SolarMax Technology Inc

Previous wording

During the years 2015 to 2019, we granted stock options to employees and consultants, of which options to purchase 5,898,137 shares were outstanding at the date of our initial public offering. Under the terms of the options, the options became non-forfeitable upon our completion of an initial public offering, which occurred on February 12, 2024, the effective date of the registration statement relating to our initial public offering. Under GAAP, upon the termination of the forfeiture provisions, the value of the options is treated as a compensation expense in the period in which the options become non-forfeitable. Using the Black Scholes valuation method, the fair value of the options at the time of our initial public offering was approximately $17.2 million, which is stock-based compensation that does not reflect a cash expense, of which approximately $1.3 million is included in cost of revenues and $15.9 million is included in general and administrative expense. The $17.2 million stock-based compensation expense, which is not deductible for federal and state income tax purposes and is a non-cash expense, represents the major portion of our $21.4 million loss for the six months ended June 30, 2024.

Current wording

During the years 2015 to 2019, we granted stock options to employees and consultants, of which options to purchase 5,898,137 shares were outstanding at the date of our initial public offering. Under the terms of the options, the options became non-forfeitable upon our completion of an initial public offering, which occurred on February 12, 2024, the effective date of the registration statement relating to our initial public offering. Under GAAP, upon the termination of the forfeiture provisions, the value of the options is treated as a compensation expense in the period in which the options become non-forfeitable. Using the Black Scholes valuation method, the fair value of the options at the time of our initial public offering was approximately $17.2 million, which is stock-based compensation that does not reflect a cash expense, of which approximately $1.3 million is included in cost of revenues and $15.9 million is included in general and administrative expense. The $17.2 million stock-based compensation expense, which is not deductible for federal and state income tax purposes and is a non-cash expense, together with the $7.5 million impairment charge, represents the major portion of our $31.1 million loss for the nine months ended September 30, 2024.

Previous wording

In January 2024, we laid off a portion of our employees associated with the design and installation of residential solar systems in response to a slowdown in demand after NEM 3.0 took effect in April 2023. The layoff represented approximately 25% of our residential solar system design and installation team. Approximately half of the employees who were laid off had been hired in late 2022 to help install our growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023. We may need to revise our pricing metrics to reflect the change resulting from NEM 3.0 in order for the purchase of a solar system to be economically attractive to the customer, which may result in lower prices and reduced margins. Although we anticipate the near-term impact of NEM 3.0 on residential solar contracts will be offset by commercial solar contracts for which we use third-party subcontractors to complete the installations, we cannot assure you that our overall business will not be impacted by the effects of NEM 3.0. Our decrease in revenue in both the three and six months ended June 30, 2024 from the comparable periods of 2023 reflect both a surge in revenue in anticipation of the effectiveness of NEM 3.0 in April 2023 and a sharp decline in revenue resulting from the effectiveness of NEM 3.0.

Current wording

In January 2024, we laid off a portion of our employees associated with the design and installation of residential solar systems in response to a slowdown in demand after NEM 3.0 took effect in April 2023. The layoff represented approximately 25% of our residential solar system design and installation team. Approximately half of the employees who were laid off had been hired in late 2022 to help install our growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023. We may need to revise our pricing metrics to reflect the change resulting from NEM 3.0 in order for the purchase of a solar system to be economically attractive to the customer, which may result in lower prices and reduced margins. Although we anticipate the near-term impact of NEM 3.0 on residential solar contracts will be offset by commercial solar contracts for which we use third-party subcontractors to complete the installations, we cannot assure you that our overall business will not be impacted by the effects of NEM 3.0. Our significant decrease in both revenue and gross margin in both the three and nine months ended September 30, 2024 from the comparable periods of 2023 reflect both a surge in revenue in 2023 in anticipation of the effectiveness of NEM 3.0 in April 2023 and a sharp decline in revenue resulting from the effectiveness of NEM 3.0.

Previous wording

We are an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. We were founded in 2008 to engage in the solar business in the United States and, following our acquisition of Chengdu ZHTH and ZHPV, we commenced operations in China.

Current wording

We are an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. We were founded in 2008 to engage in the solar business in the United States, where our business is primarily conducted. Our primary business consists of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, (ii) financing the sale of its photovoltaic and battery backup systems, and (iii) sales of LED systems and services to government and commercial users.

Previous wording

We are seeking to offset our decline in residential solar sales in California by marketing commercial sales of larger systems to commercial users both in California and in other states; however, we cannot assure you that we will be successful in marketing to commercial users. As of the date of this report, we do not have any contacts for major commercial solar projects. Although we have a non-binding letter of intent with respect to one proposed project and a non-binding term sheet with respect to a second proposed project, both of these proposed projects are subject to the negotiation of development agreements with the owners of the property on which the solar system is to be installed, the identification of a financing source to provide the full financing for each project, the negotiation and execution of an agreement with the financing sources, who would own the project on completion, and the negotiation and execution of a power purchase agreement between the property owner (and in the case of one of these projects, the tenant) and the financing source as the project owner for the purchase of the electricity generated by the project. We cannot assure you that either of these projects will be completed or that we will be successful in developing our commercial business as planned.

