SolarMax Technology, Inc.

1. Description of Business

SolarMax Technology, Inc. and subsidiary companies (the "Company”) is an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. The Company was founded in 2008 to engage in the solar business in the United States.

Since the third quarter of 2025, the Company’s primary business has been negotiating contracts and performing engineering, procurement and construction (“EPC”) services for solar-based battery energy storage systems (“BESS”) commercial systems. As of December 31, 2025, the Company had commenced EPC services on a 430 MWh battery storage project in Texas pursuant to an agreement dated July 31, 2025 with Longfellow BESS I, LLC, Texas limited liability company (“Longfellow”). During the year ended December 31, 2025, the Company generated revenue of $60.2 million, representing 66.1% of the Company's revenue, from EPC services pursuant to this contract. All of this revenue was generated during the second half of 2025. On December 31, 2025, the Company entered into three EPC agreements for large scale BESS systems, two in Puerto Rico and one in Corpus Christi, Texas.

Prior to the third quarter of 2025, the Company's primary business was the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, sales of LED systems and services to government and commercial users. The Company is continuing to develop this business but, because of changes in California law, this part of the Company's business is developing more slowly. The Company also generates revenue from financing the sale of photovoltaic and battery backup systems. Since early 2020, because the Company did not have the capital to support such operations, the Company ceased making loans to solar customers, and the Company does not anticipate engaging in such activities. The Company’s finance revenue reflects revenue earned on its current portfolio, with no new loans having been added since 2022.

In 2015, the Company commenced operations in China, and the Company engaged in business in China through 2021. Substantially all of the Company’s China revenues for 2021 and 2020 were generated from four projects for State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd (“SPIC”), which is a large state-owned enterprise under the administration of the Chinese government. Subsequent to December 31, 2021 through the date of this annual report, the Company did not generate revenues from China, and the Company is not engaged in any negotiations with SPIC or any other potential customer, and it is not engaged in any marketing activities. In the event that the Company does not seek to recommence operations in China, it may discontinue its China operations. In the United States, the Company has four wholly-owned subsidiaries at December 31, 2025 as follows:

The Company has three wholly-owned subsidiaries outside the U.S., through which the Company conducted its China operations and which are not actively engaged in any business activities since the Company is not actively involved in any business activities in China.

Initial Public Offering

In March 2024, the Company issued 5,039,950 shares of common stock in its initial public offering at a public offering price of $4.00 per share less a 6% underwriting discount pursuant to an underwriting agreement (the “Underwriting Agreement”) with Kingswood, a division of Kingswood Capital Partners, LLC (the “Representative”), as representative of the underwriters. The shares issued includes the partial exercise of the underwriters’ overallotment option. Pursuant to the Underwriting Agreement, the Company paid the Representative a 1% non-accountable expense allowance and reimbursed the Representative for certain accountable expenses of $175,000.

The aggregate gross proceeds from the offering were approximately $20.0 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company. Net proceeds from the Company’s initial public offering of approximately $18.6 million reflect the gross proceeds net of underwriting discounts, the non-accountable expense allowance, accountable expenses of the underwriters that were paid by the Company and other expenses that were deducted from gross proceeds at the closing.

Pursuant to the Underwriting Agreement, the Company issued to the Representative warrants (the “Representative’s Warrants”) to purchase 403,196 shares of common stock at an exercise price of $4.80 per share.

On March 13, 2024, the Representative’s Warrants were fully exercised on a cashless basis. Based on the formula for cashless exercise, the Company issued a total of 207,311 shares of common stock, and, as a result of the exercise, no Representative’s Warrants remained outstanding.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”).

Principles of Consolidation

Amounts reported in the consolidated financial statements are stated in U.S. dollars, unless stated otherwise. The functional currency of the Company’s Chinese subsidiaries is the Chinese renminbi ("RMB”). These transactions are translated from the local currency into U.S. dollars at exchange rates during or at the end of the reporting period. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net loss.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the cost-based inputs to estimate revenues on long-term construction contracts, the collectability of accounts receivable, the receivable from SPIC and loans receivable, the value of investments in unconsolidated solar project companies, the value of held to maturity debt investments, the useful lives and impairment of property and equipment, the fair value of stock options granted and stock-based compensation expense, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes. Actual results could differ materially from those estimates.

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company’s history of net losses and negative cash flow from operating activities, including its net loss for the year ended December 31, 2025, along with its increased accumulated deficit and stockholders’ deficit, its default on principal and interest since 2023 on convertible notes in the principal amount of $14.7 million, as of December 31, 2025, the low price of the Company’s common stock, which is below the Nasdaq continued listing requirement of a closing bid price of $1.00 per share and the possibility that the Company may effect a reverse split of its common stock in order to regain compliance with the Nasdaq minimum closing bid price requirement raise substantial doubt about the Company's ability to continue as a going concern.

At December 31, 2025, the Company reported a working capital deficit of approximately $20.4 million. In addition, the accumulated deficit was approximately $109.9 million and the stockholders’ deficiency was approximately $12.2 million. In connection with these consolidated financial statements, management evaluated whether there were conditions and events, that, considered in the aggregate, raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, a history of negative cash flows from operating activities, defaults on principal amount of convertible notes, and significant current debt.

As of December 31, 2025, the Company’s principal sources of liquidity consisted of approximately $8.0 million of cash and cash equivalents, proceeds from the sale of common stock and cash generated by the Company’s operations. The Company believes its current cash balances coupled with anticipated cash generated from operating activities are sufficient to meet the Company’s working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, excluding approximately $20.2 million of debt that is due in the next twelve months which the Company is seeking to have exchanged for five-year convertible notes and debt which the holders have the right to accelerate payment and seek interest at the default interest rate of 12% per annum. Management is focused on expanding the Company’s existing business, primarily its commercial EPC business, and to expand its marketing to commercial solar installations in the United States. The Company is looking to continue to negotiate an exchange of a large portion of the approximately $5.5 million of the current portion of long-term related party loans for convertible notes that mature in periods beyond one year. The Company cannot predict whether it will be successful in these efforts or whether it will be necessary to change the proposed terms of any such exchanges. However, the low price of the Company’s common stock and the Company’s defaults on outstanding convertible debt make it unlikely that the beneficial owners of the EB-5 debt may be reluctant either to accept convertible notes on the present, if any, terms or to convert outstanding convertible notes. During the year ended December 31, 2025, the Company raised a total of approximately $7.7 million from the sale of common stock at a 25% discount from market. Under the Nasdaq regulations, the Company may not be able to raise any significant funding from the sale of common stock at a discount from market, as defined by Nasdaq, in the near future without stockholder approval.

As a result of the above, there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. The Company cannot give assurance that it will be able to pay or refinance its current debt, including convertible notes in the principal amount of $14.3 million on which the Company is in default, can increase its cash balances or limit its cash consumption or obtain the exchange of any of its current debt for secured convertible debt and thus maintain sufficient cash balances for its planned operations. Future business demands may lead to cash utilization at levels greater than recently experienced. If the Company cannot refinance or pay its current debt obligations, including convertible notes in the principal amount of $14.3 million on which the Company is in default and with respect to which the holders have the right to accelerate payment of principal and interest, or it cannot raise the funding it requires for its business, it may not be able to continue in business. If the Company generates business for its China operations, and no assurance can be given that it will be successful in such efforts, any revenue and cash flow from the Company’s China operations would be irregular because of the timing of solar projects and the significant funding requirements for its China operations, particularly during periods when there is little or no revenue or cash flow from projects. As of December 31, 2025, the Company did not have any agreements for its China operations and was not in negotiation with respect to any agreement. In the event that the Company is not able to develop business in China, the Company may terminate its China operations.

