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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-16 · 189 added, 260 removed, 208 unchanged (68% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our financial statements and the related notes appearing elsewhere in this annual report.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this annual report.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

See “Cautionary Note Concerning Forward-Looking Statements.” Our actual results may differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in “Risk Factors” included elsewhere in this annual report..

All amounts in this annual report are in U.S.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in “Risk Factors.".

All amounts in this report are in U.S.

dollars, unless otherwise noted.

Agreement of Merger with Alberton

On October 27, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) among us;

the Alberton Acquisition Corporation (“Alberton”), and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of Alberton, as Merger Sub.

Merger Sub was formed for the sole purpose of the proposed merger with us.

Under the Merger Agreement, Merger Sub was to have been merged with and into us, and we would continue as the surviving corporation and as a wholly-owned subsidiary of Alberton and our shareholders would receive stock in Alberton.

In April 2022, we terminated the Merger Agreement pursuant to the terms of the Merger Agreement.

In connection with the Merger Agreement, we made loans to Alberton in the total amount of $1,664,446.66 and we made loans to the Alberton’s sponsor in the total amount of $651,369.01.

Although the loans are payable by Alberton and Alberton’s sponsor as a result of the termination of the Merger Agreement, because we are not able to collect any of the outstanding principal amount such loans, we recognized an expense in the full amount of these loans, along with capitalized merger costs, which together totaled approximately $3.4 million, in the year ended December 31, 2022.

Initial Public Offering

On February 27, 2024, we sold 4,500,000 shares of common stock, at a price of $4.00 per share in our initial public offering.

The gross proceeds of the offering were $18 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company.

In addition, we granted the underwriters a 45-day option to purchase an additional 675,000 shares of common stock at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments.

On March 5, 2024, the underwriters purchased 539,950 shares of common stock upon the partial exercise of the over-allotment option.

Net proceeds received by us from our initial public offering, including the partial exercise of the over-allotment option, were approximately $18.6 million.

We are using the proceeds of our initial public offering for working capital and other corporate purposes.

Reverse Stock Split

On July 15, 2022, we effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split, we reduced our authorized common stock from 500,000,000 shares to 297,225,000 shares.

All share and per share information in this annual report retroactively reflects the reverse stock split.

We have determined that we have two operating segments, the United States and China.

However, we have one reporting segment for financial reporting purposes which is the operation in the United States.

See Note 22 of Notes to Consolidated Financial Statements.

Prior to January 1, 2024, we considered our operations in China as a reporting segment.

However, because our operation in China had no revenues since 2022, we no longer consider our operation in China as a reporting segment.

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.

Our United States operations primarily consist 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.

Prior to 2020, we also financed the purchase of solar equipment from us.

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 sales of LED systems and services to government and commercial users in California.

We also generate revenue from financing the sale of its photovoltaic and battery backup systems.

Since early 2020, because we did not have the capital to support such operations, we suspended making loans to our solar customers, and we are not currently financing the purchase of solar systems and we do not anticipate engaging in such activities in the near future, if at all.

Our finance revenue reflects revenue earned on our current portfolio, with no new loans having been added since early 2020.

Our business in China is conducted through our subsidiaries, primarily ZHTH and ZHPV, and their subsidiaries.

Our China operations consist primarily of identifying and procuring solar farm projects for resale to third parties and performing EPC services primarily for solar farm projects.

Our China operations did not generate any revenue for the years ended December 31, 2023 and December 31, 2022.

Our China segment last generated revenue for the year ended December 31, 2021, substantially all of which was generated in the second quarter of the year.

Substantially all of our revenue for our China segment since 2020 has been generated from four projects for SPIC.

At December 31, 2023 and December 31, 2022, we had $7.7 million and $8.4 million, respectively, of accounts receivable from SPIC.

These receivables represent the balance of the contractual billings pursuant to the construction contracts and the unpaid portion of the equity transfer agreements pursuant to which we, in 2020 and 2021, sold to SPIC 70% controlling interests in three of the project entities and a 100% interest in the fourth project entity.

SPIC is a large state-owned company in China, and we believe that it has the financial ability to meet its obligations on its contracts, including the transfer agreements relating to the four projects.

Collections in China are paper-based, bureaucratic and often require in-person meetings.

Travel restrictions in China due to the COVID restrictions in China prevented the kind of in-person meetings necessary to collect on the receivables from SPIC.

Beginning in August 2022, our China personnel began in-person collection meetings with SPIC, and SPIC has started the payment process.

We do not believe that any reserve against these accounts receivable is required at December 31, 2023.

SPIC is a state-owned entity in China and is legally obligated to pay its receivables when a bill is issued.

We will continue to evaluate the collectability of these receivables on an ongoing basic in connection with the preparation of our financial statements for each quarter.

Our business in China is conducted through our principal subsidiaries, ZHPV and ZHTH, and their subsidiaries.

ZHTH is engaged in the business of identifying and procuring solar system projects for resale to third party developers and related services in China.

After the project subsidiary acquires the permits for a solar project and obtains a contract for the sale of the project, ZHPV builds the project pursuant to an EPC contract.

The subsidiary that owns the equity in the project subsidiary transfers the equity in the project subsidiary to the project owner.

During 2020 and 2021, we has agreements with SPIC for the construction of four solar farm projects pursuant to which we preformed the EPC work and sold SPIC 70% of the equity in three of the project subsidiaries and 100% of the equity in the fourth, in each case, upon completion and acceptance of the project by SPIC, we transferred 70% of the equity in the project subsidiary to SPIC, retaining a 30% interest, and SPIC has a first right of refusal to purchase the 30% interest in the project subsidiary from us after the project has been in operation at full capacity for one year.

As of March 31, 2024.

SPIC has not exercised this right.

Unlike systems in the United States, which are installations for residential and small business users, the projects in China are generally solar farms, which are large land areas where multiple ground-mount solar tracking towers are installed.

In 2015, we commenced operations in the PRC.

We did has not generate any revenue from our China segment in 2022, 2023, 2024 and 2025 to the date of this annual report, and the China segment does not have any projects or agreements as of the date of this annual report.

All of our revenues for the years ended December 31, 2024, 2023 and 2022 were generated by our United States segment, and our cost of revenue related to our United States segment.

We are seeking to offset our decline in residential solar sales in California from $50.5 million for the year ended December 31, 2023 to $18.4 million for the year ended December 31, 2024 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 or in pricing any project we may negotiate.

As of the date of this annual report, we do not have any contracts for major commercial solar projects.

Although we have non-binding memoranda of understanding, letter of intent or term sheets with respect to four proposed projects, all of which are subject to the negotiation of definitive agreements, and some of the projects require the identification of a financing source to provide the full financing for the project.

We cannot assure you that any of these projects or any other projects will be completed, that we will generate a gross profit or positive cash flow from any commercial projects or that we will be successful in developing our commercial business as planned.

Initial Public Offering

In March 2024, we issued 5,039,950 shares of common stock in our initial public offering at a public offering price of $4.00 per share less a 6% underwriting discount pursuant to the Underwriting Agreement with Kingswood, a division of Kingswood Capital Partners, LLC, as representative of the underwriters.