Current wording

We are seeking to offset our decline in residential solar sales in California for the three and nine months of 2024 as compared with the comparable periods of 2023 by marketing commercial sales of larger systems to commercial users both in California and in other states; however, we cannot assure you that we will be successful in marketing to commercial users. As of the date of this report, we do not have any contacts for major commercial solar projects. Although we have a non-binding letter of intent with respect to one proposed project and a non-binding term sheet with respect to a second proposed project, both of these proposed projects are subject to the negotiation of development agreements with the owners of the property on which the solar system is to be installed, the identification of a financing source to provide the full financing for each project, the negotiation and execution of an agreement with the financing sources, who would own the project on completion, and the negotiation and execution of a power purchase agreement between the property owner (and in the case of one of these projects, the tenant) and the financing source as the project owner for the purchase of the electricity generated by the project. We cannot assure you that either of these projects or any other projects will be completed or that we will be successful in developing our commercial business as planned

Previous wording

Our cost of revenue per watt of solar systems, which makes up approximately 80% of our costs, increased approximately 51.1% during the six months ended June 30, 2024 compared to the same period in 2023. We have increased the price of solar system installations in our United States segment to offset the increase in cost in 2024, 2023 and during the first half of 2022. 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 during the years ended December 31, 2023 and 2022 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business grew as homeowners are seeking alternatives to what they see as high utility bills, although, as discussed above, the effects of NEM 3.0 have resulted in a significant decline in U.S. revenues for solar systems. As a result, we have been able to increase our prices, which reduced the effect of increased cost of raw materials and the general increase in overhead costs. Our gross margin from United States operations decreased from 15.0% for the six months ended June 30, 2023 to 1.2% for the six months ended June 30, 2024. The effect of increased costs on our margin was reduced because we were able to increase prices; although our gross margin was affected by both the $1.3 million of stock-based compensation described above under “Elimination of Forfeiture Provisions of Options upon Initial Public Offering” and the 63% decrease in revenues which was not accompanied by a comparable decrease in cost of revenues. Competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a greater decline in gross margin for the six months ended June 30, 2024. If our prices are too high, the residential customer may not see the value of installing a solar system. 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 sufficiently to prevent a further significant decline in our gross margins and the results of our operations.

Current wording

Our cost of revenue per watt of solar systems, which makes up approximately 80% of our costs, increased approximately 47.7% during the nine months ended September 30, 2024 compared to the same period in 2023. We have increased the price of solar system installations in our United States segment to offset the increase in cost in 2024, 2023 and during the first half of 2022. 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 during the years ended December 31, 2023 and 2022 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business grew as homeowners are seeking alternatives to what they see as high utility bills, although, as discussed above, the effects of NEM 3.0 have resulted in a significant decline in U.S. revenues for solar systems. As a result, we have been able to increase our prices, which reduced the effect of increased cost of raw materials and the general increase in overhead costs. Our gross margin from United States operations decreased from 19.6% for the nine months ended September 30, 2023 to 8.3% for the nine months ended September 30, 2024. The effect of increased costs on our margin was reduced because we were able to increase prices; although our gross margin was affected by both the $1.3 million of stock-based compensation described above under “Elimination of Forfeiture Provisions of Options upon Initial Public Offering” and the 63% decrease in revenues which was not accompanied by a comparable decrease in cost of revenues. Competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a greater decline in gross margin for the nine months ended September 30, 2024. If our prices are too high, the residential customer may not see the value of installing a solar system. 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 sufficiently to prevent a further significant decline in our gross margins and the results of our operations.

Previous wording

Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States segment increased approximately 19% for the six months ended June 30, 2024 compared to the same period in 2023 in response to 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 generate business. 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 resulting 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.

Current wording

Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States segment increased approximately 19% for the nine months ended September 30, 2024 compared to the same period in 2023 in response to 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 generate business. 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 resulting 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.

Previous wording

The following tables set forth information relating to our operating results for the three and six months ended June 30, 2024 and 2023 (dollars in thousands) and as a percentage of revenue:

Current wording

The following tables set forth information relating to our operating results for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands) and as a percentage of revenue:

Previous wording

The following table set forth information relating to our revenue and gross profit results for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):

Current wording

The following table set forth information relating to our revenue and gross profit results for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Previous wording

Revenues for the three months ended June 30, 2024 were $4.5 million, a decrease of $10.3 million or 69.8% from $14.8 million in the three months ended June 30, 2023, all of which was generated by the United States segment. The decrease resulted from a $10.8 million decrease in solar energy and battery sales, offset with a $595,000 increase in LED sales. In our United States segment, our revenue from solar systems decreased from $14.0 million for the three months ended June 30, 2023 to $3.1 million for the three months ended June 30, 2024, a 77.6% decrease. As a result of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, the prior period sales reflected a significant surge in the consumer demand for solar energy systems for which orders were placed prior to NEM 3.0 becoming effective, generating a backlog of orders which were mostly filled in 2023. The dramatic decrease in revenue in the three months ended June 30, 2024 also reflects the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation, the effect of which diminishes the appeal of solar as a cost-saving investment for the consumers, which are also experienced by the entire solar industry. The decrease in the solar energy and battery sales in the three months ended June 30, 2024 reflects a 74.7% decrease in the number of systems completed and a 83.6% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the three months ended June 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 NEM 2.0 deadline in California. The decrease in the three months ended June 30, 2024 were also impacted adversely by an increase in interest rates and economic inflation, contributing to decreases in consumer demand for solar energy systems. During the three months ended June 30, 2024 and 2023, our battery sales were $374,000 and $347,000, respectively. Battery sales refer to the sale of batteries sold other than as part of a solar system.

