AZIO AI HOLDINGS, INC.

Azio AI Holdings Inc. (formerly Envirotech Vehicles, Inc.), including its consolidated subsidiaries ("we," "us," "our," or the "Company"), is a United States ("U.S.") is a developer and operator of scalable artificial intelligence ("AI") infrastructure and data center solutions. The Company also hasfour business segments: (1) electric vehicles, (2) medical supplies, (3) AI data infrastructure, and (4) drones. See Note11 - Segment Reporting for additional disclosures.

On* July 2, 2026,the Company acquired Azio AI Corporation (“Legacy Azio") pursuant to the merger of EV-AZ Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“First Merger Sub”) with and into Legacy Azio, pursuant to which Legacy Azio was the surviving corporation and became a wholly owned subsidiary of the Company (the “First Merger”) and immediately following the effective time of the First Merger (the “First Effective Time”), Legacy Azio merged with and into Azio AI, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Second Merger Sub” and, together with the First Merger, the “Mergers”), pursuant to which Second Merger Sub was the surviving entity and became a wholly owned subsidiary of the Company, in accordance with the terms of the Amended and Restated Agreement and Plan of Merger, dated July 2, 2026 (*the “Merger Agreement” and the transactions contemplated thereby, the “Azio Acquisition”)), by and among the Company, Legacy Azio, First Merger Sub and Second Merger Sub. The Azio Acquisition will allow the Company to enhance its AI infrastructure business segment to offer the following services:

See Note12 - Subsequent Events for further disclosures.

Basis of Presentation—These unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, these unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended* December 31, 2025* and2024 included in the2025 Annual Report. The results of operations for thethree andsix months ended* June 30, 2026* arenot necessarily indicative of the results to be expected for the full year.

Principles of Consolidation—The accompanying financial statements reflect the consolidation of the financial statements of Azio AI Holdings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions*** ***that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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Going Concern—The Company’s 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. The Company sustained significant losses and negative cash flows from operations and is dependent on the overall improvement of its operating activities as well as debt and equity financings to fund its operations. The Company incurred a net loss of $6,637,416 and $10,624,339 for thethree andsix months ended* June30,* 2026, respectively. The Company incurred a net loss of $5,146,737 and $19,183,118 for thethree andsix months ended* June30,* 2025, respectively. Cash used in operating activities was $8,731,663 and $5,385,357 for thesix months ended* June30,* 2026 and2025, respectively. Accumulated deficit was $123,212,799 and $112,588,460 as of* June30,* 2026 and* December 31, 2025,*respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

As more fully described above under “Debenture Financing,” we closed the initial tranche of Debentures on* March 6, 2026,resulting in net proceeds of $3,815,000, and closed thesecond* tranche on* May 7, 2026,*resulting in net proceeds of $5,850,000.

Subsequent to* June 30, 2026,*we expanded our operations into the artificial intelligence and data center infrastructure sector through the Azio Acquisition. A significant portion of the capital raised to date and expenditures incurred in connection with these operations has been deployed toward infrastructure, equipment, site development and other expenditures intended to establish the foundation for commissioning and operating revenue-producing AI data center capacity.

Management's plans to address the conditions giving rise to substantial doubt include: (i) commissioning and placing into service income-producing data center capacity; (ii) generating revenue from hosting, infrastructure and equipment sales arrangements; (iii) obtaining project-level financing to fund additional data center development and expansion; (iv) raising additional capital through debt or equity financings, as appropriate; and (v) managing operating expenditures as the Company's AI infrastructure operations scale.

Future financing proposals, indications of interest and other preliminary commitments* maybe subject to due diligence, definitive documentation, satisfaction of closing conditions and other contingencies and, unless and until definitive agreements are executed and applicable conditions are satisfied, there can beno* assurance that such financing will be consummated on acceptable terms or at all. There can also beno assurance as to the timing of commissioning additional data center capacity, the amount or timing of revenues generated from such capacity, the realization of anticipated benefits from the Azio Acquisition, or the Company's ability to achieve positive operating cash flows.

Accordingly, while management believes that its strategic assets, commercial pipeline, financing alternatives and planned commencement and expansion of revenue-generating AI data center operations provide a basis for its plans to improve liquidity and operating results, these plans arenot considered probable of being fully implemented within the applicable assessment period to the extent necessary to alleviate the substantial doubt regarding the Company's ability to continue as a going concern.

Fair Value of Financial Instruments—The carrying values of the Company’s financial instruments, including cash, accounts receivable and*** accounts payable approximate their fair value due to the short-term nature of these financial instruments. Accounting Standards Codification ("ASC")820, Fair Value Measurements ,("ASC820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes athree*-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level1: Observable inputs such as quoted prices in active markets;

Level2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level3: Unobservable inputs that are supported by little orno market data and that require the reporting entity to develop its own assumptions.

The Company doesnot have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis other than the debentures and warrants disclosed in Note4 - Debt, in which the Company has elected the fair value option for the debentures.

