AZIO filing — read by section

Item 8. Financial Statements and Supplementary Data

Item 8. 
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

 Page 
 
 Report of Independent Registered Public Accounting Firm Barton CPA PLLC (PCAOB Firm ID 6968 )
 34 

 Consolidated Balance Sheets as of December 31, 2025 and 2024 
 35 

 Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 
 36 

 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2025 and 2024 
 37 

 Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 
 38 

 Notes to Consolidated Financial Statements 
 39 

 33
 
 Table of Contents 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

 Certified Public Accountants and Advisors 

 A PCAOB Registered Firm 

 713-489-5635 bartoncpafirm.com Cypress, Texas 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 To the Board of Directors and Shareholders

 Envirotech Vehicles, Inc. and its Subsidiaries

 Opinion on the Financial Statements 

 We have audited the accompanying consolidated balance sheets of Envirotech Vehicles, Inc. and its Subsidiaries (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the period ended, in conformity with accounting principles generally accepted in the United States of America.

 Going Concern 

 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has sustained significant losses and negative cash flows from operations and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in that regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 Basis for Opinion 

 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matters 

 Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 Revenue Recognition

 The Company’s medical supplies segment revenue is generated exclusively by sales to a related party and these transactions were material to the financial statements and involved especially challenging auditor judgement, as a result revenue recognized from sales to related parties was identified as a critical audit matter. The Company’s revenue recognized is more fully described in the Notes to the consolidated financial statements.

 Auditing revenue from related-party transactions required significant judgement due to the increased risk of material misstatement associated with the determination of whether the transactions were conducted at arm’s length and whether revenue was recognized in accordance with ASC 606. In particular, evaluating whether control of the goods transferred to the related party, assessing the appropriateness of transaction prices, and determining whether collectability was probable involved complex judgements.

 Our audit procedures related to revenue recognized from related-party transactions included; Evaluating management’s identification of related parties and testing the completeness and accuracy of related-party disclosures. Obtained an understanding of the contractual terms of related-party revenue arrangements and assessing the arms-length nature of the terms. Evaluating management’s conclusions regarding the satisfaction of performance obligations and the timing of revenue recognition. Testing a sample of related-party revenue transactions by inspecting contracts, invoices, shipping documents, and cash receipts.

 Going Concern

 As described in Note 2 to the financial statements, the Company has sustained significant losses and negative cash flows from operations and are dependent on debt and equity financing to fund operations. If the Company is unable to improve operational performance or is unable to raise sufficient funding, it may not be able to meet its current and future obligations.

 Accordingly, the company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the date these financial statements are issued.

 Management’s plans to identify adequate sources of funding to provide operating capital for continued growth. Auditing the Company’s assessment and related disclosures regarding its ability to continue as a going concern required significant auditor judgment due to the high level of uncertainty surrounding the projections and assumptions related to the timing and likelihood of future cash flows, including external funding which cannot be assumed. Assessing whether the Company’s disclosures adequately reflect the uncertainty and risks associated with its going concern status also demanded considerable auditor judgement and effort.

 We have served as the Company’s auditor since 2023.

 Cypress, Texas 

 April 13, 2026

 34
 
 Table of Contents 
 
 ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES 

 CONSOLIDATED BALANCE SHEETS 

 December 31, 
 December 31, 
 
 2025 
 2024 
 
 ASSETS 
 
 Current assets:
 
 Cash and cash equivalents
 358,966 $ 1,941,181 

 Accounts receivable, net of allowance of $ 0 and $ 15,306 , respectively,
 — 1,016,666 

 Receivable from related party, net of allowance of $ 6,082 and $ 6,700 , respectively
 1,196,253 993,300 

 Inventory, net
 — 6,416,377 

 Inventory deposits
 — 6,036,809 

 EPA fulfillment asset
 1,503,477 — 

 Prepaid expenses
 237,610 1,130,027 

 Other current assets
 188,074 101,794 

 Total current assets
 3,484,380 17,636,154 

 Property and equipment, net
 475,959 592,171 

 Right-of-use asset
 485,482 108,508 

 Goodwill
 — 10,103,048 

 Intangible assets, net
 — 3,968,301 

 Other non-current assets
 221,995 263,120 

 Total assets
 $ 4,667,816 $ 32,671,302 

 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) 
 
 Current liabilities:
 
 Accounts payable
 $ 3,581,715 $ 1,470,102 

 Deferred revenue
 1,544,000 4,240,666 

 EPA contract liability
 5,169,691 — 

 Accrued liabilities
 2,257,953 2,069,061 

 Operating lease liability - short-term
 229,899 235,625 

 Options liability, at fair value
 — 132,412 

 Debt - current
 505,759 3,596,805 

 Total current liabilities
 13,289,017 11,744,671 

 Long-term liabilities
 
 Operating lease liability - long-term
 306,904 — 

 Debt - long-term
 — 4,168 

 Total liabilities
 13,595,921 11,748,839 

 Commitment and contingencies (Notes 11 and 12)
 — — 

 Stockholders’ equity:
 
 Preferred stock, 5,000,000 authorized, $ 0.00001 par value per share, none issued and outstanding as of December 31, 2025 and 2024
 — — 

 Common stock, 350,000,000 authorized, $ 0.00001 par value per share, 7,736,129 and 1,987,262 issued and outstanding as of December 31, 2025 and 2024, respectively
 78 20 

 Additional paid-in capital
 103,660,277 94,383,917 

 Accumulated deficit
 ( 112,588,460 ) ( 73,461,474 ) 

 Total stockholders’ equity
 ( 8,928,105 ) 20,922,463 

 Total liabilities and stockholders’ equity
 $ 4,667,816 $ 32,671,302 

 See accompanying notes to consolidated financial statements.

 35
 
 Table of Contents 
 
 ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF OPERATIONS 

 Year Ended December 31, 
 
 2025 
 
 2024 
 
 Sales
 
 $ 
 5,939,008 
 
 $ 
 1,870,060 
 
 Cost of sales
 
 19,137,380 
 
 1,381,257 
 
 Gross profit
 
 ( 13,198,372 
 ) 
 
 488,803 
 
 Operating expenses:
 
 General and administrative
 
 11,281,889 
 
 8,146,275 
 
 Consulting
 
 65,261 
 
 70,000 
 
 Research and development
 
 731,808 
 
 192,885 
 
 Goodwill impairment
 
 10,103,048 
 
 — 
 
 Impairment of intangible assets
 
 3,300,801 
 
 — 
 
 Total operating expenses, net
 
 25,482,807 
 
 8,409,160 
 
 Loss from operations
 
 ( 38,681,179 
 ) 
 
 ( 7,920,357 
 ) 
 
 Other income (expense):
 
 Interest income
 
 33,320 
 
 7,669 
 
 Loss on conversions and changes in fair value of convertible notes
 
 ( 461,019 
 ) 
 
 ( 633,981 
 ) 
 
 Other expense
 
 ( 18,108 
 ) 
 
 ( 302,306 
 ) 
 
 Total other income
 
 ( 445,807 
 ) 
 
 ( 928,618 
 ) 
 
 Loss before income taxes
 
 ( 39,126,986 
 ) 
 
 ( 8,848,975 
 ) 
 
 Income tax expense
 
 — 
 
 — 
 
 Net loss
 
 $ 
 ( 39,126,986 
 ) 
 
 $ 
 ( 8,848,975 
 ) 
 
 Net loss per share to common stockholders:
 
 Basic and diluted
 
 $ 
 ( 11.54 
 ) 
 
 $ 
 ( 5.46 
 ) 
 
 Weighted shares used in the computation of net loss per share:
 
 Basic and diluted
 
 3,391,670 
 
 1,620,911 
 
 See accompanying notes to consolidated financial statements.