Current wording

Revenues for the three months ended September 30, 2024 were $6.3 million, a decrease of $7.9 million or 55.6% from $14.3 million in the three months ended September 30, 2023. The decrease resulted from a $8.2 million decrease in solar energy and battery sales, offset with a $287,000 increase in LED sales. Our revenue from solar systems decreased from $13.3 million for the three months ended September 30, 2023 to $5.1 million for the three months ended September 30, 2024, a 61.5% decrease. , primarily as a result of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, reflecting a significant surge in 2023 in the consumer demand for solar energy systems for which orders were placed prior to NEM 3.0 becoming effective, generating a backlog of orders which were mostly filled in 2023. The dramatic decrease in revenue in the three months ended September 30, 2024 also reflects the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation, the effect of which diminishes the appeal of solar as a cost-saving investment for the consumers, which is experienced by the solar industry generally. The decrease in the solar energy and battery sales in the three months ended September 30, 2024 reflects a 56.0% decrease in the number of systems completed and a 71.4% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the three months ended September 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 NEM 2.0 deadline in California. During the three months ended September 30, 2024 and 2023, our battery sales were $208,000 and $124,000, respectively. Battery sales refer to the sale of batteries sold other than as part of a solar system.

Previous wording

Revenues for the six months ended June 30, 2024 were $10.2 million, a decrease of $17.4 million or 63.0% from $27.6 million in the six months ended June 30, 2023, all of which was generated by the United States segment. The decrease resulted from a $18.3 million decrease in solar energy and battery sales, offset with a $946,000 increase in LED sales. Our revenue from solar systems decreased from $26.0 million for the six months ended June 30, 2023 to $7.8 million for the six months ended June 30, 2024, a 70.1% decrease. As a result of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, the prior period sales reflected a significant surge in the consumer demand for solar energy systems generating a backlog of orders which were mostly filled in 2023. The dramatic decrease in revenue in the six months ended June 30, 2024 also reflects the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation, the effect of which diminishes the appeal of solar as a cost-saving investment for the consumers, which are also experienced by the entire solar industry. The decrease in the solar energy and battery sales in the United States segment in the six months ended June 30, 2024 reflects a 68.6% decrease in the number of systems completed and a 76.8% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the six months ended June 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 effectiveness of NEM 3.0 deadline in California. The decreases in the six months ended June 30, 2024 were also impacted adversely by an increase in interest rates and economic inflation, contributing to decreases in consumer demand for solar energy systems. During the six months ended June 30, 2024 and 2023, our battery only sales were $608,000 and $734,000, respectively. Battery sales refer to the sale of batteries sold other than as a part of a solar system.

Current wording

Revenues for the nine months ended September 30, 2024 were $16.5 million, a decrease of $25.3 million or 60.5% from $41.9 million in the nine months ended September 30, 2023. The decrease resulted from a $26.4 million decrease in solar energy and battery sales, offset by a $1.2 million increase in LED sales. Our revenue from solar systems decreased from $39.4 million for the nine months ended September 30, 2023 to $12.9 million for the nine months ended September 30, 2024, a 67.2% decrease. As with the decrease in revenue for the three months ended September 30, 2024, the significant decrease reflected the effect of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, the prior period sales reflected a significant surge in the consumer demand for solar energy systems generating a backlog of orders which were mostly filled in 2023 as well as the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation. The decrease in the solar energy and battery sales i in the nine months ended September 30, 2024 reflects a 64.8% decrease in the number of systems completed and a 74.9% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the nine months ended September 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 effectiveness of NEM 3.0 deadline in California. During the nine months ended September 30, 2024 and 2023, our battery only sales were $816,000 and $858,000, respectively. Battery sales refer to the sale of batteries sold other than as a part of a solar system.

Previous wording

We expect the revenue from our residential sales to decrease in 2024, but we are looking to offset most, or all, of the decrease with commercial sales and, commencing in the second quarter of 2024, sales to residential customers through third party leasing companies which can offer favorable terms to customers when compared with third party financing during a time of high interest rates.

Current wording

We expect the revenue from our residential sales to decrease in 2024, but we are looking to offset the decrease with commercial sales and, commencing in the second quarter of 2024, sales to residential customers through third party leasing companies which can offer favorable terms to customers when compared with third party financing during a time of high interest rates.

Previous wording

Our LED revenue increased by $595,000 or 93.7% to $1.2 million for the three months ended June 30, 2024 from $635,000 for the three months ended June 30, 2023, and by $946,000, or 72.7%, to $2.2 million for the six months ended June 30, 2024 from $1.3 for the six months ended June 30, 2023, primarily resulting from the increase in the number of LED projects. LED revenues include LED product sales and LED consulting revenues and 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. The revenue trend from our LED business therefore tends to fluctuate period to period.

Current wording

Our LED revenue increased by $287,000 or 34.9% to $1.1 million for the three months ended September 30, 2024 from $823,000 for the three months ended September 30, 2023, and by $1.2 million, or 58.1%, to $3.4 million for the nine months ended September 30, 2024 from $2.1 million for the nine months ended September 30, 2023, primarily resulting from the increase in the number of LED projects. LED revenues include LED product sales and LED consulting revenues and 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. The revenue trend from our LED business therefore tends to fluctuate period to period.

Previous wording

We have not originated any loans to our solar customers since early 2020. As a result, our finance revenue for the three months ended June 30, 2023 and 2023 was $93,000 and $140,000, respectively, and for the six months ended June 30, 2024 and 2023 was $195,000 and $291,000, respectively, from our portfolio of solar loans. Finance revenue will decrease as loans in our portfolio are paid and not replaced by new loans.

Current wording

We have not originated any loans to our solar customers since early 2020. As a result, our finance revenue for the three months ended September 30, 2024 and 2023 was $89,000 and $125,000, respectively, and for the nine months ended September 30, 2024 and 2023 was $284,000 and $416,000, respectively, from our portfolio of solar loans. Finance revenue will decrease as loans in our portfolio are paid and not replaced by new loans.

