Azio Ai Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion of our financial condition and the results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on April 15, 2025. This discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note Regarding Forward-Looking Statements” above in this Quarterly Report.

Overview

We are a provider of purpose-built zero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. We serve commercial and last-mile fleets, school districts, public and private transportation service companies and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. Our vehicles address the challenges of traditional fuel price instability and local, state and federal regulatory compliance. Beginning in January 2025, the Company operates under three segments: electric vehicles, medical supplies and drones.

For the three months ended June 30, 2025 and 2024 , we generated sales revenue of $1,047,029 and $812,770, respect ively, and our net loss for the three months ended June 30, 2025 and June 30, 2024 was $5,146,737 and $755,092, respectively. For the six months ended June 30, 2025 and 2024 , we generated sales revenue of $1,637,595 and $1,623,260, respect ively, and our net loss for the six months ended June 30, 2025 and June 30, 2024 was $19,183,118 and $5 ,287,455, respectively.

Included i n our net loss for the three months ended June 30, 2025 is a non-cash unrealized loss on financial instruments of $290,144 and a non-cash realized loss from conversion of our convertible notes of $76,764. Included in our net loss for the three months ended June 30, 2024 is a non-cash unrealized gain on financial instruments of $570,519. Included in our net loss for the six months ended June 30, 2025 is a non-cash unrealized loss on financial instruments of $573,937, a non-cash realized loss from conversion of our convertible notes of $76,764 and a non-cash impairment charge related to our goodwill of $10,103,048. Included in our net loss for the six months ended June 30, 2024 is a non-cash unrealized loss on financial instruments of $999,408.

One Big, Beautiful Bill Act (the "Act")

The demand for our vehicles may be affected adversely from the Act due to significant reductions in electric vehicle credits made available to consumers. This may affect our future profitability.

Import Tariffs

Tariffs imposed by the current administration may significantly affect demand for our vehicles or reduce our gross profits if we are unable to pass such tariffs to our customers. We are currently assessing the impact and will take appropriate action to minimize the impact of such tariffs on our electric vehicle strategy.

Nasdaq Deficiency Notice

On March 6, 2025, we received a letter (the “Notice”) from the Nasdaq Listing Qualifications Department, notifying us that, based upon the closing bid price of our common stock for the 30 consecutive business days from January 21, 2025 to March 5, 2025, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq has provided us with 180 calendar days, or until September 2, 2025 (the “Compliance Date”), to regain compliance with the Minimum Bid Price Requirement. The Notice has no immediate effect on the listing of our common stock, which will continue to trade on the Nasdaq Capital Market under the symbol “EVTV”, subject to our compliance with the other continued listing requirements of the Nasdaq Capital Market.

On August 6, 2025, we filed a certificate of amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split of the shares of the Company’s common stock (the “Reverse Stock Split”). The Company’s common stock began trading on a post-split basis on the Nasdaq Capital Market as of the open of trading on August 8, 2025. Upon the effectiveness of the Reverse Stock Split, every 10 issued and outstanding shares of the Company’s common stock were automatically combined into one share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole share. Proportional adjustments were made to the number of shares of the Company’s common stock issuable upon exercise of the Company's outstanding stock options and warrants, as well as the applicable exercise prices, and to the number of shares issuable under the Company’s 2017 Equity Incentive Plan. The Reverse Stock Split did not affect the number of authorized shares of the Company’s common stock. All references made to share or per share amounts in the accompanying unaudited interim condensed consolidated financial statements and applicable disclosures have been retroactively adjusted for all periods presented to reflect the applicable effects of the Reverse Stock Split. Under Nasdaq Listing Rules, to regain compliance, the closing bid price of the Company’s common stock must be at least $1 per share for a minimum of ten consecutive business days to regain compliance with the Minimum Bid Price Requirement.

There can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement or that we will be able to remain in compliance with the applicable Nasdaq listing requirements on an ongoing basis.

Factors Affecting Our Performance

We believe that the growth and future success of our business depend on various opportunities, challenges and other factors, including the following:

Availability of government subsidies, rebates and economic incentives. We believe that the availability of government subsidies, rebates, and economic incentives is currently a critical factor considered by our customers when purchasing our zero-emission systems or converting their existing vehicles to zero-emission-electric or hybrids, and that our growth depends in large part on the availability and amounts of these subsidies and economic incentives. As an alternative to being dependent on such funding, however, we are exploring the possibility of leasing our vehicles to our customers as well.

New customers. We are competing with other companies and technologies to help fleet managers and their districts/companies more efficiently and cost-effectively manage their fleet operations. Once these fleet managers have decided they want to buy from us, we still face challenges with helping them to obtain financing options to reduce the cost barriers to purchasing. We may also encounter customers with inadequate electrical services at their facilities that may delay their ability to purchase from us.

Dependence on external sources of financing of our operations. We have historically depended on external sources of capital to finance our operations. Accordingly, our future performance will depend in part upon our ability to achieve independence from external sources for the financing of our operations.

Investment in growth. We plan to continue to invest for long-term growth. We anticipate that our operating expenses will increase in the foreseeable future as we invest in research and development to enhance our zero-emission electric vehicles and systems; design, develop and manufacture our commercial fleet vehicles and their components; increase our sales and marketing to acquire new customers; and increase our general and administrative functions to support our growing operations. We believe that these investments will contribute to our long-term growth, although they will adversely affect our results of operations in the near term. In addition, the timing of these investments can result in fluctuations in our annual and quarterly operating results.

Zero-emission electric vehicle experience. Our dealer and service network is not currently completely established, although we do have certain agreements in place. One issue they may have, and we may encounter, is finding appropriately trained technicians with zero-emission electric fleet vehicle experience. Our performance will depend on having a robust dealer and service network, which will require appropriately trained technicians to be successful. Because vehicles that utilize our technology are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in zero-emission electric vehicles may not be available to hire, and we may need to expend significant time and expense training the employees we do hire. If we are not able to attract, assimilate, train or retain additional highly qualified personnel in the future, or do so cost-effectively, our performance would be significantly and adversely affected.

Market growth. We believe the market for all-electric solutions for alternative fuel technology, specifically all-electric vehicles, will continue to grow as more purchases of new zero-emission vehicles and as more conversions of existing fleet vehicles to zero-emission vehicles are made. However, unless the costs to produce such vehicles decrease dramatically, purchasers of our products will continue to depend in large part on financing subsidies from government agencies. We cannot be assured of the continued availability, the amounts of such assistance to our customers, or our ability to access such funds.

Sales revenue growth from additional products. We seek to add to our product offerings additional zero-emission vehicles of all sizes to be marketed, sold, warrantied and serviced through our developing distribution and service network, as well as add other ancillary products discussed elsewhere in this Quarterly Report.

Third-party contractors, suppliers and manufacturers. We rely upon third parties to supply us with raw materials, parts, components and services in adequate quantity in a timely manner and at reasonable prices, quality levels, and volumes acceptable to us. We also are solely reliant on one vendor which is a related party to provide all vehicles as there is currently no manufacturing in the United States.

Components of Results of Operations

Sales

Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Revenue is recognized at the point in time when control transfers to the customer, which in this arrangement, occurs when the gowns are delivered. Sales are recognized in accordance with ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.

Cost of Sales

Cost of sales includes those costs related to the development, manufacture, and distribution of our electric vehicles. Specifically, we include in cost of sales for our electric vehicles segment each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our electric vehicles; and other associated costs. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage. Cost of sales included in our medical supplies activities include direct labor and accessories such as tape, glues, etc. The main materials of our medical supplies segment are supplied by the customer.

General and Administrative Expenses

Selling, general and administrative expenses include all corporate and administrative functions that support our Company, including personnel-related expense and stock-based compensation costs; costs related to investor relations activities; including product recall and customer satisfaction program costs; consulting costs; marketing-related expenses; and other expenses that cannot be included in cost of sales.

Consulting and Research and Development Costs

These expenses are related to our consulting and research and development activity.

Other (Expense)Income, Net

Other (expense)/income include non-operating income and expenses, including interest income and expense, realized gain/(loss) on conversion of convertible notes and unrealized gain (loss) of financial instruments at fair value.

