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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 393 added, 311 removed, 48 unchanged (94% of the section changed)

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

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial

statements and related condensed notes thereto, which are included in Part I of this 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 the Company’s prospectus, dated March 31, 2022,

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 the financial statements and related condensed notes thereto, which are included in Part I of this report

and the consolidated financial statements of the Company

and notes thereto for the years ended December 31, 2020 and 2021, included in the Company’s prospectus, dated March 31, 2022,

filed with the SEC in accordance with Rule 424(b) of the Securities Act on April 4, 2022 (the “Prospectus”) in connection

with the Company’s initial public offering.

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial

statements and related notes thereto, which are included in Part I of this report.

focus on the design, assembly, manufacturing, and sales of lithium iron phosphate (LiFePO4) batteries and supporting accessories for

recreational vehicles (“RVs”) and marine applications with plans to expand into home energy storage products and industrial

applications.

We design, manufacture, and distribute high-powered, lithium battery solutions using ground-breaking concepts with a creative

sales and marketing approach.

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.

risks and uncertainties are discussed in the Prospectus.

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and

related notes thereto, which are included in Part I of this report.

We focus on the design,

assembly, manufacturing, and sales of lithium iron phosphate (LiFePO4) batteries and supporting accessories for recreational vehicles

(“RVs”) and marine applications with plans to expand into home energy storage products and industrial applications.

We design, manufacture, and distribute high-powered, lithium battery solutions using ground-breaking concepts with a creative sales

and marketing approach.

Our product offerings include some of the most dense and minimal-footprint batteries in the RV & Marine

We are developing the e360 Home Energy Storage:

a system that we expect to significantly change the industry in barrier price,

flexibility, and integration.

We are deploying multiple IP strategies with cutting-edge research, manufacturing processes, and unique

products to sustain and scale the business.

a system that we expect to significantly change the industry in barrier

price, flexibility, and integration.

We are deploying multiple IP strategies with cutting-edge research, manufacturing processes,

and unique products to sustain and scale the business.

We currently have customers consisting of dealers, wholesalers, and original

equipment manufacturers who are driving revenue and brand awareness nationally.

corporate headquarters are based in Redmond, Oregon, with assembly in the United States and suppliers based in Asia.

We are currently

in the process of building out manufacturing capacity at our corporate headquarters.

Our long-term target is to onshore the manufacturing

of most of our components and assemblies, including cell manufacturing, to the United States.

main target markets are the RV & Marine industry.

We believe that we are currently well positioned to capitalize on the rapid market

conversion from lead-acid to lithium batteries as the primary method of power sourcing in these industries.

Additional focus markets

include home energy storage, where we aim to provide a cost-effective, low barrier of entry, and a do-it-yourself (“DIY”)

flexible system for those looking to power their homes via solar energy, wind, or grid back-up.

Along with RV/Marine and home energy

storage markets, we aim to provide additional capacities to the ever-expanding electric forklift and industrial material handling markets.

VPR 4EVER product line, which is manufactured for the RV/Marine industry, was launched in December 2020.

Our corporate headquarters

are based in Redmond, Oregon, with assembly in the United States and suppliers based in Asia.

We are currently in the process of

building out manufacturing capacity at our corporate headquarters.

Our long-term target is to onshore the manufacturing of most

of our components and assemblies, including cell manufacturing, to the United States.

Our main target markets

are the RV & Marine industry.

We believe that we are currently well positioned to capitalize on the rapid market conversion

from lead-acid to lithium batteries as the primary method of power sourcing in these industries.

Additional focus markets include

home energy storage, where we aim to provide a cost-effective, low barrier of entry, and a do-it-yourself (“DIY”) flexible

system for those looking to power their homes via solar energy, wind, or grid back-up.

Along with RV/Marine and home energy storage

markets, we aim to provide additional capacities to the ever-expanding electric forklift and industrial material handling markets.

Expion360’s VPR

4EVER product line, which is manufactured for the RV/Marine industry, was launched in December 2020.

The VPR 4EVER product line,

through its rapid sales growth, has shown to be a preferred conversion solution for lead-acid batteries.

We believe that our e360 Home

Energy Storage system has strong revenue potential with recurring income opportunities for us and our associated sales partners.

products provide numerous advantages for various industries that are looking to migrate to lithium-based energy storage.

They incorporate,

detailed-oriented design, engineering, and manufacturing, and strong case materials and internal and structural layouts, and are backed

by responsive customer service.

believe the following strengths differentiate Expion360 and create long-term sustainable competitive advantages.

Capacity to Lead Acid Competitors

Lead-acid batteries have always been the standard in RV and

marine transportation vehicles.

Our lithium-ion batteries offer superior capacity to our lead-acid competitors.

Our batteries utilize

lithium iron phosphate, and therefore, are expected to have a lifespan of approximately 12 years — three to four times that of certain

lead-acid batteries and with ten times the number of charging cycles.

