Expion360 Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management is responsible for establishing and maintaining adequate disclosure controls and procedures for our company. Consequently, our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of December 31, 2022, the end of the period covered by this Annual Report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. 41 Management’s Report on Internal Control over Financial Reporting This Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Changes in Internal Control over Financial Reporting During the year ended December 31, 2022, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION Not applicable. 42 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers The board of directors consists of four directors, and each director’s term expires at each annual meeting of stockholders. Our executive officers are appointed by the directors and the directors may, at any time, terminate the appointment or otherwise revoke, withdraw, alter, or vary all or any of the functions, duties, and powers of the officer. Below is a list of the names, ages, positions, and a brief account of business experience, of the individuals who serve as the executive officers and directors as of the date of this filing: Name Age Position Executive Officers Brian Schaffner 53 Chief Executive Officer John Yozamp 56 Co-Founder and Chief Business Development Officer Paul Shoun 52 Co-Founder and President and Chief Operating Officer and Director Greg Aydelott 50 Chief Financial Officer Directors David Hendrickson 69 Chairman and Director George Lefevre 54 Director Steven M. Shum 51 Director Executive Officers Brian Schaffner – CEO . Mr. Schaffner has served as our Chief Executive Officer since January 26, 2023 and was previously our Chief Financial Officer beginning in March 2021. Mr. Schaffner is a seasoned executive having served over the past three decades in a variety of capacities including CEO, CFO, CIO, controller and VP Finance in senior-living, assisted-living skilled nursing facilities, retail stores and schools. Mr. Schaffner’s educational instructional experience includes the secondary and university levels with courses including accounting, cost accounting, management, personal finance, welding, auto mechanics and aviation ground school. Mr. Schaffner graduated from Walla Walla College with a Bachelor of Science in Business Administration and Accounting in 1992, and from the University of Phoenix with a Masters in Business Administration in 1997. John Yozamp – Co-Founder and Chief Business Development Officer . Mr. Yozamp has served as our Co-Founder and Chief Business Development Officer since January 26, 2023 and was previously our Chief Executive Officer since our inception in June 2016. Mr. Yozamp boasts over 30 years of sales and marketing experience, of which includes 24 years of product concept, development and manufacturing. Mr. Yozamp was recognized in the HDTV’s “Best New Idea” at the 2008 Chicago Hardware Show. In 2008, Mr. Yozamp supported the #1 item sold at the Sam’s club individual road show. Just prior to launching Expion360, Mr. Yozamp was founder, owner, and operator of the largest solar manufacturing company (Zamp solar) in the US focusing on the RV and off grid markets. Paul Shoun – Co-Founder and President and Chief Operating Officer and Director . Mr. Shoun has served as our Co-Founder, President and Chief Operating Officer since January 26, 2023 and was previously our Chief Operating Officer since March 2020. Before joining the Company, Mr. Shoun worked at Tensility International Corporation, where he served as a Business Development Manager, Project Manager and Manufacturing Manager from October 2014 to March 2020. Prior to October 2014, Mr. Shoun spent over 17 years as the managing director of a corporate consulting firm. Mr. Shoun brings over 30 years of engineering and corporate management experience. Mr. Shoun brings extensive expertise in project management, product development, engineering leadership, business accounting, ERP/CRM system management, and product marketing. Mr. Shoun’s prior notable clients include Chrysler, Boeing, Nike IHM, Intel, and Daimler Trucks North America. We believe Mr. Shoun is qualified to serve on our board of directors because of his extensive experience in engineering, product development and product marketing and his role in building the Company. 43 Greg Aydelott – Chief Financial Officer. Mr. Aydelott has served as our Chief Financial Officer since January 26, 2023 and was previously our Chief Accounting Officer since May 10, 2022. Prior to his appointment as Chief Accounting Officer of the Company, Mr. Aydelott served as our Controller from February 22, 2022 until May 10, 2022. Before joining the Company, Mr. Aydelott worked at Samaritan Health Services in Corvallis, Oregon from June 2021 to March 2022, where he served as Sr. Financial Analyst. Samaritan Health Services is a regional hospital system serving three counties and has no affiliation with the Company. Before joining Samaritan Health Services in June 2021, Mr. Aydelott was Director of Business Operations of Mission Senior Living in Carson City, Nevada from January 2016 to June 2021. Mission Senior Living is a growing senior housing company with communities in four states and has no affiliation with the Company. Directors David Hendrickson – Chairman and Independent Director. Mr. Hendrickson serves on our board of directors as the Chairman. Mr. Hendrickson is an accomplished business advisor of publicly traded global corporations across many industries. He has an intimate understanding of effective corporate governance and how it affects a company’s valuation. He has served as CEO of DLH International since 2001. His focus includes board governance, organizational development, C-suite buildouts, strategic planning, compensation, marketing and Environmental, Social, and Corporate Governance (ESG) risk factors. Prior to founding DLH International, he was a Senior Partner and Board Member at Heidrick & Struggles International, Inc. (Nasdaq: HSII), in London, Paris, New York and Greenwich. He was a founding partner of the Firm’s Transnational Practice and a senior member of the Firm’s International Technology Practice. Mr. Hendrickson began his career with International Business Machines Corporation (NYSE: IBM) and held various marketing, sales, product development and management positions and was a member of the IBM Personal Computer announcement team. He contributed to the book, “The IBM Way: Insights into the World's Most Successful Marketing Organization.” Mr. Hendrickson completed the Driving Strategic Innovation Program, International Institute for Management Development (IMD), Lausanne, Switzerland, the Entrepreneurship Development Program, Massachusetts Institute of Technology Sloan School of Management, Cambridge, MA and the National Association Corporate Directors (NACD) Master Class®: Cyber-Risk Oversight. Mr. Hendrickson serves on the advisory board of a private liberal arts college and has served on private company boards. He served as an elected Board Member of the Rainforest Alliance, New York, NY, and the Stanford Institute for the Quantitative Study of Society (SIQSS), Stanford University. He is an active member of the National Association of Corporate Directors. We believe Mr. Hendrickson is qualified to serve on our board of directors because of his extensive experience working with publicly traded global companies and corporate governance expertise. George Lefevre – Independent Director . Mr. Lefevre serves on our board of directors. Mr. Lefevre is a business consultant focused on business development and structural guidance for companies. From 2009 through 2020, Mr. Lefevre was the founder of HAPA Capital, LLC. HAPA was a consulting firm specializing in biotechnology and frontier technology. From 2014 through 2015, Mr. Lefevre was the CEO of a startup company that completed a change in management effective June 26, 2014, and expanded into hemp and cannabidiol (“CBD”) industry. The expansion was focusing on the development, research, and commercialization of products derived from hemp and cannabis plants. From 1991 to 1998, Mr. Lefevre directly invested in and managed investment portfolios. Mr. Lefevre was also the President of GL Investment Group, a regional investment bank in Southern California where he was directly responsible for providing in excess of $500 million in funding to biotechnology and high-tech companies. Mr. Lefevre graduated from California State University, Long Beach with a Bachelor of Science in Business Administration, majoring in Finance. We believe Mr. Lefevre is qualified to serve on our board of directors because of his extensive experience serving in leadership roles at other public companies and extensive investment experience. Steven M. Shum – Independent Director. Mr. Shum serves on our board of directors. Mr. Shum is the CEO of INVO Bioscience, Inc. (Nasdaq: INVO), a position he has held since October 10, 2019, and is also a director of INVO Bioscience, Inc., a position he has held since October 11, 2017. Previously, Mr. Shum was Interim Chief Executive Officer (from May 2019 to October 7, 2019) and Chief Financial Officer of Eastside Distilling (Nasdaq: ESDI) (from October 2015 to August 2019). Prior to joining Eastside, Mr. Shum served as an Officer and Director of XZERES Corp, a publicly-traded global renewable energy company, from October 2008 until April 2015 in various officer roles, including Chief Operating Officer from September 2014 until April 2015, Chief Financial Officer, Principal Accounting Officer and Secretary from April 2010 until September 2014 (under former name, Cascade Wind Corp) and Chief Executive Officer and President from October 2008 to August 2010. Mr. Shum also serves as the managing principal of Core Fund Management, LP and the Fund Manager of Core Fund, LP. He was a founder of Revere Data LLC (now part of Factset Research Systems, Inc.) and served as its Executive Vice President for four years, heading up the product development efforts and contributing to operations, business development, and sales. He spent six years as an investment research analyst and portfolio manager of D.N.B. Capital Management, Inc. His previous employers include Red Chip Review and Laughlin Group of Companies. He earned a B.S. in Finance and a B.S. in General Management from Portland State University in 1992. We believe Mr. Shum is qualified to serve on our board of directors because of his extensive experience serving in leadership roles at other public companies. 44 Audit Committee We have a separately designated standing audit committee (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit Committee consists of Messrs. Lefevre, Shum and Hendrickson, each of whom meet the requirements for independence under the rules of The Nasdaq Stock Market LLC and SEC rules and regulations and is financially literate. Mr. Shum is the chair of our Audit Committee and has been determined by our board of directors to be an “audit committee financial expert” as such term is defined under SEC rules and regulations. Changes to Shareholder Director Nomination Process There were no material changes in 2022 to the process by which our shareholders may recommend nominees to our board of directors. Code of Business Conduct and Ethics On January 3, 2022, our board of directors adopted a written code of business conduct and ethics (“Code of Business Conduct and Ethics”) that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Business Conduct and Ethics is available on the investor relations page of our website at www.expion360.com and. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, or our directors, on our website identified above. The inclusion of our website address in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K. Family Relationships and Other Arrangements There are no family relationships among any of our executive officers or directors. There are no arrangements or understandings between or among our executive officers and directors pursuant to which any director or executive officer was or is to be selected as a director or executive officer. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors, executive officers and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act (collectively, the “Reporting Persons”) to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC. Based on our review of the copies of such forms filed with the SEC and upon any written representations of the Reporting Persons received by us, we believe that during the fiscal year ended December 31, 2022, there have been five late Form 3 filings for each of Brian Schaffner, Paul Shoun, John Yozamp, Steve Shum and George Lefevre and there have been six late Form 4 filings for each of Brian Schaffner, Paul Shoun, John Yozamp, David Hendrickson, Steve Shum and George Lefevre, in each case covering one transaction. 