SMXT 10-K & 10-Q changes, risk factors and insider trading

We sustained a net loss of approximately $35.0$6.3 million for the year ended December 31, 2024,2025, and our financial statements for the year ended December 31, 20242025 have a going concern footnote. The loss in the year ended December 31, 2024 of approximately $35.0 million reflects a (i) a one-time non-cash stock compensation expense of $18.5 million (ii) a non-cash $7.5 million goodwill impairment representing an impairment charge of the entire balance of our goodwill associated with our China segment,operations, and (iii) a $1.7 million non-cash income tax expense arising from an increase in the valuation allowance against deferred tax assets, and (iv) an operating loss in the United States segment of $24.3 million which includes the $18.5 million stock compensation expense.assets. The stock-compensation expense resulted from the treatment of compensation of equity-based incentives which became non-forfeitable upon the completion of our public offering. See Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Elimination of Forfeiture Provisions of Options upon Initial Public Offering. We also incurred losses in prior years, and we cannot assure you that our net income of $435,000 for 2023 is not an aberration, resulting from increased revenue in anticipation of the effectiveness of NEM 3.0, and that we will not incur future losses. We cannot assure you that we can or will operate profitably. We did not generate any revenue from our China segmentoperations forsubsequent 2024,to 2023 and 2022, and we have not generated any revenue from our China segment during 20252021 through the date of this annual report, and we cannot assure you that we will conduct operations in China or generate any revenue from our China segmentoperations in the future or that we will not discontinue our China operations. Our failure to generate positive cash flows from operations and operate profitably may impair our ability to continue in business.

We have a working capital deficit of $13.7$20.4 million at December 31, 20242025 and require substantial funding for our operations.

At December 31, 2024,2025, we had a working capital deficiency of $13.7$20.4 million, cash and cash equivalents of $0.8$8.0 million (down from $2.5 million at December 31, 2023),and accounts receivable of $4.2 million and short-term investments of $6.3$12.9 million. We used $9.4 million in operations during 2024. Although we raised net proceeds of $18.6 million in our initial public offering in March 2024, most of the proceeds (other than short-term investments of $6.3 million) were used to pay debt obligations and for our operations. We will require additional funds for our operations. During the year ended December 31, 2025, we commenced our BESS operations, and we generated revenues of $60.2 million, or 66.1% of our revenue for the year from our first contract. At December 31, 2025, approximately $56.6 million of our accounts payable related to this contract. In addition, at December 31, 2025, we had current obligations of $14.3 million with respect to our convertible notes that are in default and are described in the following risk factors as well as secured obligations of $5.5 million to a related party and $2.5 million due to our chief executive officer. Because of our losses and the price of our common stock, which is below $1.00 per share as a result of which we received a notice from Nasdaq that we are in violation of the continued listing requirement that our closing bid price be at least $1.00, we may have difficulty raising funds for our operations on acceptable terms, if at all. Further, our financial conditioncondition, particularly our current debt obligation and our defaults, may affect our ability to market our solarBESS systems to commercial enterprises and we anticipate that we may require additional funds to financing these operations if we generate the business. The terms of any financing may result in significant dilution to our stockholders. Further, at December 31, 2025, we had an outstanding receivable from SPIC of approximately $1.0 million which relates to projects completed prior to 2022. Although we believe the receivable will be collected, and we anticipated collection during 2025, we can give no assurance as to when or whether we will collect the full amount in 2026. We cannot assure you that we will be able to raise the necessary funds and any such failure may affect our ability to continue in business. At December 31, 2024, we had an outstanding receivable from SPIC of approximately $6.8 million which relates to projects completed prior to 2022. Although we believe the receivable will be collected, and we anticipated collection during 2024, we can give no assurance as to when or whether we will collect the full amount. We invested $7.7 million from the proceeds of our initial public offering in promissory notes issued by private companies in Hong Kong and China, and such notes were extended at the request of the maker and are outstanding on the date of this annual report.

We have relied on loans through the United States government’s EB-5 program, which loans need to be refinanced when they become due, either at maturity or upon accelerate of defaulted notes, and we cannot assure you that the limited partners will accept our proposed terms of the refinancing or, if we cannot refinance these loans that we will have the funds to pay the loans or be able to raise such funds on reasonable, if any, terms.

