SolarMax Technology, Inc. Commitments Disclosure

20. Commitments and Contingencies

Operating Leases

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

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

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

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

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

Other information related to leases is as follows:

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

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

Employment Agreements

On October 7, 2016, the Company entered into an employment agreement with its chief executive 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 $737,924 in 2024.

Legal Matters

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

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

Default on Convertible Notes

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