45 ITEM 11. EXECUTIVE COMPENSATION This section discusses the material components of the executive compensation program for our executive officers who are named in the “Summary Compensation Table” below. In 2022, our “named executive officers” and their positions were as follows: · Brian Schaffner, who currently serves as our Chief Executive Officer, and who served as our Chief Financial Officer through January 25, 2023; · Paul Shoun, who serves as our Co-Founder, President and Chief Operating Officer; and · John Yozamp, who currently serves as Co-Founder and Chief Business Development Officer and served as our Chief Executive Officer through January 25, 2023. (Continued on next page) 46 Summary Compensation Table The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2021 and December 31, 2022. Name and Principal Position Year Salary ($)(1) Bonus ($)(2) Option Awards ($)(3) Non-Equity Incentive Plan Compensation ($)(2) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($)(4) Total($) Brian Schaffner (5) 2022 102,741 0 401,004 0 0 11,805 515,550 Chief Executive Officer; Former Chief Financial Officer 2021 0 0 0 0 0 17,700 17,700 Paul Shoun 2022 260,000 0 534,672 0 0 21,000 815,672 Chief Operating Officer 2021 165,824 0 0 0 0 0 165,824 John Yozamp 2022 330,000 0 376,845 0 0 36,000 742,845 Chief Business Development Officer; Former Chief Executive Officer 2021 197,269 0 0 0 0 0 197,269 (1) Amounts reflect base salary earned by each named executive officer during the applicable year (2) All of the named executive officers voluntarily chose to forego any bonuses for 2022. (3) Amounts reflect the full grant-date fair value of stock options granted during 2022 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all option awards made to executive officers in Note 12 to our audited financial statements included this Annual Report on Form 10-K. (4) For 2022, includes: (i) $1,500 in consulting fees and $10,305 in home office expenses for Mr. Schaffner, (ii) $9,000 in home office expenses and $12,000 in automobile expenses for Mr. Shoun and (iii) $12,000 in home office expenses and $24,000 in automobile expenses for Mr. Yozamp. (5) Mr. Schaffner served as a CFO consultant from March 2021 until his appointment as Chief Financial Officer in February 2022. 2022 Salaries; Consulting Fee The named executive officers receive a base salary to compensate them for services rendered to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. As of January 1, 2022, Mr. Schaffner was providing consulting services to the Company at the rate of $1,500 per month. He began receiving an annual base salary of $120,000 beginning on February 21, 2022. As of January 1, 2022, the annual base salary for Mr. Shoun was $260,000 and the annual base salary for Mr. Yozamp was $330,000. The annual base salaries of Messrs. Schaffner, Shoun and Yozamp were changed to $270,400, $270,400 and $283,200 respectively, effective January 26, 2023. 2022 Annual Bonuses In 2022, target bonuses were not established for the named executive officers, and they voluntarily declined participation in the discretionary year-end holiday bonuses provided to other employees. Therefore, no annual bonuses were paid to the named executive officers in 2022. Equity Compensation 2021 Incentive Award Plan We have adopted the 2021 Incentive Award Plan (the “2021 Incentive Award Plan”). The purpose of the 2021 Incentive Award Plan is to enhance our ability to attract, retain and motivate persons who make, or we believe can make, important contributions by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities. We believe that equity awards are necessary to remain competitive in the industry in which we operate in and are essential in recruiting and retaining the highly qualified service providers who help thus meet our goals. 47 In 2022, Messrs. Yozamp, Shoun and Schaffner were granted stock options under the 2021 Incentive Award Plan as set forth below. The stock options vested immediately upon grant. The executive officers had not been granted stock options prior to 2022. Named Executive Officer 2022 Stock Options Granted Brian Schaffner 150,000 Paul Shoun 200,000 John Yozamp 179,500 Other Elements of Compensation Retirement Plans We maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Substantially all employees are eligible to participate. We have the option to make profit sharing contributions to our 401(k) plan at our discretion. No profit-sharing contributions have yet been made. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to our 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. Employee Benefits and Perquisites Health/Welfare Plans. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, which include medical and vision benefits. Perquisites. For the duration of 2022, our named executive officers received the following perquisites: · Company Car: Mr. Shoun was entitled to automobile expenses of $1,000 per month and Mr. Yozamp was entitled to automobile expenses of $2,000 per month. · Private Office Reimbursement Expenses; Messrs. Schaffner and Yozamp were each entitled to $1,000 per month in home office reimbursement expenses (with Mr. Schaffner’s expenses prorated for the month of February). Mr. Shoun was entitled to $1000 per month in home office reimbursement expenses but elected to only take $750 per month for 2022. · Company Security: While Messrs. Shoun and Yozamp’s Initial Employment Agreements (as defined below) each provide for full time security benefits, they did not receive any such benefits in 2022. Consulting Fees Mr. Schaffner received $1,500 for consulting work performed for the Company before being named Chief Financial Officer in February 2022 No Tax Gross Ups We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company. 48 Outstanding Equity Awards at Fiscal Year-End The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2022. Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Brian Schaffner (1)(2) 5/2/2022 150,000 0 3.36 5/2/2032 Paul Shoun (1)(2) 5/2/2022 200,000 0 3.36 5/2/2032 John Yozamp (1)(2) 5/2/2022 179,500 0 3.70 (3) 5/2/2027 (1) 100% of each of the awards were vested and exercisable immediately upon the grant date. (2) All of the stock options granted to the named executive officers in 2022 are incentive stock options. (3) Because Mr. Yozamp holds common stock in the Company possessing more than 10% of the total combined voting power of all classes of stock in the Company, Section 422 of the Code requires that the exercise price of an incentive stock option granted to him will be at least 110% of the fair market value of a share of common stock on the date of grant, and not to remain exercisable for a period of longer than 5 years from the date of grant. Executive Compensation Arrangements The Initial Employment Agreements On November 15, 2021, we entered into employment agreements with our then Chief Executive Officer and Chairman of our board of directors, John Yozamp, and our Chief Operating Officer, Paul Shoun; on February 21, 2022, we entered into an employment agreement with our then Chief Financial Officer, Brian Schaffner (together, the “Initial Employment Agreements”) to reflect their compensation arrangements. The Initial Employment Agreements entered into with Mr. Shoun and Mr. Yozamp each had a term of employment with a three-year duration, while the Initial Employment Agreement entered into with Mr. Schaffner had an employment term with a one-year duration. Under the terms of the Initial Employment Agreements, Mr. Schaffner was entitled to a base salary of $120,000, Mr. Shoun was entitled to a base salary of $260,000 and Mr. Yozamp was entitled to a base salary of $330,000. Each executive officer was also eligible for an annual bonus, to be granted by the Company’s board of directors or compensation committee based on performance objectives and targets established annually. Under the Initial Employment Agreements, Messrs. Schaffner, Shoun and Yozamp were also entitled to participate in the Plan and in any profit sharing, qualified and nonqualified retirement plans and any health, life, accident, disability insurance, vacation, paid time off, supplemental medical reimbursement insurance, or benefit plans or programs as we may choose to make available at any point in time. Under the Initial Employment Agreements, the executive officers were also entitled to annual fringe benefits and perquisites (including auto expense, security and reimbursement for the executive officer’s home office) and reimbursement for reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred in connection with the performance of their duties. In addition, the employment agreements contain provisions providing for severance payments, including both base salary payment throughout the remainder of the executive’s term of employment, and a payment equal to an additional 12 months of base salary, an amount equal to the executive annual bonus measured at target rate of performance, and continuation of benefits under certain circumstances including termination by us without Cause or for Good Reason (each as defined in the Initial Employment Agreements), upon execution of a general release of claims in our favor. The Initial Employment Agreements included restrictive covenants, including a two-year non-competition provision, a-two year no-solicitation and non-disparagement provision and a confidentiality provision. 49 The Amended and Restated Schaffner Employment Agreement On January 26, 2023, we promoted Brian Schaffner from his position as our Chief Financial Officer to our Chief Executive Officer. In connection with his new role, we entered into an Amended and Restated Employment Agreement with Mr. Schaffner, effective January 26, 2023 (the “Schaffner Employment Agreement”), setting forth the terms and conditions of Mr. Schaffner’s employment as Chief Executive Officer. The Schaffner Employment Agreement provides for a one-year term ending on April 1, 2023, the first anniversary of our initial public offering, which term renews automatically unless terminated by the Company or Mr. Schaffner. Pursuant to the Schaffner Employment Agreement, the Company will pay Mr. Schaffner a base salary of $270,400 per year, increased from $120,000. Like Mr. Schaffner’s existing employment agreement, the Schaffner Agreement provides for an annual bonus award based on the achievement of performance objectives and targets established annually by the Company’s board of directors or compensation committee, and standard employee benefits. Upon a termination of Mr. Schaffner’s employment agreement by the Company without Cause or a resignation for Good Reason (each term as defined in the Schaffner Employment Agreement), Mr. Schaffner will be paid (a) if terminated prior to April 1, 2023, an amount equal to the remaining unpaid amounts under the initial employment term, (b) continued base salary for one year, (c) an amount equal to his annual target bonus for the year of termination, (d) any earned but unpaid bonuses and (e) continued medical and dental benefits for up to one year. The Schaffner Agreement provides for the same employee benefits as under Mr. Schaffner’s original employment agreement, except that he will also receive an automobile allowance of $1,000 per month. The restrictive covenants in the Initial Employment Agreement to which Mr. Schaffner is a party will continue to apply. The Amended and Restated Shoun Employment Agreement On January 26, 2023, we promoted Paul Shoun from his position as our Chief Operating Officer to our Co-Founder, President and Chief Operating Officer. In connection with his new role, we entered into an Amended and Restated Employment Agreement with Mr. Shoun, effective January 26, 2023 (the “Shoun Agreement”), setting forth the terms and conditions of Mr. Shoun’s employment as our Co-Founder, President and Chief Operating Officer. The Shoun Employment Agreement provides for a three-year term ending on April 1, 2025, the third anniversary of our initial public offering, which term renews automatically unless terminated by the Company or Mr. Shoun. Pursuant to the Shoun Employment Agreement, the Company will pay Mr. Shoun a base salary of $270,400 per year, increased from $260,000. Like the Initial Employment Agreement to which Mr. Shoun is a party, the Shoun Employment Agreement provides for an annual bonus award based on the achievement of performance objectives and targets established annually by the Company’s board of directors or compensation committee, and standard employee benefits. Upon a termination of the Shoun Employment Agreement by the Company without Cause or a resignation for Good Reason (each term as defined in the Shoun Employment Agreement), Mr. Shoun will be paid (a) if terminated prior to April 1, 2025, an amount equal to the remaining unpaid amounts under the initial employment term, (b) continued base salary for one year, (c) an amount equal to his annual target bonus for the year of termination, (d) any earned but unpaid bonuses and (e) continued medical and dental benefits for up to one year. The Shoun Employment Agreement provides for the same employee benefits as under the Initial Employment Agreement to which Mr. Shoun is a party, except that he will no longer be entitled to security benefits. The restrictive covenants in the Initial Employment Agreement to which Mr. Shoun is a party will continue to apply. The Amended and Restated Yozamp Employment Agreement On January 26, 2023, we and Mr. Yozamp agreed that, effective January 25, 2023, he ceased to be our Chief Executive Officer and Chairman of the Company’s board of directors and a member of our board of directors, and assumed the position of the our Co-Founder and Chief Business Development Officer. In connection with his new role, we entered into an Amended and Restated Employment Agreement with Mr. Yozamp, effective January 26, 2023 (the “Yozamp Employment Agreement”), setting forth the terms and conditions of Mr. Yozamp’s employment as our Co-Founder and Chief Business Development Officer. The Yozamp Employment Agreement provides for a term that ends on December 31, 2023, or if Mr. Yozamp achieves certain sales objectives, on December 31, 2024. The Yozamp Agreement provides for a reduction in Mr. Yozamp’s base salary from $330,000 to $283,200 per year, and the replacement of the annual bonus with commission payments based on the achievement of sales targets agreed to in the Yozamp Agreement rather than an annual bonus. Upon a termination of Mr. Yozamp’s employment agreement by the Company without Cause or a resignation for Good Reason (each term as defined in the Yozamp Employment Agreement), Mr. Yozamp will be paid an amount equal to the remaining unpaid amounts under the employment term and continued medical and dental benefits for up to one year, as well as any accrued but unpaid commissions. The Yozamp Employment Agreement provides for the same employee benefits as under Mr. Yozamp’s original employment agreement, except that he will no longer be entitled to security benefits. The restrictive covenants in the Initial Employment Agreement to which Mr. Yozamp is a party will continue to apply. 