Two of our subsidiariessubsidiaries, SREP and LED, borrowed a total of $55.5 million from Clean Energy Funding (“CEF”) and Clean Energy Funding II (“CEF II”), respectively, who are related parties. CEF and CEF II are limited partnerships of which the general partner is a limited liability company owned by two of our directors, one of whom is the chief executive officer, and the other is a former executive officer/director, and which is managed by our chief executive officer and athe former executive officer who iswas a major5% stockholder. The funding was made pursuant to the United States government’s EB-5 program, and the lenders made loans from the proceeds of capital contributions of the limited partners who made their investment as part of the EB-5 program. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve ten permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States. The loans are secured and are payable 48 months from the date of the advance and are extended by the lender as may be necessary to meet applicable USCIS immigrant investor visa requirements, which is the date when the final step of the EB-5 visa process is completed and the immigrant investors, who are the limited partners of the lender, can become lawful permanent residents of the United States. The initial four-year term of all of the loans has expired and the loans are on extension until the limited partners have met the USCIS requirements. As the loans matured, we offered the limited partners, in lieu of the payment by the limited partnership of their capital contributions, a convertible note in the principal amount equal to their capital contributions to the partnerships, with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to the lenders. As of December 31, 2025 and March 15, 2025,2026, notes to CEF and CEF II in the aggregate principal amount of $11.0$10.0 million and $9.0 million, respectively, were outstanding, and convertible notes in the principal amount of $41.5$43.5 million had been issued to former limited partners of CEF, of which principal payments of $22.0$23.9 million and $25.0 million, respectively, had been made on the anniversary of the respective dates of issuance, convertible notes in the principal amount of $3.0 million and $3.0 million, respectively, had been early redeemed for $2.1 million and $2.1 million, respectively, and the outstanding principal amount of $16.5$15.6 million was outstanding. During 2025, we paid the principal and interest on convertible notes in the principal of $200,000 following the exercise by the holder of her right to accelerate. The convertible notes that were issued prior to our initial public offering have a conversion price of $3.20, which is 80% of the public offering price. Convertible notes issued after our initial public offering are issued with a conversion price equal to 80% of the market price at the time the notes are issued. This conversion price ranges from $0.66$0.65 to $9.07, with an average conversion price of $2.06.$1.58. With respect to the outstanding notes to CEF and CEF II, limited partners who made investments of $2.0$1.0 million can currently demand repayment from the lender of their investment in the partnership which made the loans to us, which can trigger a payment obligation on our subsidiary’s part. Because the date on which the remaining limited partners can demand repayment of their capital account is dependent upon the approval of their petition for permanent residency, we cannot predict when or whether such petition will be approved. We cannot assure you that we will have or be able to obtain the funds to pay the EB-5 loans when they mature, and our inability to pay or refinance these loans or pay the principal and interest at the default rate of 12% per annum on the notes on which there is a default if the holders exercise their right to accelerate could have a material adverse effect upon our business. To the extent that we are unable to refinance these obligations,obligations or pay the principal and interest on the note in default, we will use our available funds for such purpose or it may be necessary to modify the terms of the convertible notes. If the limited partners who have the right to demand repayment of their capital accounts exercise their right, which can trigger the maturing of loans in the total principal amount of $2.0 million, theas fundsof availableDecember from31, our2025, initial public offeringwe may not behave sufficient to provide us with funds to paymake suchthese loans,payments, and we can give have no assurance that we will be able to obtain funding from other sources or reasonable terms, if at all. WeAs intendnoted to offer the limited partners who funded the loans from CEF and CEF II convertible notes similar to the convertible notesabove, we previously issued. We cannot assure you that the remaining limited partners or any significant number of the remaining limited partners will accept the noteare in lieu of cash repayment of their capital account or that we would not have to revise the terms of the notes in order to obtain the agreement of such limited partners to a refinancing. To the extent that we use the proceeds of our initial public offering to pay the loans, we will have less funds available for the development and expansion of our business. Because we cannot predict when additional loans will become due or whether the limited partners will accept our proposed refinancing, it is possible that we may have to raise additional funds to pay these loans. Further, to the extent that other limited partners perceive that the terms on which we settle litigation are more favorable than the terms of the convertible note we propose to offer, they may not be willing to accept the convertible notes. The loans that can become due baseddefault on the approvalspayment of petitions for permanent resident status which have been obtained, together with other loans which may become due may substantially exceed our available funds. As a result, if the limited partners do not accept a convertible note, we would need to obtain funding from other sources. We cannot assure you that other sources of financing will be available to us on reasonable, if any, terms. Further, to the extent that the limited partners accept our proposed refinancing, the subsequent sale of their common stock issued upon conversion of their convertible notes could have a material negative effect upon the market price of our common stock. Further, the market for and the market price of our common stock at the time we seek to obtain the agreement of the remaining limited partners to accept our convertible notes in lieuthe principal amount of cash$14.3 paymentsmillion ofat theirDecember capital31, accounts may affect the willingness of the limited partners to accept our convertible debt and the terms that they would accept. Further, if the limited partners accept convertible notes, the sale of the underlying shares or the market’s perception of the effect of the sale of such shares may have a material adverse effect upon the price of our common stock.2025.

We require significant funds to pay our other debt obligations, including obligations to management.

Our debt obligations at December 31, 2024 include $11.0 million2025, in loans from related party limited partnerships which were funded by EB-5 investments, and $16.55 million in 4% convertible notes issuedaddition to former limited partners of the limited partnerships, which areobligations described in the previous risk factor. In addition to our current debt, at December 31, 2024, we owedfactor, accrued compensation of $2.4 million to our chief executive officer for the cancellation of restricted stock issued to him ($675,000) and for his deferred salary from 2019 through 2013 and deferred bonus from 2017 and 2018 ($1.7 million). Payment of these amounts has been deferred and they are currently tobeing be madepaid in twelve monthly installments Junecommencing 30,December 31, 2025. Our inability to obtain any financing we require could materially impairaffect our ability to makecontinue thesein payments and to develop our business and to operate profitably.business.

Our cost of revenues and our operating expenses increasedmay increase significantly both in dollars and as a percentage of revenues. Unless we are able to reduce both our cost of revenues and our operating costs, we will not be able to operate profitably. There are many factors beyond our control that may affect our costs, such as the price of components, cost of labor and the availability of warehouse and office space at reasonable rents as well as the effect of competition, and recently, inflation. Further, as a public company we have additional expenses that we did not incur as a private company. Unless we are able to control our costs, we will not be able to operate profitably. We cannot assure you that we can or will ever operate profitably.

Our business may be affected by increases in the price of solar energy products, including price increases resulting from the United States’ trade and tariff policies.policies and the war against Iran.

The declining cost of solar panels has been a key factor in the pricing of our solar energy systems, which, in turn affects the potential customer’s decision to use solar energy. With any stabilization or increase of solar panel and other component prices, our ability to market our solar energy systems could be impaired, which would affect our revenues and gross profit. The cost of solar panels and raw materials could increase in the future due to tariff penalties or other factors. The U.S. government has imposed tariffs on solar cells, solar panels and aluminum used in solar panels manufactured overseas. These tariffs have increased the price of solar panels containing foreign manufactured solar cells. At present, we purchase solar panels containing solar cells and panels manufactured overseas for our United States installations. While solar panels containing solar cells manufactured inside the United States are not subject to these tariffs, the prices of these solar panels are, and may continue to be, more expensive than panels produced using overseas solar cells, before giving effect to the tariff penalties and the tariff policies may result in an increase in prices of domestic products and, to the extent that domestic products use foreign components or metal, the price of such products is likely to increase. If additional tariffs are imposed or other negotiated outcomes occur, as well as increased inflation resulting from the war against Iran and Iran’s response to attacks by the United States and Israel, our ability to purchase these products on competitive terms from those countries could be limited. Any of those events could impair our financial results if we incur the cost of trade penalties or purchase solar panels or other system components from alternative, higher-priced sourcessources.

Changes in net metering regulations in California is likely to result has resulted in a reduced level of benefits, which is impairing the market for residential solar products.

