Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes for the years ended December 31, 2025 and 2024, included in this Annual Report. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Annual Report, including in Item 1A. "Risk Factors" and "Cautionary Note Concerning Forward-Looking Statements and Industry Data." Percentage amounts included in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations using the figures in our financial statements included elsewhere in this Annual Report. Certain other amounts that appear in this section may not sum due to rounding.

Unless otherwise noted, all references to share and per share data, as well as stockholders' equity balances for the years ended December 31, 2025 and 2024 presented in this section, have been adjusted retroactively to reflect a 1-for-100 reverse stock split, which was effective at 5:00 p.m. Pacific Time on October 8, 2024 (the "Reverse Stock Split"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Reverse Stock Split and Reverse Stock Split True-Up Payment" below for additional information about the Reverse Stock Split.

Overview

Expion360 focuses on the design, assembly, manufacturing, and sale of lithium iron phosphate ("LiFePO4") batteries and supporting accessories for recreational vehicles ("RVs"), marine applications, and industrial energy storage products. Our high-powered, lithium battery solutions incorporate innovative concepts and have been designed to include some of the most dense and minimal-footprint batteries in the RV and marine industries. We deploy intellectual property strategies to support product development, enhance safety and performance, and strengthen relationships across our target markets. This includes design, development, and collaboration, using our IP to bring safety, quality, and service to our customers. Our customers consist of dealers, wholesalers, private-label customers, and original equipment manufacturers ("OEMs") who then sell our products to end consumers and drive brand awareness nationally.

Our primary target markets include the RV, marine, industrial, and commercial energy storage industries. Within the industrial sector, we participate in applications such as electric material handling and forklift equipment, where lithium battery adoption continues to increase as an alternative to traditional lead-acid systems. We believe the broader transition from lead-acid to lithium batteries presents growth opportunities across these markets.

In addition to our current focus areas, we are evaluating opportunities to expand further into industrial and mission-critical commercial applications that require integrated battery energy storage solutions. These may include mobile and stationary systems supporting remote operations, security infrastructure, and other high-reliability environments. While we continue to assess these adjacent markets, our current commercial activities remain concentrated in our established RV, marine, and industrial segments.

We launched our e360 product line in December 2020, initially targeting the RV and marine industries. The line, through its sales growth, has shown to be a preferred conversion solution for lead-acid batteries.

We currently operate Expion360 as one reportable business segment, Energy Storage (ES).

Our products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage. They incorporate detailed design and engineering, strong case materials, optimized internal structural layouts, and are supported by responsive customer service.

Recent Developments

December 2025 At-The-Market Issuance Sales Agreement

On December 12, 2025 we signed an at-the-market issuance sales agreement. We commenced sales under the agreement in January 2026 and have sold an aggregate of 1,064,396 shares for net proceeds of approximately $932,567 through March 11, 2026.

October 2025 Private Placement and Management Transition

On October 16, 2025, we entered into a securities purchase agreement (the "Purchase Agreement") with two institutional investors pursuant to which we agreed to sell in a private placement (the "October 2025 Private Placement") an aggregate of (i) 613,077 shares of common stock, and (ii) a pre-funded warrant (the "October 2025 Pre-Funded Warrant") to purchase up to 144,498 shares of common stock. The offering price per share was $1.65 and the offering price per pre-funded warrant share was $1.6499.

We received net proceeds of approximately $1.1 million from the October 2025 Private Placement after deducting offering expenses payable by us. We used the net proceeds from the offering to pay severance obligations to certain executive officers that transitioned concurrent with the completion of the October 2025 Private Placement, and for working capital and other general corporate purposes. See "Note 7, Equity and Debt Financings-October 2025 Private Placement" for additional information regarding the offering.

In connection with the October 2025 Private Placement, Paul Shoun resigned from his role as President and Chairman of the Board, and Brian Schaffner resigned from his role as Chief Executive Officer, but retained his role as Director and also acted as a consultant through the transition period. Also in connection with the private placement, Joseph Hammer was appointed Chief Executive Officer and Chairman of the Board, the Board increased the number of authorized directors from five to six, and Scott Burell was appointed as a Director.

