPO). Proceeds from the IPO, net of costs, totaled $14,772,487, of which approximately $2,464,000 was used to pay down principal and accrued interest on high interest-bearing debt. The remaining proceeds have thus far and will continue to be used, in part, to stock inventory to keep up with demand and to build in-house assembly lines to improve the cash-flow cycle and help reduce the four-month turnaround that the Company currently experiences from suppliers in China. In the first half of 2022, a distribution warehouse was set up in Indiana to better service customers throughout the U.S. and an assembly facility was leased in Redmond, Oregon for future expansion of the in-house assembly lines. Additionally, management has secured a secondary source for lithium iron phosphate cells used in its batteries that is based in Denmark, should supply disruption issues with China arise. Management believes that these factors will contribute to achieving operating efficiency and profitability. However, there can be no assurance that the Company will be successful in achieving its objectives, including achieving operating efficiency and profitability.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary materially from the estimates that were used. The Company’s significant accounting estimates include the carrying value of accounts receivable and inventory, the depreciable lives of fixed assets, and stock-based compensation.

Future events, including the extent and the duration of the COVID-19-related economic impacts and their effects, cannot be predicted with certainty and, accordingly, the Company’s accounting estimates require the exercise of judgment.

Cash and Cash Equivalents

The Company considers all cash amounts which are not subject to withdrawal restrictions or penalties and all highly liquid investments purchased with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains its cash balances with high-quality financial institutions located in the United States. Cash accounts are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. At times, balances may exceed federally insured limits. Investment accounts are placed in funds consisting of US Treasury-related ultra-short paper. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents. As of September 30, 2023, cash balances exceeded FDIC limits by $547,054 and investment accounts totaling $2,100,847 are invested in US Treasury-related ultra-short paper.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount, are due within a year or less, and generally do not bear any interest. The Company performs ongoing credit evaluations of its customers and generally requires no collateral. An allowance for uncollectible accounts is recorded to reduce accounts receivable to the estimated amount that will be collected. The allowance is based upon management’s review of the accounts receivable aging and specific identification of potentially uncollectible balances. Recoveries of accounts previously written off and adjustments to the allowance for uncollectible accounts are recorded as adjustments to bad debt expense. For the three months ended September 30, 2023 and 2022, the Company wrote off $388 and $

SEC Form 10-Q filed by Expion360 Inc.