Furthermore, our typical battery provides three times the power

of the typical, lead-acid battery despite being half the weight (comparing, for example, a typical lead-acid battery like Renogy Deep

Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and assuming slow discharge at a .1C rate).

Pack Flexibility

battery packs are also highly flexible, designed to be moved and used in various applications seamlessly.

We plan to onshore our semi-automated

pack assembly in Redmond, Oregon beginning in the fourth quarter of 2022.

We believe that our e360

Home Energy Storage system has strong revenue potential with recurring income opportunities for us and our associated sales partners.

Our products provide

numerous advantages for various industries that are looking to migrate to lithium-based energy storage.

They incorporate, detailed-oriented

design, engineering, and manufacturing, and strong case materials and internal and structural layouts, and are backed by responsive

customer service.

COMPETITIVE STRENGTHS

We believe the following

strengths differentiate Expion360 and create long-term sustainable competitive advantages.

Superior Capacity to Lead Acid Competitors

Lead-acid batteries

have always been the standard in RV and marine transportation vehicles.

Our lithium-ion batteries offer superior capacity to our

lead-acid competitors.

Our batteries utilize lithium iron phosphate, and therefore, are expected to have a lifespan of approximately

12 years — three to four times that of certain lead-acid batteries and with ten times the number of charging cycles.

our typical battery provides three times the power of the typical, lead-acid battery despite being half the weight (comparing,

for example, a typical lead-acid battery like Renogy Deep Cycle AGM, which is rated at 100Ah, to our own LFP 100Ah battery and

assuming slow discharge at a .1C rate).

Battery Pack Flexibility

Our battery packs are

also highly flexible, designed to be moved and used in various applications seamlessly.

We plan to onshore our semi-automated pack

assembly in Redmond, Oregon beginning in the fourth quarter of 2022.

This should allow us to use a more flexible approach to forming

and creating new battery packs.

By onshoring, we expect to be able to react to market demands at a much quicker pace and increase profit

levels over our competition.

National Retail Customers

have a national presence with several large retail customers, such as Camping World.

RV and Marine Industry Experience and Relationship

Yozamp, Founder of Expion360, pioneered multiple new recreational concepts in the RV industry.

As the founder and previous owner of Zamp

Solar, he has extensive relationships in the RV OEM industry.

Insider Ownership

is owned and managed by a team with a strong track record in the RV and clean energy spaces.

In addition, our company insiders owned

over 59% equity in the company immediately prior to the initial public offering, signaling a strong commitment and personal investment

in the company.

into New Markets

RV and marine applications currently drive revenue, Expion360 has plans to expand into the home energy market in the coming years.

e360 Home Energy Storage system is planned to target entry level customers with its modular design that will allow for DIY expansion.

We see the vision of stored energy as a portable, moving concept, where stored energy can be transported from the home to other devices

By onshoring, we expect to be able to react to market demands at a much quicker pace and increase

profit levels over our competition.

Strong National Retail Customers

We have a national

presence with several large retail customers, such as Camping World.

Long-time RV and Marine Industry Experience

and Relationship

John Yozamp, Founder

of Expion360, pioneered multiple new recreational concepts in the RV industry.

As the founder and previous owner of Zamp Solar,

he has extensive relationships in the RV OEM industry.

Strong Insider Ownership

Expion360 is managed

by a team with a strong track record in the RV and clean energy spaces.

In addition, our company insiders own significant equity

in the company, signaling a strong commitment and personal investment.

Expansion into New Markets

While RV and marine

applications currently drive revenue, Expion360 has plans to expand into the home energy market in the coming years.

Our e360 Home

Energy Storage system is planned to target entry level customers with its modular design that will allow for DIY expansion.

see the vision of stored energy as a portable, moving concept, where stored energy can be transported from the home to other devices

outside of it.

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of development.

“Smart Talk” is designed to allow multiple batteries in a bank to communicate as one and be linked to a network.

Distribution Channels

has sales relationships with many major RV and marine retailers and plans to use what we believe is a strong reputation in the lithium

battery space to create an even stronger distribution channel.

“Smart Talk” is designed to allow multiple batteries in a bank to communicate as one and be linked

to a network.

Strong Distribution Channels

Expion360 has sales

relationships with many major RV and marine retailers and plans to use what we believe is a strong reputation in the lithium battery

space to create an even stronger distribution channel.

John Yozamp has used his decades of experience in the energy and RV industries

1 unchanged sentence

Expion360 has already established a sales relationship with Camping

World, the largest RV retailer with sales representing around 25% of all new RVs sold nationwide, as well as Electric World, Patrick

Distribution, and NTP-STAG, a leading distributor of aftermarket RV parts.

DEVELOPMENTS AND TRENDS

addition to the recent developments identified in in the Company’s prospectus, dated March 31, 2022, filed with the SEC in accordance

with Rule 424(b) of the Securities Act on April 4, 2022 (the “Prospectus”) in connection with the Company’s initial

public offering, our business in 2022 has been impacted, and we believe will continue to be impacted by the following recent events and

April 1, 2022, the Company completed an initial public offering.