50 Director Compensation 2022 Director Compensation Table Name Fees Earned or Paid in Cash ($) Option Awards ($)(1)(2) All Other Compensation ($) Total ($) David Hendrickson $50,000 $80,201 $0 $130,201 George Lefevre $50,000 $80,201 $0 $130,201 Steven M. Shum $50,000 $106,934 $0 $156,934 (1) Amounts reflect the full grant-date fair value of stock awards and stock options granted during 2022 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all option awards made to our directors in Note 12 to our audited financial statements included this Annual Report on Form 10-K. (2) As of December 31, 2022, Mr. Hendrickson held options to purchase 30,000 shares of our common stock, Mr. Lefevre held 30,000 options to purchase shares of our common stock and Mr. Shum held options to purchase 40,000 shares of our common stock. (Continued next page) 51 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities Authorized for Issuance Under Equity Compensation Plans In conjunction with our IPO, the Company adopted the 2021 Incentive Award Plan and our 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The following table summarizes equity compensation plan information for the 2021 Incentive Award Plan and the 2021 ESPP, all stockholder approved, as a group, as of December 31, 2022. Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights [1] Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities reflected in Column (a) [2] (#) ($) (#) (a) (b) (c) Plan Category Equity Compensation Plans Approved by Stockholders 829,500 3.43 2,530,000 Equity Compensation Plans not Approved by Stockholders N/A N/A N/A Total 829,500 3.43 2,530,000 [1] Includes shares of common stock issuable upon the exercise of outstanding stock options under the 2021 Incentive Award Plan [2] As of December 31, 2022, there were 30,000 shares of common stock available for future issuance under the 2021 Incentive Award Plan and 2,500,000 shares available for grants under the 2021 ESPP (of which 0 shares were subject to outstanding purchase rights during the current purchase period). Security Ownership of Certain Beneficial Owners and Management Based solely upon information made available to us, the following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 27, 2023 as to (1) each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of our common stock; (2) each of our directors; (3) each of our executive officers; and (4) all directors and executive officers of the Company as a group. We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, except as noted. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Expion360, 2025 SW Deerhound Avenue, Redmond, OR 97756. Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. All shares of common stock subject to options or warrants exercisable within 60 days of March 27, 2023, are deemed to be outstanding and beneficially owned by the persons holding those options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person. 52 Subject to the paragraph above, percentage ownership of outstanding shares is based on 6,848,566 shares of common stock outstanding as of March 27, 2023. Name of Beneficial Owner Number of Shares Beneficially Owned % of Class 5% or greater Shareholders: AOS Holdings, LLC (1) 437,935 6.4 James Yozamp, Jr 552,673 8.1 Joel R. Yozamp (2) 406,604 5.9 Directors and Executive Officers : Brian Schaffner (Chief Executive Officer) (3) 150,000 * John Yozamp (Co-Founder and Chief Business Development Officer) (4) 1,725,787 24.6 Paul Shoun (Co-Founder and President and Chief Operating Officer and Director) (5) 337,471 4.8 Greg Aydelott (Chief Financial Officer) (6) 52,783 * David Hendrickson (Chairman and Independent Director) (7) 30,000 * George Lefevre (Independent Director) (8) 30,000 * Steven Shum (Independent Director) (9) 40,000 * Directors and Executive Officers as a Group (seven persons) 2,366,041 31.4 ______________________________________ * Less than 1%. (1) Based on a third-party report dated as of February 15, 2023. (2) The number of shares of common stock shown as beneficially owned by Mr. Joel Yozamp consists of (i) 331,604 shares of common stock owned directly by Mr. Joel Yozamp and (ii) 75,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Joel Yozamp. (3) The number of shares of common stock shown as beneficially owned by Mr. Schaffner consists of 150,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Schaffner. (4) The number of shares of common stock shown as beneficially owned by Mr. John Yozamp consists of (i) 1,546,287 shares of common stock owned directly by Mr. John Yozamp and (ii) 179,500 shares of common stock issuable upon exercise of the vested options owned by Mr. John Yozamp. (5) The number of shares of common stock shown as beneficially owned by Mr. Shoun consists of (i) 137,471 shares of common stock owned directly by Mr. Shoun and (ii) 200,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Shoun. (6) The number of shares of common stock shown as beneficially owned by Mr. Aydelott consists of (i) 2,783 shares of common stock owned directly by Mr. Aydelott and (ii) 50,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Aydelott. 53 (7) The number of shares of common stock shown as beneficially owned by Mr. Hendrickson consists of 30,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Hendrickson. (8) The number of shares of common stock shown as beneficially owned by Mr. Lefevre consists of 30,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Lefevre. (9) The number of shares of common stock shown as beneficially owned by Mr. Shum consists of 40,000 shares of common stock issuable upon exercise of the vested options owned by Mr. Shum. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Policies and Procedures for Related Party Transactions We have adopted a related party transaction policy effective January 1, 2022 (the “Related Party Transaction Policy”), setting forth the policies and procedures for the review and approval or ratification of related-person transactions. This Related Party Transaction Policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. Certain Related Party Transactions On August 1, 2018, the Company issued an unsecured promissory note owed to H. Porter Burns, a holder of approximately 0.6% of our outstanding capital stock as of March 27, 2023, and former business partner to John Yozamp, our Co-Founder and Chief Business Development Officer, (the “8/1/18 Porter Burns Note”) in the principal amount of $500,000. The 8/1/18 Porter Burns Note requires monthly interest-only payment at 10% per annum. The 8/1/18 Porter Burns Note matures on August 1, 2023. As of December 31, 2022, the Company had an outstanding principal balance of $500,000 under the 8/1/18 Porter Burns Note. On January 1, 2019, the Company issued an unsecured promissory note owed to H. Porter Burns, a holder of approximately 0.6% of our outstanding capital stock as of March 27, 2023, and former business partner to John Yozamp, our Co-Founder and Chief Business Development Officer, (the “1/1/19 Porter Burns Note”) in the principal amount of $62,500. The 1/1/19 Porter Burns Note requires monthly interest-only payment at 10% per annum. The 1/1/19 Porter Burns Note matures on January 1, 2024. As of December 31, 2022, the Company had an outstanding principal balance of $62,500 under the 8/1/18 Porter Burns Note. On January 1, 2019, the Company issued an unsecured promissory note owed to James Yozamp, Jr., a beneficial owner of 8.1% of our outstanding capital stock as of March 27, 2023, and brother to John Yozamp, our Co-Founder and Chief Business Development Officer, (the “1/1/19 James Yozamp Note”) in the principal amount of $62,500. The 1/1/19 James Yozamp Note requires monthly interest only payments at 10% per annum. The 1/1/19 James Yozamp Note matures on January 29, 2024. As of December 31, 2022, the Company had an outstanding principal balance of $62,500 under the 1/1/19 James Yozamp Note. On December 31, 2019, the Company issued an unsecured promissory note owed to James Yozamp, Jr., a holder of approximately 8.1% of our outstanding capital stock as of March 27, 2023, and brother to John Yozamp, our Co-Founder and Chief Business Development Officer, (the “12/31/19 James Yozamp Note”) in the principal amount of $200,000. The 12/31/19 James Yozamp Note requires monthly interest only payments at 10% per annum. The 12/31/19 James Yozamp Note matures on January 29, 2024. As of December 31, 2022, the Company had an outstanding principal balance of $200,000 under the 12/31/19 James Yozamp Note. On January 1, 2019, the Company issued an unsecured promissory note to John Yozamp, our Co-Founder and Chief Business Development Officer (the “John Yozamp Note”) in the amount of $250,000. The John Yozamp Note required monthly interest only payments at 10% per annum. The John Yozamp Note was converted into a convertible debenture in May 2021 which was subsequently converted into 236,498 shares of our common stock on October 29, 2021. 54 On May 21, 2021, in exchange for his $20,000 investment, the Company issued a convertible debenture in principal amount of $20,000 to Paul Shoun, our Co-Founder and President and Chief Operating Officer and Director (the “COO Debenture”), which was converted into 17,325 shares of our common stock on October 29, 2021. Director Independence A majority of our directors satisfy the criteria for “independent directors,” under the Nasdaq rules. The Corporate Governance Committee is required to annually review each director’s independence and any material relationships such director has with the Company. Following such review, only those directors who the board of directors affirmatively determines have no material relationship to the Company, and otherwise satisfy the independence requirements of the Nasdaq rules, will be considered “independent directors.” Under the Nasdaq rules, a majority of a listed company’s board of directors must be comprised of independent directors. In addition, the Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominations committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act and that compensation committee members satisfy independence criteria set forth in Rule 10C-1 under the Exchange Act and related Nasdaq rules. Under the Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To be considered independent for purposes of Rule 10A-3 under the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In accordance with Rule 10C-1 under the Exchange Act and the Nasdaq rules, in affirmatively determining the independence of any director who will serve on a company’s compensation committee, the company’s board of directors must consider all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including the source of compensation of such director (including any consulting, advisory or other compensatory fee paid by such company to the director), and whether the director is affiliated with the company or any of its subsidiaries or affiliates. Our board of directors has affirmatively determined that Messrs. Lefevre, Shum and Hendrickson are independent directors under applicable Nasdaq and Exchange Act rules. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Our independent registered public accounting firm is M&K CPAS PLLC, Houston, Texas, PCAOB ID#2738. 