Revenue Recognition—The Company recognizes revenue from the sales ofzero-emission electric vehicles and vehicle maintenance and inspection services and delivery of medical supplies to the customers of its related party. The Company recognizes revenue in accordance with ASC606, Revenue from Contracts with Customers("ASC606"), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recorded net revenue of $0 and $0 from the sale of electric vehicles for thethree andsix months ended* June30,* 2026. The Company recorded net revenue of ($25,237) and $348,063 for thethree andsix months ended* June30,* 2025, respectively, for the Company's electric vehicles segment. The Company recorded net revenue of $2,662,887 and $4,911,508 for thethree andsix months ended* June30,* 2026, respectively, for the Company's medical supplies segment. The Company recorded net revenue of $1,072,266 and $1,289,532 for thethree andsix months ended* June30,* 2025, respectively, for the Company's medical supplies segment. Revenue equal to the accrued labor costs is recorded initially when such costs are incurred. This represents a change in the Company’s billing process as billing errors based on the contractual terms were identified with the related party. The Company concluded that the impact of correcting the billing errors is immaterial and accordingly, the Company recorded an out-of-period adjustment in2026 to revenue and cost of sales. The profit margin is recognized as revenue upon final delivery of medical supplies to athird-party customer. One customer, a related party, accounted for 100% of the net revenue for thethree andsix months ended* June**30,* 2026 for the Company's medical supplies segment. See Note8 - Related Party Transactions for further disclosures.

In applying ASC606, the Company is required to:

Product revenue primarily includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation and revenue is recognized when the vehicle is delivered, the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt of the vehicle. At this time, revenue is recognized. Product revenue for the electric vehicles segment for thethree andsix months ended* June**30,* 2026 was $0.

Other revenue for the electric vehicles segment for thethree andsix months ended* June**30,* 2026 was $0 and $0, respectively.

Medical supply revenue is initially recognized to the extent of incurred labor costs while the profit margin is recognized when the medical supplies are delivered to thethird-party customer.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original or remaining maturity ofthree*** ***months or less to be cash equivalents. The recorded value of our cash and cash equivalents approximates their fair value. See Concentration of Credit Risk below in this Note.

Marketable Securities—The Company invests in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury*** bonds, and other government-backed securities. The Company classifies these marketable securities as held-to-maturity, as the intent isnot to liquidate them prior to the respective stated maturity date. The Company hadno marketable securities at both June**30,* 2026 and* December 31, 2025.*

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Accounts Receivable and Allowance for Doubtful Accounts— The accounts receivable balance relates to the Company's electric vehicles segment. The Company establishes an allowance for bad debts through a review of several*** factors, including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company doesnot generally require collateral for its accounts receivable. The Company had trade accounts receivable of $0 as of June 30, 2026* and a recorded allowance for doubtful accounts of $0, resulting in a net trade accounts receivable balance of $0. The Company had trade accounts receivable of $0 as of* December 31, 2025* and an allowance for doubtful accounts of $0, resulting in a net trade receivable balance of*$0.*

Receivable from Related Party and Allowance for Doubtful Accounts—The receivable from related party relates to the Company's medical supplies segment. The allowance for doubtful accounts is established by reviewing several factors, including historical collection experience, current aging of the customer account and financial condition of its customer. The Company had receivable from related party of $2,364,754 and a recorded allowance of $7,808, resulting in a net receivable from related party of $2,356,946 as of* June**30,* 2026. The Company had a receivable from related party of $1,202,335 and a recorded allowance of $6,082, resulting in a net receivable from related party of $1,196,253 as of* December 31, 2025.*

Inventory and Inventory Valuation Allowance—The Company records inventory at the lower of cost or market, and uses a First In, First Out valuation methodology and establishes an inventory valuation allowance for vehicles that it doesnot intend to sell in the future or when their cost has fallen below net realizable value. The Company had finished goods inventory on hand of $6,040,410 as of* June**30,* 2026 and recorded an inventory valuation allowance of $6,040,410 related to vehicles that the Company doesnot intend to sell in the future, resulting in a net inventory balance of $0 at* June 30, 2026*. The Company had finished goods inventory on hand and a related inventory valuation allowance of $6,040,410 and $6,040,410, respectively, as of* December 31, 2025*, resulting in a net inventory balance of $0 as of* December 31, 2025.*

Inventory Deposits—Certain of the Company's vendors require the Company to pay upfront deposits before they commence manufacturing its vehicles and then require progress deposits through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the consolidated balance sheets. Upon completion of production acceptance by the Company, and passage of title to the Company from the inventory supplier, deposits are reclassified to inventory. The Company had inventory deposits of $0 and $0 as of* June 30, 2026* and* December 31, 2025*, respectively.

EPA Fulfillment Asset—These are costs incurred to fulfill the U.S. Environmental Protection Agency ("EPA") school bus contract that are capitalized. These costs will be expensed to cost of goods sold once all the performance obligations stipulated in the EPA school bus contract are satisfied and revenue from the contract is recognized. The balance of EPA fulfillment asset at* June**30,* 2026 and* December 31, 2025*was $1,342,966 and $1,503,477, respectively.

