Item 1. Business
ITEM 1.
BUSINESS
Our
Company
Expion360
Inc. (the “Company,” “Expion360”, “we,” “us” or “our”) focuses on the design,
assembly, manufacturing, and sales of lithium iron phosphate (LiFePO4) batteries and supporting accessories for recreational vehicles
(“RVs”) and marine applications with plans to expand into home energy storage products and industrial applications. We design,
assemble, and distribute high-powered, lithium battery solutions using ground-breaking concepts with a creative sales and marketing approach.
We believe that our product offerings include some of the most dense and minimal-footprint batteries in the RV & Marine industry.
We are developing the e360 Home Energy Storage: a system that we expect to significantly change the industry in barrier price, flexibility,
and integration. We are deploying multiple IP strategies with cutting-edge research and unique products to sustain and scale the business.
We currently have customers consisting of dealers, wholesalers, private label customers and original equipment manufacturers who are
driving revenue and brand awareness nationally.
Our
corporate headquarters are based in Redmond, Oregon, with assembly in the United States and suppliers based in Asia. We are currently
in the process of building out manufacturing capacity at our corporate headquarters. Our long-term target is to onshore the manufacturing
of most of our components and assemblies, including cell manufacturing, to the United States.
Our
main target markets are currently the RV & Marine industry. We believe that we are well positioned to capitalize on the rapid market
conversion from lead-acid to lithium batteries as the primary method of power sourcing in these industries. Additional focus markets
include home energy storage, where we aim to provide a cost-effective, low barrier of entry, and a do-it-yourself (“DIY”)
flexible system for those looking to power their homes via solar energy, wind, or grid back-up. Along with RV/Marine and home energy
storage markets, we aim to provide additional capacities to the ever-expanding electric forklift and industrial material handling markets.
Expion360’s
e360 product line, which is manufactured for the RV/Marine industry, was launched in December 2020. The e360 product line, through its
rapid sales growth, has shown to be a preferred conversion solution for lead-acid batteries. We believe that our e360 Home Energy Storage
system has strong revenue potential with recurring income opportunities for us and our associated sales partners.
Our
products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate
detailed-oriented design and engineering and strong case materials and internal and structural layouts, and are backed by responsive
customer service.
Our
Market Opportunity
The
trend of vehicle electrification is expected to be a significant growth catalyst for lithium compounds over the next decade and beyond.
According to industry sources and management estimates, the global electric vehicle market was valued at $163.01 billion in 2020, and
is projected to reach $823.75 billion by 2030, a CAGR of 18.2%. In addition, the North American electric vehicle market is projected
to reach $147.6 billion by 2028, a CAGR of 37.2%.
Furthermore,
the North American RV market was estimated at roughly $33.95 billion in 2021, and is expected to grow at a 9.7% CAGR, approaching $59.16
billion by 2027. There are almost 230 national chain RV dealers in the United States, further exemplifying the robust market for these
vehicles. In addition, the global recreational boating market was valued at $27.32 billion in 2021, and is projected to reach $36.78
billion by 2027, growing at a CAGR of 5.1% from 2021 to 2027.
At
the intersection of both these trends lies the rapidly expanding lithium battery market. The market for lithium-ion batteries is expected
to grow at 13.1% CAGR between 2022 and 2031, from roughly $44.5 billion to $135.1
billion. The vast expansion of the lithium battery market can be attributed to global trends promoting clean energy, as well as the compact
and flexible nature of lithium battery packs which make them easy to install in RV’s and boats. Our technology, which we believe
offers industry leading battery pack flexibility for the most efficient energy storage, is poised to be able to offer power to these
large vehicles such as RV’s and recreational boats.
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Expion360
is focused on expanding its position in the deep cycle, off-grid and stationary energy storage markets. According to the Federal Consortium
for Advanced Batteries, the United States has five goals in mind to secure battery materials and the U.S. technology supply chain. They
include (1) securing access to raw materials; (2) support of the U.S. materials-processing base; (3) stimulation of U.S. electrode, cell,
and pack manufacturing; (4) enabling recycling and reuse of critical materials; and (5) support of scientific R&D, STEM education
and workforce development. Expion360 is well positioned to benefit from this national focus.
The
Biden Administration has also laid out a bold agenda to address the climate crisis and build a clean and equitable energy economy that
achieves carbon-pollution-free electricity by 2035 and puts the United States on a path to achieve net-zero emissions, economy-wide.
We believe this government support will continue to drive rapid growth in the industry.
Lithium-based
batteries power our daily lives, from consumer electronics to national defense. They enable electrification of the transportation sector
and provide stationary grid storage, critical to developing the clean-energy economy. The U.S. has a strong research community, a robust
innovation infrastructure for technological advancement of batteries, and an emerging lithium-based battery manufacturing industry, according
to the US Department of Energy.