55 Principal Accountant Fees and Services The following table sets forth by category of service, the fees incurred in engagements performed by M&K CPAS PLLC, our independent registered public accounting firm, for professional services rendered to the Company for the fiscal years ended December 31, 2022 and 2021. Year ended December 31, 2022 Year ended December 31, 2021 Audit Fees $ 98,943 $ 90,000 Audit-Related Fees — — Tax Fees 4,500 — All Other Fees — — Total Fees $ 103,443 $ 90,000 Audit fees consisted of fees for the audit of our consolidated financial statements, the review of the unaudited interim financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements and services associated with the issuance of comfort letters and the issuance of consents on registration statements, including in connection with our initial public offering. Tax fees consisted of fees expected to be incurred as of the date of this Annual Report on Form 10-K for tax compliance, tax advice, and tax planning in respect of the year ended December 31, 2022. Audit Committee Pre-Approval Policy and Procedures Consistent with SEC policies and guidelines regarding audit independence, the Audit Committee is responsible for the pre-approval of all audit and permissible non-audit services provided by our independent registered public accounting firm on a case-by-case basis. Our Audit Committee has established a policy regarding approval of all audit and permissible non-audit services provided by our principal accountants. Our Audit Committee pre-approves these services by category and service. Our Audit Committee has pre-approved all of the services provided by our independent registered public accounting firm. 56 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements Our financial statements are listed in the “Index to the Financial Statements”, which appears on page F-1 of this Annual Report on Form 10-K. (a)(2) Financial Statement Schedules All financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. (a)(3) Exhibits The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Incorporated by Reference Exhibit Number Description Form Exhibit Filing Date 3.1 Articles of Incorporation of the Company, effective as of November 4, 2021 S-1 3.1 3/31/2022 3.2 Bylaws of the Company currently in effect S-1 3.2 3/31/2022 4.1 Form of the Company’s common stock certificate S-1 4.1 3/31/2022 4.2 Form of Underwriters Warrant S-1 4.4 3/31/2022 4.3 Form of Senior Secured Note issued to bridge loan investors S-1 4.5 3/31/2022 4.4 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 - - - 10.1 Form of common stock warrant issued to Selling Stockholders S-1 10.1 3/31/2022 10.2† Expion360 Inc 2021 Incentive Award Plan S-1 10.2 3/31/2022 10.3† Expion360 Inc 2021 Employee Stock Purchase Plan S-1 10.3 3/31/2022 10.4 Form of Security Agreement issued to bridge loan investors S-1 10.7 3/31/2022 10.5 Commercial Lease of premises at 2045 SW Deerhound Avenue Redmond, OR S-1 10.8 3/31/2022 10.6 Commercial Lease of premises at 1266 SW Lake Blvd, Redmond, OR S-1 10.11 3/31/2022 10.7 Underwriting Agreement dated March 31, 2022, between the Company and Alexander Capital, LP as Representative of the Underwriters 8-K 1.1 4/05/2022 10.8† Amended and Restated Employment Agreement between John Yozamp and Expion360 Inc., dated January 26, 2023 8-K 10.1 2/01/2023 57 10.9† Amended and Restated Employment Agreement between Brian Schaffner and Expion360 Inc., dated January 26, 2023 8-K 10.1 2/01/2023 10.10† Amended and Restated Employment Agreement between Paul Shoun and Expion360 Inc., dated January 26, 2023 8-K 10.1 2/01/2023 10.11† Amended and Restated Employment Agreement between Greg Aydelott and Expion360 Inc., dated January 26, 2023 8-K 10.1 2/01/2023 10.12 Form of Warrant with an Exercise Price of $2.90 - - - 10.13 Form of Warrant with an Exercise Price of $3.32 - - - 21.1 Subsidiaries of the Company S-1 21.1 3/31/2022 23.1 Consent of M&K CPAS PLLC - - - 24.1 Power of Attorney (reference is made to the signature page hereto). - - - 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. - - - 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. - - - 32.1# Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - - - 32.2# Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - - - 101.INS XBRL Instance Document. - - - 101.SCH XBRL Taxonomy Extension Schema Document. - - - 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. - - - 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. - - - 101.LAB XBRL Taxonomy Extension Label Linkbase Document. - - - 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. - - - 104 Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101). - - - † Indicates a management contract or compensatory plan or arrangement. # This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. ITEM 16. FORM 10-K SUMMARY Not applicable. 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Expion360 Inc. By: /s/ Brian Schaffner Brian Schaffner Chief Executive Officer (principal executive officer) Date: March 30, 2023 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Brian Schaffner and Greg Aydelott, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with any exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Brian Schaffner Chief Executive Officer March 30, 2023 Brian Schaffner (principal executive officer) /s/ Greg Aydelott Chief Financial Officer March 30, 2023 Greg Aydelott (principal financial officer) /s/ George Lefevre Director March 30, 2023 George Lefevre /s/ Steven M Shum Director March 30, 2023 Steven M. Shum /s/ David Hendrickson Director March 30, 2023 David Hendrickson /s/ Paul Shoun Director March 30, 2023 Paul Shoun 59 Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID # 2738) F-1 Balance Sheets F-3 Statements of Operations F-4 Statements of Stockholders’ Equity (Deficit) F-5 Statements of Cash Flows F-6 Notes to the Consolidated Financial Statements F-8 FINANCIAL INFORMATION 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Expion360, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Expion360, Inc. (the Company) as of December 31, 2022 and 2021, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and used cash in operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Equity Transactions As discussed in Note 13 to the financial statements, the company issues options and warrants. The proper valuation of options and warrants requires significant management judgement in determining the volatility and method used to calculate the option and warrant values. To evaluate the appropriateness of the model and estimates determined by management, we examined and evaluated the model, and the time period and stock prices used in determining the valuation of the options and warrants issued. /s/ M&K CPAS, PLLC We have served as the Company’s auditor since 2021. Houston, TX 2738 March 30, 2023 F- 1 Expion360 Inc. Balance Sheets As of December 31, 2022 As of December 31, 2021 Assets Current Assets Cash and cash equivalents $ 7,201,244 $ 773,238 Accounts receivable, net 298,035 775,160 Inventory 4,530,136 2,051,880 Prepaid/in-transit inventory 141,611 1,081,225 Prepaid expenses and other current assets 171,791 71,703 Total current assets 12,342,817 4,753,206 Property and equipment 1,394,619 523,419 Accumulated depreciation ( 250,861 ) ( 96,190 ) Property and equipment, net 1,143,758 427,229 Other Assets Operating leases – right-of-use asset 3,148,455 1,281,371 Deposits 63,901 63,901 Total other assets 3,212,356 1,345,272 Total assets $ 16,698,931 $ 6,525,707 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 230,250 $ 63,180 Customer deposits 58 436,648 Accrued expenses and other current liabilities 306,164 140,618 Line of credit and short-term revolving loans — 550,000 Current portion of operating lease liability 465,055 218,788 Liability for sale of future revenues, net — 11,502 Note payable in default — 100,000 Current portion of long-term debt 571,426 51,135 Total current liabilities 1,572,953 1,571,871 Long-term debt, net of current portion and discount 439,049 779,486 Operating lease liability, net of current portion 2,754,964 1,092,861 Shareholder promissory notes 325,000 825,000 Total liabilities $ 5,091,966 $ 4,269,218 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; 6,802,464 and 4,300,000 issued and outstanding as of December 31, 2022 and 2021, respectively 6,802 4,300 Additional paid-in capital 25,239,654 8,355,140 Accumulated deficit ( 13,639,491 ) ( 6,102,951 ) Total stockholders’ equity 11,606,965 2,256,489 Total liabilities and stockholders’ equity $ 16,698,931 $ 6,525,707 The accompanying notes are an integral part of these financial statements F- 2 Expion360 Inc. Statements of Operations For the Years Ended December 31, 2022 2021 Sales, net $ 7,162,837 $ 4,517,499 Cost of sales 4,874,392 2,871,770 Gross profit 2,288,445 1,645,729 Selling, general and administrative 8,241,859 2,909,085 Loss from operations ( 5,953,414 ) ( 1,263,356 ) Other (Income) / Expense Interest income ( 239 ) ( 169 ) Debt conversion expense — 112,133 Extinguishment loss on debt settlement — 2,791,087 Interest expense 1,605,916 554,044 Gain on sale of property and equipment ( 13,312 ) ( 8,521 ) Other income ( 389 ) ( 372 ) Total other (income) / expense 1,591,976 3,448,202 Loss before taxes ( 7,545,390 ) ( 4,711,558 ) Tax (income) / expense ( 8,850 ) 9,300 Net loss $ ( 7,536,540 ) $ ( 4,720,858 ) Net loss per share (basic and diluted) $ ( 1.23 ) $ ( 1.63 ) Weighted-average number of common shares outstanding 6,135,938 2,888,695 The accompanying notes are an integral part of these financial statements F- 3 Expion360 Inc. Statements of Stockholders’ Equity (Deficit) for Twelve Months ended December 31, 2022 and 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Balance at December 31, 2020 2,430,514 $ 2,431 $ — $ ( 1,382,093 ) $ ( 1,379,662 ) Issuance of shares upon conversion of convertible notes 59,515 59 173,098 — 173,157 Effect of induced conversion of debt — — 112,133 — 112,133 Issuance of shares in exchange for building signage 6,667 7 19,993 — 20,000 Issuance of shares for cash 81,106 81 269,919 — 270,000 Issuance of shares for cash class 75,662 76 251,924 — 252,000 Issuance of shares upon settlement of convertible notes 1,527,647 1,527 5,543,832 — 5,545,359 Issuance of shares in exchange for services 30,000 30 108,870 — 108,900 Issuance of shares for cash amount 88,889 89 316,311 — 316,400 Issuance of detachable warrants to long-term debt — — 809,806 — 809,806 Issuance of warrants to underwriters — — 262,354 — 262,354 Issuance of warrants in exchange for services — — 407,700 — 407,700 Issuance of options in exchange for services — — 79,200 — 79,200 Net loss — — — ( 4,720,858 ) ( 4,720,858 ) Balance at December 31, 2021 4,300,000 $ 4,300 $ 8,355,140 $ ( 6,102,951 ) $ 2,256,489 Issuance of shares, initial public offering, 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 Issuance of stock options — — — — — Net loss — — — ( 7,536,540 ) ( 7,536,540 ) Balance at December 31, 2022 6,802,464 $ 6,802 $ 25,239,654 $ ( 13,639,491 ) $ 11,606,965 The accompanying notes are an integral part of these financial statements F- 4 Expion360 Inc. Statements of Cash Flows For the Years Ended December 31, 2022 2021 Cash flows from operating activities Net loss $ ( 7,536,540 ) $ ( 4,720,858 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 164,767 61,084 Accrued interest on convertible notes — 103,701 Amortization of debt discount (sale of future revenues) 295 95,284 Amortization of debt discount - notes 1,196,843 117,588 Debt conversion expense on induced conversion of convertible notes — 112,133 Extinguishment loss on debt settlement — 2,791,087 Gain on sale of property and equipment ( 13,312 ) ( 8,521 ) Increase in allowance for doubtful accounts 18,804 — Stock-based compensation 2,114,529 188,100 Changes in operating assets and liabilities: (Increase) / Decrease in accounts receivable 458,322 ( 566,435 ) (Increase) in inventory ( 2,478,256 ) ( 1,683,602 ) (Increase) / Decrease in prepaid/in-transit inventory 939,614 ( 728,033 ) (Increase) in prepaid expenses and other current assets ( 100,088 ) ( 69,552 ) (Increase) in deposits — ( 55,784 ) Increase / (Decrease) in accounts payable ( 3,792 ) 11,177 (Decrease) in customer deposits ( 436,590 ) — Increase in accrued expenses and other current liabilities 165,546 494,553 (Decrease) in liability for refunds — ( 58,000 ) Increase in right-of-use assets and lease liabilities 41,286 19,248 Net cash used in operating activities ( 5,468,572 ) ( 3,896,830 ) Cash flows from investing activities Purchases of property and equipment ( 567,370 ) ( 113,694 ) Net proceeds from sale of property and equipment 51,678 — Net cash used in investing activities ( 515,692 ) ( 113,694 ) Cash flows from financing activities Payments on line of credit and short-term revolving loans ( 550,000 ) ( 280,000 ) Proceeds from issuance of long-term debt — 1,385,000 Principal payments on long-term debt ( 1,798,420 ) ( 26,687 ) Proceeds from sale of future revenues, net of discount — 125,000 Payments on liability for sale of future revenues ( 11,797 ) ( 329,626 ) Proceeds from issuance of convertible notes, net of discount — 2,781,000 Net proceeds from issuance of common stock 14,772,487 838,400 Net cash provided by financing activities 12,412,270 4,493,087 Net change in cash and cash equivalents 6,428,006 482,563 Cash and cash equivalents, beginning 773,238 290,675 Cash and cash equivalents, ending 7,201,244 773,238 F- 5 Expion360 Inc. Statements of Cash Flows - Continued For the Years Ended December 31, Supplemental disclosure of cash flow information: 2022 2021 Cash paid for interest $ 435,152 $ 341,257 Cash paid for franchise taxes $ 300 $ 1,829 Non-cash operating activities: Convertible notes and accrued interest converted to common stock $ — $ 173,157 Reclassification of accrued interest to long-term debt $ — $ 5,183 Reclassification of modified convertible note to long-term debt $ — $ 100,000 Reclassification of modified member promissory note to convertible notes $ — $ 250,000 Issuance of common stock in exchange for property and equipment $ — $ 20,000 Acquisition/modification of operating lease right-of-use asset and lease liability $ 2,348,509 $ 1,268,089 Purchases of property and equipment in exchange for long-term debt $ 181,430 $ 183,058 Purchases of property and equipment in exchange for short-term payable $ 170,863 $ — Reclassification of deposit to property and equipment $ — $ 2,000 Conversion of 2021 convertible notes into common stock $ — $ 3,282,701 Fair value of warrants issued in connection with long-term debt recorded as debt discount and additional paid-in capital $ — $ 1,072,160 Membership contributions reclassified to additional paid-in capital upon conversion to C corporation $ — $ 827,290 The accompanying notes are an integral part of these financial statements F- 6 Notes to the 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 shareholders of the Company. (See Note 11 – Conversion to a C Corporation). 