10-K/A: Shorepower Technologies Amends 2024 Annual Report

Shorepower Technologies Inc. filed an amendment to its 2024 annual report to correct cost of revenue categories and provide additional disclosures on CECL adoption, while reporting a reduced net loss despite ongoing going concern doubts.

Summary

• Amendment No. 1 to the 2024 Annual Report on Form 10-K was filed solely to correct the categories and corresponding amounts for cost of revenue and to add disclosures on the company's adoption of CECL.
• Total revenue increased by 225.6% to $65,481 in 2024, up from $20,109 in 2023.
• Gross margin improved from a negative $33,020 in 2023 to a negative $12,705 in 2024.
• Net loss decreased by $182,630 to $450,318 in 2024, compared to $632,948 in 2023, primarily due to a non-cash expense for stock issued for services in the prior period.
• Cash used in operating activities decreased to $154,046 in 2024 from $267,034 in 2023.
• The cash balance significantly declined to $18,332 at the end of 2024 from $285,623 at the end of 2023.
• The company's accumulated deficit reached $2,941,047 as of December 31, 2024, raising substantial doubt about its ability to continue as a going concern.
• Disclosure controls and internal control over financial reporting were deemed ineffective as of December 31, 2024, citing material weaknesses including a lack of appropriate accounting personnel, absence of an independent audit committee, and insufficient documentation of control assessments.

Sentiment

Score: 3

Explanation: While revenue growth is strong and gross margin improved, the significant decline in cash, increasing accumulated deficit, and explicit 'going concern' warning, coupled with ineffective internal controls, indicate a highly precarious financial position. The positive aspects are overshadowed by severe liquidity and operational control issues.

Positives

• Total revenue increased by 225.6% to $65,481 in 2024 from $20,109 in 2023.
• Gross margin improved from a negative $33,020 in 2023 to a negative $12,705 in 2024.
• Net loss decreased by $182,630 to $450,318 in 2024, compared to $632,948 in 2023.
• Cash used in operating activities decreased to $154,046 in 2024 from $267,034 in 2023, indicating improved operational cash efficiency.
• Secured approximately $400,000 in grants for site upgrades, with total project values exceeding $1,000,000, demonstrating success in obtaining non-dilutive funding.
• Received a $50,000 grant award in 2024 to begin development of a battery energy storage DC fast charger, supporting future product innovation.
• Two California and one New Hampshire grant projects are already completed, with invoicing expected next quarter, indicating progress on infrastructure deployment.
• Operates the largest heavy-duty focused network of electrified parking spaces (EPS) in North America, with 60 facilities and approximately 1,800 spaces, establishing a strong market position in this niche.
• Possesses over 300 electric vehicle charging station connection points that could be upgraded to revenue-producing stations, with potential to expand to over 2,000 connection points.
• Management has 20 years of experience in transportation electrification and has managed over $16 million in government contracts and grant funds.
• Products comply with NEMA standards and are certified by Nationally Recognized Testing Laboratories (NRTL) like Intertek and UL, ensuring safety and quality.

Negatives

• The company has an accumulated deficit of $2,941,047 as of December 31, 2024, and minimal revenue, raising substantial doubt about its ability to continue as a going concern.
• The cash balance significantly decreased from $285,623 at the end of 2023 to $18,332 at the end of 2024, indicating severe liquidity challenges.
• Disclosure controls and procedures were not effective as of December 31, 2024.
• Internal control over financial reporting was not effective as of December 31, 2024, due to material weaknesses including a lack of appropriate accounting personnel, no independent audit committee, and insufficient documentation of control assessments.
• Professional fees increased by $62,405 (232.1%) to $89,289 in 2024, primarily due to higher audit, accounting, and legal fees.
• Officer compensation increased by 55.6% to $186,668 in 2024, but this compensation has been deferred and not paid to the officer, contributing to accrued liabilities.
• Accrued officer compensation due to Jeff Kim increased to $306,668 in 2024 from $120,000 in 2023.
• Accrued interest on related party notes increased to $148,460 in 2024 from $80,587 in 2023.
• The company is subject to the 'penny stock rule,' which may restrict broker-dealers' ability to trade its common stock and affect shareholders' ability to sell shares.
• One U.S. patent application was abandoned as of January 15, 2023, potentially impacting intellectual property protection.

