Expion360 Inc.

Previous wording

The 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, 2026 and 2025 included elsewhere in this Quarterly Report, as well as our audited financial statements and related notes for the fiscal years ended December 31, 2025 and 2024, included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 17, 2026 (the “Annual Report”). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Quarterly Report, including in Part II, Item 1A, “Risk Factors” of this Quarterly Report and “Cautionary Note Regarding Forward-Looking Statements and Industry Data,” as well as in Part I, Item 1A, “Risk Factors” of the Annual Report. Percentage amounts included in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations using the figures in our financial statements included elsewhere in this Quarterly Report. Certain other amounts that appear in this section may not sum due to rounding.

Current wording

The 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 and six months ended June 30, 2026 and 2025 included elsewhere in this Quarterly Report, as well as our audited financial statements and related notes for the fiscal years ended December 31, 2025 and 2024, included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 17, 2026 (the “Annual Report”). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties that may adversely impact our operations and financial results. These risks and uncertainties are discussed in this Quarterly Report, including in Part II, Item 1A, “Risk Factors” of this Quarterly Report and “Cautionary Note Regarding Forward-Looking Statements and Industry Data,” as well as in Part I, Item 1A, “Risk Factors” of the Annual Report. Percentage amounts included in this section have not in all cases been calculated on the basis of rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary from those obtained by performing the same calculations using the figures in our financial statements included elsewhere in this Quarterly Report. Certain other amounts that appear in this section may not sum due to rounding.

Previous wording

Management expects that products sourced from our Asian third-party manufacturers may be subject to additional tariffs in 2026. U.S. trade policy has been subject to significant legal and regulatory developments, and tariffs or other trade measures may continue to be imposed, modified, suspended, or challenged under various statutory authorities. We intend to mitigate the potential impact on margins through a combination of supplier negotiations, selective customer price adjustments, ongoing cost optimization initiatives, and the development of lower-cost product configurations designed to improve manufacturing efficiency and overall unit economics as sales volumes increase. The effectiveness of these measures will depend on market conditions, sales volume, product mix, and future tariff developments.

Current wording

Management expects that products sourced from our Asian third-party manufacturers may be subject to additional tariffs in 2026. U.S. trade policy has been subject to significant legal and regulatory developments, and tariffs or other trade measures may continue to be imposed, modified, suspended, or challenged under various statutory authorities. During the three months ended June 30, 2026, we received tariff refunds of approximately $11,000, which were recorded in other income. We received another $298,000 in July, 2026, which will be reflected on our Quarterly Report for the period ending September 30, 2026. We intend to mitigate the potential impact on margins through a combination of supplier negotiations, selective customer price adjustments, ongoing cost optimization initiatives, and the development of lower-cost product configurations designed to improve manufacturing efficiency and overall unit economics as sales volumes increase. The effectiveness of these measures will depend on market conditions, sales volume, product mix, and future tariff developments.

Previous wording

As of March 31, 2026, we sell 14 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to dealers, wholesalers, private-label customers, and OEMs at differing prices and with varying cost structures. The average selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs, which may affect pricing and gross margins. Accessory and OEM sales typically have lower average selling prices and resulting margins relative to other distribution channels. As a result, shifts in customer mix could decrease our margins and negatively affect our growth or require us to increase the prices of our products. However, the benefits of increased sales volumes and broader customer penetration typically have offset, and may continue to offset, the impact of lower-margin product and customer mix. The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin.

Current wording

As of June 30, 2026, we sell 13 models of LiFEPO4 batteries, the Aura 600, and various individual or bundled accessories for battery systems. Our products are sold to dealers, wholesalers, private-label customers, and OEMs at differing prices and with varying cost structures. The average selling price and costs of goods sold for a particular product will vary with changes in the sales channel mix, volume of products sold, and the prices of such products sold relative to other products. While we work with our suppliers to limit price and supply cost increases, our products may see price increases resulting from a rise in supply costs due to currency fluctuations, inflation, and tariffs, which may affect pricing and gross margins. Accessory and OEM sales typically have lower average selling prices and resulting margins relative to other distribution channels. As a result, shifts in customer mix could decrease our margins and negatively affect our growth or require us to increase the prices of our products. However, the benefits of increased sales volumes and broader customer penetration typically have offset, and may continue to offset, the impact of lower-margin product and customer mix. The relative margins of products sold also impact our results of operations. As we introduce new products, we may see a change in product and sales channel mix, which could result in period-to-period fluctuations in our overall gross margin.

Previous wording

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

Current wording

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

Previous wording

Net sales for the three months ended March 31, 2026 decreased by $0.5 million, or 24%, compared to the three months ended March 31, 2025. Net sales were $1.6 million for the three months ended March 31, 2026 and $2.0 million for the three months ended March 31, 2025. The decrease was primarily due to discontinuing resale of certain low-margin accessories in order to increase our profit margins. Additionally, certain OEM customers entered the period carrying elevated battery inventory levels built up through year-end, which tempered order volume in the quarter. We anticipate demand from these customers to normalize in the second quarter of 2026 and beyond as their inventory levels return to standard operating levels.

