19. Commitments and Contingencies

Purchase Commitment

In June 2026, the Company entered into an amended purchase agreement with D Volt Co., a Texas corporation to purchase equipment and services for approximately $5.3 million. At the execution of the agreement, the Company paid the initial deposit payment of $602,402 which was recorded in vendor advances. The agreement requires milestone payments through manufacturing, testing, shipment, and commissioning. Title and risk of loss transfer upon delivery to the Company’s designated carrier in Shanghai, China.

Operating Leases

The Company leases office space, equipment, and vehicles under non-cancellable operating lease agreements. Lease terms range from one to seven years, with certain leases including options to extend or terminate at the Company’s discretion. These options are included in the lease term when it is reasonably certain that the Company will exercise the option. The Company’s leases do not contain material residual value guarantees or restrictive covenants.

On January 28, 2026, the Company entered into an amendment to the lease for its headquarters facility 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 increases annually until $2,282,112 for 2033. The Company also pays certain operating expenses in the same manner as with the lease prior to the amendment. 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 Company evaluated the amendments in accordance with ASC 842 and determined the modifications did not result in separate contracts. Accordingly, the Company remeasured the related lease liabilities using an updated incremental borrowing rate as of the modification effective date, with a corresponding adjustment to the related ROU assets.

As a result of the lease modifications, the Company recorded the following adjustments during the six months ended June 30, 2026:

The discount rate applied to the modified lease was 8%.

Future minimum lease commitments for offices, warehouse facilities and equipment as of June 30, 2026, are as follows:

Rent expense for offices, warehouse facilities and equipment for the three months ended June 30, 2026 and 2025 was approximately $501,000 and $434,000, respectively, and for the six months ended June 30, 2026 and 2025, was approximately $1.0 million and $867,000, respectively. These amounts include short-term leases and variable lease costs, which are immaterial.

As of June 30, 2026, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

Other information related to leases is as follows:

Total sublease income recognized for the three months ended June 30, 2026 and 2025, was approximately $235,000 and $254,000, respectively, and for the six months ended June 30, 2026 and 2025, was approximately $487,000 and $509,000, respectively. The sublease income is recognized as an offset to operating lease costs reported in general and administrative expenses. At June 30, 2026, the Company has two tenants and both are on a month-to-month lease. At June 30, 2026, the Company holds security deposits of approximately $102,000. 

The following table summarizes the Company’s operating lease cost for the three and six months ended June 30, 2026 and 2025:

Employment Agreements

On October 7, 2016, the Company entered into an employment agreement with its chief executive officer for 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, and an 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 is $782,867 for 2026.

Legal Proceedings and Loss Contingency

The Company is involved in various legal proceedings with SPIC in the PRC which includes cases related to additional assessments of farmland occupation taxes associated with four photovoltaic projects completed by a subsidiary of the Company in 2020 and 2021 and owned by SPIC. The matters relate to disputes regarding the additional taxes paid by SPIC on which SPIC sought reimbursement from the Company’s subsidiary and the basis for the assessment by Chinese tax authorities.

In June and August 2026, three adverse judgments were issued by a Chinese court, which determined that the Company's subsidiary is responsible for the additional farmland occupation taxes under its contractual arrangements. As of September 30, 2026, the Company is awaiting the court ruling for the last farmland occupation tax case; however, the Company believes the ruling will be consistent with the other three rulings.

Based on the judgments and other information available as of September 30, 2026, the Company determined that a loss contingency was probable and reasonably estimable at June 30, 2026, and recorded an accrual of RMB 29.3 million for the four cases, or approximately $4.3 million, to accrued expenses and other payables, representing the Company's estimated liability associated with the matters. The Company recorded the corresponding expense to China legal judgment, which is a non-recurring expense.

The other legal proceedings with SPIC are still underway and the Company does not believe these pending legal proceedings will have a material impact on the Company’s financial position and the results of operations.

Additionally, in the ordinary course of the Company’s business in the United States, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. The Company believes that such legal proceedings are a normal part of its business and does not believe such pending legal proceedings will have a material impact on the Company’s financial position and the results of operations.