Risks

• **Going Concern Uncertainty**: The company's accumulated deficit of $2,941,047 as of December 31, 2024, combined with minimal revenue, raises substantial doubt about its ability to continue as a going concern.
• **Cybersecurity Threats**: Computer malware, viruses, ransomware, hacking, phishing attacks, and similar disruptions could result in security and privacy breaches and interruption in service, which could harm the business.
• **Regulatory Compliance and Installation Delays**: State, regional, and local regulations for EV charging station installation vary and may include permitting, inspection, licensing, and certification requirements, potentially causing installation delays.
• **Environmental Liabilities**: The company is subject to laws and regulations regarding the handling and disposal of hazardous substances and solid wastes (e.g., CERCLA, RCRA), which may impose strict, joint, and several liability for investigation and remediation costs. Changes in these laws or the ability to qualify for exclusions could adversely affect operating expenses.
• **Intense Competition**: The company faces competition from numerous EV charging companies, including major players like ChargePoint, ABB, Tesla, and large automotive/energy companies, requiring continuous innovation and cost-effectiveness.
• **Funding Uncertainty**: The future of federal funding programs, such as the Bipartisan Infrastructure Law, is uncertain, and the company's ability to fund future growth relies on generating sufficient revenues or securing additional investment.
• **Intellectual Property Protection Challenges**: Reliance on a combination of patent, trademark, copyright, and trade secret laws may not be sufficient to protect proprietary rights. Future patents may be challenged, invalidated, or circumvented, and the ability to seek and maintain patent protection is limited by cash flow and capital availability.
• **Impact of CAFE Standards**: Decreasing fuel-efficiency standards, such as those established by the Safer Affordable Fuel-Efficient Vehicles Rule, may result in less demand for electric vehicles and, consequently, for charging stations of the type the company manufactures.
• **Internal Control Weaknesses**: Material weaknesses in internal control over financial reporting, including a lack of appropriate accounting personnel, absence of an independent audit committee, and undocumented control assessments, could adversely affect the company's ability to accurately record, process, summarize, and report financial data.
• **Related Party Dependence**: Significant loans and accrued compensation are due to Jeff Kim, the CEO, indicating a reliance on related party financing and a concentration of financial risk.

Future Outlook

The company anticipates an explosive growth period in the electric vehicle industry, leveraging its 20 years of experience. It plans to accelerate new product offerings, including a new DC fast charger with battery energy storage, and invest incrementally in marketing and sales. The company will also explore strategic acquisitions to expand its market presence and capabilities. Future funding is expected from generated revenues or additional investment, with grant funding of approximately $400,000 anticipated to be distributed in 2025.

Management Comments

• "We believe that the key value of the existing travel center facilities is the electric infrastructure and utility service that could easily be upgraded to include electric vehicle supply equipment (EVSE) for heavy-duty trucks and buses."
• "We believe that our success in obtaining government grants for electric transportation infrastructure will be a competitive advantage that we have in obtaining additional non-dilutive grants to facilitate our goal of increasing the number of charging stations in the United States and Canada."
• "We believe that our 20 years of experience in the transportation electrification space provide a competitive advantage in what we anticipate to be an explosive growth period in the electric vehicle industry."
• "Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented."

Industry Context

The company operates in the rapidly evolving transportation electrification sector, which is poised for "explosive growth." It faces intense competition from established EV charging companies and major automotive/energy players. Its strategy focuses on cost-effectiveness, proprietary technology, and leveraging government grants, which aligns with broader industry trends of infrastructure development and public-private partnerships. The uncertainty surrounding federal funding (Bipartisan Infrastructure Law) and fluctuating CAFE standards highlights the regulatory and policy-driven nature of the industry, which can significantly impact demand for EVs and charging infrastructure. The company's focus on heavy-duty vehicles and refrigerated trailers (TSE, eTRU) targets a niche within the broader EV market, differentiating it from many competitors focused solely on light-duty EV charging.