Other Current Assets—At* June**30,* 2026, other current assets of $72,460 consist primarily of individually immaterial items.

Income Taxes—The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax*** ***consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

Accounting for Uncertainty in Income Taxes—The Company evaluates its uncertain tax positions and will recognize a loss contingency when it*** is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At June 30, 2026 and December 31, 2025*, respectively, management didnot identify any uncertain tax positions.

Net Loss Per Share—Basic net loss per share is calculated by dividing the Company’s net loss applicable to*** ***common stockholders by the weighted average number of shares of common stock outstanding during the period. For the periods presented, the diluted loss per share and basic loss per share calculations are the same as the diluted loss per share calculation would be anti-dilutive.

Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities. As of* June 30, 2026*,2,051,835 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 1,051,205 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. As disclosed in Note4 - Debt,1,291,778 warrants with an exercise price of $0.01 per share of the Company's common stock were issued in conjunction with the Company's debenture financing. Of these warrants,291,778 were exercised at $0.01 during thesecond quarter of2026. These warrants are included in the Company's basic net loss per share calculation as the warrants require the holder to pay little consideration to receive the shares upon exercise of the warrant.

Concentration of Credit Risk—The Company has credit risks related to cash and cash equivalents on deposit with a federally insured bank, as at times it exceeds the*$250,000* maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Additionally, the Company* maymaintain cash and short-term securities invested at Arvest Bank, National Association (“Arvest”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $750,000, which mayinclude cash up to $500,000, are insured. In addition, Arvest provides excess insurance acquired by them from SIPC for unlimited per customer securities up to a $1 billion cap. There wereno* short-term securities invested at Arvest at* June30,* 2026. The Company had a concentration in accounts payable, astwo vendors made up greater than10% individually, and approximately 76% in the aggregate of the outstanding accounts payable balance as of* June30,* 2026. The largest creditor at* June 30, 2026was Legacy Azio. The Company had a concentration in accounts payable, astwo vendors made up greater than10%* individually, and approximately 54% in the aggregate of the outstanding accounts payable balance as of* December 31, 2025.*

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Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset* maynot* be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There wasno impairment of long-lived assets, or property and equipment, as of* June30,* 2026 and* December 31, 2025,*respectively.

Research and Development—Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. Research and development costs were $12,000 and $22,000 during thethree andsix months ended* June30,* 2026, respectively. Research and development costs were $590,121 and $688,519 during thethree andsix months ended* June30,* 2025, respectively.

Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of*** ASC718, Stock-Based Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Non-cash stock-based compensation expenses of $1,678,036 and $1,703,544 were recorded for thethree* andsix months ended* June30,* 2026, respectively. Non-cash stock-based compensation expense of $40,479 and $587,055 were recorded for thethree andsix months ended* June30,* 2025, respectively.

Property and Equipment— Property and equipment are stated at cost, less accumulated depreciation. The Company provides for*** depreciation using the straight-line method over the estimated useful lives of the assets, which range from three tofive years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds$2,000. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred. See Note3* - Property and Equipment, net.

EPA Contract Liability—These are amounts related to the EPA school bus program that are expected to be reimbursed to the EPA as a result of the Company's decision to discontinue the electric school bus initiative. The balance of EPA contract liability at* June**30,* 2026 and* December 31, 2025*was $5,146,066 and $5,169,691, respectively.

Leases—The Company accounts for leases in accordance with ASC842, Leases (“ASC842”). At the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating or finance lease at commencement. Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease. See Note10 - Leases.

As most of the Company’s leases donot provide an implicit interest rate, the lease liability is calculated at lease commencement as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.

The lease asset also reflects any prepaid rent, initial direct costs incurred, and lease incentives received. The Company’s lease terms* may*include optional extension periods when it is reasonably certain that those options will be exercised.

Leases with an initial expected term of12 months or less arenot recorded in the Company's consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected tonot separate fixed lease components from the fixed non-lease components.

Recently Issued Accounting PronouncementsNot Yet Adopted**

ASUNo. 2024-03, “Income Statement (Subtopic220-40): Disaggregation of Income Statement Expenses”

In* November 2024,the Financial Accounting Standards Board issued ASU2024*-03, Income Statement (Subtopic220-40): Disaggregation of Income Statement Expenses ("ASU2024-03"), which requires additional information about certain expenses in the notes to the financial statements. ASU2024-03 is effective for fiscal years beginning after* December 15, 2026,with early adoption permitted. The Company is currently evaluating the impact of adopting ASU2024*-03 and will adopt the guidance when it becomes effective on a prospective basis.

Components of property and equipment, net, consist of the following as of* June 30, 2026* and* December 31, 2025*:

Depreciation expense was $113,045 and $177,082 for thethree andsix months ended* June30,* 2026, respectively. Depreciation expense was $56,071 and $114,254 for thethree andsix months ended* June30,* 2025, respectively.