A total of 2,466,750 shares of common stock were sold at $7 per share

in the IPO, including 321,750 shares sold to underwriters, for total gross proceeds of $17,267,250, or net proceeds of $15,735,870 after

issuance costs of $1,531,380.

During the three months ended March 31, 2022, the Company incurred additional costs related to the IPO

of $423,634, which are recorded as deferred costs as of March 31, 2022.

These costs, plus any IPO-related costs incurred subsequent to

March 31, 2022, shall reduce additional paid-in capital.

the IPO proceeds, in April 2022 the Company paid off working capital loans totaling $550,000 (see Note 6 – Line of Credit and Short-Term

Revolving Loans) and notes payable of $1.7 million, plus related interest totaling $213,895.

experienced overall improvements in sales trends in the three-month period ended March 31, 2022.

new leased distribution center in Elkhart, Indiana became operational in first quarter of 2022 and our new leased facility in Redmond,

Oregon is under development with roughly $950,000 of proceeds from the IPO earmarked for the construction of a new assembly line and

associated equipment for quality testing and material handling.

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.

World, the largest RV retailer with sales representing around 25% of all new RVs sold nationwide, as well as Electric World, and

NTP-STAG, a leading distributor of aftermarket RV parts.

RECENT DEVELOPMENTS AND TRENDS

In addition to the

recent developments identified in in the Company’s prospectus, dated March 31, 2022, filed with the SEC in accordance with

Rule 424(b) of the Securities Act on April 4, 2022 (the “Prospectus”) in connection with the Company’s initial

public offering, our business in 2022 has been impacted, and we believe will continue to be impacted by the following recent events

On April 1, 2022, the Company completed an initial public offering.

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, or

net proceeds of $14,772,487 after issuance costs of $2,494,763, which has substantially improved our working capital position.

The Company also issued 35,714 shares and 148,005 warrants to outside third parties and underwriters in connection with the IPO.

The total estimated fair value of the shares and warrants were $249,998 and $916,238, respectively.

IPO-related costs incurred

reduced additional paid-in capital and therefore, the issuance of these shares and warrants resulted in no impact to the financial

From the IPO proceeds,

in April 2022 the Company paid off working capital loans totaling $550,000 (see Note 6 – Line of Credit and Short-Term Revolving

Loans) and notes payable of $1.7 million, plus related interest totaling $213,895.

We experienced overall

improvements in sales trends in the three and six month periods ended June 30, 2022.

Our new leased distribution center in Elkhart, Indiana became operational in the

first quarter of 2022 and our new leased facility in Redmond, Oregon is under development with roughly $950,000 of proceeds from

the IPO earmarked for the construction of a new assembly line and associated equipment for quality testing and material handling.

Total capital expenditures related to the new assembly line and associated equipment for the three and six months ended June 30,

2022 was approximately $460,000.

The Company’s 2021 Incentive Award Plan and 2021 Employee Stock Purchase

Plan both became effective upon the initial public offering.

The stock option plans are described in detail in Note 12 –

Stockholders’ Equity of the financial statements.

In May 2022, 829,500 shares were granted under the 2021 Incentive Award

Plan which resulted in a fair value stock-based compensation expense of $2,114,529, which is included in selling, general, and

administrative expenses on the accompanying financial statements.

KEY LINE ITEMS

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.

Materially, all of our sales are within the United States.

primary cost 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.

Cost of Sales

Our primary cost 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.

Overhead consists primarily of warehouse rent and utilities.

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.

General and Administrative Expenses

general and administrative expenses consist primarily of salaries, benefits, and sales and marketing costs.

Other costs include facility

and related costs, professional fees and other legal expenses, consulting, tax and accounting services, sales and marketing expenses.

and Other Income, net

expense consists of interest costs on loans with interest rates ranging from 10% to 15% and amortization of debt issuance costs.

Sheet Arrangements

have no material off-balance sheet arrangements.

OF OPERATIONS

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

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

Selling, general and

administrative expenses consist primarily of salaries, benefits, and sales and marketing costs.

Other costs include facility and

related costs, professional fees and other legal expenses, consulting, tax and accounting services, sales and marketing expenses.

Interest and Other Income, net

Interest expense consists

of interest costs on loans with interest rates ranging from 3.75% to 11.21% and amortization of debt issuance costs.

30, 2022, all debt issuance costs have been fully amortized.

Off-Balance Sheet Arrangements

We have no material

off-balance sheet arrangements.

RESULTS OF OPERATIONS

The following table sets forth certain operational data as a

percentage of sales.

Three Months Ended

Six Months Ended

Cost of sales

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Loss before income taxes

for the three months ended March 31, 2022 increased by 143.5%, or approximately $1.27 million, compared to the corresponding period in

The increase was primarily attributable to an increase in our overall sales volume.

cost of sales for the three months ended March 31, 2022 increased by 112.1%, or approximately $684,000, compared to the corresponding

Sales for the three months ended June 30, 2022 increased by 121.7%, or approximately $1.21 million,

compared to the corresponding period in 2021.

the six months ended June 30, 2022 increased by 132.0%, or approximately $2.48 million, compared to the corresponding period in

The increases were primarily attributable to increases in our overall sales volumes as a result of our expanded product offerings

and distribution network.