During the year ended December 31, 2025, the Company (i) raised approximately $4.8 million in cash from the private placement of common stock and (ii) issued common stock as payment of $2.9 million of promissory notes. The Company is likely to require additional capital in the future. Because of NASDAQ regulation, the Company is limited in its ability to continue to raise funds by the private placement of common stock at a discount from market, as defined by Nasdaq. In view of the foregoing and the low price of the Company’s common stock and the possibility that the common stock may be delisted from Nasdaq or effect a reverse split in order to raise the price of the Company’s common stock, the Company cannot assure that it will be able to raise additional capital on acceptable terms, if at all.

Cash and Cash Equivalents

Cash and cash equivalents consist of deposit accounts and highly liquid investments purchased with an original maturity of three months or less. The standard insurance coverage for non-interest bearing transaction accounts in the U.S. is $250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation. The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $73,000) per depositor per bank under the applicable Chinese general deposit insurance rules.

Held to Maturity Debt Investments

Held to maturity debt investments consist of short-term note receivables with original maturities of 12 months or less and are accounted for at amortized cost.

Restricted Cash

Restricted cash includes cash held to collateralize ACH transactions and outstanding credit card borrowing facilities.

Restricted cash at December 31, 2025 and 2024 consisted of:

Accounts Receivable

Accounts receivable are reported at the outstanding principal balance due from customers. In the U.S., accounts receivable substantially include customer billings for large-scale EPC projects and for the sales of LED products and services. In the PRC segment, accounts receivable represents the amounts billed under the contracts but uncollected on completed construction contracts. Accounts receivable are recorded at net realizable value.

The Company maintains allowances for the applicable portion of receivables, including accounts receivable, government rebate receivables and other receivables, that represent the Company’s estimate of the current expected loss inherent in accounts receivable as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Once a receivable is deemed to be uncollectible, it is written off against the allowance. The expense related to rebates receivable is recorded as a reduction to revenues.

Contract Balances

The contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date, primarily for the solar energy system sales in the U.S. The contract assets are transferred to receivables when the rights become unconditional (i.e., when the permission to operate is issued). For industrial construction contracts, contract assets represent costs and estimated earnings in excess of billings on uncompleted contracts.

The contract liabilities primarily relate to the advance consideration received from customers related to the solar energy system sales in the U.S., for which the transfer of ownership has not occurred. For industrial construction contracts, contract liabilities represent billings in excess of costs and estimated earnings on uncompleted contracts.

Applying the practical expedient in ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), paragraph 340‑40-25-4, the Company recognizes the incremental costs of obtaining contracts (i.e., commission fees) in cost of revenue when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in cost of revenues.

Deferred Project Costs

Deferred project costs relate to costs incurred by the Company on projects which the corresponding revenue is not yet recognized. Deferred project costs are presented as a current asset on the balance sheet, and is recognized as cost of revenue when revenue is recognized on the corresponding project.

Customer Loans Receivable

In the U.S. segment, the Company offered its customers who meet the Company’s credit eligibility standards the option to finance the purchase of solar energy systems through installment loans underwritten through SolarMax Financial. All loans are secured by the solar energy systems or other projects being financed. The outstanding customer loan receivable balance is presented net of an allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover expected credit losses on the customer loans. In determining expected credit losses, the Company considers its historical level of credit losses, current economic trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows. Loans offered at the promotional interest rate below the market interest rate are accounted for as loan discounts and are amortized on an effective interest method to interest income over the terms of the loans. The Company has not entered into any new loan agreements since early 2020, and its revenues from financing related to its existing loan portfolio.

Inventories

Inventories consist of (a) work in progress on solar systems on housing developments and projects not yet sold; and (b) components principally consisting of photovoltaic modules, inverters, construction and other materials, and LED products, all of which are stated at the lower of cost or net realizable value under the first-in first-out method. The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary. All of the inventories are in the United States segment; the China operations has no inventory.

The estimate for excess and obsolete inventories is based on historical sales and usage experience together with a review of the current status of existing inventories.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements and solar systems leased to customers are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.

The estimated useful lives of the major classification of property and equipment are as follows:

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of assets acquired and liabilities assumed. The Company had no goodwill at December 31, 2025 and 2024. The Company’s goodwill had been derived from the acquisition of businesses in China in April 2015, and the Company recognized impairment loss for the entire balance of the goodwill of $7.5 million for the year ended December 31, 2024.

Impairment of Long-Lived Assets

The Company’s long-lived assets include property and equipment which include solar energy systems leased to customers.

In accordance with ASC Topic 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the excess of the carrying value over the fair value.

There was no impairment loss on the Company’s property and equipment for the years ended December 31, 2025 and 2024.

Investments in Unconsolidated Companies

The Company’s unconsolidated investments are held directly by the Company as well as through its subsidiary, SMX Capital, and consist of investments in U.S.-based solar limited liability companies: Alliance Solar Capital 1, LLC (“A#1”), Alliance Solar Capital 2, LLC (“A#2”), and Alliance Solar Capital 3, LLC (“A#3”). The Company also has an investment in a PRC-based panel manufacturer, Changzhou Hongyi New Energy Technology Co., Ltd (“Changzhou”). As a result of recurring historical losses, all the unconsolidated investments in the U.S. have zero cost basis at December 31, 2025 and 2024.

At December 31, 2025 and 2024, the Company has unconsolidated investments in the PRC reflecting its 30% non-controlling interests in three project companies for which it transferred a 70% interest in 2021 to SPIC, which operates these companies.

For these investments, the Company does not have the controlling interests but it has the contractual ability to exercise significant influence over the operations and the financial decisions of the investees under the respective operating agreements although these investees are controlled by SPIC, which, as the 70% owner and the operator of the entities, has the ability to make all decisions concerning the investees. In each of the investments, the investee also maintains a separate capital account for each of its investors and accordingly, the Company has a separate capital account at each of the investees. Since the Company has the contractual right to exercise significant influence over the investees, the Company accounts for each of these investments using the equity method of accounting, under which the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage. Distributions received from equity method investees are accounted for as returns on investment and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the Company. When such an excess occurs, the current year distribution up to this excess would be considered a return of investment and classified as cash inflows from investing activities.

Because the Company’s investments include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is above the fair value of an investment at the end of any reporting period, the investment is reviewed to determine if the impairment is other than temporary. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The Company monitors its investments in unconsolidated entities periodically for impairment. No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2025 and 2024.

Warranties

Workmanship Warranty

For the sale of solar and battery systems in the U.S., the Company provides a workmanship warranty for 25 years to cover the quality of the Company’s installation. The warranty is designed to cover installation defects and damages to customer properties caused by the Company’s installation of the solar energy systems and battery storage systems which generally are uncovered within 2-3 years after the installation. The 25-year warranty is consistent with the term provided by competitors and is provided by the Company to remain market competitive. The workmanship warranty does not include the warranties on components, such as panels and inverters which are covered directly by the manufacturers and are, generally provided for 25 years on panels and inverters, and 10 years for energy storage systems. The Company determined that its 25-year workmanship warranty for solar energy systems constitutes an assurance-type warranty and should continue to be accounted for under ASC Topic 460, Guarantees, instead of a service-type warranty which would be accounted for under Topic 606 as a cost of revenues.

Warranty for EPC Services

For the PRC operations, the Company provided construction quality warranty on EPC services generally for one year after completion. The customer typically retains 3-5% of the contract price which will not be paid to the Company until the expiration of the warranty period which is accounted by the Company as retainage receivable. The Company currently provides a reserve for such potential liabilities based on a nominal percentage of project revenues for the PRC segment in the approximate amount of $251,000 and $247,000 as of December 31, 2025 and 2024, respectively, which is included in accrued expenses and other liabilities. To date the Company has not incurred significant claims on the quality warranty. The liability is reversed when the warranty period expires.

For the US segment. the Company provides a three year workmanship warranty after the project is completed. The equipment is covered by the manufacturer warranty for ten years. The Company currently provides a reserve for warranty based on a nominal percentage of project revenues recognized for the period and is included in other liabilities.