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Notes Payable

On* July 15, 2022,the Company entered into an equipment financing agreement with Wells Fargo Bank, N.A. in connection with the purchase of facility grounds equipment. The $25,007 loan is payable over 36 months, beginning in August 2022,with monthly payments of $521. The balance of this note was $1,042 as of June**30,* 2026, all of which are classified as Notes Payable - current on the Company's unaudited condensed consolidated balance sheets as of* June 30, 2026*.

On* June 15, 2025,the Company entered into a premium financing agreement with AFCO Insurance Premium Finance to finance its directors' and officers' insurance coverages. The $140,400 loan is payable over nine months, beginning in July 2025,and bears interest at 8.24% with monthly payments of $14,576. The balance of this note was $0 as of June 30, 2026*.

On* August 28, 2025,the Company entered into a premium financing agreement with AFCO Insurance Premium Finance to finance certain insurance coverages other than its directors' and officers' insurance coverages. The $114,140 loan is payable over eleven months, beginning in September 2025,and bears interest at 8.24% with monthly payments of $7,809 and an initial down payment of $39,515. The balance of this note, including accrued interest, was $46,457 as of June**30,* 2026.

On* January1,* 2026, the Company entered into a premium financing agreement with IPFS Corporation to finance certain insurance coverages. The $101,837 loan is payable over 11 months, beginning in* February2026,* and bears interest at 7.90% with monthly payments of $7,214 and an initial down payment of $25,435. The balance of this note was $49,515 as of* June 30, 2026*.

Amended and Restated Standby Equity Purchase Agreement (the "A&R SEPA")

On* October 31, 2024,the Company entered into 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), the Company has 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 principal amount of $3 million (the “Pre-Paid Advance”) in exchange for the Company’s issuance to the Investor of convertible promissory notes (the “Promissory Notes”) intwo* tranches, resulting in net proceeds (net of discounts and fees) to the Company of $2,635,500. The Company received thefirst tranche of the Pre-Paid Advance in the principal amount of $2 million on* October 31, 2024in exchange for the Promissory Note dated October 31, 2024 (the “EVTV-1 Promissory Note”), and thesecond* tranche of the Pre-Paid Advance in the principal amount of $1 million on* December 17, 2024in exchange for the Promissory Note dated December 17, 2024 (the “EVTV-2 Promissory Note”). The Promissory Notes accrue 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 the Company’s entry into the Supplemental Agreement (as defined below), the Promissory Notes were initially set to mature on November 13, 2025and 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 the Company’s common stock on Nasdaq Stock Market LLC (“Nasdaq”) as reported by Bloomberg L.P. (“VWAP”) during thefive consecutive trading days immediately preceding the conversion date (butno* 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, the Company issued 6,410 shares of common stock to the Investor as a commitment fee.

During2025, the obligation under the EVTV-1 Promissory Note was partially satisfied through the conversion of the EVTV-1 Promissory Note into shares of the Company's common stock. As a result of this conversion,1,416,116 shares of the Company's 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 the Company's common stock during thefirst quarter of2026. As a result of this conversion,529,096 shares of the Company's common stock were issued at a weighted average price of $0.63.

The Company has 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 Level3 under the fair value hierarchy as provided by ASC820. All debt obligations related to the Promissory Notes have been repaid in full at* June 30, 2026.*

Supplemental Agreement to A&R SEPA

On* February 24, 2025,the Company 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 the Company, 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”) intwo* 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 accrue 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 thefive consecutive trading days immediately preceding the conversion date (butno* 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).

Thefirst tranche of the Additional Pre-Paid Advance was disbursed on* February 25, 2025in the principal amount of $3 million (with net proceeds to the Company of approximately $2.7 million after deducting discounts and fees) as evidenced by an Additional Promissory Note issued by the Company to the Investor on February 24, 2025 (the “EVTV-3 Additional Promissory Note”). During2025,* 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 the Company's common stock. As a result of this conversion,2,134,613 shares of the Company's 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 the Company's common stock during thefirst quarter of2026. As a result of this conversion,94,657 shares of the Company's common stock were issued at a weighted average price of $0.53.

The Company has 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 the Company's common stock. The Additional Promissory Notes' fair values are classified as Level3 under the fair value hierarchy as provided by ASC820. All debt obligations related to the Additional Promissory Notes have been repaid in full at* June 30, 2026.*

Debenture Financing

On* March 6, 2026,the Company 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”) intwo* 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 the Company issued Debentures in the aggregate principal amount of $4,000,000 (the “First Closing Debentures”) to the Investor. Pursuant to the SPA, the Company and the Investor have agreed that the closing of thesecond* tranche of the remaining $7,000,000 in aggregate principal amount of the Debentures (the “Second Closing” and such Debentures, the “Second Closing Debentures”) will occur on or before thefirst business day after the Company’s filing of the registration statement with Securities and Exchange Commission registering the resale of the shares of the Company’s common stock issuable upon exercise of the Warrants (as defined below) andno less than 10,000,000 shares of the Company’s common stock issuable pursuant to the A&R SEPA (such registration statement, the “Resale Registration Statement”), has been declared effective and subject to the satisfaction or waiver of customary closing conditions set forth in the SPA. The sale of the Debentures to the Investor resulted in gross proceeds to us of approximately $10,535,000, after deducting aone-time due diligence and structuring fee to the Investor of $25,000 but before deducting any other fees and expenses.