Cost of Sales

Total cost of sales for the three months ended June 30, 2022 increased by 142.3%, or approximately

$879,000, compared to the corresponding period in 2021, and increased as a percentage of sales by 5.8%.

cost of sales for the six months ended June 30, 2022 increased by 127.3%, or approximately $1.56 million, compared to the corresponding

period in 2021, but decreased as a percentage of sales by 1.3%.

The increase in costs and decrease as a percentage of sales is primarily

attributed to improved efficiencies due to the increase in our overall sales volume.

gross profit as a percentage of sales increased to 40.0% for the three months ended March 31, 2022, compared to 31.1% for the three months

ended March 31, 2021.

The increase in gross profit was primarily attributable to our expanded product line of six new batteries that

was launched in late 2020, which gained continuous momentum and increased demand throughout 2021 and into first quarter of 2022.

General and Administrative Expenses

general and administrative expenses for the three months ended March 31, 2022 increased by 277%, or approximately $879,000, compared

to the corresponding period in 2021 due to increased costs to support our growth in sales and business development efforts along with

various expenses incurred in preparation for our initial public offering.

The most substantial increases were in salaries and benefits,

legal and professional services (primarily in relation to preparation for our initial public offering), sales and marketing, and rents

and utilities.

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

The increase in the cost of sales during the three months ended

June 30, 2022 over the corresponding period in 2021 was primarily related to increases in landing costs, which the Company is currently

The reduction in cost of sales as a percentage of sales for the six months ended June 30, 2022 compared to the corresponding

period in 2021 is primarily attributable to improved efficiencies due to the increase in our overall sales volume.

Our gross profit

as a percentage of sales decreased to 32.1% for the three months ended June 30, 2022, compared to 37.9% for the three months ended

June 30, 2021.

Our gross profit as a percentage of sales increased to 36.0% for the six months ended June 30, 2022, compared to

34.7% for the six months ended June 30, 2021.

The increase in gross profit for the six month period was primarily attributable

to our expanded product line of six new batteries that was launched in late 2020, which gained continuous momentum and increased

demand throughout 2021 and into second quarter of 2022.

Selling, General and Administrative Expenses

Selling, general

and administrative expenses for the three months ended June 30, 2022 increased by 767.6%, or approximately $3.2 million, compared

to the corresponding period in 2021.

Selling, general and administrative expenses for the six months ended June 30, 2022 increased

by 555.6%, or approximately $4.08 million, compared to the corresponding period in 2021 due to increased costs to support our growth

in sales and business development efforts along with various expenses that were incurred due to planning and preparing for our

initial public offering.

The most substantial increases were in salaries and benefits, of which $2,114,529 was a non-cash expense

attributable to stock-based compensation, legal and professional services incurred in anticipation of our initial public offering,

sales and marketing, and rents and utilities.

Presented in the table below is the composition

of selling, general and administrative expenses:

Three Months Ended June 30,

Six Months Ended June 30,

Salaries and benefits

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Research and development

other expense for the three months ended March 31, 2022 and 2021 was approximately $362,000 and $205,000, respectively.

Other Expense

for the three months ended March 31, 2022 is made up almost entirely of interest expense, of which $214,527 was attributable to the amortization

of debt discount, including $178,693 of non-cash amortization related to warrants issued in connection with debt.

The remaining interest

of $147,587, attributed to debt obligations, increased approximately $55,000 compared to the corresponding period in 2021.

is primarily related to a higher average debt balance during the three months ended March 31, 2022 compared to the corresponding period

The remaining balance of other expense during the three months ended March 31, 2021, totaling approximately $112,000, was related

to debt conversion expense on an induced conversion that occurred on January 1, 2021.

The expense was calculated as 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 notes that were converted.

net loss for the three months ended March 31, 2022 and 2021 was $696,853 and $247,193, respectively.

The increase in net loss was primarily

the result of increased selling, general, and administrative expenses as we invested in human resources, facilities, and business development

in preparation of our expanded growth objectives along with an increase in legal and professional costs associated with the initial public

AND CAPITAL RESOURCES

of March 31, 2022 and December 31, 2021, our current assets exceeded current liabilities by approximately $2.3 million and $3.2 million

respectively, and we had cash and cash equivalents of approximately $799,000 and $773,000, respectively.

On April 1, 2022, we closed

our initial public offering which resulted in approximately $15.7 million of net proceeds.

liquidity requirements

generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next twelve

months and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest and principal payments

Our other expense for the three months ended June 30, 2022 and 2021 was approximately $1.18 million

and $89,000, respectively.

Our other expense for the

six months ended June 30, 2022 and 2021 was approximately $1.54 million and $294,000, respectively.

