SolarMax Technology, Inc.

Previous wording

Prior to mid-to-late 2021, our business was not impacted by inflation or supply chain issues. With the recent inflationary pressures combined with the world-wide supply chain issues, our business is subject to the inflationary pressure and we were subject to supply chain issues that were affecting many domestic and foreign companies, and we expect that the inflationary pressures will continue to affect our ability to sell our products, the price at which can sell products in both the United States and China and our gross margin in both the United States and China. To the extent that we are not able to raise our prices or to the extent that we cannot accurately project our costs when we set our prices, our gross margin and the results of our operations will be impacted.

Current wording

With the recent inflationary pressures combined with the world-wide supply chain issues, which have been impacted from the recent tariffs, our business is subject to the inflationary pressure and we were subject to supply chain issues that are affecting many domestic and foreign companies, and we expect that the inflationary pressures will continue to affect our ability to sell our products, the price at which can sell products and our gross margin. To the extent that we are not able to raise our prices or to the extent that we cannot accurately project our costs when we set our prices, our gross margin and the results of our operations will be impacted.

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 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.

Current wording

Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States segment decreased approximately 11% for the three months ended March 31, 2025 compared to the same period in 2024. The decrease in 2025 reflected the lay-off of a portion of our employees resulting from a slowdown after we had completed installation of the increased 2023 backlog resulting orders placed in 2023 in advance of NEM 3.0 becoming effective in April 2023, as discussed below under “Effects of NEM 3.0.” The increase in 2023 also reflected 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 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

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.

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 decrease in revenue for solar sales in the year ended December 31, 2024 from the year ended December 31, 2023 reflects both a surge in 2023 revenue in anticipation of the effectiveness of NEM 3.0 in April 2023 and a sharp decline in 2024 revenue resulting from the effectiveness of NEM 3.0.

Previous wording

Elimination of Forfeiture Provisions of Options upon Initial Public Offering

Current wording

Elimination of Forfeiture Provisions of Options and Stock Grants

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, 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.

Current wording

During the years 2015 to 2019, we granted shares of restricted stock and incentive stock options to employees and consultants, of which 264,650 shares of restricted stock and incentive stock options to purchase 5,898,137 shares were outstanding at the date of our initial public offering. Under the terms of the restricted stock and incentive stock options, the restricted stock and options became vested and non-forfeitable upon the completion of our 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 completion of the initial public offering, the value of the restricted stock and the incentive stock options is treated as compensation expense in the period in which the restricted stock and incentive stock options become non-forfeitable and are deemed to have met the performance-based indicator (i.e., the completion of the initial public offering). Using the Black Scholes valuation method, the fair value of the incentive stock options at the time of the Company’s initial public offering was approximately $18.5 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 in the three months ended March 31, 2024.

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. 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.

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 the sale and installation of photovoltaic and battery backup systems for residential and commercial customers and 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 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

Current wording

We are seeking to offset our decline in residential solar sales in California for the year ended December 31, 2024 as compared with the year ended December 31, 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

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:

Current wording

The following tables set forth information relating to our operating results for the three months ended March 31, 2025 and 2024 (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 nine months ended September 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 months ended March 31, 2025 and 2024 (dollars in thousands):

Previous 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.

Current wording

Revenues for the three months ended March 31, 2025 were $6.9 million, an increase of $1.2 million or 20.2% from $5.8 million in the three months ended March 31, 2024. The increase resulted from a $1.2 million increase in solar energy and battery sales, a $41,000 increase in LED sales, offset by a $30,000 decrease in financing revenue. Our revenue from solar systems increased from $4.6 million for the three months ended March 31, 2024 to $5.8 million for the three months ended March 31, 2025, a 24.8% increase. Our revenues in the three months ended March 31, 2024 were negatively impacted by unusually frequent and heavy rains in California, which affected our ability to complete the installation of solar systems as well as the effect of the adoption of NEM 3.0, which resulted in an increase in solar revenue in 2023 as homeowners purchased solar systems in anticipation of the effectiveness of NEM 3.0, which also resulted in a decrease in solar revenue in 2024. We did not experience the level of rainfalls in the three months ended March 31, 2025, coupled with our ability to increase solar revenue from our dealer network, which resulted in the increase in sales of both the solar energy systems and batteries. The increase in the solar energy and battery sales in the three months ended March 31, 2025 reflects a 15.0% increase in the number of systems completed and a 20.7% increase in the wattages deployed. During the three months ended March 31, 2025 and 2024, our battery sales were $328,000 and $234,000, 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 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