Production Guaranty

For solar systems sold in the U.S., the Company warrants that modules installed in accordance with agreed-upon specifications will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5% every year thereafter throughout the approximate 10-year production guaranty period. In resolving claims under the production guaranty, the Company typically makes cash payments on an annual basis to customers who claim for the production shortfall in power output. The Company currently provides a reserve for the production guaranty at 0.2% of the total solar revenue.

LED Warranties

The Company’s warranty for LED products and services ranges from one year for labor and up to seven years for certain products sold to governmental municipalities. The Company currently provides a warranty reserve for LED sales based on 1.0% of LED revenue.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines a framework for determining fair value, establishes a hierarchy of information used in measuring fair value, and enhances the disclosure information about fair value measurements. ASC 820 provides that the “exit price” should be used to value an asset or liability, which is the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale at the measurement date. ASC 820 also provides that relevant market data, to the extent available and not internally generated or entity specific information, should be used to determine fair value.

ASC 820 requires the Company to estimate and disclose fair values on the following three-level hierarchy that prioritizes market inputs.

The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, deposits, taxes payable, warranty liability and accrued payroll and expenses approximates fair value because of the short maturity of these instruments.

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2025:

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2024:

Cash equivalents – Cash equivalents consist of money market accounts and are carried at their fair value.

Customer loans receivable – The fair value of customer loans receivable is calculated based on the carrying value and unobservable inputs which include the credit risks of the customers, the market interest rates and the contractual terms. The Company’s underwriting policies for the customer loans receivable have not changed significantly since the origination of these loans. The overall credit risk of the portfolio also has not significantly fluctuated as evidenced by the minimal historical write-offs, and lastly the market interest rates have remained relatively consistent since the origination of the loans.

Held to maturity debt investments – Held to maturity debt investments consist of short-term note receivables with initial maturities of 12 months or less. Accordingly, their carrying values approximate their fair value.

Bank and other loans – The fair value of such loans payable had been determined based on the variable nature of the interest rates and the proximity to the issuance date.

Secured loans from related parties – The related party loans were issued at the fixed annual interest rates of 3.0% in the U.S. segment, and the fair value of the loans has been estimated by applying the prevailing borrowing annual interest rates for a comparable loan term which the Company estimated to be 9.0% to the estimated cash flows through the maturities of the loans.

Secured convertible debt – The secured convertible debt was issued at the fixed annual interest rates of 4.0% in the U.S. segment, and the fair value of the loans was determined based on the proximity to the issuance date.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”). Revenue is measured based on the considerations specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when the Company satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by government authorities that are imposed on, or concurrent with, a specific revenue-producing transaction are collected by the Company from the customer and excluded from revenue.

The Company’s principal activities from which the Company generates its revenue are described below.

Revenue from EPC Services

For energy generation assets owned and controlled by the customer, the Company recognizes revenue for sales of EPC services over time as the Company’s performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of EPC services represents a single performance obligation for the development and construction of a single generation asset, which is a complete solar energy project. For such sale arrangements, the Company recognizes revenue using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract after consideration of the customer’s commitment to perform its obligations under the contract, which is typically measured through the receipt of cash deposits or other forms of financial security issued by creditworthy financial institutions or parent entities.

Payment for EPC services is made by the customer pursuant to the billing schedule stipulated in the EPC contract which is generally based on the progress of the construction. Once the bills are issued to the customer, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3-5%, depending on the contract. The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period.

In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred relative to the total estimated costs to determine the progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of the Company’s efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying the Company’s performance obligations (“inefficient costs”) are excluded from the Company’s input methods of revenue recognition as the amounts are not reflective of the Company’s transferring control of the solar energy system to the customer. Costs incurred towards contract completion may include costs associated with solar modules and batteries, direct materials, labor, subcontractors, and other indirect costs related to contract performance. The Company recognizes the cost of solar modules, batteries, and direct material costs as incurred when such items have been installed in a system.

For industrial projects, the Company uses the actual installation costs incurred relative to the total estimated installation costs to determine the progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. The Company recognizes revenue, but not profit, on uninstalled materials on industrial projects. The revenue on uninstalled materials is recognized when the control is transferred.

Cost-based input methods of revenue recognition require the Company to make estimates of net contract revenues and costs to complete its projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete its projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.

The Company’s arrangements may contain clauses such as contingent repurchase options, delay liquidated damages, rebates, penalties or early performance bonus, most favorable pricing or other provisions, if applicable, that can either increase or decrease the transaction price. The Company has historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606. Under Topic 606, the Company estimates and applies a constraint on variable considerations and includes that amount in the transaction price. Because the Company’s historical policies on estimating variable considerations that would decrease the transaction price have largely mirrored the requirements under Topic 606, and because variable considerations that would increase the transaction price have historically been immaterial or would likely be constrained under Topic 606, there is no cumulative effect adjustment. The Company estimates variable considerations for amounts to which the Company expects to be entitled and for which it is not probable that a significant reversal of cumulative revenue recognized will occur.

For energy generation assets not owned and controlled by the customer during the construction, as well as contracts with customers that do not require progress payments during construction and whereby the contracts include restrictive acceptance provisions before any progress payments are made by the customers, the Company recognizes revenues at a point in time when the Company determines it has transferred control to the customer.

Solar Energy and Battery Storage Systems and Components Sales

Revenue recognition associated with sales of solar energy systems, battery storage systems, and other products is recognized over time as the Company’s performance creates or enhances the property controlled by the customer (the asset is being constructed on a customer’s premises that the customer controls).

The Company’s principal performance obligation is to design and install a solar energy system that is interconnected to the local power grid and for which permission to operate has been granted by a utility company to the customer. The Company recognizes revenue over time as control of the solar energy system transfers to the customer which begins at installation and concludes when the utility company has granted the permission to operate.

All costs to obtain and fulfil contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

For solar energy and battery storage system sales, the Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract. In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost of the solar energy and battery storage system, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost‑based input methods of revenue recognition are considered a faithful depiction of the Company's efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance.

The Company sells solar energy and battery storage systems to residential and commercial customers in California and recognizes revenue net of sales taxes. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and third-party leasing agreements arranged by the Company for the customer.

Direct payments are made by the customer as stipulated in the underlying home improvement or commercial contract which generally includes an upfront down payment at contract signing, payments at delivery of materials and installation ranging from 70% to 85% of the contract price, and the payment of the final balance at the time of the city signoff or when the permission to operate the solar system is granted by a utility company.

For third-party financing arranged by the Company for the customer, direct payments are made by the financing company to the Company based on an agreement between the financing company and the Company, with the majority of the payments made by the time of completion of installation but not later than the date on which the permission to operate the solar system is granted by the utility company.

For a lease through the third party leasing company, direct payments are made by the leasing company to the Company based on an agreement between the leasing company and the Company, which is generally 80% upon the completion of installation and 20% when permission to operate is granted.

LED Product Sales and Service Sales

For product sales, the Company recognizes revenue at a point in time following the transfer of control of the products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For contracts involving both products and services (i.e., multiple performance obligations), the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenue from services is recognized when services are completed which is upon acceptance by the customer. The standalone selling price of the warranty is not material and, therefore, the Company has not allocated any portion of the transaction price to any performance obligation associated with the warranty.

Payment for products is generally made upon delivery or with a 30 day term. Extended payment terms are provided on a limited basis not to exceed twelve months. Payment for services is due when the services are completed and accepted by the customer. For certain LED product sales, the Company provides the customers with a right of return subject to restocking fees. The Company assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration the Company expects to receive after returns are made. Based on the Company’s historical experience, the Company has determined the likelihood and magnitude of a future returns to be immaterial and currently has not provided for a liability for such returns on the LED product sales.

For contracts where the Company agreed to provide the customer with rooftop solar energy systems (including design, materials, and installation of the system) in addition to providing LED products and LED installation, these agreements may contain multiple performance obligations: 1) the combined performance obligation to design and install rooftop solar energy system; 2) the performance obligation to deliver the LED products; and, 3) the performance obligation to install the LED products. Topic 606 permits goods and services that are deemed to be immaterial in the context of a contract to be disregarded when considering performance obligations within an agreement. The Company will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they would represent a separate performance obligation.