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 have disrupted and may continue to impact the Company’s business. The magnitude of the impact of 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 audited 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. Unless otherwise noted, all references to shares and shareholders 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. F- 7 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 year ended December 31, 2022 are issued. However, management is working to address its cash flow challenges, including raising additional capital, alternative supply chain resources, and 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 2022 increased 59% over sales for 2021, as product demand continued to rise. 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 will 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. Accounts are secured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. At times, balances may exceed federally insured limits. 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 December 31, 2022, cash balances exceeded FDIC limits by $ 222,162 . As of December 31, 2022, the Company had two accounts totaling $ 11,204 with SVB. As of March 13, 2023 all funds were transferred to another banking institution and no exposure currently exists. F- 8 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. The allowance for doubtful accounts totaled $ 18,804 as of December 31, 2022. There was no allowance for doubtful accounts as of December 31, 2021, as management believed all outstanding amounts to be fully collectible. Customer Deposits As of December 31, 2022 and December 31, 2021, the Company had customer deposits totaling $ 58 and $ 436,648 , 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 December 31, 2022 and December 31, 2021, the Company had inventory that consisted of finished assemblies totaling $ 2,722,765 and $ 985,537 , respectively, and raw materials (inventory components, parts, and packaging) totaling $ 1,807,371 and $ 1,066,343 , 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 December 31, 2022 or December 31, 2021. The Company prepays for inventory purchases from foreign suppliers. Prepaid inventory totaled $ 141,611 and $ 1,081,225 at December 31, 2022 and December 31, 2021, 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 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. 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 years Office furniture and equipment 3 - 7 years Manufacturing equipment 3 - 10 years Warehouse equipment 3 - 10 years QA equipment 3 - 10 years Tooling and molds 5 - 10 years Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives. 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. F- 9 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 years ended December 31, 2022 and 2021. 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. The company’s branded VPR 4EVER Classic and Platinum batteries and re-branded e360 and e360 Extreme Density 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 December 31, 2022 and December 31, 2021 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 a 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. However, during 2020 the Company sold discontinued products and recorded a liability for refunds. As of December 31, 2020, the liability totaled $58,000. During the year ended December 31, 2021, the Company issued credits totaling $58,000, respectively. As of December 31, 2021, all allowable discontinued products had been returned and the Company had no further refund liability. No refund liability was recognized in the year ended December 31, 2022. Revenue is recorded net of this amount. Any returns of discontinued product are not added back to inventory and therefore related costs are nominal and not recorded as an asset. F- 10 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 year ended December 31, 2022, sales to three customers totaled $2.9 million, comprising approximately 41% of total sales. These customers represented 43% of total accounts receivable as of December 31, 2022. During the year ended December 31, 2021, sales to one customer totaled $486,000, comprising 11% of total sales. This customer did not have an accounts receivable balance as of December 31, 2021, but three other customers had accounts receivable balances totaling $658,000 and representing a total of 85% of total accounts receivable as of December 31, 2021. Shipping and Handling Costs Shipping and handling fees billed to customers are classified on the Statement of Operations as “Sales, net” and totaled $23,188 and $25,688 during the years ended December 31, 2022 and 2021, respectively. Shipping and handling costs for shipping product to customers totaled $169,335 and $102,653 during the years ended December 31, 2022 and 2021, respectively, and are classified in selling, general and administrative expense in the accompanying Statements of Operations. Advertising and Marketing Costs The Company expenses advertising and marketing costs as incurred. Advertising and marketing expense totaled $ 239,814 and $ 67,394 for the years ended December 31, 2022 and 2021, respectively, and is included in selling, general and administrative expense in the accompanying Statements of Operations. Research and Development Research and development costs are expensed as incurred. Research and development costs charged to expense amounted to $ 270,054 and $ 58,044 for the years ended December 31, 2022 and 2021, respectively, and are included in selling, general and administrative expenses in the accompanying Statements of Operations. Income Taxes From January 1, 2017 to October 31, 2021, the Company was not subject to federal or state income taxes since it was a limited liability company taxed as an S corporation. The Company’s taxable income or losses were allocated to its members in accordance with their respective ownership percentages. Therefore, no provision or liability for federal income taxes was included in the accompanying financial statements for the relevant periods in 2021. Certain states impose minimum franchise taxes on entities taxed as an S corporation. Accordingly, the accompanying financial statements include provisions for state franchise tax fees. 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. F- 11 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 December 31, 2022 and 2021, 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 2022 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 . ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. These inputs include quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in the assessment of fair value. The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, short-term revolving loans, shareholder 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 shareholder 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. F- 12 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 Years Ended December 31, 2022 2021 Net loss $ ( 7,536,540 ) $ ( 4,720,858 ) Weighted average common shares outstanding – basic and diluted 6,135,938 2,888,695 Basic and diluted net loss per share $ ( 1.23 ) $ ( 1.63 ) As of the years ended December 31, 2022 and 2021, the Company has outstanding warrants and options convertible into 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 s Years ended December 31, 2022 2021 Stock options 829,500 30,000 Warrants 888,436 710,431 1,717,936 740,431 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 May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the Emerging Issues Task Force).” ASU 2021-04 requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the guidance, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. ASU 2021-04 is applied prospectively and is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted this standard in the first quarter of fiscal 2022, which did not have a material impact on the Company’s financial statements or disclosures. F- 13 In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Similarly, equity-classified convertible preferred stock instruments will be accounted for as single units of account in equity unless the conversion feature needs to be bifurcated under Topic 815. The new guidance also made amendments to the earnings per share guidance in Topic 260, Earnings Per Share, for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted earnings per share calculation. Further, ASU 2020-06 made revisions to Subtopic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective approach. Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. Adoption of the new standard did not have a material impact on the Company’s financial statements or disclosures. In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new guidance clarifies the interaction of accounting for the transition into and out of the equity method and the accounting for measuring certain purchased options and forward contracts to acquire investments. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Effective January 1, 2021, the Company adopted ASU 2020-01. 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 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 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 , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, the ASU introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years for public business entities. The Company is currently evaluating the impact of this standard on our financial statements. F- 14 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 yet adopted the CECL accounting model in ASU 2016-13, the effective date for the amendments in ASU 2022-02 is the same as the effective date in ASU 2016-13 (i.e., fiscal years beginning after December 15, 2022, including interim periods within those fiscal years). The Company is currently evaluating the impact of this standard on our financial statements. 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 is currently evaluating the impact of this standard on our financial statements. 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 is currently evaluating the impact of adopting this guidance. 3. Property and Equipment, Net Schedule of property and equipment Property and equipment consist of the following: Years Ended December 31, 2022 2021 Vehicles and transportation equipment $ 593,097 $ 298,752 Leasehold improvements 314,819 59,316 Office furniture and equipment 188,131 105,003 Manufacturing equipment 179,274 — Warehouse equipment 81,164 44,356 QA equipment 22,142 — Tooling and Molds 15,992 15,992 1,394,619 523,419 Less: accumulated depreciation ( 250,861 ) ( 96,190 ) Property and equipment, net $ 1,143,758 $ 427,229 Depreciation expense was $ 164,767 and $ 61,084 for the years ended December 31, 2022 and 2021, respectively. F- 15 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: Schedule of accrued expenses and other current liabilities Years Ended December 31, 2022 2021 Accrued salaries and payroll liabilities $ 169,337 $ 12,449 Rebate liability 26,015 23,010 Deferred income and deposit (sublease) 14,168 13,690 Commissions 9,720 29,120 Franchise tax 400 9,300 Accrued interest 222 26,301 Other 86,302 26,748 Accrued expenses and other current liabilities $ 306,164 $ 140,618 5. Liabilities for Sale of Future Revenues On December 10, 2020 and January 26, 2021, Reliant Funding, under two separate ACH Total Receipts Purchase Agreements (“Purchase Agreements”), purchased a 50% interest in the Company’s future revenues for a total aggregate purchase price of $250,000. Pursuant to the terms of the Purchase Agreements, the purchased percentage continued to be owned by Reliant Funding, until the Company paid the full purchased amount of $349,750. Repayment of the purchased amount was achieved through 252 daily bank account withdrawals of $1,388 through December 15, 2021 and $694 thereafter through January 26, 2022. During the year ended December 31, 2022, the company repaid a total of $11,797, including $295 of interest. During the year ended December 31, 2021, the company repaid a total of $329,626, including $95,284 of interest. Interest was recognized at an effective annual interest rate of approximately 71%. As of December 31, 2021, the Company had a total remaining liability related to the Purchase Agreements of $11,502 and total remaining payments of $11,797 (including interest). The Purchase Agreements were secured by substantially all of the assets of the Company. As of December 31, 2022, the Company had no remaining liability related to the Purchase Agreements. 