Previous wording

During the six months ended June 30, 2024, we recognized a one-time non-cash stock-based compensation expense of approximately $1.3 million in cost of revenue as a result of performance options vesting upon our initial public offering on February 12, 2024. Excluding this one-time stock-based compensation expense cost of revenue for our United States segment decreased 69.5% from $12.7 million in the three months ended June 30, 2023 to $3.9 million in the three months ended June 30, 2024, and 62.4% from $23.5 million in the six months ended June 30, 2023 to $8.8 million in the six months ended June 30, 2024, primarily as a result of the decrease in revenue, although the decrease in cost of revenue was not as great as the decrease in revenue as discussed below. Gross margin decreased to 13.2% for the three months ended June 30, 2024 from 14.1% in the three months ended June 30, 2023, and 1.2% for the six months ended June 30, 2024 from 15.0% in the six months ended June 30, 2023, primarily as result of the decreased sales in the current period while the labor components of the cost remain fixed which adversely impacted the gross margin. We have no cost of revenue with respect to interest income on customer loans. Our China segment had no revenue and no cost of revenue for the three months ended June 30, 2024 and 2023, and the six months ended June 30, 2024 and 2023.

Current wording

Our cost of revenue for the three months ended September 30, 2024 was $5.4 million, a decrease of $5.2 million, or 50.4% from $10,225 for the three months ended September 30, 2023, reflecting the decrease in revenues. Our cost of revenue for the nine months ended September 30, 2024 was $15.2 million, a decrease of $18.5 million, or 55.0% from $33.7 million for the nine months ended September 30, 2023, reflecting the decrease in revenues. During the nine months ended September 30, 2024, we recognized a one-time non-cash stock-based compensation expense of approximately $1.3 million in cost of revenue as a result of performance options vesting upon our initial public offering on February 12, 2024. Excluding this one-time stock-based compensation expense, cost of revenue decreased 58.7% from $33.7 million in the nine months ended September 30, 2023 to $13.9 million in the nine months ended September 30, 2024. Gross margin decreased to 19.9% for the three months ended September 30, 2024 from 28.4% in the three months ended September 30, 2023, and 8.3% for the nine months ended September 30, 2024 from 19.6% in the nine months ended September 30, 2023, primarily as result of the decreased sales in the current period while the labor components of the cost remain fixed which adversely impacted the gross margin. We have no cost of revenue with respect to interest income on customer loans.

Previous wording

Sales and marketing expenses for the three months ended June 30, 2024 decreased to $87,000, a decrease of $327,000 or 79.0% from $414,000 in the comparable period of 2023. Sales and marketing expenses were 2.0% of revenue for the 2024 compared to 2.8% for the three months ended June 30, 2023. Sales and marketing expenses for the six months ended June 30, 2024 decreased for our United States segment to $252,000, a decrease of $412,000, or 62.0%, from $664,000 in the comparable period of 2023. Sales and marketing expenses in the United States were 2.5% of revenue for the six months ended June 30, 2024 compared to 2.4% for the six months ended June 30, 2023. 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. Due to the nature of our EPC business in our China segment, the EPC contracts for solar farm projects are generally obtained through customer relationship with just a few corporate customers, with substantially all revenues for our China segment since the second half of 2019 being generated by agreements with SPIC, Accordingly, our China segment did not incur sales and marketing expenses for the three and six months ended June 30, 2024 and 2023.

Current wording

Sales and marketing expenses for the three months ended September 30, 2024 decreased to $140,000, a decrease of $160,000, or 53.3%, from $300,000 in the comparable period of 2023. Sales and marketing expenses were 2.2% of revenue for the three months ended September 30, 2024 compared to 2.1% for the three months ended September 30, 2023. Sales and marketing expenses for our United States segment for the nine months ended September 30, 2024 decreased to $392,000, a decrease of $571,000, or 59.3%, from $964,000 in the comparable period of 2023. Sales and marketing expenses in the United States were 2.4% of revenue for the nine months ended September 30, 2024 compared to 2.3% for the nine months ended September 30, 2023. 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. Our China segment did not incur sales and marketing expenses for the three and nine months ended September 30, 2024 and 2023.

Previous wording

General and administration expenses for the United States segment for the three months ended June 30, 2024 increased $398,000 or 17.1% to $2.7 million compared to $2.3 million for the three months ended June 30, 2023, representing 61.2% of revenue for the three months ended June 30, 2024 compared to 15.8% of revenue for the three months ended June 30, 2023. The quarter to quarter increase reflects the expected increase in compliance costs associated with being a publicly-traded company beginning in February 2024 and the incremental compensation related to full-time headcounts as we hired employees in 2023 to manage sales though dealers who are selling on the Company’s behalf. The increase in the percentage in the three months ended June 30, 2024 is primarily attributed to the large decline in revenue in this period compared to the prior period.

Current wording

General and administration expenses for the United States segment for the three months ended September 30, 2024 increased $1.3 million or 60.7% to $3.5 million compared to $2.2 million for the three months ended September 30, 2023, representing 55.6% of revenue for the three months ended September 30, 2024 compared to 15.3% of revenue for the three months ended September 30, 2023. The increase during the three months ended September 30, 2024 is principally attributed to the stock compensation expense recognized as a result of the vesting in August 2024 of 264,650 shares of restricted stock previously issued to two former consultants. Additionally, the quarter to quarter increase reflects the increase in compliance costs associated with being a publicly-traded company beginning in February 2024 and the incremental compensation related to full-time headcounts as we hired employees in 2023 to manage sales though dealers who are selling on the Company’s behalf. We have decreased our headcount as a result of the decrease in orders reflected in our reduced revenue in the 2024 period. The increase in the percentage in the three months ended September 30, 2024 is primarily attributed to the large decline in revenue in the 2024 period compared to the comparable prior of 2023.