Other expense for the three

and six months ended June 30, 2022 was made up almost entirely of interest expense.

For the three months ended June 30, 2022 and

2021, interest expense attributable to non-cash amortization of debt discount totaled $982,317 and $4,721, respectively.

during the three months ended June 30, 2021, non-cash interest expense of $112,133 was also recognized in connection with an induced

conversion that occurred on January 1, 2021.

During the six months ended June 30, 2022 and 2021, non-cash amortization of debt

discount totaled $1,196,843 and $4,721, respectively.

Interest expense attributable to debt obligations totaled $193,402 and $84,569

during the three months ended June 30, 2022 and 2021, respectively, and $340,990 and $177,383 during the six months ended June

30, 2022 and 2021, respectively.

These increases are primarily related to higher average debt balances during the three and six

months ended June 30, 2022 compared to the corresponding period in 2021.

However, in April 2022, with the use of proceeds from

the IPO, the Company paid off approximately $2.46 million in debt with interest rates ranging from 10 to 15%.

Our net loss for the three months ended June 30, 2022 and 2021 was $4.09 million and $130,000, respectively.

Our net loss for the six months ended June 30, 2022 and

2021 was $4.79 million and $378,000, respectively.

The increase in net loss was primarily the result of increased selling, general,

and administrative expenses as we invested in human resources, facilities, and business development in preparation of our expanded

growth objectives along with an increase in legal and professional costs in anticipation of our initial public offering.

Additionally,

for the three and six months ended June 30, 2022, the Company recognized approximately $2.1 million in non-cash expenses related

to stock-based compensation, which was non-existent in the corresponding periods in 2021.

Further, and as noted above, for the

three and six months ended June 30, 2022, the company recognized non-cash interest expense of approximately $1.2 million.

of the $4.79 million net loss for the three and six months ended June 30, 2022, a total of $3.3 million was non-cash expenses.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2022

and December 31, 2021, our current assets exceeded current liabilities by approximately $14.2 million and $3.2 million respectively,

and we had cash and cash equivalents of approximately $10.39 million and $773,000, respectively.

On April 1, 2022, we closed our

initial public offering which resulted in approximately $14.7 million of net proceeds.

Short-term liquidity requirements

We generally consider

our short-term liquidity requirements to consist of those items that are expected to be incurred within the next twelve months

and believe those requirements to consist primarily of funds necessary to pay operating expenses, interest and principal payments

on our debt, and capital expenditures related to assembly line expansion.

As of March 31, 2022, we expect our short-term liquidity requirements

to include (a) approximately $950,000 of capital additions;

(b) principal debt payments totaling approximately $2.3 million, of which

$2.25 million and related interest totaling approximately $214,000, was paid in April 2022 with the proceeds received from the IPO;

Additionally, we anticipate we will invest approximately

$7.25 million in working capital and inventory, $850,000 in sales and marketing, $675,000 in research and development, and $1.13 million

in general corporate purposes.

liquidity requirements

generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next twelve

months and believe these requirements consist primarily of funds necessary for eighteen months.

on our current business plan, we believe that cash flows from operations, together with the proceeds from the initial public offering

will be sufficient to meet our anticipated cash needs for working capital, capital expenditures, and debt service over the next eighteen

As of June 30, 2022, we expect our short-term liquidity

requirements to include (a) approximately $390,000 of capital additions;

(b) principal debt payments totaling approximately $78,000;

and (c) lease obligation payments of approximately $740,000, including imputed interest.

Long-term liquidity requirements

We generally consider

our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next twelve months and

believe these requirements consist primarily of funds necessary for eighteen months.

Based on our current business plan, we believe that cash flows from operations, together with the proceeds

from the initial public offering will be sufficient to meet our anticipated cash needs for working capital, capital expenditures,

and debt service for at least the next fifteen months.

Our ability to make scheduled principal and interest payments, or to refinance our indebtedness, or to fund planned capital expenditures,

will depend on future performance, which is subject to general economic conditions, the competitive environment, and other factors, including

those outlined in the “Risk Factors” section of this prospectus.

If our estimates of revenues, expenses, capital, or liquidity

requirements change or are inadequate to support our growth or if cash generated from operations is insufficient to satisfy our liquidity

requirements, we may seek to sell additional equity and/or arrange additional debt financing.

We may also seek to raise additional equity

and/or arrange debt financing to give us the financial flexibility to pursue attractive opportunities that may arise in the future.

flows provided by (used in) operating activities

generated positive cash flows from operating activities of approximately $506,000 for the three months ended March 31, 2022, compared

to negative cash flows of approximately $298,000 for the corresponding period in 2021.

Significant factors affecting operating cash flows

during the periods included:

the three months ended March 31, 2022, our loss of $696,853 was adjusted and reduced by non-cash transactions including amortization

of debt discount of approximately $215,000 and depreciation of approximately $29,000.

