Envirotech Vehicles Inc

Envirotech Vehicles, Inc. (“we”, “us”, “our” or the “Company”) is a provider of purpose-builtzero-emission electric vehicles focused on reducing the total cost of vehicle ownership and helping fleet operators unlock the benefits of green technology. The Company serves commercial and last-mile fleets, school districts, public and private transportation service companies, and colleges and universities to meet the increasing demand for light to heavy-duty electric vehicles. The Company’s vehicles address the challenges of traditional fuel price cost instability and local, state, and federal regulatory compliance.

Basis of Presentation—The consolidated financial statements and related disclosures include the consolidated balance sheet accounts as of* March 31, 2024* and the consolidated results of operations for thethree months ended* March 31, 2024* of Envirotech Vehicles, Inc. and subsidiaries. These consolidated financial statements are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States ("U.S.") generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the Company’s opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the Envirotech Vehicles, Inc.'s audited financial statements for the years ended* December 31, 2023* and2022 included in the Company’s Annual Report on Form10-K filed with the SEC on* March**28,* 2024. The results of operations for thethree months ended* March 31, 2024* arenot necessarily indicative of the results to be expected for the full year.

Principles of Consolidation—The accompanying financial statements reflect the consolidation of the financial statements of EVTDS, its wholly-owned subsidiary Envirotech Drive Systems Incorporated, Envirotech Vehicles, Inc., ADOMANI California, Inc., Adomani (Nantong) Automotive Technology Co. Ltd., ADOMANI ZEV Sales, Inc., Zero Emission Truck and Bus Sales of Arizona, Inc., Envirotech Vehicles, Inc. (Philippines) and ZEV Resources, Inc. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates—The preparation of financial statements in conformity with 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.

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Fair Value of Financial Instruments—The carrying values of the Company’s financial instruments, including cash, accounts receivable and*** accounts payable approximate their fair value due to the short-term nature of these financial instruments. Fair Value Measurements ("ASC820") 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 athree*-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level1: Observable inputs such as quoted prices in active markets;

Level2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level3: Unobservable inputs that are supported by little orno market data and that require the reporting entity to develop its own assumptions.

The Company doesnot have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis other than the convertible note and options liability disclosed in Note4 - Debt, in which the Company has elected the fair value option.

Revenue Recognition—The Company recognizes revenue from the sales ofzero-emission electric vehicles and vehicle maintenance and inspection services. The Company recognizes revenue in accordance with Revenue from Contracts with Customers ("ASC606"), 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. At* March 31, 2024*, the Company did have a concentration of customers; eight customers’ balances account for approximately 93 percent of the outstanding accounts receivable. Five customers accounted for 100 percent of the reported revenue for thethree months ended* March 31, 2024*. The Company had accounts receivable, net of $1,025,187 and $692,102 on* March 31, 2024and December 31, 2023,*respectively.

In applying ASC Topic606, the Company is required to:

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, the title of the vehicle is transferred to the customer.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original or remaining maturity ofthree*** months or less to be cash equivalents. The recorded value of our restricted cash and cash equivalents approximates their fair value. The Company hadzero restricted cash at March 31, 2024 and at December 31, 2023*, respectively. The amounts at both dates relate to balances required by our bank to support certain minor activities. See Concentration of Credit Risk below in this Note.

Marketable Securities—The Company invests in short-term, highly liquid, marketable securities, such as U.S. Treasury notes, U.S. Treasury*** bonds, and other government-backed securities. The Company classifies these marketable securities as held-to-maturity, as the intent isnot to liquidate them prior to the respective stated maturity date. At March 31, 2024*, the aggregate amount of the Company’s investments in marketable securities was zero. Investments in marketable securities at* December 31, 2023* were zero.

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Accounts Receivable and Allowance for Doubtful Accounts—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 doesnot generally require collateral for its accounts receivable. The Company had trade accounts receivable of $1,046,090 as of March 31, 2024* and a recorded allowance for doubtful accounts of $20,903, resulting in a net trade accounts receivable balance of $1,025,187. The Company had trade accounts receivable of $713,031 as of* December 31, 2023* and an allowance for doubtful accounts of $20,929, resulting in a net trade receivable balance of $692,102. A significant portion of the Company’s 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* maytaketwo* tonine months from the date of request before being received. The Company doesnot provide an allowance for doubtful accounts related to sales made utilizing state grant funds, as those funds are guaranteed by the state(s) once awarded. The trade accounts receivable balance at* March 31, 2024* is from credit-worthy customers, many of whom are fully or partially funded through state government sponsored programs.

