Azio Ai Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2026

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 and the audited financial statements and notes thereto included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") on April 13, 2026. 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 United States distributor of zero-emission commercial vehicles and heavy capacity drones engineered for logistics, infrastructure, and precision agriculture applications worldwide. Our systems enable a cleaner, safer, and more efficient future for critical industrial operations. We operate under four segments: electric vehicles, medical supplies, AI data infrastructure and drones.

For the three months ended March 31, 2026 and 2025, we generated sales revenue of $2,248,621 and $590,567 respectively, and our net loss for the three months ended March 31, 2026 and 2025 was $3,986,923 and $14,036,381, respectively. Included in our net loss for the three months ended March 31, 2026 is a loss on conversion and changes in fair value of convertible notes of $108,800. Included in our net loss for the three months ended March 31, 2025 is a loss on conversion and changes in fair value of convertible notes of $283,793 and a non-cash impairment charge of $10,103,048 for goodwill.

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

The demand for our vehicles may be affected adversely by 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 Presidential 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 April 29, 2026, we received a notice (the “Notice”) from the Listing Qualifications Department of Nasdaq notifying us that, because our stockholders’ equity was below $2,500,000 as reported on the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, we no longer meet the minimum shareholders’ equity requirement of $2,500,000 for continued listing on Nasdaq under Nasdaq Listing Rule 5550(b)(1).

Going Concern and Management’s Plan

Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We sustained significant losses and negative cash flows from operations and are dependent on the overall improvement of our operating activities as well as debt and equity financing to fund operations. We incurred a net loss of $3,986,923 and $14,036,381 for the three months ended March 31, 2026 and 2025, respectively. Cash used in operating activities was $3,342,098 and $4,217,480 for the three months ended March 31, 2026 and 2025, respectively. Accumulated deficit was $116,575,383 and $112,588,460 as of March 31, 2026 and December 31, 2025, respectively.

As a result of these conditions, substantial doubt exists about our ability to continue as a going concern within one year after the filing of this Quarterly Report. The unaudited condensed consolidated financial statements included elsewhere herein do not include any adjustments that might be necessary if we were unable to continue as a going concern.

As more fully described above under "Debenture Financing," we closed the initial tranche of Debentures in the First Closing on March 6, 2026, resulting in net proceeds of approximately $3.8 million. We also closed the second tranche of Debentures in the second closing on May 7, 2026, resulting in net proceeds of approximately $5.8 million. We also plan to grow and expand our operations and seek additional sources of capital through either an additional debt or equity financial and to pursue acquisitions of cash flow generating assets or businesses. Although we have been successful in raising funds in the past, and expect to do so in the future, there are no guarantees that we will be able to raise funds as anticipated. In addition, there is no assurance that any such acquisition will be successful or that we will realize the anticipated benefits for such acquisition following the closing.

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

Under the vehicles segment, sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Under the medical supplies segment, revenue is recognized at the point in time when control transfers to the customer, which occurs when the medical gowns are delivered to the third party. 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 for our electric vehicles segment 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 2025.

Results of Operations

The following discussion compares our results of operations for the three months ended March 31, 2026 to the corresponding period ended March 31, 2025:

Sales

Sales for the three months ended March 31, 2026 and 2025 were $2,248,621 and $590,567, respectively. Sales for the three months ended March 31, 2026 of our electric vehicle segment was $0. Sales of our medical supplies segment consisted of delivery of medical supplies totaling $2,248,621 to a related party. Sales for the three months ended March 31, 2025 of our electric vehicle segment were $373,130 and consisted primarily of two class 4 trucks and one cargo van. Sales of our medical supplies segment consisted of delivery of medical gowns totaling $217,437 to a related party.

Cost of Sales

Cost of sales for the three months ended March 31, 2026 and 2025 were $2,437,233 and $471,175, respectively. Cost of sales of our electric vehicles segment was $160,511 for the three months ended March 31, 2026 from the write-down of a portion of our U.S. Environmental Protection Agency ("EPA") fulfillment asset. Cost of sales of our medical supplies segment was $2,276,722 for the three months ended March 31, 2026. 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 March 31, 2025 consisted of the costs related to the sale of the electric vehicles sold and the delivery of medical gowns as described above.