Solar Leases and Solar Power Purchase Agreements (PPAs) in the U.S.

The Company has entered into long-term solar leases as well as contracts for the sale of energy generated by PV solar power systems under PPAs that do not meet the criteria for recognition under ASC 842, either because the agreements are not deemed to contain a lease, or the agreements qualify for the short-term lease exemption. These systems were installed on the customers’ properties but are owned by the Company.

Loan Interest Income

Prior to 2023, the Company provided installment financing to qualified U.S. customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services, and some of these loans remain outstanding. The Company has not entered into new loans since early 2020, and its finance revenues are from its existing loan portfolio. Customer loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and are reduced by an allowance for estimated credit losses as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the interest method. The interest method is applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Interest on loans generally continues to accrue until the loans are charged off. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Loans are transferred from held-for-investment to held-for-sale when management’s intent is not to hold the loans for the foreseeable future.

Advertising Costs

The Company charges advertising and marketing costs related to radio, internet and print advertising to operations as incurred. Advertising and marketing costs for the years ended December 31, 2025 and 2024 were approximately $367,000 and $517,000, respectively.

Income Taxes

The Company accounts for income taxes pursuant to the FASB ASC Topic 740, Income Taxes (“ASC 740”). The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. The Company accounts for the investment tax credits under the flow-through method which treats the credits as a reduction of federal income taxes of the year in which the credit arises or is utilized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has determined it is more likely than not that its deferred tax assets related to its U.S. operations will not be realizable and has recorded a full valuation allowance against its deferred tax assets. In the event the Company is able to realize such deferred income tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements in accordance with U.S. GAAP. The calculation of the Company’s tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company’s tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized.

The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the years ended December 31, 2025 and 2024, the Company did not incur any related interest and penalties.

The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. As of December 31, 2025 and 2024, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes.

Comprehensive Income (Loss)

The Company accounts for comprehensive income loss in accordance with ASC 220, Income Statement – Reporting Comprehensive Income (“ASC 220”). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of December 31, 2025 and 2024 is the currency translation adjustment.

Net Income (Loss) Per Share

The Company calculates net income (loss) per share by dividing income or losses allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Potentially dilutive securities are excluded from the computation of diluted earnings per share for the years ended December 31, 2025 and 2024 because the effect would be antidilutive.

Stock-Based Compensation

The Company accounts for stock-based compensation costs under the provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest for both employees and non-employees. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees and non-employees, net of estimated forfeitures, over the employee requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.

Foreign Currency

Amounts reported in the consolidated financial statements are stated in U.S. dollars. The Company’s subsidiaries in the PRC use the Chinese RMB as their functional currency and all other subsidiaries use the U.S. dollar as their functional currency.

In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity (deficit) as part of accumulated other comprehensive income (loss). Further, foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Losses on those foreign currency transactions of approximately $31,000 and $167,000 for the years ended December 31, 2025 and 2024, respectively, are included in other income (expense), net for the period in which exchange rates change.

Segment Information

Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has one operating segment, and one reporting segment which is the operation in the United States for the year ended December 31, 2025. Prior to January 1, 2024, the Company considered its operation in China an operating segment and a reporting segment. However, because the operation in China has had no revenues and no operations in China since 2022, its principal activity having been seeking to collect its receivable from SPIC, and the Company has no agreement and is not engaged in any negotiations or marketing activities in China, the Company no longer considers its operation in China an operating segment or a reporting segment.

Recently Issued Accounting Pronouncements

As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company adopted this standard prospectively for the year ended December 31, 2025. The adoption impacted the Company’s income tax disclosures, but did not impact the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This update requires that at each interim and annual reporting period public entities disclose (1) the amounts of purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions; (2) certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements; (3) a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and (4) the total amount of selling expenses and, in annual reporting periods, the definition of selling expenses. In January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This update clarifies that ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact on its financial statements of adopting this guidance.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 is intended to improve the estimation of expected credit losses for contracts arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this ASU will be applied prospectively and are effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact of implementing this guidance on its financial statements.

The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

3. Disaggregation of Revenue

The following table summarizes the Company’s revenue by business line for the years ended December 31, 2025 and 2024:

4. Cash, Cash Equivalents and Restricted Cash

As of December 31, 2025 and 2024, insured and uninsured cash including the balance classified as restricted cash were as follows:

5. Accounts Receivable, Net

The activity of the allowance for credit losses for accounts receivable for the years ended December 31, 2025 and 2024 is as follows:

6. Held to Maturity Debt Investments

In March 2024, the Company made short-term investments of $7.0 million in 8% promissory notes, originally due June 1, 2024 issued by Webao Limited, an unrelated party, based in Hong Kong. The notes were extended multiple times and the note was paid in December 2025.

In March 2024, the Company made short-term investments of RMB 5.0 million, approximately $693,000, in a 5% promissory note due June 25, 2024 issued by Qingdao Xiaohuangbei Technology Co., Ltd. , an unrelated party based in PRC. The maturity date of the note was extended to December 31, 2025. At December 31, 2025, the unpaid balance of the promissory note was RMB 3.7 million (approximately $523,000) and on February 19, 2026, the unpaid principal and accrued interest were fully paid.

7. Receivable from SPIC, Net

The Company had previously initiated arbitration proceedings against SPIC, the state-owned company related to the receivable balances of several photovoltaic EPC projects that the Company completed in 2020 and 2021. In April 2025, the arbitration tribunal issued awards in favor of the Company and subsequently the Company collected approximately RMB 42.5 million ($6.0 million) of the receivable balance. At December 31, 2025, the unpaid receivable balance was RMB 7.0 million ($1.0 million) and no additional payments were received since. Accordingly, the Company initiated another enforcement proceeding to collect the balance of the arbitration awards. In connection with the enforcement actions, the court has frozen certain bank accounts and real estate assets of the related SPIC subsidiaries and has issued enforcement notices requiring a power supply bureau that owned money to SPIC to withhold electricity sales proceeds generated by the photovoltaic power plants. As of December 31, 2025, no cash recoveries had been received. Based on discussions with legal counsel and the enforcement court, management expects that collections will occur through the withholding of electricity revenues generated by the projects. While management believes recovery is probable, the timing and amount of collections remain subject to enforcement procedures and operating performance of the power plants. The Company continues to monitor the status of the enforcement proceedings and will update its assessment of collectability as additional information becomes available.

8. Large-scale EPC Contracts

On July 31, 2025, SREP, entered into an EPC agreement (the “Longfellow Contract”) with Longfellow, for an industrial project to develop a BESS facility. Based on the terms of the contract, the contract is expected to generate revenues of approximately $120.1 million and financing income of $7.2 million related to milestone payments that extend beyond the project completion date. Longfellow will own and operate the facility, which will be located in Pecos County, Texas and is expected to have a storage capacity of 430 megawatt-hours. The BESS facility is expected to be completed during 2026. One of Longfellow's members is a stockholder of the Company with 2.3% interest at December 31, 2025.

The Company has committed to make a $5.0 million contribution to capital in Longfellow for an 8% equity interest. This capital contribution was due by December 31, 2025. At December 31, 2025, and on the date of these financial statements, the Company has not made such contribution and has not recorded the investment at December 31, 2025. The Company’s chief executive officer, who is representing the Company, is one of the five members of Longfellow’s board of managers, which has collectively managed the affairs of Longfellow since June 2025.