Current wording

The decrease was primarily due to discontinuing resale of certain low-margin accessories in order to increase our profit margins. Additionally, certain OEM customers entered the period carrying elevated battery inventory levels built up through year-end, which tempered order volume early in the year.

Previous wording

Total cost of sales for the three months ended March 31, 2026 decreased by $0.4 million, or 24%, compared to the three months ended March 31, 2025. Cost of sales as a percent of sales decreased by 0.8 percentage points compared to the prior year period, from 75.5% to 74.7%. Cost of sales was $1.2 million for the three months ended March 31, 2026 and $1.5 million for the three months ended March 31, 2025. The decrease in cost of sales was primarily related to the decrease in net sales, while the decrease in cost of sales as a percentage of net sales was primarily related to changing our product mix to exclude low-margin items and maintaining healthy pricing models across our core battery product lines.

Current wording

The decrease in cost of sales was related to the decrease in net sales and changing our product mix to exclude low-margin items and maintaining healthy pricing models across our core battery product lines.

Previous wording

Our gross profit for the three months ended March 31, 2026 decreased by $0.1 million, or 21%, compared to the three months ended March 31, 2025. Gross profit was $0.4 million for the three months ended March 31, 2026 and $0.5 million for the three months ended March 31, 2025. Gross profit as a percentage of sales increased by 0.8 percentage points compared to the prior year period. The decrease in gross profit for the three months ended March 31, 2026 was primarily attributable to the decrease in net sales, partially offset by the increase in gross profit as a percentage of sales.

Current wording

Our gross profit for the three months ended June 30, 2026 increased by $37,000, or 5.7%, compared to the three months ended June 30, 2025. Gross profit was $658,000 for the three months ended June 30, 2026 and $623,000 for the three months ended June 30, 2025. Gross profit as a percentage of sales increased by 11.6% for that period, from 20.8% for the three months ended June 30, 2025 to 32.4% for the three months ended June 30, 2026.

Previous wording

Other income for the three months ended March 31, 2026 was $9,000 and other expense for the three months ended March 31, 2025 was $4,000. Other income for the three months ended March 31, 2026 was primarily attributable to interest income, partially offset by interest expense. Other expense for the three months ended March 31, 2025 was made up almost entirely of interest expense, partially offset by a gain on sale of property and equipment.

Current wording

Other income was $29,000 for the six months ended June 30, 2026, and other expense was $23,000 for the six months ended June 30, 2025, a net improvement of $52,000. Other income for the six months ended June 30, 2026 included $28,000 in interest income and $11,000 in tariff refunds, slightly offset by $9,000 in interest expense. Other expense for the six months ended June 30, 2025 included $13,000 in loss on sale of property and equipment and $9,000 in interest expense.

Previous wording

Our net loss for the three months ended March 31, 2026 and 2025 was $1.8 million and $1.2 million, respectively. The increase in net loss was primarily the result of higher selling, general, and administrative expenses and lower net sales for the period ended March 31, 2026.

Current wording

Our net loss for the six months ended June 30, 2026 and 2025 was $3.0 million and $2.5 million, respectively. This was primarily due to lower net sales and higher selling, general, and administrative expenses, which were not fully offset by the improvement in other income and expense nor the lower cost of sales as a percentage of sales.

Previous wording

Net cash used in operating activities was $1.1 million for the three months ended March 31, 2026, compared to $1.2 million for the prior year period. The decrease in cash used was primarily attributable to the timing of our inventory purchases, timing of prepaid expenses, and timing of accounts receivable and included the following:

Current wording

Net cash used in operating activities was $2.6 million for the six months ended June 30, 2026, compared to $1.6 million for the prior year period. The increase in cash used was primarily attributable to the timing of our inventory purchases, timing of prepaid expenses, and timing of accounts receivable and accounts payable, and included the following:

Previous wording

There was no cash provided by or used in investing activities for the three months ended March 31, 2026, compared to cash provided by investing activities of $3,000 for the three months ended March 31, 2025. We did not purchase or dispose of any fixed assets in the three months ended March 31, 2026, and sold one vehicle in the three months ended March 31, 2025.

Current wording

There was no cash provided by or used in investing activities for the six months ended June 30, 2026, compared to cash provided by investing activities of $4,000 for the six months ended June 30, 2025. We did not purchase or dispose of any fixed assets in the six months ended June 30, 2026, and sold three vehicles in the six months ended June 30, 2025.

Previous wording

For the three months ended March 31, 2026, net proceeds from the issuance of common stock were $1.2 million, slightly offset by principal payments on long-term debt of $8,000. For the three months ended March 31, 2025, we received net proceeds of $1.8 million from the issuance of common stock, offset by principal payments on long-term debt totaling $8,000.

Current wording

For the six months ended June 30, 2026, net proceeds from the issuance of common stock were $1.2 million, slightly offset by principal payments on long-term debt of $41,000. For the six months ended June 30, 2025, we received net proceeds of $1.8 million from the issuance of common stock, offset by principal payments on long-term debt totaling $17,000.