The shares issued include the partial exercise of the underwriters’ overallotment option.

Pursuant to the Underwriting Agreement, we paid the Representative a 1% non-accountable expense allowance and reimbursed the Representative for certain accountable expenses of $175,000.

The aggregate gross proceeds from the offering was approximately $20 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by us.

Net proceeds from our initial public offering of approximately $18.6 million reflects the gross proceeds net of underwriting discounts, the non-accountable expense allowance, accountable expenses of the underwriters that were paid by the Company and other expenses that were deducted from gross proceeds at the closing.

Recent Sale of Common Stock

On March 19, 2025, we issued to an accredited investor 561,798 shares of common stock at $0.89 per share, reflecting a 25% discount from the market price of the common stock, for a total purchase price of $500,000.

No broker was involved in the sale.

The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.

The proceeds from the sale are being used for working capital.

Elimination of Forfeiture Provisions of Options upon Initial Public Offering

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 $35.0 million loss for the year ended December 31, 2024.

Impairment of China Segment Goodwill

During the quarter ended September 30, 2024, we performed a goodwill impairment assessment with respect to our China segment considering various factors and based primarily on the continued economic downturn in China that directly impacts our ability to generate new businesses in the foreseeable future and the absence of any agreements or negotiations for agreements at September 30, 2024, We recognized an impairment charge for the entire balance of the goodwill of $7.5 million.

We can give no assurance as to our ability to generate revenue from our China operations, and, if we are not able to generate revenue from our China segment, we may discontinue this segment.

Effects of NEM 3.0

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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 the growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023.

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.

Effects of COVID-19 Pandemic

The United States Center for Disease Control announced that the COVID-19 public health emergency ended in May 2023, with the result that the COVID restrictions in the United States are no longer in effect and restrictions have been terminated worldwide.

We believe our United States operations are not, and have not since mid-2022 been, materially affected by COVID.

However, the effects of China’s zero tolerance policy with respect to COVID-19, which is no longer in effect, has impaired our ability to negotiate both new contracts with and payment schedules with State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd.

(“SPIC”), a state-owned entity which has been the only customer for our China segment since 2020, with the result that we have no pending agreement with SPIC and we are continuing to negotiate payment of outstanding receivables from SPIC.

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.

Inflation and Supply Chain Issues

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 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.

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.

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Although the price of silicon had declined in recent years, increases in the price of polysilicon have resulted in increases in the price of wafers, leading to increases in our costs.

Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels particularly in view of inflationary pressures and supply chain issues, especially if the global solar power market gains its growth momentum.

Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels particularly in view of inflationary pressures, especially if the global solar power market gains its growth momentum.

Moreover, in the event of an industry-wide shortage of polysilicon, we may experience late or non-delivery from suppliers and it may be necessary for us to purchase silicon raw materials of lower quality that may result in lower efficiencies and reduce its average selling prices and revenues.

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The inflationary pressures that are affecting us are not unique to our industry, and relate to the cost of raw materials, labor costs generally and the price at which we can sell our products.

Because solar energy can be seen as a way to provide a homeowner with relief from the increasing utility prices for electricity, the market for solar systems generally, and our business specifically, has enabled us to sell more solar systems.

Thus, the effects of inflation may also affect the marketability of our solar systems to residential users.

In our United States segment, our revenue from solar systems increased from $40.6 million for the year ended December 31, 2022 to $50.5 million for the year ended December 31, 2023 and from $27.5 million in the year ended December 31, 2021 to $40.6 million for the year ended December 31, 2022.

Our cost of revenue per watt of solar systems, which makes up approximately 80% of our costs, increased approximately 10% during the year ended December 31, 2023 compared to the same period in 2022, but decreased approximately 3% during 2022 compared to 2021 primarily due to our ability to acquire solar panels in bulk during the second half of 2022 at a cost more favorable than in 2021.

In the third quarter of 2022, we were able to obtain panels at a lower cost and our cost per revenue per watt of solar systems for 2022 was equal to our cost per revenue per watt in the 2021.

There is no assurance we can continue to source panels at favorable prices.

We have increased the price of solar system installations in our United States segment to offset the increase in cost in 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 has grown as homeowners are seeking alternatives to what they see as high utility bills.

Thus, the effects of inflation may also affect the marketability of our solar systems to residential users which are also impacted by the effects of NEM 3.0.

Further, to the extent tariffs imposed by the United States and counter-tariffs imposed by other countries affects the cost of components, including aluminum, and the supply chain, our prices will increase and we may not be able to pass on any significant portion of the cost increase to our customers, particularly in view of increased competition.

Our cost of revenue per watt of solar systems, which makes up approximately 80% of our costs, increased approximately 31.0% during the year ended December 31, 2024 compared to the same period in 2023.

We have increased the price of solar system installations 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.

However, the changes in NEM 3.0 did not affect our business in 2023 as we believe homeowners purchased solar systems in anticipation of NEM 3.0, and our residential business is feeling the effects of the reduced value seen as a result of NEM 3.0.

Our gross margin from United States operations increased from 16.7% for the year ended December 31, 2022 to 21% for the year ended December, 2023 and decreased from 19.8% for the year ended December 31, 2021 to 16.7% for the year ended December 31, 2022 as a result of the increase in the cost of raw materials.

Our gross margin from United States operations decreased from 20.6% for the year ended December 31, 2023 to 10.1% for the year ended December 31, 2024.

The effect of increased costs on our margin was reduced because we were able to increase prices;

However, competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a decline in gross margin for the year ended December 31, 2023, and, if our prices are too high, the residential customer may not see the value of installing a solar system.

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 year ended December 31, 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 significant decline in our gross margins and the results of our operations.

Compensation costs per employee for sales, marketing and administrative personnel in our United States segment increased approximately 16% for the year ended December 31, 2023 compared to the year ended December 31, 2022, and approximately 12% during the year ended December 31, 2022 compared to 2021 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.

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.

Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States segment decreased approximately 27% for the year ended December 31, 2024 compared to the same period in 2023.

The increase in 2023 and the decrease in 2024 reflected resulted from increased staffing in response to an increased demand for solar energy projects in anticipation of the implementation of California’s NEM 3.0 and the decrease 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 from NEM 3.

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.

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We cannot assure you that such delays and increased costs will not affect our business in the future.

Our China segment has felt the effects of both inflation and supply chain issues.

Our China segment had a 0% gross margin for the year ended December 31, 2021 because our cost of revenue for one of our projects with SPIC was significantly adjusted as a result of the unanticipated increase in costs particularly the solar panel costs which resulted in a significant adjustment in cost during the period which could not be passed on to SPIC, which essentially reversed the profit that was recognized in 2020 for the project.

We did not generate any revenue for our China segment for the years ended December 31, 2023 and 2022 and 2024 through the date of this annual report.

Since the second quarter of 2020, the prices of the solar panels in China have been increasing due to the tight supply in the local market We cannot assure you that, if we are able to negotiate contracts with SPIC or any other purchaser, that we will be able to accurately price our costs, with the risk that, if we incur unanticipated inflationary and supply side costs, we may recognize a loss on the projects.