It
is our desire to work closely with federal, state and local governments, as well as private industry to help America be the leader in
lithium battery technology.
Competitive
Strengths
We
believe the following strengths differentiate Expion360 and create long-term, sustainable competitive advantages:
Superior
Capacity to Lead Acid Competitors
Lead-acid
batteries have always been the standard in RV and marine transportation vehicles. Our lithium-ion batteries offer superior capacity to
our lead-acid competitors. Our batteries utilize lithium iron phosphate, and therefore, are expected to have a lifespan of approximately
12 years — three to four times that of certain lead-acid batteries and with ten times the number of charging cycles. Furthermore,
we believe that our typical battery provides three times the power of the typical, lead-acid battery despite being half the weight (comparing,
for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming
slow discharge at a .1C rate).
Battery
Pack Flexibility
Our
battery packs are also highly flexible, designed to be moved and used in various applications seamlessly. We plan to onshore our semi-automated
pack assembly in Redmond, Oregon. The initial equipment has arrived and subject to market conditions, we are working on setup and development
of additional equipment to automate the line. This should allow us to use a more flexible approach to forming and creating new battery
packs. By onshoring, we expect to be able to react to market demands at a much quicker pace and increase profit levels over our competition.
Long-time
RV and Marine Industry Experience and Relationships and Strong Insider Ownership
Expion360 is managed by a team with a strong track record in the RV and clean energy spaces. John Yozamp, Founder of Expion360, pioneered
multiple new recreational concepts in the RV industry. As the founder and previous owner of Zamp Solar, he has extensive relationships
in the RV OEM industry. In addition, our co-founders own significant equity in the company, signaling a strong commitment and personal
investment.
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Expansion
into New Markets
While
RV and marine applications currently drive revenue, Expion360 has plans to expand into the home energy market in the coming years. Our
e360 Home Energy Storage system is planned to target entry level customers with its modular design that will allow for DIY expansion.
We see the vision of stored energy as a portable, moving concept, where stored energy can be transported from the home to other devices
outside of it. Furthermore, Expion360 plans to file for IP protection for Expion360’s “Smart Talk” upon completion
of development. “Smart Talk” is designed to allow multiple batteries in a bank to communicate as one and be linked to a network.
In
furtherance of our vision of stored energy, in January 2023, Expion360 introduced two portable power generator products: the AURA POWERCAP™
600 and AURA POWERCAP™ 800 (together, the “Aura”). The AURA POWERCAP™ 600 is designed to fit and convert any
one of Expion360’s group 24 lithium batteries into a 600W mobile power station while the AURA POWERCAP™ 800 is designed to
fit and convert any one of Expion360’s group 27 lithium batteries into an 800W mobile power station. The Aura’s proprietary
patent pending design allows the AURA POWERCAP™ 600 to join seamlessly to 60Ah, 80Ah, and 95Ah Expion360 batteries and the AURA
POWERCAP™ 800 to join to 100Ah and 120Ah Expion360 batteries. The AURA POWERCAP™ 600 and AURA POWERCAP™ 800 are an
exclusive fit to Expion360 batteries and will not fit other brands. The AURA POWERCAP™ 600 and AURA POWERCAP™ 800 contain
beneficial features and functions for a compact portable power unit, including the ability to recharge the battery from the input charge
port using the included 7 Amp household charger and the ability to recharge remotely with Expion360’s lightweight portable solar
panel options, which are sold separately.
Strong
National Retail Customers and Distribution Channels
Expion360
has sales relationships with many major RV retailers and with marine retailers and plans to use what we believe is a strong reputation
in the lithium battery space to create an even stronger distribution channel. John Yozamp has used his decades of experience in the energy
and RV industries to cultivate relationships with numerous retailers in the space. Expion360 has already established a sales relationship
with several large retail customers, including Camping World, a leading national RV retailer, as well as NTP-STAG, a leading distributor
of aftermarket RV parts.
Product
Section
We
focus on the design, assembly, and sales of lithium iron phosphate (LiFePO4) batteries and supporting accessories for RV and marine applications.
