Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2025

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

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

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

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Going Concern—The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company sustained significant losses and negative cash flows from operations and is dependent on the overall improvement of its operating activities as well as debt and equity financing to fund operations. The Company incurred a net loss of $39,126,986 and $8,848,975 for the years ended December 31, 2025 and 2024, respectively. Cash used in operating activities was $5,587,517 and $3,504,673 for the years ended December 31, 2025 and 2024, respectively. Accumulated deficit was $112,588,460 and $73,461,474 as of December 31, 2025 and 2024, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The Company plans to grow and expand operations and seek sources of capital to pay its contractual obligations as they come due. Failure to successfully continue to grow operational revenues could harm the Company’s profitability and adversely affect the Company’s financial condition and results of operations. Management believes that its future operating strategy will provide the opportunity to continue as a going concern as long as the Company is able to obtain additional financing; however, there is no assurance this will occur. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Fair Value of Financial Instruments—The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Accounting Standards Codification (“ASC”) 820, Fair Value Measurement ("ASC 820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs that are supported by little or no market data and that require the reporting entity to develop its own assumptions.

The Company has an option liability that is measured at fair value on a recurring basis. See Note 7 - Notes Payable for additional disclosures.

Revenue Recognition—The Company recognizes revenue from the sales of zero-emission electric vehicles and vehicle maintenance and inspection services and delivery of medical supplies to the customers of its related party. The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Net revenue recorded for the year ended December 31, 2025 was $323,500 and $5,589,945 for the electric vehicles segment and medical supplies segment, respectively. Two customers accounted for 100% of the net revenue for the delivery of electric vehicles in the electric vehicles segment for the year ended December 31, 2025. One customer, a related party, accounted for 100% of the medical supplies segment net revenue for the year ended December 31, 2025.

Net revenue recorded for the year ended December 31, 2024 was $1,817,755 for the electric vehicles segment. Eight customers accounted for approximately all of the net revenue for the delivery of electric vehicles in the electric vehicles segment for the year ended December 31, 2024.

In applying ASC 606, the Company is required to:

(1)

identify contracts with customers;

(2)

determine if multiple performance obligations exist;

(3)

determine the transaction price;

(4)

allocate the transaction price to the respective obligation; and

(5)

recognize the revenue as the obligation is satisfied.

Product revenue includes the sale of electric trucks and cargo vans. These sales represent a single performance obligation and revenue is recognized when the vehicle is delivered and the customer has accepted the vehicle and signed the appropriate documentation acknowledging receipt of the vehicle. At this time, revenue is recognized.

Other revenue for the electric vehicles segment for the years ended December 31, 2025 and December 31, 2024 were $25,563 and $52,303 respectively, and primarily included safety inspection and document fees for compliance with U.S. Department of Transportation guidelines. These sales represent a single performance obligation with revenue recognition occurring at the time services are invoiced. The Company has therefore not provided any additional disaggregation information, as all other revenue relates to the sale of vehicles and medical supplies (gowns) as discussed above.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The recorded value of our cash and cash equivalents approximates their fair value.

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

Accounts Receivable and Allowance for Doubtful Accounts—The accounts receivable balance relates to the Company's electric vehicles segment. The Company establishes an allowance for bad debts through a review of several factors, including historical collection experience, current aging status of the customer accounts, and financial condition of its customers. The Company does not generally require collateral for its accounts receivable. The Company had trade accounts receivable of $0 as of December 31, 2025 as all accounts receivable were written off due to unfavorable market conditions. The Company had trade accounts receivable of $1,031,972 as of December 31, 2024 and an allowance for doubtful accounts of $15,306, resulting in a net trade receivable balance of $1,016,666. A significant portion of the Company’s electric vehicle sales are made to customers who qualify for state-sponsored grant programs which can cover a significant portion, up to all of a vehicle’s purchase price. Grant monies are paid directly to vehicle dealers like the Company after the customer and the dealer meet state requirements related to the transaction; reimbursements to the Company may take two to nine months from the date of request before being received.

Receivable from Related Party and Allowance for Doubtful Accounts—The receivable from related party relates to the Company's medical supplies segment. The allowance for doubtful accounts is established by reviewing several factors, including historical collection experience, current aging of the customer account and financial condition of its customer. The Company had a receivable from related party of $1,202,335 and a recorded allowance of $6,082, resulting in a net receivable from related party of $1,196,253 as of December 31, 2025. The Company had a receivable from related party of $1,000,000 and a recorded allowance of $6,700, resulting in a net receivable from related party of $993,300 as of December 31, 2024.

Inventory and Inventory Valuation Allowance—The Company records inventory at the lower of cost or net realizable value, uses a First In, First Out (“FIFO”) accounting valuation methodology and establishes an inventory valuation allowance for vehicles that it does not intend to sell in the future. The Company had finished goods inventory on hand of $6,040,410 as of December 31, 2025 and recorded an inventory valuation allowance of $6,040,410 as a result of deteriorating market conditions, resulting in a net inventory balance of $0 at December 31, 2025. The Company had finished goods inventory on hand of $6,428,806 as of December 31, 2024 and recorded an inventory valuation allowance of $12,429 resulting in a net inventory balance of $6,416,377 as of December 31, 2024.