Key Factors Affecting Our Results of Operations

Our results of operations and financial performance are significantly dependent on the following factors:

Consumer Demand

Our sales are primarily generated from dealers, wholesalers, private-label customers, and OEMs serving the RV, marine, and industrial markets. Because our sales are generally made on a purchase order basis and are not supported by long-term revenue commitments, the demand for our products from these customers depends on consumer demand, and our results of operations are sensitive to changes in customer purchasing patterns. During the year ended December 31, 2025, our revenue increased by 71.6% compared to the prior year. This increase was primarily driven by expanded distribution relationships in the RV and marine channels, increased adoption of our LiFePO4 battery platforms as customers continued transitioning from traditional lead-acid systems, growth in sales to select OEM customers, and contributions from recently introduced product lines, including next-generation GC2, Group 27, and Edge battery models. The growth in sales also reflects improved channel penetration and broader customer adoption of higher-capacity battery configurations. While macroeconomic factors, including interest rates and fuel costs, may influence consumer demand in the RV and marine industries, our recent results reflect increased market acceptance of our products and expansion of our distribution footprint.

We have recently added several new distributors and OEM customers in RV and marine markets. These relationships contributed to incremental order volume during 2025 and are expected to support revenue growth in 2026, although the timing and magnitude of future orders will continue to remain subject to customer demand and overall market conditions.

Manufacturing and Supply Chain

Our batteries are manufactured by multiple third-party manufacturers located in Asia, which also produce our battery cells. While we do not have long-term purchase agreements with these manufacturers and generally transact on a purchase order basis, we maintain strong relationships with our manufacturers and cell suppliers, which have historically enabled us to increase our purchase volumes and qualify for volume-based discounts. The strength of these relationships, together with ongoing supplier negotiations and purchasing strategies, have supported our efforts to manage supply-related costs associated with inflation, currency fluctuations, and U.S. government tariffs imposed on our imports, as well as to mitigate potential shipment delays. We aim to maintain an appropriate level of inventory to satisfy our expected supply requirements. While we believe we could locate suitable alternative third-party manufacturers to fulfill our requirements if needed, transitioning suppliers could require time and result in additional costs.

Our third-party manufacturers source the raw materials and battery components required for the production of our batteries directly from third-party suppliers that meet our approval and quality standards. Accordingly, pricing for certain raw materials and components is influenced by market conditions and supplier negotiations. We estimate that raw material costs account for over half of our cost of goods sold. Lithium, which is extracted from mined ore, is a key raw material used to produce our battery cells and fluctuations in lithium pricing can affect our battery cell costs. From time to time, changes in raw material availability may influence pricing dynamics or sourcing strategies. Certain of our battery cell manufacturers have factories outside of Asia and have secured sourcing contracts from lithium suppliers in South America and Australia. In addition, we have a secondary source for lithium iron phosphate cells from a supplier in Europe, providing additional geographic diversification and sourcing flexibility.

Industry initiatives to expand lithium production capacity and lithium cell recycling may affect long-term supply dynamics. For example, there is an industry push to provide more efficient ways to extract lithium from mined ore. Another development of the past few years is lithium cell recycling, which recaptures raw lithium from the cell for reuse in future cells. However, notwithstanding efforts to improve the sustainability and efficiency of lithium mining, the price of lithium remains subject to market volatility. We continue to monitor developments that may affect our supply chain.

Management expects that products sourced from our Asian third-party manufacturers may be subject to additional tariffs in 2026. We intend to mitigate the potential impact on margins through a combination of supplier negotiations, selective customer price adjustments, ongoing cost optimization initiatives, and the development of lower-cost product configurations designed to improve manufacturing efficiency and overall unit economics as sales volumes increase. The effectiveness of these measures will depend on market conditions, sales volume, product mix, and future tariff developments.

For additional information regarding supply chain risks, see the section titled "Risk Factors-Our results of operations could be adversely affected by changes in the cost and availability of raw materials our reliance on third-party manufacturers and suppliers" and "-Increases in costs, disruption of supply, or shortage of any of our battery components such as electronic and mechanical parts could harm our business."

