Zoomcar Holdings (ZCAR) Risk Analysis

We will finance our immediate cash needs (and expect to finance our future cash needs until we become profitable, if ever) through equity offerings, debt financings or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We will require substantial funding to fund our business. Investors in the Zoomcar 2023 Private Financing ("Financing Investors") received most favored nation exchange right provisions (the "MFN Noteholder Rights") with respect to their convertible notes ("Convertible Notes"), and such provisions may have survived the Closing. Additionally, in June 2024 we issued warrants that contain an "alternative cashless exercise" provision which gives the warrant holder the right to exchange the warrant on a one-for-one basis for shares of Common Stock at any time that the warrant is exercisable without any cash payment and without regard to the then market price of the Company's Common Stock or exercise price of the warrant. In addition, the warrants include a provision that resets the warrant exercise price with a proportionate adjustment to the number of shares underlying the warrant in the event of a reverse split of the Company's Common Stock at any time between the issuance date and the three-year anniversary of the issuance date (a "Share Combination Event"). In the event of a Share Combination Event, the exercise price of the warrant will be reset to a price equal to the lesser of (i) the then exercise price and (ii) the lowest volume weighted average price (VWAP) during the period commencing five trading days immediately after the date the Company effects a reverse stock split, subject to a floor price of $2.832(as maybe adjusted in the future for any stock dividend, stock split, stock combination, reclassification or similar transaction, the "Floor Price"). The warrants are also subject to full ratchet anti-dilution protection for any issuances of Company securities (other than certain excluded issuances) at a price or effective price (as determined in accordance with the terms of the warrant, the "Dilutive Issuance Price") that is less than the then current exercise price of the warrants following the issuance date (a "Dilutive Issuance"). In the event of a Dilutive Issuance, the exercise price of the warrants will be reduced to the lower of the Dilutive Issuance Price and the lowest VWAP during the five consecutive trading days commencing after the date of the Dilutive Issuance, in each case, subject to the Floor Price, and there will be a proportionate adjustment to the number of shares underlying the warrant. In connection with the Business Combination, we also issued the Notes to ACM in satisfaction of certain transaction expenses associated with the Business Combination. The Notes contain price based anti-dilution protection on the conversion price of such Notes down to a floor price of $0.25 per share which has already been reached. While the Notes have already converted into the maximum number of shares permissible under the terms of the Notes without receiving stockholder approval, we may seek stockholder approval in the future to allow for the Notes to convert into additional shares. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, the MFN Noteholder Rights and anti-dilution provision may be triggered, and the terms of the newly issued securities may include liquidation or other preferences that adversely affect your rights. Any future adjustments to the exercise price of the warrants (or additional issuances to make the Financing Investors whole) may have a negative impact on the trading price of our Common Stock. Additionally, raising additional capital with new investors may be difficult as a result of the MFN Noteholder Rights and anti-dilution protection. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could materially adversely affect the market price of the Common Stock and may make it more difficult for you to sell your securities at a time and price which you deem appropriate.

As of September 30, 2024, we have issued and outstanding options to purchase 205 shares (20,432 shares prior to the Reverse Stock Split)   of our Common Stock with a weighted average exercise price of $573 and warrants to purchase 1,813,449 shares (104,540,952   shares prior to the Reverse Stock Split) of our Common Stock with a weighted average exercise price of $130.38. Included among those warrants are the warrants issued in our June 2024 financing which such warrants are exercisable upon receipt of stockholder approval and contain the "alternative cashless exercise" provision, reset provision and full ratchet anti-dilution protection described elsewhere herein. Because the market for our Common Stock is thinly traded, the sales and/or the perception that those sales may occur, could adversely affect the market price of our Common Stock. Furthermore, even though the options and warrants (other than the warrants issued in June 2024) are all out of the money, the mere existence of a significant number of shares of Common Stock issuable upon exercise of these securities may be perceived by the market as having a potential dilutive effect, which could lead to a decrease in the price of our Common Stock. As of October 31, 2024 , we have issued and outstanding options to purchase 205 shares of our  Common Stock with a weighted average exercise price of $573 and warrants to purchase  1,813,449 shares (3,249,250 shares prior to the Reverse Stock Split) with a weighted average exercise price of $103.38 (in each  case, assuming that the June Warrants are adjusted down to the Floor Price and there is a  corresponding adjustment to the number of June Warrants outstanding following the Share  Combination Event). Included among those warrants are the warrants issued in our June 2024  financing which such warrants contain the "alternative cashless exercise" provision, reset  provision and full ratchet anti-dilution protection described elsewhere herein. Because the market  for our Common Stock is thinly traded, the sales and/or the perception that those sales may occur,  could adversely affect the market price of our Common Stock. Furthermore, even though the  options and warrants (other than the warrants issued in June 2024) are all out of the money, the  mere existence of a significant number of shares of Common Stock issuable upon exercise of these  securities may be perceived by the market as having a potential dilutive effect, which could lead  to a decrease in the price of our Common Stock.

