XOS

Business Context and Reporting Period

Company: Xos, Inc. (XOS)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2026
Business Overview: Xos is an early-stage provider of fleet electrification solutions, designing and manufacturing Classes 5-8 battery-electric commercial vehicles, powertrains, and charging infrastructure (Xos Energy Solutions). The company operates as a single segment focused on last-mile and back-to-base commercial transportation.

Key Financial Metrics

Cash Flow (Six Months Ended June 30, 2026):

• Net cash used in operating activities: $(4.28) million
• Net cash provided by investing activities: $0.31 million
• Net cash provided by financing activities: $3.16 million

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 74% ($13.7 million) in the three months ended June 30, 2026, compared to the same period in 2025. This was driven by a significant drop in vehicle unit sales (6 vehicles vs. 128 in the prior year), partially offset by a 273% increase in powertrain and hub sales.
• Cost of Goods Sold (COGS): COGS decreased 75% to $4.17 million for the quarter, aligning with lower production volumes. However, gross margin for the quarter compressed to 12.1% compared to 8.9% in the prior year quarter, though the six-month margin improved to 31.0%.
• Operating Expenses: Total operating expenses remained relatively flat, decreasing only 2% to $8.52 million for the quarter. General and Administrative (G&A) expenses decreased slightly due to facility lease terminations, while Sales and Marketing expenses increased 14% due to employee bonuses.
• Other Income: Other income (expense), net improved significantly to a gain of $1.10 million for the quarter, primarily due to $1.2 million in recoveries of previously paid import duties.

Guidance, Outlook, Risks, and Contingencies

Going Concern Warning: The filing explicitly states there is substantial doubt about the Company's ability to continue as a going concern for the next 12 months. Management notes that without additional capital, the Company may be required to seek protection under bankruptcy laws or cease operations.

Liquidity and Capital Resources:

• Cash balance of $13.2 million is insufficient to cover operating losses and debt obligations without further financing.
• The Company raised approximately $7.6 million in the second quarter of 2026 through a Registered Direct Offering ($5.4 million) and an At-The-Market (ATM) offering ($2.2 million).
• Convertible debt of $15.5 million is outstanding, with mandatory quarterly principal payments required. A recent amendment reduced the conversion price to $12.00 per share and added a mandatory conversion feature if the stock price exceeds $16.00.

Key Risks and Contingencies:

• Supply Chain & Tariffs: Ongoing supply chain disruptions and new Section 301 tariffs on Chinese-origin products (effective July 24, 2026) pose significant risks to cost structures and production schedules.
• Internal Controls: The Company identified material weaknesses in internal controls over financial reporting, specifically regarding revenue recognition and the recording of vendor accruals. Management concluded disclosure controls were not effective as of June 30, 2026.
• Customer Concentration: Revenue is concentrated among a small number of customers. In the three months ended June 30, 2026, four customers accounted for 69% of total revenue.
• Warrant Expiration: Public warrants (XOSWW) expire on August 20, 2026, with an exercise price of $345.00 per share, which is significantly above the current trading price.

Investor Verification Checklist

• Capital Adequacy: Verify the timeline and certainty of future capital raises required to service the $15.5 million convertible debt and fund operations beyond the next 12 months.
• Debt Covenant Compliance: Review the terms of the Aljomaih Convertible Note, specifically the mandatory conversion triggers and quarterly principal payment schedules.
• Internal Control Remediation: Assess the progress of remediation plans for material weaknesses in financial reporting to ensure future financial data reliability.
• Tariff Impact: Evaluate the specific financial impact of new Section 301 tariffs on lithium-ion batteries and components effective July 2026 on future gross margins.
• Revenue Mix Sustainability: Determine if the shift from vehicle sales to powertrain/hub sales is a sustainable growth strategy or a temporary fluctuation in order timing.