Product and Customer Mix

As of December 31, 2025, we sell 14 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to dealers, wholesalers, private-label customers, and OEMs at differing prices and with varying cost structures. The average selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs, which may affect pricing and gross margins. Accessory and OEM sales typically have lower average selling prices and resulting margins relative to other distribution channels. As a result, shifts in customer mix could decrease our margins and negatively affect our growth or require us to increase the prices of our products. However, the benefits of increased sales volumes and broader customer penetration typically has, and may continue to, offset the impact of lower-margin product and customer mix. The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin.

Competition

We compete with both traditional lead-acid and lithium-ion battery manufacturers that primarily either import their products and/or components or manufacture their products and/or components under a private label. As we develop new products and expand into new markets, we may experience competition with a broader range of companies. These companies may have more resources than us and be able to allocate more resources to their current and future products. Our competitors may source products or components at lower costs than us, which may require us to evaluate our own costs, lower our product prices, or increase our sales volume to maintain our expected profitability levels.

Research and Development

We continue to invest in research and development to enhance the performance, reliability, and integration capabilities of our LiFePO4 battery systems. Our R&D efforts focus on battery management systems, thermal management, product durability, system integration, and application-specific configurations for the RV, marine, industrial, and specialty vehicle markets.

As electrification trends evolve across mobile and stationary applications, customer requirements continue to develop, including demand for improved energy density, communication protocols, remote monitoring capabilities, and system-level integration. Our development initiatives are intended to address these evolving requirements and support competitiveness within our core markets.

We also evaluate emerging technologies and broader industry developments that may influence future product design, including advancements in cell chemistry, system architecture, and energy management software. Artificial intelligence ("AI") and data-driven analytics are increasingly being incorporated into energy management, predictive maintenance, and supply chain optimization across the battery industry. While AI is not currently a primary driver of our product offerings, we monitor developments in this area and assess potential applications that may enhance system diagnostics, performance monitoring, and operational efficiency over time.

Our research and development spending may fluctuate depending on product development cycles, customer requirements, and broader market conditions.

Certifications

We have completed the final requirements to obtain UL Safety Certifications on our new 12V Group 27 100Ah and 132Ah batteries, and on our 12V GC2 battery. Now that these certifications have been completed, all of the batteries produced by us will have a UL Safety Certification, emphasizing our commitment to quality, safety and service for our customers.

Key Line Items

Net Sales

Our revenue is generated from the sale of products consisting primarily of batteries and accessories. We recognize revenue when control of goods or services is transferred to our customers in an amount that reflects the consideration it is expected to be entitled to in exchange for those goods or services. Our sales are primarily within the United States.

Cost of Sales

Our primary cost of sales as a percentage of sales is related to our direct product and landing costs. Direct labor costs consist of payroll costs (including taxes and benefits) of employees directly engaged in assembly activities. Per full absorption cost accounting, overhead related to our cost of sales is added, consisting primarily of warehouse rent and utilities. The costs can increase or decrease based on costs of product and assembly parts (purchased at market pricing), customer supply requirements, and the amount of labor required to assemble a product, along with the allocation of fixed overhead.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses consist primarily of salaries and benefits, legal and professional fees, and sales and marketing costs. Other significant costs include research and development, software and information technology, insurance, and facility and related costs.

Interest and Other Income, net

Interest expense consists of interest costs on loans with interest rates ranging from 3.75% to 10.0% and amortization of convertible note costs. The amortized convertible note costs were $0 and $667,000 for the years ended December 31, 2025 and 2024, respectively.

Provision for Income Taxes

We are 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 existing 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.

We have adopted the provisions in ASC 740, Income Taxes, related to accounting for uncertain tax positions, which require recognition of the impact of a tax position in the financial statements if the position is more likely than not to be sustained upon examination and on the technical merits of the position. We have concluded there were no material unrecognized tax benefits as of December 31, 2025 or December 31, 2024.

Our practice is to recognize interest and/or penalties related to income tax matters as income tax expense. We had no accrual for interest or penalties on our balance sheet at December 31, 2025 or December 31, 2024, and did not recognize any interest or penalties in our statement of operations for the years ended December 31, 2025 or 2024, since there are no material unrecognized tax benefits. We do not expect any material change to the amount of unrecognized tax benefits to occur within the next 12 months.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Use of Non-GAAP Financial Measures

We disclose financial measures calculated and presented in accordance with the generally accepted accounting principles in the United States ("GAAP"); however, we provide certain financial information on a non-GAAP basis ("non-GAAP financial measures"). We provide non-GAAP financial measures to provide information that may assist investors in understanding our results of operations and assessing our prospects for future performance, which consist of adjusted cost of sales. We believe evaluating certain financial and operating measures on an adjusted basis is important as it excludes costs that are not indicative of our core results of operations and are largely outside of our control. However, our non-GAAP financial measures are not intended to represent and should not be considered more meaningful measures than, or alternatives to, measures of financial or operating performance as determined in accordance with GAAP.