 36
 
 Table of Contents 
 
 ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY 

 Additional 
 
 Common Stock 
 
 Paid-In 
 
 Accumulated 
 
 Stockholders’ 
 
 Shares 
 
 Amount 
 
 Capital 
 
 Deficit 
 
 Equity 
 
 Balance, December 31, 2023 
 
 1,517,175 
 
 $ 
 15 
 
 $ 
 85,246,062 
 
 $ 
 ( 64,612,499 
 ) 
 
 $ 
 20,633,578 
 
 Common stock issued for cash
 
 103,171 
 
 1 
 
 1,799,247 
 
 — 
 
 1,799,248 
 
 Conversion of short-term note to common stock
 
 50,505 
 
 1 
 
 1,046,258 
 
 — 
 
 1,046,259 
 
 Common stock issued - commitment fee (equity line of credit)
 
 6,410 
 
 — 
 
 125,000 
 
 — 
 
 125,000 
 
 Common stock issued as consideration for acquisition (Note 3)
 
 310,000 
 
 3 
 
 4,277,997 
 
 — 
 
 4,278,000 
 
 Fractional shares - reverse stock split
 
 1 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Stock based compensation
 
 — 
 
 — 
 
 1,889,353 
 
 — 
 
 1,889,353 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 ( 8,848,975 
 ) 
 
 ( 8,848,975 
 ) 
 
 Balance, December 31, 2024 
 
 1,987,262 
 
 $ 
 20 
 
 $ 
 94,383,917 
 
 $ 
 ( 73,461,474 
 ) 
 
 $ 
 20,922,463 
 
 Common stock issued for cash
 
 860,000 
 
 10 
 
 426,328 
 
 — 
 
 426,338 
 
 Common stock issued from convertible notes conversion
 
 4,888,806 
 
 48 
 
 8,210,217 
 
 — 
 
 8,210,265 
 
 Fractional shares - reverse stock split
 
 61 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Stock based compensation
 
 — 
 
 — 
 
 639,815 
 
 — 
 
 639,815 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 ( 39,126,986 
 ) 
 
 ( 39,126,986 
 ) 
 
 Balance, December 31, 2025 
 
 7,736,129 
 
 $ 
 78 
 
 $ 
 103,660,277 
 
 $ 
 ( 112,588,460 
 ) 
 
 $ 
 ( 8,928,105 
 ) 
 
 See accompanying notes to consolidated financial statements.

 37
 
 Table of Contents 
 
 ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES 

 CONSOLIDATED STATEMENTS OF CASH FLOWS 

 Year Ended December 31, 
 
 2025 
 
 2024 
 
 Cash flows from operating activities: 
 
 Net loss
 
 $ 
 ( 39,126,986 
 ) 
 
 $ 
 ( 8,848,975 
 ) 
 
 Adjustments to reconcile net loss to net cash used in operating activities:
 
 Depreciation and amortization
 
 960,539 
 
 190,549 
 
 Provision for bad debt
 
 853,225 
 
 10,085 
 
 Stock based compensation expense
 
 639,815 
 
 1,889,353 
 
 Goodwill impairment
 
 10,103,048 
 
 — 
 
 Impairment of intangible assets
 
 3,300,801 
 
 — 
 
 Loss on conversions and changes in fair value of convertible notes
 
 461,019 
 
 633,981 
 
 Inventory write-down
 
 6,027,981 
 
 — 
 
 Write-off of inventory deposits
 
 6,986,329 
 
 — 
 
 Other
 
 — 
 
 28,108 
 
 Changes in assets and liabilities:
 
 Accounts receivable
 
 162,824 
 
 ( 327,949 
 ) 
 
 Receivable from related party
 
 ( 202,335 
 ) 
 
 — 
 
 Inventory
 
 388,396 
 
 414,217 
 
 Inventory deposits
 
 ( 2,452,996 
 ) 
 
 ( 2,736,421 
 ) 
 
 Prepaid expenses
 
 892,417 
 
 ( 515,789 
 ) 
 
 Other current assets
 
 ( 86,280 
 ) 
 
 101,575 
 
 Other non-current assets
 
 ( 335,849 
 ) 
 
 404,609 
 
 Accounts payable
 
 2,111,614 
 
 709,300 
 
 Accrued liabilities and deferred revenue
 
 3,427,743 
 
 4,757,823 
 
 Other non-current liabilities
 
 301,178 
 
 ( 215,139 
 ) 
 
 Net cash used in operating activities
 
 ( 5,587,517 
 ) 
 
 ( 3,504,673 
 ) 
 
 Cash flows from investing activities: 
 
 Purchase of property and equipment, net
 
 ( 176,828 
 ) 
 
 ( 430,333 
 ) 
 
 Acquisition of Maddox Industries, net of cash
 
 — 
 
 ( 4,276,041 
 ) 
 
 Net cash used in investing activities
 
 ( 176,828 
 ) 
 
 ( 4,706,374 
 ) 
 
 Cash flows from financing activities: 
 
 Proceeds from issuance of common stock
 
 426,338 
 
 1,799,248 
 
 Common stock issued - Maddox acquisition
 
 — 
 
 4,278,000 
 
 Contingent consideration payment - Maddox Industries acquisition
 
 ( 770,000 
 ) 
 
 — 
 
 Proceeds from convertible notes
 
 4,750,500 
 
 2,635,500 
 
 Proceeds from related party loan
 
 — 
 
 300,000 
 
 Repayment of related party loan
 
 — 
 
 ( 300,000 
 ) 
 
 Proceeds from the issuance of Conrod convertible note
 
 — 
 
 901,000 
 
 Proceeds from debt
 
 254,540 
 
 648,937 
 
 Principal repayments on debt
 
 ( 479,248 
 ) 
 
 ( 567,176 
 ) 
 
 Net cash provided by financing activities
 
 4,182,130 
 
 9,695,509 
 
 Net change in cash, restricted cash and cash equivalents
 
 ( 1,582,215 
 ) 
 
 1,484,462 
 
 Cash, restricted cash and cash equivalents at the beginning of the period
 
 1,941,181 
 
 456,719 
 
 Cash, restricted cash and cash equivalents at the end of the period
 
 $ 
 358,966 
 
 $ 
 1,941,181 
 
 Supplemental cash flow disclosures:
 
 Cash paid for interest expense
 
 $ 
 14,065 
 
 $ 
 26,169 
 
 Non-cash transfer of inventory deposits to EPA fulfillment asset
 
 $ 
 1,503,477 
 
 $ 
 — 
 
 Non-cash transfer of deferred revenue to EPA contract liability
 
 $ 
 5,169,691 
 
 $ 
 — 
 
 Conversion of short-term notes to common stock
 
 $ 
 8,210,265 
 
 $ 
 — 
 
 See accompanying notes to consolidated financial statements.