In addition, in connection with the First Closing, as a commitment fee for the transactions contemplated by the SPA, the Company issued to the Investor warrants to purchase up to 1,291,778 shares of the Company’s common stock at an exercise price of $0.01 per share (the “Warrants”). The Warrants are immediately exercisable and will expire60 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”). The Company 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 the30th* calendar day following the effectiveness of the Resale Registration Statement, with all remaining outstanding principal plus accrued and unpaid interest due in full on the Maturity Date. 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 the Company 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 the Company, plus all accrued and unpaid interest thereon as of such redemption date.

Net proceeds of $3,815,000 received in the First Closing were allocated to the Debentures and Warrants based on their relative fair values on the First Closing. The Debentures are classified as Short-term Notes Payable and the Warrants which were equity classified on the Company's unaudited condensed consolidated balance sheets. The Second Closing occurred on* May 6, 2026and net proceeds of $5,850,000 were received (net of commission expense of $870,000 and discount of $280,000). The Company elected the fair value option for the Debentures and as a result, recorded an unrealized loss of $893,630 and $1,000,627 for thethree* andsix months ended* June**30,* 2026, respectively, on the Company's unaudited condensed consolidated income statements.

The following table depicts the future annual minimum payments of the Company's outstanding debt as of* June**30,* 2026:

The Company has 5,000,000 authorized shares of its preferred stock, par value $0.00001 per share, on* June30,* 2026 and* December 31, 2025.There wasno outstanding shares of preferred stock on June30,* 2026 and* December 31, 2025.*

The Company has 350,000,000 authorized shares of its common stock, par value$0.00001 per share, of which 13,677,497 and 7,736,129 shares of the Company's common stock were outstanding on* June**30,* 2026 and* December 31, 2025,*respectively.

A&R SEPA

On* September 23, 2024,the Company entered into the Original SEPA, which was amended and restated pursuant to the A&R SEPA on October 31, 2024.Pursuant to the A&R SEPA, except for so long as there is a balance outstanding under the Promissory Notes and the Additional Promissory Notes and subject to certain limitations and conditions set forth therein, the Company has the right, butnot* the obligation, to sell to the Investor, and the Investor agreed to purchase from the Company, an aggregate amount of up to $25,000,000 of shares of the Company’s common stock at the Company's request, from time to time, until* November 1, 2027.There areno* outstanding obligations related to the A&R SEPA at* June 30, 2026.See Note4* – Debt.

The Company’s outstanding warrants as of* June 30, 2026* are summarized as follows, and all were exercisable at that date.

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** September 2024Warrants

On* September 12, 2024,the Company entered into securities purchase agreements withfour* private investors with respect to the private placement of an aggregate of 51,205 shares of the Company’s common stock at a price of $16.60 per share and warrants to purchase up to an aggregate of 51,205 shares of the Company's common stock. The Company received aggregate gross cash proceeds from this private placement (exclusive of proceeds from any future exercise of the warrants) of $850,000. The warrants have a term oftwo years and are exercisable at any time after* September 16, 2024,at an exercise price of $16.60 per share. The warrants expire on September 11, 2026.*

** March 2026Warrants

As disclosed in Note4 - Debt, the Company issued to the Investor Warrants to purchase up to 1,291,778 shares of the Company’s common stock at an exercise price of $0.01 per share in conjunction with the issuance of the Debentures during thefirst quarter of2026. The Warrants are immediately exercisable and will expire60 months from the date of issuance. The Warrants include customary adjustment provisions for stock splits, combinations and similar events. During thesecond quarter of2026, 291,778 warrants were exercised at the exercise price of $0.01 per share.

The outstanding options at* June 30, 2026* consisted of the following:

As of* June 30, 2026*,1,847,279 of the outstanding stock options were exercisable. Unrecognized compensation for unvested shares was $55,742 as of* June**30,* 2026.

As of* June 30, 2026*, the outstanding stock options had intrinsic value of $0.

On* May 22, 2026,*the Compensation Committee of the Company's Board of Directors granted the Company's non-employee directors and certain executives and consultants of the Company options to purchase 1,394,400 shares of common stock at an exercise price of $2.19 per share, all of which vested immediately upon grant and expire on thetenth anniversary of the grant date. The fair values of these options were calculated using the Black-Scholes valuation methodology. The inputs used are: (1) risk-free rate of 4.31%, (2) expected term of 5 years, (3) variability of 56.3% and (4) exercise price of $2.19.