The sale of shares of our Common Stock on the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that it deems appropriate. As on October 31, 2024, we have a total of 757,494 shares of Common Stock outstanding (i) without giving effect to any awards that may be issued under the Incentive Plan and (iii) assuming no exercise of the outstanding warrants. All shares currently held by public stockholders and all of the shares issued in the Business Combination to former Zoomcar Stockholders are freely tradable without registration under the Securities Act, and without restriction by persons other than our "affiliates" (as defined under Rule 144 under the Securities Act, ("Rule 144")), including our directors, executive officers and other affiliates. Simultaneously with the execution and delivery of the Merger Agreement, certain stockholders of Zoomcar, Inc., who collectively owned approximately 35.0% of the outstanding Zoomcar, Inc. preferred stock and Common Stock at the time of the execution of the Merger Agreement (on an as converted to Common Stock basis), entered into the Lock-Up Agreements with IOAC. Pursuant to the Lock-Up Agreements, such Zoomcar stockholders agreed to subject certain shares of Common Stock held by them to the restrictions described below from the Closing until the termination of applicable lock-up periods described below. Each Zoomcar stockholder party to the Lock-Up Agreements agreed not to, without the prior written consent of the Zoomcar Board and subject to certain exceptions, during the applicable lock-up period: (i) lend, sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option, right or warrant to purchase or otherwise transfer, dispose of or agree to transfer or dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder, any shares of Common Stock held by it immediately after the Closing or issued or issuable to it in connection with the Merger (including Common Stock acquired as part of any financing agreements or issued in exchange for, or on conversion or exercise of, any securities issued as part of any financing agreements), any shares of Common Stock issuable upon the exercise of options to purchase shares of Common Stock held by it immediately after the Closing, or any securities convertible into or exercisable or exchangeable for Common Stock held by it immediately after the Closing (collectively, the "BC Lock-Up Shares"); (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the BC Lock-Up Shares, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise; or (iii) publicly announce any intention to effect any transaction specified in the foregoing clauses. Pursuant to the BC Lock-Up Agreement, IOAC and certain Zoomcar stockholders agreed to the foregoing transfer restrictions during the period beginning on the date of Closing and ending (a) (i) as to 1/3 of the shares, six months after Closing, (ii) as to 1/3 of the shares, nine months after Closing and (iii) as to 1/3 of the shares, one year after  the Closing or (b) the date on which the Company completes a liquidation, merger, capital stock  exchange, reorganization or other similar transactions that result in all of the Company's  stockholders having the right to exchange their shares for cash, securities or other property. In addition, the shares of Common Stock reserved for future issuance under the Incentive Plan will become eligible for sale in the public market once those shares are issued, subject to any applicable vesting requirements, lock-up agreements and other restrictions imposed by law. A total of 196,954 shares of Common Stock have been reserved for future issuance under the Incentive Plan. We intend to file a registration statement on Form S-8 under the Securities Act to register shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock issued pursuant to the Incentive Plan. Accordingly, shares to be registered under such a registration statement will be available for sale in the open market upon the effectiveness of the registration statement. In the future, we may also issue our securities to raise capital or in connection with investments or acquisitions. For example, on June 18, 2024, we closed a private placement transaction of notes and warrants for $3 million of gross proceeds. The amount of shares of Common Stock issued or issuable upon exercise or conversion of securities issued in connection with a capital raise or an investment or acquisition could constitute a material portion of the then-outstanding shares of the Common Stock. Any issuance of additional securities in connection with capital raising activities, investments or acquisitions may result in additional dilution to our stockholders.