Net metering is a billing mechanism that credits solar energy system owners for the electricity that they add to the electricity grid. If the owner of a solar system generates more electricity than it consumes, the excess electricity is sold back to the grid. California’s first net metering policy set a "cap” for the three investor-owned utility companies in the state: Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE). All three have reached their cap where total solar installations in each utility’s territory were capped at five percent of total peak electricity demand. The California Public Utilities Commission (CPUC) created the current program known as "Net Metering 2.0” (NEM 2.0) that extends California net metering. NEM 2.0 is slightly different from the first net metering policy. Under NEM 2.0, customers will still receive the retail credit for electricity produced but will be required to pay more in Non-Bypassable Charges. NEM 2.0 also requires new solar customers to pay a one-time Interconnection Application Fee, the amount of which is dependent upon the utility company. For systems under 1MW this fee is $132 for San Diego Gas & Electric, $145 for Pacific Gas & Electric, and $75 for Southern California Edison. NEM 2.0 customers are also required to use Time of Use (ToU) rates. The California Public Utilities Commission (CPUC) has adopted NEM 3.0 which establishes the successor to NEM 2.0 in California. NEM 3.0 features a 75% reduction in export rates (the value of excess electricity pushed onto the grid by solar systems), thereby reducing the overall savings and increasing the payback period of home solar installations. The changes under NEM 3.0 are likely to result in reduced benefits for most residential solar users and could alter the return on investment for solar customers.

Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, avian flu and monkeypox, as well as hurricanes, earthquakes, tsunamis, or other natural disasters and political unrest and the relationship between the United States and China could disrupt our business operations, reduce or restrict our operations and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest, civil strife, including the war against Iran and the actions taken by Iran, and the conflicts between Israel and Lebanon and Hamas or any other hostilities in the Middle East and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations. Any one or more of these events may impede our operation and delivery efforts and adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.

Our business is subject to numerous federal and state laws and regulations. The installation of solar energy systems performed by us is subject to oversight and regulation under local ordinances, building, zoning and fire codes, environmental protection regulation, utility interconnection requirements, and other rules and regulations. If we engage in financing transactions through SolarMax Financial, we will be subject to numerous consumer credit and financing regulations. The consumer protection laws, among other things:

In our experience in the United States, consumers generally, and residential customers in particular, express interest in a solar energy system during March and April, when they are preparing their tax returns, and in July and August, when they experience high electricity charges from the local utility company. Since the selling cycle for residential systems is typically three to four months, we generally install systems two to three months after the contract date, and we recognize revenue using a cost-based input method that recognizes revenue as work is performed. If we cannot complete a sale to a customer when the customer expresses interest in a solar system, that potential customer may seek alternative sources. Factors which may cause our quarterly results to fluctuate include:

If we commence operations in China, the results of our China operations may also vary significantly from quarter to quarter since revenue from our China operations would be dependent upon both the timing of contracts and the timing of our work and the completion of our obligations on projects for which we have contracts and our ability to price our work to generate a profit on the project. Changes in revenue and the results of any operations from ourin China segment from quarter to quarter may have a negative effect on our net income and the market for and price of our common stock and may also affect our cash requirements to the extent that there is a delay in receipt of payment following the completion of the work for which payment is required. The last year in which we generated revenue from our China segmentoperations was 2021, and all of our revenue in that year was generated in the second quarter. We had no revenue from the China segmentoperations for 2022,subsequent 2023to and2021 2024,through the date of this annual report, and we have no contracts in place for us to perform any services in China, are not engaged in negotiations and have no marketing effort in China.

Our business is largely dependent upon the continued efforts of one of our founders and our chief executive officer, David Hsu. Although we have an employment agreement with Mr. Hsu, this agreement does not guarantee that Mr. Hsu will continue to work for us. The loss of Mr. Hsu could affect our ability to operate profitably in both the United States and China. If we recommence operations in China, we will need to engage experience executive and operational personnel, and we would be competing with other companies, including Chinese companies, for such personnel. If we are unable to engaged qualified personnel in a timely manner we may not be able to conduct business in China. Further, because our senior management is based in the United States, if we recommence operations in China, our failure to develop senior management personnel in China may strain our management resources and make it difficult for our corporate management to monitor both the China operations and United States operations efficiently. Our failure to have qualified executive personnel in China who can operate in accordance with and implement our business plan and who understand and can comply with applicable United States and Chinese laws and regulations may impair our ability to generate revenue and operating income from the China segment,operations, which could impair our overall operations and financial condition and could prevent our ability to conduct business in China.

Our business is subject to the inflationary pressures that are affecting many domestic and foreign companies. The effects of inflation and supply side issues with respect to polysilicon are described in the preceding risk factor. The effects of inflation may also affect the marketability of our solar systems to residential users. In our United States segment, ourOur cost of revenue per watt of solar systems, which made up approximately 80%22% of our cost of revenues, increased approximately 20% in 20242025 compared to the same period a year ago. Although we have been able to increase the selling price, our ability to increase is limited by competition, which resulted in our increase in 20242025 of only 14%,13%, a lower increase than the increase in our unit cost of revenue which resulted in a lower margin. We will continue to source panels at the best available prices, there is no assurance we can continue to source panels at more favorable prices. We have increased the price of solar system installations in our United States segment to offset this increase in cost. Our cost, even of domestic products, may also be affected by tariffs imposed by the United States and counter-tariffs imposed by other countries. The increase in prices due to inflation may also affect the marketability of our solar systems. To the extent that homeowners are incurring high expenses generally, they may have less available cash to invest in a solar system. Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience that, as inflationary pressures are increasing the cost of electricity generally, our domestic business has grown as homeowners are seeking alternatives to what they see as high utility bills. As a result, we have been able to increase our prices which has reduced the effect of increased prices of raw materials. In 2024, our unit cost of revenue increased by 20%, which was partially offset by an increase in unit price of 14%. However, competitive factors limit the amount we can increase our prices, and our price increases have reduced what would otherwise have been a greater decline in gross margin. We are seeking to reduce the effect of increased prices in raw materials by purchasing in greater quantities. However, to the extent inflation continues or increases, we may not be able to raise prices sufficientsufficiently to prevent a significant decline in our gross margins and the results of our operations, and if our prices are too high, the residential customer may not see the value of installing our solar system.

Because we derive most of our Unitedresidential Statessolar system revenue from sales of our solar energy systems in California, we depend on the economic and regulatory climate and weather and other conditions in California.