 38
 
 Table of Contents 
 
 ENVIROTECH VEHICLES, INC. AND SUBSIDIARIES 

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

 1. Organization and Operations 

 Envirotech Vehicles, Inc., including its consolidated subsidiaries ("we," "us," "our," or the "Company"), is a United States ("U.S.") distributor of zero -emission commercial vehicles and heavy capacity drones engineered for logistics, infrastructure, and precision agriculture applications worldwide. The Company's systems enable a cleaner, safer, and more efficient future for critical industrial operations. During the first quarter of 2025, the Company increased its business portfolio by adding two new business operations: ( 1 ) medical supplies and ( 2 ) drones. The medical supplies segment currently consists of manufacturing medical gowns for the government of the U.S.

 On August 8, 2025, the Company effected a 1 -for- 10 reverse stock split of our common stock with no change to authorized shares of common stock (the "Reverse Stock Split"). All share, options, warrants and per share information through this Annual Report on Form 10 -K has been retroactively adjusted to reflect the Reverse Stock Split. The shares of common stock retain a par value of $ 0.00001 per share. Accordingly, an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split was reclassified from “Common Stock” to “Additional paid-capital.”

 2. Summary of Significant Accounting Policies 

 Basis of Presentation —The accounting and reporting policies of the Company conform with generally accepted accounting principles in the United States (“GAAP”). 

 Principles of Consolidation —The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 

 Use of Estimates —The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("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. 

 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 financing to fund operations. The Company incurred a net loss of $ 39,126,986 and $ 8,848,975 for the years ended December 31, 2025 and 2024, respectively. Cash used in operating activities was $ 5,587,517 and $ 3,504,673 for the years ended December 31, 2025 and 2024, respectively. Accumulated deficit was $ 112,588,460 and $ 73,461,474 as of December 31, 2025 and 2024, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
 
 The Company plans to grow and expand operations and seek sources of capital to pay its contractual obligations as they come due. Failure to successfully continue to grow operational revenues could harm the Company’s profitability and adversely affect the Company’s financial condition and results of operations. Management believes that its future operating strategy will provide the opportunity to continue as a going concern as long as the Company is able to obtain additional financing; however, there is no assurance this will occur. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
 Fair Value of Financial Instruments —The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted 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 Measurement ("ASC 820" ) 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 a three -tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
 Level 1: Observable inputs such as quoted prices in active markets;
 
 Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 
 Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.
 
 The Company has an option liability that is measured at fair value on a recurring basis. See Note 7 - Notes Payable for additional disclosures.
 
 Revenue Recognition —The Company recognizes revenue from the sales of zero -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 ASC 606, Revenue from Contracts with Customers ("ASC 606" ), 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. 
 
 Net revenue recorded for the year ended December 31, 2025 was $ 323,500 and $ 5,589,945 for the electric vehicles segment and medical supplies segment, respectively. Two customers accounted for 100 % of the net revenue for the delivery of electric vehicles in the electric vehicles segment for the year ended December 31, 2025. One customer, a related party, accounted for 100 % of the medical supplies segment net revenue for the year ended December 31, 2025. 
 
 Net revenue recorded for the year ended December 31, 2024 was $ 1,817,755 for the electric vehicles segment. Eight customers accounted for approximately all of the net revenue for the delivery of electric vehicles in the electric vehicles segment for the year ended December 31, 2024. 
 
 In applying ASC 606, the Company is required to:
 
 ( 1 )
 identify contracts with customers;
 
 ( 2 )
 determine if multiple performance obligations exist;
 
 ( 3 )
 determine the transaction price;
 
 ( 4 )
 allocate the transaction price to the respective obligation; and
 
 ( 5 )
 recognize the revenue as the obligation is satisfied.
 
 Product revenue 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 and the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt of the vehicle. At this time, revenue is recognized.
 
 Other revenue for the electric vehicles segment for the years ended December 31, 2025 and December 31, 2024 were $ 25,563 and $ 52,303 respectively, and primarily included safety inspection and document fees for compliance with U.S. Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced. The Company has therefore not provided any additional disaggregation information, as all other revenue relates to the sale of vehicles and medical supplies (gowns) as discussed above.
 
 39 
 
 Table of Contents 
 
 Cash and Cash Equivalents —The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The recorded value of our cash and cash equivalents approximates their fair value. 

 Short-term Investments —The Company may, from time to time, invest in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury bonds, and other government-backed securities. The Company may also, from time to time, invest in bank certificates of deposit. The Company classifies these short-term investments as held-to-maturity, as the intent is not to liquidate them prior to the respective stated maturity date. The balances for these short-term investments at December 31, 2025 and December 31, 2024, were $ 0 and $ 0 , respectively. 

 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 does not generally require collateral for its accounts receivable. The Company had trade accounts receivable of $ 0 as of December 31, 2025 as all accounts receivable were written off due to unfavorable market conditions. The Company had trade accounts receivable of $ 1,031,972 as of December 31, 2024 and an allowance for doubtful accounts of $ 15,306 , resulting in a net trade receivable balance of $ 1,016,666 . A significant portion of the Company’s electric vehicle sales are made to customers who qualify for state-sponsored grant programs which can cover a significant portion, up to all of a vehicle’s purchase price. Grant monies are paid directly to vehicle dealers like the Company after the customer and the dealer meet state requirements related to the transaction; reimbursements to the Company may take two to nine months from the date of request before being received. 
 
 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 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. The Company had a receivable from related party of $ 1,000,000 and a recorded allowance of $ 6,700 , resulting in a net receivable from related party of $ 993,300 as of December 31, 2024. 
 
 Inventory and Inventory Valuation Allowance —The Company records inventory at the lower of cost or net realizable value, uses a First In, First Out (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it does not intend to sell in the future. The Company had finished goods inventory on hand of $ 6,040,410 as of December 31, 2025 and recorded an inventory valuation allowance of $ 6,040,410 as a result of deteriorating market conditions, resulting in a net inventory balance of $ 0 at December 31, 2025 . The Company had finished goods inventory on hand of $ 6,428,806 as of December 31, 2024 and recorded an inventory valuation allowance of $ 12,429 resulting in a net inventory balance of $ 6,416,377 as of December 31, 2024 .
 