On January 30, 2024, we received a statement of arbitration claim before Judicial Arbitration and Mediation Services, Inc., with Aegis Capital Corp., Adam Stern, and the Robert J. Eide Pension Plan being the claimants therein. The Claim alleges breaches of certain agreements between (a) the Company and Aegis, and (b) Adam Stern and the Robert J. Eide Pension Plan as warrant holders, on the one hand, and the Company on the other; it seeks damages "preliminarily believed to be" at least $10,000,000 purportedly arising from the alleged breaches. The Claim also seeks amounts for attorneys' fees and costs, as well as an order of rescission with respect to the issuance of certain allegedly wrongfully dilutive shares of Common Stock issued in connection with the Business Combination or, alternatively, an order mandating a purportedly anti-dilutive issuance of additional shares of Common Stock to the claimants. On January 31, 2024, the claimants filed an action in the New York State Supreme Court in aid of the arbitration, including seeking by order to show cause substantially the same relief as the Claim on a declaratory basis. The Court denied the application for a mandatory injunction granting ultimate relief on the record. Claimants filed a separate order to show cause seeking attachment of the Company's assets arguing the Company did not have sufficient working capital to satisfy a potential award based on its public filings. The Court found that while Claimants had not shown a likelihood of success in their theory of the case, it was likely something would be owed. An order, granting claimants the right to attach up to $3,399,878 of Zoomcar's assets in New York along with other relief, was issued and later modified by the New York Appellate Division, First Department. A motion seeking to stay or modify that order is currently pending in the First Department and the parties are awaiting the start of arbitration. While the Company believes that the claims are not supported by the facts or law and there was no breach of agreements as alleged, there can be no assurance that the Company will be successful in their efforts to have the matter vacated, and such efforts may be time-consuming, costly and may have reputational and other negative effects on the Company. On June 18, 2024, in connection with the Company's agreement to engage Aegis as placement agent as mentioned under ‘Liquidity and Capital Resources' section of Management's Discussion and Analysis of Financial Condition and Results of Operations. The parties thereafter agreed to defer all further action with respect to the arbitration and associated litigation until June 18, 2025.

Volatility or lack of appreciation in our stock price may also affect our ability to attract and retain our key employees. Employees may be more likely to leave us if the shares they own or the shares underlying their vested equity have not significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise price of the options that they hold are significantly above the market price of our Common Stock. If we are unable to retain our employees, or if we need to increase our compensation expenses to retain our employees, our business, operating results, and financial condition could be adversely affected.

We cannot predict the effect, if any, that market sales of shares of our Common Stock or the availability of shares of our Common Stock, including upon exercise or conversion of any of our outstanding securities, for sale will have on the market price of our Common Stock prevailing from time to time. Sales of substantial amount of shares of our Common Stock on the public market, or the perception that those sales will occur, including sales pursuant to this quarterly report, could cause the market price of our Common Stock to decline or be depressed. As described elsewhere herein, we expect to issue additional securities imminently to raise capital to continue our operations. Additionally, we may issue our securities if we need to raise capital in connection with capital expenditure, working capital requirement or acquisition. The number of shares of our Common Stock issued in connection with a capital expenditure, working capital requirement or acquisition could constitute a material portion of our then-outstanding shares of Common Stock. Any perceived excess in the supply of our shares in the market could negatively impact our share price and any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