As a result of the continued high interest rate environment, we expect the revenue from our residential sales to grow modestly in 2025 through our expansion of the dealer network program, but we are looking to offset the potential residential decrease with commercial sales and sales to residential customers through third party leasing companies which may be able to offer favorable terms to customers when compared with third party financing.

Previous 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.

Current wording

Our LED revenue increased by $41,000 or 4.0% to $1.1 million for the three months ended March 31, 2025 from $1.0 million for the three months ended March 31, 2024, 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. Revenue from our LED business 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 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.

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 March 31, 2025 and 2024 was $72,000 and $102,000, respectively, from our portfolio of solar loans. Finance revenue decreases as loans in our portfolio are paid and not replaced by new loans.

Previous 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.

Current wording

Our cost of revenue for the three months ended March 31, 2025 was $5.5 million, a decrease of $720,000, or 11.6% from $6.2 million for the three months ended March 31, 2024. During the three months ended March 31, 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 in the first quarter of 2024. Excluding this one-time stock-based compensation expense cost of revenue increased 11.0% from $5.0 million in the three months ended March 31, 2024 to $5.5 million in the three months ended March 31, 2025, primarily driven by the corresponding increase in sales revenue of 24%.

Previous 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.

Current wording

Sales and marketing expenses for our United States segment for the three months ended March 31, 2025 decreased to $79,000, a decrease of $86,000, or 52.2%, from $165,000 in the comparable period of 2024. Sales and marketing expenses in the United States were 1.1% of revenue for the three months ended March 31, 2025 compared to 2.9% for the three months ended March 31, 2024. Our sales and marketing expenses in the United States fluctuate based on the types of marketing and promotion initiatives we deploy. Our China segment did not incur sales and marketing expenses for the three months ended March 31, 2025 and 2024.

Previous 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.

Current wording

General and administration expenses for the United States segment for the three months ended March 31, 2025 decreased $15.6 million or 86.7% to $2.4 million compared to $18.0 million for the three months ended March 31, 2024, representing 34.7% of revenue for the three months ended March 31, 2025 compared to 312.3% of revenue for the three months ended March 31, 2024. The decrease during the three months ended March 31, 2025 is principally attributed to the $15.9 million stock compensation expense recognized in the three months ended March 31, 2024 as a result of performance options vesting upon our initial public offering in the first quarter of 2024. Excluding the effect of the stock compensation expense, general and administrative expenses were $2.5 million or 34% of revenue for the three months ended March 31, 2025 compared to $2.1 million or 36% of revenue for the three months ended March 31, 2024. Our general increase, excluding the stock compensation expense, in general and administrative expenses in 2025 reflects the cost of compliance and other regulatory costs associated with being a public reporting company which is expected to continue for us. 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 $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.

Current wording

General and administrative expenses relating to the China segment were $95,000 in the three months ended March 31, 2025, as compared with $252,000 in the three months ended March 31, 2024. During the three months ended March 31, 2024, 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 $2.4 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.

Current wording

As a result of the factors described above, our loss from operations for the United States segment was $1.1 million for the three months ended March 31, 2025, compared to loss from operations of $18.6 million in the three months ended March 31, 2024. Our loss from operations for the China segment was $95,000 for the three months ended March 31, 2025, compared to a loss from operations of $252,000 in the three months ended March 31, 2024.

Previous 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.

Current wording

The consolidated loss from operations was $1.2 million for the three months ended March 31, 2025 compared to a consolidated loss from operations of $18.9 million for the three months ended March 31, 2024.

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 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.

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 for the three months ended March 31, 2025 was a loss of $14,000 compared to income of $60,000 in the three months ended March 31, 2024, a decrease of $74,000 or 123.7%. During the three months ended March 31, 2025, two of the three projects experienced losses due to insufficient sunlight which adversely impacted power generation, while one project had income. The change in the three months ended March 31, 2025 over the comparable period in 2024 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 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.