The EPC contract with Longfellow is a fixed-price contract consisting of batteries of $75.3 million and services of $52.0 million, of which $7.2 million is financing income. As of December 31, 2025, batteries of $58.8 million were procured and delivered to the customer’s premise but have not yet been installed, resulting in revenues related to batteries being reported atthe Company’s cost. Additionally, the Company completed engineering and pre-construction services under the contract totaling $1.0 million, representing 2.9% progress of completion, which is included in cost of revenue for the year ended December 31, 2025. Accordingly, the Company recorded revenues of $60.2 million and cost of revenues of $59.8 million at December 31, 2025. As of December 31, 2025, accounts receivable from Longfellow were $9.4 million, and the contract asset, representing unbilled revenue was $45.8 million.

On December 31, 2025, the Company entered into three EPC agreements for large scale BESS systems, two in Puerto Rico and one in Corpus Christi, Texas. Pursuant to an EPC agreement with Naguabo BESS, LLC, a Texas limited liability company (“Naguabo”), the Company will develop a BESS facility in Ceiba Municipality, Puerto Rico. The contract is expected to generate revenues of approximately $122.3 million. Naguabo will own and operate the facility, which is expected to have a storage capacity of 320 megawatt-hours. The Company will have a 9% membership interest in Naguabo. Pursuant to an EPC agreement with Yabucoa BESS, LLC, a Texas limited liability company (“Yabucoa”), the Company will develop a BESS facility in Humacao Municipality, Puerto Rico. The contract is expected to generate revenues of approximately $35.9 million. Yabucoa will own and operate the facility, which is expected to have a storage capacity of 80 megawatt-hours. The Company will have a 9% membership interest in Yabucoa. Pursuant to an EPC agreement with Navboot Holdco, LLC, a Delaware limited liability company (“Navboot”), the Company will develop a BESS facility in Corpus Christi, Texas. The contract is expected to generate revenues of approximately $258.1 million. Navboot will own and operate the facility, which is expected to have a storage capacity of 600 megawatt-hours. As of December 31, 2025, work had not commenced on these three projects.

9. Customer Loans Receivable

Prior to 2023, the Company provided financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offered in the U.S. Depending on the credit rating of customers, the interest rate generally ranges from 0.00% to 10.99% per annum with financing terms ranging from one to fifteen years. At December 31, 2025 and 2024, the percentage of the Company’s loan portfolio with a 0% interest rate is 0.4% and 2.7%, respectively.

The customer gave the Company a security interest in the photovoltaic systems and other products financed.

The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2025:

The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2024:

Customer loans receivable consist of the following as of December 31, 2025 and 2024:

Principal maturities of the customer loans receivable at December 31, 2025 are summarized as follows:

The Company is exposed to credit risk on the customer loans receivable. Credit risk is the risk of loss arising from the failure of customers to meet the terms of their contracts with the Company or otherwise fail to perform as agreed.

The activity in the allowance for loan losses for customer loans receivable for the years ended December 31, 2025 and 2024 is as follows:

Total interest income on the customer loans receivable included in revenues was approximately $274,000 and $332,000 for the years ended December 31, 2025 and 2024, respectively.

10. Inventories, net

The activity in the reserve for excess and obsolete inventories for the years ended December 31, 2025 and 2024 is as follows:

Inventories consisted of the following as of December 31, 2025 and 2024:

11. Other Receivables and Current Assets, Net

Other receivables and current assets, net consisted of the following at December 31, 2025 and 2024:

On June 12, 2024, the Company entered into an offset agreement with Sunspark Technology, Inc. ("Sunspark") whereby Sunspark's unpaid rents, utilities and security allocations through June 30, 2024 of $638,000 was offset against the Company's accrued payables for the panels and other expenses of $601,000. Following the offset agreement, the remaining balance owed by Sunspark is approximately $197,000 and is included in prepaid expenses and other current assets at December 31, 2024. Sunspark is a subtenant of the Company and is one of the Company's panel suppliers.

In July 2025, the Company entered into an asset transfer and debt assignment with Sunspark and Sun Pioneer USA Inc. ("Sun Pioneer") to resolve certain outstanding rents and other amounts due from Sunspark under the sublease agreement with Sunspark dated October 11, 2022. Pursuant to the July 2025 agreement, Sun Pioneer agreed to assume the debt balance owed by Sunspark. In connection therewith, Sun Pioneer issued its short-term $460,000 promissory note to repay the debt to the Company that it assumed from Sunspark, at 0% interest rate, with payments of $150,000 due upon signing of the agreement, $100,000 payable on July 15, 2025, $42,000 per month from August 1, 2025 to December 1, 2025. At December 31, 2025, Sun Pioneer had not paid the amounts owed for September through December 2025 totaling $168,000 and is included in prepaid expenses and other current assets. The $168,000 balance was paid in January 2026.

12. Property and Equipment

Components of property and equipment, net are as follows:

For the years ended December 31, 2025 and 2024, depreciation expenses were approximately $62,000 and $82,000, respectively.

13. Goodwill

The activity of goodwill is as follows:

During the year ended December 31, 2024, as a result of the continued headwinds facing China's economy after the pandemic and the economic indicators seem to indicate further future contraction, all of which have a direct impact on the Company's ability to generate new businesses in its China operations in the foreseeable future, accordingly the Company recognized a $7.5 million goodwill impairment.

14. Investments in Unconsolidated Companies

At December 31, 2025 and 2024, the Company has a 30% non-controlling interest in three PRC companies. These PRC companies were project subsidiaries previously owned by the Company that previously performed EPC services for three projects pursuant to agreement with SPIC. The project subsidiaries are the entities that hold the ownership and operate the solar farms. When the projects were completed in 2020, the customer, SPIC, purchased a 70% equity interest in these project subsidiaries. Since 2020, the Company has been accounting for its 30% equity interest using the equity method. Activity in the Company’s 30% non-controlling investments in these entities for the years ended December 31, 2025 and 2024 is reflected in the following tables:

1 The investee is the name of the project.

The following tables present the summary of the unaudited combined financial statements of the three solar project companies in which the Company has a 30% equity interest as of December 31, 2025 and 2024, and for the years ended December 31, 2025 and 2024:

Revenue of these project companies is generated from the power purchase agreements with the PRC utility companies as well as government subsidies.

On April 29, 2025, Longfellow was formed as a Texas limited liability company and commenced its business on the same date. Longfellow is a special purpose company created to own and operate a new battery storage system located in Pecos County, Texas. Pursuant to the LLC agreement, the Company owns an 8% interest percentage and shall make a Phase 2 contribution of $5.0 million the earlier of December 31, 2025 or when the board of managers determines such contributions are necessary to meet Longfellow's obligations under the EPC agreement dated July 2025 for which the Company is the EPC contractor (see Note 8). Longfellow's business is managed by the board of managers comprising of five managers, one of whom is David Hsu who is representing SolarMax. David Hsu is the CEO of SolarMax. SolarMax' interest in Longfellow is effective in June 2025, even though its capital contribution was not due until December 31, 2025 per the LLC agreement. At December 31, 2025, SolarMax has not yet paid its $5.0 million contribution and accordingly, has not recorded its $5.0 million investment. The Company's management has obtained a waiver from Longfellow waiving the due date of the Company's capital commitment to a later date, such date has not yet been determined.

15. Financing Arrangements

As of December 31, 2025 and 2024, the Company had the following borrowings:

Unsecured Loans

On April 16, 2025, the $900,000 unsecured promissory note was assigned by the original creditor to two unrelated individuals, who then exchanged the promissory note for a total of 1,046,512 shares of the Company’s common stock at a purchase price of $0.86 per share, representing a discount of 25% of the market price of the common stock. In connection with the exchange, the Company recognized a loss from debt extinguishment of $313,953 based on the market price of the common stock.

On April 3, 2025, the $2,000,000 unsecured promissory note was transferred to another unrelated PRC individual, who subsequently cancelled the promissory note on July 31, 2025 by exchanging the promissory note for 2,702,703 shares of the Company’s common stock at a purchase price of $0.74 per share, representing a discount of 25% of the market price of the common stock. In connection with this transaction, the Company recognized a loss from debt extinguishment of $675,676 in July 2025 based on the market price of the shares.