We calculate our adjusted cost of sales non-GAAP financial measures for current period financial information by excluding the effect of an adjustment related to obsolete inventory. The information presented on an adjusted cost of sales basis, as we present such information, may not necessarily be comparable to similarly-titled information presented by other companies, and may not be appropriate measures for comparing our performance relative to other companies.

Results of Operations

Year Ended December 31, 2025, Compared to the Year Ended December 31, 2024

The following table sets forth certain operational data as a percentage of sales:

		Years Ended December 31,
		2025								2024
		$				% of Net sales				$				% of Net sales
Net sales		$	9,651,870				100.0	%		$	5,624,939				100.0	%
Cost of sales			8,314,472				86.1				4,469,711				79.5
Gross profit			1,337,398				13.9				1,155,228				20.5
Selling, general, and administrative expenses			12,040,903				124.8				7,909,219				140.6
Loss from operations			(10,703,505	)			(110.9	)			(6,753,991	)			(120.1	)
Other (income) / expense - net			(4,468,468	)			(46.3	)			6,727,032				119.6
Loss before income taxes			(6,235,037	)			(64.6	)			(13,481,023	)			(239.7	)
Net loss			(6,235,187	)			(64.6	)			(13,479,475	)			(239.6	)

Net Sales

Net sales for the year ended December 31, 2025 increased by $4.0 million, or 71.6%, compared to the year ended December 31, 2024. Sales were $9.7 million for the year ended December 31, 2025 and $5.6 million for the year ended December 31, 2024. The year-over-year increase reflects expansion of our customer base, increased sales to key customers, and broader adoption of our LiFePO4 battery platforms across distribution and OEM channels.

Cost of Sales

Cost of sales for the year ended December 31, 2025 increased by $3.8 million, or 86.0%, compared to the year ended December 31, 2024. Cost of sales were $8.3 million for the year ended December 31, 2025 and $4.5 million for the year ended December 31, 2024. Cost of sales as a percentage of sales increased by 6.7 percentage points in 2025, to 86.1% compared to 79.5% in 2024.

Cost of sales for the year ended December 31, 2025 includes a one-time $0.9 million adjustment related to obsolete inventory. Excluding this adjustment, which management believes is not indicative of ongoing operating performance, cost of sales for the year ended December 31, 2025 would have increased by $2.9 million, or 65.8%, compared to the year ended December 31, 2024, and cost of sales as a percentage of sales would have decreased by 2.7 percentage points in 2025, to 76.8% compared to 79.5% in 2024.

The improvement in pre-adjustment cost of sales reflects favorable product mix, including increased sales of higher-margin battery models, as well as a greater proportion of direct-to-consumer sales through our website, while the increase in adjusted cost of sales is primarily due to the adjustment for inventory identified as obsolete or overvalued.

Gross Profit

Our gross profit for the year ended December 31, 2025 increased by $0.2 million, or 15.8%, compared to the year ended December 31, 2024. Gross profit was $1.3 million for the year ended December 31, 2025 and $1.2 million for the year ended December 31, 2024. Gross profit as a percentage of sales decreased by 6.7% for the year ended December 31, 2025, to 13.9% compared to 20.5% for the year ended December 31, 2024. For the year ended December 31, 2025, a significant increase in net sales was somewhat offset by an increase in cost of sales, which includes a one-time adjustment for obsolete inventory, resulting in a decrease in the gross profit margin. Gross profit for the year ended December 31, 2025 prior to the adjustment would have been $2.2 million, and as a percent of sales, would have increased by 2.7 percentage points, to 23.2%, primarily due to a more favorable product mix and an increase in direct-to-consume sales.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses for the year ended December 31, 2025 increased by $4.1 million, or 52.2%, compared to the year ended December 31, 2024. Selling, general, and administrative expenses were $12.0 million for the year ended December 31, 2025 and $7.9 million for the year ended December 31, 2024. The increase in selling, general, and administrative expenses was primarily due to increases in salaries and benefits, including executive severance and performance-related bonuses, increased stock-based compensation expense associated with the grant of options and RSUs to executives, directors, and non-executive employees, and increases in legal and professional fees. Selling, general, and administrative expenses as a percentage of net sales decreased to 124.8% in the year ended December 31, 2025 from 140.6% in the year ended December 31, 2024, reflecting a partial operating leverage resulting from higher revenue, despite increased personnel and professional expenses.