6. Short-Term Revolving Loans From January 2020 to October 2020, the Company received funds totaling $900,000 under four unsecured Working Capital Loan Agreements (“WC Loans”) from two different third-party lenders. As of December 31, 2021, a balance of $550,000 remained outstanding under the WC Loan Agreements and in accordance with the modified terms, the Company was subject to monthly extended maturity interest of one percent on the ending outstanding monthly balance which increased one percent for each month beyond the extended maturity date. The WC Loans were repaid in full in April 2022. The terms of each WC Loan are summarized below: · $150,000 limit - dated January 25, 2020; monthly interest-only payments at 10% annual interest, principal payment of $70,000 paid during the year ended December 31, 2020, balance of $80,000 due 12 months from date of issue and paid in full at maturity in 2021. · $150,000 limit - dated January 28, 2020; monthly interest-only payments at 12% annual interest; principal due 12 months from date of issue. This note was modified effective January 1, 2021 to extend the maturity date to December 31, 2021 (see below) and was paid in full with a payment of $50,000 in July 2021 and $100,000 in September 2021. · $200,000 limit – dated March 22, 2020; monthly interest-only payments at 15% annual interest; principal due 12 months from date of issue. This note was modified effective January 1, 2021 to extend the maturity date to December 31, 2021. The Company paid $50,000 towards the principal balance in November 2021. The balance of $150,000 was paid in full in April 2022 (see below). F- 16 · $400,000 limit – dated August 31, 2020; monthly interest-only payments at 10% annual interest; pursuant to the WC Loan, the maturity was to be determined by mutual agreement and was to be at least 30 days after a maturity date is agreed upon. The note was modified effective January 1, 2021 to establish a maturity date of December 31, 2021, and was paid in full in April 2022 (see below). Effective January 1, 2021, as noted above, three of the working capital loan agreements, all from the same investor, were modified. The modification was to extend the maturity date on two of the notes from January 28, 2021 and March 22, 2021 to December 31, 2021, and to establish a maturity date of December 31, 2021 for the WC Loan that left the maturity date open to negotiations in the original agreement. As of December 31, 2021, a balance of $550,000 remained outstanding under the WC Loan Agreements and in accordance with the modified terms, the Company was subject to monthly extended maturity interest of one percent on the ending outstanding monthly balance which increased one percent for each month beyond the extended maturity date. The Company remained in compliance with all interest payments and paid the WC Loans in full in April 2022. All fees incurred in connection with obtaining and modifying these agreements were nominal and, given the short-term maturity of one year, were expensed as incurred. There was no accounting impact to the financial statements related to the modifications. 7. Long-Term Debt Long-term debt consisted of the following at December 31, 2022 and 2021: Schedule of long-term debt December 31, 2022 December 31, 2021 Senior secured promissory notes – various investors. Monthly payments of interest only at 10 % plus deferred interest of 5% accrued monthly to be paid at maturity. A minimum of one year interest is due at maturity. Matures the earlier of (a) May 15, 2023, (b) the closing of a qualified subsequent financing or (c) the closing of a change of control. The notes are senior to all other debt and are secured by substantially all assets of the Company. The notes included detachable warrants to purchase 482,268 shares of common stock at an exercise price of $3.32 per share (see Note 12 – Stockholders’ Equity). Debt issuance costs and discount totaling $1,287,160 at date of issuance were being amortized and recognized as additional interest expense over the term of the notes using the straight-line method because it was not substantially different from the effective interest rate method. We determined the expected life of the notes to be the contractual term. Interest expense related to these notes includes amortization of debt issuance costs and discount in the amount of $ 1,196,843 and $ 117,587 , respectively, for the years ended December 31, 2022 and 2021, respectively. The notes were paid in full in April 2022 $ — $ 1,600,000 Note payable – bank. Payable in monthly installments of $332, including interest at 5.8 % per annum, due August 2025, secured by equipment and personally guaranteed by a co-founder. 9,825 13,135 Note payable – credit union. Payable in monthly installments of $ 508 , including interest at 5.45 % per annum, due July 2026, secured by a vehicle and personally guaranteed by a co-founder. 19,364 24,259 Note payable – SBA. Economic Injury Disaster Loan payable in monthly installments of $ 731 , including interest at 3.75 % per annum, due May 2050, and personally guaranteed by a co-founder. 150,114 153,193 F- 17 Note payable – individual. Monthly payments of interest only at 10 % per annum, matured December 31, 2021 resulting in the entire principal balance recorded in current portion of long-term debt on the accompanying Balance Sheets for the year ending December 31, 2021; pursuant to the note, the past due balance is subject to 1% additional monthly interest which increases one percent for each month beyond maturity date, unsecured. The Company remained in compliance with the extended maturity interest payments and paid the note in full in April 2022 — 100,000 Note payable – finance company. Payable in monthly installments of $ 994 , including interest at 8.5 % per annum, due July 2026, secured by a vehicle and personally guaranteed by a shareholder. The Note was paid in full September 2022. — 45,832 Note payable – finance company. Payable in monthly installments of $ 2,204 , including interest at 11.21 % per annum, due August 2026, secured by a vehicle and personally guaranteed by a co-founder. The note was paid in full January 2023. 79,963 96,155 Notes payable – The Company has six and two notes payable to GM Financial for vehicles at September 30, 2022 and December 31, 2021. In April 2022, the Company secured a commercial line up to $300,000 to be used to finance vehicle purchases. The agreement expires in April 2023 but prevailing GM Financial existing term notes will remain. The notes are payable in aggregate monthly installments of $ 4,676 , including interest at rates ranging from 5.89% to 7.29 % per annum, mature at various dates from October 2027 to May of 2028, and are secured by the related vehicles. Two of the notes are personally guaranteed by a co-founder. 251,209 94,890 Total $ 510,475 $ 2,127,464 Less unamortized debt issuance costs and discount — ( 1,196,843 ) Less current portion ( 71,426 ) ( 51,135 ) Less note payable in default (paid April 2022) — ( 100,000 ) Long-term debt, net of unamortized debt discount and current portion $ 439,049 $ 779,486 Future maturities of long-term debt are as follows: Schedule of long term debt payment Years ending December 31, 2023 $ 71,426 2024 77,226 2025 82,237 2026 73,963 2027 55,305 Thereafter 150,318 Total $ 510,475 8. Shareholder Promissory Notes As of December 31, 2022 and December 31, 2021, the Company had an outstanding principal balance of $825,000 due to shareholders under unsecured Promissory Notes Agreements (“Notes”). The Notes require monthly interest-only payments at 10% per annum. The Notes mature at various dates from August 2023 to December 2024 as follows: August 2023 - $500,000; January 2024 - $125,000; and December 2024 - $200,000. F- 18 On May 15, 2021, the Company modified another shareholder Note in the amount of $250,000 to be a convertible note for the same amount. The shareholder also invested additional proceeds of $24,000 for a total convertible note of $274,000. The convertible note included detachable warrants to purchase 548,000 shares of the Company’s common stock. The convertible note bore interest at a rate of 10% per annum, had an initial maturity of two years from date of issue, and was convertible at $0.50 per share. The modification resulted in a new effective annual interest rate of 9.15%. There was no accounting impact to the financial statements related to these modifications. On October 29, 2021, concurrent with the anticipated conversion from an LLC to a C corporation, the convertible note and warrants were modified under a Convertible Debenture Exercise and Waiver and Release Agreement and the shareholder agreed to convert the note and accrued interest into 236,498 shares of common stock resulting in a conversion price of $1.21 per share (see Note 9 –Convertible Notes). Interest paid to the shareholders under the Notes totaled $ 82,508 and $ 92,007 during the years ended December 31, 2022 and 2021, respectively. There was no accrued interest as of December 31, 2022 or 2021 related to these Notes. 9. Convertible Notes 2020 Convertible Notes – Converted January 1, 2021 Effective January 1, 2021, convertible debt holders were offered the opportunity for early conversion of their convertible notes into Class B LLC member units. Three of the four convertible note holders converted notes with a principal balance of $170,000 and accrued interest of $3,157 into 2,338 Class B member units (the equivalent of 59,515 shares of common stock) at per unit conversion prices ranging from $67 - $76 (per share prices ranging from $2.66 - $3.00). In accordance with FASB ASC 470-20, Debt with Conversion and Other Options , the fair value of the additional units issued under the induced conversion over the value of the number of units issuable under the original terms of the convertible note agreements is recognized as debt conversion expense. Accordingly, upon early conversion on January 1, 2021, the Company recognized $112,133 of debt conversion expense with a corresponding entry to equity of $285,290 consisting of the $173,157 of principal and accrued interest converted and the excess fair value of $112,133. The fourth convertible note holder opted out of the early conversion and instead, the original note with a principal balance of $100,000 was modified into a term loan effective January 1, 2021 (see Note 7 – Long Term Debt). The modification included the elimination of the conversion feature, an increase in the interest rate from the original 6% per annum to 10% per annum, to be paid monthly instead of accrued, and an earlier maturity date of December 31, 2021. The modification resulted in a new effective annual interest rate of 9.58%, and a revised one-year maturity on December 31, 2021 (see Note 6 –Short-Term Revolving Loans). There was no accounting impact to the financial statements related to this modification. The note was paid in full in April 2022. 2021 Convertible Notes/Extinguishment Loss on Debt Settlement From May to September 2021, the Company received gross proceeds of $2,929,000 from the issuance of unsecured convertible notes (the “Notes”), of which $44,000 was received from existing shareholders. Of the total proceeds, $1,820,000 was received during the three months ended September 30, 2021. Additionally, in May 2021, a shareholder converted a promissory note to a convertible note identical in terms discussed below (see Note 8 – Shareholder Promissory Notes). At the option of the Note holders and after the completion of a merger with a Special Purpose Acquisition Company (“SPAC”) or an Initial Public Offering (“IPO”), the holder could convert all or a part of the outstanding principal and accrued interest into shares of common stock of the merged or public company. The Notes included detachable warrants (“Warrants”) to purchase 3,862,000 shares of the merged or public company. The Notes bore interest at a rate of 10% per annum, had an initial maturity of two years from date of issue, and were convertible at per-share prices ranging from $0.50 to $2.50. Effective January 1, 2021, the Company early adopted ASU 2020-06, and accordingly, no beneficial conversion features were recognized. The Notes were accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”) . Under ASC 815-40, to qualify for equity classification (or nonbifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the Notes do contain embedded features indexed to its own stock, but do not meet the requirements for bifurcation and recognition as derivatives, and therefore do not need to be separately recognized. Accordingly, the proceeds received from the issuance of the Notes were recorded as a single liability measured at amortized cost on the consolidated Balance Sheet. The Company incurred $148,000 of debt issuance costs relating to the issuance of the Notes, which were recorded as a reduction to the Notes on the Balance Sheet. The debt issuance costs were being amortized and recognized as additional interest expense over the term of the Notes using the straight-line method because it is not substantially different from the effective interest rate. Amortization of debt discount totaled $27,271 through the effective date of the conversion from LLC to a C corporation. Since the Warrants were not exercisable until a merger with a SPAC or an IPO, there was no impact on the financial statements at date of grant. F- 19 On October 29, 2021, in anticipation of conversion from LLC to a C corporation, the Notes and Warrants were modified under Convertible Debenture Exercise and Waiver and Release Agreements with the individual creditors. The Note holders agreed to settle the debt for an aggregate of 1,527,647 shares of common stock with a fair value of $5,545,359 ($3.63 per share). Since this transaction involved contemporaneous issuance of shares of common stock by the Company to the Note holders, the Company evaluated the transaction for modification and extinguishment accounting and determined that the debt was extinguished as a result of the issuance of shares that do not represent the exercise of a conversion right contained in the original terms of the Notes at issuance. The settlement of the debt resulted in a recognized loss of $2,262,658 recorded as extinguishment loss on debt settlement in November 2021, calculated as the excess of the fair value of shares issued over the carrying amount of the debt. In addition, the fair value of warrants of $407,700 issued in exchange for services related to the extinguished debt (see Note 12 – Stockholders’ Equity) and the unamortized portion of debt discount remaining at date of settlement of $120,729 were also recorded as extinguishment loss on debt settlement for an aggregate loss of $2,791,087. 