What changed in this filing

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Item 9A. Controls and Procedures

2025-03-31 compared with 2024-04-16 · 571 added, 803 removed, 1337 unchanged (51% of the section changed)

4 unchanged sentences

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

At December 31, 2023, we were a privately-owned company, not subject to disclosure controls and internal controls over financial reporting required by the Exchange Act for public companies.

This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report at the reasonable assurance level.

Management's Annual Report on Internal Control over Financial Reporting

In our 10-Q for the period ended as of September 30, 2024, we identified a material weakness in our internal control over financial reporting related to the lack of adequate controls enabling us to identify the change in the status of the permit-to-operate field in the system, which affects recognition of revenue, coupled with lack of any monitoring and review controls to identify changes to the permit-to-operate field, all of which, resulted in a material audit adjustment to revenue during the quarter ended September 30, 2024.

During the quarter ended December 31, 2024, we completed the implementation and testing of the remediation measures designed to address this material weakness.

These measures included (i) generating system reports that identify all changes to the permit-to-operate field, (ii) reviewing the impact of changes to the permit-to-operate field, which includes a detailed review of all billed projects and accrued projects, and (iii) quantifying the impact of the changes and assessing the materiality of proposed adjustments.

We have performed testing to evaluate the operating effectiveness of these remediation measures.

Based on the results of our testing, we have concluded that the material weakness related to the lack of monitoring and review controls to identify changes in the permit-to-operate field has been remediated as of December 31, 2024.

As of December 31, 2024, we believe that our internal controls over financial reporting are effective in providing reasonable assurance regarding the reliability of our financial reporting.

Changes in Internal Control over Financial Reporting

Other than the additional controls added to the revenue process, there was no change in our internal control over financial reporting that occurred during the fourth quarter of December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives.

Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm.

Other Information

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Our insider trading policy is available on our website and is filed as an exhibit to this annual report.

During the fourth quarter of 2023, we were a privately owned company and disclosure required by Item 9B was not applicable.

Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.

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Lei Zhang has been a director since November 2020.

She has been associate professor, which is a tenured position, in the Department of Mechanical Engineering at the University of Alaska, Fairbanks since July 2018, having been an assistant professor in that department from August 2013 to June 2018.

She has been a professor, which is a tenured position, in the Department of Mechanical Engineering at the University of Alaska, Fairbanks since July 2024, having been an associate professor from August 2018 to June 2024, and an assistant professor in that department from August 2013 to June 2018.

She is co-author of a number of annual books on energy technology and is co-author of a number of articles in her field in peer reviewed journals.

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Therefore, recognition and enforcement in the PRC of judgement of United States courts in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Bin Lu, age 54, is the head of our China segment.

Lu has been employed in our China segment since we acquired ZHPV in 2015.

Lu was employed with ZHPV prior to our acquisition of ZHPV.

Lu received a bachelor’s degree from Shanxi University.

Information about the Board of Directors

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Committees of the Board of Directors

Effective upon the effectiveness of the registration statement of which this prospectus is a part, we established an audit committee, a compensation committee and a nominating and corporate governance committee.

We have established an audit committee, a compensation committee and a nominating and corporate governance committee.

We have adopted a charter for each of the three committees.

Each committee’s members and functions are described below.

Pursuant to the Nasdaq regulations, we are electing to use the phase-in provisions which permit us, during the one-year period following the date of this prospectus, (i) to have a board of directors that is not comprised of a majority of independent directors and (ii) to have one non-independent director on each of our committees.

Audit Committee.

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We have determined that Dr.

Chen satisfy the “independence” requirements of the Nasdaq Listing Rules and meet the independence standards under Rule 10A-3 under the Exchange Act.

Yuan satisfy the "independence” requirements of the Nasdaq Listing Rules and meet the independence standards under Rule 10A-3 under the Exchange Act.

We have determined that each of Dr.

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Our audit committee reviews all proposed related party transactions on an ongoing basis and any such transactions must be approved by the audit committee.

