Item 3. Legal Proceedings
Item 3. Legal Proceedings
We may be subject to legal
proceedings, investigations and claims incidental to the conduct of our business from time to time. As a provider of consumer products,
we are, from time to time, subject to civil litigation regarding those products and intellectual property rights of third parties, including
in publicly-available court filings. We are not currently a party to, nor are we aware of, any legal proceedings, investigations or claims
which, in the opinion of our management, are likely to have a material adverse effect on our business, financial condition or results
of operations.
SEC Investigation
On January 21, 2026, the
Company was notified by the U.S. Securities and Exchange Commission (the “Commission”) that it has initiated an investigation
involving the Company. The Company has not been provided with substantive details regarding the investigation, and is fully cooperating
with the investigation.
Federal securities class action instituted on September 8,
2025
On September 8, 2025, a federal
securities class action was filed in the United States District Court, Eastern District of New York, by plaintiff Dino Kurt, individually
and on behalf of all others similarly situated, against defendants, the Company, chief executive officer (the “CEO”) Zhou
Ou, and former chief financial officer (the “CFO”) Shiwen Feng (the “Class Action”). The complaint alleges violations
of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 during the class period spanning from July 15, 2025, to August 14, 2025.
The plaintiff claims that defendants provided materially false and misleading positive statements about revenue growth, brand reputation,
and business expansion, while concealing or minimizing material adverse facts concerning the safety of the Company’s lithium battery
and inadequate forecasting processes, which were already taking a material toll on E-vehicle (the “EV”) sales revenue. The
plaintiff alleged when the Company filed a form NT 10-Q on August 14, 2025, which disclosed a 32% decrease in net revenues primarily driven
by a decline in total units sold, attributed by the Company to “recent lithium-battery accidents involving E-Bikes and E-Scooters”;
the price of Company’s common stock declined dramatically by about 87% in a single day, resulting in economic loss for the plaintiff
and the class.
The relief sought includes
determining that the action may be maintained as a class action, requiring defendants to pay damages sustained by the plaintiff and the
class, and awarding pre-judgment and post-judgment interest, along with reasonable attorneys’ fees, expert fees, and other costs,
with the monetary damages sought being certified to be in excess of $150,000.
On May 22, 2026, the lead
plaintiff in the Class Action filed an Amended Complaint. The Company's response to the Amended Complaint is due August 14, 2026. Given
the preliminary stage of the lawsuit and the inherent uncertainties of litigation, the Company cannot determine with certainty the outcome
of the Class Action at this time.
Any potential loss associated
with the action is not reasonably estimable at this early stage. The Company did not accrue any material loss contingencies in this respect
as of March 31, 2026.
Shareholder derivative actions instituted on October 28, 2025
and November 17, 2025
On October 28, 2025, a shareholder
derivative lawsuit was filed purportedly on behalf of the Company, as nominal defendant, against certain of its current and former directors
and officers in the United States Court for the Eastern District of New York, captioned Flynn v. Ou et al, No. 1:25-cv-06036 (E.D.N.Y.)
(the “Flynn Action”). The complaint filed in the Flynn Action alleges claims for alleged breach of fiduciary duties and gross
mismanagement, among others. On November 17, 2025, an additional putative shareholder derivative lawsuit was filed purportedly on behalf
of the Company, as nominal defendant, against certain of its current and former directors and officers in the United States Court for
the Eastern District of New York, captioned Shah v. Ou et al, No. 1:25-cv-06372 (E.D.N.Y.) (the “Shah Action”). The complaint
filed in the Shah Action alleges claims for alleged breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement,
abuse of control, among others.
The Flynn Action and Shah
Action are based on the same alleged facts and circumstances as the Class Action and seek damages from the current and former directors
and officers and an order directing the Company and current and former directors and officers to take actions to reform and improve corporate
governance and internal procedures. On December 9, 2025, the Court consolidated the Flynn Action and Shah Action into a single consolidated
action captioned In re Fly-E Group, Inc. Stockholder Derivative Litigation, No. 1:25-cv-06036 (E.D.N.Y.) (the “Consolidated Derivative
Action”), and appointed co-lead counsel. The current and former director and officer defendants dispute the allegations in the complaints
and intend to vigorously defend against all claims. Given the preliminary stage of the lawsuit and the inherent uncertainties of litigation,
we cannot determine with certainty the outcome of the Consolidated Derivative Action at this time.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II