Previous wording

During the six months ended June 30, 2024, our United States operations recognized a one-time stock-based compensation expense of approximately $15.9 million in general and administrative expense as a result of performance options vesting upon our initial public offering in February 2024. Excluding the stock-based compensation expense, general and administrative expenses for the United States segment for the six months ended June 30, 2024 increased by $403,000 to $4.8 million compared to $4.4 million for the six months ended June 30, 2023. General and administrative expenses were 15.8% of revenue for the six months ended June 30, 2023, compared to 46.8% for the six months ended June 30, 2024. We expected an overall increase in general and administrative expenses in 2024 as a result of the cost of compliance and other regulatory costs associated with being a public reporting company. All of our corporate overhead, other than overhead directly related to the China segment, is allocated to the United States segment.

Current wording

During the nine months ended September 30, 2024, our United States operations recognized a one-time stock-based compensation expense of approximately $17.3 million in general and administrative expense as a result of performance options vesting of 5,898,137 option shares upon our initial public offering in February 2024 and the vesting in August 2024 of 264,650 restricted shares granted to two former consultants. Excluding the stock-based compensation expense, general and administrative expenses for the United States segment for the nine months ended September 30, 2024 increased by $406,000 to $7.0 million compared to $6.6 million for the nine months ended September 30, 2023. General and administrative expenses were 15.7% of revenue for the nine months ended September 30, 2023, compared to 42.1% for the nine months ended September 30, 2024. Our overall increase in general and administrative expenses in 2024 reflects the cost of compliance and other regulatory costs associated with being a public reporting company. All of our corporate overhead, other than overhead directly related to the China segment, is allocated to the United States segment.

Previous wording

General and administrative expenses relating to the China segment were $175,000 in the three months ended June 30, 2024 compared to $250,000 in the three months ended June 30, 2023, and $427,000 in the six months ended June 30, 2024, as compared with $(504,000) in the six months ended June 30, 2023. During the six months ended June 30, 2023, we had a $1.1 million recovery of previously reserved receivable on one of our projects for SPIC as a result of the settlement of a legal proceeding.

Current wording

General and administrative expenses relating to the China segment were $164,000 in the three months ended September 30, 2024 compared to $640,000 in the three months ended September 30, 2023, and $591,000 in the nine months ended September 30, 2024, as compared with $136,000 in the nine months ended September 30, 2023. During the nine months ended September 30, 2023, we had a $1.1 million recovery of previously reserved receivable on one of our projects for SPIC as a result of the settlement of a legal proceeding.

Previous wording

As a result of the factors described above, our loss from operations for the United States segment was $2.2 million for the three months ended June 30, 2024 , compared to a loss from operations of $661,000 for the three months ended June 30, 2023, and a loss from operations of $20.9 million for the six months ended June 30, 2024, compared to a loss of $888,000 in the six months ended June 30, 2023. Our loss from operations for the China segment was $175,000 for the three months ended June 30, 2024, compared to a loss from operations of $250,000 for the three months ended June 30, 2023, and a loss from operations of $427,000 for the six months ended June 30, 2024, compared to income from operations of $504,000 in the six months ended June 30, 2023.

Current wording

As a result of the factors described above, our loss from operations for the United States segment was $2.4 million for the three months ended September 30, 2024, compared to income from operations of $1.6 million for the three months ended September 30, 2023, and a loss from operations of $23.3 million for the nine months ended September 30, 2024, compared to income from operations of $673,000 in the nine months ended September 30, 2023. Our loss from operations for the China segment was $7.6 million for the three months ended September 30, 2024, compared to a loss from operations of $640,000 for the three months ended September 30, 2023, and a loss from operations of $8.1 million for the nine months ended September 30, 2024, compared to a loss from operations of $136,000 in the nine months ended September 30, 2023.

Previous wording

The consolidated loss from operations was $2.4 million for the three months ended June 30, 2024 compared to a consolidated loss from operations of $911,000 for the three months ended June 30, 2023, and a consolidated loss from operations of $21.3 million for the six months ended June 30, 2024 compared to a consolidated loss from operations of $383,000 for the six months ended June 30, 2023.

Current wording

The consolidated loss from operations was $10.0 million for the three months ended September 30, 2024 compared to a consolidated income from operations of $920,000 for the three months ended September 30, 2023, and a consolidated loss from operations of $31.3 million for the nine months ended September 30, 2024 compared to a consolidated income from operations of $537,000 for the nine months ended September 30, 2023.

Previous wording

Equity in income from unconsolidated entities relates to our China segment and comprises the equity in income from three unconsolidated project companies in which we have a non-controlling 30% interest. The equity in income reported for the three months ended June 30, 2024 was $239,000 compared to $367,000 in the three months ended June 30, 2024, a decrease of $(129,000) or 35.0%. The equity in income reported for the six months ended June 30, 2024 was $299,000 compared to $435,000 in the six months ended June 30, 2023, a decrease of $136,000 or 31.3%. The change period over period correlates with the lower power production in the Guizhou region in China, which can vary from year to year depending on the weather.

Current wording

Equity in income from unconsolidated entities relates to our China segment and comprises the equity in income from three unconsolidated project companies in which we have a non-controlling 30% interest. The equity in income reported for the three months ended September 30, 2024 was $254,000 compared to $452,000 in the three months ended September 30, 2023, a decrease of $(198,000) or 43.8%. The equity in income for the nine months ended September 30, 2024 was $553,000, compared to $887,000 in the nine months ended September 30, 2023, a decrease of $334,000 or 37.7%. The change period over period correlates with the lower power production in the Guizhou region in China, which can vary from year to year depending on the weather.

Previous wording

Gain on debt extinguishment for the three months ended June 30, 2024 was $222,000 and for the six months ended June 30, 2024 was $276,000. During the three months ended June 30, 2024, we exchanged six 3% secured EB-5 notes payable to related party in the total principal amount of $3.0 million to 4% convertible notes, resulting in gain on debt extinguishment of approximately $80,000, and settled $500,000 of 4% convertible note for a gain of approximately $142,000. During the six months ended June 30, 2024, we exchanged $5.0 million of secured EB-5 notes payable to related party to 4% convertible notes in the same principal amount, resulting in gain on debt extinguishment of $134,000, and settled $500,000 principal amount of 4% convertible note for a gain of approximately $142,000. The gain on debt extinguishment for the three months ended June 30, 2023 was zero and for the six months ended June 30, 2023 was $13,000, representing the gain on exchange of $500,000 principal amount of EB-5 notes for a convertible note in the same principal note.

Current wording

Gain on debt extinguishment for the three months ended September 30, 2024 was $13,000 and for the nine months ended September 30, 2024 was $289,000. During the three months ended September 30, 2024, we exchanged a 3% secured EB-5 notes payable to related party in principal amount of $500,000 to 4% convertible notes, resulting in gain on debt extinguishment of approximately $13,000. During the nine months ended September 30, 2024, we exchanged $5.5 million of secured EB-5 notes payable to related party to 4% convertible notes in the same principal amount, resulting in gain on debt extinguishment of $147,000, and settled $500,000 principal amount of 4% convertible note for a gain of approximately $142,000. The gain on debt extinguishment for the three months ended September 30, 2023 was zero and for the nine months ended September 30, 2023 was $13,000, representing the gain on exchange of $500,000 principal amount of EB-5 notes for a convertible note in the same principal note.

Previous wording

Interest expense, net, for the three months ended June 30, 2024 was $244,000, a decrease of $179,000 or 42.4%, from the three months ended June 30, 2023. Interest expense, net, for the six months ended June 30, 2024 was $612,000, a decrease of $201,000, or 24.7%, from the six months ended June 30, 2023. Our interest expense in the six months ended June 30, 2024 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $12.0 million at March 31, 2024, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted a 4% convertible note issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $16.1 million at June 30, 2024, interest at 8% on promissory notes issued to SMX Property (a related party) due in October 2024 with a principal balance of $1.4 million at June 30, 2024, interest at 6% on a promissory note issued to an unrelated individual due in December 2024 with a principal balance of $2.0 million at June 30, 2024, and interest at 12% on a promissory note issued to an unrelated investment company due in November 2024 with a principal balance of $900,000. 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 replace debt of an equal amount that had been due to CEF. The notes are secured by the same collateral as the notes to CEF.

Current wording

Interest expense, net, for the three months ended September 30, 2024 was $193,000, a decrease of $118,000 or 37.9%, from the three months ended September 30, 2023. Interest expense, net, for the nine months ended September 30, 2024 was $805,000, a decrease of $319,000, or 28.4%, from the nine months ended September 30, 2023. Our interest expense in the nine months ended September 30, 2024 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $11.5 million at September 30, 2024, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted a 4% convertible note issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $16.3 million at September 30, 2024, interest at 8% on promissory notes issued to SMX Property (a related party) due in October 2024 with a principal balance of $1.4 million at September 30, 2024, interest at 6% on a promissory note issued to an unrelated individual due in December 2024 with a principal balance of $2.0 million at June 30, 2024, and interest at 12% on a promissory note issued to an unrelated investment company due in November 2024 with a principal balance of $900,000. 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 replace debt of an equal amount that had been due to CEF. The notes are secured by the same collateral as the notes to CEF. Our interest income in the nine months ended September 30, 2024 includes interest earned on $7.0 million promissory notes receivable at 8.0% in the United States segment due June 1, 2024, extended to September 25, 2024 and further extended to December 31, 2024, and interest earned on RMB 5.0 million (approximately $688,000) promissory notes receivable at 5% in the China segment due June 25, 2024, extended to September 25, 2024 and further extended to December 25, 2024.

Previous wording

During the three months ended June 30, 2024, other expense was $97,000 consisting of $66,000 of foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency, and a $30,000 loss associated with the write-off of legal settlement receivable as a result of the debtor's bankruptcy. During the three months ended June 30, 2023, other expense was $401,000 consisting of $585,000 of foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency, offset with a $184,000 of other income primarily in the China segment related to interest received on Yilong 1.

Current wording

During the three months ended September 30, 2024, other income, net was $387,000 consisting primarily of $371,000 of foreign currency transaction gains for our United States segment intercompany receivable denominated in the Chinese currency. During the three months ended September 30, 2023, other income, net was $263,000 consisting of $277,000 of sublease income, partially offset by $57,000 of foreign currency transaction losses for our United States segment intercompany receivable denominated in the Chinese currency.

Previous wording

During the six months ended June 30, 2024, other expense was $306,000 consisting primarily of a $291,000 of foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency, a $30,000 loss associated with the write-off of legal settlement receivable as a result of the debtor's bankruptcy, and a gain on disposal of property in the amount of $14,000. During the six months ended June 30, 2023, other expense was $82,000, consisting primarily of $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $48,000 of income related to the foreign currency transaction gain for our United States segment intercompany receivable denominated in the Chinese currency, offset with $17,000 of expense related to a legal settlement involving a former employee.