For the three months ended March 31, 2021, our

loss of $247,193 was adjusted and reduced by non-cash transactions including a debt conversion expense on induced conversion of approximately

$112,000 and depreciation of approximately $10,000.

provided by (used for) accounts receivable was approximately $196,000 and ($231,000), representing

a decrease (increase) in accounts receivable for the three months ended March 31, 2022 and

2021, respectively.

This is primarily due to increased revenues in December 2021 compared

to December 2020.

The Company’s receivables have historically been collected within

30 to 45 days.

As of December 31, 2021, accounts receivable totaled approximately $775,000

compared to approximately $209,000 as of December 31, 2020, whereas net sales for the month

of March 2022 were approximately $636,000, compared to approximately $608,000 in March 2021.

Thus, accounts receivables, which consists primarily of March sales, decreased as of March

31, 2022 compared to March 31, 2021.

decrease in accounts receivable for the three months ended March 31, 2022 is offset by an

increase in accounts payable of approximately $279,000 compared to a decrease in of approximately

$19,000 for the corresponding period in 2021.

This is primarily attributed to an increase

in operational costs and expenses to support growth and the IPO.

provided by inventory and prepaid inventories was approximately $535,000 and $82,000 for

the three months ended March 31, 2022 and 2021, respectively.

The increase in cash provided

by inventory and prepaid inventory is primarily due to significant prepayments of inventory

to China suppliers that were made in the 4th quarter of 2021 in order to have sufficient

inventory for projected sales in the first quarter 2022.

Turnaround time for receiving inventory

from foreign sources can take up to 120 days, with prepayments required.

Sales for the three

months ended March 31, 2022 increased over sales for the three months ended March 31, 2021

by approximately $1.27 million.

flows used in investing activities

used cash in investing activities of approximately $33,000 and $27,000 for the three months ended March 31, 2022 and 2021, respectively.

Cash used in financing activities was entirely used for capital purchases of property and equipment related to expanding and improving

our facilities and infrastructure.

We anticipate that we will spend between $450,000 and $950,000 in 2022 as we expand our production

facilities and build new assembly lines.

flows provided by (used in) financing activities

provided by (used in) financing activities was approximately ($447,000) and $318,000 for the three months ended March 31, 2022 and 2021,

respectively.

For the three months ended March 31, 2022 we paid down debt principal of approximately $24,000 compared to $77,000 for

the three months ended March 31, 2021.

During the three months ended March 31, 2021, we obtained working capital financing of $125,000

and, received proceeds from the sale of shares of $270,000 compared to no inflows from debt or equity transactions during the three months

ended March 31, 2022.

Deferred IPO costs for the three months ended March 31, 2022 was approximately $424,000, which was not applicable

to the corresponding period in 2021.

Sheet Arrangements

have no material off-balance sheet arrangements.

ACCOUNTING POLICIES AND ESTIMATES

financial results are affected by the selection and application of accounting policies and methods.

Critical accounting policies 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.

Judgments or uncertainties regarding the application of these policies may result in materially

different amounts being reported under different conditions or using different assumptions.

In the three months ended March 31, 2022,

there were no changes to the application of critical accounting policies previously disclosed in the Company’s prospectus, dated

will depend on future performance, which is subject to general economic conditions, the competitive environment, and other factors,

including those outlined in the “Risk Factors” section of this prospectus.

If our estimates of revenues, expenses,

capital, or liquidity requirements change or are inadequate to support our growth or if cash generated from operations is insufficient

to satisfy our liquidity requirements, we may seek to sell additional equity and/or arrange additional debt financing.

seek to raise additional equity and/or arrange debt financing to give us the financial flexibility to pursue attractive opportunities

that may arise in the future.

Cash flows used in operating activities

We generated negative

cash flows from operating activities of approximately $2.73 million for the six months ended June 30, 2022, compared to negative

cash flows of approximately $917,000 for the corresponding period in 2021.

Significant factors affecting operating cash flows during

the periods included:

For the six months

ended June 30, 2022, our loss of $4,787,889 was adjusted and reduced by non-cash transactions including stock-based compensation

of approximately of $2.1 million, amortization of debt discount on convertible notes of approximately $1.2 million and depreciation

of approximately $67,000.

For the six months ended June 30, 2021, our loss of $377,628 was adjusted and reduced by non-cash transactions

including amortization of debt discount on convertible notes of approximately $5,000, a debt conversion expense on induced conversion

of approximately $112,000 and depreciation of approximately $22,000.

● Cash used for accounts receivable was approximately ($45,000) and ($95,000), representing an

increase in accounts receivable for the six months ended June 30, 2022 and 2021, respectively.

These increases correspond with

increases in sales.

● Accounts payable and accrued expenses increased by approximately $94,000 during the six months

ended June 30, 2022 compared to approximately $43,000 for the corresponding period in 2021.

This is primarily attributed to increased

costs and expenses.

● Other significant changes include a decrease in customer deposits of approximately $187,000

during the six months ended June 30, 2022, representing a use of cash that did not exist in the corresponding period in 2021.