Current wording

No EB-5 notes were exchanged during the three months ended March 31, 2025. Gain on debt extinguishment for the three months ended March 31, 2024 was $54,000, representing the gain on exchange of EB-5 notes in the principal amount of $2,000,000 for convertible notes in the same principal amount.

Previous 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.

Current wording

Interest expense, net, for the three months ended March 31, 2025 was $249,000, a decrease of $119,000, or 32.4%, from the three months ended March 31, 2024. Our interest expense in the three months ended March 31, 2025 primarily includes interest at 3% on two EB-5 loans from related parties in the United States with a total principal balance of $11.0 million at March 31, 2025, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted 4% convertible notes issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $16.5 million at March 31, 2025, interest at 8% on promissory notes issued to SMX Property (a related party) due in October 2025 with a principal balance of $1.4 million at March 31, 2025, interest at 8% on a promissory note issued to an unrelated individual due on June 30, 2025 with a principal balance of $2.0 million at March 31, 2025, and interest at 12% on a promissory note issued to an unrelated party due on June 30, 2025 with a principal balance of $900,000 at March 31, 2025. 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 were issued in connection with cancellation of debt to CEF of an equal amount. The convertible notes are secured by the same collateral as the notes to CEF. Our interest income for the three months ended March 31, 2025 includes interest earned on promissory notes receivable at 8.0% in the United States segment due June 30, 2025 with a principal balance of $5.7 million at March 31, 2025, and interest earned on a promissory notes receivable at 5% in the China segment due June 30, 2025 with a principal balance of RMB 3,973,000 ($548,000) at March 31, 2025, which notes are reflected as short-term investments. See Note 5 of Notes to Consolidated Financial Statements.

Previous 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.

Current wording

During the three months ended March 31, 2025, other income, net was $59,000 consisting primarily of foreign currency transaction gains for our United States segment intercompany receivable denominated in the Chinese currency. During the three months ended March 31, 2024, other expense was $209,000, consisting primarily of $264,000 of gain on insurance settlement related the fire claim at our Riverside, California headquarters, $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 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.

Current wording

For the three months ended March 31, 2025 and 2024, our United States segment reported an income tax expense of $6,000 and $6,000, respectively, attributable to minimum state tax liabilities.

Previous 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.

Current wording

As a result of the foregoing, we had consolidated net loss of $1.3 million, or $(0.03) per share (basic and diluted), for the three months ended March 31, 2025, compared with a consolidated net loss of $19.3 million, or $(0.46) per share (basic and diluted), for the three months ended March 31, 2024.

Previous wording

Although our functional currency is the U.S. dollar, the functional currency of our China subsidiaries is the Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end exchange rates for assets and liabilities, and average exchange rates for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and reflects changes in the exchange rates between U.S. dollars and RMB.

Current wording

Although our functional currency is the U.S. dollar, the functional currency of our China subsidiaries is the RMB. The financial statements of our subsidiaries are translated to U.S. dollars using period end exchange rates for assets and liabilities, and average exchange rates for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and reflects changes in the exchange rates between U.S. dollars and RMB.

Previous 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.

Current wording

As a result of foreign currency translations, we reported net foreign currency translation income of $1,000 for the three months ended March 31, 2025 and a loss of $208,000 for the comparable period in 2024.

Previous wording

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

Current wording

The following tables show consolidated cash flow information for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Previous 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.

Current wording

Net cash used in operating activities for the three months ended March 31, 2025 was $601,000, compared to net cash used by operating activities for the three months ended March 31, 2024 of $6.4 million. The cash used in operations for the three months ended March 31, 2025, resulting from our net loss of $1.3 million, decreases in non-cash expense of $17.2 million related primarily to the stock-based compensation expenses in the prior period as described in “Elimination of Forfeiture Provisions of Options and Stock Grants,” and an increase of $4.8 million in cash from our operating assets and liabilities. During the three months ended March 31, 2025, our operating assets and liabilities used $195,000 in cash, compared to $4.7 million of cash used in the three months ended March 31, 2024.