We are seeking to address the inflationary pressures by seeking to cut overhead expenses where possible and raising prices to levels that we believe are both competitive and attractive to customers in view of the increases in utility prices in California and maintaining an inventory of raw materials to enable us to better price our products.

We believe that the proceeds of our initial public offering will provide us with funding to assist us in dealing with the effects of inflation on our business.

Transfer of Funds between our United States and China segments.

Our equity structure is a direct holding structure, that is, we directly control our U.S.

subsidiaries and our subsidiaries in our China segment including:

(i) Golden SolarMax Finance.

Ltd, a PRC subsidiary, (ii) SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong subsidiary which directly holds SolarMax Technology (Shanghai) Co., Ltd, a PRC subsidiary (together with its subsidiaries thereunder, “ZHTH”);

(iii) Accumulate Investment Co., Ltd, a British Virgin Islands subsidiary which then directly holds Accumulate Investment Co., Limited, a Hong Kong subsidiary that directly holds ZHPV;

a PRC subsidiary, and (iv) SolarMax Technology Holdings, a Cayman Islands subsidiary.

Our business in China is conducted through ZHPV and ZHTH.

Since prior to the reporting periods presented in this prospectus and through the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our subsidiaries, on the one hand;

and our Chinese subsidiaries, on the other hand, and we have not made any dividends, distributions or other transfer of funds to our stockholders.

For the foreseeable future, we intend to use any earnings for our operations.

As a result, we do not expect to pay any cash dividends.

To the extent that we may in the future seek to fund the business through distribution, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to PRC government regulations.

The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

Within the direct holding structure, the cross-border transfer of funds between us and our PRC subsidiaries is legal and compliant with the laws and regulations of the PRC.

Funds can be directly transferred to our subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulations of the PRC.

If we intend to distribute dividends from our PRC subsidiaries, either for use in our United States segment or for distribution to stockholders, we will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to their respective parent companies and then to us and, if the funds are to be paid to our stockholders as a dividend, the dividend will be distributed by us to all stockholders based on their share ownership, regardless of whether the shareholders are U.S.

investors or investors in other countries or regions.

Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings.

Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.

In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals.

These reserves are not distributable as cash dividends.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident.

Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.

However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by ours Hong Kong subsidiary from its PRC subsidiaries.

This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S.

dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments.

The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future.

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996.

Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions.

Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE.

Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE.

Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any.

Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Years Ended December 31, 2023 and 2022

We believe that our available cash and cash equivalents and short-term investments will enable us in dealing with the effects of inflation on our business.

Results of Operations

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Years Ended December 31,

Solar energy sales (US)

LED sales (US)

Financing (US)

Solar energy sales

Total revenues

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Solar energy sales

Solar farm EPC (China)

Power purchase agreements and other

Total cost of revenues

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Sales and marketing (US)

Sales and marketing (China)

General and administrative (US)

General and administrative (China)

Asset impairment (China)

Total operating expenses

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Income (loss) before income taxes

Income tax benefit (provision)

Income tax provision (benefit)

Net income (loss)

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Comprehensive income (loss)

Revenues for the year ended December 31, 2023 were $54.1 million, an increase of $9.4 million or 21% from $44.7 million in the year ended December 31, 2022, all of which was generated by the United States segment.

The increase resulted primarily from a $9.9 million increase in solar energy and battery sales.

The increase in the solar energy and battery sales in the United States segment in the year ended December 31, 2023 is attributed to the increase in the average size of systems completed coupled with the increase in the sales price per watt for smaller systems.

Another factor contributing to the increase is the price per watt for systems being financed with third party lenders.

The fees charged by third party lenders have increased over time and such fees are passed through to the customers, i.e., both revenue and cost increase related to the lender fees.

During the year ended December 31, 2023 and 2022, our battery sales were $3.2 million and $3.4 million, respectively.

Years Ended December 31, 2024 and 2023

The following table set forth information relating to our revenue and gross profit results for the years ended December 31, 2024 and 2023 (dollars in thousands), all of which related to our United States segment:

Years Ended December 31,

Solar energy sales

Total revenues

Cost of revenue:

Solar energy sales

Total cost of revenues

Revenues for the year ended December 31, 2024 were $23.0 million, a decrease of $31.2 million or 57.5% from $54.1 million in the year ended December 31, 2023, all of which was generated by the United States segment.

The decrease resulted from a $32.6 million decrease in solar energy and battery sales, offset with a $1.7 million increase in LED sales.

Our revenue from solar systems decreased from $50.5 million for the year ended December 31, 2023 to $17.9 million for the year ended December 31, 2024, a 64.6% decrease.

As a result of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, the revenue for 2023 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 year ended December 31, 2024 also reflects, in addition to the effects of the implementation of NEM 3.0, 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 year ended December 31, 2024 reflects a 60.2% decrease in the number of systems completed and a 70.2% decrease in the wattages deployed.

The number of completed systems and the wattages deployed in the year ended December 31, 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 years ended December 31, 2024 and 2023, our battery only sales were $1.1 million and $1.2 million, respectively.

Battery sales refer to the sale of batteries sold other than as a part of a solar system.

During the year ended December 31, 2023, we de-emphasized battery sales as we devoted resources to the sale, installation and permitting of solar systems and we have since expanded our marketing effort for battery sales other than as part of a solar system.

Financing revenue for the years ended December 31, 2023 and 2022 related to income from existing loan agreements.

We have not entered into new financing agreements since 2020 because we did not have the financing to support such operations.

We have no immediate plans to re-enter the business of providing financing to our customers unless we have sufficient funds for such purpose.

During the years ended December 31, 2023 and 2022 and continuing through the date of this annual report, we did not generate any revenue in the China segment because there are no projects under construction.

As a result of the strict lockdown in China through the end of 2022 resulting from the resurgence of the pandemic, we have not been able to negotiate new contracts with SPIC since the completion of the last project in June 2021.

We expect the revenue from our residential sales to continue to decrease in 2025, but we are seeking to offset a significant portion 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 higher interest rates.

During the years ended December 31, 2024 and 2023, we did not generate any revenue in the China segment because there are no projects under construction and no agreements for such projects.

Because we currently do not have any projects under contract for our China segment, we have neither revenue nor cost of revenue for our China segment for the years ended December 31, 2024 and 2023.

Revenue increased $9.4 million, or 21%, to $54.1 million in the year ended December 31, 2023 from $44.7 million in the year ended December 31, 2022.

We deployed 11.1 MW on 1,368 completed systems during the year ended December 31, 2023, compared with 9.4 MW on 1,174 systems during the year ended December 31, 2022, an increase of 18% in wattages.

On average, solar revenue per watt was $4.25 in the year ended December 31, 2023 compared to $3.95 in the year ended December 31, 2022, a 8% increase primarily as a result of the increase in the prices of panels and inverters from a year ago, as well as a significant increase in third party lender fees which were priced into the system price for customers who finance the purchase of their systems through our third party lenders.