We currently derive most of our Unitedresidential Statessolar system revenue from solar energy projects in the United States from California. This geographic concentration exposes us more to government regulations, economic conditions, weather conditions, earthquakes, mudslides, fire, including wildfires, power outages, and other natural disasters and effects of climate change, and changes affecting California than if we operated in more states. We cannot predict the effect of the recent forest fires, heavy rains and flooding in California will have on both the market for solar systems in California and on our business in particular and on our ability to solar systems in a timely manner. Any inability to install solar systems in a timely manner, whether because of wildfires, heavy rain or flooding or other causes will also affect the timing of our revenue flow. Furthermore, these conditions may impact our systems’ ability to meet the production guarantee, which would result in payment obligations if our systems fail to meet production guarantees.

We provide warranties to the clients of our EPC services for one year in China and for tenup to 25 years to the purchasers of our solar systems in the United States. Although we generally pass the warranties from our equipment suppliers to the purchasers of the systems, we provide the warranty with respect to our installation and related services. We maintain a warranty reserve on our financial statements, and our warranty claims may exceed the warranty reserve. Any significant warranty expenses could adversely affect our financial condition and results of operations. Our warranty expenses relating to systems with a production guarantee may be affected by significant changes in weather conditions which substantially reduce sun exposure. Significant warranty problems could impair our reputation which could result in lower revenue and a lower gross margin. Although we believe that the problems associated with the systems installed for the leasing company do not apply to our present solar systems, we cannot assure you that we will not incur unanticipated warranty costs in the future.

In 2013 and 2015, we acquired three companies, LED in the United States in 2013 and two companies in China. In 2015, we incurred impairment losses in connection with the LED acquisition, resulting in impairment write-offs relating to the goodwill associated with the acquisition, and in 2024, we recognized impairment charge for the entire balance of the goodwill associated with our China segmentoperations of $7.5 million, which related to our 2015 acquisition of the two companies in China. There are significant risks associated with any acquisition program, including, but not limited to, the following:

Our business in the United States is largely dependent upon government subsidies and incentives.

ThreeTwo of our directors are located outside of the United States; therefore, investors may not be able to enforce federal securities laws or their other legal rights against those officers and directors (prior to and after the offering) located outside the United States.

All of our executive officers and directors will beare located in the United States except that two directors are located in China and one director is located in Taiwan.China. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on them under United States securities laws. In particular, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries and regions. Therefore, recognition and enforcement in the PRC of judgments of United States courts in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. There is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts obtained against these persons predicated upon the civil liability provisions of the United States federal and state securities laws. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions in the PRC against us or our directors who are located in the PRC in accordance with PRC laws because we are incorporated under the laws of the State of Nevada and it will be difficult for U.S. shareholders, by virtue only of holding our common stock, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law. In addition, it also takes the costs and time for U.S. shareholders to take such court procedures in order to enforce liabilities and judgments in China. As a result of the foregoing, it would be very expensive and time-consuming for a stockholder to either seek to enforce a U.S. judgment in China or to commence an action in a Chinese court, with a strong likelihood that the stockholder will not be successful.

The following table set forth information relating to our revenue and gross profit results for the years ended December 31, 20242025 and 20232024 (dollars in thousands), all of which related to our United States segment:

We have not originated any loans to our solar customers since early 2020.2022, and our loans in 2021 were modest. As a result, our finance revenue for the years ended December 31, 20242025 and 20232024 was $340,000$282,000 and $562,000,$340,000, respectively, from our portfolio of solar loans. Finance revenue will decrease as loans in our portfolio are paid and not replaced by new loans.

Sales and marketing expenses for the year ended December 31, 20242025 decreased for our United States segment to $517,000,$367,000, a decrease of $641,000,$150,000, or 55.3%,29.1%, from $1.2 million$517,000 in the comparable period of 2023, as a result of decreased sales in 2024. Sales and marketing expenses in the United States were 2.2%0.4% of revenue for the year ended December 31, 20242025 compared to 2.1%2.2% for the year ended December 31, 2023.2024. Our sales and marketing expenses in the United States may fluctuate from time to time based on the types of marketing and promotion initiatives we deploy. DueWe expect to thecontinue natureto ofbe our EPC businessselective in our Chinasales segment,and themarketing EPC contractsspends for solar2026. farm projects are generally obtained through customer relationship with just a few corporate customers, with substantially all revenues for ourOur China segment since the second half of 2019 being generated by agreements with SPIC. Accordingly, our China segmentoperations did not incur sales and marketing expenses for the years ended December 31, 20242025 and 2023.2024.

General and administrative expenses relating to theour China segmentoperations were $594,000 in the year ended December 31, 2025, as compared with $1,365,000 in the year ended December 31, 2024, as compared with $718,000 in the year ended December 31, 2023, an increase of $647,000 primarily as a result of the increase in the bad debt reserve related to the SPIC receivable based on the result of the initial arbitration meetings during 2024. During the year ended December 31, 2023,2024, we had a $1.1 million recovery of previously reserved receivable on one of our projects for SPIC as a result of an arbitration ruling in our favor. Excluding the settlementeffect of athe legal$1.1 proceeding.million Therecovery decreasein 2024, the increase in general and administrative expenses in the China segmentoperations in 20242025 reflectsis due to the additionallegal reductionand travel related costs incurred in personnelconnection as a result ofwith the lackSPIC oflawsuits newand businessesrelated during the year which we expect to continue in 2025.arbitration.

As a result of the factors described above, our loss from operations for the United States segment was $24.3$5.7 million for the year ended December 31, 2024,2025, compared to incomeloss from operations of $1.2$24.3 million in the year ended December 31, 2023,2024, reflecting the one-time stock compensation expense of $18.5 million associated with the vesting of stock options and restricted stock upon our initial public offering completed in February 2024. Our loss from operations for the China segmentoperations was $8.8 million$594,000 for the year ended December 31, 2024,2025, compared to a loss from operations of $718,000$8.8 million in the year ended December 31, 2023,2024, principally as a result of the recognition of impairment loss associated with goodwill of $7.5 million.