Additionally,

long-term deposits increased by approximately $161,000 during the six months ended June 30, 2022 compared to $18,000 for the corresponding

period in 2021, primarily due to new leases and deposits on capital purchases.

● Cash used for inventory and prepaid inventories was approximately $992,000 and $643,000 for

the six months ended June 30, 2022 and 2021, respectively.

These increases are primarily due to significant purchases and prepayments

of inventory to Chinese suppliers that were made in the 2nd quarter of 2022 in order to have sufficient inventory for projected

sales in 2022.

Turnaround time for receiving inventory from foreign sources can take up to 120 days, with prepayments required.

Sales for the six months ended June 30, 2022 increased over sales for the six months ended June 30, 2021 by approximately $2.48

Cash flows used in investing activities

We used cash in investing activities of approximately $139,000 and $68,000 for the six months ended

June 30, 2022 and 2021, respectively.

Cash used in investing

activities was entirely used for capital purchases of property and equipment related to expanding and improving our facilities

and infrastructure.

We anticipate that we will spend between $450,000 and $950,000 in 2022 as we expand our production facilities

and build new assembly lines.

Cash flows provided by financing

Cash provided by

financing activities was approximately $12,483,840 and $1,414,103 for the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022 we paid down debt principal of approximately $2.29 million compared to $250,000 for the

six months ended June 30, 2021.

During the six months ended June 30, 2022, the Company issued no new debt resulting in cash proceeds,

whereas during the six months ended June 30, 2021, we obtained working capital financing of $125,000 and received proceeds from

the issuance of convertible notes of $1,017,000 .

During the six months ended June 30, 2022, we received net cash proceeds of

$14,772,487 from the sale of common stock compared to $522,000 during the six months ended June 30, 2021.

Off-Balance Sheet Arrangements

We have no material

off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial results

are affected by the selection and application of accounting policies and methods.

Critical accounting policies are those that we

consider to be the most important in portraying our financial condition and results of operations and require the greatest number

of judgments by management.

Judgments or uncertainties regarding the application of these policies may result in materially different

amounts being reported under different conditions or using different assumptions.

In the six months ended June 30, 2022, there

were no changes to the application of critical accounting policies previously disclosed in the Company’s prospectus, dated

March 31, 2022, filed with the SEC in accordance with Rule 424(b) of the Securities Act on April 4, 2022 (the “Prospectus”)

in connection with the Company’s initial public offering.

NOTICE REGARDING FORWARD-LOOKING STATEMENTS

report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,

and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements in this report, other

than statements of historical fact, are “forward-looking statements” for purposes of these provisions, including, without

in connection with the Company’s initial public offering, other than the following:

The Company accounts

for stock-based compensation in accordance with ASXC 718, “Compensation – Stock Compensation,” which requires

compensation costs to be recognized at grant fair date value over the requisite service period of each of the awards.

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 mode3l, including risk-free interest rate, volatility, expected dividend

yield, and expected life.

Changes to assumptions could cause significant adjustments to the valuation.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report includes

“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section

21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements in this report, other than

statements of historical fact, are “forward-looking statements” for purposes of these provisions, including, without

limitation, any projections of earnings, revenues or other financial items, any statements of the plans and objectives of our management

for future operations, any statements concerning proposed new products or services, any statements regarding the integration, development,

or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions or

performance, and any statements of assumptions underlying any of the foregoing.

All forward-looking statements included in this report

are made as of the date hereof and are based on information available to us as of such date.

We assume no obligation to update any forward-looking

In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,”

“expects,” “plans,” “should,” “anticipates,” “intends,” “seeks,”

“believes,” “estimates,” “potential,” “forecasts,” “continue,” or other forms

of these words or similar words or expressions, or the negative thereof or other comparable terminology.

Although we believe that the

expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations

or any of the forward-looking statements will prove to be correct.

Actual results will likely differ, and could differ materially, from

those projected or assumed in the forward-looking statements.

Prospective investors are cautioned not to unduly rely on any such forward-looking

Forward-looking

statements are neither historical facts nor assurances of future performance.

Instead, they are based only on our current beliefs, expectations,

and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy,

and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks,

and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results and financial

condition may differ materially from those indicated in the forward-looking statements.

Therefore, you should not rely on any of these

or commercialization of the business or any assets acquired from other parties, any statements regarding future economic conditions

or performance, and any statements of assumptions underlying any of the foregoing.

All forward-looking statements included in this

report are made as of the date hereof and are based on information available to us as of such date.

We assume no obligation to

update any forward-looking statement.

In some cases, forward-looking statements can be identified by the use of terminology such

as “may,” “will,” “expects,” “plans,” “should,” “anticipates,”

“intends,” “seeks,” “believes,” “estimates,” “potential,” “forecasts,”

“continue,” or other forms of these words or similar words or expressions, or the negative thereof or other comparable

Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable,

there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct.

Actual results

will likely differ, and could differ materially, from those projected or assumed in the forward-looking statements.

investors are cautioned not to unduly rely on any such forward-looking statements.

