AZIO AI HOLDINGS, INC.

Previous wording

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.

Current wording

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.

Previous wording

For the three months ended September 30, 2024 and 2023, we generated sales revenue of $0 and $100,024, respectively, and our net loss for the three months ended September 30, 2024 and September 30, 2023 was $1,356,782 and $5,988,423, respectively. Included in our net loss for the three months ended September 30, 2024 is a non-cash unrealized gain on financial instruments of $403,625. Included in our net loss for the three months ended September 30, 2023 is a non-cash goodwill impairment charge of $3,392,129.

Current wording

For the three months ended March 31, 2025 and 2024, we generated sales revenue of $590,567 and $810,490, respectively, and our net loss for the three months ended March 31, 2025 and March 31, 2024 was $14,036,381 and$4,532,363, respectively. Included in our net loss for the three months ended March 31, 2025 is a non-cash unrealized loss on financial instruments of $283,793 and anon-cash impairment charge related to our good will of $10,103,048. Included in our net loss for the three months ended March 31, 2024 is a non-cash unrealized loss on financial instruments of $1,569,927.

Previous wording

On October 30, 2024, we entered into the MIPA with Maddox Industries, a provider of government contracting solutions based in Puerto Rico, and Jason Maddox, the sole member of Maddox Industries, to acquire all of the outstanding membership interests in Maddox Industries from Mr. Maddox. As consideration for the acquisition of Maddox Industries, at the closing, we will issue 3,100,000 shares of our common stock to Mr. Maddox (referred to herein as the “Stock Consideration”), provided that the number of shares of common stock constituting the Stock Consideration will be reduced by any number of whole shares of common stock exceeding 19.99% of the outstanding shares of common stock as of immediately prior to the closing. As additional consideration for the acquisition, during the six-month Earnout Period following the closing, Mr. Maddox will be eligible to receive up to six monthly cash payments in an aggregate amount of up to $1 million (each referred to herein as an “Earnout Payment”) in accordance with the terms of the MIPA. The Earnout Payment payable to Mr. Maddox for each calendar month during the Earnout Period, if any, will be equal to the aggregate amount of gross revenue received by Maddox Industries in respect of any accounts receivable from any existing customer outstanding as of the closing during such calendar month, provided that all Earnout Payments payable by us to Mr. Maddox under the MIPA may not exceed $1 million. The acquisition includes a three-year contract manufacturing agreement to be executed at our expansive 580,000 square-foot facility in Osceola, Arkansas. The Board appointed Jason Maddox our President effective as of October 16, 2024.

Current wording

On December 18, 2024 (the “Closing Date”), we acquired all of the outstanding membership interests in Maddox Industries, a provider of government contracting solutions based in Puerto Rico, from Jason Maddox, the sole member of Maddox Industries, to acquire all of the outstanding membership interests in Maddox Industries from Mr. Maddox. As consideration for the acquisition of Maddox Industries, at the closing, we issued 3,100,000 shares of our common stock to Mr. Maddox (referred to herein as the “Stock Consideration”), provided that the number of shares of common stock constituting the Stock Consideration will be reduced by any number of whole shares of common stock exceeding 19.99% of the outstanding shares of common stock as of immediately prior to the closing. As additional consideration for the acquisition, during the six-month Earnout Period following the closing, Mr. Maddox will be eligible to receive up to six monthly cash payments in an aggregate amount of up to $1 million (each referred to herein as an “Earnout Payment”) in accordance with the terms of the MIPA. The Earnout Payment payable to Mr. Maddox for each calendar month during the Earnout Period, if any, will be equal to the aggregate amount of gross revenue received by Maddox Industries in respect of any accounts receivable from any existing customer outstanding as of the closing during such calendar month, provided that all Earnout Payments payable by us to Mr. Maddox under the MIPA may not exceed $1 million. The acquisition includes a three-year contract manufacturing agreement to be executed at our expansive 580,000 square-foot facility in Osceola, Arkansas. The Board appointed Jason Maddox our President effective as of October 16, 2024. The results of operations for the three months ended March 31, 2025 include the results of Maddox Industries. The results of operations for the three months ended March 31, 2024 do not include the results of Maddox Industries.

Previous wording

***Investment in growth.We plan to continue to invest for long-term growth. We anticipate that our operating expenses will continue increasing for 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.

Current wording

***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.

Previous wording

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 report.

Current wording

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.

Previous wording

Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Sales are recognized in accordance with ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.

Current wording

Sales are recognized from the sales of new, purpose-built zero-emission electric vehicles and from providing vehicle maintenance and safety inspection services. Revenue related to our medical supplies activities are recognized when such supplies have been delivered to our end customer. Sales are recognized in accordance with ASC 606, as discussed in Note 2 to our unaudited consolidated financial statements included in this Quarterly Report.

Previous wording

Cost of sales includes those costs related to the development, manufacture, and distribution of our products. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; labor and other costs related to the development and manufacture of our products; and other associated costs. Cost of sales also includes costs related to the valuation of inventory due to impairment, obsolescence, or shrinkage.

Current wording

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 are supplied by the customer.

Previous wording

Other (expense)/income include non-operating income and expenses, including interest income and expense.

Current wording

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

Previous wording

The following discussion compares our results of operations for the three andnine months ended September 30, 2024 to the corresponding periods ended September 30, 2023:

Current wording

The following discussion compares our results of operations for the three andthree months ended March 31, 2025 to the corresponding periods ended March 31, 2024:

Previous wording

R&D expenses were $20,470 and $46,734 for the three months ended September 30, 2024 and 2023, respectively, as the level of activity was significantly reduced. R&D expenses were $152,351 and $175,546 for thenine months ended September 30, 2024 and 2023, respectively as the level of activity was significantly reduced.