Recent changes in U.S. trade policy have resulted in the implementation or threatened implementation of tariffs on certain imported goods, particularly those manufactured in China and other countries. These tariffs have increased the cost of certain raw materials and components used in our products. While we have taken steps to mitigate the impact, including working with suppliers and adjusting our pricing strategy, the tariffs are expected to result in higher input costs for our operations for the remainder of 2026. For the threesix months ended MarchJune 31,30, 2026, the tariffs did not have material effects on our cost of revenue.

Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States operations decreased approximately 4%6.7% for the threesix months ended MarchJune 31,30, 2026 compared to the same period in 2025. The decrease in 2026 reflected the lay-off of a portion of our employees resulting from a slowdown after we had completed installation of the increased 2023 backlog resulting orders placed in 2023 in advance of NEM 3.0 becoming effective in April 2023, as discussed below under “Effects of NEM 3.0.” The increase in 2023 also reflected the increased cost of retaining and attracting talent, and such costs may continue to increase as labor costs in California continue to increase as a result of the inflationary pressures. In addition, to the extent that inflationary pressure affects our cost of revenue and general overhead, we may face the choice of raising prices to try and maintain our margins or reduce or maintain our price structure to meet competition which would result in a lower gross margin and a drop in operating income. Supply chain issues have caused us to periodically stock up on components such as solar panels and battery systems to ensure an adequate supply to meet expected demand, putting pressure on our cash flow. We do not believe that the supply chain issues that affected our operations in prior periods are currently affecting us. We cannot assure you that such delays and increased costs will not affect our business in the future.

Since the third quarter of 2025, our principal business was EPC services in connection with the construction of BESS systems. On July 31, 2025, we entered into anthe EPCLongfellow agreement with Longfellow,Contract to develop a BESS facility. Based on the contract terms, the contract is expected to generate revenues of approximately $120.1 million and interest income of $7.2 million from a financing component 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. CompletionDue ofto a change order being discussed but still not approved, the BESS facility is expected to be completed by DecemberMarch 2027 as a result of various design changes,2028, although we cannot assure you that this completion date will be met.met Theseor designthat changes,the costs will not be greater than we anticipate. The change order, which areis being finalized, may affect the price of the project and our costs. To the extent that our costs for the project increase as a result of tariffs, the war with Iran, supply chain issues or other factors, any change in the price of the project would be subject to the approval of Longfellow. To the extent that we cannot adjust our prices to reflect such additional costs, our gross margin on the project will be impacted. We have committed to make a $5.0 million capital contribution to Longfellow, in which we have an 8% equity interest. Our capital contribution for this equity interest is $5.0,$5.0 million, which was due no later than December 31, 2025. Longfellow agreed to defer our payment obligation, but has not agreed to a specific date by which we must make payment to obtain our equity interest. Our cash flow from the project and the timing of our work on the project is affected by the timing of payments from Longfellow, which is affected by Longfellow’s funding for the project. Accounts receivable from Longfellow were $9.4 million at both MarchJune 31,30, 2026 and December 31, 2025.

On December 31, 2025, we entered into three EPC agreementscontracts for large scalelarge-scale BESS systems, two in Puerto Rico and one in Corpus Christi, Texas. Pursuant to an EPC agreementcontract with Naguabo BESS LLC, a Texas limited liability company (“Naguabo”), we 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. We are to have a 9% membership interest in Naguabo. Pursuant to an EPC agreementcontract with Yabucoa BESS LLC, a Texas limited liability company (“Yabucoa”), we 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. We are to have a 9% membership interest in Yabucoa. Pursuant to an EPC agreementcontract with Navboot Holdco, LLC, a Delaware limited liability company (“Navboot”), we 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. Cash flow from long-term EPC projects is dependent upon the timing of payments from project owners which may be affected by the owners’ debt and equity financing for the project. We have not commenced work on any of these projects and we cannot assure you as to whether or when we will begin to perform these services.

In the fourth quarter of 2023, we began to work with several independent dealers which form our dealer network. Our dealer network is comprised of independent licensed sales companies that sell our products pursuant to non-exclusive agreement. The dealers sell our products as well as products sold by our competitors. The dealer handles the sales process, and once the sales agreement with the customer is signed, we install the solar system pursuant to an installation agreement with customer. The dealers earn a commission which is included in cost of revenue. Our increase in revenues from solar systems infor the firstsix quartermonths ofended June 30, 2026 over the firstcomparable quarterperiod ofin 2025 resultswas primarily from sales through our dealer network.

In 2024 and 2025, the California Public Utilities Commission (CPUC) launched a $280 million statewide initiative called the Self-Generation Incentive Program (“SGIP”) to help California’s low-income utility customers install battery storage and solar panel systems. We began participating in SGIP as an installer in 2025. In February 2026, SGIP administrators temporarily paused payments to installers and in May 2026 resumed the payments with a ruling to impose strict cost documentation requirements and review. As a result, we experienced a delay in collecting receivables on SGIP installations during the threesix months ended MarchJune 31,30, 2026. In the threesix months ended MarchJune 31,30, 2025,2026, revenues from SGIP projects were approximately $2.9$7.1 million, or 49%47.7% of our solar energy sales and 41% of our total revenues. In the three months ended March 31, 2026, revenues from SGIP installations were approximately $6.5 million, or 80% of solar energy sales and 44%28.4% of our total revenues. At MarchJune 31,30, 2026, receivables from SGIP installations accountaccounted for approximately $2.3$6.7 millionmillion, or 37.2%, of our accounts receivable. Our sales for the SGIP were made primarily through our dealer network.

During the threesix months ended MarchJune 31,30, 2026 and 2025, approximately 74%75% and 67%,58%, respectively, of our revenues from residential solar and battery contracts, and 40%45% and 55%48% of our total revenues were generated through the dealer network program. We believe that our participation in the dealer network enhances our ability to attract residential customers.