Previous wording

Our operations have been financed primarily through net proceeds from the sale of securities. On December 12, 2025, we entered into an at-the-market issuance sales agreement. We commenced sales under the agreement in January 2026 and have sold an aggregate of 1,656,559 shares for net proceeds of approximately $1.2 million during the three months ended March 31, 2026. As of March 31, 2026, our working capital was $5.6 million compared to $6.0 million as of December 31, 2025, and we had cash and cash equivalents of $3.1 million and $3.0 million as of March 31, 2026 and December 31, 2025, respectively. During the three months ended March 31, 2026, we received net proceeds of approximately $1.2 million from the issuance of common stock.

Current wording

Our operations have been financed primarily through net proceeds from the sale of securities. On December 12, 2025, we entered into an at-the-market issuance sales agreement. We commenced sales under the agreement in January 2026 and have sold an aggregate of 138,047 shares (post-Reverse Stock Split) for net proceeds of approximately $1.2 million during the six months ended June 30, 2026. As of June 30, 2026, our working capital was $4.4 million compared to $6.0 million as of December 31, 2025, and we had cash and cash equivalents of $1.5 million and $3.0 million as of June 30, 2026 and December 31, 2025, respectively.

Previous wording

As of March 31, 2026, we expect our short-term liquidity requirements to include scheduled principal debt payments of approximately $32,000 and lease obligation payments of approximately $332,000, including imputed interest.

Current wording

As of June 30, 2026, we expect our short-term liquidity requirements to include scheduled principal debt payments of approximately $13,000 and lease obligation payments of approximately $328,000, including imputed interest.

Previous wording

We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. We continue to experience recurring operating losses and negative cash flows from operations, with $1.1 million used in operating activities during the three months ended March 31, 2026. While management has implemented cost containment measures and is working to address its cash flow challenges, including by raising additional capital, expanding into new sales channels, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses, material uncertainty remains. Without additional funding or a material increase in revenue generation, we may not be able to meet our obligations as they become due. These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Quarterly Report are issued. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenues and profit from operations. We expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional debt or equity financing to expand our presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business plan over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might be available. 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 Part I, Item 1A, “Risk Factors” of the Annual Report.

Current wording

We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months. We continue to experience recurring operating losses and negative cash flows from operations, with $2.6 million used in operating activities during the six months ended June 30, 2026. While management has implemented cost containment measures and is working to address its cash flow challenges, including by raising additional capital, expanding into new sales channels, managing inventory levels, identifying alternative supply chain resources, and managing operational expenses, material uncertainty remains. Without additional funding or a material increase in revenue generation, we may not be able to meet our obligations as they become due. These factors raise substantial doubt about our ability to continue as a going concern within 12 months after the date that the financial statements included in this Quarterly Report are issued. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenues and profit from operations. We expect to continue to incur additional losses for the foreseeable future, and we may need to raise additional debt or equity financing to expand our presence in the marketplace, develop new products, achieve operating efficiencies, and accomplish our long-term business plan over the next several years. There can be no assurance as to the availability or terms upon which such financing and capital might be available. 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 Part I, Item 1A, “Risk Factors” of the Annual Report.

Previous wording

As of March 31, 2026, our long-term debt was approximately $190,000, of which $32,000 is due within the next 12 months. This balance includes $138,000 outstanding under a COVID-19 Economic Injury Disaster Loan and $52,000 outstanding under vehicle financing arrangements.

Current wording

As of June 30, 2026, our long-term debt was approximately $156,000, of which $13,000 is due within the next 12 months. This balance includes $137,000 outstanding under a COVID-19 Economic Injury Disaster Loan and $19,000 outstanding under vehicle financing arrangements.

Previous wording

As of March 31, 2026, we had three notes payable to GM Financial for vehicles. In addition, a commercial line secured in April 2022 for $300,000 was renewed in April 2023 and increased to $350,000, and renewed again each April from 2024 through 2026 for the same amount of $350,000. This commercial line may be used to finance vehicle purchases and expires in April 2027. The notes are payable in aggregate monthly installments of $2,560, including interest at rates ranging from 6.14% to 7.29% per annum, mature at various dates from October 2027 to May 2028, and are secured by the related vehicles.

Current wording

As of June 30, 2026, we had one note payable to GM Financial for vehicles. In addition, a commercial line secured in April 2022 for $300,000 was renewed in April 2023 and increased to $350,000, and renewed again each April from 2024 through 2026 for the same amount of $350,000. This commercial line may be used to finance vehicle purchases and expires in April 2027. The note is payable in monthly installments of $892, including interest at 6.14% per annum, mature in May 2028, and is secured by the related vehicle.

Previous wording

Our estimated future obligations include long-term operating lease liabilities. As of March 31, 2026, we had $629,000 in operating lease liabilities.

Current wording

Our estimated future obligations include long-term operating lease liabilities. As of June 30, 2026, we had $546,000 in operating lease liabilities.