Comparison to Industry Standards

• The company's network of 60 facilities with approximately 1,800 electrified parking spaces for heavy-duty vehicles is described as the "largest heavy-duty focused network of electrified parking spaces (EPS) in North America," suggesting a leadership position in this specific niche compared to competitors like IdleAir, which reportedly has fewer than a dozen operational facilities.
• Shorepower's on-board TSE system is presented as more cost-effective to build, use, maintain, and operate compared to off-board systems like those offered by IdleAir.
• The company's strategy to provide the "lowest build-out and operating cost, competitive end-user cost, highest cost savings and best overall feature set" aims to achieve a faster ROI for customers than competitors such as ChargePoint, ABB, Tesla, and other major EV charging providers.
• The company's success in obtaining government grants (e.g., $400,000 awarded, $1,000,000 pending) is highlighted as a competitive advantage, indicating a strong capability in navigating the public funding landscape for infrastructure development, which is a common funding mechanism in the EV charging industry.
• The development of a DC fast charger with battery energy storage, designed to require much lower input power and operate during power outages, aims to offer a differentiated solution compared to standard DC fast chargers that typically require expensive utility upgrades and new services.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not party to any material legal proceedings.
• From time to time, the company may be involved in legal proceedings or subject to claims incident to the ordinary course of business, which could have an adverse impact due to defense and settlement costs, diversion of resources, and other factors.

Related Party Transactions

• Three promissory notes were issued to Jeff Kim (CEO): a $200,000 note (Feb 15, 2022) with a balance of $0 as of Dec 31, 2024 (repaid from $88,044 in 2023), a $253,954 note (Mar 1, 2022) with a balance of $207,854 as of Dec 31, 2024, and an $837,600 note (Dec 31, 2022) for accrued compensation (after $400,000 forgiveness) with a balance of $837,600 as of Dec 31, 2024.
• Total interest expense on these related party loans was $69,829 in 2024 and $80,587 in 2023.
• Accrued officer compensation due to Jeff Kim was $306,668 as of Dec 31, 2024, and $120,000 as of Dec 31, 2023, as his annual base salary of $200,000 has been deferred.
• Amounts payable to Jeff Kim for operating expenses paid on behalf of the company were $37,110 as of Dec 31, 2024.

Stakeholder Impact

• **Shareholders**: Face significant risk due to the explicit "going concern" uncertainty, substantial accumulated deficit, and rapidly declining cash balance. The company's "penny stock" status may also limit liquidity and marketability of shares. Potential for dilution exists from future capital raises or milestone-based stock awards to the CEO.
• **Employees**: Currently, the company has only two employees and relies heavily on consultants. While it expects to hire additional personnel with sufficient funding, the current financial instability poses a risk to job security and future employment opportunities.
• **Customers**: May benefit from the company's expanding network of electrified parking spaces and EV charging stations, offering cost savings and reduced emissions. However, the company's financial health could impact its ability to maintain and expand services in the long term.
• **Suppliers/Creditors**: Face increased risk due to the company's precarious financial position and "going concern" doubt, which could impact the timeliness or ability of the company to fulfill its payment obligations.
• **Management (Jeff Kim)**: Has significant financial ties to the company through substantial deferred compensation and related party loans, indicating a strong personal stake in the company's success, but also a personal financial risk given the company's severe financial state.

Next Steps

• Convert up to six existing TSE stations per facility to Level 2 charging and add two or more DC fast chargers to select locations in the first phase of upgrades.
• Process invoicing for completed grant projects in California and New Hampshire next quarter.
• Continue to upgrade the control system at existing sites to generate interim income.
• Pursue additional government contracts and/or grants, with $1,000,000 in grant applications currently pending.
• Develop a new DC fast charger with battery energy storage, with two grant applications valued at over $2,000,000 submitted for this product.
• Invest incrementally in marketing and sales to attract new customers and encourage increased charging footprint.
• Explore potential high-quality merger and acquisition opportunities domestically and overseas.
• Employ additional personnel following receipt of sufficient funding.
• Evaluate and enhance cybersecurity systems, controls, and processes.
• Address material weaknesses in internal control over financial reporting by hiring appropriate accounting personnel, establishing an independent audit committee, and documenting control assessments.

Key Dates

Recommendation

The company faces severe financial distress, explicitly stating "substantial doubt about its ability to continue as a going concern" due to a significant accumulated deficit and minimal revenue. Cash reserves have plummeted, and internal controls are deemed ineffective, indicating fundamental operational and financial reporting weaknesses. While revenue growth is noted, it's from a very low base and gross margins remain negative. The reliance on deferred officer compensation and related party loans further highlights liquidity issues. These factors collectively point to a high risk of financial instability and potential failure, making the stock a strong sell for any seasoned investor or institution.

Keywords

Transportation Electrification, EV Charging, Truck Stop Electrification, TSE, eTRU, Electric Vehicle Supply Equipment, EVSE, Grant Funding, Battery Energy Storage, DC Fast Charger, SEC Filing, 10-K/A, Financial Performance, Going Concern, Internal Controls, Shorepower Technologies