Solar revenue per watt represents the revenue generated during the period from sales of solar systems (excluding battery sales) divided by the wattage installed during the period.

Our LED revenue decreased by $250,000, or 8%, to $3.1 million for the year ended December 31, 2023 from $3.3 million for the year ended December 31, 2022, primarily resulting from the decrease in the number of LED projects.

As a result of the continued economic issues in China which impacts the spending by Chinese government and state-owned companies like SPIC, we do not expect to sign a new contract with SPIC in 2025.

Our LED revenue increased by $1.7 million, or 55.1%, to $4.7 million for the year ended December 31, 2024 from $3.1 million for the year ended December 31, 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 is therefore not as consistent as our solar business, and LED revenue tends to fluctuate period to period.

Our revenue for the year ended December 31, 2023 and 2022 includes finance-related revenues of $562,000 and $814,000, respectively, from our portfolio of solar loans provided to our customers, the decrease, which is expected, reflects the pay down and pay off of customer loans over time since we are not making new loans.

Since early 2020, because we did not have the capital to support such operations, we suspended making loans to our solar customers but may resume lending if we have sufficient funds, including from the proceeds of our initial public offering.

The revenue trend from our LED business therefore tends to fluctuate period to period.

We have not originated any loans to our solar customers since early 2020.

As a result, our finance revenue for the years ended December 31, 2024 and 2023 was $340,000 and $562,000, respectively, from our portfolio of solar loans.

Finance revenue will decrease as loans in our portfolio are paid and not replaced by new loans.

Cost of revenue and gross profit

During the year ended December 31, 2023 and 2022, our China operations did not have any cost of revenue since it did not have any projects under construction during both periods.

Cost of revenue for our United States segment increased 15% from $37.2 million in the year ended December 31, 2022 to $43.0 million in the year ended December 31, 2023, primarily as a result of the corresponding increase in revenue in the United States segment.

Gross margin for the United States segment increased to 21% for the year ended December 31, 2023 from 17% a year ago, primarily as result of the sales price rising faster than the increase in the unit cost of revenue.

The improvement of the gross profit for the year ended December 31, 2023 also reflects a one-time net credit to revenue in the of approximately $435,000 from customer deposits related to solar projects cancelled by customers and customer service projects completed for which revenues should have been recognized in past periods, as well as a one-time credit to cost of revenue of approximately $650,000 related to the over-accrual of accrued warranty liability.

We had 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 year ended December 31, 2023 and 2022.

Our overall gross margin for the year ended December 31, 2023 was 21% compared to 17% in the year ended December 31, 2022, primarily as a result of our ability to increase the sales price commensurate with the continued rising costs of materials, higher sale commissions and increased rates of third party lenders, and partially offset by higher selling prices, in the year ended December 31, 2023.

The improvement in the gross margin is also due to a one-time net credit to revenue in the United States segment of approximately $435,000 related to customer deposits for which revenues should have been recognized in the past periods related to solar projects cancelled by customers and customer service projected completed, as well as a one-time credit in the United Segment of $650,000 as described in the preceding paragraph.

China operations did not generate any revenue and did not incur any cost of revenue for the year ended December 31, 2023.

We expect that if we are able to generate contracts for major solar farm projects in China, the China segment could generate higher revenue and a lower gross margin than the United States segment in the future, resulting in the China segment continuing to have a negative impact on our consolidated gross margin.

To the extent that we incur higher than anticipated costs that we are not able to recover from our customer, the consolidated gross margin will be impacted.

As of December 31, 2023 and through the date of this annual report, we did not have any agreements with respect to any solar farm projects in China, either with SPIC or any other customer, we had not generated any revenues from our China segment since 2022, and we cannot assure you that we will be able to generate profitable business in China.

During the year ended December 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 on February 12, 2024 as described above under “Elimination of Forfeiture Provisions of Options upon Initial Public Offering.” Excluding this one-time stock-based compensation expense cost of revenue for our United States segment decreased 54.9% from $43.0 million in the year ended December 31, 2023 to $19.4 million in the year ended December 31, 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 above.

Gross margin decreased to 10.1% for the year ended December 31, 2024 from 20.6% in the year ended December 31, 2023, primarily as result of the decreased sales in the current period while some 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 years ended December 31, 2024 and 2023.

Excluding the one-time stock-based compensation expense, our overall gross margin for the year ended December 31, 2024 would be 15.6% compared to 20.6% in the year ended December 31, 2023.

Operating expenses

Sales and marketing expenses for the year ended December 31, 2023 increased for our United States segment to $1.2 million, an increase of $78,000, or 7%, from $1.1 million in 2022.

Sales and marketing expenses for the year ended December 31, 2024 decreased for our United States segment to $517,000, a decrease of $641,000, or 55.3%, from $1.2 million in the comparable period of 2023, as a result of decreased sales in 2024.

Sales and marketing expenses in the United States were 2.2% of revenue for the year ended December 31, 2024 compared to 2.1% for the year ended December 31, 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 year ended December 31, 2023 and 2022.

General and administrative expenses for the United States segment for the year ended December 31, 2023 decreased to $8.8 million, a decrease of $4.1 million, or 32%, from $12.8 million for the comparable period of 2022.

The decrease is a result of the prior period’s write-off of previously capitalized offering costs and notes receivable of $3.4 million related to the termination of our merger agreement with Alberton in April 2022, a decrease in the facility rental costs resulting from an increase in income from subleases at our Riverside headquarters.

General and administrative expenses were 29% of revenue for the year ended December 31, 2022, compared to 16% for the year ended December 31, 2023.

General and administrative expenses included compensation and benefits, depreciation and amortization (excluding auto depreciation), provision for losses, rental and leasing expense, and other corporate overhead expenses.

We expect an overall increase in compensation expenses in 2024 as a result of the expected vesting of stock and options that became vested upon a public stock offering event, and the cost of compliance and other regulatory costs associated with being a public reporting company.

Accordingly, our China segment did not incur sales and marketing expenses for the years ended December 31, 2024 and 2023.

During the year ended December 31, 2024, our United States operations recognized a one-time stock-based compensation expense of approximately $18.5 million in general and administrative expense as a result of performance options vesting of 5,898,137 option shares and 264,650 restricted shares granted to two former consultants, 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 year ended December 31, 2024 increased by $14,000 to $8.8 million compared to $8.8 million for the year ended December 31, 2023.

General and administrative expenses were 16.2% of revenue for the year ended December 31, 2023, compared to 113.4% for the year ended December 31, 2024, due to the one-time stock compensation expense in 2024 as discussed above under “Elimination of Forfeiture Provisions of Options upon Initial Public Offering,” and additional expenses associated with being a public reporting company.

Excluding the one-time stock-compensation expense in 2024, general and administrative expenses were 38.3% of revenue in 2024.

We expect a modest increase in general and administrative expenses in 2025 as a result of the cost of compliance and other regulatory costs associated with being a public reporting company for the entire year.

All of our corporate overhead, other than overhead directly related to the China segment, is allocated to the United States segment.