10. Commitments and Contingencies Operating Leases The Company leases its warehouses and office space under long-term lease arrangements. None of its leases include characteristics specified in ASC 842, Leases , that require classification as financing leases, and accordingly, these leases are accounted for as operating leases. The Company does not recognize a right-of-use asset and lease liability for short term leases, which have terms of 12 months or less. For longer-term lease arrangements that are recognized on the Company’s Balance Sheet, the right-of-use asset and lease liability are initially measured at the commencement date based upon the present values of the lease payments due under the leases. The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under the arrangement. Under ASC 842, the incremental borrowing rate (IBR) for leases must be (1) a rate of interest over a similar term, and (2) for an amount that is equal to the lease payments. The Company uses both the Federal Reserve Economic Data (FRED) U.S. corporate debt effective yield and the U.S. Treasury rates adjusted for credit spread as the primary data points for purposes of determining the IBR. In the first quarter of 2022, the Company entered into two new long-term, non-cancelable operating lease agreements for office and warehouse space resulting in the Company recognizing an additional lease liability totaling of $2,348,509, representing the present value of the lease payments discounted using an effective interest rate of 8.07% and 8.86%, and corresponding right-of-use assets of $2,348,509. The leases expire in December 2026 and December 2028. The second lease contains one three-year option to renew. The lease is guaranteed by a co-founder. In the first quarter of 2021, the Company entered into a long-term, non-cancelable operating lease agreement for office and warehouse space resulting in the Company recognizing an additional lease liability totaling of $1,268,089, representing the present value of the lease payments discounted using an effective interest rate of 7.47% and a corresponding right-of-use asset of $1,268,089. The lease expires in January 2028 and contains one three-year option to renew. The lease is guaranteed by a co-founder. F- 20 The Company has two other leases that expire in January 2023 and February 2025. The leases generally provide for annual increases based on a fixed amount and generally require the Company to pay real estate taxes, insurance, and repairs. Both leases are guaranteed by a co-founder. The following is a summary of total lease costs for the years ending December 31, 2022 and 2021: Schedule of lease cost Years Ended December 31, 2022 2021 Operating lease cost $ 760,743 $ 304,082 Short-term lease costs 3,527 4,846 Variable lease costs — — Sublease income ( 123,386 ) ( 75,061 ) $ 640,884 $ 233,867 The weighted-average remaining lease term was 5.49 years and 5.64 years as of December 31, 2022 and 2021, respectively. The weighted average discount rate was 8.48% and 8.02%, as of December 31, 2022 and 2021, respectively. Operating cash flows from the operating leases totaled $440,139 and $177,688 for the years ended December 31, 2022 and 2021, respectively. The total lease liability as of December 31, 2022 and 2021 was $3,220,019 and $1,311,649, respectively. The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2022, for years ending December 31: Schedule of future minimum lease payment Total 2023 $ 719,220 2024 727,709 2025 718,157 2026 732,061 2027 694,040 Thereafter 471,736 Total future minimum lease payments 4,062,923 Less imputed interest ( 842,904 ) Total $ 3,220,019 Current lease liability $ 465,055 Noncurrent lease liability 2,754,964 Total $ 3,220,019 Subleases The Company subleases office and warehouse space under three of its existing operating leases with similar terms as the Company’s lease agreements. Because the Company is not relieved of its primary obligations under the original lease, the Company accounts for the subleases as a lessor. Sublease rental income is recorded based on the contractual rental payments which are not substantially different from recognition on a straight-line basis over the lease term and totaled $ 123,386 and $ 75,061 during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, deferred income and a sublease deposit totaled $ 14,168 and $ 13,690 , respectively, and is included in accrued expenses and other current liabilities on the accompanying Balance Sheets. F- 21 The following are the total future minimum sublease payments as of December 31, 2022: Schedule of future minimum sublease payments Years ending December 31, 2023 $ 46,147 2024 36,242 2025 6,070 Total future minimum lease payments $ 88,459 Litigation The Company may be involved from time to time in litigation or claims arising in the ordinary course of its business. While the ultimate liability, if any, arising from these claims cannot be determined with certainty, the Company believes that the resolution of any such matters will not likely have a material adverse effect on the Company’s financial statements. On November 22, 2022, Expion360 Inc. (the “Company”) received notice of a complaint (the “Complaint”) filed against it in Oregon state court by Ravi Sinha. The Complaint alleges, inter alia , that Mr. Sinha is entitled to 282,284 shares of the Company’s common stock, or in the alternative, $300,000 plus interest in connection with services he previously rendered the Company as its chief executive officer. On March 21, 2023, the Company entered into a settlement agreement with Mr. Sinha and the matter has been resolved. 11. Conversion to a C Corporation Effective November 1, 2021, the Company converted from an LLC to a C corporation under the State of Nevada statutes in anticipation of an upcoming initial public offering, and changed its name to Expion360 Inc. The membership units of the existing LLC members and all existing convertible note holders (see Note 9 - Convertible Notes) converted into an aggregate of 4,181,111 shares of common stock. Additionally, investors purchased 88,889 shares of common stock for total proceeds of $316,400, and 30,000 shares of common stock were issued in exchange for legal services. The 30,000 shares issued in exchange for legal services were valued at $108,900 at date of grant based on the per share price of $3.63 paid for shares issued at the time of the conversion to a C corporation. The Company’s issued and outstanding shares of common stock totaled 4,300,000 upon conversion to a C corporation. 12. Stockholders’ Equity The Company is authorized to issue an aggregate of 220,000,000 shares of capital stock, par value $0.001 per share, consisting of 200,000,000 shares of common stock and 20,000,000 shares of preferred stock. As of December 31, 2022 and December 31, 2021, 6,802,464 and 4,300,000 shares, respectively, of common stock were issued and outstanding. No shares of preferred stock have been issued. A holder of common stock is entitled to one vote for each share of common stock. The holders of common stock have no conversion, redemption or preemptive rights and shall be entitled to receive dividends when, as, and if declared by the board of directors. Upon dissolution, liquidation, or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, subject to the rights, if any, of the holders of any class or series stock having a preference over the right to participate with common stock with respect to the distribution of assets of the Company upon such dissolution, liquidation, or winding up of the Company, the holders of common stock shall be entitled to receive the remaining assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares of common stock held. Since no shares of preferred stock have been issued, no rights and privileges of preferred stockholders have been defined. Initial Public Offering On April 1, 2022, the Company completed an initial public offering (“IPO”). A total of 2,466,750 shares of common stock were sold at $7.00 per share in the IPO, for total gross proceeds of $17,267,250. The Company incurred IPO costs of $2,494,763 resulting in net proceeds of $14,772,487. Additionally, during the year ended December 31, 2022, the Company issued 35,714 shares of common stock at $7.00 per share to an outside third party in exchange for IPO services. The fair value of the shares of $249,998 were recorded as an increase to common stock of $36 (35,714 shares at $.001 par value) and additional paid in capital of $249,962 and a corresponding reduction to additional paid in capital of $249,998, resulting in a net decrease in additional paid in capital of $36. F- 22 Issuance of Shares Prior to conversion from an LLC to a C corporation, the following membership units were issued and included in the membership units that were converted into 4,181,111 shares of common stock upon the Company’s conversion to a C corporation (see Note 11 – Conversion to a C corporation). · On January 1, 2021, 8,000 membership units (equivalent to 192,234 shares) that were held in Trust were granted to three individuals. · On January 1, 2021, the Company issued 2,338 Class B member units (equivalent to 59,515 shares of common stock) upon the conversion of convertible notes and accrued interest totaling $173,157 (see Note 9 - Convertible Notes). · On January 1, 2021, the Company issued 262 Class B membership units (equivalent to 6,667 shares of common stock) in exchange for building signage valued at $20,000. · In March 2021, the Company sold 3,185 Class B membership units (equivalent to 81,106 shares of common stock) to two new members for gross proceeds of $270,000. · In April 2021, the company sold 2,972 Class B membership units (equivalent to 75,662 shares of common stock) to one new member for gross proceeds of $252,000. Warrants/Options On April 1, 2022, the Company issued warrants to IPO underwriters to purchase 148,005 shares of common stock at an exercise price of $9.10 per share. The warrants are exercisable 180 days after grant (September 27, 2022) and expire 5 years from date of grant (March 31, 2027). The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and the following assumptions: per share price of common stock on date of grant of $7, expected dividend yield of 0%, expected volatility of 110.03%, risk-free interest rate of 2.55% and expected life based on contractual life of 5 years. The fair value of $916,238 was recorded as an increase in additional-paid-in capital and a reduction to additional paid-in capital since the warrants were issued as IPO fees to underwriters, resulting in a zero impact to additional paid-in capital. In November 2021, the Company issued 482,268 detachable warrants with secured promissory notes (see Note 7 – Long-Term Debt) for the purchase of common stock. The relative fair value of the warrants of $809,806 at the time of issuance was recorded as additional paid-in capital with a corresponding debt discount reducing the carrying value of the notes. Additionally, the Company issued 77,163 warrants to purchase shares of common stock to underwriters in connection with obtaining the notes. The fair value of the warrants of $262,354 was recorded as additional paid-in capital and reduced the carrying value of the notes. The warrants are exercisable at $3.32 per share for a period of 10 years from date of grant. The fair value of the warrants was determined at date of issuance using the Black-Scholes option-pricing model and the following assumptions: per share price of common stock on date of grant of $3.63, expected dividend yield of 0%, expected volatility of 110.8%, risk-free interest rate of 1.63% and expected life based on contractual life of 10 years. Also in November 