Previous 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.

Current wording

We expect the fluctuations of working capital over time to vary based on the project status and the related project billings of the projects in progress.

Previous wording

Non-cash adjustments changes:

Current wording

Non-cash adjustments changes for the three months ended March 31, 2025:

Previous wording

Changes in operating assets and liabilities:

Current wording

Changes in operating assets and liabilities for the three months ended March 31, 2025:

Previous 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.

Current wording

Net cash provided by investment activities for the three months ended March 31, 2025 was $93,000 consisting of the partial principal repayment on the short term loan investments in China. Net cash used by investing activities for the three months ended March 31, 2024 was approximately $7.0 million, consisting of $7.0 million short-term investment in two promissory notes, offset by $14,000 of cash proceeds received from disposal of property and equipment.

Previous 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.

Current wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $15.6 million, consisting of $18.2 million of net cash proceeds from our initial public offering in March 2024, offset by $3.0 million principal payments on convertible notes, $69,000 payment of accrued legal settlement, and $4,000 payment on equipment leases.

Previous wording

We currently do not plan to repatriate any cash or earnings from any of our non-United States operations because we intend to utilize such funds to expand our China operations. Therefore, we do not accrue any China exit taxes related to the repatriation.

Current wording

We currently do not plan to repatriate any cash or earnings from any of our non-United States operations because we presently intend to utilize such funds to expand our China operations. Therefore, we do not accrue any China exit taxes related to the repatriation. However, in the event that we terminate our China segment and repatriate the cash to the United States, we will owe such taxes.

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, 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.

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 it was extended at the request of the maker to December 31, 2024 and subsequently extended to June 30, 2025. 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 date was extended at the request of the maker initially to December 25, 2024 and subsequently extended to June 30, 2025. As of May 12, 2025, we had received payments of RMB 1,344,474, or approximately $185,000, on account of this note. These notes are shown on our balance sheet as short-term investments. Maintaining any significant portion of our cash in non-financial institutions, particularly companies in Hong Kong and China, which do not have any of the protections provided by United States banks, is subject to adverse conditions in the Chinese financial and credit markets, which could impact access to our invested cash and could adversely impact our operating liquidity and financial performance.

Previous wording

At September 30, 2024, our current liabilities included secured convertible notes in the principal amount of $9.2 million, secured notes to related parties of $7.9 million and unsecured notes payable of $2.9 million.

Current wording

At March 31, 2025, our current liabilities included secured convertible notes in the principal amount of $10.7 million, secured notes to related parties of $7.4 million and unsecured notes payable of $2.9 million.

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 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.

Current wording

Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, a related party, we issued two two-year 8% notes to SMXP in the aggregate principal amount of $1,358,658. These notes provide for quarterly payments of interest during the term with the principal being initially due at maturity. The initial maturity date in October 2024 was extended to October 10, 2025.

Previous wording

On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF advanced $45.0 million. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13.0 million. CEF II advanced $10.5 million pursuant to the agreement. The loans from CEF and CEF II bear interest at 3% per annum. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, a related party. The limited partners of both CEF and CEF II are investors who are not related parties who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program. The EB-5 immigrant investor visa is a federal program that grants green cards and a path to citizenship to foreign investors who invest at least $500,000 toward job-creating projects. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve 10 permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States.

Current wording

On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF advanced $45.0 million. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13.0 million. CEF II advanced $10.5 million pursuant to the agreement. The loans from CEF and CEF II bear interest at 3% per annum. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, a related party. The limited partners of both CEF and CEF II are investors who are not related parties who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program. The EB-5 immigrant investor visa is a federal program that grants green cards and a path to citizenship to foreign investors who invest at least $500,000 toward job-creating projects. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve ten permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States.

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 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.

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 March 31, 2025, we had issued convertible notes in the principal amount of $41.5 million to former limited partners of CEF, of which principal payments of $22.0 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $3.0 million had been purchased by us for $2.1 million, leaving convertible notes in the principal amount of $16.5 million outstanding. As of March 31, 2025, notes to CEF and CEF II in the aggregate principal amount of $11.0 million were outstanding and convertible notes in the principal amount of $16.5 million were outstanding.