The following tables set forth information relating to our operating results for the three and six months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands) and as a percentage of revenue:

Three and Six Months Ended MarchJune 31,30, 2026 and 2025

The following table set forth information relating to our revenue and gross profit results for the three and six months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands):

Revenues for the three months ended MarchJune 31,30, 2026 were $14.8$10.2 million, an increase of $7.9$3.4 million or 114.1%48.8% from $6.9 million in the three months ended MarchJune 31,30, 2025. The increase resulted from revenue of $5.2 million$809,000 from the large-scaleLongfellow EPC contract with LongfellowContract to develop a battery energy storage system (“BESS”) facility in Texas, a $2.3$1.4 million increase in solar energy and battery sales, a $424,000$1.2 million increase in LED sales, offset by a $18,000$44,000 decrease in financing revenue. We did not have any large-scale EPC sales prior to the third quarter of 2025. Our revenue from residential and commercial solar energy and battery sales increased from $5.8$5.9 million for the three months ended MarchJune 31,30, 2025 to $8.1$7.3 million for the three months ended MarchJune 31,30, 2026, a 39.6%23.5% increase, primarily as a result of the salesales growth fromrelated to the dealerSGIP networkprogram program.for low income residential homeowners that began in the latter half of 2025. The increase in the solar energy and battery sales in the three months ended MarchJune 31,30, 2026 reflects a 30.4%13.7% increase in the number of systems completed and a 25.5%53.8% increase in the wattages deployed. During the three months ended MarchJune 31,30, 2026 and 2025, our battery only sales were $178,000$181,000 and $328,000,$864,000, respectively. Battery sales refer to the sale of batteries sold other than as a part of a solar system.

As a result of the continued relatively high interest rate environment and the expiration of the federal residential solar tax credit on December 31, 2025, we expect the revenue growth from our residential sales to level off in 2026 compared to the prior period. However, given the launch of the SGIP program for qualifying low-income households that began in June 2025, we were able to offset a significant portion of the decline of revenue growth from our residential sales in 2026 with residential sales that participated in the SGIP program, though we expect this will level off in 2026. We are also looking to offset the potential residential sales decrease with commercial sales and sales of large-scale EPC projects. On July 31, 2025, we entered into an EPC contract with Longfellow to develop a battery energy storage system (“BESS”) facility. Based on terms of the agreement, the contract is expected to generate revenues and finance income of approximately $127.3 million for us and we expect to complete the work by DecemberMarch 2027.2028. During the three months ended MarchJune 31,30, 2026, we recognized $5.2 million$809,000 in revenues related to this project. Total revenue recognized on the Longfellow contractContract from the project inception through MarchJune 31,30, 2026 was $65.4$66.2 million, and we expect to recognize approximately $54.6$54.0 million of revenue on Longfellow for the remainder of 2026 and 2027.

Our LED revenue increased by $424,000$1.2 million or 40.0%133.3% to $1.5$2.1 million for the three months ended MarchJune 31,30, 2026 from $1.1 million$911,000 for the three months ended MarchJune 31,30, 2025, and increased $1.6 million or 83.1% to $3.6 million for the six months ended June 30, 2026 from $2.0 million for the six months ended June 30, 2025, primarily resulting from the increase in the number of LED projects with a higher average sales price. LED revenues include LED product sales and LED consulting revenues which are expected to continue to fluctuate based on the number of LED projects awarded which is based on the bidding process and specific customer purchase requirements and timing. Revenue from our LED business fluctuates period to period.

We have not originated any loans to our solar customers since 2022. As a result, our finance revenue for the three months ended MarchJune 31,30, 2026 and 2025 was $54,000$37,000 and $72,000,$81,000, respectively, and for the six months ended June 30, 2026 and 2025 was $90,000 and $153,000, respectively, from our portfolio of solar loans. Finance revenue decreases as loans in our portfolio are paid since we are not making any new loans.

Our cost of revenue for the three months ended MarchJune 31,30, 2026 was $11.8$7.8 million, an increase of $6.3$1.6 million, or 113.9%24.7% from $5.5$6.3 million for the three months ended MarchJune 31,30, 2025. Our cost of revenue for the six months ended June 30, 2026 was $19.6 million, an increase of $7.8 million, or 66.4% from $11.8 million for the six months ended June 30, 2025. The increase in cost of revenue was largely driven by the EPC revenue from EPC services pursuant to the Longfellow contract.Contract. The remaining increase in cost of revenue was the result of the increased sales in the residential and commercial solar energy systems and LED sales.

The overall gross margin wasincreased 20.5%to 23.6% for the three months ended MarchJune 31,30, 2026 whichfrom is8.8% at the consistent level as the gross margin infor the three months ended MarchJune 31,30, 2025, and increased to 21.8% for the six months ended June 30, 2026 from 14.7% in the six months ended June 30, 2025. During the three months ended MarchJune 31,30, 2026, our gross margin from the sale of residential and commercial solar energy systems as well as from our LED sales improved which offsets the decrease in the gross margin fromrelated to the EPCLongfellow contract.Contract. The current lower gross margin from the EPCLongfellow contractContract was primarily due to the costs recognized related to the Longfellow project. We recognize revenue, but not profit, on uninstalled materials. The revenue on uninstalled materials is recognized by us when the control is transferred equal to the cost of the uninstalled materials. This decrease in gross margin on the Longfellow contractContract was partially offset by an increase in the gross margin from our sales of solar energy systems as well as from LED sales. We have no cost of revenue with respect to interest income on customer loans.

Sales and marketing expenses for the three months ended MarchJune 31,30, 2026 decreased to $43,000,$50,000, a decrease of $36,000$21,000 or 46.0%29.9% from $79,000$71,000 in the comparable period of 2025. Sales and marketing expenses were 0.3%0.5% of revenue for the three months ended MarchJune 31,30, 2026 compared to 1.0% for the three months ended June 30, 2025. Sales and marketing expenses for the six months ended June 30, 2026 decreased to $92,000, a decrease of $58,000 or 38.4% from $150,000 in the comparable period of 2025. Sales and marketing expenses were 0.4% of revenue for the six months ended June 30, 2026 compared to 1.1% for the threesix months ended MarchJune 31,30, 2025. Our sales and marketing expenses fluctuate based on the types of marketing and promotion initiatives we deploy. Our dealer network enables us to reduce our sales and marketing costs. We expect to continue to be selective in our sales and marketing expenses for the remainder of 2026.

General and administration expenses for the United States operations for the three months ended MarchJune 31,30, 2026 increased $239,000$170,000 or 10.0%,8.0%, to $2.6$2.3 million compared to $2.4$2.1 million for the three months ended MarchJune 31,30, 2025, representing 17.8%22.5% of revenue for the three months ended MarchJune 31,30, 2026 compared to 34.7%31.0% of revenue for the three months ended MarchJune 31,30, 2025. General and administration expenses for the United States operations for the six months ended June 30, 2026 increased $409,000 or 9.0%, to $4.9 million compared to $4.5 million for the six months ended June 30, 2025, representing 19.7% of revenue for the six months ended June 30, 2026 compared to 32.9% of revenue for the six months ended June 30, 2025. The increase during the threesix months ended MarchJune 31,30, 2026 is attributed to the increase in rent expense associated with our lease amendment for our Riverside office beginning on January 1, 2026, and the additional expense related to our investor relations advertising campaign. Our general increase, in general and administrative expenses in 2026 reflects the cost of compliance and other regulatory costs associated with being a public reporting company which is expected to continue for us. The decrease in the percentage of both sales and marketing and general and administrative expenses as a percentage of revenue in the threesix months ended MarchJune 31,30, 2026 reflects revenue of approximately $5.2$6.0 million from the Longfellow EPC contract.Contract.

General and administrative expenses relating to the China operations were $267,000$253,000 in the three months ended MarchJune 31,30, 2026 compared to $95,000$166,000 in the three months ended MarchJune 31,30, 2025, an increase of $173,000$86,000 or 182%.51.9%. General and administrative expenses relating to the China operations were $520,000 in the six months ended June 30, 2026 compared to $261,000 in the six months ended June 30, 2025, an increase of 259,000 or 99.2%. Such increase during the three and six months ended MarchJune 31,30, 2026 is attributed to the court costscosts, travel costs, and legal fees associated with the ongoing litigation with SPIC to enforce the collection of the remaining receivable from SPIC.

As a result of the factors described above, our income from operations in the United States was $363,000$58,000 for the three months ended MarchJune 31,30, 2026, compared to a loss from operations of $1.1$1.6 million in the three months ended MarchJune 31,30, 2025, and income from operations of $422,000 for the six months ended June 30, 2026, compared to loss from operations of $2.7 million in the six months ended June 30, 2025, which is primarily attributed to the increase in our revenues and the related gross profit. Our loss from operations for our China operations was $267,000$4.5 million for the three months ended MarchJune 31,30, 2026, compared to a loss from operations of $95,000$166,000 in the three months ended MarchJune 31,30, 2025. Our loss from operations for our China operations was $4.8 million for the six months ended June 30, 2026, compared to a loss from operations of 261,000 in the six months ended June 30, 2025.

Equity in income (loss) from unconsolidated entities relates to our China operations and comprises the equity in income (loss) from three unconsolidated project companies in which we have a non-controlling 30% interest. The equity in income (loss) for the three months ended MarchJune 31,30, 2026 was a loss of $240,000$42,000 compared to aan lossincome of $14,000$144,000 in the three months ended MarchJune 31,30, 2025. The declineequity in revenueincome and(loss) for the six months ended June 30, 2026 was a loss of $282,000 compared to an income of $130,000 in the six months ended June 30, 2025. The change from income in the currentthree periodand wassix attributedmonths ended June 30, 2025 to thea interruptionloss caused byin the majorsame overhaulperiods in 2026 results from lower revenue of the localunconsolidated powerentities gridattributable resultingto a change in theelectricity inabilityrate forfrom thea powerfixed generatedrate to bea calculatedvariable for the electricity generation.rate.

For the three months ended MarchJune 31,30, 2026, our gain on debt extinguishment was $40,000$13,000 related to the exchange of $1.5$500,000 of secured EB-5 notes payable to a related party for 4% convertible notes in the same principal amount. For the six months ended June 30, 2026, our gain on debt extinguishment was $54,000 related to the exchange of $2.0 million of secured EB-5 notes payable to a related party for 4% convertible notes in the same principal amount. No EB-5 notes were exchanged during the three months ended March 31, 2025.

Interest expense, net, for the three months ended MarchJune 31,30, 2026 was $287,000,$240,000, aan decreaseincrease of $38,000,$104,000, or 15.2%,76.8%, from the three months ended MarchJune 31,30, 2025. TotalInterest expense, net, for the six months ended June 30, 2026 was $527,000, an increase of $142,000, or 36.9%, from the six months ended June 30, 2025. For the three months ended June 30, 2026, total interest income declined $109,000$218,000 as a result of the payoff of held to maturity debt investments, whereas the total interest expense declineddecreased by $71,000.$114,000. For the six months ended June 30, 2026, total interest income declined $327,000 as a result of the payoff of held to maturity debt investments, whereas the total interest expense decreased by $185,000. The overall decline in interest expense corresponds to the decline in the two related party EB-5 loan balances as well as the decline in the convertible note balances as scheduled annual principal payments were made. Our interest expense in the threesix months ended MarchJune 31,30, 2026 primarily includes interest at 3% on two EB-5 loans from related parties in the United States with a total principal balance of $9.0$8.5 million at MarchJune 31,30, 2026, interest at 4% on convertible notes issued to former limited partners of CEF and CEF II in transactions in which former limited partners of CEF and CEF II accepted 4% convertible notes issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $15.6$16.1 million at MarchJune 31,30, 2026. The convertible notes issued to the former limited partners of CEF were issued as payment of the former limited partner’s capital account in CEF and were issued in connection with cancellation of debt to CEF of an equal amount. The convertible notes are secured by the same collateral as the notes to CEF. Interest was recognized at the stated interest rate of 4%. Because the Company is in default in the payment of principal and interest on convertible notes in the principal amount of $13.7 million at MarchJune 31,30, 2026, if the holders of the notes exercise their rights to demand prepayment, interest at 12% per annum will be due. See the paragraph Event of Default on Convertible Notes in Note 14 to Consolidated Financial Statements.

During the three months ended MarchJune 31,30, 2026, other income was $77,000$46,000 consisting primarily of foreign currency transaction gains for our United States operations intercompany receivable denominated in RMB. During the three months ended MarchJune 31,30, 2025, other income was $59,000$70,000 consisting primarily of $97,000$131,000 of foreign currency transaction gains for our United States operations intercompany receivable denominated in RMB.RMB, offset with a loss on a solar asset disposal in the United States segment of $65,000.

For the three months ended MarchJune 31,30, 2026 and 2025, our United States operations reported an income tax expense of $16,728$2,000 and $6,000,$0, respectively, attributable to the Texas franchise tax and other minimum state tax liabilities.