The audit committee has the authority, with the assistance of management, to advise the board and any other board committee if the clawback provisions of the our clawback policy are triggered based upon a financial statement restatement or other financial statement change.

The audit committee has the authority, with the assistance of management, to advise the board and any other board committee if the clawback provisions of our clawback policy are triggered based upon a financial statement restatement or other financial statement change.

The audit committee also has the responsibility to implement and oversee our cybersecurity and information security policies and periodically review the policies and manage potential cybersecurity incidents.

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and Jinxi Lin.

We have determined that each of Mr.

Zhang satisfies the “independence” requirements of the Nasdaq Listing Rules.

We have determined that Mr.

Zhang, and Mr.

Lin satisfy the "independence” requirements of the Nasdaq Listing Rules.

The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation relating to our directors and executive officers.

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Our nominating and corporate governance committee consists of Dr.

Wen-Ching Yang, as chair, Wei Yuan Chen and David Hsu.

Wen-Ching Yang, as chair, and Wei Yuan Chen.

We have determined that Dr.

Chen satisfy the "independence” requirements of the Nasdaq Listing Rules.

Hsu is our chief executive officer.

The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.

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evaluating the performance and effectiveness of the board as a whole

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and 10% stockholders to file initial reports of ownership and reports of changes in ownership of our common stock with SEC and to furnish us with copies of all Section 16(a) forms that they file.

Yuan filed a late Form 3.

Zhang are delinquent in their Form 3 filings.

Executive Compensation

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Hsu waived his bonus for 2023 and 2022 in connection with the suspension of incentive programs for our key employees.

All other compensation represents the value of paid time off accrued during 2022.

All other compensation represents the value of paid time off accrued.

Employment Agreements

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In connection with Mr.

Hsu’s exchange of 674,107 restricted shares for options to purchase 1,428,432 shares of common stock at $5.01 per share and 674,107 restricted shares for a cash payment of $675,000, which was initially payable by December 15, 2019 and was paid from the proceeds of our initial public offering.

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

Hsu $1,712,770, representing deferred salary from 2019, 2020, 2021, 2022 and 2023 and cash bonuses deferred from 2017 and 2018.

Hsu agreed that this deferred salary and bonus be paid in twelve equal monthly installments, the first payment becoming due on the February 27, 2025.

Hsu agreed that this deferred salary and bonus be paid in twelve equal monthly installments, the first payment becoming due on the February 27, 2025 which has been extended to June 30, 2025.

We have an employment agreement dated March 23, 2017 with Stephen Brown pursuant to which we pay Mr.

Brown an annual salary of $350,000 and, on May 1, 2017, we granted him an option to purchase 199,736 shares at $5.01 per share.

Brown an annual salary of $350,000.

Brown’s agreement provides that his employment is at will.

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provided, however, that prior to a forfeiture termination event, (i) the grantees shall have no rights to sell, encumber or otherwise transfer the shares, and (ii) any shares of any class or series of capital stock which are issued to the grantee as a holder of the shares as a result of a stock dividend, stock split, stock distribution, reverse split, recapitalization, or similar event, shall be subject to the same forfeiture provisions as the shares.

A forfeiture termination event shall mean such date as is six months following a public stock event, which is the vesting date with respect to the shares.

The definition of a public stock event includes the effectiveness of the offering.

The shares are forfeited and are to be conveyed to us for no consideration if a public stock event has not occurred by April 30, 2024, although the board of directors has the right to extend that date.

A forfeiture termination event shall mean such date as is six months following our initial public offering, which is the vesting date with respect to the shares.

The shares were subject to forfeiture if we did not complete our initial public offering by April 30, 2024.

The options became exercisable as to 50% of the shares in August 2024 and become exercisable as to the remaining 50% in August 2025.

Outstanding Equity Awards

The following table sets forth information as to outstanding equity awards at December 31, 2024 for the Named Executive Officers:

Option awards

Option swards

unexercised option #

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Stephen Brown

These options will become exercisable in two installments, commencing August 12, 2024.

