NOTE 8– CONVERTIBLE NOTES PAYABLE AT FAIR VALUE

As of December 31, 2025 and 2024, the estimated fair value of our convertible debt is as follows:

On December 7, 2022, the Company entered into a share purchase agreement with Yorkville to purchase up to $31.1 million in convertible debentures (the “2022 Debentures”). On February 5, 2024 and August 30, 2024, Company issued additional convertible debentures in the amounts of $4.3 million and $3.3 million, respectively, (the “February 2024 Debenture” and “August 2024 Debenture” respectively, and together, the “2024 Debentures”), pursuant to a funding commitment letter entered into between the Company and Yorkville in connection with Sono Group’s restructuring in connection with the Self-Administration Proceedings. On December 30, 2024 the Company and Yorkville entered into a securities purchase agreement (the “Securities Purchase Agreement”) and an exchange agreement (the “Exchange Agreement”). Under the terms of the Securities Purchase Agreement, Yorkville committed to provide limited financing to the Company in the amount of $5 million, subject to certain conditions and limitations. Following a number of amendments to the Securities Purchase Agreement the Company issued to Yorkville six additional debentures (“2025 Debentures”) in the amounts of $1 million, $1 million, $0.50 million, $0.75 million, $0.19 million and $0.35 million on February 12, 2025, March 25, 2025, April 24, 2025, May 27, 2025, August 6, 2025 and August 15, 2025 respectively. In connection with the Company’s uplisting to the Nasdaq Capital Market, on September 5, 2025 Yorkville increased the total funding commitment under the terms of the Securities Purchase Agreement from $5 million to $7.2 million and following the respective amendment the Company issued the final debenture for the remaining part of the total funding commitment, which amounted to $3.4 million. According to the terms of the Exchange Agreement and following the uplisting of Company’s Ordinary Shares to the Nasdaq Capital Market, the total amount of all convertible debentures issued by the Company to Yorkville and outstanding as of September 5, 2025, including accrued interest, totaling 42.1M USD were converted into 1,401 preferred shares with €300 nominal value each (please refer to Note 9 for details on preferred shares). The following table reflects the outstanding debt and accrued interest for each tranche as of September 5, 2025 and December 31, 2024:

The 2022 Debentures carry a coupon of 4% and were convertible into common stock at the holder’s option at, the lower of (i) $131.25, or (ii) 96.5% of the lowest daily VWAP of the Ordinary Shares during the (7) consecutive Trading Days immediately preceding the conversion date or other date of determination). As a result of the amendment described below, the 2022 Debentures have a maturity date of the later of July 1, 2025 or 12 months from the issuance date of each such new note. The 2022 Debentures contain default provisions that accelerate the payment of principal and interest calculated at the default rate of 12%. Resulting from the Company’s application for its Self-Administration Proceedings, the 2022 Debentures have been in default since the filing with the bankruptcy court. The conversion price was changed to the lower of $18.75 and 85% of the minimum daily volume-weighted average price on the seven trading days before conversion, provided that the conversion price will not be below the nominal value of EUR 0.06, as translated to USD, and, if and only if the shares of Sono Group are listed and traded on Nasdaq on the relevant conversion date, the conversion price will not be lower than the Floor Price of USD 0.006.

The 2024 Debentures carry a coupon of 12% and are convertible into common stock at the holder’s option at, the lower of (x) a price per Ordinary Share equal to $18.75 or (y) 85% of the lowest daily volume weighted average price of the Ordinary Shares during the seven consecutive trading days immediately preceding the date of conversion (the “2024 Variable Conversion Price”); provided, that the 2024 Variable Conversion Price may not be lower than (i) a price equal to 20% of the closing price of the ordinary shares on the trading day immediately prior to the issuance date of the debenture and (ii) the nominal value of one ordinary share. The 2024 Debentures contain default provisions that accelerate the payment of principal and interest calculated at the default rate of 18%. The February 2024 Debenture has a maturity date of July 2025, and the August 2024 Debenture has a maturity date of August 2025.

The 2025 Debentures carry a coupon of 12% and are convertible into common stock at the holder’s option at, the lower of (x) a price per Ordinary Share equal to $18.75 or (y) 85% of the lowest daily volume weighted average price of the Ordinary Shares during the seven consecutive trading days immediately preceding the date of conversion (the “2024 Variable Conversion Price”); provided, that the 2024 Variable Conversion Price may not be lower than (i) a price equal to 20% of the closing price of the ordinary shares on the trading day immediately prior to the issuance date of the debenture and (ii) the nominal value of one ordinary share. The 2024 Debentures contain default provisions that accelerate the payment of principal and interest calculated at the default rate of 18%. The February 2025 Debenture has a maturity date of February 2026, the March 2025 Debenture has a maturity date of March 2026, the April 2025 Debenture has a maturity date of April 2026, and the May 2025 Debenture has a maturity date of May 2026.

The Company has evaluated the terms and conditions of the convertible notes under the guidance of ASC 815. The conversion feature did not meet the definition of “indexed to a company’s own stock” provided for in ASC 815 due to the variable number of shares issuable at conversion. Therefore, the conversion feature requires bifurcation and liability classification. Rather than bifurcating and recording the embedded derivative as a derivative liability, the Company elected to initially and subsequently measure the convertible note in its entirety at fair value, with changes in fair value recognized in earnings in accordance with ASC 815-15-25-4.

The carrying value of the convertible notes, which under ASC 815-15-25-4 is Fair Value, is on the balance sheet, with changes in the carrying value being recorded in earnings. The components of the convertible promissory notes as of September 5, 2025 and December 31, 2024 are as follows:

The Company utilized a binomial lattice option pricing model to estimate the fair value per share of the underlying common equity. The Company believes that the binomial lattice model results in the best estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fairly value these instruments and, unlike less sophisticated models like the Black-Scholes model, it also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments. The table below reflects the assumptions used as inputs to the binomial lattice option pricing model.

(1) Adjusted for a discount for lack of marketability of 50%.

On September 5, 2025, pursuant to an exchange agreement dated December 30, 2024, as amended, the debt was exchanged for 1,401 shares of perpetual preferred stock. The Preferred Stock is convertible into common shares at 85% of the lowest VWAP for the 10 preceding trading days. As part of the commitment, the holder has agreed to a conversion price floor of $4.00 for six months and $1.00 thereafter. These terms have been embodied into the calculation of fair value as of September 5, 2025.

The fair value calculated on September 5, 2025 was EUR18.5M indexed to 7,718,300 common shares. The debt was extinguished through the issuance of perpetual preferred stock in the amount of EUR18.5M and reclassified into equity.