Performance Options

On* February 28, 2024,the Company issued options to an external party to purchase 200,000 shares of the Company's common stock at an exercise price of $27.50 per share, contingent upon achieving certain sales targets. On June30,* 2026, the sales targets werenot met and therefore,no compensation expense was recorded for thesix months ended* June30,* 2026. The Company doesnot believe that the criteria will be met. These options expire on* February 5, 2027.*

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The Company has entered into lease agreements with SRI Professional Services, Incorporated (“SRI”), pursuant to which the Company leases equipment used in connection with the operation of its business (the “SRI Equipment Leases”). Phillip W. Oldridge, the Company’s former Chief Executive Officer and Chairman of the Board, serves as an executive officer and a member of the board of directors of SRI. Two of the SRI Equipment Leases provide for the leasing oftwo vehicles that commenced on* January 1, 2020and the combined rent under such leases is $3,880 per month, and athird* SRI Equipment Lease provides for a trailer lease that commenced on* December 1, 2019,under which the rent is $3,891 per month. The total monthly payment obligation of the Company under the SRI Equipment Leases is $7,771. The Company recorded rent expense of $23,312 and $23,312 for thethree* months ended* June30,* 2026 and2025, respectively. The Company recorded rent expense of $46,624 and $46,624 for thesix months ended* June30,* 2026 and2025, respectively.

The Company has entered into a commercial lease agreement (the “ABCI Office Lease”) with Alpha Bravo Charlie, Inc. (“ABCI”) that commenced on* April 1, 2020,for the lease of office space in Porterville, California. The monthly rent for this facility is approximately $5,000. Phillip W. Oldridge, the Company’s former Chief Executive Officer and Chairman of the Board, is a director of ABCI. The Company recorded rent expense of $15,000 and $15,000 for thethree* months ended* June30,* 2026 and2025, respectively. The Company recorded rent expense of $30,000 and $30,000 for thesix months ended* June30,* 2026 and2025, respectively.

The Company expensed $131,000 and $45,000 for thethree months ended* June30,* 2026 and2025, respectively, to Shell Castle LLC, an entity owned by Jason Maddox for services rendered as an executive officer of the Company in lieu of wages. The Company expensed $262,000 and $90,000 for thesix months ended* June30,* 2026 and2025, respectively, to Shell Castle LLC, an entity owned by Jason Maddox for services rendered as an executive officer of the Company in lieu of wages.

The Company also expensed $131,000 and $45,000 for thethree months ended* June30,* 2026 and2025, respectively, to Met Consulting LLC, an entity owned by Elgin Tracy for services rendered as an executive officer of the Company in lieu of wages. The Company also expensed $262,000 and $90,000 for thesix months ended* June30,* 2026 and2025, respectively, to Met Consulting LLC, an entity owned by Elgin Tracy for services rendered as an executive officer of the Company in lieu of wages.

All revenue earned for thethree andsix months ended* June**30,* 2026 and2025 by the Company's medical supplies segment was from Maddox Medical Corp. ("Maddox Medical"), a company owned by Jason Maddox, Chief Financial Officer of the Company, through a contract that Maddox Medical holds with athird party (that supplies medical gowns, among other things, to the federal government) that is fulfilled by Maddox Industries, a wholly-owned subsidiary of the Company.

The Company also maintains a procurement contract for electric vehicles and their components and accessories with EVTV Canada, a related party wherebyone of its officers holds a significant number of shares in the Company.

On* April 1, 2025,the Company entered into athree*-year sub-lease arrangement with Maddox Medical (with renewal options), an entity of which Jason Maddox, the Chief Financial Officer of the Company, is the sole stockholder, to lease a facility in Houston, Texas for its corporate and administrative operations. See Note10 - Leases for additional disclosures.

On* April**1,* 2026, the Company entered into anine-month lease arrangement with CAVOK Air Texas LLC ("CAVOK") (with automaticone-year renewals), an entity related to certain executives of the Company for vehicle storage.

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Commitments

See Note10 - Leases for further information.

Contingencies

Except as set forth below, we know ofno material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There areno proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder of more than5% of our common stock, or any associate of any of the foregoing persons, is an adverse party or has a material interest adverse to our interest.

GreenPower Litigation

The Company is named as a defendant in litigation commenced in the Supreme Court of British Columbia, Canada, originally filed on* December 17, 2019*by GreenPower Motor Company Inc. (“GreenPower”), along with certain related entities and individuals, including an executive officer of the Company. The claims generally allege, among other things, breach of fiduciary duty, misuse of confidential information, unfair competition, and related matters. The Company and the other named defendants have denied these allegations. In addition, certain of the defendants, including the Company, are named in a related counterclaim proceeding.

The litigation was previously scheduled for trial in2024; however, the trial was adjourned by consent of the parties. As of* June 30, 2026,,*no new trial date has been set, limited discovery has been conducted, and there has beenno material activity in the proceedings during fiscal year2025. The matter remains in an early procedural stage.