These options held by Mr.

Hsu are exercisable as to 50% and will become exercisable as to the remaining 50% on August 12, 2025.

Director Compensation

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Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters

The following table sets forth information with respect to the beneficial ownership of our common stock as of April 11, 2024 by:

The following table sets forth information with respect to the beneficial ownership of our common stock as of March 15, 2025 by:

each person known to us to beneficially own 5% or more of our common stock;

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All information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, directors or executive officers, as the case may be.

Each person is deemed to own beneficially shares of common stock that are issuable upon exercise of options, warrants or upon conversion of convertible securities if they are exercisable or convertible within 60 days of April 11, 2024.

Unless otherwise noted, the mailing address of each listed beneficial owner is 3080 12th Street, Riverside, California 92507.

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All officers and directors as a group 2,3 , 5,6 (seven individuals beneficially owning stock)

The percentages are based on 45,447,183 shares which includes common stock outstanding of 45,247,447 shares and Mr.

Brown’s option to purchase 199,736 shares of common stock.

The percentages are based on 45,270,860 shares of common stock outstanding.

Represents 4,032,298 shares owned by Mr.

Hsu and 714,216 shares issuable upon exercise of options held by Mr.

The shares beneficially owned by Jinxi Lin represent the 3,566,700 shares owned by AMD, of which Mr.

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639, Qinglong East Road, Changzhou, Jiangsu, China.

The address for Ching Liu is 2810 Steeplechase Lane, Diamond Bar, CA 91765

Represents 2,368,300 shares owned by Ms.

Liu and 529,049 shares subject to options held by Ms.

The address for Ms.

Liu is 2810 Steeplechase Lane, Diamond Bar, CA 91765

Represents 2,197,088 shares owned by Mr.

Yuan and 634,859 shares issuable upon exercise of options held by Mr.

Includes 349,537 shares of common stock owned by Dr.

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Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his or her name.

Options held by Mr.

Yuan, which become exercisable August 12, 2024, are not reflected in the table since they are not exercisable within 60 days of April 11, 2024.

Certain Relationships and Related Transactions, and Director Independence

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CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, LLC ("Inland Empire”).

Inland Empire is owned by David Hsu, our chief executive officer and a director, Ching Liu, our former executive vice president and director and a 5% stockholder, and Simon Yuan, a director.

Inland Empire is owned by David Hsu, our chief executive officer and a director, and Ching Liu, our former executive vice president and former director and a 5% stockholder.

Simon Yuan, a director, resigned from Inland Empire in January 2024.

He had not been involved in the management of CEF or CEF II.

The limited partners of both CEF and CEF II are unaffiliated 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.

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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 his 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.

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One of these limited partners accepted a convertible note for $500,000, the amount of his claim.

Interest expense on the loans from CEF and CEF II were approximately $0.5 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.

Interest expense on the loans from CEF and CEF II were approximately $400,000 and $531,000 for the years ended December 31, 2024 and 2023, respectively.

Other Related Party Loan

On October 10, 2022, SMXP 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.

David Hsu, our chief executive officer and a director, Ching Liu, formerly our executive vice president and a director and currently a 5% stockholder, and Simon Yuan, a director, are the principal management group of SMXP.

Prior to October 2022, we leased our headquarters from SMXP.

The annual rate under the lease was approximately $1.5 million plus common area charges.

In October 2022, SMXP sold its interest in the building to 3080 Landlord, an unrelated party, and we entered into a net lease agreement with 3080 Landlord to lease the property until December 31, 2026.

Under our prior lease with SMXP, we leased that portion of the building that we used.

Under the lease with 3080 Landlord, we lease the entire building and we have the right to sublease space in the property with the consent of the landlord, such consent not to be unreasonably withheld.

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 for the entire building, we are responsible for all of the operating expenses of the building.