The market price of our Common Stock has fluctuated widely since the closing of our Business Combination. During the period from January 1, 2024, to October 23, 2024, the trading price of our Common Stock has fluctuated from an intra-day high of $761.00 on January 12, 2024, to an intra-day low of $5.72 on October 22, 2024. The market price of our Common Stock is affected by a variety of factors, including but not limited to: - our ability to execute our anticipated business plans and strategy;- actual or anticipated fluctuations in our quarterly or annual operating results;- our ability to obtain additional capital which will be necessary to continue our business and operations;- changes in financial or operational estimates or projections;- changes in the economic performance or market valuations of companies similar to ours;- the impact of pandemics, inflation, war, other hostilities and other disruptive events on our business or that of our customers, partners, and supply chain or on the global economy; and - our ability to comply with the continued listing requirements of Nasdaq and maintain our listing on Nasdaq. In addition, the trading price and trading volume of our Common Stock has very recently and at certain other times in the past exhibited, and may continue to exhibit, extreme volatility, including within a single trading day. Such volatility could cause purchasers of our Common Stock to incur substantial losses. For example, on May 23, 2024, the trading price of our Common Stock ranged from an intra-day high of $44.00 to an intra-day low of $22.00, on trading volume of approximately 1.15 million shares, and on March 19, 2024, the trading price of our Common Stock ranged from  an intra-day high of $183.00 to an intra-day low of $90.10, on trading volume of approximately 290 thousand shares. With respect to certain such instances of trading volatility, we are not aware of any material changes in our financial condition or results of operations that would explain such price volatility or trading volume, which we believe reflect market and trading dynamics unrelated to our operating business or prospects and outside of our control. We are thus unable to predict when such instances of trading volatility will occur or how long such dynamics may last. Under these circumstances, we would caution you against investing in our Common Stock unless you are prepared to incur the risk of incurring substantial losses. A proportion of our Common Stock may be traded by short sellers, which may put pressure on the supply and demand for our Common Stock, creating further price volatility. In particular, a possible "short squeeze" due to a sudden increase in demand of our Common Stock that largely exceeds supply may lead to sudden extreme price volatility in our Common Stock. Investors may purchase our Common Stock to hedge existing exposure in our Common Stock or to speculate on the price of our Common Stock. Speculation on the price of our Common Stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of Common Stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our Common Stock for delivery to lenders of our Common Stock. Those repurchases may in turn dramatically increase the price of our Common Stock until investors with short exposure are able to purchase additional Common Stock to cover their short position. This is often referred to as a "short squeeze." Following such a short squeeze, once investors purchase the shares necessary to cover their short position, the price of our Common Stock may rapidly decline. A short squeeze could lead to volatile price movements in our shares that are not directly correlated to the performance or prospects of our company and could cause purchasers of our common shares to incur substantial losses. Further, shareholders may institute securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources, and the attention of management could be diverted from our business.