General and administrative expenses relating to the China segment decreased by $0.8 million, or 53%, from $1.5 million in the prior year to $718,000 in the year ended December 31, 2023, primarily due to a $1.1 million recovery of previously reserved receivable on from a legal settlement relating to one of our projects for SPIC.

General and administrative expenses relate to the corporate and overhead expenses specifically connected with the China segment and include personnel costs, facilities rental and leasing and other general overhead expenses and certain pre-development project costs that are expensed prior to the execution of the EPC agreements.

All of the corporate headquarter overhead is allocated to the United States segment.

General and administrative expenses relating to the China segment were $1,365,000 in the year ended December 31, 2024, as compared with $718,000 in the year ended December 31, 2023, an increase of $647,000 primarily as a result of the increase in the bad debt reserve related to the SPIC receivable based on the result of the initial arbitration meetings during 2024.

During the year ended December 31, 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.

The decrease in general and administrative expenses in the China segment in 2024 reflects the additional reduction in personnel as a result of the lack of new businesses during the year which we expect to continue in 2025.

During the year ended December 31, 2024, as a result of the continued headwinds facing China's economy after the pandemic and the economic indicators seem to indicate further future contraction, all of which will have a direct impact on our ability to generate new businesses in our China segment in the foreseeable future, accordingly, we recognized a $7.5 million impairment loss related to all of the goodwill that originated in our 2015 acquisitions of Chengdu ZHTH and ZHPV.

Income (loss) from operations

Our income from operations was $484,000 for the year ended December 31, 2023 compared to a loss from operations of $8.0 million in the year ended December 31, 2022, a decrease in loss of $8.5 million, or 106%, from the comparable period of 2022.

Our income from operations for the United States segment was $1.2 million, compared to a loss from operations of $6.4 million in the year ended December 31, 2022, or a decrease in loss of $7.7 million or 119%, from the year ended December 31, 2022.

Our loss from operations for our China segment was $718,000, compared to a loss) from operations from our China segment in the year ended December 31, 2022 of $1.5 million, primarily because our China segment received $1.2 million payment under a legal settlement relating to one of the SPIC projects which had been previously reserved in full.

The operating results of our China segment fluctuate based on the timing of awards for EPC projects, the construction contracts in progress and completed as well as the underlying timing of the related performance obligations which relate to our recognition of revenue.

As a result of the factors described above, our loss from operations for the United States segment was $24.3 million for the year ended December 31, 2024, compared to income from operations of $1.2 million in the year ended December 31, 2023, reflecting the one-time stock compensation expense of $18.5 million associated with the vesting of stock options and restricted stock upon our initial public offering completed in February 2024.

Our loss from operations for the China segment was $8.8 million for the year ended December 31, 2024, compared to a loss from operations of $718,000 in the year ended December 31, 2023, principally as a result of the recognition of impairment loss associated with goodwill of $7.5 million.

The consolidated loss from operations was $33.1 million for the year ended December 31, 2024 compared to a consolidated income from operations of $484,000 for the year ended December 31, 2023.

Equity in income (loss) from unconsolidated entities

Equity in income from unconsolidated entities relates to our China segment and comprises the 30% equity in income from three unconsolidated project companies for which we had previously transferred a 70% interest to SPIC.

We record our 30% noncontrolling interest under the equity method of accounting.

The equity in income reported for the year ended December 31, 2023 was $864,000 compared to $494,000 in the year ended December 31, 2022, an increase of $370,000 or 75%.

The increase is attributed to the higher power production this year resulting from the improvement over the prior year’s inferior sunshine quality affecting the Guizhou region in China, as well as additional costs incurred to comply with SPIC internal safety production requirements and increased interest expense due to the change in SPIC’s accounting from cash to accrual in 2022.

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 year ended December 31, 2024 was $635,000 compared to $864,000 in the year ended December 31, 2023, a decrease of $229,000 or 26.5%.

The decrease 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.

Gain on debt extinguishment

Gain on debt extinguishment for the year ended December 31, 2023 was $27,000 and relates primarily to an exchange of two 3% EB5 note payable to a 4% convertible note payable.

Gain on debt extinguishment for the year ended December 31, 2022 was $1.9 million and is primarily related to the forgiveness of three PPP loans to three U.S.

subsidiaries and the related accrued interest.

Gain on debt extinguishment for the year ended December 31, 2024 was $303,000.

During the year ended December 31, 2024, we exchanged $6.0 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 $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 year ended December 31, 2023 was $27,000, representing the gain on exchange of $500,000 principal amount of EB-5 notes for a convertible note in the same principal note.

Interest expense, net

Interest expense, net, for the year ended December 31, 2023 was $1.5 million, a decrease of $257,000, or 15%, from the 2022.

Our interest expense in the year ended December 31, 2023 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $17.0 million at December 31, 2023, 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 $7.6 million at December 31, 2023, and interest at 8% on promissory notes issued to SMX Property (a related party) in October 2022 with a principal balance of $1.4 million at December 31, 2023.

Interest expense, net, for the year ended December 31, 2024 was $1.1 million, a decrease of $443,000, or 29.4%, from the year ended December 31, 2023.

Our interest expense in the year ended December 31, 2024 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $11.0 million at December 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 $16.6 million at December 31, 2024, 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 December 31, 2024, 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 December 31, 2024, and interest at 12% on a promissory note issued to an unrelated investment company due on June 30, 2025 with a principal balance of $900,000 at December 31, 2024.

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 for the year ended December 31, 2024 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 December 31, 2024, and interest earned on a promissory notes receivable at 5% in the China segment due June 30, 2025 with a principal balance of RMB 4,653,000 ($638,000) at December 31, 2024.

Other income (expenses), net

During the year ended December 31, 2023, other income was $500,000, consisting primarily of $308,000 cash distributions declared from zero basis equity investments in Alliance entities in the United States segment, $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $266,000 of expense related to the foreign currency transaction for our United States segment intercompany receivable denominated in the Chinese currency, $114,000 of additional payment on one of the SPIC projects representing interest on the amount previously owed on the project in the China segment, and $54,000 of income related to a vendor invoice on the project due to the poor product quality in the China segment.

During the year ended December 31, 2022, other expenses, net was $615,000, consisting primarily of $262,000 cash distributions from zero basis equity investments in Alliance entities in the United States, offset by $938,000 of expense related to the foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency.

During the year ended December 31, 2024, other expense, net was $145,000 consisting primarily of a $332,000 of foreign currency transaction losses 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, offset by cash distributions declared of $198,000 from our zero basis equity investments in Alliance joint venture entities in the United States segment and a gain on disposal of property in the amount of $21,000.

During the year ended December 31, 2023, other expense was $499,000, consisting primarily of $308,000 cash distributions declared from zero basis equity investments in Alliance entities in the United States segment, $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $266,000 of expense related to the foreign currency transaction for our United States segment intercompany receivable denominated in the Chinese currency, $114,000 of additional payment on one of the SPIC projects representing interest on the amount previously owed on the project in the China segment, and $54,000 of income related to a vendor invoice on the project due to the poor product quality in the China segment.

