The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation. Amounts reported in the condensed consolidated financial statements are stated in U.S. dollars, unless stated otherwise. The functional currency of the Company’s subsidiaries in the People’s Republic of China (“PRC”) 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.

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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include the cost-based inputs to estimate revenues on construction contracts, the collectability of accounts receivable, the receivable from SPIC and loans receivable, the value of investments in unconsolidated solar project companies, 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.

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 $69,000) per depositor per bank under the applicable Chinese general deposit insurance rules.

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

Restricted cash at June 30, 2026 and December 31, 2025 consisted of:

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. The contract assets are transferred to receivables when the rights become unconditional (i.e., when the permission to operate is issued). For large-scale EPC contracts, contract assets represent costs and estimated earnings in excess of billings on uncompleted contracts. Contract assets are classified as either current or noncurrent. Current contract assets are those expected to be collected within one year of the report date. Noncurrent contract assets are those expected to be collected after one year of the report date.

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 large-scale EPC 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.

Prior to 2021, 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 its wholly-owned subsidiary, SolarMax Financial, Inc. 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 2022, and its revenues from financing related to its existing loan portfolio, and the Company does not have any present intention to resume financing the sale of its systems internally.

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:

The Company determines whether an arrangement is a lease at inception under ASC 842. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued liabilities, and long-term operating lease liabilities in the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As the rate implicit in the lease is generally not readily determinable, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense in the period in which the obligation for those payments is incurred.

The Company has elected not to recognize leases with an initial term of 12 months or less on the consolidated balance sheets. Short-term lease expense is recognized on a straight-line basis over the lease term.

The Company combines lease and non-lease components for certain classes of underlying assets.

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 Company’s former 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 its PRC operations in the approximate amount of $259,000 and $251,000 as of June 30, 2026 and December 31, 2025, respectively, which is included in accrued expenses and other liabilities. To date the Company has not incurred significant claims on the quality warranty. As a result of the ongoing legal disputes with SPIC (see Note 19. Commitments and Contingencies under Legal Proceedings), the liability is maintained and will be reversed when the legal disputes are settled.

For the U.S. operations, 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 also 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 to customers who claim for the production shortfall in power output on an annual basis. The Company currently provides a reserve for the production guaranty at 1.0% of the total solar revenue. The production guaranty is independent of any factors not caused by the customer which reduce the amount of available sunlight.

LED Warranty

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.

The Company recognizes revenue from EPC contracts in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

Revenue from Large-scale EPC Contracts

The Company’s EPC contracts generally require the Company to provide a combination of engineering, design, procurement, equipment supply, construction, installation, testing, start-up and commissioning services that are highly interrelated and collectively comprise a single integrated output. For the Longfellow Contract, the Company is responsible for the turnkey design, engineering, procurement, installation, construction, testing, start-up and commissioning of a fully integrated battery energy storage system and related substation. These activities are highly interdependent and are performed to produce a single integrated BESS for the customer. Accordingly, because the promised goods and services are not separately identifiable within the context of the Longfellow Contract, the Company has determined that the EPC services represent a single performance obligation.

The Company recognizes revenue over time when the criteria for over-time recognition under ASC 606 are met. For the Longfellow Contract, the Company has determined that its performance obligation is satisfied over time because the Company’s performance creates or enhances an asset that is controlled by the customer as the asset is constructed and/or the Company does not create an asset with an alternative use and has an enforceable right to payment for performance completed to date.

Revenue recognized over time is measured using an input method based on the ratio of costs incurred to date to the Company’s estimate of total costs required to satisfy the performance obligation. The Company believes that the cost-to-cost method faithfully depicts the transfer of control of the BESS to the customer because the Company's engineering, procurement, equipment, construction, installation and commissioning activities are performed continuously and the costs incurred are generally representative of the Company's progress toward satisfying the performance obligation.

Under the cost-to-cost method, revenue recognized through a reporting date is generally determined by multiplying the contract transaction price by the ratio of cumulative costs, excluding the cost of inventory, incurred to date to total estimated costs, excluding the cost of inventory, at completion, subject to adjustments for changes in transaction price and other applicable provisions of ASC 606. Costs included in the measure of progress generally include labor, subcontractor costs and other costs directly attributable to satisfying the performance obligation. For inventory, the Company recognizes revenue equal to the cost of the inventory delivered to the job site but not yet installed. 

Based on the current progress of the Longfellow EPC project which comprises substantially of uninstalled materials which were delivered but not yet installed, the Company recognizes revenue, but not gross profit, on uninstalled materials on Longfellow EPC project. The revenue and cost of revenue on uninstalled materials are recognized when the control is transferred.

The contractual payment milestones are not, in themselves, used as the measure of progress for revenue recognition. Under the Longfellow Contract, invoices are generally triggered upon achievement of specified progress milestones; therefore, amounts billed may differ from revenue recognized based on the Company's measure of progress. Amounts recognized as revenue in excess of amounts billed are recorded as contract assets, while amounts billed in excess of revenue recognized are recorded as contract liabilities, as applicable. The Agreement requires payment upon achievement of specified Progress Milestones and provides for additional payments following Final Completion.

The Company updates its estimates of total contract revenue, total costs to complete and expected contract profitability throughout the performance period. Changes in estimates are reflected in the period in which the estimates are revised. When a change in estimate affects progress toward completion, the cumulative effect of the change is recognized as a cumulative catch-up adjustment to revenue in the period of the change.

If estimates indicate that the total costs expected to be incurred on an unsatisfied performance obligation will exceed the related transaction price, the Company recognizes the estimated loss in full in the period in which the loss becomes probable and reasonably estimable.

The Company also evaluates contract modifications, claims, change orders, liquidated damages, performance incentives and other forms of variable consideration to determine whether they should be included in the transaction price and, if so, when inclusion is appropriate under ASC 606.

Certain of the Company’s EPC contracts contain payment terms that result in a significant financing component when consideration is deferred beyond the period in which the related performance obligations are substantially satisfied. The Longfellow Contract provides for payment of the remaining unpaid portion of the contract price in installments following the Company's billing of Longfellow on the first, second and third anniversaries of commercial operation. Accordingly, the Company determined that the Agreement contains a significant financing component and adjusts the transaction price to reflect the effects of financing in accordance with ASC 606. The portion of the contractual consideration attributable to financing is excluded from revenue and is recognized separately as interest income over the financing period using the effective interest method. In determining the financing component, the Company considers the timing and amount of payments relative to the transfer of goods and services, prevailing market interest rates and other relevant factors, and reassesses the estimate as appropriate based on changes in the expected timing of performance and payment.

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, i.e., 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 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 leasing arranged by the Company for the customer through a third party leasing company.

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 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

In the past, the Company provided installment financing to qualified customers in the U.S. 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 2022, and its revenues are from financing related to 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. Loans held-for-sale are recorded at the lower of cost or fair value. There were no loans held-for-sale at June 30, 2026 and December 31, 2025.

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 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 condensed 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 six months ended June 30, 2026 and 2025, 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 June 30, 2026 and December 31, 2025, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes.

The Company determined that the annual effective tax rate (“AETR”) method is not appropriate for interim tax reporting because it is unable to reliably estimate annual pretax income for its China operations. The China operations represent a significant component of the Company's foreign income, and the inherent difficulty in forecasting that jurisdiction's full-year results cause the estimated AETR to be highly sensitive to changes in assumptions. Accordingly, the Company applied the cutoff method, treating each interim period as a discrete annual period for purposes of computing the tax provision.

The Company calculates net income (loss) per share by dividing income or losses 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 three and six months ended June 30, 2026 and 2025 because the effect would be antidilutive.

Amounts reported in the condensed 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. Income (loss) on those foreign currency transactions of approximately $35,000 and $134,000 for the three months ended June 30, 2026 and 2025, respectively, are included in other income (expense), net for the period in which exchange rates change. Income (loss) on those foreign currency transactions of approximately $113,000 and $192,000 for the six months ended June 30, 2026 and 2025, respectively, are included in other income (expense), net for the period in which exchange rates change.

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 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 were adopted effectively January 1, 2026 and were applied prospectively, and they do not have a material effect on the Company's 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.