2021, the Company issued warrants to purchase 151,000 shares of common stock in in exchange for prior services related to extinguished 2021 convertible notes and 30,000 options for the purchase of common stock in exchange for legal services. The warrants are exercisable at $2.90 per share for a period of three years from the date of grant. The options are exercisable at $3.32 per share for a period of three years from the date of grant. The options issued were not issued under the Company’s stock option plans. The fair value of the warrants of $407,700 was recorded as additional paid-in-capital and expensed to extinguishment loss on debt settlement (see Note 9 – Convertible Notes). The fair value of the options of $79,200 was recorded as additional paid-in capital with a corresponding charge to legal expense. The fair value of the warrants and options was determined at date of issuance using the Black-Scholes option-pricing model and the following assumptions: per share price of common stock on date of grant of $3.63, expected dividend yield of 0%, expected volatility of 122.7%, risk-free interest rate of 0.71% and expected life based on contractual life of three years. F- 23 As of December 31, 2022 and December 31, 2021, a total of 858,436 and 710,431 warrants were issued and outstanding, respectively. As of December 31, 2022 and December 31, 2021, a total of 30,000 options, which were not issued under a specified plan, were outstanding. As of December 31, 2022, below is a summary of the various warrants/options issued and outstanding: Schedule of various warrants/options issued and outstanding Number of warrants/non-plan options Exercise Price Weighted Average Remaining Life (Yrs) 559,431 $ 3.32 8.90 151,000 $ 2.90 1.86 30,000 $ 3.32 1.86 148,005 $ 9.10 4.25 888,436 Stock Option Plans As of December 31, 2022, the Company had adopted two stock-based compensation plans, the 2021 Incentive Award Plan and the 2021 Employee Stock Purchase Plan, both of which are described below and became effective upon the initial public offering. On May 2, 2022, the Company granted 829,500 options under the 2021 Incentive Award Plan. No shares have been issued to date under the 2021 Employee Stock Purchase Plan. The compensation cost that has been charged against operations was $2,114,529 for the year ended December 31, 2022. 2021 Incentive Award Plan The purpose of the Company’s 2021 Incentive Award Plan is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities. Various stock-based awards may be granted under the plan to eligible employees, consultants, and non-employee directors. The number of shares issued under the plan is subject to limits and is adjusted annually. No more than 1,000,000 shares may be issued pursuant to the exercise of incentive stock options. The aggregate share limit will be subject to an annual increase on the first day of each calendar year ending on and including January 1, 2031, by a number of shares equal to the lesser of (i) a number equal to 5% of the aggregate number of shares of the Company's common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by the Company's board or committee. As of December 31, 2022, the aggregate number of shares that can be issued under the Plan is 859,500 of which 829,500 have been granted. The number of shares granted, the exercise price, and the terms will be determined at date of grant, however, the exercise price shall not be less than 100% of the fair value on the grant date (110% for options granted to greater than 10% shareholders) and the term shall not exceed ten years. 2021 Employee Stock Purchase Plan The purpose of the Company’s 2021 Employee Stock Purchase Plan is to assist eligible employees of the Company in acquiring a stock ownership in the Company and to help such employees provide for their future security and to encourage them to remain in the employment of the Company. The plan consists of a Section 423 Component and Non-Section 423 Component. The Section 423 Component is intended to qualify as an employee stock purchase plan and also authorizes the grant of options. Options granted under the Non-Section 423 Component shall be granted pursuant to separate offerings containing sub-plans. The Company may make one or more offerings under the plan. The duration and timing of each offering period may be established or changed by the board, but in no event may an offering period exceed 27 months and in no event may the purchase period for the option exceed the duration of the offering period under which it is established. On each exercise date for an offering period, each participant shall automatically be deemed to have exercised the option to purchase the largest number of whole shares which can be purchased under the offering. Option awards are generally granted with an exercise price equal to 85% of the lesser of the fair market value of a share on (a) the applicable grant date and (b) the applicable exercise date, or such other price as designated by the administrator, provided that in no event shall the option price be less that the per share par value price. The maximum number of shares granted under the plan shall not exceed 2,500,000 shares. F- 24 The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon similar traded companies’ historical share price movements as adequate historical experience is not available to provide a reasonable estimate. Expected term is calculated based on the simplified method as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is calculated based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The Company has historically not paid dividends and have no foreseeable plans to pay dividends. The Company has computed the fair value of all options granted during the year ended December 31, 2022 using the following assumptions: Schedule of assumptions used Expected volatility 109.48 % - 113.32 % Expected dividends None Expected term (in years) 2.5 – 5.01 Risk free rate 2.83 % – 3.01 % The following table summarizes the Company’s stock option activity under the 2021 Incentive Plan: Schedule of stock option activity (in thousands except number of options and per options data) Number of options Weighted average exercise price Weighted average remaining contractual term (in years) Aggregate intrinsic value (1) Outstanding at beginning of period — $ — — $ — Granted 829,500 3.43 — — Exercised — — — — Forfeited — — — — Outstanding at end of period 829,500 $ 3.43 8.26 $ — Exercisable at end of period 829,500 $ 3.43 8.26 $ — (1) The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2022 is $0, as all options are out of the money. The weighted-average grant-date fair value of the options granted during the nine months ended December 31, 2022 to employees and non-employees was $ 1,847,193 and $ 267,336 , respectively. All options were immediately vested and there was no unrecognized compensation expense as of December 31, 2022. Common Stock Reserved for Future Issuance The following is a summary of common stock shares reserved for future issuance as of December 31, 2022: Schedule of common stock shares reserved for future issuance Exercise of warrants 858,436 Exercise of options unrelated to any Plan 30,000 Exercise of stock options – 2021 Incentive Award Plan 829,500 Total shares of common stock reserved for future issuances 1,717,936 F- 25 13. Income Taxes Our losses before income taxes for the year ended December 31, 2022 and for the two months ending December 31, 2021 were generated primarily from U.S. operations. We have no current or deferred provision for income taxes from continuing operations for the years ended December 31, 2022 and 2021. The significant differences between the U.S. Federal statutory rate and our effective rate for financial reporting purposes are as follows: Schedule of Effective Income Tax Rate Reconciliation Years Ended December 31, 2022 2021 Federal statutory tax rate ( 21.0 )% ( 21.0 )% State taxes, net of federal tax benefit ( 5.3 ) ( 1.7 ) Change in valuation allowance 26.4 8.4 NQSO Comp – Other 0.0 0.5 EQ Comp – Other 0.0 13.4 True-up Adjustment ( 0.1 ) 0.4 Effective tax rate — % — % Schedule of Income before Income Tax, Domestic and Foreign As of December 31, 2022 2021 Current: Federal $ — $ — State Franchise Fees ( 8,850 ) 9,300 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows for the year ended December 31, 2022 and two months ended December 31, 2021. Deferred income tax assets and liabilities consist of the following: Schedule of Components of Income Tax Expense As of December 31, 2022 2021 Deferred tax assets: Net Operating Losses $ 1,719,889 $ 151,797 Stock-based compensation 444,051 150,524 Other 424,675 17,927 Subtotal 2,588,615 320,248 Valuation allowance ( 2,584,010 ) ( 297,815 ) Deferred tax liabilities: Depreciation ( 4,605 ) ( 22,433 ) Net deferred tax asset $ — $ — For financial reporting purposes, the Company incurred losses for the year ended December 31, 2022 and December 31, 2021 and for each period since inception. Accordingly, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At December 31, 2022, the Company had approximately $6.56 million of federal and state net operating losses. F- 26 A reconciliation between the amount of income tax benefit determined by applying the U.S statutory income tax rate to pre-tax loss is as follows: Summary of Operating Loss Carryforward s As of December 31, 2022 2021 Income tax provision at federal statutory rate $ ( 1,584,531 ) $ ( 746,778 ) State taxes ( 399,174 ) ( 59,202 ) Stock-based compensation — 491,727 Other ( 8,964 ) 16,438 Valuation allowance 1,992,669 ( 297,815 ) Net deferred tax asset $ — $ — Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes penalties and interest, for the year ended December 31, 2022 is zero. The Company is subject to taxation in the United States and Oregon. There are no ongoing examinations by taxing authorities at this time. The Company’s various tax years 2017 through 2022 remain open for examination by various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022, the Company has not accrued any penalties or interest related to uncertain tax positions In anticipation of an initial public offering, the Company converted from a limited liability company to a C corporation, a taxable entity, effective November 1, 2021. Through October 31, 2021, the Company was treated as an S corporation for federal and state income tax purposes, such that the Company’s taxable income is reported by members in their respective tax returns and the Company was only subject to state franchise taxes and fees. For the year ended December 31, 2022 the Company reversed the 2021 accrual of $9,300 and accrued only $450 for state income taxes, as we do not anticipate owing more than the minimum state income taxes for 2022. Since converting to a C corporation, the Company has incurred losses and consequently recorded no provision for state or federal income taxes for the year ended December 31, 2022. The Company maintains a full valuation allowance on all deferred tax assets, as it has concluded that it is more likely than not that these assets will not be realized. As of December 31, 2022 and December 31, 2021, there were no material unrecognized tax benefits included in the accompanying balance sheets that would, if recognized, affect the effective tax rate. 14. 401(k) Plan The Company adopted a 401(k) Plan (“Plan”) for the benefit of its employees. Employees may contribute to the Plan within defined limits as defined by the Internal Revenue Service. Substantially all employees are eligible to participate. The Company has the option to make profit sharing contributions at its discretion. No profit-sharing contributions have been made. 15. Related Party Transactions As of December 31, 2022 and December 31, 2021, related party transactions consisted of Shareholder Promissory Notes (see Note 8 – Shareholder Promissory Notes). As of December 31, 2022 and December 31, 2021, related party transactions consisted of Accounts Payables liability to board members for 2022 board compensation in the amount of $ 100,000 and $ 0 , respectively. F- 27 16. Subsequent Events The date to which events occurring after December 31, 2022, the date of the most recent Balance Sheets, have been evaluated for possible adjustment to the financial statements or disclosures is March 27, 2023, which is the date the financial statements were issued. On January 11, 2023, the Company filed an 8-K related to a published press release announcing a new product, the AURA POWERCAP™. On January 20, 2023 the company paid off a note payable in the amount of $89,360.11 which included principal, interest and fees. On January 26, 2023, the Company made certain leadership changes. On January 30, 2023, the Company filed an 8-K related to a press release announcing these changes. On February 1, 2023, the Company filed an 8-K with the details of the leadership changes. In March 2023, the Company had 88,000 warrants exercised of which 73,000 were cashless resulting in 31,102 additional shares of common stock issued. The remaining 15,000 exercised shares were exercised for a total of $49,975 which included $175.00 in fees. On March 21, 2023, the Company entered into a settlement agreement with Ravi Sinha related to a complaint filed against the Company by Mr. Sinha in Oregon state court and the matter has been resolved. F- 28