Lawsuit against Efraim Diveroli and Kingbird Ventures LLC

On* February 5, 2026,the Company sued Efraim Diveroli and Kingbird Ventures LLC in the Houston Division of the Texas Business Court, alleging that the defendants, acting individually and in concert withone* another, caused agents and representatives of theirs, including Joel E. Tasca of Greenberg Traurig, to spread lies about the Company, its principals, and its business partners in an effort to scuttle the expected merger with Azio AI Corporation. The Company asserted claims for tortious interference with contract, tortious interference with prospective economic advantage, and defamation and business disparagement as well as seeking emergency and temporary injunctive relief. On* February 9, 2026,Kingbird Ventures removed the case to the United States District Court for the Southern District of Texas. An initial pretrial and scheduling conference is set on May 28, 2026.*No scheduling order has been entered, nor has a trial date been set. While the Company believes that its claims have merit, even if there is an unfavorable outcome, the Company doesnot expect to be subjected to a material loss.

Lawsuit against Efraim Diveroli, Kingbird Ventures LLC, VD Acquisitions, LLC, Bront Bird, and Karla Mae Capital, LLC

On* December 8, 2025,the Company and Maddox Defense, Inc. (“Maddox Defense”), an entity wholly owned by Jason Maddox, the Company’s Chief Financial Officer, sued Efraim Diveroli, Kingbird Ventures LLC, VD Acquisitions, LLC, Bront Bird, and Karla Mae Capital, LLC in the Southern District of California, alleging that defendants, acting individually and in concert withone* another, engaged in coercive and extortionate activities, including through abuse of the legal process, in an attempt to force the Company into unwanted transactions, including with Fenix Oro, a gold-mining enterprise. The Company asserted claims for civil extortion; RICO,18 U.S.C. §1962(c); fraudulent inducement; tortious interference with contract; tortious interference with prospective economic relations; abuse of process; declaratory relief; injunctive relief; civil conspiracy; and unfair competition, Bus. & Prof. Code §17200. On* January 7, 2026,the claims against Bront Bird and Karla Mae Capital were voluntarily dismissed with prejudice.No responsive pleadings have been filed.No scheduling order has been entered, nor has a trial date been set. While the Company believes that its claims have merit, even if there is an unfavorable outcome, the Company doesnot* expect to be subjected to a material loss.

Lawsuit from VD Acquisitions

On* January 14, 2026,VD Acquisitions LLC filed suit against Jason Maddox, Elgin Tracy, Maddox Defense; Maddox Industries, a wholly-owned subsidiary of the Company, the Company, Phillip Oldridge, Karla Mae Capital, LLC and Airboss Defense Group, LLC, alleging that Maddox Defense had failed to perform under a fuel agreement. Plaintiff asserted claims for breach of contract, fraud in the inducement; fraudulent transfer; civil conspiracy; intentional interference with contract; and declaration of alter ego. The plaintiff seeks monetary damages and injunctive relief restraining the assets of Jason Maddox, Maddox Defense, Maddox Industries, and the Company. On February 10, 2026,the Court held a hearing on the plaintiff’s motion for a temporary restraining order and denied the requested relief. The Company disputed these allegations and vigorously defended itself. The Company was successful and the VD Acquisitions withdrew its case in the Delaware Courts in April 2026.*

Litigation with Former Independent Auditor

In* December 2025,the Company initiated legal proceedings against its former independent registered public accounting firm, MaloneBailey LLP (“MaloneBailey”), in the United States District Court for the Central District of California (CaseNo.* 5:25-cv-03457). The complaint alleges, among other things, breach of contract and related claims arising from MaloneBailey’s engagement to audit the Company’s financial statements for the fiscal year ended* December 31, 2022.Specifically, the Company asserts that MaloneBailey failed to complete required audit procedures and didnot* issue an audit report in connection with the Company’s Annual Report on Form10-K for the2022 fiscal year, despite having been engaged to do so.

MaloneBailey previously served as the Company’s independent auditor. During2023, the Company disclosed that MaloneBailey wouldnot provide an audit opinion on the Company’s financial statements for the fiscal year ended* December 31, 2022.*As a result, the Company engaged a successor independent registered public accounting firm to complete the audit and support its financial reporting obligations.

The Company’s claims are based on alleged contractual breaches and professional failures related to MaloneBailey’s audit engagement. The Company is seeking damages and other relief deemed appropriate by the court. As of* June**30,* 2026, the litigation is in its early stages. The complaint was recently filed, andno substantive rulings have been issued by the court. The Company cannot predict the timing or outcome of this matter.

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Operating leases

The Company has active operating lease arrangements for office space and warehouse facilities. The Company is typically required to make fixed minimum rent payments relating to its right to use the underlying leased assets. Although these leases have terms that are either month-to-month or terms that areone year or less (with renewal options), the Company concluded that the term renewal options are reasonably certain to be exercised, and the Company classified such leases as operating leases in accordance with the provisions of ASC842.

