| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Basis
of Presentation The
accompanying unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP) for interim financial information, and pursuant to the instructions to Form 10-Q and Article
10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statement presentation. However, the Company believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three- and six-month periods ended June 30, 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 six month periods ended June 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 continuing to develop in-house assembly lines. Historically,
the Company’s growth has been funded through a combination of sales of equity interests, third party debt, and working capital
loans. The Company’s sales for the three months ended June 30, 2023 decreased 21.7% and sales for the six months ended June 30,
2023 decreased 25.8% compared to the same periods in 2022. For the six months ended June 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 June 30, 2023, cash balances exceeded FDIC limits by $624,952 and investment accounts totaling $2,567,798 are invested in US Treasury-related
ultra-short paper. Accounts
Receivable Accounts
receivable are recorded at the invoiced amount, are due within a year or less, and generally do not bear any interest. The Company performs
ongoing credit evaluations of its customers and generally requires no collateral. An allowance for uncollectible accounts is recorded
to reduce accounts receivable to the estimated amount that will be collected. The allowance is based upon management’s review of
the accounts receivable aging and specific identification of potentially uncollectible balances. Recoveries of accounts previously written
off and adjustments to the allowance for uncollectible accounts are recorded as adjustments to bad debt expense. For the three months
ended June 30, 2023 and 2022, the Company wrote off $0 and $19,604, respectively. For the six months ended June 30, 2023 and 2022, the
Company received $800 against bad debt expense and wrote off $19,604, respectively. There was no allowance for doubtful accounts as of
June 30, 2023 or December 31, 2022, as management believed all outstanding amounts to be fully collectible. Customer
Deposits As
of June 30, 2023 and December 31, 2022, the Company had customer deposits totaling $156,938 and $58, respectively. Inventory Inventory
is stated at the lower of cost (first in, first out) or net realizable value and consists of batteries and accessories, resale items,
components, and related landing costs. As of June 30, 2023 and December 31, 2022, the Company had inventory that consisted of finished
assemblies totaling $2,342,945 and $2,722,765, respectively, and raw materials (inventory components, parts, and packaging) totaling
$2,624,380 and $1,807,371, respectively. The valuation of inventory includes fixed production overhead costs based on normal capacity
of the assembly warehouse. The
Company periodically reviews its inventory for evidence of slow-moving or obsolete inventory and provides for an allowance when considered
necessary. The Company determined that no such reserve was necessary as of June 30, 2023 or December 31, 2022. The Company prepays for
inventory purchases from foreign suppliers. Prepaid inventory totaled $160,854 and $141,611 at June 30, 2023 and December 31, 2022, respectively,
and included inventory in transit where title had passed to the Company but had not yet been physically received. Vendor
and Foreign Concentrations of Inventory Suppliers During
the three months ended June 30, 2023 and 2022, respectively, approximately 74% and 96%, respectively, of inventory purchases were made
from foreign suppliers in China and Hong Kong. During the six months ended June 30, 2023 and 2022, respectively, approximately 80% and
91%, respectively, of inventory purchases were made from foreign suppliers in China and Hong Kong. Any adverse change in either the economic
or political conditions abroad could negatively impact the Company’s supply chain. The inability to obtain product to meet sales
demand could adversely affect results of operations. However, the Company has secured a secondary source for lithium iron phosphate cells
used in its batteries from a supplier in Denmark, enabling the Company to source materials outside of China in the event it becomes necessary
to do so. Property
and Equipment Property
and equipment are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related
assets as follows: Schedule of estimated useful lives
Vehicles
and transportation equipment 5 7
Office
furniture and equipment 3 7
Manufacturing
equipment 3 10
Warehouse
equipment 3 10
Tooling
and molds 3 10
QA
equipment 3 10 Leasehold
improvements are amortized over the shorter of the lease term or their estimated useful lives. Betterments,
renewals, and extraordinary repairs that extend the lives of the assets are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts,
and the gain or loss on disposition is recognized in the Statements of Operations. Leases The
Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets represent the Company’s
right to use an underlying asset during the lease term, and operating lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating
lease liabilities, and long-term operating lease liabilities on the Company’s Balance Sheets. The Company does not have any finance
leases. Lease
ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease
term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit
rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives
received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the
Company will exercise that option. Leases with a term of 12 months or less are not recognized on the Company’s Balance Sheet. The
Company’s leases do not contain any residual value guarantees. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term. The
Company accounts for lease and non-lease components as a single lease component for all its leases. Impairment
of Long-Lived Assets Long-lived
assets consist primarily of property and equipment. When events or circumstances indicate the carrying value of a long-lived asset may
be impaired, the Company estimates the future undiscounted cash flows to be derived from the use and eventual disposition of the asset
to assess whether or not a potential impairment exists. If the carrying value exceeds the estimate of future undiscounted cash flows,
the impairment is calculated as the excess of the carrying value of the asset over the estimate of its fair value. Fair value is determined
primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. No long-lived asset impairment was