Forward-looking statements

Important factors that could cause our actual results and financial condition to differ materially from those

indicated in the forward-looking statements include, among others, the following:

operate in an extremely competitive industry and are subject to pricing pressures.

have a history of losses.

are neither historical facts nor assurances of future performance.

Instead, they are based only on our current beliefs, expectations,

and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends,

the economy, and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent

uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

you should not rely on any of these forward-looking statements.

Important factors that could cause our actual results and financial

condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

● We operate in an extremely competitive industry and are subject to pricing pressures.

● We have a history of losses.

As our costs increase, we may not be able to generate sufficient

revenue to achieve and sustain profitability.

results of operation may be negatively impacted by public health epidemics or outbreaks,

● Our results of operation may be negatively impacted by public health epidemics or outbreaks,

including the novel coronavirus (“COVID-19”).

we fail to expand our sales and distribution channels, our business could suffer.

ability to expend into international markets is uncertain.

all of our raw materials enter the United States through a limited number of ports and we

rely on third parties to store and ship some of our inventory;

labor unrest at these ports

or other product delivery difficulties could interfere with our distribution plans and reduce

uncertainty in global economic conditions could negatively affect the Company’s operating

reviews, inquiries, investigations, and actions could harm our business or reputation.

operating results could be adversely affected by changes in the cost and availability of

● If we fail to expand our sales and distribution channels, our business could suffer.

● Our ability to expend into international markets is uncertain.

● Nearly all of our raw materials enter the United States through a limited number of ports, and

we rely on third parties to store and ship some of our inventory;

labor unrest at these ports or other product delivery difficulties

could interfere with our distribution plans and reduce our revenue.

● The uncertainty in global economic conditions could negatively affect the Company’s operating

● Government reviews, inquiries, investigations, and actions could harm our business or reputation.

● Our operating results could be adversely affected by changes in the cost and availability of

raw materials.

in costs, disruption of supply, or shortage of any of our battery components, such as electronic

and mechanical parts, or raw materials used in the production of such parts could harm our

could face potential product liability claims relating to products we assemble, manufacture,

or distribute, which could result in significant costs and liabilities, which would reduce

our profitability.

operations expose us to litigation, tax, environmental, and other legal compliance risks.

failure to introduce new products and product enhancements and broad market acceptance of

● Increases in costs, disruption of supply, or shortage of any of our battery components, such

as electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.

● We could face potential product liability claims relating to products we assemble, manufacture,

or distribute, which could result in significant costs and liabilities, which would reduce our profitability.

● Our operations expose us to litigation, tax, environmental, and other legal compliance risks.

● Our failure to introduce new products and product enhancements and broad market acceptance of

new technologies introduced by our competitors could adversely affect our business.

problems with our products could harm our reputation and erode our competitive position.

depend on our senior management team and other key employees, and significant attrition within

● Quality problems with our products could harm our reputation and erode our competitive position.

● We depend on our senior management team and other key employees, and significant attrition within

our management team or unsuccessful succession planning could adversely affect our business.

of substantial amounts of our securities in the public markets, or the perception that such

sales might occur, could reduce the price of our securities and may dilute your voting power

and your ownership interest in us.

management team has limited experience managing a public company.

are an “emerging growth company” and elect to comply with certain reduced reporting

requirements applicable to emerging growth companies, which could make our securities less

attractive to investors.

forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary

● Sales of substantial amounts of our securities in the public markets, or the perception that

such sales might occur, could reduce the price of our securities and may dilute your voting power and your ownership interest in

● Our management team has limited experience managing a public company.

● We are an “emerging growth company” and elect to comply with certain reduced reporting

requirements applicable to emerging growth companies, which could make our securities less attractive to investors.

All forward-looking

statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Our actual results will likely differ, and may differ materially, from anticipated results.

Financial estimates are subject

to change and are not intended to be relied upon as predictions of future operating results, and we assume no obligation to update or

disclose revisions to those estimates.

If we do update or correct one or more forward-looking statements, investors and others should

not conclude that we will make additional updates or corrections.

REGARDING TRADEMARKS

report includes trademarks, tradenames, and service marks that are our property or the property of others.

Solely for convenience, such

trademarks and tradenames sometimes appear without any “™” or “®” symbol.

However, failure to include

such symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to

Financial estimates are subject to

change and are not intended to be relied upon as predictions of future operating results, and we assume no obligation to update

or disclose revisions to those estimates.

If we do update or correct one or more forward-looking statements, investors and others

should not conclude that we will make additional updates or corrections.

NOTICE REGARDING TRADEMARKS

This report includes

trademarks, tradenames, and service marks that are our property or the property of others.

Solely for convenience, such trademarks

and tradenames sometimes appear without any “™” or “®” symbol.

However, failure to include such

symbols is not intended to suggest, in any way, that we will not assert our rights or the rights of any applicable licensor, to

these trademarks and tradenames.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis