What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 254 added, 242 removed, 389 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 unaudited

interim financial statements and related notes for the three months ended March 31, 2023 and 2022 included elsewhere in this Quarterly

interim financial statements and related notes for the three and six months ended June 30, 2023 and 2022 included elsewhere in this Quarterly

Report on Form 10-Q (“Quarterly Report”) as well as our audited financial statements and related notes for the fiscal years

45 unchanged sentences

detailed-oriented design and engineering and strong case materials and internal and structural layouts and are backed by responsive customer

COMPETITIVE STRENGTHS

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

Superior Capacity

to Lead Acid Competitors

Capacity to Lead Acid Competitors

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

6 unchanged sentences

at a .1C rate).

Battery Pack Flexibility

Pack Flexibility

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

7 unchanged sentences

our competition.

Long-time RV and

Marine Industry Experience and Relationship

RV and Marine Industry Experience and Relationship

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

4 unchanged sentences

In addition, our co-founders own significant equity in the Company, signaling a strong commitment and personal investment.

Expansion into New Markets

into New Markets

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

5 unchanged sentences

600 and AURA POWERCAP™ 800 (together, the “Aura”).

The AURA POWERCAP™

600 is designed to fit and convert any one of Expion360’s group 24 lithium batteries into a 600W mobile power station while the

AURA POWERCAP™ 800 is designed to fit and convert any one of Expion360’s group 27 lithium batteries into an 800W mobile power

The Aura’s proprietary patent pending design allows the AURA POWERCAP™ 600 to join seamlessly to 60Ah, 80Ah, and

95Ah Expion360 batteries and the AURA POWERCAP™ 800 to join to 100Ah and 120Ah Expion360 batteries.

The AURA POWERCAP™ 600

and AURA POWERCAP™ 800 are an exclusive fit to Expion360 batteries and will not fit other brands.

The AURA POWERCAP™ 600

and AURA POWERCAP™ 800 contain beneficial features and functions for a compact portable power unit, including the ability to recharge

the battery from the input charge port using the included 7 Amp household charger and the ability to recharge remotely with Expion360’s

lightweight portable solar panel options, which are sold separately.

Strong National Retail Customers and

Distribution Channels

The AURA POWERCAP™ 600 is designed to fit and convert any

one of Expion360’s group 24 lithium batteries into a 600W mobile power station while the AURA POWERCAP™ 800 is designed to

fit and convert any one of Expion360’s group 27 lithium batteries into an 800W mobile power station.

The Aura’s proprietary

patent pending design allows the AURA POWERCAP™ 600 to join seamlessly to 60Ah, 80Ah, and 95Ah Expion360 batteries and the AURA

POWERCAP™ 800 to join to 100Ah and 120Ah Expion360 batteries.

The AURA POWERCAP™ 600 and AURA POWERCAP™ 800 are an

exclusive fit to Expion360 batteries and will not fit other brands.

The AURA POWERCAP™ 600 and AURA POWERCAP™ 800 contain

beneficial features and functions for a compact portable power unit, including the ability to recharge the battery from the input charge

port using the included 7 Amp household charger and the ability to recharge remotely with Expion360’s lightweight portable solar

panel options, which are sold separately.

Additionally,

in June 2023, Expion360 unveiled e360 SmartTalk, an innovative mobile app that allows the seamless integration and management of e360

Bluetooth enabled lithium iron phosphate (LiFePO4) batteries.

The technology enables users to wirelessly monitor and manage e360 batteries,

providing a view of individual battery conditions and performance as well as a comprehensive view of an entire power bank consisting

of multiple e360 batteries.

The 48 Volt GC2 LiFePO4 battery was also introduced in June 2023 as our first e360 SmartTalk Battery for

powering electric golf carts and other light electric vehicles (LEVs).

National Retail Customers and Distribution Channels

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

4 unchanged sentences

already established a sales relationship with several large retail customers, including Camping World, a leading national RV retailer,

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

RECENT DEVELOPMENTS

Warrant Exercises

April 2023, holders of 22,606 warrants previously issued by the Company with an exercise price of $3.32 exercised their warrants on a

cashless basis, which resulted in the issuance of an additional 10,151 shares of the Company’s common stock.

As of the date of

this Quarterly Report on Form 10-Q, the Company had 747,830 outstanding warrants.

Key Factors Affecting Our Operating

Our operating results and financial performance

are significantly dependent on the following factors:

Consumer Demand

as well as NTP-STAG, and Meyer Distributing, both distributors of aftermarket RV parts.

DEVELOPMENTS AND TRENDS

Factors Affecting Our Operating Results

operating results and financial performance are significantly dependent on the following factors:

most of our current sales are generated through dealers, wholesalers and original equipment manufacturers (“OEM”) focused

6 unchanged sentences

During the COVID-19 pandemic, the increased adoption of the RV lifestyle benefited battery suppliers.

However, more recently we have seen a rise in fuel costs and other changes in macroeconomic conditions which has created a decrease in

end user spending decisions which is affecting our markets.

However, more recently we have seen a rise in fuel costs, higher interest rates, and other changes in macroeconomic conditions which

have created a decrease in end user spending decisions which is affecting our markets.

These conditions could have a negative effect

on our business.

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

39 unchanged sentences

China in the event it becomes necessary to do so.

Product and Customer Mix

sell six models of LiFEPO4 batteries, the AURA POWERCAP, and individual or bundled accessories for battery systems.

and Customer Mix

sell seven models of LiFEPO4 batteries, the AURA POWERCAP, and individual or bundled accessories for battery systems.

Our products are

20 unchanged sentences

costs, lower our product prices, or increase our sales volume to maintain our expected profitability levels.

Research and Development

and Development

anticipate that additional investments in our infrastructure and research and development spending will be required to scale our operations

7 unchanged sentences

As a result, we may need to raise additional funds for these research and development efforts.

KEY LINE ITEMS

Company’s revenue is generated from the sale of products consisting primarily of batteries and accessories.

3 unchanged sentences

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

Cost of Sales

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.

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

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.

General and Administrative Expenses

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

1 unchanged sentence

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

Interest and Other

and Other Income, net

expense consists of interest costs on loans with interest rates ranging from 3.75% to 10.0% and amortization of debt issuance costs.

As of March 31, 2023, all debt issuance costs have been fully amortized.

Provision for

As of June 30, 2023, all debt issuance costs have been fully amortized.

for Income Taxes

Company is subject to corporate federal and state income taxes.

13 unchanged sentences

Management has concluded that there were no material unrecognized tax benefits

as of March 31, 2023 or December 31, 2022.

as of June 30, 2023 or December 31, 2022.

Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company had

no accrual for interest or penalties on the Company’s balance sheet at March 31, 2023 or December 31, 2022 and did not recognize

interest and/or penalties in the statement of operations for the years ended March 31, 2023 and 2022, since there are no material unrecognized

no accrual for interest or penalties on the Company’s balance sheet at June 30, 2023 or December 31, 2022 and did not recognize

interest and/or penalties in the statement of operations for the years ended June 30, 2023 and 2022, since there are no material unrecognized

tax benefits.

Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.

Off-Balance Sheet

Sheet Arrangements

have no material off-balance sheet arrangements.

RESULTS OF OPERATIONS

OF OPERATIONS

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

For the Three Months Ended:

March 31, 2023

March 31, 2022

% of Net sales

Three Months Ended

Six Months Ended

Cost of sales

3 unchanged sentences

Loss before income taxes

net for the three months ended March 31, 2023 decreased by $648,000, or 30.1%, compared to the three months ended March 31, 2022.

were $2.2 million for the three months ended March 31, 2022 and $1.5 million for the three months ended March 31, 2023.

The year over

year decrease was primarily attributable to a large initial stocking order for one of our resellers that was placed in 2022.

Cost of Sales

cost of sales for the three months ended March 31, 2023 decreased by $230,000, or 17.8%, compared to the three months ended March 31,

Cost of sales were $1.3 million for the three months ended March 31, 2022 and $1.1 million for the three months ended March 31,

Cost of sales as a percentage of sales increased by 10.6% in that period.

The percentage increase in cost of sales was primarily

related to increases in fixed facilities costs and labor, changes in product mix related to sales, discount levels related to specific

customer groups, and supplier and shipping costs, which the Company is currently monitoring.

gross profit for the three months ended March 31, 2023 decreased by $418,000, or 17.8%, compared to the three months ended March 31,

Gross profit was $862,000 for the three months ended March 31, 2022 and $443,000 for the three months ended March 31, 2023.

profit as a percentage of sales decreased by 10.6% for that period, from 40.0% for the three months ended March 31, 2022 to 29.4% for

the three months ended March 31, 2023.

The decrease in gross profit for the three months ended March 31, 2023 was primarily attributable

to increases in fixed facilities costs and labor, changes in product mix related to sales, discount levels related to specific customer

groups, and supplier and shipping costs, which the Company is currently monitoring.

Selling, General and

Administrative Expenses

general and administrative expenses increased by $925,000, or 77.3%, to $2.1 million for the three months ended March 31, 2023 compared

to $1.2 million for the three months ended March 31, 2022, primarily due to legal and professional costs related to changes in management,

enhancement of key legal documents, litigation expenses, and payment of key advisory services.

The most substantial increases were in

legal and professional services, salaries and benefits, and research and development.

net for the three months ended June 30, 2023 decreased by $478,000, or 21.7%, compared to the three months ended June 30, 2022.

were $2.2 million for the three months ended June 30, 2022 and $1.7 million for the three months ended June 30, 2023.

net for the six months ended June 30, 2023 decreased by $1.1 million, or 25.8%, compared to the six months ended June 30, 2022.

were $4.4 million for the six months ended June 30, 2022 and $3.2 million for the six months ended June 30, 2023.

year over year decrease was primarily attributable to a large initial stocking order for one of our resellers which was fulfilled in

the first and second quarters of 2022.

Additionally, the second quarter of 2022 included back orders that were fulfilled with inventory

purchased with IPO proceeds.

cost of sales for the three months ended June 30, 2023 decreased by $226,000, or 15.1%, compared to the three months ended June 30, 2022.

Cost of sales were $1.5 million for the three months ended June 30, 2022 and $1.3 million for the three months ended June 30, 2023.

of sales as a percentage of sales increased by 5.7% in that period.

cost of sales for the six months ended June 30, 2023 decreased by $455,000, or 16.3%, compared to the six months ended June 30, 2022.

Cost of sales were $2.8 million for the six months ended June 30, 2022 and $2.3 million for the six months ended June 30, 2023.

of sales as a percentage of sales increased by 8.2% in that period.

percentage increase in cost of sales was primarily related to the lower sales volume resulting in lower absorption of our fixed facilities

costs and labor, along with changes in product mix related to sales, discount levels related to specific customer groups, and supplier

and shipping costs, which the Company is currently monitoring.

gross profit for the three months ended June 30, 2023 decreased by $252,000, or 35.7%, compared to the three months ended June 30, 2022.

Gross profit was $706,000 for the three months ended June 30, 2022 and $454,000 for the three months ended June 30, 2023.

as a percentage of sales decreased by 5.7% for that period, from 32.0% for the three months ended June 30, 2022 to 26.3% for the three

months ended June 30, 2023.

gross profit for the six months ended June 30, 2023 decreased by $670,000, or 42.7%, compared to the six months ended June 30, 2022.

Gross profit was $1.6 million for the six months ended June 30, 2022 and $898,000 for the six months ended June 30, 2023.

as a percentage of sales decreased by 8.2% for that period, from 36.0% for the six months ended June 30, 2022 to 27.8% for the six months

ended June 30, 2023.

decrease in gross profit was primarily attributable to the lower sales volume resulting in lower absorption of our fixed facilities costs

and labor, along with changes in product mix related to sales, discount levels related to specific customer groups, and supplier and

shipping costs, which the Company is currently monitoring.

General and Administrative Expenses

general and administrative expenses decreased by $1.7 million, or 46.1%, to $2.0 million for the three months ended June 30, 2023 compared

to $3.6 million for the three months ended June 30, 2022.

general and administrative expenses decreased by $745,000, or 15.5%, to $4.1 million for the six months ended June 30, 2023 compared

to $4.8 million for the six months ended June 30, 2022.

The change is primarily due to a decrease in non-cash stock-based compensation

of $2,114,529 which was partially offset by a $759,714 increase in legal and professional services and a $141,094 increase in sales and

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

Three Months Ended 3/31/23

Three Months Ended 3/31/22

Three Months Ended June 30,

Six Months Ended June 30,

Salaries and benefits

3 unchanged sentences

Research and development

Travel expenses

Software, fees, tech support

Travel expenses

Supplies, office

Other Expense

other expense for the three months ended March 31, 2023 and 2022 was $300,000 and $362,000, respectively.

Other expense for the three

months ended March 31, 2023 was made up almost entirely of settlement expense.

Other expense for the three months ended March 31, 2022

was primarily attributable to interest expense of debt obligations and the amortization of debt discount.

the three months ended March 31, 2023 and 2022, non-cash amortization of debt discount totaled $0 and $215,000, respectively.

expense attributable to debt obligations totaled $38,000 and $148,000 during the three months ended March 31, 2023 and 2022, respectively.

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

other (income)/expense for the three months ended June 30, 2023 and 2022 was ($18,000) and $1.18 million, respectively.

for the three months ended June 30, 2023 was made up almost entirely of interest income related to investments.

Other expense for the

three months ended June 30, 2022 was made up almost entirely of interest expense of debt obligations and the amortization of debt discount.

other expense for the six months ended June 30, 2023 and 2022 was $281,000 and $1.54 million, respectively.

Other expense for the six

months ended June 30, 2023 was made up almost entirely of settlement expense.

Other expense for the six months ended June 30, 2022 was

made up almost entirely of interest expense of debt obligations and the amortization of debt discount.

the three months ended June 30, 2023 and 2022, non-cash amortization of debt discount totaled $0 and $982,317, respectively.

expense attributable to debt obligations totaled $26,000 and $193,000 during the three months ended June 30, 2023 and 2022, respectively.

During the six months ended June 30, 2023 and 2022, non-cash amortization of debt discount totaled $0 and $1.20 million, respectively.

Interest expense attributable to debt obligations totaled $65,000 and $341,000 during the six months ended June 30, 2023 and 2022, respectively.

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%.

net loss for the three months ended March 31, 2023 and 2022 was $2.0 million and $697,000, respectively.

The increase in net loss was

primarily the result of increased selling, general, and administrative expenses as we incurred higher legal and professional costs.

Additionally,

for the period ended March 31, 2023, the Company recognized $251,680 in non-cash stock-based settlement expenses, compared to $0 for

the period ended March 31, 2022.

See Item 1 “Legal Proceedings” of Part II Other Information.

LIQUIDITY AND

CAPITAL RESOURCES

net loss for the three months ended June 30, 2023 and 2022 was $1.5 million and $4.09 million, respectively.

Our net loss for the six

months ended June 30, 2023 and 2022 was $3.5 million and $4.79 million, respectively.

The decrease in net loss was primarily the result

of decreased selling, general, and administrative expenses as we incurred lower non-cash stock-based compensation and no interest expense

from the amortization of debt discount.

Additionally, for the period ended June 30, 2023, the Company recognized $281,680 in non-cash

stock-based settlement expenses, compared to $0 for the period ended June 30, 2022.

See Item 1 “Legal Proceedings” of Part

II Other Information.

AND CAPITAL RESOURCES

operations have been financed primarily through net proceeds from the sale of securities and from borrowings.

As of March 31, 2023 and

As of June 30, 2023 and

December 31, 2022, our current assets exceeded current liabilities by $8.0 million and $10.8 million, respectively, and we had cash and

5 unchanged sentences

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

of March 31, 2023, we expect our short-term liquidity requirements to include (a) approximately $379,000 of capital additions;

of June 30, 2023, we expect our short-term liquidity requirements to include (a) approximately $379,000 of capital additions;

(b) principal

2 unchanged sentences

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.

Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before

4 unchanged sentences

be no assurance as to the availability or terms upon which such financing and capital might be available.

For the year ended December

31, 2022 and the three months ended March 31, 2023, the Company sustained recurring losses and negative cash flows from operations.

factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date

that the financial statements for the period ended March 31, 2023 are issued.

However, management is working to address its cash flow

challenges, including raising additional capital, alternative supply chain resources, and in-house assembly lines.

See also the risk

factor entitled “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 our 2022 From 10-K.

Financing Obligations

For the three and six months

ended June 30, 2023 and 2022, respectively, the Company sustained recurring losses and negative cash flows from operations.

These factors

raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the

financial statements for the period ended June 30, 2023 are issued.

However, management is working to address its cash flow challenges,

including raising additional capital, managing inventory levels, identifying alternative supply chain resources, and continuing to develop

our in-house assembly lines.

See also the risk factor entitled “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 our 2022 From 10-K.

April 1, 2022, we closed our initial public offering which resulted in approximately $14.8 million of net proceeds, of which approximately

$2,464,000 was used to pay down principal and accrued interest on high interest-bearing debt.

of March 31, 2023, the Company’s long-term debt totaled $418,000, comprised of $149,000 outstanding under a COVID-19 Economic Injury

Disaster Loan, $241,000 outstanding under vehicle financing arrangements, and an equipment loan for $9,000.

In January 2023, the Company

repaid a vehicle loan with an interest rate of 11.21% in the amount of $89,360 which included principal, interest, and fees.

as of March 31, 2023, the Company had outstanding shareholder loans totaling $825,000.

of June 30, 2023, the Company’s debt totaled $374,000, comprised of $149,000 outstanding under a COVID-19 Economic Injury Disaster

Loan, $200,000 outstanding under vehicle financing arrangements, and an equipment loan for $8,000.

In January 2023, the Company repaid

a vehicle loan with an interest rate of 11.21% in the amount of $89,360 which included principal, interest, and fees.

In May 2023, the

Company sold a vehicle including repayment of the related vehicle loan with an interest rate of 5.89% in the amount of $31,568 which

included principal and interest.

In addition, as of June 30, 2023, the Company had outstanding stockholder loans totaling $825,000.

Promissory Notes

promissory notes due to shareholders had an outstanding principal balance of $825,000 as of March 31, 2023.

The unsecured promissory

notes require monthly interest-only payments at 10% per annum and mature at various dates from August 2023 to December 2024.

8 – Shareholder Promissory Notes of our unaudited interim financial statements and related notes for the three months ended March

31, 2023 and 2022 included elsewhere in this Quarterly Report for more information about the unsecured promissory notes.

Vehicle Financing

of March 31, 2023, the Company has six notes payable to GM Financial for vehicles.

promissory notes due to stockholders had an outstanding principal balance of $825,000 as of June 30, 2023.

The unsecured promissory notes

require monthly interest-only payments at 10% per annum and mature at various dates from January 2024 to December 2024.

Stockholder Promissory Notes in Item 1 – Financial Statements of Part I – Financial Information.

Financing Arrangements

of June 30, 2023, the Company has five notes payable to GM Financial for vehicles.

In addition, the commercial line secured in April

5 unchanged sentences

notes are personally guaranteed by a co-founder of the Company.

See Note 7 – Long-Term Debt in Item 1 – Financial Statements

of Part I – Financial Information.

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

Three Months Ended March 31,

Net cash provided by / (used in) operating activities

Six Months Ended June 30,

Net cash provided by / (used in) operating

$ (3,521,527 )

Net cash used in investing activities

Net cash used in financing activities

Cash flows used in operating

$ (2,727,928 )

Net cash provided by / (used in) investing activities

Net cash provided by / (used in) financing activities

flows used in operating activities

largest source of operating cash is cash collection from sales of our products.

4 unchanged sentences

proceeds from the sales of common stock.

generated negative cash flows from operating activities of $1.4 million for the three months ended March 31, 2023, compared to positive

cash flows of $506,000 for the corresponding period in 2022.

generated negative cash flows from operating activities of $3.5 million for the six months ended June 30, 2023, compared to negative

cash flows of $2.7 million for the corresponding period in 2022.

Factors affecting operating cash flows during the periods included:

For the three months ended

March 31, 2023, our loss of $2.0 million was reduced by non-cash transactions including a stock-based settlement of $252,000 and

depreciation of $48,000.

For three months ended March 31, 2022, our loss of $697,000 was adjusted and reduced by non-cash transactions

including amortization of debt discount on convertible notes of $215,000 and depreciation of $29,000.

Cash provided/(used) by

accounts receivable was ($312,000) and $196,000 for the three months ended March 31, 2023 and 2022, respectively, representing an

increase in accounts receivable for the three months ended March 31, 2023 and a decrease in accounts receivable for the three months

ended March 31, 2022.

Sales are generally collected within 30 to 45 days.

These changes are mainly due to timing where a few large

orders were placed and had open balances at a given date.

Cash used by accounts payable

was $896,000 and $279,000 for the three months ended March 31, 2023 and 2022, respectively, representing an increase in accounts

payable for both three-month periods.

These changes are mainly due to orders shipping from our suppliers in China, where pre-payments

had been made but final payments were still pending.

For the six months ended

June 30, 2023, our loss of $3.5 million was reduced by non-cash transactions including a stock-based settlement of $252,000 and depreciation

For the six months ended June 30, 2022, our loss of $4.8 million was adjusted and reduced by non-cash transactions including

stock-based compensation of $2.1 million and amortization of debt discount of $1.2 million.

The increase in accounts

receivable was $92,000 and $45,000 for the six months ended June 30, 2023 and 2022, respectively.

Sales are generally collected within

30 to 45 days.

These changes are mainly due to timing where a few large orders were placed and had open balances at a given date.

The decrease in accounts

payable was $11,000 and $27,000 for the six months ended June 30, 2023 and 2022, respectively.

These changes are mainly due to timing

of when payments are due.

Other significant changes

include an increase in customer deposits of $209,000 during the three months ended March 31, 2023, representing deposits for custom

include an increase in customer deposits of $157,000 during the six months ended June 30, 2023, representing deposits for custom

orders placed in early 2023 for orders that will be shipped and invoiced throughout 2023.

Cash used for inventory

and prepaid inventories increased by $483,000 and decreased by $535,000 for the three months ended March 31, 2023 and 2022, respectively.

The increase in 2023 is primarily due to timing of significant purchases and prepayments of inventory to Chinese suppliers.

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

The decrease in

2022 was primarily due to the Company placing limited orders in the lead-up to the IPO, which took place in April, 2022.

Cash flows used

in investing activities

used cash in investing activities of $9,000 and $33,000 for the three months ended March 31, 2023 and 2022, respectively.

2023 were for improvements of existing vehicles and purchases in 2022 were for capital purchases of property and equipment related to

expanding and improving our facilities and infrastructure.

We anticipate that we

will spend up to $379,000 in 2023 as we continue to automate our new assembly line and enhance our quality control measures.

Cash flows provided by

financing activities

used in financing activities was $43,000 and $447,000 for the three months ended March 31, 2023 and 2022, respectively.

For the three

months ended March 31, 2023, we paid down debt principal of $93,000, which was offset by net cash proceeds of $50,000 from the exercise

For the three months ended March 31, 2022, we had an increase in deferred IPO costs of $424,000, paid down debt principal

of $12,000, and paid on liability for sale of future revenues of $12,000.

and prepaid inventories increased by $437,000 and $706,000 for the six months ended June 30, 2023 and 2022, respectively.

The increases

are primarily due to timing of significant purchases and prepayments of inventory to Chinese suppliers.

Turnaround time for receiving

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

flows used in investing activities

was provided by investing activities in the amount of $4,000 for the six months ended June 30, 2023, and cash was used in investing activities

in the amount of $139,000 for the six months ended June 30, 2022.

We have had fewer purchases of property and equipment in the six months

ended June 30, 2023 than we had in the same period in 2022.

We have also received proceeds from selling property and equipment in the

six months ended June 30, 2023 that we did not have in the same period in 2022.

We anticipate that we will spend up to $379,000 in 2023

as we continue to automate our new assembly line and enhance our quality control measures.

flows provided by financing activities

used in financing activities was $87,000 for the six months ended June 30, 2023 and cash provided by financing activity was $12.5 million

for the six months ended June 30, 2022.

For the six months ended June 30, 2023, we paid down debt principal of $137,000, which was offset

by net cash proceeds of $50,000 from the exercise of warrants.

For the six months ended June 30, 2022, we had net proceeds from the issuance

of common stock of $14.8 million due to the IPO, paid down debt principal of $1.7 million, and paid lines of credit of $550,000.

and Other Obligations

estimated future obligations consist of long-term operating lease liabilities.

As of March 31, 2023, the Company had $3.1 million in

long-term operating lease liabilities.

CRITICAL ACCOUNTING

POLICIES AND ESTIMATES

As of June 30, 2023, the Company had $3.0 million in long-term

operating lease liabilities.

ACCOUNTING POLICIES AND ESTIMATES

above discussion and analysis of our financial condition and results of operations is based upon our financial statements.

13 unchanged sentences

components, and related landing costs.

As of March 31, 2023 and December 31, 2022, the Company had inventory that consisted of finished

As of June 30, 2023 and December 31, 2022, the Company had inventory that consisted of finished

assemblies totaling $2,342,945 and $2,722,765, respectively, and raw materials (inventory components, parts, and packaging) totaling

2 unchanged sentences

of the assembly warehouse.