Provision for Income Taxes

We account for income taxes in accordance with ASC 740 which requires the recognition of deferred income tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that we will not realize tax assets through future operations. Because we have incurred only losses to this point, no provision for income taxes has been made in 2024.

Results of Operations

The following discussion compares our results of operations for the three and six months ended June 30, 2025 to the corresponding periods ended June 30, 2024:

Sales

Sales for the three months ended June 30, 2025 and 2024 were $1,047,029 and $812,770, respectively. Sales for the three months ended June 30, 2025 of our electric vehicle segment were ($25,237) as certain credit memos were issued for operational purposes. Sales of our medical supplies segment consisted of delivery of medical supplies totaling $1,072,266 to a related party. Sales for the three months ended June 30, 2024 consisted primarily of five logistics cargo vans, one cab and chassis truck, one electric sweeper and one passenger van. The sales decrease in our electric vehicle segment was primarily due to less favorable market conditions.

Sales for the six months ended June 30, 2025 and 2024 were $1,637,595 and $1,623,260, respectively. Sales for the six months ended June 30, 2025 of our electric vehicle segment were $348,063 and consisted primarily of two logistics cargo vans and two cab and chassis trucks. Sales of our medical supplies segment consisted of delivery of medical supplies totaling $1,289,532 to a related party. Sales for our medical supplies segment is based on a cost-plus pricing structure. The sales decrease in our electric vehicle segment was primarily due to less favorable market conditions.

Cost of Sales

Cost of sales for the three months ended June 30, 2025 and 2024 were $2,504,746 and $608,947, respectively. Cost of sales of our electric vehicles segment was $1,523,713 for the three months ended June 30, 2025. Cost of sales of our medical supplies segment was $981,033 for the three months ended June 30, 2025. Cost of sales for our electric vehicles segment was related to the sales of the trucks and van and additional inventory write-downs while cost of sales for our medical supplies segment was based on a cost-plus pricing structure to a related party. Cost of sales for the three months ended June 30, 2024 consisted of the costs related to the sale of the electric vehicles sold as described above.

Cost of sales for the six months ended June 30, 2025 and 2024 were $2,975,921 and $1,111,218, respectively. Cost of sales of our electric vehicles segment was $1,788,075 for the six months ended June 30, 2025. Cost of sales of our medical supplies segment was $1,187,845 for the six months ended June 30, 2025. Cost of sales for our electric vehicles segment was related to the sales of the trucks and van and additional inventory write-downs of $1,172,302 while cost of sales for our medical supplies segment was based on a cost-plus pricing structure to a related party. Cost of sales for the six months ended June 30, 2024 consisted of the costs related to the sale of the electric vehicles sold as described above.

General and Administrative ("G&A") Expenses

G&A expenses were $2,751,788 and $1,466,748 for the three months ended June 30, 2025 and 2024, respectively. G&A expenses increased primarily due to higher provision for doubtful receivables, higher legal and accounting costs due to additional resources required for compliance and other matters, higher commissions as investment banking fees for the convertible notes, higher rents due to the Houston facility, additional rentals for housing and equipment and higher amortization expense from the Maddox Acquisition.

G&A expenses were $6,354,896 and $4,660,999 for the six months ended June 30, 2025 and 2024, respectively. G&A expenses increased primarily due to higher provision for doubtful receivables, higher legal and accounting costs due to additional resources required for compliance and other matters, higher payroll and contract labor for various operational projects at the Arkansas and Houston facilities, higher commissions as investment banking fees for the convertible notes, higher rents due to the Houston facility, additional rentals for housing and equipment and higher amortization expense from the Maddox Acquisition, partially offset by lower stock compensation costs due to favorable changes in the inputs to the valuation model.

Consulting Expenses

Consulting expenses were $46,511 for the six months ended June 30, 2025. These costs were incurred primarily for certain consulting services related to our medical supplies segment.

Research and Development ("R&D") Expenses

R&D expenses were $590,121 and $61,616 for the three months ended June 30, 2025 and 2024, respectively, as the level of activity increased. R&D expenses were $688,519 and $131,880 for the six months ended June 30, 2025 and 2024, respectively, primarily due to costs incurred in our drone segment to build certain prototypes.

Goodwill Impairment Charge

Due to our declining stock price, we conducted an impairment test related to our goodwill. As a result of this test, we recorded an impairment charge of $10,103,048 related to our goodwill for the three and six months ended June 30, 2025. No impairment charges were recorded for the three and six months ended June 30, 2024.

Unrealized loss on financial instruments at fair value

We recorded a non-cash unrealized loss of $290,144 for the three months ended June 30, 2025 and an unrealized gain of $570,519 for the three months ended June 30, 2024, on our financial instruments that we elected to measure at fair value. We recorded a non-cash unrealized loss of $573,937 and $999,408 for the six months ended June 30, 2025 and 2024, respectively, on our financial instruments that we elected to measure at fair value. These valuations are directly impacted by the changes in our stock price which declined since the instruments were issued.

Realized loss on conversion of convertible notes

We recognized a loss of $76,764 due to the conversion of the Promissory Notes and Additional Promissory Notes into the shares of the Company's common stock for the three and six months ended June 30, 2025.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024:

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2025 was $5,385,357, primarily due to a net loss of $19,183,118, partially offset by changes in operating assets and liabilities, net of $1,897,702 and non-cash operating changes of $11,900,059. The changes in operating assets and liabilities, net was due a decrease in accounts receivable of $576,374, a decrease in inventory of $1,560,698, a decrease in prepaid expenses and other current assets of $779,123, an increase in accounts payable of $694,769, an increase in deferred revenue of $2,284,415 as a result of fundings from the EPA grants and an increase of $508,381 in other liabilities primarily from the capitalization of the Houston lease, partially offset by an increase in related party receivable of $1,161,947 from our medical supplies segment, an increase in inventory deposits of $2,743,291, an increase in non-current assets of $568,154 primarily from the capitalization of the Houston lease as a ROU asset and a decrease in accrued liabilities of $32,666.

Net cash used in operating activities for the six months ended June 30, 2024 was $1,700,563, primarily due to a net loss of $5,287,455, partially offset by changes in operating assets and liabilities, net of $658,185 and non-cash operating charges of $2,928,519. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $443,074, a decrease in prepaid expenses of $187,474, a decrease in inventory of $127,372, a decrease in other assets of $164,467, an increase in accounts payable of $195,786 and an increase in accrued liabilities of $438,089, partially offset by an increase in accounts receivable of $733,998 and a decrease in other liabilities of $164,079.

We expect cash used in operating activities to fluctuate significantly in future periods as a result of a number of factors, some of which are outside of our control, including, among others: the success we achieve in generating revenue; the success we have in helping our customers obtain financing and government incentives to subsidize their purchases of our products; our ability to efficiently develop our dealer and service network; the costs of batteries and other materials utilized to make our products; the extent to which we need to invest additional funds in research and development; the amount of expenses we incur to satisfy future warranty claims, and the ability to engage in supply medical supplies to the federal government on a long-term basis.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2025 was $176,828, primarily from the purchase of property and equipment that is used in our current operations.

Net cash used in investing activities during the six months ended June 30, 2024 was $135,288, primarily from the purchase of property and equipment that is used in our current operations.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2025 was $4,563,245 primarily from the issuance of the Additional Promissory Notes for $4,750,500 in net proceeds, partially offset by loan repayments of $187,255.

Net cash provided by financing activities during the six months ended June 30, 2024 was $1,816,196, primarily due to proceeds from the issuance of our common stock of $949,248, proceeds from the issuance of a convertible note of $901,000, and proceeds from issuance of debt for $232,067, partially offset by the repayment of debt of $266,119. See Note 5 - Debt to our unaudited consolidated financial statements included in this Quarterly Report for additional information regarding these financing activities.

Liquidity and Capital Resources

As of June 30, 2025, we had cash and cash equivalents of $942,241 and negative working capital of approximately $120,030. We believe that our existing cash and cash equivalents and current business plan that provides us with third-party financing may be sufficient to fund our operations during the next twelve months and beyond. However, we may not successfully execute our business plan, and if we do not, we may need additional capital to continue our operations and support the increased working capital requirements associated with the fulfillment of purchase orders.

In February 2022, we announced the planned acquisition of a manufacturing facility located in Osceola, Arkansas. The facility, comprising approximately 580,000 square feet, currently serves as our operational base and is intended to become our primary manufacturing site. While we commenced investment in the facility and operations are active under a lease structure, the underlying property transaction remains subject to final closing. We continue to work collaboratively with the City of Osceola to finalize terms related to site development, easements, and purchase conditions.

On February 12, 2025, we announced the relocation of our corporate headquarters and the establishment of a new 86,000 square foot facility in Houston, Texas. This strategic move reinforces our commitment to expanding U.S. manufacturing, strengthening fleet services, and supporting the growing demand for commercial electric vehicles. We opened our new corporate headquarters and manufacturing facility in 2025. As a result of this relocation, we may incur additional capital expenditure and one-time relocation costs, which at the time of filing, are being estimated.

Amended and Restated Standby Equity Purchase Agreement

On October 31, 2024, the Company entered into the A&R SEPA with the Investor. The A&R SEPA amends and restates in its entirety the Original SEPA.

Pursuant to the A&R SEPA, except for so long as there is a balance outstanding under the Promissory Notes, we have the right, from time to time, until November 1, 2027, to require the Investor to purchase up to $25 million of shares of common stock, subject to certain limitations and conditions set forth in the A&R SEPA, by delivering written notice to the Investor. Pursuant to the A&R SEPA, the Investor advanced to the Company the Pre-Paid Advance in the amount of $3 million in exchange for the Company’s issuance to the Investor of the Promissory Notes in two tranches, resulting in net proceeds (net of discounts and fees) to the Company of $2,635,500. The Company received the first tranche of the Pre-Paid Advance in the principal amount of $2 million on October 31, 2024 in exchange for the Promissory Note dated October 31, 2024, and the second tranche of the Pre-Paid Advance in the principal amount of $1 million on December 17, 2024 in exchange for the Promissory Note dated December 17, 2024. The Promissory Notes will accrue interest on the outstanding principal balance at an annual rate equal to 0%, which will increase to an annual rate of 18% upon the occurrence of an Event of Default (as defined in the Promissory Notes) or a Registration Event (as defined in the Promissory Notes) for so long as such event remains uncured. The Promissory Notes will mature on November 13, 2025, which may be extended at the option of the Investor. The Promissory Notes are convertible at a conversion price equal to the lower of (i) $21.4800 per share or (ii) 93% of the lowest daily volume weighted average price of the Common Stock on Nasdaq as reported by Bloomberg L.P. during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which is $3.5800 per share, subject to adjustment from time to time in accordance with the terms contained in the Promissory Notes). Pursuant to the terms of the Original SEPA, the Company issued 6,410 shares of common stock to the Investor as a commitment fee.

During the first quarter of 2025, the obligation under the EVTV-2 Promissory Note in the principal amount of $1 million was fully satisfied through the conversion of the EVTV-2 Promissory Note into shares of our common stock. As a result of this conversion, 174,348 shares of our common stock were issued at a weighted average price of $5.70. During the same quarter, the obligation under the EVTV-1 Promissory Note in the principal amount of $2 million was partially satisfied through the conversion of the EVTV-1 Promissory Note into shares of our common stock. As a result of this conversion, 149,030 shares of our common stock were issued at a weighted average price of $4.10.

During the second quarter of 2025, the obligation under the EVTV-1 Promissory Note in the principal amount of $2 million was partially satisfied through the conversion of the EVTV-1 Promissory Notes into shares of our common stock. As a result of this conversion, 56,144 shares of our common stock were issued at a weighted average price of $2.50. The remaining principal balance of the EVTV-1 Promissory Notes on June 30, 2025 was $1,250,000. A realized gain of $4,145 was recognized as a result of this conversion for the three months ended June 30, 2025.

Supplemental Agreement to A&R SEPA

On February 24, 2025, we entered into the Supplemental Agreement with the Investor, which amends and supplements the A&R SEPA to: (i) provide for the advancement by the Investor to us, subject to the satisfaction of certain conditions as set forth in the Supplemental Agreement, of the Additional Pre-Paid Advance in the principal amount of $5 million to be evidenced by the Additional Promissory Notes in two tranches, (ii) amend the maturity date for the EVTV-1 Promissory Note to March 9, 2026, and (iii) amend the floor price for the Note EVTV-1 to $0.7130 per share.

The Additional Promissory Notes accrue interest on the outstanding principal balance at an annual rate equal to 5%, which will increase to an annual rate of 18% upon the occurrence of an Event of Default (as defined in the Additional Promissory Notes) or a Registration Event (as defined in the Additional Promissory Notes) for so long as such event remains uncured. The Additional Promissory Notes will mature on March 9, 2026, which may be extended at the option of the Investor. The Additional Promissory Notes are convertible at a conversion price equal to the lower of (i) $10.00 per share or (ii) 93% of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which is $0.7130 per share, subject to adjustment from time to time in accordance with the terms contained in the Additional Promissory Notes).

The first tranche of the Additional Pre-Paid Advance was disbursed on February 25, 2025 in the principal amount of $3 million (with net proceeds to us of approximately $2.7 million after deducting discounts and fees) as evidenced by the EVTV-3 Additional Promissory Note issued to the Investor on February 24, 2025. The second tranche of the Additional Pre-Paid Advance in the principal amount of $2 million was advanced by the Investor to us upon approval by our stockholders, at a special meeting of stockholders held on May 1, 2025, of the issuance of shares of our common stock in excess of the Exchange Cap (as defined in the A&R SEPA).

The EVTV-4 Additional Promissory Note was disbursed to us on May 7, 2025. During the second quarter of 2025, the obligation under the EVTV-4 Promissory Note in the principal amount of $2 million was partially satisfied through the conversion of the EVTV-4 Promissory Note into shares of our common stock. As a result of this conversion, 853,275 shares of our common stock were issued at a weighted average price of $2.00. The remaining principal balance of the EVTV-4 Promissory Note on June 30, 2025, was $500,000. A realized loss of $80,909 was recognized as a result of this conversion for the three months ended June 30, 2025.

Capital Expenditures

We do not have any contractual obligations for ongoing capital expenditures at this time. We do, however, purchase equipment necessary to conduct our operations on an as needed basis and will continue increasing those expenditures as we transfer assembly and corporate functions to the Houston, Texas facility.

Contractual Obligations

Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report for the period ended June 30, 2025, we have no contractual obligations.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles under GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.

Smaller Reporting Company Status

We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million measured on the last business day of our most recently completed second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million as of the last business day of our most recently completed second fiscal quarter. We may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including reduced disclosure about our executive compensation arrangements.

We are exposed to market risks in the ordinary course of our business. We do not currently face material market risks such as interest rate fluctuation risk and foreign currency exchange risk. Our cash and cash equivalents include cash in readily available checking and money market accounts. These investments are not dependent on interest rate fluctuations that may cause the principal amount of these investments to fluctuate, and we do not expect such fluctuation will have a material impact on our financial conditions. If we issue additional debt in the future, we will be subject to interest rate risk. The majority of our expenses are denominated in the U.S. dollar.

We may face risks associated with the costs of raw materials, primarily batteries, as we go into production. To the extent these and other risks materialize, they could have a material effect on our operating results or financial condition. We currently anticipate that our international selling, marketing and administrative costs related to foreign sales, if any, will be largely denominated in United States dollars, which may create foreign currency exchange risk exposure.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for the quarter ended June 30, 2025. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of such time due to the material weakness described below:

We have been unable to maintain appropriate segregation of duties. We have yet to fully resolve such deficiencies as of the date of this filing. We have engaged, and continue to seek additional, experienced accounting professionals with relevant expertise to provide additional accounting services to supplement our efforts and mitigate the negative effects of our limited accounting staff.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the most recent three-month period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.