On* April**1,* 2026, the Company entered into anine-month lease arrangement with CAVOK Air Texas LLC ("CAVOK") (with automaticone-year renewals). This lease is treated as an operating lease in accordance with the provisions of ASC842. Therefore, the Company recognized operating lease liabilities with corresponding ROU assets based on the present value of the minimum rental payments of such leases. The Company shall fund approximately $250,000 in parking lot and infrastructure improvements associated with grading, stabilization, drainage, striping, lighting, electrical preparation, charging-readiness, staging areas, asphalt and concrete work, and related site improvements supporting approximately100 vehicle parking and charging spaces.

On* March 1, 2026,the Company entered into aone-year lease arrangement with TexOil Ventures LLC ("TexOil") (withone-year renewal options) for pilot infrastructure and computing operations. This lease is treated as an operating lease in accordance with the provisions of ASC842.* Therefore, the Company recognized operating lease liabilities with corresponding ROU assets based on the present value of the minimum rental payments of such leases. The Company paid a nonrefundable deposit of $390,000 and will make monthly payments of $38,500 to TexOil. The Company granted TexOil afirst-priority security interest in all computing and mining equipment located at the leased site. Upon default by the Company and expiration of the applicable cure period, TexOil* may*foreclose and take title to such equipment under the Texas Uniform Commercial Code.

On* April 1, 2025,the Company entered into athree-year sub-lease arrangement with Maddox Medical (with renewal options), an entity of which Jason Maddox, the Chief Financial Officer of the Company, is the sole stockholder, to lease a facility in Houston, Texas for its corporate and administrative operations. This lease is treated as an operating lease in accordance with the provisions of ASC842.* Therefore, the Company recognized operating lease liabilities with corresponding ROU assets based on the present value of the minimum rental payments of such leases.

The Company's lease agreements donot provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate incremental borrowing rate. The Company benchmarked itself against other companies of similar credit ratings and comparable credit quality and derived an incremental borrowing rate to discount each of its lease liabilities based on the remaining lease terms.

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Quantitative information regarding the Company’s leases is as follows:

Future minimum payments under operating leases are as follows:

The Chief Operating Decision Maker is the Chief Executive Officer, who reviews the segment operating results in order to allocate resources and assess performance.

The Company has identified four segments:

(1) Electric vehicles,

(2) Medical supplies,

(3) Artificial Intelligence ("AI") Infrastructure, and

(4) Drones.

The electric vehicle segment consists of sales of commercial electric vehicles to customers. A significant portion of such sales are through state subsidized or funded programs. The medical supplies segment consists solely of sales to Maddox Medical, a related party based on an agreement to supply refurbished medical gowns on a cost-plus pricing arrangement. Through the Company's drone operations, it is also diversifying its portfolio of assets by engaging in the future production and supply of drones that will be used in the agricultural environment as well as engaging in AI activities. Currently, activity within the drones segment is limited to start up expenses and research and development activities. AI expenses are primarily lease expenses.

The tables below summarizes the operating results of the Company's segments for thethree andsix months ended* June30,* 2026 and* June30,* 2025:

The Company evaluates subsequent events that have occurred after the balance sheet date but before the unaudited condensed consolidated financial statements are issued. There aretwo types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that didnot exist at the date of the balance sheet but arose subsequent to that date.

As disclosed in Note1 - Organization and Operations, on* July 2, 2026,the Company acquired Legacy Azio pursuant to the Merger Agreement. The Merger Agreement amended and restated in its entirety the prior merger agreement between the parties entered into and announced on May 19, 2026.At the closing of the Azio Acquisition, the Company issued to former Legacy Azio stockholders (i)2,460,351 shares of the Company's common stock, representingno* more than 19.9% of the Company's outstanding common stock immediately prior to the closing, net of 194,807 shares issuable upon conversion of $150,000 aggregate principal amount of Legacy Azio convertible notes assumed by the Company, and (ii)973,450 shares of the Company's Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”).No fractional shares were issued. Any fractional interests were aggregated and any remaining fractional shares were rounded up to the nearest whole share. Each share of Series A Preferred Stock is convertible into 100 shares of common stock upon approval by the Company's stockholders of a proposal to permit such conversion under Nasdaq Listing Rule5635.

The Company is currently evaluating the accounting treatment of the Azio Acquisition, including whether it will be accounted for as a business combination under ASC805 and, if so, the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed. Because the acquisition occurred after* June 30, 2026,the Company’s consolidated financial statements as of and for thesix* months ended* June 30, 2026donot* reflect the effects of the Azio Acquisition. The Company will include the required disclosures under ASC805, in its Quarterly Report on Form10-Q for the quarter in which the Azio Acquisition occurred.

Subsequent to the closing of the Azio Acquisition, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Amendment”), to change its corporate name to “Azio AI Holdings, Inc.” (the “Name Change”), which was effective upon filing. In connection with the Name Change, the Company’s common stock commenced trading under the symbol “AZIO”, effective at the open of trading on* July 13, 2026.*The Company’s Board of Directors also amended and restated the Company’s Amended and Restated Bylaws to reflect the Name Change to be effective as of the effective time of the Certificate of Amendment.

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