Property and Equipment

Company periodically reviews its inventory for evidence of slow-moving or obsolete inventory and provides for an allowance when considered

The Company determined that no such reserve was necessary as of June 30, 2023 or December 31, 2022.

The Company prepays for

inventory purchases from foreign suppliers.

Prepaid inventory totaled $160,854 and $141,611 at June 30, 2023 and December 31, 2022, respectively,

and included inventory in transit where title had passed to the Company but had not yet been physically received.

and Equipment

and equipment are stated at cost less depreciation calculated on the straight-line basis over the estimated useful lives of the related

11 unchanged sentences

right to use an underlying asset during the lease term, and operating lease liabilities represent

the Company’s

obligation to make lease payments arising from the lease.

Operating leases are included in ROU assets, current operating lease liabilities,

and long-term operating lease liabilities on the Company’s Balance Sheets.

The Company does not have any finance leases.

Company’s obligation to make lease payments arising from the lease.

Operating leases are included in ROU assets, current operating

lease liabilities, and long-term operating lease liabilities on the Company’s Balance Sheets.

The Company does not have any finance

ROU assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease

9 unchanged sentences

Company accounts for lease and non-lease components as a single lease component for all its leases.

Revenue Recognition

Company’s revenue is generated from the sale of products consisting primarily of batteries and accessories.

14 unchanged sentences

unconditional and the Company determines there are no uncertainties regarding payment terms or transfer of control.

Shipping and Handling

and Handling Costs

and handling fees billed to customers are classified on the Statement of Operations as “Sales, net” and totaled $15,365 and

$4,151 during the three months ended March 31, 2023 and 2022, respectively.

Shipping and handling costs for shipping product to customers

totaled $43,208 and $38,724 during the three months ended March 31, 2023 and 2022, respectively, and are classified in selling, general,

and administrative expense in the accompanying Statements of Operations.

Research and Development

$7,230 during the three months ended June 30, 2023 and 2022, respectively, and $24,898 and $11,381 during the six months ended June 30,

2023 and 2022, respectively.

Shipping and handling costs for shipping product to customers totaled $48,549 and $43,934 during the three

months ended June 30, 2023 and 2022, respectively, and $91,757 and $82,658 during the six months ended June 30, 2023 and 2022, respectively,

and are classified in selling, general, and administrative expense in the accompanying Statements of Operations.

and Development

and development costs are expensed as incurred.

Research and development costs charged to expense amounted to $94,078 and $107,058 for

the three months ended March 31, 2023 and 2022, and are included in selling, general and administrative expenses in the accompanying

Statements of Operations.

November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and

state income taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences

between the financial statement carrying amounts of exiting assets and liabilities and their respective tax basis.

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.

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.

the three months ended June 30, 2023 and 2022, respectively, and $171,258 and $112,375 for the six months ended June 30, 2023 and 2022,

respectively, and are included in selling, general and administrative expenses in the accompanying Statements of Operations.

November 1, 2021, the Company converted from an LLC to a C corporation and, as a result, became subject to corporate federal and state

income taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between

the financial statement carrying amounts of exiting assets and liabilities and their respective tax basis.

Deferred tax assets, including

tax loss and credit carryforwards, and liabilities are measured using the enacted tax rates expected to apply to taxable income in the

years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities

of a change in tax rates is recognized in income in the period that included the enactment date.

Deferred income tax expense represents

the change during the period in the deferred tax assets and deferred tax liabilities.

Deferred tax assets are reduced by a valuation

allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not

March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

7 unchanged sentences

previously enacted Tax Cuts and Jobs Act.

As of March 31, 2023 and December 31, 2022, the Company has not recorded any income tax provision/(benefit)

As of June 30, 2023 and December 31, 2022, the Company has not recorded any income tax provision/(benefit)

resulting from the CARES Act, mainly due to the Company’s history of net operating losses.

4 unchanged sentences

impact of the CAA and its impact on its financial statements in 2023 and beyond.

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 regarding the markets where we operate, any statements of the plans and objectives of our management for future operations,

any statements concerning proposed new products or services, any statements regarding expected capital expenditures, 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 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 statements.

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

limitation, any projections regarding the markets where we operate, any statements of the plans and objectives of our management for

future operations, any statements concerning proposed new products or services, any statements regarding expected capital expenditures,

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 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.

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

51 unchanged sentences

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

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.

4 unchanged sentences

these trademarks and tradenames.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for

1 unchanged sentence

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