Our batteries are designed and engineered in house using premium lithium iron phosphate cells with quality controls at every step We
use high-grade LiFePO4 encased in steel and meeting the UL 1642 standard (UL file no. MH64383). We believe that our materials and engineering
enhance the reliability, stability, and safety of our products. We reimagined the standard battery case and included built-in rubber
feet, radiused corners, 96.7% larger terminal connection pads, interior molded ribs for structural security, and the highest-grade ABS
plastics with additives for fire retardancy. To maximize the power and efficiency of our batteries, we welded our cells via thick copper/tin
machined collector plates, welded all interior pack points, added a press broke flange at each end to create a mechanical backbone for
the battery monitoring system (the “BMS”), used high-grade wiring and ring terminals throughout, and treated connections
with industrial epoxy for long-lasting protection. Our internal “smart” BMS design includes multiple safety and performance
features, such as: low temperature discharge, auto shutoff, short circuit protection, low- and high-voltage shutoffs, and overcurrent
disconnect. Our structurally sound BMS board features a bolted design, eliminating all unnecessary solder, resulting in one cohesive
pack with a long lifespan. We hold our lithium batteries to high safety standards, which has enabled us to achieve a UL 1973 compliance.
We stand by our batteries with an industry leading 12-year warranty.
To
enable us to provide a full range of components to complement our battery offerings, we offer a suite of accessories and components for
new installations or conversions which includes but is not limited to chargers, monitors, inverters, and solar components from brands
such as Victron Energy and RedArc.
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The
Company has the following products:
· Group
24 batteries:
o
e360 60Ah lithium battery
o
e360 80Ah lithium battery
o
e360 Extreme Density 95Ah lithium battery
· Group
27 batteries:
o
e360 100Ah lithium battery
o
e360 Extreme Density 120Ah lithium battery
· Custom
battery:
o
E360 Extreme Density 360Ah battery
· Expion360
e360 Lithium Power Bundle™
· Battery
monitors
· DC
battery chargers
· Industrial
tie-downs – 7 models
· Terminal
blocks
· Bus
bars
The
Company has the following products in its pipeline:
· In
January 2023, Expion360 introduced AURA POWERCAP™ 600 and AURA POWERCAP™ 800.
Expion360 began taking pre-orders of the new AURA POWERCAP™ 600 and 800 in Q1 2023
with anticipated deliveries Q2 2023. See “— Competitive Strengths—Expansion
into New Markets ” for additional information about the AURA POWERCAP™ 600
and AURA POWERCAP™ 800.
· Expion360
is also currently developing the e360 off-grid home energy system with release expected in
2024.
Competitors
Our
competitors include lithium-ion battery manufacturers, such as Relion (which was acquired by Brunswick Corporation in September 2021),
Battle Born Batteries, Renogy, and Dakota Lithium. Lead-acid battery manufactures also continue to have a presence in the marketplace.
We have designed custom form factors in both the industry standard Group 24 and Group 27 battery sizes allowing us to visually and structurally
differentiate Expion360 within the market space. We believe that our custom 360Ah battery also provides a unique capacity to footprint
ratio compared to lead-acid and lithium battery competitors. Our batteries utilize lithium iron phosphate, and therefore, are expected
to have a lifespan of approximately 12 years — three to four times that of certain lead-acid batteries and with ten times the number
of charging cycles. Furthermore, we believe that our typical battery provides three times the power of the typical, lead-acid battery
despite being half the weight (comparing, for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah,
to our own LFP 100Ah battery and assuming slow discharge at a .1C rate).
Manufacturing
and Supply Chain
Our
batteries are manufactured by multiple third-party manufacturers located in China who also produce our battery cells. We then
assemble and package the batteries in the United States for sale to our customers. While we do not have long-term purchase
agreements with our third-party manufacturers and our purchases are completed on a purchase order basis, we have had strong
relationships with our third-party manufacturers spanning many years. During the years ended December 31, 2022 and 2021,
approximately 85% and 90%, respectively, of inventory purchases were made from foreign suppliers in China and Hong Kong. Our
third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from
third-party suppliers that meet our approval and quality standards and as a result, we may have limited control over the agreed
pricing for these raw materials and battery components. Our battery cell manufacturers also have joint venture factories outside of
China and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, 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. We aim
to maintain an appropriate level of inventory to satisfy our expected supply requirements. We believe that we could locate alternative
third-party manufacturers to fulfill our needs.
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Lithium
is a key raw material used to produce our battery cells and as a result, the cost of our battery cells is dependent on the price and
availability of lithium. From 2010 until 2015, the price of lithium stayed fairly flat. In 2016 the price started to rise, fueled by
the fear of material shortages. As a result of the higher prices, new mining operations that had been in development came online and
companies invested in more efficient extraction processes. The increases in production led to an oversupply of lithium in 2019 and a
sharp drop in prices. The lithium prices in 2020 ended below the 2016 prices.
In
addition to increased mining and newly located reserves, there is also an industry push to provide more efficient ways to extract lithium
from the mined ore. Another development of the past few years is lithium cell recycling. This process will recapture the raw lithium
from the cell for reuse in future cells. The price of lithium remains subject to volatility and thus we aim to monitor any developments
that might adversely affect our supply chain.