On October 10, 2022, SMXP 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 principal amount plus accrued interest of both notes was initially due on October 10, 2024 and was extended to October 10, 2025.

Contemporaneously with the sale by SMXP of the building to 3080 Landlord and the lease with 3080 Landlord, we issued two two-year 8% notes to SMXP.

Both notes provide for quarterly payments of interest during the term with the principal being due at maturity.

One note, in the principal amount of $414,581, was issued to pay rent due under our former lease with SMXP for the period, which terminated when SMXP sold the property to 3080 Landlord, at which time we entered into a new lease with 3080 Landlord.

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.

Payment of the notes is due in October 2024.

David Hsu, our chief executive officer and a director, and Ching Liu, formerly our executive vice president and a director and currently a 5% stockholder are the principal management group of SMXP.

Simon Yuan, a director, has a non-controlling interest in SMXP and is not part of its management.

Related Party Leases

We have a lease for our Diamond Bar, California office with Fallow Field, LLC.

We had a lease for our Diamond Bar, California office with Fallow Field, LLC.

Fallow Field, LLC, a related party.

The lease commenced on November 1, 2016 and has a ten year term with one five-year renewal option.

The lease commenced on November 1, 2016 and had a ten year term with one five-year renewal option.

The initial annual base rent is $229,272 plus the Company’s share of utilities.

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Liu and a minority stockholder.

For the years ended December 31, 2023 and 2022, total related party rental expenses included in general and administrative expenses for the Riverside, California corporate headquarters and the Diamond Bar, California office, were approximately $0.1 million and $1.2 million, respectively.

Effective March 31, 2024, we terminated the lease with Fallow Field.

For the years ended December 31, 2024 and 2023, total related party rental expense included in general and administrative expenses was approximately $36,000 and $100,000, respectively.

Equity Transactions with Officers and Directors

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The payments to Mr.

Liu were initially to have been paid by December 15, 2019, which date has been extended several times and the payments were made from the proceeds of our initial public offering.

Liu were initially to have been paid by December 15, 2019, which date has been extended several times and the payments to Ms.

Liu and another employee were made from the proceeds of our initial public offering.

The payment to Mr.

Hsu is to be paid in twelve monthly installments, commencing June 30, 2025.

Director Independence

We believe that three of our directors, Mr.

Zhang, are independent directors using the Nasdaq definition of independence.

We believe that five of our directors, Mr.

Yuan are independent directors using the Nasdaq definition of independence.

Principal Accounting Fees and Services

The following table sets forth the fees billed Marcum LLP, by our registered independent public accounting firm, for 2024 and 2023 for the categories of services indicated.

Year Ended December 31,

Years Ended December 31,

Audit – related fees

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Exhibits, Financial Statement Schedules

Financial Statement

Report of Independent Registered Accounting Firm

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

Notes to consolidated Financial Statements

Condensed Financial Information of Parent

Financial Statements begin on Page F-1

Exhibit number

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Amended and Restated Bylaws.

Description of Securities of the Registrant 3

Employment agreement dated October 7, 2016 between the Company and David Hsu.

Separation and Release Agreement dated October 1, 2020, by and between the Company and Ching Liu 1

Form of restricted stock agreement.

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Lease agreement dated October 13, 2022 between the Company and 3080 12th Street, LLC.

Lease dated September 1, 2016 between Fallow Field, LLC and the Company.

Lease dated as of September 1, 2016 between Fallow Field, LLC and SolarMax LED, Inc.

Form of restricted stock exchange agreement for option 1

Form of restricted stock exchange agreement for option and cash 1

Client Service Agreement dated October 14, 2019 between SolarMax Renewable Energy Provider, Inc.