Our continued eligibility to maintain the listing of our Common Stock and Public Warrants on Nasdaq depends on a number of factors, including the price of our Common Stock and Public Warrants and the number of persons that hold our Common Stock and Public Warrants. On May 6, 2024, the Company received two letters from the Nasdaq staff indicating that the Company no longer complies with (i) Listing Rule 5450(b)(2)(A) as it relates to the requirement to maintain a minimum market value of listed securities of $50,000,000 and (ii) Listing Rule 5450(a)(1) as it relates to the requirement to maintain minimum bid price of $1 per share. Further to this, on November 8, 2024, the Company received a notice from NASDAQ stating that, since the closing bid price over the 12 consecutive days between October 22, 2024, and November 6, 2024, has been $1.00 per share or greater, the Company is now in compliance with Listing Rule 5550(a)(2) and, hence, has resolved this matter. However, the market value of listed securities of the Company did not close at $50,000,000 or more for ten consecutive business days prior to November 4, 2024. The Company failed to regain the compliance with the minimum market value requirement within the stipulated timeframe and thus, it received a staff delist determination letter from the Nasdaq Listing Qualifications Department on November 6, 2024, for its failure under the MVLS as well as MVPHS Rules (defined below). The Company intends to timely request a hearing before a Nasdaq Hearings Panel. This hearing request will automatically stay Nasdaq's delisting of the Company's Common Stock and warrants pending the Panel's decision and any extension provided by the Panel. The Company has retained Donohoe Advisory Associates LLC to assist the Company in its preparation for the hearing and developing its compliance plan. The Company intends to present its plan of compliance, which may include a transfer to the Nasdaq Capital Market listing tier. Further, on July 22, 2024, the Company received another notice from the Nasdaq staff notifying the Company that, based on the market value of publicly held shares for the previous 30 consecutive business days, the listing of the Company's listed securities was not in compliance with Nasdaq Listing Rule 5450(b)(2)(C) (the "MVPHS Rule") to maintain a minimum market value of publicly held shares of $15,000,000. To regain compliance, the minimum market value of publicly held shares must close at $15,000,000 or more for a minimum of 10 consecutive business days during this 180-day compliance period. If the Company does not regain compliance with the MVPHS Rule within the 180-day compliance period, it may transfer the listing of its securities to the Nasdaq Capital Market which has a reduced compliance standard under the MVPHS Rule, provided the Company will only be able to transfer the listing to the Nasdaq Capital Market if the Company then meets the continued listing requirements on the Nasdaq Capital Market. As of the date hereof, the Company does not meet the continued listing requirements of the Nasdaq Capital Market as the Company is not in Compliance of the , the minimum market value of listed securities requirement of $35,000,000 or the minimum stockholders' equity requirement of $2,500,000. On October 29, 2024, the Company received a deficiency notice from the Nasdaq Staff indicating that the Company's publicly held shares are below the 1,100,000 share minimum requirement for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(1)(B) (the "MPLS Requirement"). The notification states that the Company has 45 calendar days to submit a plan to regain compliance with the MPLS Requirement for continued listing. If Nasdaq accepts the Company's plan, Nasdaq may grant the Company an extension of up to 180 calendar days from the date of the notification to evidence compliance with the MPLS Requirement. If Nasdaq does not accept the Company's plan, the Company will have the opportunity to appeal the decision in front of a Nasdaq Hearings Panel.  However, there can be no assurance that, if the Company does appeal the delisting determination by Nasdaq to the panel, that such appeal would be successful. Alternatively, the Company may apply to transfer the Company's securities to the Nasdaq Capital Market which has a reduced compliance standard under the MPLS Rule, provided the Company will only be able to transfer the listing to the Nasdaq Capital Market if the Company then meets the continued listing requirements on the Nasdaq Capital Market and pays an application fee of $5,000. Subsequently, on November 4, 2024, the Company received another notice indicating non-compliance with the requirement to maintain a minimum of 1.1 million publicly held shares under Rule 5450(b)(1)(B). This led Nasdaq, on November 6, 2024, to issue a delisting determination letter due to the Company's ongoing non-compliance with the MVLS Rule and additional listing requirements. On November 5, 2024, the Company had entered into a private placement transaction for gross proceeds of $9.15 million. On November 7, 2024, the Company closed private placement financing pursuant to the above agreement, through which it raised gross proceeds of approximately $9.15 million, in lieu of which the Company has \ issued 1,302,850 Common Stock. Post such issue of Common Stock, the Company will be compliant of the requirement of maintaining 1.1 million publicly held shares and the matter will be resolved. If Nasdaq delists our securities from trading on its exchange for failure to meet its listing standards, and we are not able to list such securities on another national securities exchange, then our Common Stock could be quoted on an over-the-counter market. If this were to occur, we and our stockholders could face significant material adverse consequences, including: - a limited availability of market quotations for our securities;- reduced liquidity for our securities;- a determination that the Common Stock is a "penny stock," which will require brokers trading the Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of Common Stock;- a limited amount of news and analyst coverage; and - a decreased ability for us to issue additional securities or obtain additional financing in the future.

The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, markets, revenue streams, and competitors. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, our share price and trading volume would likely be negatively impacted. If any of the analysts who may cover us adversely change their recommendation regarding our shares of Common Stock or provide relatively more favorable recommendations with respect to competitors, the price of our shares of Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.