General and Administrative ("G&A") Expenses

G&A expenses were $3,572,437 and $3,603,108 for the three months ended March 31, 2026 and 2025, respectively. G&A expenses decreased slightly by $30,671 primarily due to lower payroll and benefits of $39,590 as a result of restructuring activities in 2025, lower contract labor of $581,747 due to lower level of activities, lower taxes and licenses of $202,573, lower commissions paid of $200,000, lower stock-based compensation of $521,067 as no awards were granted in the first quarter of 2026, lower amortization expense of $222,500 as all amortizable intangibles were written-off in the third quarter of 2025, lower overall costs of $133,937 due to cost-cutting measures taken, partially offset by higher legal and accounting costs of $1,870,743 due to an SEC investigation and additional lawsuits filed against various parties as well outside accounting consultants employed to manage the accounting activities.

Consulting Expenses

Consulting expenses were $0 and $46,511 for the three months ended March 31, 2026 and 2025, respectively.

Research and Development ("R&D") Expenses

R&D expenses were $10,000 and $98,398 for the three months ended March 31, 2026 and 2025, respectively, as the level of activity decreased.

Goodwill Impairment Charge

Due to our declining stock price, we conducted an impairment test related to our goodwill in the first quarter of 2025. As a result of this test, we recorded an impairment charge of $10,103,048 related to our goodwill for the three months ended March 31, 2025.

Loss on conversion and changes in fair value of convertible notes

We recorded a non-cash loss on conversion and changes in fair value of convertible notes of $106,997 for the three months ended March 31, 2026 and $283,793 for the three months ended March 31, 2025, on our financial instruments that we elected to measure at fair value.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2026 and 2025:

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2026 was $3,342,098, primarily due to a net loss of $3,986,923, partially offset by changes in operating assets and liabilities, net of $448,283 and non-cash operating charges of $196,542. The changes in operating assets and liabilities, net were due to a decrease in EPA fulfillment asset of $160,511, an increase in accounts payable for $1,341,248 and an increase in accrued liabilities of $68,986, partially offset by an increase of $364,595 in other current assets, an increase in prepaid expenses of $112,654, and an increase in other non-current and right-of-use assets of $334,376, a decrease in EPA contract liability of $23,625, and a decrease in other liabilities of $42,330.

Net cash used in operating activities for the three months ended March 31, 2025 was $4,217,480, primarily due to a net loss of $14,036,381 and changes in operating assets and liabilities, net of $1,395,200, partially offset by non-cash operating charges of $11,214,101. The changes in operating assets and liabilities, net was due to an increase in receivable from related party of $202,663, and increase in miscellaneous receivable of $2,249,515 (related to certain fraudulent activities related to our banking operations and that was subsequently credited back to us), and increase in inventory deposits of $2,675,003 (primarily from deposits for our EPA grant program) and a decrease in other liabilities of $30,467, partially offset by a decrease in accounts receivable of $164,541, a decrease in inventory of $167,108, a decrease in prepaid expenses of $629,596, a decrease in other current and non-current assets of $55,751, an increase in accounts payable and accrued liabilities of $461,037 and an increase in deferred revenue of $2,284,415 (primarily related to our EPA grant program).

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 providing medical supplies to the federal government on a long-term basis.

Investing Activities

Net cash used in investing activities during the three months ended March 31, 2026 was $1,525,900, primarily from the purchase of property and equipment used in our current operations.

Net cash used in investing activities during the three months ended March 31, 2025 was $176,828, primarily from the purchase of property and equipment used in our current operations.

Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2026 was $6,522,849 primarily from proceeds from the issuance of issuance of common stock for $2,677,090, issuance of our Debentures (as defined below) for $3,815,000 and issuance of other debt for $109,061, partially offset by the repayment of other debt of $78,302.