Presented in the table below is the composition of selling, general and administrative expenses:

		Years Ended December 31,
		2025				2024
Salaries and benefits		$	6,417,659			$	3,260,866
Legal and professional			2,736,199				1,584,589
Sales and marketing			1,001,730				926,430
Research and development			558,882				295,292
Software, fees, tech support			290,023				274,780
Insurance			273,702				263,930
Rents, maintenance, utilities			233,843				449,997
Travel expenses			199,583				137,298
Depreciation			105,616				155,315
Office Supplies			24,144				23,876
Other			199,522				536,846
Total		$	12,040,903			$	7,909,219

Other (Income) / Expense

Other income and expense for the year ended December 31, 2025 was income of $4.5 million and for the year ended December 31, 2024 was expense of $6.7 million. Other income for the year ended December 31, 2025 was mainly due to the reversal of the previously-recognized $4.5 million suspended liability expense associated with the Reverse Stock Split cash true-up provision contained in the Series A Warrants issued in the August 2024 offering. The reversal resulted from the repricing of the warrants in August 2025, as further described in "Note 7, Equity and Debt Financings-Convertible Note Financing." Other income also included approximately $16,000 in interest income. These amounts were partially offset by $20,000 interest expense and $13,000 loss on sale of property and equipment. Other expense for the year ended December 31, 2024 was made up of $5.0 million in suspended liability expense associated with the Reverse Stock Split cash true-up payment provision in the Series A Warrants, as well as approximately $977,000 in interest expense and $709,000 in settlement expense.

Net Loss

Our net loss for the years ended December 31, 2025 and 2024 was $6.2 million and $13.5 million, respectively. The reduction in the net loss for the year ended December 31, 2025 reflects increased net sales, improved gross margins on inventory sold, notwithstanding the one-time adjustment for obsolete inventory, and the absence of the prior-year warrant-related expense, partially offset by higher selling, general, and administrative expenses. The net loss in the year ended December 31, 2024 was primarily the result of the $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, as well as increased interest associated with the 3i Note (as defined in "Note 7, Equity and Debt Financings") and increased settlement expense.

Liquidity and Capital Resources

Overview

Our operations have been financed primarily through net proceeds from sales of equity securities and issuances of third-party debt and working capital loans. As of December 31, 2025 and 2024, our current assets exceeded current liabilities by $6.0 million and $2.0 million, respectively, and we had cash and cash equivalents of $3.0 million and $0.5 million, respectively.

We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest, and principal payments on our debt.

As of December 31, 2025, our short-term liquidity requirements included (a) principal debt payments totaling approximately $31,000, (b) lease obligation payments of approximately $337,000, including imputed interest, and (c) $0.6 million in accrued expenses, accounts payable, and other current liabilities.

We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenue and profit from operations. We expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional debt or equity financing to expand

our presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business plans 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 to us. For the years ended December 31, 2025 and 2024, we sustained recurring losses and negative cash flows from operations. These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date the financial statements for the year ended December 31, 2025 are issued. However, management is working to address its cash flow challenges, including by raising additional capital, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses. For additional information regarding risks associated with our ability to continue as a going concern, please see the risk factor titled "Our audited financial statements include a statement that there is a substantial doubt about our ability to continue as a going concern and a continuation of negative financial trends could result in our inability to continue as a going concern" in Item 1A, "Risk Factors" of this Annual Report.