recognized during the three or six months ended June 30, 2023 or 2022. Product
Warranties The
Company sells the majority of its products to customers along with conditional repair or replacement warranties. The Company’s
branded DC mobile chargers are warrantied for two years from the date of sale and its branded VPR 4EVER Classic and Platinum batteries
are warrantied at gradually lesser levels over a twelve-year period from date of sale. The Company determines its estimated liability
for warranty claims based on the Company’s experience of the amount of claims actually made. Management estimates no liability
as of June 30, 2023 and December 31, 2022 because, historically, there have been very few claims and costs for repairs or replacement
parts have been nominal. It is possible that the Company’s estimate of liability for product liability claims will change in the
near term. Liability
for Refunds The
Company does not have a formal return policy but does accept returns under its warranty policies. Returns have historically been minimal. Revenue
Recognition The
Company’s revenue is generated from the sale of products consisting primarily of batteries and accessories. The Company recognizes
revenue when control of goods or services is transferred to its customers in an amount that reflects the consideration it is expected
to be entitled to in exchange for those goods or services. To determine revenue recognition, the Company performs the following five
steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize
revenue when (or as) the performance obligation(s) are satisfied. Revenue is recognized upon shipment or delivery to the customer, as
that is when the customer obtains control of the promised goods and the Company’s performance obligation is considered satisfied.
As such, accounts receivable is recorded at the time of shipment or will call, when the Company’s right to the consideration becomes
unconditional and the Company determines there are no uncertainties regarding payment terms or transfer of control. Concentration
of Major Customers A
customer is considered a major customer when net revenue attributable to the customer exceeds 10% of total revenue for the period or
outstanding receivable balances exceed 10% of total receivables. During
the three months ended June 30, 2023, sales to two customers totaled $504,334, comprising approximately 30% of total sales. These customers
represented 29% of total accounts receivable as of June 30, 2023. During the six months ended June 30, 2023, sales to two customers totaled
$708,042, comprising approximately 22% of total sales. These customers represented 29% of total accounts receivable as of June 30, 2023.
Accounts receivable from one additional customer totaled $63,388, representing approximately 16% of accounts receivable as of June 30,
2023. During
the three months ended June 30, 2022, sales to two customers totaled $672,180, comprising approximately 31% of total sales. These customers
represented 46% of total accounts receivable as of June 30, 2022. During the six months ended June 30, 2022, sales to one customer totaled
$1,218,581, comprising approximately 28% of total sales. This customer represented 35% of total accounts receivable as of June 30, 2022.
Accounts receivable from two additional customers totaled $202,717, representing approximately 25% of accounts receivable as of June
30, 2022. Shipping
and Handling Costs Shipping
and handling fees billed to customers are classified on the Statement of Operations as “Sales, net” and totaled $ 15,365 7,230 24,898 11,381 48,549 43,934 91,757 82,658 Advertising
and Marketing Costs The
Company expenses advertising and marketing costs as incurred. Advertising and marketing expense totaled $ 297,673 151,701 452,832 311,738 Research
and Development Research
and development costs are expensed as incurred. Research and development costs charged to expense amounted to $ 94,078 107,058 171,258 112,375 Income
Taxes Effective
November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state
income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of exiting assets and liabilities and their respective tax basis. Deferred tax assets, including
tax loss and credit carryforwards, and liabilities are measured using the enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that included the enactment date. Deferred income tax expense represents
the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not
be realized. On
March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The Cares Act is an emergency
economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort
to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Some of the more
significant provisions are removal of certain limitations on utilization of net operating losses, increasing the loss carryback period
for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the
previously enacted Tax Cuts and Jobs Act. As of June 30, 2023 and December 31, 2022, the Company has not recorded any income tax provision/(benefit)
resulting from the CARES Act, mainly due to the Company’s history of net operating losses. On
December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021 (“CAA”). The CAA includes provisions
extending certain CARES Act provisions and adds coronavirus relief, tax and health extenders. The Company will continue to evaluate the
impact of the CAA and its impact on its financial statements in 2023 and beyond. Fair
Value of Financial Instruments The
Company accounts for its financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement Level
1: Level
2: Level
3: The
Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, short-term
revolving loans, stockholder promissory notes, and long-term debt. The fair value of cash and cash equivalents, accounts receivable,
accounts payable, and short-term revolving loans approximates their respective carrying values because of the short-term nature of those
instruments. The fair value of the stockholder promissory notes, convertible notes, and long-term debt approximates their respective
carrying values because the interest rate approximates market rates available to the Company for similar obligations with the same maturities. Segment
Reporting The
Company currently operates in one reportable segment. An operating segment is defined as a component of an enterprise for which discrete
financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”) to evaluate performance
and make operating decisions. The Company has identified its CODM as the Chief Executive Officer. Basic
and Diluted Net Loss Per Share The
basic net loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the period.