 Inventory Deposits —Certain of our vendors require the Company to pay upfront deposits before they will commence manufacturing our vehicles, and then progress payments are required 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 of the completed inventory by the Company, and passage of title to the Company, deposits are reclassified to inventory. The Company had inventory deposits of $ 0 and $ 6,036,809 as of December 31, 2025 and December 31, 2024 , respectively. The Company wrote-off $ 6,027,981 of its balance primarily due to deteriorating market conditions. Deposits paid to a related party vendor accounted for 99 % of the deposits outstanding at December 31, 2024. 
 
 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 December 31, 2025 and December 31, 2024 is $ 1,503,477 and $ 0 , respectively. 

 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.
 
 The Company previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, has determined that recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized is appropriate. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. A full valuation allowance is recorded at December 31, 2025 and December 31, 2024. 
 
 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 December 31, 2025 and 2024 , respectively, management did not 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.
 
 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 December 31, 2025 , 977,250 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 147,039 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. As of December 31, 2024 , 564,126 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 190,163 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. Stock options and warrants were not included in the diluted weighted average number of shares outstanding for the years ended December 31, 2025 and 2024 , as the effect would be anti-dilutive.
 
 40 
 
 Table of Contents 
 
 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”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $ 750,000 , which may include cash up to $ 500,000 , are insured. 

 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 may not 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 was no impairment of long-lived assets, or property and equipment, as of December 31, 2025 and December 31, 2024 , respectively.
 
 Goodwill —Goodwill represents the excess of acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A quantitative analysis is performed at the r eporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value to determine the amount of impairment, if any. The Company has determined that it has one reporting unit. In 2025, the Company conducted its annual impairment test. Based on the impairment test, which predominantly utilized the Company's quoted market price and the number of outstanding shares at the end of the period as inputs, the Company recorded a non-cash goodwill impairment of $ 10,103,048 as of December 31, 2025. The balance of the Company's goodwill at December 31, 2025 is zero . See Note 3 - Goodwill for additional disclosures. 

 Other Intangible Assets —The Company's other intangibles consist of customer relationships and tradenames and trademarks and are stated at cost, less accumulated amortization and impairment charge. The Company records amortization expense using the straight-line method over the estimated useful lives of these assets, which range from three to ten years. The Company reviews these intangibles for impairment whenever events or circumstances indicate that the carrying amount of these intangibles may not be recoverable. During the third quarter of 2025, the Company identified indicators of impairment related to its other intangibles. The Company performed a recoverability test by comparing the undiscounted future cash flows of the asset group to its carrying amount. The analysis indicated that the carrying amount was not recoverable. As a result, the Company measured the impairment loss as the excess of carrying amount over fair value, determined by using a discounted cash flow approach. Accordingly, the Company recorded a non-cash impairment charge of $ 3,300,801 in the Consolidated Statements of Operations for the year ended December 31, 2025. See Note 3 - Goodwill and Other Intangibles. 

 EPA Contract Liability —These are costs 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 school bus initiative. The balance of EPA contract liability at December 31, 2025 and December 31, 2024 is $ 5,169,691 and $ 0 , respectively. 

 Research and Development ("R&D") —Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. R&D expenses were $ 731,808 and $ 192,885 for the years ended December 31, 2025 and December 31, 2024 , respectively. 

 Stock-Based Compensation —The Company accounts for employee stock-based compensation in accordance with the guidance of ASC 718, Compensation-Stock Compensation ("ASC 718" ), which requires all share-based payments to employees, including grants of employee stock options and restricted shares and stock options to external consultants, to be recognized in the financial statements based on their grant date fair values using the Black-Scholes option pricing model for stock options and the closing market price on the date of the award for restricted shares and are recognized as compensation expense ratably over the requisite service period, which is generally the awards' vesting period. The Company recorded non-cash stock-based compensation expense of $ 639,815 , and $ 1,889,353 for the years ended December 31, 2025 and December 31, 2024, respectively. 
 
 Property and Equipment —Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to five years, except leasehold improvements, which are being amortized over the shorter of its useful life or the lease term. 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. 

 Leases —The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842” ). 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 Note 13 - Leases.
 
 As most of the Company’s leases do not 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 of 12 months or less are not recorded in the Company's Consolidated Balance Sheet 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 to not separate fixed lease components from the fixed non-lease components.
 
 41 
 
 Table of Contents 
 
 Recently Adopted Accounting Pronouncements 
 
 ASU No. 2023 - 09, “ Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures ”
 
 In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures ("ASU 2023 - 09" ), which requires public entities, on an annual basis, to provide disclosure of specific categories in the reconciliation of the effective tax rate, as well as disclosure of income taxes paid, disaggregated by jurisdiction. ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023 - 09 on a prospective basis. The adoption had no material impact on the Company's consolidated financial statements.
 
 Recently Issued Accounting Pronouncements Not Yet Adopted 
 
 ASU No. 2024 - 03, “ Income Statement (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses ”
 
 In November 2024, the FASB issued ASU 2024 - 03, Income Statement (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses ("ASU 2024 - 03" ), which requires additional information about certain expenses in the notes to the financial statements. ASU 2024 - 03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024 - 03 and will adopt the guidance when it becomes effective on a prospective basis.
 
 42 
 
 Table of Contents 
 
 3. Goodwill and Intangible Assets 

 The Company has determined that it has three reporting units, and based on both qualitative and quantitative analysis and management’s assessment during the period ended December 31, 2025, the Company recorded a non-cash impairment charge of $ 10,103,048 on the Company's Consolidated Statements of Operations. 

 The following table presents a reconciliation of the carrying amount of goodwill for the year ended December 31, 2025. 

 Goodwill:
 
 Total 

 Goodwill as of December 31, 2023
 $ 9,583,836 

 Increase due to acquisitions
 519,212 

 Goodwill as of December 31, 2024
 10,103,048 

 Impairment
 ( 10,103,048 ) 

 Goodwill as of December 31, 2025
 $ - 

 The following table presents the carrying amount of intangible assets for the years ended December 31, 2025 and December 31, 2024: 

 As of December 31, 2025 
 
 Weighted average amortization period (in years) 
 
 Gross carrying amount 
 Accumulated amortization 
 Impairment charge 
 Net amount 
 
 Intangible assets:
 
 Customer relationships
 $ 2,100,000 $ ( 549,932 ) $ ( 1,550,068 ) $ - - 

 Trade names and trademarks
 1,900,000 ( 149,267 ) ( 1,750,733 ) $ - - 

 Intangible assets, net
 $ 4,000,000 $ ( 699,199 ) $ ( 3,300,801 ) $ - 

 As of December 31, 2024 
 
 Weighted average amortization period (in years) 
 
 Gross carrying amount 
 Accumulated amortization 
 Net amount 
 
 Intangible assets:
 
 Customer relationships
 $ 2,100,000 $ ( 24,932 ) $ 2,075,068 2.96 

 Trade names and trademarks
 1,900,000 ( 6,767 ) $ 1,893,233 9.96 

 Intangible assets, net
 $ 4,000,000 $ ( 31,699 ) $ 3,968,301 

 Amortization expense for the years ended December 31, 2025 and 2024 was $ 667,500 and $ 31,699 , respectively. Due to unfavorable business conditions affecting its medical supplies segment, the Company conducted an impairment test of its intangibles. As a result of this test, the Company recorded an impairment of $ 3,300,801 for the year ended December 31, 2025. The remaining balance of intangible assets at December 31, 2025 is $ 0 .