Income tax benefit (provision)

For the year ended December 31, 2023 and 2022, our United States segment reported an income tax benefit (expense) of $(6,000) for both periods attributable to state minimum tax liabilities.

For the China segment, an income tax benefit (expense) of $70,194 and $(35,431) was reported for the year ended December 31, 2023 and 2022, respectively, arising from profitable operations subject to China income tax.

For the years ended December 31, 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.

For the China segment, income tax expense of approximately $1.7 million and $70,000 were reported for the years ended December 31, 2024 and 2023, respectively, arising from an increase in the valuation allowance against deferred tax assets as of December 31, 2024 and current tax expense for the year ended December 31, 2023.

Net income (loss)

As a result of the foregoing, we had consolidated net income of $434,786 for the year ended December 31, 2023, compared with a consolidated net (loss) of $(6.9) million for the year ended December 31, 2022.

The basic and diluted net income per share was $0.01 and $(0.17) for the year ended December 31, 2023 and 2022, respectively.

As a result of the foregoing, we had consolidated net loss of $35.0 million, or $(0.79) per share (basic and diluted), for the year ended December 31, 2024, compared with a consolidated net income of $0.4 million, or $0.01 per share (basic and diluted), for the year ended December 31, 2023.

Currency translation adjustment

Although our functional currency is the U.S.

dollar, the functional currency of our China subsidiaries is the RMB.

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 reflect changes in the exchange rates between U.S.

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.

As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of approximately $0.1 million for the year ended December 31, 2023 and approximately $1.2 million for the year ended December 31, 2022.

As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of $167,000 and $115,000 for the years ended December 31, 2024 and 2023, respectively.

Liquidity and Capital Resources

The following tables show consolidated cash flow information for the years ended December 31, 2023 and 2022 (dollars in thousands):

Consolidated cash flow data:

The following tables show consolidated cash flows information for the years ended December 31, 2024 and 2023 (dollars in thousands):

Years Ended December 31,

Consolidated cash flows data:

Net cash provided by (used in) operating activities

4 unchanged sentences

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2023 was $3.8 million, compared to net cash used by operating activities for the year ended December 31, 2022 of $2.0 million, a decrease in cash used of $5.8 million, resulting from a decrease in cash of $1.6 million from the overall change in operating assets and liabilities, a increase in cash used of $91,000 from non-cash expense and a decrease in net loss of $7.3 million.

During the year ended December 31, 2023, our operating assets and liabilities provided $1.5 million in cash, compared to cash provided of $3.2 million for the year ended December 31, 2022, resulting in an decrease in cash provided of $1.6 million in operating assets and liabilities.

The decrease in cash used by our operating assets and liabilities during the year ended December 31, 2023 is primarily due to a $4.8 million decrease in cash from unbilled receivables, $1.3 million decrease in cash from contract liabilities, $1.7 million decrease in cash from customer loans receivable, $281,000 decrease in cash from operating lease liabilities, and $2.3 million decrease in cash from accrued expenses and other liabilities, with an offset from a $4.0 million increase in cash from receivables and current assets, receivables from SPIC and project companies, and other receivables and current assets and other assets, $2.1 million increase in cash from inventories, $3.7 million increase in cash from accounts payable, and $0.9 million increase in cash from contract assets.

We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the EPC projects which could vary from project to project.

Non-cash charges for the year ended December 31, 2023, which was a non-cash income of $1.84 million, compared to a non-cash income of $1.75 million, in 2022, an increase in non-cash income of $91,000, comprised of $343,000 increase from depreciation and amortization expense, $138,000 increase from loss provisions for bad debts, loan losses, inventories and warranties, $8,000 increase from deferred income taxes, $1.9 million increase from gain on debt extinguishment, $1.1 million increase from gain on early termination lease at the Riverside headquarters with SMX Property, LLC (a related party) in October 2022, $80,000 increase from gain on disposal of property and equipment, offset by a $370,000 decrease in equity in income of investments, and a $3.4 million decrease from the write-off of capitalized merger costs and loans made by us to Alberton and its sponsor in connection with the proposed merger which was terminated in April 2022.

Net cash used in operating activities for the year ended December 31, 2024 was $9.1 million, compared to net cash provided by operating activities for the year ended December 31, 2023 of $4.1 million.

The cash used in operations for the year ended December 31, 2024, resulting from our net loss of $35.0 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 $5.8 million in cash used for our operating assets and liabilities.

Net cash provided by operations for the year ended December 31, 2023 of $4.1 million resulted primarily from net income of $435,000, increased by a $4.2 million decrease in cash from contract assets, $1.4 million decrease in cash from other receivables and current assets, with an offset from $1.5 million increase in cash from accounts receivable, $3.8 million increase in cash from customer loans receivable, $2.0 million increase in cash from inventories, $27,000 increase in cash from other assets, $1.2 million increase in cash from accounts payable, $1.4 million decrease in cash from operating lease liabilities, $4.0 million increase in cash from contract liabilities, $2.7 million decrease in cash from accrued expenses and other payables, and $1.4 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.

Non-cash adjustments changes:

$370,000 decrease resulting from a net increase in equity in income from our equity investments.

$343,000 increase in depreciation and amortization expense which includes loan and debt discounts amortization.

$3.4 million decrease from the write-off of capitalized merger costs and loans made by us to Alberton and its sponsor in connection with the proposed merger which was terminated in April 2022.

$1.9 million net increase from the reduction in gain on debt extinguishment with respect to the PPP loans that were forgiven in 2022 and other loans.

$80,000 increase from the reduction in gain on disposal of property and equipment.

$138,000 increase in expenses associated with loss provisions for bad debts, loan losses, inventories, warranty, customer care and production guaranty.

$8,000 increase in deferred income taxes.

$1.1 million increase resulting from the gain associated with the early termination of our headquarters lease in Riverside, California.

$18.5 million increase in stock-based compensation expense

$7.5 million increase in goodwill impairment loss

$1.9 million increase in deferred income taxes.

$473,000 decrease in expenses associated with loss provisions for bad debts, loan losses, inventories, warranty, customer care and production guaranty.

$276,000 net decrease from the reduction in gain on debt extinguishment.

$229,000 net increase resulting from equity in income from our equity investments.

$73,000 decrease from the gain on early termination of leases

$2,000 net increase in depreciation and amortization expense which includes loan and debt discounts amortization.

Changes in operating assets and liabilities:

$4.0 million increase in net cash inflow from receivables and current assets, receivables from SPIC and project companies, and other receivables and current assets and other assets.

$4.8 million decrease in cash from unbilled receivables.

$2.1 million increase in net cash inflow from inventories.

$4.1 million decrease in net cash from contract assets related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019.

$4.0 million increase in net cash from contract liabilities related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019.

$2.0 million decrease in net cash inflow from inventories.

$1.8 million decrease in net cash inflow from customer loans receivable.

$3.7 million increase in cash inflows from accounts payable.

$2.7 million decrease in cash from accrued expenses and other liabilities.

$1.3 million decrease in net cash outflow from contract liabilities related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019.

$0.9 million increase in net cash inflow from contract assets related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019.

$1.9 million decrease in cash inflows from accounts payable.

$771,000 million decrease in cash from accrued expenses and other payables and other liabilities.

$786,000 increase in net cash inflow from accounts receivable, other receivables and current assets

$75,000 decrease in net cash from operating lease liabilities.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $6,550, consisting of $27,999 for the purchase of property and equipment, partially offset by cash received of $21,449 related to the disposal of property and equipment.

Net cash provided by investing activities for the year ended December 31, 2022 was $280,524, consisting of $288,856 advanced to Alberton and its sponsor and $83,466 for the purchase of property and equipment, partially offset by cash received of $91,798 related to the disposal of property and equipment.

Net cash used by investing activities for the year ended December 31, 2024 was approximately $6.3 million, consisting of $7.7 million of short-term investment in three promissory notes (of which $638,000 relates to the China segment), offset by $1.3 million repayments received on the promissory notes, and $21,000 of cash proceeds received from disposal of property and equipment.

Net cash used by investing activities for the year ended December 31, 2023 was $7,000, consisting of cash received of $21,000 related to the disposal of property and equipment, offset by $28,000 used in the purchase of property and equipment.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2023 was $5.0 million, consisting of $4.8 million principal payments on convertible notes in the United States segment, $48,939 payments on other borrowings and equipment leases in the United States segment, $6.6 million of additional legal settlement proceeds received on behalf of Uonone in the China segment, and $6.8 million payment to Uonone and related expenses on Uonone’s behalf related to the legal settlement received on its behalf in the China segment.

Net cash used in financing activities for the year ended December 31, 2022 was $7.5 million, consisting of $7.1 million principal payments on convertible notes in the United States segment, $93,636 payments on other borrowings and equipment leases in the United States segment and $356,329 payment to Uonone related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.

Net cash provided by financing activities for the year ended December 31, 2024 was $13.3 million, consisting of $18.6 million of net cash proceeds from the initial public offering completed in March 2024, $900,000 loan proceeds from a new short-term borrowing, offset by $5.5 million principal payments on convertible notes in the United States segment, and $276,000 payment on legal settlement with former EB-5 noteholders in the United States segment.

Net cash used by financing activities for the year ended December 31, 2023 was $5.3 million, consisting of $4.8 million principal payments on convertible notes in the United States segment, $276,000 payment on legal settlement with former EB-5 noteholders in the United States segment, $49,000 payments on other borrowings and equipment leases in the United States segment, and $6.8 million payment to Uonone, offset by $6.6 million of proceeds from Uonone, related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.

Cash and Cash Equivalents and Restricted Cash

The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China segments at December 31, 2023 and 2022 (dollars in thousands):

The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China segments at December 31, 2024 and December 31, 2023 (dollars in thousands):

Uninsured cash

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We do not believe that this restriction will impair our operations since we do not anticipate that we will use the cash generated from our PRC operations in those operations and we do not plan to repatriate such funds to the United States.

Prior to October 13, 2022, we leased our headquarters from SMX Property, LLC, a California limited liability company (“SMXP”), which is a related party.

The owners and principal management group of SMXP consist of David Hsu, our chief executive officer and a director, Simon Yuan, a director, and Ching Liu, our former executive vice president and a current 5% stockholder.

In October 2022, SMXP sold its interest in the building at 3080 12th Street, Riverside, California, which serves as our headquarters, to an unrelated party known as 3080 12 Street, LLC.

(“3080 Landlord”).

In October 2022, we entered into a lease agreement with 3080 Landlord to lease the property until December 31, 2026.

Under the lease with 3080 Landlord, we lease the entire building, whereas under the prior lease we leased the portion of the building we occupy.

We have the right to sublease space in the property with the consent of the landlord, such consent not to be unreasonably withheld, and we currently sublease the portion of the building that we are not using.

Rent for the first lease year is at the annual rate of $1.6 million and increases 3% per year.

Since the lease is a net lease, we pay all of the operating expenses of the building.

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.

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 was June 25, 2024 and it was extended at the request of the maker initially to December 25, 2024 and subsequently extended to June 30, 2025.

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 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.

Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, a related party, in 2022, we issued two two-year 8% notes to SMXP.

Both notes provide for quarterly payments of interest during the term with the principal being initially due in October 2024 and the notes were extended and are now due on 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 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.

In June 2024, our United States LED subsidiary signed a short-term promissory note maturing in June 2025 with an unrelated investment company to borrow $900,000 at a fixed interest rate of 12% for working capital purposes.

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.

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CEF II advanced $10.5 million pursuant to the agreement.

The proceeds of the loans were used by our subsidiaries for their operations.

The loans from CEF and CEF II accrue interest at 3% per annum, payable quarterly in arrears.

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 made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program and are not related parties.

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.

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As of March 15, 2025, limited partners whose capital contributions funded loans of $41.5 million had received their green card approval and their extensions expired and one limited partner whose capital contribution funded $500,000 had withdrawn from CEF II and the limited partner’s capital contribution was returned.

The petitions of limited partners of CEF whose capital contribution funded loans of $3.5 million are pending.

The petitions of limited partners of CEF and CEF II whose capital contribution funded loans of $9.0 million are pending.

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.

The notes are secured by the same assets that secured the notes issued to CEF and CEF II.

As of March 15, 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 15, 2025, notes to CEF and CEF II in the aggregate principal amount of $11.0 million were outstanding.

Six of the limited partners commenced an action against CEF, us and others, including Mr.

Yuan, seeking cash payment of their capital contribution to CEF totaling $3.0 million and other relief, including a declaration that the $45.0 million note to CEF is due and payable.

All six of these limited partners settled their actions.

One of these limited partners accepted a convertible note.

During the years ended December 31, 2023 and 2022, we made payments on account of the EB-5 notes exchanged for convertible notes in the amount of $3.8 million and $6.05 million, respectively, either as payments of installments of principal due under the convertible notes or to pay the principal amount of the notes at a discount.

Such payments were made from our cash flow from operations.

We plan to use our cash flow to make any payments necessary to pay the convertible notes as they become due to the extent that the note holders do not exercise their conversion rights under the notes.

However, to the extent that we do not have the funds to pay these notes we may use the proceeds of our initial public offering to meet our liquidity needs, including to make such payments.

Other Debt Obligations

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This loan had been extended periodically since the original maturity date of April 30, 2021.

On February 1, 2021, we received loans pursuant to the PPP Second Draw totaling $1,855,813.

The loans were issued to three of our United States subsidiaries and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents, utilities and other eligible costs allowed by the Small Business Administration, during the 24-week period beginning on the date of the first disbursement of the loans.

For the non-forgivable portion, the loans would be due in five years at a fixed interest rate of one percent per annum with the first payment due 16 months from the date of the first disbursement of the loans.

In February and April 2022, $1,852,291 of the loans from the PPP Second Draw were forgiven and in May 2022 the remaining $3,522 of the loans were repaid.

On October 10, 2022, SMX Property LLC, a related party, made unsecured loans to us for $944,077 and $414,581 at an interest rate of 8%, with interest payable quarterly at the end of each quarter.

The principal amount plus accrued interest of both notes is due on October 10, 2024.

The proceeds of the loans were used to pay the security deposit and lease obligations for one month owed to the new owner of our headquarters building under the new lease agreement and for rent on our headquarters building from June 1, 2022 to October 12, 2022.

Contractual Obligations

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For the year ending December 31,

Bank and Other Unsecured Loans

EB-5 Loans - Related Party

Notes Payable - Related Party

Bank and Other

Unsecured Loans

Related Party

Notes Payable -

Related Party

Convertible Notes

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For the year ending December 31,

Related Parties

Employment Agreements

On October 7, 2016, we entered into employment agreements with our chief executive officer, David Hsu, for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr.

On October 7, 2016, we entered into an employment agreement with our chief executive officer, David Hsu, for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr.

Hsu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension.

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We also owe Mr.

Hsu $675,000 as the cash payment in connection with his exchange of 1,348,213 restricted shares of common stock for options to purchase 1,428,432 shares of common stock at $5.01 per share and a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is now due commencing on February 27, 2025 in twelve equal monthly installments.

In addition, at March 31, 2024, we owed Mr.

Hsu $675,000 as the cash payment in connection with his exchange of 1,348,213 restricted shares of common stock for options to purchase 1,428,432 shares of common stock at $5.01 per share and a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is now due commencing on June 30, 2025 in twelve equal monthly installments.

In addition, at December 31, 2024, we owed Mr.

Hsu $1,833,378, representing deferred salary from 2019, 2020, 2021, 2022, 2023, and 2024 and cash bonuses deferred from 2017 and 2018.

Hsu waived his bonus for 2019, 2020, 2021, 2022, and 2023 as part of the suspension of incentive programs for key employees, and he agreed that the $1,833,378 deferred salary and bonus be paid in twelve equal monthly installments with the first payment becoming due on February 27, 2025.

Cash Requirements

We require substantial funds for our business, and we believe that the net proceeds from our initial public offering, together with cash generated by our operations should enable us to meet our cash requirements for at least the twelve months from the date of this annual report.

We require substantial funds for our business, and we believe that the cash and cash equivalents and short-term investment, together with cash generated by our operations should enable us to meet our cash requirements for at least the twelve months from the date of this report.

In March 2025, we received $500,000 from the sale of 561,798 shares of common stock, which we are using for working capital.

However, we cannot assure you that we will not require additional funds to meet our commitments or that funds will be available on reasonable terms, if at all.

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We also have obligations to Mr.

Hsu described above, approximately $2.5 million of which will be paid in twelve equal monthly installments with the first payment becoming due on February 27, 2025.

Hsu described above, approximately $2.5 million of which will be paid in twelve equal monthly installments with the first payment becoming due on June 30, 2025.

We cannot assure you that we will be able to negotiate extensions to our loans or refinancing of our EB-5 debt.

The willingness of the limited partners of CEF and CEF II to accept convertible notes rather than a cash payment of their investment in the limited partnership may be affected by their perception of our performance and the performance of our common stock as well as their perception that they could get a more favorable result with litigation.

If our current liabilities exceed the available cash, including the proceeds of our initial public offering, we will need to obtain alternative financing.

We cannot assure you that such financing will be available on acceptable, if any terms, which would impair our ability to develop our business.

Our financial statements for the year ended December 31, 2024 have a going concern paragraph.

Further, we have short-term investments of approximately $7.7 million which are past due.

To the extent that we are not able to obtain the proceeds of these loans in a timely manner, our operations may be impaired.

Critical Accounting Estimates and Policies

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Nature of Estimates Required

At least annually, we are required to assess the carrying value of our long-lived assets and related intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived asset, or group of assets, may not be recoverable.

We assess the carrying value of our long-lived assets and related intangibles for impairment at least annually and also whenever events or changes in circumstances indicate that the carrying value of the long-lived asset, or group of assets, may not be recoverable.

Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived assets to the respective estimated future undiscounted cash flows.

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Circumstances that could indicate impairment and require us to perform a quantitative impairment test include a significant decline in the financial results, a significant decline in the enterprise value relative to our net book value, an unanticipated change in competition or the market share and a significant change in the strategic plans.

Our China segment did not complete any new projects in 2021, 2022 or 2023;

however, we believe it is more likely than not the fair value of our China segment is greater than its carrying value because we believe that we will generate business in 2024 from SPIC and/or other PRC customers with which we are engaged in negotiations.

In 2024, we incurred a $7.5 million goodwill impairment representing an impairment charge of the entire balance of our goodwill associated with our China segment, representing all of our goodwill.

As of December 31, 2024, we have no goodwill.

Because of the COVID restrictions, we were not able to complete negotiation for new projects with SPIC and with one other potential customer.

In China, in order for us to generate business, we need to have face-to-face meetings with the representatives of SPIC or any other potential customers rather than remote meetings such as Zoom.

In China, in order for us both to generate business and collect receivables, we need to have face-to-face meetings with the representatives of SPIC or any other potential customers rather than remote meetings such as Zoom.

These negotiations were initially deferred from late 2021 until 2022 and further deferred to 2023 as a result of COVID restrictions.

At December 31, 2024 we increased our bad debt reserve relating to this receivable as a result of initial arbitration meetings during 2024.

We are now engaged in negotiations with respect to new projects for our China segment.

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Despite the interruption of COVID in China, we believe that the macroeconomic conditions for the solar market in China continues to be strong.

China remains the number one market in the world for photovoltaic systems, which includes the solar farms that our China segment designs and builds for third parties.

As COVID restrictions eased in late 2022, discussions, negotiations, design work and permitting on potential projects resumed in the first quarter of 2023, although, as of the date of this annual report, we have not entered into any agreements.

China remains the number one market in the world for photovoltaic systems, which includes the solar farms of the type that our China segment designs and builds for third parties.

Further, as a result of a decrease in China’s tax revenue and other sources of funds, we cannot assure you that SPIC will pay the amount due to us or enter into any future agreements with us.

Effect if Different Assumptions Used

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We regularly monitor collection status of these financial assets through account reconciliation, payment tracking, customer’s financial condition and macroeconomics conditions.

At December 31, 2024, we had an outstanding receivable from SPIC of approximately $6.8 million which relates to projects completed prior to 2022 and reflect a reserve for bad debt on this account receivable in connection with an arbitration proceeding.

Legal Proceedings.” Although we believe the receivable will be collected, and we had anticipated collection during 2024, we can give no assurance as to when or whether we will collect the full amount, and China’s reduced tax revenue and other sources of funds may affect the ability or willingness of SPIC to pay us.

Effect if Different Assumptions Used

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Furthermore, settlement of tax positions included in open tax years may be resolved by compromises of tax positions based on current factors and business considerations that may result in material adjustments to income taxes previously estimated.

For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see "Notes to Consolidated Financial Statements—Note 18.

Income Taxes."

For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see Note 20 of “Notes to Consolidated Financial Statements.”

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis