Expion360 Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Expion360 designs, assembles and distributes lithium iron phosphate batteries and accessories, primarily for RV and marine markets, with planned expansion into home energy storage and industrial applications.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $2.16 million | $885,000 |
| Gross profit / margin | $862,000 / 40.0% | $275,000 / 31.1% |
| SG&A | $1.20 million | $317,000 |
| Operating loss | $335,000 | $42,000 |
| Net loss | $697,000 | $247,000 |
| Net loss per share | $0.16 | $0.10 |
| Operating cash flow | $506,000 provided | $298,000 used |
Sales increased 143.5%, primarily from higher sales volume. Gross margin improved 8.9 percentage points, which management attributed to improved efficiencies and demand for its expanded battery line. SG&A rose 277%, reflecting added staffing, facilities, sales and marketing, professional fees and IPO preparation. Operating and net losses widened despite higher revenue; 2022 interest expense included $214,527 of debt-discount amortization, including noncash warrant-related amortization.
Balance sheet, debt and liquidity
- At March 31, cash was $799,000; current assets were $4.50 million and current liabilities $2.20 million, leaving working capital of approximately $2.30 million. Total assets were $8.67 million and stockholders’ equity $1.56 million.
- Reported current borrowings included $550,000 of working-capital loans and a $100,000 note payable in default. Long-term debt was $2.12 million before $982,000 of unamortized debt discount and current classifications; shareholder promissory notes were a further $825,000. The company also reported $3.57 million of operating lease liabilities.
- Operating cash flow turned positive from a year-earlier outflow, helped by collections and working-capital movements, including reduced prepaid inventory and higher accounts payable. It was not evidence of quarterly profitability.
- On April 1, 2022, after quarter-end, the company completed an IPO of 2,466,750 shares at $7 per share. Net proceeds were $15.74 million. In April it used IPO proceeds to repay $550,000 of working-capital loans and $1.70 million of notes, plus $213,895 of related interest. Management said IPO proceeds and expected operating cash flows should fund anticipated needs for 18 months, while noting future capital may be needed.
Outlook, risks and notable items
- Management plans to invest in inventory and working capital, sales and marketing, research and development, and assembly capacity. It earmarked approximately $950,000 of IPO proceeds for a new assembly line and related equipment; it expected 2022 production-facility spending of $450,000 to $950,000.
- The Indiana distribution center became operational in Q1. Management planned to develop the Redmond facility and begin onshore semi-automated pack assembly in Q4 2022. A Denmark-based cell supplier provides a potential alternative to China sourcing; execution and profitability are not assured.
- Supply-chain exposure remains material: approximately 59% of Q1 2022 inventory purchases came from China and Hong Kong, and foreign-supplier lead times can reach 120 days. One customer represented 42% of quarterly sales. Customer and supplier concentration, input availability and pricing, competition, COVID-19 effects, and the company’s history of losses are identified risks.
- New operating leases added about $2.35 million of lease liabilities during the quarter. The company reported no material litigation or material off-balance-sheet arrangements, and said disclosure controls were effective at a reasonable-assurance level.
- The cover page marks “No” for having filed all required reports during the preceding 12 months, a compliance item investors may wish to investigate.
Important facts for investors to verify
- Whether post-IPO cash, debt repayments and planned spending support the stated 18-month liquidity outlook.
- Whether revenue growth and improved gross margin can outpace rising SG&A and produce sustainable operating profitability and cash flow.
- Customer concentration, order durability, collection performance, and dependence on overseas suppliers and long inventory lead times.
- Progress, cost and timing of the Redmond assembly-line buildout, onshoring plans and home-energy product development.
- The reason for the cover-page “No” response regarding timely filing of required reports, and any related compliance implications.