 4. Property and equipment, net 

 Components of property and equipment, net consist of the following as of December 31, 2025 and 2024 :

 December 31, 2025 
 December 31, 2024 
 
 Furniture and fixtures
 $ 125,620 $ 90,641 

 Leasehold improvements
 380,286 359,529 

 Machinery & equipment
 377,521 272,774 

 Vehicles
 387,693 371,350 

 Test/Demo vehicles
 30,685 30,685 

 Total property and equipment
 1,301,805 1,124,979 

 Less accumulated depreciation
 ( 825,846 ) ( 532,808 ) 

 Net property and equipment
 $ 475,959 $ 592,171 

 Depreciation expense was $ 293,038 and $ 158,850 for the years ended December 31, 2025 and 2024 , respectively.

 43 
 
 Table of Contents 
 
 5. Income Taxes 

 The cumulative estimated net operating loss (“NOL”) carry-forward is $ 73,591,129 and $ 50,713,781 at December 31, 2025 and 2024, respectively. Of this amount as of December 31, 2025, $ 59,213,790 of this NOL may be carried forward indefinitely while $ 14,377,339 is subject to expiration over a 20 -year period. Due to the enactment of the Tax Cuts and Jobs Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to 21%. Therefore, the cumulative tax effect of the NOL carryforward at the expected rate of 21% comprising the Company’s net deferred tax amount is as follows:

 December 31, 
 
 2025 
 2024 
 
 Tax effected net operating loss
 $ 5,095,383 $ 1,439,226 

 Deferred tax asset attributable to:
 
 Net operating loss carryover
 10,649,894 9,210,668 

 Research and development tax credit carryforward
 274,891 274,891 

 Sub-total
 16,020,168 10,924,785 

 Valuation allowance
 ( 16,020,168 ) ( 10,924,785 ) 

 Net deferred tax asset
 $ — $ — 

 Cumulative NOL
 $ 73,591,129 $ 50,713,781 

 44 
 
 Table of Contents 
 
 Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryover for federal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forward includes the years 2012 through 2022 for the Envirotech Vehicles, Inc losses, and includes the years 2014 through 2020 for EVT, as the 2021 EVT loss is included in the consolidated Envirotech Vehicles, Inc. loss. Because a change in ownership occurred as a result of the Company’s acquisition of EVT pursuant to a merger of a wholly owned subsidiary of the Company with and into EVT, with EVT surviving the merger as a wholly-owned subsidiary of the Company, net operating loss carryover will be limited as to use in future years. Federal tax returns for tax years since 2021 are still open for examination by the Internal Revenue Service.

 The following table reconciles the Federal statutory rate to the Company's effective tax rate.

 2025 
 2024 
 
 Amount 
 Percentage 
 Amount 
 Percentage 
 
 U.S. Federal statutory rate
 $ 8,216,667 21 % $ 1,858,285 21 % 

 Valuation allowance
 ( 8,216,667 ) ( 21 )% ( 1,858,285 ) ( 21 )% 

 Total
 $ - 0 % $ - 0 % 

 6. Debt 

 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 $ 4,168 as of December 31, 2025, of which $ 4,168 is classified as Notes Payable - current on the Company's Consolidated Balance Sheets as of December 31, 2025. 

 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 2024, and bears interest at 8.24 % with monthly payments of $ 14,576 . The balance of this note was $ 57,315 as of December 31, 2025. 

 On August 20, 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 required an initial down payment of $ 39,515 . The balance of this note, including accrued interest, was $ 114,762 as of December 31, 2025. 

 Convertible Note 

 On January 18, 2024, the Company entered into a convertible promissory note agreement ("Note") for $ 1,000,000 with an unrelated third -party investor (the "Holder"). The origination fee of the Note was $ 99,000 and the maturity date of the Note was September 30, 2024. The Holder was entitled to convert the Note into common stock at the greater of $ 1.50 per share or at 90 % of the share price of the Company's common stock on the maturity date. The Holder also had a security interest in the assets of the Company in the event of non-payment of the Note. In addition, the Holder received options to purchase 80,000 shares of the Company's common stock at $ 1.50 per share. These options expire two years from the date of the Note. On May 6, 2024, the Note was cancelled and replaced with a short-term note. During the third quarter of 2024, the short-term note was converted into 50,505 shares of common stock.

 The Company elected to measure the Note and options at fair value. In estimating the fair value of the Note, a Monte Carlo simulation model is applied. The required inputs include the current stock price, the risk-free rate and volatility of the common stock. The Note's fair value is classified as Level 3 under the fair value hierarchy as provided by ASC 820. In estimating the fair value of the options, the Black-Scholes Merton Model is used. The required inputs include the current stock price, the exercise price, the term of the options, the risk-free rate and the volatility of the common stock. The options' fair value is classified as Level 3 under the fair value hierarchy as provided by ASC 820. The fair valuation of the Note and options uses inputs other than quoted prices that are observable either directly or indirectly.

 The net proceeds of $ 901,000 received by the Company from the issuance of the Note were bifurcated between the Note and the options. The amount allocated to the options was $ 431,405 which was the fair value on the issuance date of the Note. The remaining proceeds received are allocated to the Note. Under the fair value election, both the Note and options are remeasured to their respective fair values at the reporting date and are presented as Options liability, at fair value on the Company's Consolidated Balance Sheets. Changes in fair values for the Note and options are recorded as an unrealized gain or loss on convertible note fair value in Other (Expense)/Income in the Company's consolidated statements of operations. As a result of this election, the Company recorded an unrealized loss $ 556,174 for the year ended December 31, 2024 for the Note. The Company recorded an unrealized gain of $ 132,412 and $ 298,993 for the year ended December 31, 2025 and December 31, 2024, respectively for the options.

 45 
 
 Table of Contents 
 
 Amended and Restated Standby Equity Purchase Agreement (as Supplemented and Amended, 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”) in two tranches, resulting in net proceeds (net of discounts and fees) to the Company of $ 2,635,500 . The Company received the first tranche of the Pre-Paid Advance in the principal amount of $ 2 million on October 31, 2024 in exchange for the Promissory Note dated October 31, 2024 ( the “EVTV- 1 Promissory Note”), and the second tranche of the Pre-Paid Advance in the principal amount of $ 1 million on December 17, 2024 in 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 will increase to an annual rate of 18 % upon the occurrence of an Event of Default (as defined in the Promissory Notes) or a Registration Event (as defined in the Promissory Notes) for so long as such event of default remains 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, 2025 and 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 the five consecutive trading days immediately preceding the conversion date (but no 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.

