PHOENIX MOTOR INC.

Item 1A. Risk Factors

Risk factors that may affect our business and financial results are discussed within Item 1A Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 20234 filed with the SEC on April 15May 30, 20245, and our subsequent filings with the SEC. In addition to the those in our prior filings, the following are more risk factors to consider:

Holders of our Notes are entitled to certain payments that may be paid in cash or in shares of our common stock depending on the circumstances. If we make these payments in cash, we may be required to expend a substantial portion of our cash resources. If we make these payments in common stock, it may result in substantial dilution to the holders of our common stock.

On June 23March 14, 20235, the Company entered into a Securities Purchase Aloan agreement (the Original SPA) with a certain accreditwith J.J. Astor Co. (J.J. Astor) pursuant to which J.J. Astor agreed investor namedto loan therein, to issue and sell, subject t Company the sum of up to $6 million, in two the satisfactiranches of $4 million of certain closingand $2 million, in condisiderations, up to $5.1 million aggregate for a senior secured convertible promissory note in the original principal amount of $5.3 million (the Companys unsecuredInitial Note), and an additional senior csecured convertible promissory notes ( in the June 2023 original principal amount of $2.7 million (the Additional Note, and together with the Initial Note, the Notes). The June 2023 Notes anet proceeds of the loan are subject to be used to an original issue discrepay existing senior debt in the aggregate principal amount of 8.5%, approximately $1.2 million and each June 2023 Note matures on for general working capital purposes. On March 14, 2025, the dateCompany closed that is 18 monthe first tranche of notes after the datend received net proceeds of issuance at each applicable clos$2.7 million after paying off existing. The June 2023 Notes accrue interest at t senior debts. On May 23, 2025, the Company closed the second tranche Prime Rate (as defined in tof notes and received net proceeds of $1.9 million.

The June 2023 Initial Notes) plus 4.75% per annum in cash, or is payable in 26 bi-weekly installments of $204,000 through the Prime Rmaturity date plus 7.75% per annum ifof March 4, 2026 interest is paid in  cash or shares of the Companys common stock. T, at the Company may, from time to time, prepay the principal amount owing unders election. The Notes will not accrue interest (unless the June 2023 Notes,re is an event of default) and are subject to a 30% prepaymen exit fee of $150,000 upon maturity. Upon an event premium, so long as of default, the Companyoutstanding provides at lincipal amount will increast 30 business days e to 120% of the outstanding prior written notice toncipal amount, plus interest thereon at the holderrate of such prepayment.

19% per annum. The June 2023 Notes arwill be convertible into shares of common stock of tby J.J. Astor following an event of default.

The Company, at aAdditional Note is payable conversimmencing on price equal toJune 6, 2025 in 26 bi-weekly installments of $102,000 through the grematurity dater of (x) $0.60 (the Floor Price) and (y) 87.5% May 22, 2026 in cash or shares of the lowest daily VWAP (as defined in tCompanys common stock, at the Companys election. The SPA) in the seven (7) trading days prior to the applicable conversion date (the Variable Price), Notes will not accrue interest (unless there is an event of default) and are subject to certaian exit fee of $100,000 upon maturity. Upon adjustments n event of default, the outstanding princluding fuipal amount will ratchet anti-dilutionincrease to 120% of the outstanding price protection, as set forth in tncipal amount, plus interest thereon at the June 2023 rate of 19% per annum. The Notes. Notwithstanding shall become, at J.J. Astors election, immediately due and payable in the foregoing, automatically default amount or be convertible into shares of common stock by J.J. Astor following an Eevent of Ddefault (as defined in .

The conversion price of the June 2023 Notes), without is the requirementlower of (i) 85% of the holder toclosing provide notiice toof the Company, and subject tocommon stock on the provisions relatingtrading day immediately prior to the stockholder approval requirements licable funder Nasdaq rules for the ing date and issuance of shares in a private placement at a price above the market price (the Nasdaq 19.99% Cap), the conversion price is equal tothe Initial Note or Additional Note, or (ii) 85% of the lesseraverage of the (x) Floor Pfour lowest VWAP price and (y) ts for the 20 trading days prior to the Variapplicable Pricfunding date. In respect off J.J. Astor or any conversion where other holder of the Variable Price is less than the Floor Price (Notes elects to voluntarily convert the Alternative CNotes, the conversion), the Company  price will pay to tbe the holdlower either in cash, or subject toof (a) 100% of the Nasdaq 19.99% Cap, in sharesclosing price of the common stock equal to such conversion amount or interests, divided by ton the trading day immediately prior to the applicable Variable Price. So in essefunding date and issuance,  of there is no floor price for the conversion and Alternative Conversion together.

On October 26, 2023,  Initial Note or Additional Note, or (b) 100% of the Company entered intoaverage of that certain Fire four lowest Amendment (VWAP prices of the Amendment) to common stock for the Original SPA together with20 trading days prior to the Amendment, the SPA), with the same accredited iapplicable funding date. Upon an event of default, the convestor. Pursuant torsion price of the Amendment, Notes will be 80% of the Fundclosing Amount underprice of the common stock on the Origininitial SPA was increasedfunding date. The Notes are subject to an aggregate limitation that principal amount equal to no greaterohibits ownership of more than $9.667 million while other terms remain unchanged. On October 26, 2023, the Comp19.9% our outstanding share capital at any agreed to issue and sell, in a privatetime, without stockholder approval.