Inventory and Inventory Valuation Allowance—The Company records inventory at the lower of cost or market, and uses a First In, First Out*** (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it doesnot intend to sell in the future. The Company had finished goods inventory on hand of $7,253,148 and recorded an inventory valuation allowance of $12,429 related tothree* vehicles that the Company doesnot intend to sell in the future, resulting in a net inventory balance of $7,240,719 as of* March 31, 2024*. The Company had finished goods inventory on hand and a related inventory valuation of $6,843,022 and $12,429 allowance as of* December 31, 2023*, resulting in a net inventory balance of $6,830,593.

Inventory Deposits—Certain of our vendors require the Company to pay upfront deposits before they will commence manufacturing our vehicles,*** and then require progress deposits through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the consolidated balance sheet. Upon completion of production acceptance by the Company, and passage of title to the Company, deposits are reclassified to inventory. The Company had inventory deposits of $2,833,631 and $3,300,388 as of March 31, 2024 and December 31, 2023*, respectively. Deposits paid toone vendor accounted for 98 percent of the deposits outstanding at* March 31, 2024*.

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.

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 March 31, 2024 and December 31, 2023*, respectively, management didnot identify any uncertain tax positions.

Net Income (Loss) Per Share—Basic net income (loss) per share is calculated by dividing the Company’s net income (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* March 31, 2024*,5,504,030 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 1,389,584 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding.

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”). Additionally, the Company maintains cash and short-term securities invested at Arvest Bank, National Association (“Arvest”). 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. In addition, Arvest provides excess insurance acquired by them from SIPC for unlimited per customer securities up to a $1 billion cap.

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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 maynot* 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 wasno impairment of long-lived assets, or property and equipment, as of* March 31, 2024* and* December 31, 2023*, respectively.

Goodwill—Goodwill represents the excess acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill isnot*** 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 thannot reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option tofirst* assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely thannot 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 isnot more likely thannot 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, if any.

The Company has determined that it hasone reporting unit, and based on both qualitative and quantitative analysis, it is management’s assessments at* March 31, 2024*, that $9,583,836 in goodwill didnot experience impairment. The Company recorded a non-cash goodwill impairment charge of $5,098,784 for the year ended* December 31, 2023* resulting in a goodwill balance of $9,583,836 on that date.

Research and Development—Costs incurred in connection with the development of new products and manufacturing methods are charged to operating expenses as incurred. Research and development costs were $70,265 and $70,888 during thethree months ended* March 31, 2024andthree* months ended* March 31, 2023,*respectively.

Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of*** Compensation ("ASC718"), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. Non-cash stock-based compensation expense of $1,818,383 and $87,144 was recorded for thethree* months ended* March 31, 2024andthree* months ended* March 31, 2023,*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 tofive years, except leasehold improvements, which are being amortized over the life of the lease term. Property and equipment qualify for capitalization if the purchase price exceeds$2,000. 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 Leases (“ASC842”). 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 Note10 - Leases.

As most of the Company’s leases donot 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 of12 months or less arenot recorded in the 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 tonot separate fixed lease components from the fixed non-lease components.

Recent Accounting Pronouncements—Management has considered all recent accounting pronouncements issued, butnot effective, and doesnot*** ***believe that they will have a significant impact on the Company’s financial statements.

Components of property and equipment, net, consist of the following as of* March 31, 2024* and* December 31, 2023*:

Depreciation expense was $39,212 and $28,984 for thethree months ended* March 31, 2024andthree* months ended* March 31, 2023,*respectively.

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Notes Payable

On* July 15, 2022,the Company entered into an equipment financing agreement with Wells Fargo 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 is $15,108 of which $6,252 is classified as Notes Payable - current and $8,856 is classified as Notes Payable - long term on the Company's consolidated balance sheets on March 31, 2024*.

Effective* August 20, 2023,the Company entered into a premium financing agreement with First Insurance Funding to finance other insurance coverages. The $467,074 loan is payable over nine months, beginning in September 2023,and bears interest at 8.2% with monthly payments of $53,675. The balance of this note, including accrued interest, is $106,277 on March 31, 2024*.

Convertible Note

On* January 18, 2024,the Company entered into a convertible promissory note agreement ("Note") for $1,000,000 with an unrelatedthird*-party investor ("Investor"). The origination fee of this Note was $99,000 and the maturity date of this note is* September 30, 2024.*The Investor is entitled to convert the Note into common stock at the greater of $1.50 per share or at 90% of the share price on the maturity date. The Investor also has a security interest in the assets of the Company in the event of non-payment of the Note. In addition, the Investor received 800,000 options ("Options") to purchase common stock at $1.50 per share. These options expiretwo years from the date of this note.

The Company has 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 Level2 under the fair value hierarchy as provided by ASC820 - Fair Value Measurements. 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 a Level2 under the air value hierarchy as provided by ASC820 - Fair Value Measurements. 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 are bifurcated between the Note and the Options. The amount allocated to the Options is $431,405 which is the fair value on the date of the Note. The remaining proceeds received are allocated to the Note. Under the fair valuation election, both the Note and Options are remeasured to their respective fair values at the reporting date. Changes in fair values for the Note and Options are recorded as an unrealized gain or loss on convertible note fair value in Other Income/(expense) in the Statements of Operations at* March 31, 2024.As a result of this election, the Company recorded an unrealized loss of $557,497 for thethree* months ended* March 31, 2024for the Note and an unrealized loss of $1,012,430 for thethree* months ended* March 31, 2024*for the Options.

The Company’s outstanding warrants as of* March 31, 2024* are summarized as follows, and all were exercisable at that date.

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The Warrants issued as part of the Purchase Agreement related to the Financing contain a call provision whereby the Company, after the13-month anniversary of the issuance date, and if the volume weighted average price of the common stock for such date exceedsfour times the exercise price of the warrants for20 consecutive trading days,* maycall the Warrants that havenot* previously been exercised, and the Warrant holders haveten trading days within which to exercise before the Warrants* maybe cancelled.12,833 warrants expired during thefirst* nine months of2023. As of* March 31, 2024*, the outstanding warrants haveno intrinsic value.

The outstanding options at* March 31, 2024* consisted of the following:

The number of options exercisable on* March 31, 2024* is 3,476,252.

On* January 18, 2024,in conjunction with the convertible note disclosed in Note4* - Debt, the Company issued 800,000 options with an exercise price of $1.50 to an investor. See Note4 - Debt, for additional disclosures related to this issuance.

On* February 14, 2024,*the Company’s Compensation Committee granted an employee options to purchase 25,000 shares of common stock at an exercise price of $2.66 per share. The options vests ratably over 36 months and expire on thetenth anniversary of the grant date.

On* February 23,*the Company’s Compensation Committee granted Franklin Lim, the Company’s Chief Financial Officer, options to purchase 100,000 shares of common stock at an exercise price of $2.44 per share. The options vest immediately and expire on thetenth anniversary of the grant date.

On* July 11, 2023,*the Company’s Compensation Committee granted the Board of Directors and certain executives and consultants options to purchase 1,378,384 shares of common stock at an exercise price of $2.11 per share. The options vested immediately and expire on thetenth anniversary of the grant date.

As of* March 31, 2024*, the outstanding options had intrinsic value of $2,355,988.

Performance Options

On* February 28, 2024,the company issued options to purchase 2,000,000 shares of common stock at an exercise price of $2.75 per share, contingent upon achieving certain sales targets. at March 31, 2024,the sales targets werenot* met and therefore,no compensation expense was recorded. These options expire on* February 5, 2027.*

Restricted Shares

In* November 2023,the Company awarded 65,660 restricted shares to a vendor that will vest over asix-month period in exchange for marketing services to be provided over the same period. As a result, the Company recorded stock compensation expense of $50,549 during thethree* months ended* March 31, 2024*.

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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, and a member of its board of directors, serves as an executive officer and a member of the board of directors of SRI. The SRI Equipment Leases provide for the leasing oftwo vehicles that commenced on* January 1, 2020and the combined rent under such leases is $3,880 per month, and a separate 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 these agreements, the Company recorded rent expense of $23,312 for thethree* months ended* March**31,* 2024.

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, and a member of its board of directors, is a director of ABCI. The Company recorded rent expense of $15,000 for thethree* months ended* March**31,* 2024 in connection with this agreement.

The Company incurred $37,500 of costs related to engineering consulting services from42Motorsports LTD, the owner of which is a sibling of the Company's Chief Executive Officer and Chairman of the Board for thethree months ended* March 31, 2024.*

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 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 tofive* percent of the net income of the Company on an annual basis and will be eligible for a bonus at the sole discretion of the Company’s Board of Directors (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 thetwelve months following the date of termination, and (iv) the value of any accrued and unused paid time off as of the date of termination. According to the Emry Agreement, effective on* January 1, 2022,Mrs. Emry will receive an annual base salary of $200,000 and will be eligible for a bonus at the sole discretion of the Board. Mrs. Emry will also receive participation in medical insurance, dental insurance, and the Company’s other benefit plans. Mrs. Emry’s employment shall continue until terminated in accordance with the Emry Agreement. If Mrs. Emry is terminated without cause or if she terminates her employment for good reason, Mrs. Emry will be 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. There areno* future minimum payments under the terms of both agreements as each party has a right to terminate the agreement without any contractual payments other than what has been stated in their respective contracts.

In* March 2023,the Company entered into an agreement with Berthaphil to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines. The term of the lease istwo years andtwo* months with a turnover date of* July 1, 2023and a rental commencement of September 1, 2023.The Company intends to use the leased space as a production facility as it seeks to expand its business presence in the region and the United States. See Note10* - Leases for further disclosures.

On* March 18, 2024,the Company entered into a Sale and Purchase Agreement (the "Agreement") with PlugD Commercial Electric Leasing and Rentals Inc. ("PlugD"), a Texas-based commercial electric vehicle leasing company. Under the terms of the Agreement, the Company will deliver200* electric high roof vans and trucks to PlugD for a total of approximately $16.2 million. The sale will take place over the next13 months.

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Except as set forth below, we know ofno material, existing or pending, legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There areno proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder of more than5% 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

On* December 17, 2019,GreenPower Motor Company Inc., a public company incorporated under the laws of British Columbia (“GreenPower”), of which Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, previously served as a senior officer and a member of its board of directors, filed a notice of civil claim, captioned GreenPower Motor Company Inc. v. Phillip Oldridge et al., ActionNo.* S-1914285, in the Supreme Court of British Columbia, against Phillip Oldridge, his trust, EVT and certain other companies affiliated therewith. On* February 2, 2020,*the Company and the other companies affiliated therewith named in the notice of civil claim filed a response to the civil claim in which they denied certain of the allegations. Fact discovery, through document disclosure and examinations for discoveries, in this matter remain ongoing. We believe that the lawsuit is without merit and intend to vigorously defend the action.

On or about* July 18, 2021,GreenPower and GP GreenPower Industries Inc. (collectively “the GreenPower entities”), filed a counterclaim against David Oldridge, Phillip Oldridge, the Company and other companies in Supreme Court of British Columbia ActionNo.* S207532. The pleadings in this lawsuit havenot closed and the Company intends to vigorously defend the counterclaim.

On* February 8, 2022,GreenPower Motor Company, Inc., a Delaware corporation, and GreenPower Motor Company Inc., a Canadian corporation, filed a complaint captioned GreenPower Motor Company, Inc. v. Phillip Oldridge, et al., CaseNo.* 5:22-cv-00252 in the United States District Court for the Central District of California. The complaint’s allegations are centered around the same assertions in the pending Canadian litigation.

On* May 10, 2022,the Company, together with other defendants, filed a Motion to Dismiss and/or Stay the lawsuit in the United States District Court for the Central District of California pending the outcome of the Canadian litigation. The Court issued stay of this case pending resolution of parallel litigation in Canada between similar parties. GreenPower and defendants have agreed that the U.S. GreenPower case willnot* proceed while Canadian litigation is pending. The Company believes that the lawsuit is without merit and intend to vigorously defend the action.

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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 areone year or less (with renewal options), the Company concluded in thefourth quarter of2023 that the term renewal options are reasonably certain to be exercised. As a result of changes in certain circumstances related to some of the Company's short-term leases, the Company was required to classify such leases as operating leases in accordance with the provisions of ASC842 - Leases. Therefore, the Company recognized operating lease liabilities with corresponding Right-Of-Use ("ROU") assets based on the present value of the minimum rental payments of such leases during thefourth quarter of2023.

In* March 2023,the Company entered into an agreement with Berthaphil, Inc. to sublease approximately 3,600 square yards of a warehouse building based in the Clark Freeport Zone in the Philippines. The term of the lease istwo* years andtwo months with a turnover date of* July 1, 2023 ("turnover date") and a rental commencement of September 1, 2023.However, the warehouse building wasnot* available for use to the Company till the early part of thefourth quarter of2023. Therefore, the commencement date is deferred until thefourth quarter of2023, which is when the Company was given access to use the warehouse building. There is a grace period oftwo months for rental payments starting from the turnover date. The monthly rent for thefirst year is $15,000, escalating to $15,750 for thesecond 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 sublease* maybe renewed for an additional period that is mutually agreed upon subject to certain terms and conditions. The Company intends to use the leased space as a production facility as it seeks to expand its business presence in the region and the United States. The Company accounted for this lease as an operating lease under ASC Topic842* and recorded an operating lease liability and a corresponding ROU asset for this lease.

The Company's lease agreements donot 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.

ROU assets at* March31,* 2024 were $467,320. Short-term and long-term operating lease liabilities were $303,967 and $155,015 at* March31,* 2024, respectively.

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

Future minimum payments under operating leases are as follows:

The Company evaluates subsequent events that have occurred after the balance sheet date but before the consolidated financial statements are issued. There aretwo 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 didnot exist at the date of the balance sheet but arose subsequent to that date.

On* May 1, 2024,the Company issued 505,051 shares of Common Stock to the Investor upon conversion of the Note (both of which are disclosed in Note4* - Debt) in the principal amount of $1,000,000 originally issued on* January 18, 2024,*at a conversion price of $1.98 per share.

On* May 3, 2024,*the Company issued 170,774 shares of its common stock for proceeds of $363,749 to Dr. Fredric and Savanna So in a private placement. The issue price per share of common stock sold was $2.13. The proceeds will be used to fund the Company's operations.