AZIO AI HOLDINGS, INC.

1. Organization and Operations

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.

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.

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 ("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 has an option liability that is measured at fair value on a recurring basis. See Note7 - Notes Payable for additional disclosures.

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 ASC606, 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. For the year ended* December 31, 2024,eight customers accounted for approximately all of the annual revenue recorded. At December 31, 2023,three customers accounted for approximately 70% of the annual revenue recorded. The Company had accounts receivable, net of $1,009,966 and $692,102 on December 31, 2024and December 31, 2023,*respectively.

In applying ASC606, 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.

During thefourth quarter of2024, the Company recorded $4,240,666 of payments received through a grant from the Environmental Protection Agency ("EPA") to produce electric school buses as deferred revenue. No revenue was recognized in2024 as the performance obligation hasnot been met. The balance of deferred revenue at* December 31, 2024and December 31, 2023*is $4,240,666 and $0, respectively.

Other revenue for the years ended* December 31, 2024and December 31, 2023were $52,303 and $29,605 respectively, and primarily included safety inspection and document fees for compliance with United States Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced. The Company has thereforenot* provided any additional disaggregation information, as all other revenue relates to the sale of vehicles as discussed above.

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Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original maturity ofthree 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 mayalso, from time to time, invest in bank certificates of deposit. The Company classifies these short-term investments as held-to-maturity, as the intent isnot* to liquidate them prior to the respective stated maturity date. The balances for these short-term investments at* December 31, 2024and December 31, 2023,*were $0 and $0, respectively.

Accounts Receivable and Allowance for Doubtful Accounts—The Company establishes an allowance for doubtful accounts 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. 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 most 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 dealer* maytaketwo* tonine months from the date of request before being received. The Company estimates its allowance for doubtful accounts using an aging schedule, including a review of customers who* mayhave a likelihood of default. A percentage is applied to the respective portfolio of customers which are grouped by how long their balance has been outstanding. This percentage represents an estimate of credit losses for the remaining estimated life of the accounts receivable balances and is estimated using historical experience, current conditions and reasonable and supportable forecasts that generally applies to accounts receivables, which are measured at amortized costs. The Company had trade accounts receivable of $1,031,972 and an allowance for doubtful accounts of $15,306 at December 31, 2024*. The Company had trade accounts receivable of $713,031 and an allowance for doubtful accounts of $20,929 as of* December 31, 2023*. The Company did have a concentration of customers: five customers’ balances account for approximately 96% of the outstanding accounts receivable for the year ended* December 31, 2024*. If the Company is unable to collect from these customers, the Company's write-offs will significantly increase and the write-offs* mayhave a material adverse impact on the Company's financial condition. However, the Company doesnot* believe the receivables balance from these customers represents a significant risk based on past collection experience. At* December 31, 2023*, three customers’ balances account for approximately 37% of the outstanding accounts receivable; for the year ended* December 31, 2023*

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 doesnot intend to sell in the future. 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 related tothree vehicles that the Company doesnot intend to support in the future, resulting in a net inventory balance of $6,416,377 at* December 31, 2024*. The Company had finished goods inventory on hand of $6,843,022 as of* December 31, 2023* and recorded an inventory valuation allowance of $12,429 resulting in a net inventory balance of $6,830,593 as of* December 31, 2023*.

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 Sheets. 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 $6,036,809 and $3,300,388 as of* December 31, 2024* and* December 31, 2023*, respectively. Deposits paid toone vendor accounted for 99% of the deposits outstanding at* December 31, 2024*. Deposits paid toone vendor accounted for 99% of the deposits outstanding at* December 31, 2023.*

***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 thannot 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, 2024and December 31, 2023.*

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, 2024and2023*, respectively, management didnot 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, 2024*,5,641,252 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 1,901,631 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. As of* December 31, 2023*,1,207,888 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. Stock options and warrants werenot included in the diluted weighted average number of shares outstanding for the years ended* December 31, 2024and2023*, as the effect would be anti-dilutive.

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

Goodwill—Goodwill represents the excess of 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. A quantitative analysis is performed at the reporting 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 hasone reporting unit. In2024, 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 recordedno non-cash goodwill impairment charge as of* December 31, 2024and a non-cash goodwill impairment charge of $5,098,784 as of December 31, 2023.See Note4* - Goodwill for additional disclosures

Other Intangible Assets—Other Intangible assets (excluding indefinite-lived intangible assets) consist of customer lists and relationships. These other intangible assets were acquired at fair value as a result of the Maddox Acquisition disclosed in Note1 - Organization and Business Operations and are amortized on a straight-line basis over their estimated lives. The Company assesses useful lives based on the period over which the asset is expected to contribute to cash flows.

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 $192,885 and $236,181 for the years ended* December 31, 2024* and* December 31, 2023*, respectively.

Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC718, Compensation-Stock Compensation ("ASC718"), 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 $1,889,353, and $1,322,577 for the years ended* December 31, 2024and December 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 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 ASC842, 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 Note14 - 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—Currently Adopted

ASUNo. 2023-07, “Segment Reporting (Topic280): Improvements to Reportable Segment Disclosure”

On* November 27, 2023,the Financial Accounting Standards Board (“FASB”) issued ASU2023*-07, Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures (“ASU2023-07”), which requires public entities to disclose information about their reportable segments' significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU2023-07, as well as existing segment disclosures and reconciliation required under Accounting Standard Codification (“ASC”)280 on an interim and annual basis. ASU2023-07 is effective for fiscal years beginning after* December 15, 2023,and for the interim periods beginning after December 15, 2024,with early adoption permitted. The Company has adopted this guidance within the Company’s Annual Report on Form10*-K for the year ending* December 31, 2024.There anticipatesno* material impact on the Company's consolidated financial statements.

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Recently issued accounting pronouncementsnot yet adopted**

ASUNo. 2023-09, "Income Taxes (Topic740): Improvements to Income Tax Disclosures"

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures (ASU2023-09), 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. ASU2023*-09 is effective for fiscal years beginning after* December 15, 2024,with early adoption permitted. The Company is currently evaluating the impact of adopting ASU2023*-09 and will adopt the guidance when it becomes effective on a prospective basis.

ASUNo. 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses

On* November 4, 2024,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses (“ASU2024-03”), that improves financial reporting by requiring public companies to disclose additional information about certain expenses in the notes to the financial statements. The amendments in the ASU2024*-03 are effective for annual reporting periods beginning after* December 15, 2026,and interim periods beginning after December 15, 2027.Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU2023*-07 and intends to adopt and report on this topic as required by this ASU.

3. Acquisition

On* October 30, 2024,*the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Maddox Industries, LLC, a Puerto Rico limited liability company (“Maddox Industries”), and Jason Maddox, the sole member of Maddox Industries (the “Seller”), pursuant to which, subject to the terms and conditions of the Purchase Agreement, the Company purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) in Maddox Industries (the “Maddox Acquisition”).

As consideration for the Purchased Interests, at the closing of the Maddox Acquisition on* December 18, 2024 (the “Closing”), the Company issued 3,100,000 shares of common stock to the Seller (the “Stock Consideration”). In addition, during thesix*-month period following the Closing (the “Earnout Period”), the Seller was eligible to receive up tosix monthly cash payments in an aggregate amount of up to $1 million (each such monthly payment, an “Earnout Payment”), which the Earnout Payment for each calendar month being equal to the aggregate amount of gross revenue received by Maddox Industries in respect of any closing receivable, as specified in the Purchase Agreement, during such calendar month, subject to an aggregate limit of $1 million with respect to all Earnout Payments payable under the Purchase Agreement. The Maddox Acquisition was consummated on* December 18, 2024.*

The final purchase price of $4,276,041, net of cash acquired of $1,959, has been allocated to the fair values of assets and liabilities acquired as of* December 18, 2024.*

The following table summarizes the consideration paid, the fair values of the assets acquired, and the liabilities assumed as of the date of Maddox Acquisition:

Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition isnot expected to be deductible for tax purposes.

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma financial information presents the combined results of operations for the Company and gives effect to the Maddox Acquisition discussed above as if it had occurred on* January 1, 2023.The pro forma financial information is presented for illustrative purposes only and isnot* necessarily indicative of the results of operations for the year ended* December 31, 2024and December 31, 2023,respectively, that would have been realized if the Maddox Acquisition had occurred on January 1, 2023,nor does it purport to project the results of the combined entity in future periods. The pro forma financial information doesnot* give effect to any anticipated integration costs related to the combined entities.

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4. Goodwill and Intangible Assets

The Company conducted an impairment test in2024 at year-end during its annual impairment test in accordance with ASC350-20, Goodwill. The Company also conducted its annual impairment test in2023 as a result of a triggering event that occurred during thefirst quarter of2023. As a result of these tests, the Company recordedno goodwill impairment charge in* December 31, 2024and a goodwill impairment charge of $5,098,784 for the year ended December 31, 2023.*

The following table presents a reconciliation of the carrying amount of goodwill for the year ended* December 2024.*

The following table presents the carrying amount of intangible assets for the year ended* December 31, 2024:*

Amortization for the year ended* December 31, 2024*was $31,699.

The estimated amortization expense for the nextfive years and thereafter is as follows:

5. Property and equipment, net

Components of property and equipment, net consist of the following as of* December 31, 2024and2023*:

Depreciation expense was $158,850 and $128,801 for the years ended* December 31, 2024and2023*, respectively.

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6. Income Taxes

The cumulative estimated net operating loss (“NOL”) carry-forward is $49,785,163 and $44,188,133 at* December 31, 2024and2023,* respectively. Of this amount as of* December 31, 2024,$35,407,824 of this NOL maybe carried forward indefinitely while $14,377,339 is subject to expiration over a20*-year period. Due to the enactment of the Tax Cuts and Jobs Act of2017, the corporate tax rate for those tax years beginning with2018 has been reduced to21%. Therefore, the cumulative tax effect of the NOL carryforward at the expected rate of21% comprising the Company’s net deferred tax amount is as follows:

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Due to the change in ownership provisions of the Tax Reform Act of1986, net operating loss carryover for federal income tax reporting purposes are subject to annual limitations. The net operating loss carry-forward includes the years2012 through2022 for the Envirotech Vehicles, Inc losses, and includes the years2014 through2020 for EVT, as the2021 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 since2021 are still open for examination by the Internal Revenue Service.

7. 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 is $10,420 of which $6,252 is classified as Notes Payable - current and $4,168 is classified as Notes Payable - long term on the Company's consolidated balance sheets as of December 31, 2024.*

Effective* August 20, 2023,the Company entered into a premium financing agreement with First Insurance Funding to finance insurance coverages other than its directors' and officers' 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. There wasno balance under this note as of December**31,* 2024.

Effective* June 15, 2024,the Company entered into a premium financing agreement with First Insurance Funding to finance its directors' and officers' insurance coverages. The $232,067 loan is payable over nine months, beginning in July 2024,and bears interest at 8.25% with monthly payments of $24,093. The balance of this note, including accrued interest, is $94,739 as of December 31, 2024.*

Effective* August 20, 2024,the Company entered into a premium financing agreement with AFCO Insurance Premium Finance to finance insurance coverages other than its directors' and officers' insurance coverages. The $417,050 loan is payable over eleven months, beginning in September 2024,and bears interest at 8.24% with monthly payments of $39,493. The balance of this note, including accrued interest, is $269,015 as of December 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 (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 800,000 share of the Company's common stock at $1.50 per share. These options expiretwo years from the date of the Note. On May 6, 2024,the Note was cancelled and replaced with a short-term note. During thethird* quarter of2024, the short-term note was converted into 505,051 shares of common stock.

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. 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. 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 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 (Expense)/Income in the Company's consolidated statements of operations for the year ended* December31,* 2024. As a result of this election, the Company recorded an unrealized loss $556,174 for the year ended* December31,* 2024 for the Note and an unrealized gain of $298,993 for the year ended* December**31,* 2024 for the options, respectively.

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Related Party Loan

On* August 13, 2024,the Company entered into a long-term loan arrangement (the "Oldridge Loan") with Phillip W. Oldridge ("Mr. Oldridge") whereby Mr. Oldridge loaned $300,000 to the Company. The Oldridge Loan carried an interest rate of 8% and matures on January 1, 2026.The Oldridge Loan was paid off in full on December 31, 2024.*The amount paid to satisfy the Oldridge Loan was $309,000 of which $9,000 represented accrued interest on the loan.

Amended and Restated Standby Equity Purchase Agreement ("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 Original SEPA.

Pursuant to the A&R SEPA, except for so long as there is a balance outstanding under the Promissory Notes, 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 Pre-Paid Advance of $3 million in exchange for the Company’s issuance to the Investor of the Promissory Notes intwo* tranches, resulting in net proceeds (net of discounts and fees) to the Company of $2,635,500. The Company received thefirst tranche of the Pre-Paid Advance in the principal amount of $2 million on* October 31, 2024in exchange for the Promissory Note dated October 31, 2024,and thesecond* tranche of the Pre-Paid Advance in the principal amount of $1 million on* December 17, 2024in exchange for the Promissory Note dated December 17, 2024.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 remains uncured. The Promissory Notes mature on November 13, 2025,which maybe extended at the option of the Investor. The Promissory Notes are convertible at a conversion price equal to the lower of (i) $2.1480 per share or (ii)93% of the lowest daily volume weighted average price of the Common Stock on Nasdaq as reported by Bloomberg L.P. during thefive consecutive trading days immediately preceding the conversion date (butno* lower than the “floor price” then in effect, which is $0.3580 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 64,103 shares of common stock to the Investor as a commitment fee.

The Company has elected to measure the Promissory Notes at fair value. In estimating the fair value of the Note, 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 Level2 under the fair value hierarchy as provided by ASC820. As a result of this election, the Company recorded an unrealized loss of $251,200 for the $2,000,000 Promissory Note and $125,600 for the $1,000,000 Promissory Note.

The following table depicts the future annual minimum payments of the Company's outstanding debt as of* December 31, 2024:*

8. Stockholders' Equity

The Company has 5,000,000 authorized preferred stock with $0.00001 par value per share on* December 31, 2024and December 31, 2023.There wasno outstanding preferred stock on December 31, 2024and December 31, 2023.*

The Company has 350,000,000 authorized common stock of which 19,872,612 and 15,171,748 shares of the Company's common stock were outstanding on* December 31, 2024and December 31, 2023,*respectively. The par value of the Company's common stock is$0.00001.

During thefirst quarter of2024, the Company entered into securities purchase agreements withfive private investors with respect to the private placement of an aggregate of 348,889 shares of the Company’s common stock at a price of $1.68 per share. The Company received aggregate gross cash proceeds from this private placement of $585,499.

On* May 3, 2024,*the Company entered into securities purchase agreements with a private investor with respect to the private placement of an aggregate of 170,774 shares of the Company’s common stock at a price of $2.13 per share. The Company received aggregate gross cash proceeds from this private placement of $363,749.

On* September 12, 2024,the Company entered into securities purchase agreements withfour* private investors with respect to the private placement of an aggregate of 512,047 shares of the Company’s common stock at a price of $1.66 per share and warrants to purchase up to an aggregate of 512,047 shares of 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 oftwo years and are exercisable at any time after* September 16, 2024,at an exercise price of $1.66 per share. The warrants expire on September 11, 2026.See Note9* - Stock Warrants.

As disclosed in Note7 - Debt, the Company entered into the Note with the Holder. During thethird quarter of2024, the Note was converted into 505,051 shares of common stock. See further disclosures under the heading, "Convertible Note," in Note7 - Debt.

As disclosed in Note3 - Acquisition, the Company acquired Maddox Industries, a provider of government contracting solutions based in Puerto Rico. As consideration for the Purchased Interests, at the Closing, the Company issued the Stock Consideration to the Seller. In addition, during the Earnout Period, the Seller was eligible to receive up tosix Earnout Payments, with the Earnout Payment for each calendar month being equal to the aggregate amount of gross revenue received by Maddox Industries in respect of any closing receivable, as specified in the Purchase Agreement, during such calendar month, subject to an aggregate limit of $1 million with respect to all Earnout Payments payable under the Purchase Agreement.

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9. Stock Warrants

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

** December 2020Warrants

The warrants issued pursuant to that certain 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 oftwo* closings, 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. From among these warrants, warrants for 12,833 shares of common stock expired in2023,* warrants for 431,250 shares of common stock will expire on* January 28, 2025,and warrants for 958,334 shares of common stock will expire on May 7, 2026.*

** September 2024Warrants

See Note8 - Stockholders' Equity for disclosures related to the warrants issued in conjunction with the private placements on* September 12, 2024.*

As of* December 31,*2024 and2023, the outstanding warrants haveno intrinsic value.

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10. Stock Options and Restricted Shares

Stock Options

The following is a summary of stock option activity under the Company’s2017 Equity Incentive Plan for the year ended* December 31, 2024*:

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On* December 31, 2024,*stock options for 3,505,418 shares of common stock were exercisable.

On* January 18, 2024,in conjunction with the Note disclosed in Note7* - Debt, the Company issued 800,000 options to purchase 800,000 shares of the Company's common stock with an exercise price of $1.50 to the Holder. See Note4 - Debt, for additional disclosures related to this issuance.

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

On* February 23, 2024,*the Compensation Committee granted to Franklin Lim, the Company’s Chief Financial Officer, options to purchase 100,000 shares of the Company's common stock at an exercise price of $2.44 per share. The options vested immediately upon grant and expire on thetenth anniversary of the grant date.

On* March 19, 2024,*the Compensation Committee granted the non-employee directors and certain executives and consultants options to purchase 1,378,364 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.

On* April**17,* 2024, the Compensation Committee granted to an employee option to purchase 20,000 shares of the Company's common stock at an exercise price of $2.20 per share. The options vest ratably over 36 months and expire on thetenth anniversary of the grant date.

On* June 3, 2024,*the Compensation Committee granted to an employee option to purchase 20,000 shares of the Company's common stock at an exercise price of $1.49 per share. The options vest ratably over 36 months and expire on thetenth anniversary of the grant date.

On* June 17, 2024,*the Compensation Committee granted to an employee option to purchase 100,000 shares of the Company's common stock at an exercise price of $1.76 per share. The options vest ratably over 36 months and expire on thetenth anniversary of the grant date.

On* February 28, 2024,the Company issued options to an external party to purchase 2,000,000 shares of the Company's common stock at an exercise price of $2.75 per share, contingent upon achieving certain sales targets. On September**30,* 2024, the sales targets werenot met and therefore,no compensation expense was recorded. These options expire on* February 5, 2027.*

The options granted during2024 were valued using the Black-Scholes option pricing model, resulting in a weighted average fair market value of approximately $4.71 per option for the years ended* December 31,*2024. The weighted average assumptions used in the valuation of the options are summarized in the following table:

As of* December 31, 2024*, the outstanding options hadno intrinsic value.

Restricted Shares

In* November 2023,the Company awarded 65,660 restricted shares to a vendor that vested 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 $58,671 during the year ended December 31, 2024.*

The Company recorded total stock compensation expense of $1,889,353 and $1,095,199 for the years ended* December 31, 2024and December 31, 2023,*respectively.

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11. 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. 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 the SRI Equipment Leases, the Company recorded rent expense of $93,248 for the year ended December 31, 2024,*respectively.

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, 2024,*respectively, in connection with the ABCI Office Lease.

As disclosed in Note3 - Acquisition, the Company recorded a $1,000,000 receivable that was due from Maddox Defense, an entity of which Jason Maddox, the President of the Company, is the sole stockholder.

During2023**, the Company reimbursed Phillip W. Oldridge, the Company’s Chief Executive Officer and Chairman of the Board, and a member of its board of directors, $81,269 for use of the CEO's personal airplane for certain business-related activities.

The Company incurred $150,000 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 the year ended* December 31, 2024,*respectively.

See Note7 - Debt for disclosures related to the Oldridge Loan, a related party loan that was transacted during thethird quarter of2024 and paid off in thefourth quarter of2024.

12. 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 to5%* 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 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. There areno 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. 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 on October 15, 2024.*

On* March 28, 2023,the Company entered into an agreement 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 istwo years andtwo* months with a turnover date of* July 1, 2023and 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 United States. However, in December 2024,the Company decidednot* to use the leased space for its original purpose. See Note14 - Leases for further information.

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

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13. Contingencies

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, 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, Envirotech Drive Systems, Inc. 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 remains ongoing. The Company believes it has meritorious defenses against GreenPower's claims and intends to vigorously defend itself against those claims.

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 itself against 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 it has meritorious defenses against the Greenpower entities' claims and intends to vigorously defend itself against such claims.

14. 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 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. 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.

On* March 28, 2023,the Company entered into the Berthaphil Sublease 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 Berthaphil Sublease istwo years andtwo* months with a turnover date of* July 1, 2023 (the "turnover date") and a rental commencement of September 1, 2023.However, the warehouse building wasnot* available for use to the Company until the early part of thefourth quarter of2023. Therefore, the commencement date was deferred until thefourth quarter of2023, which is when the Company was given access to use the warehouse building. There was 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 Berthaphil Sublease* maybe 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 seeked to expand its business presence in the region and the United States. The Company accounted for this lease as an operating lease under ASC842* and recorded an operating lease liability and a corresponding ROU asset for this lease. As disclosed in Note12 - Commitments, the Company decided tonot use this facility for its original intended purpose. As a result, the Company recorded an impairment of $129,062 with respect the corresponding ROU asset.

On* July 1, 2024,*the Company entered into a month-to-month lease contract with Southern Management Corporation 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 expense.

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On* August 26, 2024,the Company entered into aone*-year lease contract with120 Park SD, LLC 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 theone-year lease term, the lease converts into a month-to-month arrangement. This lease is treated as a short-term lease expense.

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* December31,* 2024 and* December 31, 2023were $108,508 and $538,932, respectively. Short-term operating lease liabilities were $235,625 and $291,263 at December31,* 2024 and* December 31, 2023,respectively. Long-term operating lease liabilities were $0 and $235,625 at December**31,* 2024 and* December 31, 2023,*respectively.

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

As of* December 31, 2023,*future minimum lease payments required under operating leases are as follows:

15. Subsequent Events

The Company evaluates subsequent events through* April 15, 2025,which is the date the financial statements were issued or available to be 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* February 12, 2025,the Company announced the relocation of its corporate headquarters and the establishment of a new 86,000 square foot facility in Houston, Texas. This strategic move reinforces the Company's commitment to expanding U.S. manufacturing, strengthening fleet services, and supporting the growing demand for commercial electric vehicles. The Company plans to open its new corporate headquarters and manufacturing facility in2025.* As a result of this relocation, the Company* mayincur additional capital expenditure andone*-time relocation costs, which at the time of filing, are being estimated.

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