Related party EB-5 financings

The Company’s borrowings under the EB-5 program from related parties consisted of the following as of December 31, 2025 and 2024:

On January 3, 2012, CEF entered into a secured loan agreement with SREP, a wholly owned subsidiary of the Company. Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $45.0 million, to be used to finance the installment purchases for customers of the solar energy systems. A total of $45.0 million was lent. The loan accrues interest at 3% per annum, payable quarterly in arrears. Each advanced principal amount is due and payable 48 months from the advance date or the U.S. Immigration Form I-829 approval date if later. The I-829 petition includes evidence that the immigrant investors successfully met all U.S. Citizenship and Immigration Services requirements of the EB‑5 program. As of both December 31, 2025 and 2024, the principal loan balance was $3.5 million.

On August 26, 2014, CEF II entered into a secured loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $13.0 million. A total of $10.5 million was lent. The proceeds of the loan were used by LED for its operations. The loan accrues interest at fixed interest rate of 3.0% per annum, payable quarterly in arrears. Each advance of principal is due and payable in 48 months or the U.S. Immigration Form I-829 approval date if longer. As of December 31, 2025 and 2024, the principal loan balance was $7.0 million and $7.5 million, respectively.

The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”). The principal members and managers of IERE consist of the Company’s chief executive officer and its former executive vice president and director, who was a 5% stockholder. A current director resigned from IERE in January 2024 and, prior to his resignation from IERE, he had not been involved in its management.

Convertible Notes

The Company has issued 4% secured subordinated convertible notes to former limited partners of CEF and CEF II, pursuant to exchange agreements with the limited partners. The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s and LED's notes to CEF and CEF II, respectively, in the same amount, reducing the outstanding EB-5 loan balance. Payment of the notes is secured by a security interest in SREP’s and LED's accounts and inventory, which are the same assets as secure the note to CEF and CEF II. The convertible notes are payable in equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance. The convertible notes made prior to, or on or about the date of, the Company’s initial public offering are convertible into common stock at a conversion price of $3.20 which was 80% of the initial public offering price of $4.00 per share. The convertible notes made after the Company’s initial public offering are convertible into common stock at a conversion price equal to 80% of the average closing price of the Company’s common stock for the ten trading days preceding the date of the exchange agreement with the limited partner which range from $0.65 to $9.07. The convertible notes may be converted into common stock at the first, second, third, fourth and fifth anniversaries of the date of issuance, but not earlier than six months from the date of the Company’s initial public offering or for convertible notes issued after the initial public offering, six months after the issuance of the notes.

All convertible notes issued contained redemption put features that allow the holders of the convertible notes the right to receive, for each conversion share that would have been issuable upon conversion immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which these convertible notes are convertible immediately prior to such fundamental transaction. The Company evaluated the redemption put feature contained in the convertible notes under the guidance of ASC 815 and concluded that the requirements for contingent exercise provisions as well as the settlement provision for scope exception in ASC 815-10-15-74 has been meet. Accordingly, the redemption put features contained in the convertible notes were not bifurcated and accounted for as freestanding derivative instruments.

During the year ended December 31, 2025, the Company issued convertible notes in the aggregate principal amount of $500,000 pursuant to exchange agreements which resulted in a reduction of EB-5 notes in the principal amount of $500,000 and recognized a gain on debt extinguishment of $13,000. During the year ended December 31, 2024, the Company issued convertible notes in the aggregate principal amount of $6.0 million pursuant to exchange agreements which resulted in a reduction of EB-5 note in the principal amount of $6.0 million and recognized a gain on debt extinguishment of $303,000.

Event of Default on Convertible Notes

From April 2023 through December 31, 2025, the Company did not pay annual principal installment payments and related quarterly interest payments which is an event of default on convertible notes. As of December 31, 2025, the aggregate principal amount of the notes in default was $14.3 million. The default provisions of the notes provide that if an event of default occurs the outstanding principal amount of this note, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the noteholder’s election, immediately due and payable in cash, and commencing five days after occurrence of any event of default that results in the eventual acceleration of the note, the interest rate on the note shall accrue at an interest rate of 12% per annum. Further, if an event of default occurs, the noteholders, together have rights to foreclose on the collateral securing the notes.

The Company accrued interest at the rate of 4% per annum since no noteholder has taken action to accelerate payment of principal and interest. Since the Company has accrued interest at 4% per annum on the outstanding notes, in the aggregate principal amount of $14.3 million, with respect to which there is an event of default but with respect to which the noteholders did not demand acceleration. Such accrued interest was approximately $297,000 at December 31, 2025. In the event that the holders of all of these note demand acceleration, the amount of interest on those at 12% would be approximately $1.7 million. The difference between the interest at 12% and the accrued interest at 4% as of December 31, 2025, together with any additional interest due subsequent to December 31, 2025 is a contingent liability of the Company. If any noteholders exercise their right to accelerate, the accrued interest at the default rate of 12% will be reflected as an interest expense in the period the note is accelerated.

Notes Payable to SMX Property, LLC, a related party

On October 10, 2022, SMXP made unsecured loans to the Company of $944,077 and $414,581, for which the Company issued its 8% promissory notes due October 10, 2025, with interest payable quarterly.

The $944,077 loan was used to pay the security deposit and lease obligations for one month owed to the new owner of the Company’s headquarters building under the new lease agreement. On September 2, 2025, this loan obligation was repaid.

The $414,581 loan was used to pay lease obligations owing to SMXP by the Company for rent on the Company’s headquarters from June 1, 2022 to October 12, 2022. On July 22, 2025, this loan obligation was repaid.

The Company’s chief executive officer and its former executive vice president who was a director and a 5% stockholder are the principal management of SMXP. One other director has a non-controlling interest in SMXP and is not part of its management.

Interest Expense

For the years ended December 31, 2025 and 2024, interest expense incurred on the above long-term EB‑5 related party loans was approximately $325,000 and $400,000, respectively.

Total interest expense incurred (including interest on long-term related party loans) was approximately $1.4 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively. The weighted average interest rate on loans outstanding was 4.0% and 3.7% as of December 31, 2025 and 2024.

Principal maturities for the financing arrangements as of December 31, 2025 are as follows:

16. Accrued Expenses and Other Payables

Accrued expenses and other payables consisted of the following as of December 31, 2025 and 2024:

Accrued Compensation

At December 31, 2025, accrued compensation includes $675,000 of compensation to the Company’s chief executive officer in connection with the cancellation in March 2019 of restricted stock grants and $1.8 million of accrued but unpaid compensation to the chief executive officer pursuant to his employment agreement. At December 31, 2024, accrued compensation includes $675,000 of compensation to the Company’s chief executive officer in connection with the cancellation in March 2019 of restricted stock grants, $1.7 million of accrued but unpaid compensation to the chief executive officer pursuant to his employment agreement, $600,000 due to the former executive vice president, who was also a 5% stockholder, and one other employee in connection with the cancellation in March 2019 of restricted stock grants and $338,095 of deferred compensation to its former executive vice president, all of which was paid in March 2024. The remaining balance relates to accrued unpaid commissions and accrued paid time off.

Customer Deposits

Customer deposits represent customer down payments and progress payments received prior to the completion of the Company’s earnings process. The amounts paid by customers are refundable during the period which, under applicable state and federal law, the customer’s order may be cancelled and the deposit refunded. Once the cancellation period has expired, the customer still may cancel the project but the Company is entitled to retain the deposit payments for work that was completed and materials that were delivered.

Accrued Settlement

In November 2022, the Company entered into a settlement agreement with two former limited partners of Clean Energy Funding L.P., pursuant to whichthe Company agreed to pay each of the limited partners a sum of $533,749.98, payable $50,000 at the time of the agreement execution and the remainder in 14 quarterly installments of $34,533.57. At December 31, 2025 and 2024, the balance of the accrued settlement is $69,627 and $414,963, respectively. The $69,627 is included in accounts payable at December 31, 2025.