Inventory Deposits—Certain of our vendors require the Company to pay upfront deposits before they will commence manufacturing our vehicles, and then progress payments are required through the production cycle and before the finished vehicles are shipped. These deposits are classified as inventory deposits in the Consolidated Balance Sheets. Upon completion of production, acceptance of the completed inventory by the Company, and passage of title to the Company, deposits are reclassified to inventory. The Company had inventory deposits of $0 and $6,036,809 as of December 31, 2025 and December 31, 2024, respectively. The Company wrote-off $6,027,981 of its balance primarily due to deteriorating market conditions. Deposits paid to a related party vendor accounted for 99% of the deposits outstanding at December 31, 2024.

EPA Fulfillment Asset—These are costs incurred to fulfill the U.S. Environmental Protection Agency ("EPA") school bus contract that are capitalized. These costs will be expensed to cost of goods sold once all the performance obligations stipulated in the EPA school bus contract are satisfied and revenue from the contract is recognized. The balance of EPA fulfillment asset at December 31, 2025 and December 31, 2024 is $1,503,477 and $0, respectively.

Income Taxes—The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

The Company previously recorded deferred tax benefits from net operating losses in current and prior periods. The Company, in light of the uncertainty of generating future taxable income against which those losses can be offset in order to realize such benefits, has determined that recording a valuation allowance to reduce the deferred income tax assets to the amount that is more likely than not to be realized is appropriate. In making such determinations, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. A full valuation allowance is recorded at December 31, 2025 and December 31, 2024.

Accounting for Uncertainty in Income Taxes—The Company evaluates its uncertain tax positions and will recognize a loss contingency when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. At December 31, 2025 and 2024, respectively, management did not identify any uncertain tax positions.

Net Loss Per Share—Basic net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted net loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares of common stock outstanding is the basic weighted number of shares of common stock adjusted for any potentially dilutive debt or equity securities. As of December 31, 2025, 977,250 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 147,039 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. As of December 31, 2024, 564,126 shares of the Company’s common stock were subject to issuance upon the exercise of stock options then outstanding and 190,163 shares of the Company’s common stock were subject to issuance upon the exercise of warrants then outstanding. Stock options and warrants were not included in the diluted weighted average number of shares outstanding for the years ended December 31, 2025 and 2024, as the effect would be anti-dilutive.

Concentration of Credit Risk—The Company has credit risks related to cash and cash equivalents on deposit with a federally insured bank, as at times it exceeds the $250,000 maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Between FDIC and the Securities Investor Protection Corporation (“SIPC”) coverage, funds up to $750,000, which may include cash up to $500,000, are insured.

Impairment of Long-Lived Assets—Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates these assets to determine potential impairment by comparing the carrying amount to the undiscounted estimated future cash flows of the related assets. If the estimated undiscounted cash flows are less than the carrying value of the assets, the assets are written down to their fair value. There was no impairment of long-lived assets, or property and equipment, as of December 31, 2025 and December 31, 2024, respectively.

Goodwill—Goodwill represents the excess of acquisition cost over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it can conclude the assessment. If the Company concludes otherwise, the Company is required to perform a quantitative analysis to determine the amount of impairment. A quantitative analysis is performed at the 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 has one reporting unit. In 2025, the Company conducted its annual impairment test. Based on the impairment test, which predominantly utilized the Company's quoted market price and the number of outstanding shares at the end of the period as inputs, the Company recorded a non-cash goodwill impairment of $10,103,048 as of December 31, 2025. The balance of the Company's goodwill at December 31, 2025 is zero. See Note 3 - Goodwill for additional disclosures.

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

EPA Contract Liability—These are costs related to the EPA school bus program that are expected to be reimbursed to the EPA as a result of the Company's decision to discontinue the school bus initiative. The balance of EPA contract liability at December 31, 2025 and December 31, 2024 is $5,169,691 and $0, respectively.

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

Stock-Based Compensation—The Company accounts for employee stock-based compensation in accordance with the guidance of ASC 718, Compensation-Stock Compensation ("ASC 718"), which requires all share-based payments to employees, including grants of employee stock options and restricted shares and stock options to external consultants, to be recognized in the financial statements based on their grant date fair values using the Black-Scholes option pricing model for stock options and the closing market price on the date of the award for restricted shares and are recognized as compensation expense ratably over the requisite service period, which is generally the awards' vesting period. The Company recorded non-cash stock-based compensation expense of $639,815, and $1,889,353 for the years ended December 31, 2025 and December 31, 2024, respectively.

Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets, which range from three to five years, except leasehold improvements, which are being amortized over the shorter of its useful life or the lease term. Major repairs and replacements, which extend the useful lives of equipment, are capitalized and depreciated over the estimated useful lives of the property. All other maintenance and repairs are expensed as incurred.

Leases—The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”). At the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating or finance lease at commencement. Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease. See Note 13 - Leases.

As most of the Company’s leases do not provide an implicit interest rate, the lease liability is calculated at lease commencement as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.

The lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms may include optional extension periods when it is reasonably certain that those options will be exercised.

Leases with an initial expected term of 12 months or less are not recorded in the Company's Consolidated Balance Sheet and the related lease expense is recognized on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not separate fixed lease components from the fixed non-lease components.

Recently Adopted Accounting Pronouncements

ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which requires public entities, on an annual basis, to provide disclosure of specific categories in the reconciliation of the effective tax rate, as well as disclosure of income taxes paid, disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted ASU 2023-09 on a prospective basis. The adoption had no material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU No. 2024-03, “Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses”

In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires additional information about certain expenses in the notes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03 and will adopt the guidance when it becomes effective on a prospective basis.

Envirotech Vehicles, Inc. 10-K