Customers
We
currently have over 213 customers across the United States consisting of dealers, wholesalers, private-label customers and original equipment
manufacturers who then sell our products to end consumers. Our sales are completed on a purchase order basis and most are without firm,
long-term revenue commitments or sales arrangements. In addition, we also sell products directly to consumers. Expion360 has sales relationships
with many major RV retailers, including Camping World, a leading national RV retailer, as well as NTP-STAG, a leading distributor of
aftermarket RV parts as well as with marine retailers. In December 2022, we were selected as the exclusive supplier of lithium-ion batteries
for an overland trailer to be branded and sold by a top U.S. sports utility vehicle manufacturer. Due to the progress and success with
our existing sales and distribution activities and to avoid any channel conflicts, our previously announced value-added reseller program
has been deferred, pending additional review. We will continue to focus on our sales and distribution channels in order to develop existing
customer relationships and grow our customer base.We also offer a high level of technical support to our customers before and after product sales.
We
currently derive a significant portion of our revenues from a limited number of customers. During the year ended December 31, 2022, sales
to our top three customers totaled $2,905,326, comprising approximately 41% of our total sales, including sales to one customer, which
totaled $1,346,344 or approximately 19% of our total sales.
Intellectual
Property
The
success of our business and our technology leadership is supported by our proprietary battery technology. We have filed patent applications
in the United States to provide protection for our technology. Two design patents in the United States related to the new AURA POWERCAP™
are pending as of December 2022. In addition, we rely upon a combination of trademark and trade secret laws in the United States, as
well as license agreements and other contractual protections, to establish, maintain and enforce rights in our proprietary technologies.
We also seek to protect our intellectual property rights through non-disclosure and invention assignment agreements with our employees
and consultants and through non-disclosure agreements with business partners and other third parties.
We
periodically review our development efforts to assess the existence and patentability of new intellectual property. We pursue the registration
of our domain names and trademarks and service marks in the United States and in an effort to protect our brand, as of December 31, 2022,
we own 5 trademark registrations to cover our house marks in the United States and we have 3 pending trademark applications relating
to our design logos and slogans in the United States.
Government
Regulation
We
are subject to inspections by federal, state, and local regulators overseeing environmental health and safety, which could result in
possible citations and/or fines. Lithium-ion battery shipments are categorized as “dangerous goods” and are subject to rules
governing their transportation. We have implemented policies and procedures,
trained our employees, and conducted internal audits to verify compliance with environmental health and safety regulations.
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In
August of 2022, our Group 24 and Group 27 batteries passed UL 1973 certification. In February 2023, our custom 360Ah battery also passed
UL 1973 certification.
Employees
As
of December 31, 2022, we had 25 employees, all full time. None of our employees are covered by collective bargaining agreements and we
have never experienced an organized work stoppage, strike, or labor dispute. We believe working conditions and compensation packages
are competitive with those offered by competitors and consider our relations with our employees to be good.
Implications
of Being an Emerging Growth Company and a Smaller Reporting Company
We
qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As
an emerging growth company, we have elected to take advantage of specified reduced disclosure and other requirements that are otherwise
applicable generally to public companies. These provisions include:
· the
requirement that we provide only two years of audited financial statements in addition to
any required unaudited interim financial statements with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
· reduced
disclosure about our executive compensation arrangements;
· an
exemption from the requirement that we hold a non-binding advisory vote on executive compensation
or golden parachute arrangements; and
· an
exemption from the auditor attestation requirement in the assessment of our internal control
over financial reporting.
We
may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have
total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date
of the completion of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt
during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
We
are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we
are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies
and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates
is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0
million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than
$700.0 million measured on the last business day of our second fiscal quarter.
Company
Information
Expion360
Inc. was initially organized as a limited liability company under the name Yozamp Products Company, LLC in the State of Oregon on June
16, 2016, and converted to a Nevada corporation under its current name pursuant to articles of conversion dated as of November 16, 2021.
Our
website is https://expion360.com/ and on the Investor Relations section of our website, we post or will post, as applicable, the following
filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission
(“SEC”): our Annual Report on Form 10-K (the “Annual Report”), our Proxy Statement on Schedule 14A, our Quarterly
Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended.
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All
of the information on our Investor Relations web page is available to be viewed free of charge. Information contained on our website
is not part of this Annual Report or our other filings with the SEC. We assume no obligation to update or revise any forward-looking
statements in this Annual Report whether as a result of new information, future events or otherwise, unless we are required to do so
by law.
The
SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC.