3. Note receivable, net

On  December 1, 2025, the Company entered into an agreement with Lion Energy, LLC (“Lion Energy”) pursuant to which the Company provided $2,069,000 of short-term financing to Lion Energy. Under the arrangement, repayment was due no later than  December 30, 2025.  As of  December 31, 2025, the entire amount remained outstanding and was recorded as a note receivable in the condensed consolidated balance sheet.

On  February 6, 2026, the Company entered into a non-binding term sheet contemplating a potential acquisition of Lion Energy and purchased a subordinated participation interest in Lion Energy’s senior secured credit facility, which finances Lion Energy’s working capital needs. Lion Energy was in default under the underlying credit facility as of March 31, 2026. As a result of the default provisions under the underlying revolving credit facility, the participation interest has been classified as a current asset in the accompanying condensed consolidated balance sheet.

In connection with this arrangement, the Company contributed $2,100,000 which includes the original note receivable balance and approximately $31,000 of accrued interest and related costs and advanced an additional $2,000,000 to acquire the participation interest. The participation interest is subordinated to the senior secured lender and is subject to the terms and conditions of the underlying credit facility. The note accrues interest at a rate equal to the adjusted term SOFR rate plus an applicable margin and is subject to increased rates upon the occurrence of an event of default. For the three months ended March 31, 2026, we accrued approximately $60,000 in interest receivable. On May 11, 2026, we elected to terminate the Lion Energy term sheet, although we continue to pursue discussions with Lion Energy concerning a business combination on different terms. There can be no assurance we will be able to successfully conclude any agreement with Lion Energy.

The Company evaluates the Lion Energy exposure individually due to its borrower-specific credit characteristics. The Company monitors credit quality based on Lion Energy’s operating performance, liquidity, compliance with its senior secured credit facility, collateral coverage, lender priority, and available credit support. The Company estimated expected credit losses using a probability-weighted scenario analysis that considered potential recovery outcomes, expected collateral recoveries, the senior lender’s priority claim, estimated costs to realize collateral, and available credit support. Based on this analysis, the Company recorded an allowance for credit losses of approximately $437,000 as of March 31, 2026. The estimate is sensitive to changes in assumptions and future developments, including the enforceability of available credit support and recoverability of Lion Energy’s inventory and accounts receivable.

The table below summarizes the allowance for credit loss balance for the three months ended March 31, 2026 (in thousands):