Current wording

During the nine months ended September 30, 2024, other income, net was $81,000 consisting primarily of a $85,000 of foreign currency transaction gains for our United States segment intercompany receivable denominated in the Chinese currency, a $30,000 loss associated with the write-off of legal settlement receivable as a result of the debtor's bankruptcy, and a gain on disposal of property in the amount of $14,000. During the nine months ended September 30, 2023, other expense was $182,000, consisting primarily of $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $48,000 of income related to the foreign currency transaction gain for our United States segment intercompany receivable denominated in the Chinese currency, offset with $17,000 of expense related to a legal settlement involving a former employee.

Previous wording

For the three months ended June 30, 2024 and 2023, our United States segment reported an income tax expense of $0 and $0, respectively, attributable to state minimum tax liabilities. For the six months ended June 30, 2024 and 2023, our United States segment reported an income tax expense of $6,000 and $6,000, respectively, attributable to state minimum tax liabilities.

Current wording

For the three months ended September 30, 2024 and 2023, our United States segment reported an income tax expense of $0 and $0, respectively, attributable to state minimum tax liabilities. For the nine months ended September 30, 2024 and 2023, our United States segment reported an income tax expense of $6,000 and $6,000, respectively, attributable to minimum state tax liabilities.

Previous wording

For the China segment, an income tax benefit of approximately $115,000 and an expense of $491,000 was reported for the three months ended June 30, 2024 and 2023, respectively. For the China segment, an income tax benefit of approximately $116,000 and an expense of $284,000 was reported for the six months ended June 30, 2024 and 2023, respectively, arising from profitable operations subject to China income tax.

Current wording

For the China segment, an income tax benefit of approximately $57,000 and an income tax expense of $141,000 was reported for the three months ended September 30, 2024 and 2023, respectively. For the China segment, an income tax benefit of approximately $59,000 and an income tax expense of $143,000 was reported for the nine months ended September 30, 2024 and 2023, respectively, arising from profitable operations subject to China income tax.

Previous wording

As a result of the foregoing, we had consolidated net loss of $2.2 million or $(0.05) per share (basic and diluted) for the three months ended June 30, 2024, compared with a consolidated net loss of $1.9 million or $(0.05) per share (basic and diluted) for the three months ended June 30, 2023.

Current wording

As a result of the foregoing, we had consolidated net loss of $9.6 million or $(0.21) per share (basic and diluted) for the three months ended September 30, 2024, compared with a consolidated net income of $1.5 million or $0.04 per share (basic and diluted) for the three months ended September 30, 2023.

Previous wording

As a result of the foregoing, we had consolidated net loss of $21.4 million, or $(0.50) per share (basic and diluted), for the six months ended June 30, 2024, compared with a consolidated net loss of $1.1 million, or $(0.03) per share (basic and diluted), for the six months ended June 30, 2023.

Current wording

As a result of the foregoing, we had consolidated net loss of $31.1 million, or $(0.71) per share (basic and diluted), for the nine months ended September 30, 2024, compared with a consolidated net income of $0.3 million, or $0.01 per share (basic and diluted), for the nine months ended September 30, 2023.

Previous wording

As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of $65,000 and $622,000 for the three months ended June 30, 2024 and 2023, respectively, and losses of $273,000 and $401,000 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of $173,000 and $43,000 for the three months ended September 30, 2024 and 2023, respectively, and losses of $99,000 and $444,000 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

The following tables show consolidated cash flow information for the six months ended June 30, 2024 and 2023 (dollars in thousands):

Current wording

The following tables show consolidated cash flow information for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 was $8.0 million, compared to net cash used by operating activities for the six months ended June 30, 2023 of $1.4 million. The cash flow used in operations for the six months ended June 30, 2024, resulting from our net loss of $21.4 million, increases in non-cash expense principally from increases of $17.2 million in stock-based compensation expenses, and $729,000 of an increase in amortization of operating lease right-of-use assets. During the six months ended June 30, 2024, our operating assets and liabilities used $4.3 million in cash.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $7.8 million, compared to net cash used by operating activities for the nine months ended September 30, 2023 of $0.4 million. The cash used in operations for the nine months ended September 30, 2024, resulting from our net loss of $31.1 million, increases in non-cash expense from increases of $18.5 million in stock-based compensation expenses and an increase of $7.5 million in China goodwill impairment loss, and an increase of $3.4 million in cash use for our operating assets and liabilities. During the nine months ended September 30, 2024, our operating assets and liabilities used $3.5 million in cash, compared to $1.8 million of cash used in the nine months ended September 30, 2023.

Previous wording

Net cash used by operations for the six months ended June 30, 2023 of $1.4 million resulted from net loss of $1.1 million, increased by a $5.8 million decrease in cash from contract assets, $3.3 million decrease in cash from other receivables and current assets, with an offset from $713,000 increase in cash from accounts receivable, $2.1 million increase in cash from customer loans receivable, $1.3 million increase in cash from inventories, $28,000 increase in cash from other assets, $1.5 million increase in cash from accounts payable, $677,000 decrease in cash from operating lease liabilities, $5.1 million increase in cash from contract liabilities, $1.9 decrease in cash from accrued expenses and other payables, and $225,000 decrease in cash from other liabilities. We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the projects in progress.

Current wording

Net cash used by operations for the nine months ended September 30, 2023 of $389,000 resulted from net loss of $350,000, increased by a $2.0 million decrease in cash from contract assets, $3.6 million decrease in cash from other receivables and current assets, with an offset from $740,000 increase in cash from accounts receivable, $3.1 million increase in cash from customer loans receivable, $1.6 million increase in cash from inventories, $27,000 increase in cash from other assets, $1.4 million increase in cash from accounts payable, $1.0 million decrease in cash from operating lease liabilities, $2.3 million increase in cash from contract liabilities, $3.5 million decrease in cash from accrued expenses and other payables, and $1.1 million decrease in cash from other liabilities. We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the projects in progress.

Previous wording

Net cash used by investing activities for the six months ended June 30, 2024 was approximately $7.7 million, representing a portion of the net proceeds of our initial public offering, consisting of $7.7 million short-term investment in three promissory notes (of which $688,000 relates to the China segment), offset by $14,000 of cash proceeds received from disposal of property and equipment. Net cash used by investing activities for the six months ended June 30, 2023 was 6,000, consisting of cash received of $22,000 related to the disposal of property and equipment, offset by $28,000 used in the purchase of property and equipment.

Current wording

Net cash used by investing activities for the nine months ended September 30, 2024 was approximately $7.7 million, consisting of $7.7 million of short-term investment in three promissory notes (of which $713,000 relates to the China segment), offset by $21,000 of cash proceeds received from disposal of property and equipment. Net cash used by investing activities for the nine months ended September 30, 2023 was 6,000, consisting of cash received of $22,000 related to the disposal of property and equipment, offset by $28,000 used in the purchase of property and equipment.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $14.2 million, consisting of $18.6 million of net cash proceeds from the initial public offering completed in February and March 2024, $0.9 million loan proceeds from a new short term borrowing, offset by $5.0 million principal payments on convertible notes in the United States segment, and $8,000 payment on equipment leases in the United States segment.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $13.9 million, consisting of $18.6 million of net cash proceeds from the initial public offering completed in February and March 2024, $900,000 loan proceeds from a new short term borrowing, offset by $5.3 million principal payments on convertible notes in the United States segment.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2023 was $640,000, consisting of $3.7 million principal payments on convertible notes in the United States segment, $27,000 payments on other borrowings and equipment leases in the United States segment, and $2.3 million payment to Uonone, offset by $6.8 million of proceeds from Uonone, related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2023 was $22,000, consisting of $4.1 million principal payments on convertible notes in the United States segment, $40,000 payments on other borrowings and equipment leases in the United States segment, and $2.2 million payment to Uonone, offset by $6.7 million of proceeds from Uonone, related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.

Previous wording

We invested $7,000,000 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 September 25, 2024. Our China segment invested RMB 5,000,000, or approximately $688,000, in a 5% note due June 25, 2024 issued by Qingdao Xiaohuangbei Technology Co., Ltd., a PRC-based company. The initial maturity was June 25, 2024 and it was extended at the request of the maker to September 25, 2024. These notes are shown on our balance sheet as short-term investments. Maintaining any significant portion of our cash in non-financial institutions, which do not have any of the protections provided United States banks, is subject to adverse conditions in the financial or credit markets, which could impact access to our invested cash and could adversely impact our operating liquidity and financial performance.

Current wording

We invested $7,000,000 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, at the request of the maker, it was extended to September 25, 2024 and further extended to December 31, 2024. Our China segment invested RMB 5,000,000, or approximately $688,000, in a 5% note issued by Qingdao Xiaohuangbei Technology Co., Ltd., a PRC-based company. The initial maturity was June 25, 2024 and, at the request of the maker, it was extended to September 25, 2024 and further extended to December 25, 2024. These notes are shown on our balance sheet as short-term investments. Maintaining any significant portion of our cash in non-financial institutions, which do not have any of the protections provided United States banks and which have requested extensions of the payment date, is subject to adverse conditions in the financial or credit markets, which could impact access to our invested cash and could adversely impact our operating liquidity and financial performance.

Previous wording

Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, we issued two two-year 8% notes to SMXP. Both notes provide for quarterly payments of interest during the term with the principal being due at maturity. One note, in the principal amount of $414,581, was issued to pay past due rent under our former lease with SMXP for the period June 1, 2022 to October 12, 2022. The second note, for $944,077 was issued in respect of a loan from SMXP to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord.

Current wording

Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, we issued two two-year 8% notes to SMXP. Both notes provide for quarterly payments of interest during the term with the principal being due at maturity on October 10, 2024 which was extended to October 10, 2025. One note, in the principal amount of $414,581, was issued to pay past due rent under our former lease with SMXP for the period June 1, 2022 to October 12, 2022. The second note, for $944,077 was issued to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord.

Previous wording

In June 2024, our United States LED subsidiary signed a short-term promissory note maturing in November 2024 with an unrelated investment company to borrow $900,000 at a fixed interest rate of 12% for working capital purposes.

Current wording

In June 2024, our United States LED subsidiary borrowed $900,000 at a fixed interest rate of 12% from a non-affiliated party for working capital purposes. The note was due on November 10, 2024 which was extended to December 31, 2024 at our request.

Previous wording

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 June 30, 2024, we had issued convertible notes in the principal amount of $36.5 million to former limited partners of CEF, of which principal payments of $19.75 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.77 million, leaving convertible notes in the principal amount of $14.25 million outstanding. As of June 30, 2024, notes to CEF and CEF II in the aggregate principal amount of $12.0 million were outstanding.

Current wording

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 September 30, 2024, we had issued convertible notes in the principal amount of $37.5 million to former limited partners of CEF, of which principal payments of $21.1 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.8 million, leaving convertible notes in the principal amount of $16.3 million outstanding. As of September 30, 2024, notes to CEF and CEF II in the aggregate principal amount of $11.5 million were outstanding and convertible notes in the principal amount of $16.3 million were outstanding.