On placement, subject to the satisfaction of certain closing conditions, an additional unsecurApril 15, 2025, we noted that an event of default occurred senior convertible promissory note iunder the Initial Note, when the principal amount of $1.75 millicommon (the October 2023 Notes anstock ceased together with the June 2023 Notes, the Notes), whichrading on Nasdaq. As a resulted in $2,550,000 of , the Notes ooutstanding as of September 30, 2024.

Under principal amount will increase to 120% of the Notes, we are required to payoutstanding principal amount, plus interest thereon tat the last trading dayrate of 19% per annum. As of each quarter. Interest accrues on the principthe date of issuance of the condensed consolidated financial amount of statements, the Nnotes at the interest rate, which resets daily and accrue, as follows: (a) for payments made in cash, at a rate equal toholder has not declared that the entire default amount is due and payable. As a result of the Prime Rate plus 4.75% per annum, and (b) for payments made in shares of common stock, at a rate equal todefault, an additional $1,029 interest expense was accrued to reflect the Prime Rate plus 7.75% per annum.

default principal amount.

Our ability to make payments due to the holders of the Notes using shares of common stock is subject to certain limitations set forth in the Notes, including a limit on the number of shares that may be issued until our receipt of stockholder approval to issue 20% or more of our outstanding shares of common stock to the holders of the Notes . If we are unable to make payments in shares of common stock, we may be forced to make such payments in cash. If we do not have sufficient cash resources to make these payments, we may need to raise additional equity or debt capital, and we cannot provide any assurance that we will be successful in doing so. If are unable to raise sufficient capital to meet our payment obligations, we may need to delay, reduce or eliminate certain of our operations, sell some or all of our assets or merge with another entity.

Our ability to make payments due to the holders of the Notes using cash is also limited by the amount of cash we have on hand at the time such payments are due, as well as certain provisions of the Delaware General Corporation Law. Further, we intend to make the installment payments due to holders of Notes in the form of common stock to the extent allowed under the Notes and applicable law in order to preserve our cash resources. The issuance of shares of common stock to the holders of our Notes will increase the number of shares of common stock outstanding and could result in substantial dilution to the existing holders of our common stock.

On March 29, 2024, the Group noted that an Event of Default has occurred under the June 2023 Notes and October 2023 Notes, due to the Groups failure to observe or perform in a material respect a material covenant, condition or agreement contained in the notes or a transaction document and that such default was not fully cured within five (5) business days of such failure. As a result, the interest rate of the June 2023 Notes and October 2023 Notes was automatically increased to 18% per annum, starting from the date of occurrence of the Event of Default. In addition, the Group is obligated to pay to the holder of the June 2023 Note and October 2023 Note all of the outstanding principal amount and accrued interest on the date of occurrence of the Event of Default. As of the date of issuance of the unaudited condensed consolidated financial statements, the noteholder has not declared that an Event of Default has occurred and that the notes are due and payable. As a result of the default, the carrying amounts of both June 2023 Note and October 2023 Note were classified as convertible notes, current and all the remaining unamortized debt discounts were amortized into interest expense immediately.

The Notes contain anti-dilution provisions that may result in the reduction of the conversion price of the Notes in the future. These features may increase the number of shares of common stock being issuable upon conversion of the Notes.

The Notes contain anti-dilution provisions, which provisions require the lowering of the applicable conversion price or exercise, as then in effect, to the purchase price of equity or equity-linked securities issued in any subsequent offerings. If in the future, while any of the Notes are outstanding, we issue securities for a consideration per share of common stock (the New Issuance Price) that is less than the conversion price of the Notes, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the Notes, to reduce the conversion price to be equal to the New Issuance Price, which will result in a greater number of shares of common stock being issuable upon conversion of the Notes, which in turn will increase the dilutive effect of such conversions or exercises on existing holders of our common stock. The potential for such additional issuances may depress the price of our common stock regardless of our business performance and may make it difficult for us to raise additional equity capital while any of the Notes are outstanding.

Under the SPAIf we do not receive approval from our stockholders, we are subject to certawill be unable to pay amounts due to the holders of the Notes in sharestrictive covenants of common stock and we will be required to pay such amounts in cash, which may force us to divert cash from other uses.

Under that may make it difficulte Notes agreement, we are required to hold a meeting of our stockholders to procure additional finseek approval under Nasdaq Rule 5635(d) for the sale, issuancing.

The SPA contains the following restrictivee or potential issuance by us of our common stock (or securities covenants: until thirty (30) days after such time as 80% of nvertible into or exercisable for our common stock) in excess of 9,620,210 shares, which is 19.99% of the shares of common stock outstanding immediately prior to the execution of the Notes have been repaid in full and/or have been converted intoagreement. If our stockholders do not approve this proposal, we will not be able to issue 20% or more of our outstanding shares of common stock, we agreed not to the Notes holders. As a result, we may be unable to emake some of the inter into:

Iest payments due to the holders of we require additional funding the Notes in shares of our common stock or issue sufficient shares upon conversion of the Notes, while thesech will, in lieu of those shares, restrictive covenantsquire that we pay substantial cash amounts to the Notes holders. If we do not have sufficient cash remain in effectsources to make these payments, we may be unableneed to effect a financing transacdelay, reduce or eliminate certain of our operation while remainis, sell some or all of our assets or merge with another entity.