 During 2025, 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 . As a result of these conversions, a realized gain of $ 339,855 was recognized for the EVTV- 1 Promissory Note for the year ended December 31, 2025. 

 During the first quarter of 2025, the obligation under the EVTV- 2 Promissory Note in the principal amount of $ 1 million was fully satisfied through the conversion of the EVTV- 2 Promissory Note into shares of the Company's common stock. As a result of this conversion, 174,348 shares of the Company's common stock were issued at a weighted average price of $ 6.95 and a realized loss of $ 135,976 was recognized for the EVTV- 2 Promissory Note for the year ended December 31, 2025. The principal balance of the EVTV- 2 Promissory Note was zero at December 31, 2025. 

 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 Level 3 under the fair value hierarchy as provided by ASC 820. 

 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”) in two 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 will increase to an annual rate of 18 % upon the occurrence of an Event of Default (as defined in the Additional Promissory Notes) or a Registration Event (as defined in the Additional Promissory Notes) for so long as such event remains uncured. The Additional Promissory Notes will mature on March 9, 2026, which may be extended at the option of the Investor. The Additional Promissory Notes are convertible at a conversion price equal to the lower of (i) $ 10.00 per share or (ii) 93 % of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date (but no lower than the “floor price” then in effect, which is $ 0.7130 per share, subject to adjustment from time to time in accordance with the terms contained in the Additional Promissory Notes).

 The first tranche of the Additional Pre-Paid Advance was disbursed on February 25, 2025 in 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”). During 2025, 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 . A realized loss of $ 7,284 was recognized as a result of this conversion during the year ended December 31, 2025. 

 The second tranche of the Additional Pre-Paid Advance in the principal amount of $ 2 million (with net proceeds of approximately $ 1.8 million after deducting discounts and fees) was disbursed to the Company on May 7, 2025 ( the "EVTV- 4 Additional Promissory Note"). During 2025, the obligation under the EVTV- 4 Additional Promissory Note in the principal amount of $ 2 million was fully satisfied through the conversion of the EVTV- 4 Additional Promissory Note into shares of the Company's common stock. As a result of this conversion, 1,163,731 shares of the Company's common stock were issued at a weighted average price of $ 1.96 . A realized loss of $ 112,809 was recognized as a result of this conversion during the year ended December 31, 2025. 

 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 Level 3 under the fair value hierarchy as provided by ASC 820. 

 The following table depicts the future annual minimum payments of the Company's outstanding debt as of December 31, 2025: 

 Amount 
 
 2026
 $ 485,773 

 Total payments 
 $ 485,773 

 7. Stockholders' Equity 

 The Company has 5,000,000 authorized shares of its preferred stock, par value $ 0.00001 per share, on December 31, 2025 and December 31, 2024. There was no outstanding shares of preferred stock on December 31, 2025 and December 31, 2024. 

 The Company has 350,000,000 authorized shares of its common stock, par value $ 0.00001 per share, of which 7,736,129 and 1,987,262 shares of the Company's common stock were outstanding on December 31, 2025 and December 31, 2024, 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, but not 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 (subject to certain beneficial ownership restrictions), from time to time, until November 1, 2027. See Note 6 – Debt.

 46 
 
 Table of Contents 
 
 8. Stock Warrants 

 The Company’s outstanding warrants as of December 31, 2025 are summarized as follows, and all were exercisable at that date:

 Number of Shares 
 Weighted Average Exercise Price 
 Weighted Average Remaining Contractual Life (years) 
 
 Outstanding warrants expiring May 7, 2026 
 95,834 $ 200.00 0.35 

 Outstanding warrants expiring September 11, 2026 
 51,205 $ 16.60 0.71 

 Outstanding warrants on December 31, 2025
 147,039 

 December 2020 Warrants 

 The warrants issued pursuant to a securities purchase agreement, dated as of December 24, 2020, that the Company entered into with certain institutional and accredited investors and pursuant to which, among other things, the Company sold and issued, and the investors purchased, shares of the Company’s common stock and related warrants to purchase additional shares of the Company’s common stock in a series of two closings, contain a call provision whereby the Company, after the 13 -month anniversary of the issuance date, and if the volume weighted average price of the common stock for such date exceeds four times the exercise price of the warrants for 20 consecutive trading days, may call the warrants that have not previously been exercised, and the warrant holders have ten trading days within which to exercise before the warrants may be cancelled. From among these warrants, warrants for 1,283 shares of common stock expired in 2023, warrants for 43,125 shares of common stock expired on December 29, 2025, and warrants for 95,834 shares of common stock will expire on May 7, 2026. 

 September 2024 Warrants 

 On September 12, 2024, the Company entered into securities purchase agreements with four 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 of two 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. 

 As of December 31, 2025 and 2024 , the outstanding warrants have no intrinsic value.

 47 
 
 Table of Contents 
 
 9. Stock Options and Restricted Shares 

 Stock Options 

 The following is a summary of stock option activity under the Company’s 2017 Equity Incentive Plan for the year ended December 31, 2025 :

 Number of Shares 
 Weighted Average Exercise Price 
 Weighted Average Remaining Contractual Life (years) 
 
 Outstanding at December 31, 2024
 564,126 

 Options Granted at $2.50 Exercise Price
 415,000 $ 2.50 

 Options Expired at $26.50 Exercise Price
 ( 277 ) $ 26.50 

 Options Expired at $21.10 Exercise Price
 ( 1,377 ) $ 21.10 

 Options Expired at $24.40 Exercise Price
 ( 10,000 ) $ 24.40 

 Options forfeited at $26.50 Exercise Price
 ( 222 ) $ 26.50 

 Options Granted at $2.12 Exercise Price
 10,000 $ 2.12 

 Outstanding at December 31, 2025
 977,250 

 Outstanding Options at $20.00 Exercise Price
 25,000 $ 20.00 6.02 

 Outstanding Options at $24.00 Exercise Price
 9,090 $ 24.00 6.02 

 Outstanding Options at $90.00 Exercise Price
 25,675 $ 90.00 4.98 

 Outstanding Options at $262.00 Exercise Price
 675 $ 262.00 2.30 

 Outstanding Options at $21.00 Exercise Price
 58,850 $ 21.00 7.53 

 Outstanding Options at $21.10 Exercise Price
 136,460 $ 21.10 8.22 

 Outstanding Options at $26.60 Exercise Price
 2,500 $ 26.60 8.12 

 Outstanding Options at $15.00 Exercise Price
 80,000 $ 15.00 0.05 

 Outstanding Options at $27.50 Exercise Price
 200,000 $ 27.50 1.10 

 Outstanding Option at $17.60 Exercise Price
 10,000 $ 17.60 8.47 

 Outstanding Options at $14.90 Exercise Price
 2,000 $ 14.90 8.43 

 Outstanding Options at $22.00 Exercise Price
 2,000 $ 22.00 8.30 

 Outstanding Options at $2.50 Exercise Price
 415,000 $ 2.50 9.42 

 Outstanding Options at $2.12 Exercise Price
 10,000 $ 2.12 9.39 

 Outstanding at December 31, 2025
 977,250 

 48 
 
 Table of Contents 
 
 As of December 31, 2025 stock options for 761,776 shares of common stock were exercisable. Unrecognized compensation for unvested options was $ 107,000 as of December 31, 2025. 