Net cash provided by financing activities during the three months ended March 31, 2025 was $2,664,411, primarily due to proceeds from the issuance of our convertible notes of $2,850,500, partially offset by the repayment of other debt of $186,089.

Liquidity and Capital Resources

As of March 31, 2026, we had cash and cash equivalents of $2,013,817 and negative working capital of approximately $11,538,147. To date, we have financed our operations primarily through capital raises from issuing common stock. We believe that our existing cash and cash equivalents may not be sufficient to allow us to operate for the next 12 months due to our current and potential liabilities. We may need to raise additional capital through equity or debt issuances. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations and reducing overhead expenses. We cannot provide any assurance that any new financing will be available on commercially acceptable terms, if at all, or will be completed on a timely basis. These conditions raise substantial doubt about our ability to continue as a going concern.

The accompanying unaudited condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.

In February 2022, we moved into an approximately 580,000 square foot facility in Osceola, Arkansas. We plan to close this facility in 2026.

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. We opened our new corporate headquarters and manufacturing facility in 2025. As a result of this relocation, we incurred additional capital expenditure and one-time relocation costs.

Amended and Restated Standby Equity Purchase Agreement

On October 31, 2024, we entered into the Amended and Restated Standby Equity Purchase Agreement (the “A&R SEPA”) with YA II PN, Ltd. (the "Investor"). The A&R SEPA amends and restates in its entirety the standby equity purchase agreement, dated September 23, 2024, by and between the Company and the Investor (the “Original SEPA”).

Pursuant to the A&R SEPA, except for so long as there is a balance outstanding under the Promissory Notes (as defined below) and the Additional Promissory Notes (as defined below), 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 our 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 us the principal amount of $3 million (the “Pre-Paid Advance”) in exchange for our issuance to the Investor of convertible promissory notes (the “Promissory Notes”) in two tranches, resulting in net proceeds (net of discounts and fees) to us of $2,635,500. We 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 (the “EVTV-1 Promissory Note”), 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 “EVTV-2 Promissory Note”). The Promissory Notes accrued interest on the outstanding principal balance at an annual rate equal to 0%, which would 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 of default remained uncured. Prior to our entry into the Supplemental Agreement (as defined below), the Promissory Notes were initially set to mature on November 13, 2025 and were convertible at a conversion price equal to the lower of (i) $21.48 per share or (ii) 93% of the lowest daily volume weighted average price of our common stock on Nasdaq Stock Market LLC (“Nasdaq”) as reported by Bloomberg L.P. (“VWAP”) during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which was $3.58 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, we issued 6,410 shares of common stock to the Investor as a commitment fee.

During 2025, the obligation under the EVTV-1 Promissory Note was partially satisfied through the conversion of the EVTV-1 Promissory Note into shares of our common stock. As a result of this conversion, 1,416,116 shares of our common stock were issued at a weighted average price of $1.06. The remaining principal balance of the EVTV-1 Promissory Note at December 31, 2025, was $285,000. The remaining obligation was fully satisfied through the conversion of the EVTV-1 Promissory Note into shares of our common stock during the first quarter of 2026. As a result of this conversion, 529,096 shares of our common stock were issued at a weighted average price of $0.63.

We have elected to measure the Promissory Notes at fair value. In estimating the fair value of the Promissory Notes, a lattice model is applied. The required inputs include the current stock price, the term, the conversion price, the risk-free rate and volatility of the common stock. The Promissory Notes' fair values are classified as Level 3 under the fair value hierarchy as provided by ASC 820.

Supplemental Agreement to A&R SEPA

On February 24, 2025, we entered into a supplemental agreement, dated February 24, 2025 (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 $5 million under the A&R SEPA (the “Additional Pre-Paid Advance”), to be evidenced by convertible promissory notes (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 EVTV-1 Promissory Note to $0.7130 per share.

The Additional Promissory Notes accrued interest on the outstanding principal balance at an annual rate equal to 5%, which would 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 remained uncured. The Additional Promissory Notes were scheduled to mature on March 9, 2026. The Additional Promissory Notes were 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 an Additional Promissory Note issued by us to the Investor on February 24, 2025 (the “EVTV-3 Additional Promissory Note”). During 2025, the obligation under the EVTV-3 Additional Promissory Note in the principal amount of $3 million was partially satisfied through the conversion of the EVTV-3 Additional Promissory Note into shares of our common stock. As a result of this conversion, 2,134,613 shares of our common stock were issued at a weighted average price of $1.51. The remaining principal balance of the EVTV-3 Additional Promissory Note on December 31, 2025, was $50,000. The remaining obligation was fully satisfied through the conversion of the EVTV-3 Additional Promissory Note into shares of our common stock during the first quarter of 2026. As a result of this conversion, 94,657 shares of the our common stock were issued at a weighted average price of $0.53.

We have elected to measure the Additional Promissory Notes at fair value. In estimating the fair value of the Additional Promissory Notes, a lattice model is applied. The required inputs include the current stock price, the term, the conversion price, the risk-free rate and volatility of our common stock. The Additional Promissory Notes' fair values are classified as Level 3 under the fair value hierarchy as provided by ASC 820.

Debenture Financing

On March 6, 2026, we entered into a securities purchase agreement (the “SPA”) with the Investor, pursuant to which the Company agreed to issue and sell to the Investor, and the Investor agreed to purchase, debentures (the “Debentures”) in the aggregate principal amount of $11,000,000 (the “Subscription Amount”) in two tranches with the purchase price of the Debentures in each tranche being equal to 96% of the Subscription Amount to be purchased. The closing of the initial tranche of Debentures occurred on March 6, 2026 (the “First Closing”), in which we issued Debentures in the aggregate principal amount of $4,000,000 (the “First Closing Debentures”) to the Investor. The closing of the second tranche of the remaining $7,000,000 in aggregate principal amount of the Debentures (the “Second Closing” and such Debentures, the “Second Closing Debentures”) occurred on May 6, 2026.

In addition, in connection with the First Closing, as a commitment fee for the transactions contemplated by the SPA, we issued to the Investor warrants to purchase up to 1,291,778 shares of our common stock at an exercise price of $0.01 per share (the “Warrants”). The Warrants are immediately exercisable and will expire 60 months from the date of issuance. The Warrants include customary adjustment provisions for stock splits, combinations and similar events.

The Debentures bear interest at a rate of 5.0% per annum, subject to a potential increase to 18.0% per annum upon the occurrence of certain events of default. The Debentures mature on March 6, 2027 (the “Maturity Date”). We will repay the outstanding principal of the Debentures in monthly installments of (i) $363,636 for the First Closing Debentures and (ii) $636,364 for the Second Closing Debentures, in each case, plus accrued and unpaid interest, in cash, beginning on the earlier of the 30th calendar day following

May 5, 2026, the date of effectiveness of our registration statement on Form S-1 to register the resale of the shares of common stock issuable upon exercise of the Warrants and additional shares of common stock issuable pursuant

to the A&R SEPA. Any outstanding principal amount of, and accrued and unpaid interest on, the Debentures as of the Maturity Date will be due and payable on the Maturity Date.

The Debentures provide us with an optional redemption right pursuant to which we, at any time, may redeem in cash, in whole or in part, all amounts outstanding under the Debentures prior to the Maturity Date. The redemption amount shall be equal to the outstanding principal balance of the Debentures being redeemed by us, plus all accrued and unpaid interest thereon as of such redemption date.

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 deemed necessary in our business operations.

Contractual Obligations

Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report for the period ended March 31, 2026, 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. 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 March 31, 2026. 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.

In making such conclusion, our management determined that such deficiencies were determined to be material weaknesses that are primarily due to certain staff reductions and voluntary resignations we experienced beginning in the fourth quarter of 2020 and continuing through the date of this filing. During such periods and for all periods thereafter through the date of such determination, we increased our reliance on outsourced accounting help. As a result of such changes, our management concluded that we were unable to maintain the levels of resources during such periods at the levels of prior periods, and that such changes to our procedures significantly affected our internal control over financial reporting during the quarter ended March 31, 2026.

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, 2025.