Trading in of our compliance with the terms ofmon stock has been suspended on Nasdaq, which may adversely affect the SPA , or liquidity and trading price of our shares, and we may be forced to seek a waunable to regain or maintain listing on a national securities exchange.

On April 8, 2025, we receiver d a determination letter from the investors Nasdaq Listing Qualifications Departy to ment (the SPA.

Itaf we do not receive approval from our stockholders, we will be unable to pay amounts due to the hf) stating that the Staff had determined to delist our securities due to continued non-compliance with Nasdaq Listing Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share, and Listing Rule 5620(a), which requires listed companies to hold an annual meeting of shareholders owithin one year of the Notes in shares end of the fiscal year. Trading of our common stock and we will be required to pay such amounts in cash, which may force us to divert cash from oon Nasdaq was suspended at the opening of business on April 15, 2025, and our common stock is currently quoted on ther uses.

U OTC Pink Market under the SPA, symbol PEVM.

In addition, on April 30, 2025, we are requirreceived to hold a meea notice from the Staff indicating of our stockholders to seek approval under Rule 5635(d) ofthat we were no longer in compliance with Listing Rule 5250(c)(1) due to our failure to file our Annual Report on Form 10-K for the Nasdaq Stock Market year ended December 31, 2024. This matter serves as an additional basis for thdelisting.

We sale, issuance or potential issuance by us of our appealed the delisting determination to a Nasdaq Hearings Panel (the Panel) on May 20, 2025. On June 9, 2025, the Company received a written decision from Nasdaq stating that the Panel had denied the Companys request for continued listing. Accordingly, the Companys common stock (or securities convertible into or exercisable for our common stock)will remain delisted and continue to trade on the OTC Pink Market.

We have the right to request a review of the Panels decision by the Nasdaq Listing and Hearing Review Council (the Council) within 15 calendar days. The Council may also, on its own motion, in excessitiate a review within 45 calendar days of 4,256,256 shares, which is 19.99% the decisions issuance. On June 24, 2025, we submitted a request for a review of the shares of common stock outPanels decision by the Council.

Notwithstanding immediately priorthe Panels decision, we have taken steps to address the execution of the SPA. If identified deficiencies. On April 18, 2025, we held our 2024 annual meeting of stockholders do not approve this proposal, and believe we have regained compliance with Listing Rule 5620(a). On May 30, 2025, we will not be able to issue 20% or more of our outstandifiled our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and believe we have regained compliance with Listing Rule 5250(c)(1).

We are continuing to take actions to regain full compliance with Nasdaqs listing shares of requirements. In particular, our board of directors has approved a 1-for-5 reverse stock split of its common stock to the Notes holders in conne, which is intended to restore compliance with Rule 5550(a)(2) and is currently pending FINRA review.

While there can be no assurance that these actions with the SPA. As a resultll result in relisting on Nasdaq or that the review by the Council will be successful, we may be unaremain committed to pursuing all reasonable to make somand strategic options to regain compliance and restore of the interestur listing on a national securities exchange.

The OTC markets, payments duerticularly the Pink Sheets, are generally considered to the holders of be less efficient and transparent than national securities exchanges. Securities quoted on the NotOTC markets tend to have lower trading volumes in shaand wider bid-ask spreads, which can res oult in limited liquidity and increased price volatility. As a result, the trading price of our common stock or issue sufficientmay be adversely affected, and investors may experience significant difficulty buying or selling shares upon conversor may face delays in the execution of transaction of the Notes, which will,s. Some investors may also be restricted from investing in lieu of those shareour securities due to difficulty in accessing the OTC markets, requirepolicies preventing that we pay substantiem from investing in securities not listed on a national cash amounts to the Notes holders. If we do not have sufficient cash resources to make exchange or other reasons.

Suspension of trading or delisting from Nasdaq may also have other adverse effects, including a potential loss of confidence among customers, strategic partners, vendors and employees. It may also reduce investor interest, limit our ability to raise capital on favorable terms, and diminish our capacity to engage in strategic transactions or growth opportunities and may also materially and adversely impact our credit terms with our vendors. Furthese payments, we may need to delay, reduce or eliminatrmore, our ability to attract and retain qualified personnel may be diminished, particularly where equity compensation is a key component of our employment packages.

There can be no assurance that we will be able to regain or maintain compliance with the certain ontinued listing requirements of our operNasdaq or meet the standards of any other nations,al sell somecurities exchange. If we are unable to regain or all of our assets or merge with another entitymaintain a listing, our Company and stockholders could face significant material adverse consequences, including limited access to capital markets, decreased analyst coverage, reduced liquidity, increased volatility, reduced investor interest and confidence, and other material adverse effects.