Accrued Warranty

The activity of the warranty liability (included in other liabilities) for the years ended December 31, 2025 and 2024 is as follows:

17. Concentrations

Major Customers

For the years ended December 31, 2025, one customer, Longfellow, accounted for $60.2 million, or 66.1%, of revenues, $9.4 million, or 72.4%,of accounts receivable, and $45.8 million, or 99.0% of contract assets (see Note 8). There were no customers that accounted for 10% or more of the Company’s revenues, accounts receivable, and contract assets for the year ended December 31, 2024.

Major Suppliers

During the year ended December 31, 2025, one supplier, Renewable Energy Resolution, Inc. ("RER") accounted for purchases of $58.8 million, or 76.4% of total purchases, and accounted for $56.4 million, or 94.6%, of accounts payable at December 31, 2025. In September 2025, the Company entered into a supply agreement valued at approximately $71.2 million with RER to supply certain specialized batteries that are specifically required for the Longfellow Contract. During the year ended December 31, 2025, another supplier accounted for purchases of $8.6 million, or 11.1% of total purchases, and accounted for $1.5 million, or 2.5%, of accounts payable at December 31, 2025.

During the year ended December 31, 2024, one supplier accounted for purchases of approximately $4.0 million, or 11.9%, and accounted for $1.2 million, or 36.7%, of accounts payable at December 31, 2024. Another supplier accounted for purchases of approximately $4.0, or 11.9%, and accounted for $15,000, or 0.05%, of accounts payable at December 31, 2024.

18. Acquisition Contingencies and Other Payable to Uonone Group

Effective on May 12, 2016, one of the Company’s PRC subsidiaries entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of the subsidiary, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which the subsidiary and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015, pursuant to which Uonone Group agreed and had paid the subsidiary a total amount of RMB 8,009,716. An additional contingent liability related to estimated costs of a project known as Ningxia project completed by the subsidiary prior to the Company’s acquisition of the subsidiary of approximately RMB 3.0 million (or approximately $429,000) was also included as a receivable from Uonone Group (see Note 11 – Other Receivables and Current Assets, Net) with the corresponding liability recognized by the Company on the date of acquisition.

As of December 31, 2021, Uonone Group had repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above. Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated to pay the contingent liability. At December 31, 2025 and 2024, the Company had no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to the Company with respect to the contingent receivable.

Under the debt settlement agreement, any legal settlement proceeds, less fees and expenses, received by the subsidiary related to the projects completed prior to the April 2015 acquisition of the subsidiary would be repaid to the Uonone Group. During the year ended December 31, 2025 the Company did not receive any additional legal settlement proceeds, nor did the Company make any payments to Uonone.

At both December 31, 2025 and 2024, the amount payable to Uonone, was approximately RMB 18.0 million ($2.6 million) (see Note 16).

19. Related Party Transactions

See Note 15 for related party lease and loan transactions and Note 20 for the termination of related party lease.

20. Commitments and Contingencies

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for certain of its offices, warehouse facilities and office equipment, vehicles, and solar energy systems, both in the U.S. and in the PRC. The Company determines if an arrangement is a lease, or contains a lease, at inception and records the leases in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

Effective March 31, 2024, the Company terminated its lease with Fallow Field, LLC, a related party, for its office space in Diamond Bar, California. In connection with the early lease termination, the Company recognized a gain on the lease termination of approximately $77,000 during the year ended December 31, 2024. Related party rent expense related to Fallow Field, a related party, was $36,436 for the year ended December 31, 2024. The Company had no related party lease arrangements in the year ended December 31, 2025.

For the years ended December 31, 2025 and 2024, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases in 2024, was approximately $1.7 million and $1.8 million, respectively. These amounts include short-term leases and variable lease costs, which are immaterial. The Company did not incur any rental expense for related party leases in 2025 since all related party leases were terminated in 2024.

Future minimum lease commitments as of December 31, 2025, consisting primarily of the lease on the Company's Riverside headquarters, are as follows:

As of December 31, 2025, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

Other information related to leases is as follows:

The Company entered into subleases for portions of its office space, generally on a month-to-month basis. For the years ended December 31, 2025 and 2024, the total sublease income recognized totaled approximately $1.1 million and $1.0 million, respectively. The sublease income is recognized as an offset to operating lease costs reported in general and administrative expenses. At December 31, 2025, the Company has two tenants and both are on a month-to-month lease. At December 31, 2025, the Company has security deposits payable of approximately $102,000.

The following table summarizes the Company’s operating lease cost for the years ended December 31, 2025 and 2024:

Employment Agreements

On October 7, 2016, the Company entered into an employment agreement with its chief executive officerfor a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreement provides for an initial annual salary of $600,000, with an increase of not less than 3% on January 1st of each year, commencing January 1, 2018, andan annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year. The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million. In connection with the suspension of the Company’s incentive bonuses to key employees that started in 2019, the Company’s chief executive officer has agreed to waive his bonuses since 2019. The agreement also provides for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the executive has been employed by the Company, which commenced in February 2008. The annual salary for the chief executive officer was $760,065 for 2025 and $737,924 in 2024.

Legal Matters

In the ordinary course of the Company’s business, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.

During 2024, the Company commenced arbitration procedures in Shanghai with SPIC to collect on the receivables owed by SPIC related to three completed EPC projects as well as other advances and reimbursements totaling approximately RMB 49.5 million ($6.8 million) at December 31, 2024. On April 16, 2025, the Company received the written arbitration award results and subsequently, SPIC entered into a payment agreement with the Company. As of December 31, 2025, the receivable balance has been reduced to RMB 7.0 million ($1.0 million). As of December 31, 2025, the Company is planning to file a lawsuit against SPIC to recover the remaining receivable balance, as well as other related performance matters on the projects.

Default on Convertible Notes

See Note 15 in connection with contingent liabilities resulting from the Company’s default on outstanding convertible notes.

21. Stockholders’ Equity (Deficit)

Issuance of Common Stock under Private Placement

During the year ended December 31, 2025, the Company issued a total of 9,635,712 shares for a total consideration of $7,652,535, at prices ranging from $0.70 to $0.90, with an average purchase price of $0.79. The purchase price was 75% of the market price on the date of the respective agreements. Under the Nasdaq regulations, the Company may not be able to raise any significant funding from the sale of common stock at a discount from market in the near future without stockholder approval. The consideration for the shares includes cash payments and cancellation of indebtedness of the Company.

2016 Long-Term Incentive Plan

During the years 2015 to 2019, the Company granted shares of restricted stock and incentive stock options to employees and consultants, of which 264,650 shares of restricted stock and incentive stock options to purchase 5,898,137 shares were outstanding at the date of the Company’s initial public offering. Under the terms of the restricted stock and incentive stock options, the restricted stock and options became vested and non-forfeitable upon the completion of the Company’s initial public offering, which occurred on February 12, 2024, the effective date of the registration statement relating to the Company’s initial public offering. Under GAAP, upon the completion of the initial public offering, the value of the restricted stock as well as the incentive stock options is treated as compensation expense in the period in which the restricted stock and incentive stock options become non-forfeitable and are deemed to have met the performance-based indicator (i.e., the completion of the initial public offering). Using the Black Scholes valuation method, the fair value of the incentive stock options at the time of the Company’s initial public offering was approximately $18.5 million, which is stock-based compensation that does not reflect a cash expense, of which approximately $1.3 million is included in cost of revenues and $15.9 million is included in general and administrative expense in the year ended December 31, 2024.

Restricted Stock

In the year ended December 31, 2024, upon completion of the Company’s initial public offering, which triggered realization of all unrealized compensation expense and stock options, which became vested upon completion of the Company’s initial public offering, based on the estimate of the then most recent price at which shares were sold of $5.01 per share.