Diluted earnings or loss per share adjusts the basic earnings or loss per share for the potentially dilutive impact of securities (e.g.,
options and warrants). We
calculate basic and diluted net loss per share using the weighted average number of common shares outstanding during the periods presented.
In periods of a net loss position, basic and diluted weighted average common shares are the same. For the diluted earnings per share
calculation, we adjust the weighted average number of common shares outstanding to include dilutive stock options, warrants, unvested
restricted stock units and shares associated with the conversion of any convertible notes or preferred stock, when applicable. We use
the if-converted method for calculating any potential dilutive effect of convertible notes and convertible preferred stock on diluted
net loss per share. The
following shows the amounts used in computing net loss per share: Schedule of net loss per share
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Net loss $ (1,478,788 ) $ (4,091,036 ) $ (3,456,066 ) $ (4,787,889 )
Weighted average common shares outstanding – basic and diluted 6,910,491 6,638,825 6,862,747 5,469,413
Basic and diluted net loss per share $ (0.21 ) $ (0.62 ) $ (0.50 ) $ (0.88 ) As
of June 30, 2023 and December 31, 2022, the Company has outstanding warrants and options convertible into 1,607,330 and 1,717,936 shares
of common stock, respectively. The following table sets forth the number of shares excluded from the computation of diluted loss per
share, as their inclusion would have been anti-dilutive. Schedule of anti-dilutive share
As of: June 30, 2023 December 31, 2022
Stock options 829,500 829,500
Warrants 777,830 888,436
1,607,330 1,717,936 Stock-Based
Compensation The
Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation”, which
requires compensation costs to be recognized at grant date fair value over the requisite service period of each of the awards. The Company
recognizes forfeitures of awards as they occur. The
fair value of stock options is determined using the Black-Scholes-Merton option pricing model. In order to calculate the fair value of
the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected
dividend yield and expected life. Changes to assumptions could cause significant adjustments to the valuation. New
Accounting Pronouncements In
September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier
Finance Program Obligations,” which is intended to enhance the transparency surrounding the use of supplier finance programs in
connection with the purchase of goods and services. Supplier finance programs may also be referred to as reverse factoring, payables
finance, or structured payables arrangements. The amendments in ASU 2022-04 require a buyer that uses supplier finance programs to disclose
sufficient qualitative and quantitative information about the program to allow a user of financial statements to understand the program’s
nature, activity during the period, changes from period to period, and potential magnitude. ASU 2022-04 is effective for all entities
for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods with those fiscal years, except
for the requirement to disclose roll forward information, which is effective prospectively for fiscal years beginning after December
15, 2023. The Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have an impact on the
Company’s financial statements or disclosures. In
March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures,” which addresses and amends areas identified by the FASB as part of its post-implementation review of the
accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting
guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan
refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure
of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.
For entities, such as Expion360 Inc., that have not In
October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers.” ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination
to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, on the acquisition date as if the
acquirer had entered into the original contract at the same date and on the same terms as the acquiree. ASU 2021-08 is effective for
fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for public business entities. The
Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have an impact on the Company’s
financial statements or disclosures. In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss impairment
methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information for credit loss estimates on certain types of financial instruments, including trade receivables.
In addition, new disclosures are required. The ASU, as subsequently amended, is effective for the Company for fiscal years beginning
after December 15, 2022. The Company adopted this standard effective January 1, 2023, and the adoption of this guidance did not have
an impact on the Company’s financial statements or disclosures. Accounting
Guidance Issued but Not Yet Adopted In
March 2023, the FASB issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments
in Tax Credit Structures Using the Proportional Amortization Method.” This ASU was issued to allow reporting entities to consistently
account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. ASU 2023-02
is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.
The Company is currently evaluating the impact of this standard on our financial statements. In
June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject
to Contractual Sale Restrictions,” which amends the guidance in Topic 820, Fair Value Measurement |