As a result of the foregoing, we had a consolidated net loss of $0.3$4.7 million, or $(0.010.98) per share (basic and diluted), for the three months ended MarchJune 31,30, 2026, compared with a consolidated net loss of $1.3$1.9 million, or $(0.030.50) per share (basic and diluted), for the three months ended MarchJune 31,30, 2025.

As a result of foreign currency translations, we reported net foreign currency translation gains (losses) of $13,000$(34,000) and $1,000$3,000 for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $(22,000) and $3,000 for the six months ended June 30, 2026 and 2025, respectively.

The following tables show consolidated cash flow information for the threesix months ended MarchJune 31,30, 2026 and 2025 (dollars in thousands):

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2026 was $4.2$5.2 million, compared to net cash used in operating activities for the threesix months ended MarchJune 31,30, 2025 of $601,000.$380,000. The cash used by operations for the threesix months ended MarchJune 31,30, 2026, resulting from our net loss of $307,000,$5.0 increases inmillion, non-cash expense of $36,000,$974,000, and a$1.2 net decreasemillion of $4.6cash millionused in cash from our operating assets and liabilities. During the three months ended March 31, 2026, our operating assets and liabilities used $4.4 million in cash, compared to $195,000 of cash used in the three months ended March 31, 2025.

Net cash used by operations for the threesix months ended MarchJune 31,30, 2025 of $601,000$380,000 resulted from net loss of $1.3$3.2 million, non-cash expense of $500,000,$983,000, and $195,000$1.8 million of cash usedprovided inby our operating assets and liabilities.

Non-cash adjustments changes for the threesix months ended MarchJune 31,30, 2026 primarily reflected:

Changes in operating assets and liabilities for the threesix months ended MarchJune 31,30, 2026:

Net cash providedused by investment activities for the threesix months ended MarchJune 31,30, 2026 was $548,000$469,000 consisting of short-term advances of $2.4 million, proceeds from repayment of principal on short-term advances of $1.4 million, and debt repayments received on our held to maturity debt investments. Net cash used by investing activities for the threesix months ended MarchJune 31,30, 2025 was approximately $93,000,$138,000, consisting of debt repayments received on our held to maturity debt investments.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 was $8,000,$11,000, consisting of $1.1 million of cash proceeds from the issuance of shares of common stock in private offerings, offset by $1.1 million principal payments on convertible notes, and $4,000$7,000 payment on equipment leases.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2025 was $377,000,$1.6 million, consisting of $500,000$2.0 million of cash proceeds from the issuance of shares of common stock in private offerings, offset by $50,000$250,000 principal payments on convertible notes, $69,000$138,000 payment of accrued legal settlement, and $4,400$9,000 payment on equipment leases.

The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China operations at MarchJune 31,30, 2026 and December 31, 2025 (dollars in thousands):

We invested $7.0 million from the proceeds of our initial public offering in an 8% promissory note issued by Webao Limited, a Hong Kong based social media company. The initial maturity was June 1, 2024 and it was extended to December 31, 2024 and further extended to December 31, 2025. The note was paid during 2025. We invested RMB 5.0 million, or approximately $688,000, in a 5% note due June 25, 2024 issued by Qingdao Xiaohuangbei Technology Co., Ltd. (“Qingdao”), a PRC-based company. The initial maturity date was extended initially to December 25, 2024 and further subsequently extended to December 31, 2025. All of the extensions were at the request of the respective makers of the notes. The note was paid in December 2025 and January 2026.

At MarchJune 31,30, 2026, our current liabilities included secured convertible notes in the principal amount of $14.1$14.2 million and secured notes to related parties of $4.0$6.5 million.

DuringIn the three months ended March 31,January 2026, we issued 2,000,000166,667 shares of common stock, at a discount of 25% from the market price on the date of the investment, at a price of $0.55.$6.576. Under the Nasdaq regulations, we 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 loans from CEF and CEF II become due, as to the investment of each limited partner, four years from the date of the loan and may be extended as may be necessary to meet applicable USCIS immigrant investor visa requirements, which will be the date that the limited partner is eligible for a green card. Under the limited partnership agreements for CEF and CEF II, the limited partners have the right to demand repayment of their capital account when the petition is approved, which demand may trigger a maturity of the loan from CEF or CEF II in the amount of the limited partner’s investment. The initial four-year term of notes in the principal amount of $55.5 million, which were issued to CEF and CEF II, and had expired prior to December 31, 2023 and are on extension until the limited partners meet applicable immigrant investor visa requirements. We cannot determine the period of the extensions. As of MarchJune 31,30, 2026, limited partners whose capital contributions funded loans of $43.5 million had received their green card approval and their extensions expired and one limited partner whose capital contribution funded $500,000 had withdrawn from CEF II and the limited partner’s capital contribution was returned. The petitions of limited partners of CEF whose capital contribution funded loans of $8.0 million are pending.

As the loans matured and the limited partners requested return of their capital contribution, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to CEF. As of MarchJune 31,30, 2026, we had issued convertible notes in the principal amount of $43.5$44.0 million to former limited partners of CEF and CEF II, of which principal payments of $25.0 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $3.0 million had been purchased by us for $2.1 million, leaving convertible notes in the principal amount of $15.6$16.1 million outstanding at MarchJune 31,30, 2026. As of MarchJune 31,30, 2026, notes to CEF and CEF II in the aggregate principal amount of $9.0$8.5 million were outstanding and convertible notes in the principal amount of $15.6$16.1 million were outstanding. The Company is in default in the payment of principal and interest on convertible notes in the principal amount of $13.7 million at MarchJune 31,30, 2026, and the holders of these notes have the right to demand prepayment and exercise their rights with respect to the collateral. See the paragraph Event of Default on Convertible Notes in Note 14 of Notes to Consolidated Financial Statements.

During the three months ended MarchJune 31,30, 2026, wethe Company recognized a gain on debt of extinguishment in the amount of approximately $40,000,$13,000, relating to the issuance of convertible note in the principal amount of $1.5 million$500,000 to former limited partners of CEF I and II in exchange for a $1.5 million$500,000 reduction of the note from CEF I and II. No gain or loss on debt extinguishment was recognized for the three months ended MarchJune 31,30, 2025 as there was no issuance of convertible notes in exchange for a reduction of the note from CEF I and II.