The following table below summarizes the activity of the restricted shares:

Stock Options

From time to time, the Company granted non-qualified stock options to its employees and consultants for their services. Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant; those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven to ten years. The vested options are exercisable for six months after the termination date unless (i) termination is due to optionee’s death or disability, in which case the option shall be exercisable for 12 months after the termination date, or (ii) the optionee is terminated for cause, in which case the option will immediately terminate. All outstanding options are vested at December 31, 2025 and 2024.

A summary of option activity is as follows:

Forfeitures are accounted for as actual forfeitures occur.

The aggregate intrinsic value represents the total pretax intrinsic value. The aggregate intrinsic values as of December 31, 2024 are based upon the value per share of $5.01, which was the latest sale price of the Company’s common stock in May 2018.

As a result of the Company’s completion of its initial public offering in February 2024, all the stock options which are performance-based awards became vested and compensation cost of $17.2 million related to such stock options was recognized in the year ended December 31, 2024 as the performance condition of such awards were met on the public offering date of February 12, 2024. The compensation cost of $17.2 million is determined using the Black Scholes model that includes key assumptions for each grant of options as follows: volatility ranging from 54.34% to 67.75%, the risk-free rate ranging from 1.55% to 2.34%, and an expected term ranging from 5 to 6.5 years. For the year ended December 31, 2024, approximately $1.3 million and $15.9 million of compensation cost was charged to cost of revenue and general and administrative expenses, respectively, related to stock options.

On August 29, 2025, the Company’s board of directors approved a 3-year extension for all previously granted options that will be expiring over the next three years from August 31, 2025. These options had an exercise price ranging from $3.50 to $5.01. As a result of this modification, the Company recognized a stock-based compensation expense of $520,721 for year ended December 31, 2025, representing the difference between the fair value of the options before and after the modification using the Black Scholes model that includes key assumptions as follows: volatility of 107.46%, the risk-free rate of 3.58%, and an expected term of 2.25 years. For the year ended December 31, 2025, approximately $78,411 and $442,310 of compensation cost was charged to cost of revenue and general and administrative expenses, respectively, related to stock option modifications.

22. Income Taxes

The components of the pretax income (loss) from operations for the years ended December 31, 2025 and 2024 are as follows:

The income tax provisions (benefits) for the years ended December 31, 2025 and 2024 are as follows:

Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 2, Summary of Significant Accounting Policies, the reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2025 was as follows:

The reconciliation of taxes at the federal statutory rate to our provision for (benefit from) income taxes for the year ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 was as follows:

The amount of cash income taxes paid (refunded) by the Company for the year ended December 31, 2025 are as follows:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024 are as follows:

The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $23.8 million as of December 31, 2025 as it does not believe it is more likely than not that certain deferred tax assets will be realized primarily due to the generation of pre-tax book losses in the current year, the lack of feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future. The Company decreased its valuation allowance by approximately $1.4 million during the year ended December 31, 2025.

As of December 31, 2025, the Company had federal and state tax net operating loss ("NOL”) carryforwards of $62.2 million, and $65.6 million, respectively. The federal NOL generated in 2018 and after for the amount of $39.8 million will carry forward indefinitely and be available to offset up to 80% of future taxable income each year. The remaining federal and state NOL carryforwards will begin to expire in 2031, and the state NOL carryforwards will begin to expire in 2032 unless previously utilized. The Company also had China NOL carryforwards of approximately $400,000 as of December 31, 2025. The China NOL will begin to expire in 2027, unless previously utilized. In addition, as of December 31, 2025 the Company had investment tax credits of $1.0 million, for building qualifying energy properties and projects under IRC section 48, which will expire in 2034.

The above NOL carryforwards and the investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions which limit the amount NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has performed an IRC Section 382 as of December 31, 2020, in which it was determined that no significant change in ownership had occurred. In addition, the Company has not experienced the ownership change greater than 50% subsequent to December 31, 2020 and up to 2025.

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2025 and 2024:

Included in the balance of unrecognized tax benefits as of December 31, 2025, is $1.9 million that, if recognized, would not impact the Company's income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company's balance sheets as of December 31, 2025 and has not recognized interest and/or penalties in the Statement of Operations for the year ended December 31, 2025.

The Company is subject to taxation in the United States, various state jurisdictions and China. Due to the existence of federal, state, and foreign net operating loss and credit carryovers, the Company's tax years that remain open and subject to examination by tax jurisdiction are years 2011 forward for federal and years 2012 and forward for the state.

The Company’s PRC subsidiaries are subject to a 25% statutory income tax rate according to the PRC's income tax laws. Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. The Company's PRC subsidiaries' tax filings are subject to the PRC tax bureau’s examination for a period up to five years. These subsidiaries are not currently under examination by the PRC tax bureau.

As of December 31, 2025, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. In the event the Company is required to repatriate funds from outside of the U.S., such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this standard prospectively for the period ending December 31, 2025. The adoption impacted the Company's income tax disclosures only and did not otherwise impact the Company's financial statements.

On July 4, 2025, the reconciliation bill commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The OBBBA includes a broad range of tax reform provisions affecting U.S. corporate income taxation. Certain provisions became effective beginning in 2025, including an elective deduction for domestic research and development expenditures, reinstatement of 100% first-year bonus depreciation, and repeal of the fiscal year-end requirement for certain non-U.S. corporations. Other provisions of the OBBBA will become effective in 2026 and subsequent years, including a more favorable tax rate applicable to Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income). Due to the Company’s full valuation allowance on deferred tax assets, the enactment of the OBBBA did not have a material impact on the Company’s financial statements for the year ended December 31, 2025.

23. Net Income (Loss) Per Share

The following table presents the calculation of the Company's basic and diluted net income (loss) per share for the years ended December 31, 2025 and 2024:

For the year ended December 31, 2025, outstanding options to purchase 6,189,749 shares of common stock and 5,984,893 shares issuable upon conversion of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those shares would be anti-dilutive.

For the year ended December 31, 2024, outstanding options to purchase 6,189,749 shares of common stock and 5,950,381 shares issuable upon conversion of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those shares would be anti-dilutive.

24. Segment Reporting

The chief operating decision maker ("CODM") is the Chief Executive Officer. As of January 1, 2024, the Company has determined that it has one reporting segment which is solar energy systems in the United States. The Company has not generated any revenue from its China operations since 2021, it does not have any contracts for services in China, it does not have any marketing activities in China and its China operations is no longer considered a reporting segment. The CODM regularly reviews operations and financial performance at the consolidated level and uses net income (loss) to allocate resources (including labor, technology and capital resources) for the single reporting segment to make decisions regarding annual budget, entering new markets, marketing decisions, pursuing new business, and driving the Company's mission.

The following table shows the operations of the Company’s reporting segment for the years ended December 31, 2025 and 2024:

25. Subsequent Events

Convertible Notes Issued

In January and February 2026, the Company issued two convertible notes in the principal amount of $1.0 million to limited partners of CEF I, which resulted in a reduction of $1.0 million in the principal amount of the related party notes to CEF I.

In January 2026, the Company issued a convertible note in the principal amount of $500,000 to a limited partner of CEF II, which resulted in a reduction of $500,000 in the principal amount of the related party notes to CEF II.

Recent Sales of Common Stock

In January 2026, the Company issued a total of 2,000,000 shares of common stock to two accredited investors for a total of $1,096,000. The shares were issued at a price per share of $0.548 which represented a 25% discount from the market price of the common stock. No brokers were involved in the sales. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering. The proceeds from the sale are being used for working capital.

Lease Amendment

On January 28, 2026, the Company entered into an amendment to the lease for its facilities at 3080 12th Street, Riverside, California. The amendment extends the expiration date of the lease from December 31, 2026 to December 31, 2033. The annual base rent during the term, as extended is $1,855,566 for 2026 and it increases annually until $2,282,112 for 2033. The Company also pays certain operating expenses in the same manner as with the prior lease. The amendment provides for certain construction expenses, a portion of which are payable by the landlord and a portion of which are payable by the Company. The extension also provides for mutual releases.