 On March 10, 2025, the Compensation Committee (the "Compensation Committee") of the Company's Board of Directors (the "Board") granted the non-employee directors and certain executives and consultants options to purchase an aggregate of 415,000 shares of common stock at an exercise price of $ 2.50 per share, of which 385,000 of these options vested immediately upon grant and expire on the tenth anniversary of the grant date. The remaining 30,000 options vest on the one -year anniversary of the grant date and expire on the tenth anniversary of the grant date.

 On May 21, 2025, the Compensation Committee granted a consultant options to purchase 10,000 shares of common stock at an exercise price of $ 2.12 per share, all of which vested immediately upon grant and expire on the tenth anniversary of the grant date.

 As of December 31, 2025, the outstanding stock options had intrinsic value of $ 0 .

 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 December 31, 2025, the sales targets were not met and therefore, no compensation expense was recorded for the year ended December 31, 2025. The Company does not believe that the criteria will be met. These options expire on February 5, 2027. 

 The options granted during 2025 were valued using the Black-Scholes option pricing model, resulting in a weighted average fair market value of approximately $ 1.37 per option for the years ended December 31, 2025 . The weighted average assumptions used in the valuation of the options are summarized in the following table:

 2025 
 
 Risk-free interest rate
 4.03 % 

 Expected volatility
 60.4 % 

 Expected option term (years)
 5 

 Expected dividend yield
 0 % 

 As of December 31, 2025 , the outstanding options had no intrinsic value.

 Restricted Shares 

 In November 2023, the Company awarded 65,660 restricted shares to a vendor that vested over a six -month period in exchange for marketing services to be provided over the same period. As a result, the Company recorded stock compensation expense of $ 58,671 during the year ended December 31, 2024. No compensation expense was recognized for these restricted shares during the year ended December 31, 2025. 

 The Company recorded total stock compensation expense of $ 639,815 and $ 1,889,353 for the years ended December 31, 2025 and December 31, 2024, respectively.

 49 
 
 Table of Contents 
 
 10. Related Party Transactions 

 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 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 of two vehicles that commenced on January 1, 2020 and the combined rent under such leases is $ 3,880 per month, and a third 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 . As a result of the SRI Equipment Leases, the Company recorded rent expense of $ 93,247 for the year ended December 31, 2025. 

 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 Chief Executive Officer and Chairman of the Board, is a director of ABCI. The Company recorded rent expense of $ 60,000 for the year ended December 31, 2025 in connection with the ABCI Office Lease.

 The Company incurred $ 75,000 for the year ended December 31, 2025 of costs related to engineering consulting services from 42Motorsports LTD, the owner of which is a sibling of Phillip W. Oldridge, the Company's Chief Executive Officer and Chairman of the Board.

 The Company also incurred $ 352,000 for the year ended December 31, 2025, respectively, for payment to Shell Castle LLC, an entity owned by Jason Maddox for services rendered as President and Interim Chief Financial Officer of the Company in lieu of wages. In addition, the Company also expensed $ 352,000 for the year ended December 31, 2025 for payment to Met Consulting LLC, an entity owned by Elgin Tracy for services rendered as Chief Operating Officer of the Company in lieu of wages.

 During the first quarter of 2025, the Company engaged a consultant, Franklin Lim, to assist in its financial reporting and accounting process. At the end of the third quarter of 2025, the Company appointed the consultant as Vice President, Finance for the Company. The Company incurred $ 136,500 for the year ended December 31, 2025 for these services.

 All revenue earned for the year ended December 31, 2025 by the Company's medical supplies segment was from Maddox Medical Corp. ("Maddox Medical"), a company owned by Jason Maddox, President and Interim Chief Financial Officer of the Company, through a contract that Maddox Medical holds with a third party (that supplies medical gowns, among other things, to the federal government) that is fulfilled by Maddox Industries, LLC ("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 Envirotech Electric Vehicles Inc., a related party whereby one of its officers holds a significant number of shares in the Company and a significant amount of the Company's inventory deposits. 

 On April 1, 2025, the Company entered into a three -year sub-lease arrangement with Maddox Defense, Inc. ("Maddox Defense") (with renewal options), an entity of which Jason Maddox, the President and Interim Chief Financial Officer of the Company, is the sole stockholder, to lease a facility in Houston, Texas for its medical supplies operations. See Note 13 - Leases for additional disclosures.

 11. Commitments 

 Other Agreements 

 On December 31, 2021, the Company entered into employment agreements with Phillip W. Oldridge (the “Oldridge Agreement”), its Chief Executive Officer, and with Susan M. Emry (the “Emry Agreement”), its then Executive Vice President. According to the Oldridge Agreement, effective as of March 1, 2021, Mr. Oldridge will receive an annual base salary of $ 300,000 , payable in semi-monthly installments consistent with the Company’s payroll practices. Mr. Oldridge will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Under the Oldridge Agreement, Mr. Oldridge will also receive an amount equal to 5% of the net income of the Company on an annual basis and will be eligible for a bonus at the sole discretion of the Board. The Oldridge Agreement also provides for an automobile monthly allowance of $ 1,500 . Mr. Oldridge’s employment shall continue until terminated in accordance with the Oldridge Agreement. If Mr. Oldridge is terminated without cause or if he terminates his employment for good reason, Mr. Oldridge will be entitled to receive (i) one -year of base salary, (ii) reimbursement of reimbursable expenses in accordance with the Oldridge Agreement, (iii) any bonus that would have been payable within the twelve months following the date of termination, and (iv) the value of any accrued and unused paid time off as of the date of termination. There are no future minimum payments under the terms of the Oldridge Agreement as Mr. Oldridge has the right to terminate the Oldridge Agreement without any contractual payments other than what has been stated in the Oldridge Agreement. On February 5, 2026, Mr. Oldridge's annual base salary was retroactively approved to $ 500,000 starting on July 1, 2025 and his automobile monthly allowance was changed to $ 2,000 .

 According to the Emry Agreement, effective on January 1, 2022, Mrs. Emry would receive an annual base salary of $ 200,000 and was eligible for a bonus at the sole discretion of the Board. Mrs. Emry would also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. The Emry Agreement provided that Mrs. Emry’s employment would continue until terminated in accordance with the Emry Agreement. If Mrs. Emry was terminated without cause or if she terminated her employment for good reason, Mrs. Emry was entitled to receive (i) one -year of base salary, (ii) reimbursement of reimbursable expenses in accordance with the Emry Agreement, and (iii) the value of any accrued and unused paid time off as of the date of termination. Ms. Emry terminated her employment with the Company as Executive Vice President on October 15, 2024. 