Financing Obligations

As of December 31, 2025, our long-term debt totaled $197,000, comprised of $139,000 outstanding under a COVID-19 Economic Injury Disaster Loan and $58,000 outstanding under vehicle financing arrangements. In August 2025, we repaid an equipment loan with an interest rate of 5.8%. In January 2024, we repaid $62,500 in principal on a stockholder promissory note with an interest rate of 10.0%, and in August 2024, we repaid two shareholder loans with principal of $500,000 and $200,000, respectively, both with interest rates of 10.0%. In February and March 2024, we sold three vehicles including repayment of the related vehicle loans with interest rates of 5.5%-5.9% in the total amount of approximately $88,000, which included principal and interest. In August 2024, we repaid a short-term convertible note for a total of $2.7 million including principal, interest, and fees. This represents reduction of debt by $3.0 million and additional reduction in lease liability of $2.3 million in 2024 and 2025, an overall improvement to our liquidity over the past two years.

Vehicle Financing Arrangements

As of December 31, 2025, the Company has three notes payable to GM Financial for vehicles. In April 2022, the Company secured a commercial line of up to $300,000 to be used to finance vehicle purchases, which was increased to $350,000 in April 2023, renewed in April 2024 and April 2025 for the same amount, and expires in April 2026, which we plan to renew again for the same amount. The notes are payable in aggregate monthly installments of approximately $2,560, including interest at rates ranging from 6.1% to 7.3% per annum, mature at various dates from October 2027 to May 2028, and are secured by the related vehicles. See "Note 5, Long-Term Debt."

Operating Lease Liabilities

Our estimated future obligations consist of total operating lease liabilities. As of December 31, 2025, we had $710,000 in total operating lease liabilities, including the current portion.

Other Indebtedness

As of December 31, 2025, our long-term debt totaled $197,000, including the current portion, which consists of $31,000.

Cash Flows

The following table shows a summary of our cash flows for the periods presented:

		Years Ended December 31,
		2025				2024
Net cash used in operating activities		$	(6,149,263	)		$	(9,562,545	)
Net cash provided by investing activities		$	4,250			$	113,408
Net cash provided by financing activities		$	8,566,544			$	6,064,004

Cash flows used in operating activities

Our largest source of operating cash is cash collected from sales of our products. Our primary uses of cash for operating activities include purchases of inventory, as well as selling, general, and administrative expenses including salaries and benefits, legal and professional fees, and sales and marketing expenses. In the last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from sales of our common stock.

We generated negative cash flows from operating activities of $6.1 million for the year ended December 31, 2025, compared to negative cash flows of $9.6 million for the corresponding period in 2024. The decrease in cash used in operating activities was primarily attributable to lower net losses and favorable changes in working capital during 2025. Factors affecting operating cash flows during the periods included:

●

For the year ended December 31, 2025, our net loss of $6.2 million adjusted for several non-cash items, including stock-based compensation of $1.2 million, issuance of common stock in exchange for services of $490,000, depreciation of $117,000, non-cash expense related to asset disposals of $21,000, and loss on sale of property and equipment of $13,000. These adjustments also reflect the impact of a decrease in the suspended liability associated with the cash true-up payments related to the Reverse Stock Split provision in the Series A Warrants. For the year ended December 31, 2024, our net loss of $13.5 million included several non-cash items, including approximately $5.0 million in suspended liability expense due to the Reverse Stock Split cash true-up payment provision in the Series A Warrants we sold in the August 2024 Public Offering, amortization of convertible note costs of approximately $667,000, stock-based compensation of $617,000, stock-based settlement of $209,000, and depreciation of $174,000.

●

Cash provided by a decrease in inventory for the year ended December 31, 2025 was $2.0 million, and cash used by an increase in inventory for the year ended December 31, 2024 was $1.0 million, while cash provided by a decrease in prepaid inventory for the year ended December 31, 2025 was $1.3 million, and cash used by an increase in prepaid inventory for the year ended December 31, 2024 was $1.4 million. These changes primarily reflect the timing of significant inventory purchases and advance payments to suppliers. Turnaround time for receiving inventory from foreign sources can take up to 120 days, with prepayments required.

●

Cash provided by / (used in) other operating activities such as changes in accounts receivable and accounts payable primarily reflect normal timing differences in customer collections and vendor payments and were not significant drivers of operating cash flows during the periods presented.

Cash flows provided by investing activities

Cash provided by investing activities was $4,000 for the year ended December 31, 2025 and was related to selling some small vehicles.