Current wording

R&D expenses were $98,398 and $70,265 for the three months ended March 31, 2025 and 2024, respectively, as the level of activity was increased.

Previous wording

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 $3,392,129 related to our goodwill for the three and nine months ended September 30, 2023. No impairment charges were recorded for the three and nine months ended September 30, 2024.

Current wording

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 months ended March 31, 2025. No impairment charges were recorded for the three months ended March 31, 2024.

Previous wording

We recorded a non-cash unrealized gain of $403,625 and an unrealized loss of $595,783 for the three and nine months ended September 30, 2024, respectively, on our financial instruments that we elected to measure at fair value.

Current wording

We recorded a non-cash unrealized loss of $283,793 and $1,569,927 for the three months ended March 31, 2025 and 2024, respectively, on our financial instruments that we elected to measure at fair value.

Previous wording

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2025 and 2024:

Previous wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $2,848,876, primarily due to a net loss of $6,644,237, partially offset by changes in operating assets and liabilities, net of $1,094,222 and non-cash operating charges of $2,701,139. The changes in operating assets and liabilities, net was due to a decrease in inventory deposits of $443,074, a decrease in inventory of $127,372, a decrease in other assets of $232,102, an increase in accounts payable of $317,456 and an increase in accrued liabilities of $700,014, partially offset by an increase in accounts receivable of $398,297, a decrease in other liabilities of $215,109 and an increase in prepaid expenses of $112,390.

Current wording

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).

Previous wording

Net cash used in operating activities for the nine months ended September 30, 2023 was $4,039,576, primarily due to a net loss of $9,510,360, partially offset by changes in operating assets and liabilities, net of $677,631 and non-cash operating charges of $4,793,153, of which $3,392,192 was related to a non-cash goodwill impairment charge and $1,297,384 was related to non-cash stock-based compensation expense. The changes in operating assets and liabilities, net was due to a decrease in accounts receivable of $449,322 as cash collections outpaced sales, a decrease of $1,696,180 in inventory deposits, a decrease in prepaid expenses of $3,190, an increase in accounts payable of $90,272, partially offset by an increase in inventory of $1,210,921, an increase in other assets of $112,382 and decrease in accrued liabilities of $238,030.

Current wording

Net cash used in operating activities for the three months ended March 31, 2024 was $735,571, primarily due to a net loss of $4,532,363, partially offset by changes in operating assets and liabilities, net of $369,270 and non-cash operating charges of $3,427,522, of which $1,569,927 was related to a non-cash unrealized loss on financial instruments measured at fair values, $1,818,383 was related to non-cash stock-based compensation expense and the remaining $39,212 was related to depreciation and amortization. The changes in operating assets and liabilities, net was due to a decrease of $466,757 in inventory deposits, a decrease in prepaid expenses of $257,086, a decrease in other current assets of $25,439, a decrease in other non-current assets of $65,010, an increase in accounts payable of $171,363 and an increase in accrued liabilities of $207,437, partially offset by an increase in inventory of $410,126, an increase in accounts receivable of $333,085 as sales outpaced cash collections and a decrease of $80,611 in other liabilities.

Previous wording

Net cash used in investing activities during the nine months ended September 30, 2024 was $229,029, primarily from the purchase of property and equipment used in our current operations.

Current wording

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.

Previous wording

Net cash provided by financing activities during the nine months ended September 30, 2024 was $3,303,840, primarily due to proceeds from the issuance of our common stock of $1,799,248, proceeds from the issuance of a convertible note of $901,000, proceeds from the Oldridge loan of $300,000 and proceeds from issuance of debt for $648,937, partially offset by the repayment of debt of $345,345.

Current wording

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 debt of $186,089.

Previous wording

As of September 30, 2024, we had cash and cash equivalents of $682,654 and working capital of approximately $8,666,627. We believe that our existing cash and cash equivalents will 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.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $211,284 and working capital of approximately $4,394,102. Included in our working capital was a miscellaneous receivable of $2.249,515 that was recorded due to certain fraudulent activities conducted by external parties unrelated to us related to our bank accounts but was subsequently credited back to us. We believe that our existing cash and cash equivalents will 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.

Previous wording

On the Effective Date, we entered into the Original SEPA with Yorkville which was amended and restated on October 31, 2024 pursuant to the A&R SEPA (together with the Original SEPA, the “SEPA”). Pursuant to the SEPA, Yorkville will advance to us, subject to the satisfaction of certain conditions as set forth therein, the principal amount of $3 million (the “Pre-Paid Advance”), which will be evidenced by convertible promissory notes (the “Promissory Notes”) in two tranches. 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 Yorkville. The Promissory Notes are convertible at a conversion price equal to the lower of (i) $2.1480 per share or (ii) 93% of the lowest daily volume weighted average price of our common stock on 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 is $0.3580 per share, subject to adjustment from time to time in accordance with the terms contained in the Promissory Notes).

Current wording

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) $1.00 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 $0.0713 per share, subject to adjustment from time to time in accordance with the terms contained in the Additional Promissory Notes).

Previous wording

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 Osceola Arkansas facility.

Current wording

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 Osceola Arkansas facility and the Houston, Texas facility.

Previous wording

Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for the period ended September 30, 2024, we have no contractual obligations.

Current wording

Other than as disclosed in the unaudited consolidated financial statements in Item 1 of this Quarterly Report for the period ended March 31, 2025, we have no contractual obligations.

Previous wording

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 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.

Current wording

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.