 On March 28, 2023, the Company entered into a sublease with Berthaphil, Inc. ("Berthaphil") to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines (the "Berthaphil Sublease"). The term of the lease was two years and two months with a turnover date of July 1, 2023 and a rental commencement of September 1, 2023. The Company had originally intended to use the leased space as a production facility as it seeks to expand its business presence in that region and the U.S. However, in December 2024, the Company decided not to use the leased space for its original purpose. See Note 13 - Leases for further information.

 50 
 
 Table of Contents 
 
 12. Contingencies 

 Except as set forth below, we know of no material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder of more than 5% 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 

 From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business. The Company evaluates such matters on a case-by-case basis and establishes reserves when a loss is considered probable and reasonably estimable.

 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 in 2024; however, the trial was adjourned by consent of the parties. As of December 31, 2025, no new trial date has been set, limited discovery has been conducted, and there has been no material activity in the proceedings during fiscal year 2025. 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 with one 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 will not 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 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 with one 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, 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 will not 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; 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, 2025, the Court held a hearing on the plaintiff’s motion for a temporary restraining order and denied the requested relief. The Company disputes these allegations and intends to vigorously defend itself. No trial date has been set. A motion to dismiss filed by the defendants is pending.

 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 (Case No. 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 did not issue an audit report in connection with the Company’s Annual Report on Form 10 -K for the 2022 fiscal year, despite having been engaged to do so.

 MaloneBailey previously served as the Company’s independent auditor. During 2023, the Company disclosed that MaloneBailey would not 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 December 31, 2025, the litigation is in its early stages. The complaint was recently filed, and no substantive rulings have been issued by the court. The Company cannot predict the timing or outcome of this matter. While the Company believes that its claims have merit, even if there is an unfavorable outcome, the Company will not be subjected to a material loss. The Company has not accrued for loss contingencies in the accompanying financial statements related to this matter.

 13. Leases 

 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 are one 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 ASC 842. 

 On April 1, 2025, the Company entered into a three -year sub-lease arrangement with Maddox Defense (with renewal options), an entity of which Jason Maddox, the President and Interim Chief Financial Officer of the Company, is the sole stockholder, to lease a facility in Houston, Texas for its medical supplies operations. This lease is treated as an operating lease in accordance with the provisions of ASC 842. Therefore, the Company recognized operating lease liabilities with corresponding ROU assets based on the present value of the minimum rental payments of such leases. 

 On March 28, 2023, the Company entered into the Berthaphil Sublease to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines. The term of the Berthaphil Sublease was two years and two months with a turnover date of July 1, 2023 ( the "turnover date") and a rental commencement of September 1, 2023. However, the warehouse building was not available for use to the Company until the early part of the fourth quarter of 2023. Therefore, the commencement date was deferred until the fourth quarter of 2023, which is when the Company was given access to use the warehouse building. There was a grace period of two months for rental payments starting from the turnover date. The monthly rent for the first year is $ 15,000 , escalating to $ 15,750 for the second year and $ 16,530 for the remaining term. In addition to the monthly rent, the Company is required to pay an additional 5 % of the monthly rent as common area maintenance costs. The Berthaphil Sublease may be renewed for an additional period that is mutually agreed upon subject to certain terms and conditions. The Company intended to use the leased space as a production facility as it sought to expand its business presence in the region. The Company accounted for this lease as an operating lease under ASC 842 and recorded an operating lease liability and a corresponding ROU asset for this lease. However, the Company decided not to use this facility for its original intended purpose and recorded a full impairment on its ROU asset in December 2024. The Company maintains the remaining obligation on the Berthaphil Sublease as a contingency should the lessor demand payment.

 On July 1, 2024, the Company entered into a month-to-month lease contract to lease a residence in Osceola, Arkansas for the purpose of housing certain of the Company's employees. The monthly lease cost is $ 3,000 . This lease is treated as a short-term lease.

 On August 26, 2024, the Company entered into a one -year lease contract to lease a location in Manalapan, New Jersey with the purpose of servicing the Company's New Jersey customers. The monthly lease cost is $ 2,900 and at the end of the one -year lease term, the lease converted into a month-to-month arrangement. This lease is treated as a short-term lease.

 The Company's lease agreements do not 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.

 51 
 
 Table of Contents 
 
 ROU assets at December 31, 2025 and December 31, 2024 were $ 485,482 and $ 108,508 , respectively. Short-term operating lease liabilities were $ 229,899 and $ 235,625 at December 31, 2025 and December 31, 2024, respectively. Long-term operating lease liabilities were $ 306,904 and $ 0 at December 31, 2025 and December 31, 2024, respectively.

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

 Year Ended December 31, 
 
 2025 
 2024 
 
 Lease expenses
 
 Operating lease expenses
 $ 299,590 $ 486,133 

 Short-term lease expenses
 $ 161,920 $ 103,482 

 Total lease cost
 $ 461,510 $ 589,615 

 Other information
 
 Cash paid for the amounts included in the measurement of lease liabilities for operating leases:
 
 Operating cash flows
 $ 292,207 $ 346,972 

 Weighted-average remaining lease term (in years):
 
 Operating leases
 2.25 0.75 

 Weighted-average discount rate:
 
 Operating leases
 14 % 14 % 

 As of December 31, 2025, future minimum lease payments required under operating leases are as follows:

 2026
 $ 243,454 

 2027
 $ 253,192 

 2028
 $ 85,217 

 Total payments 
 $ 581,863 

 14. Segment Reporting 

 Year ended December 31, 2025 
 
 Electric vehicles 
 Medical Supplies 
 Drones 
 Corporate 
 Total 
 
 Sales, net
 $ 349,063 $ 5,589,945 $ - $ - $ 5,939,008 

 Operating (Loss) Income
 $ ( 33,116,441 ) $ ( 3,905,584 ) $ ( 694,754 ) $ ( 964,400 ) $ ( 38,681,179 ) 

 Interest income (expense), net
 33,320 

 Loss on conversions and changes in fair value of convertible notes
 ( 461,019 ) 

 Other expense
 ( 18,108 ) 

 Income tax expense
 - 

 Net loss
 $ ( 39,126,986 ) 

 15. Subsequent Events 

 The Company evaluates subsequent events through March 31, 2026, which is the date the financial statements were issued or available to be issued. There are two 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 did not exist at the date of the balance sheet but arose subsequent to that date.

 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”) in two 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 the second 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 the first 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) and no 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 is expected to result in gross proceeds to us of approximately $ 10.5 million, after deducting a one -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 expire 60 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 the earlier of the 30th calendar day following the effectiveness of the Resale Registration Statement or June 6, 2026, 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.

 52 
 
 Table of Contents 
 
 Item 9. 
 
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
 
 None.
AZIO AI HOLDINGS, INC. 10-K

Item 8. Financial Statements and Supplementary Data