Cash used for capital purchases of property and equipment for quality assurance and leasehold improvements to our testing lab totaled $19,000 during the year ended December 31, 2024. This was offset by net proceeds of $133,000 received for the sale and disposal of property and equipment during the year ended December 31, 2024, which included property and equipment and leasehold improvements related to the warehouse lease terminated in September 2024, as well as the sale of three vehicles.

Cash flows provided by financing activities

Cash provided by financing activities was $8.6 million for the year ended December 31, 2025. During that year, we had net proceeds from exercise of warrants totaling $5.7 million, net proceeds from the issuance of common stock totaling $2.9 million, offset by principal payments on long-term debt totaling $33,000.

Cash provided by financing activities was $6.1 million for the year ended December 31, 2024. For the year ended December 31, 2024, we paid down debt principal of $3.6 million, which was offset by net cash proceeds of $9.5 million from issuance of common stock and $185,000 net cash proceeds from exercise of warrants.

Critical Accounting Estimates

The above discussion and analysis of our financial condition and results of operations is based upon our financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. These estimates involve judgments that are inherently uncertain and subject to change as future events and conditions evolve. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, will be reflected in the financial statements prospectively from the date of the change in the estimate.

A critical accounting estimate is one that involves a significant degree of judgment or complexity and where a different assumption could reasonably have a material impact on our financial condition or results of operations. The critical accounting estimates below are those that we consider to be the most important in portraying our financial condition and results of operations and also require the greatest number of judgments by management.

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using first-in, first-out method. Net realizable value represents the estimated selling price in the ordinary course of business less reasonably predictable costs of sales.

Although our products have long shelf lives when stored properly, inventory may become obsolete due to technological changes, product redesigns, or shifts in consumer demand. Management regularly evaluates inventory quantities on hand relative to forecasted demand, product life cycles, and market conditions, and records adjustments to the valuation of inventory using the allowance method when necessary.

Leases

We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset during the lease term, and operating lease liabilities represent our 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 our balance sheets. We do not have any finance leases.

We recognize operating lease assets and lease liabilities in the balance sheet on the lease commencement date, based on the present value of the outstanding lease payments over the reasonably certain lease term. The lease term includes the non-cancelable period at the lease commencement date, plus any additional periods covered by an option to extend (or not to terminate) the lease that is reasonably certain to be exercised, or an option to extend (or not to terminate) a lease that is controlled by the lessor.

We discount unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, our incremental borrowing rate.

See "Note 8, Commitments and Contingencies," to our financial statements within this Annual Report for additional information, including more details of our accounting policy elections and disclosures and remaining minimum operating lease commitments.

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:

Vehicles and transportation equipment		5 - 7 years
Manufacturing equipment		3 - 10 years
Office furniture and equipment		3 - 7 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.

Useful life is estimated for each item at the time of purchase based on the typical useful life in our experience and best judgment, and remaining useful life of existing assets is evaluated regularly. If an estimated useful life were to be inaccurate, there would not be a material effect on our financials, and the estimated depreciation would be trued up at the time of disposal or impairment. It is our experience that the estimated useful lives of our assets are generally materially accurate.

Warrants

Warrants are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified. See "Note 7, Equity and Debt Financings" and "Note 9, Stockholders' Equity" in our accompanying financial statements for information on the warrants. Changes in assumptions used to estimate fair value could occur from stock pricing volatility depending on our performance and our position in the industry and changes in market interest rates which can result in materially different results.

Stock-Based Compensation

We use the Black-Scholes option-pricing model to determine the fair value of option grants. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of our stock price, risk-free interest rates, future dividend yields and estimated forfeitures at the initial grant date. Restricted stock unit awards are valued based on the closing trading price of our common stock on the date of grant. Changes to these assumptions or estimates could result in significant changes in the valuations.

Income Taxes

Effective November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state income taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to recover our deferred tax assets. In the event that we determine all, or part of our net deferred tax assets are not realizable in the future, we will record an adjustment to the valuation allowance and a corresponding charge to earnings in the period such determination is made.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our financial condition and results of operations. We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recorded in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

See "Note 11, Income Taxes" to our financial statements within this Annual Report for further information on our income taxes.