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Form of exchange agreement among CEF, SREP, the issuer and the limited partners of CEF 1

Form of 4% secured subordinated convertible note issued by the issuer and SREP to limited partners of CEF pursuant to the exchange agreement (Exhibit 10.71) 1

Form of 4% secured subordinated convertible note issued by the Company and SREP to limited partners of CEF pursuant to the exchange agreement (Exhibit 10.1) 1

Form of exchange agreement among CEF II, LED, the Company and the limited partners of CEF II 3

Form of 4% secured subordinated convertible note issued by the Company and LED to limited partners of CEFII pursuant to the exchange agreement (Exhibit 10.13) 3

Exchange agreement dated March 27, 2019 between and Company and David Hsu 1

Exchange agreement dated March 27, 2019 between the Company and Ching Lui 1

Promissory note dated October 10, 2022 issued by the Company to SMX Property, LLC.

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For $414,580.65.

Letter agreement dated August 30, 2022 between the Company and Yue Lian Liang extending maturity date of note.

Letter agreement dated March 27, 2025 between the Company and David Hsu deferring payment of deferred compensation 3 .

Form of stock purchase used in March 2025 stock placement 3 .

Code of Ethics 2

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List of Subsidiaries.

Consent of Marcum LLP 2

Power of Attorney 3

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 3 .

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Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.

Clawback policy 2

Executive Compensation Clawback Policy 2

Inline XBRL Instance Document.

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333-266206 and incorporated herein by reference.

Filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2023 which was filed with the SEC on April 14, 2024 and incorporated herein by reference.

Filed herewith

Included in the signature page

Furnished herewith

Compensatory plan or arrangement.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

April 16, 2023

March 31, 2025

SOLARMAX TECHNOLOGY, INC.

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Chief executive officer and director (principal executive officer)

April 16, 2024

March 31, 2025

/s/ Stephen Brown

Chief financial officer (principal financial officer)

April 16, 2024

March 31, 2025

Stephen Brown

/s/ Simon Yuan

April 16, 2024

March 31, 2025

/s/ Jinxi Lin

April 16, 2024

March 31, 2025

/s/ Wei Yuan Chen

April 16, 2024

March 31, 2025

Wei Yuan Chen

/s/ Wen-Chang (Stephen) Yang

April 16, 2024

March 31, 2025

Wen-Chang (Stephen) Yang

/s/ Lei Zhang

April 16, 2024

SolarMax Technology, Inc .

March 31, 2025

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 688 )

Report of Independent Registered Accounting Firm (PCAOB ID 688 )

Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

To the Stockholders and Board of Directors of

SolarMax Technology, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SolarMax Technology Inc.

(the “Company”) as of December 31, 2023 and 2022 the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2023, and the related notes and schedule of condensed financial information of parent as of December 31, 2023 and 2022 and for each of the two years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “financial statements”).

(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion,the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has a significant working capital deficiency and will need to expand its existing business and customer base, and exchange of long-term debt for convertible notes to meet its obligations and sustain its operations.

As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit s in accordance with the standards of the PCAOB .

Those standards require that we plan and perform the audit s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit s we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit s included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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Costa Mesa, California

April 16, 2024

March 31, 2025

Financial Statements

SolarMax Technology, Inc.

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Accounts receivable, net

Contract assets

Receivable from SPIC and project companies (Note 2)

Receivable from SPIC, net

Short-term investments

Contract assets, net

Customer loans receivable, current, net

Inventories, net

Deferred project costs

Other receivables and current assets, net

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Restricted cash, noncurrent

See accompanying notes to consolidated financial statements.

SolarMax Technology, Inc.

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Current liabilities:

Notes and accounts payable

Accounts payable

Operating lease liabilities, current

Bank and other unsecured loans, current

Unsecured loans, current

Secured loans from related parties, current

Secured convertible notes, current

Contract liabilities

Accrued expenses and other payables

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Secured convertible notes, noncurrent, net of debt discount and issuance costs

Deferred tax liability

Other liabilities

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Common stock, par value $ 0.001 per share;

297,225,000 shares authorized, 40,983,881 shares issued, and 39,735,536 shares outstanding as of December 31, 2023 and December 31, 2022

297,225,000 shares authorized, 46,532,355 and 40,983,881 shares issued as of December 31, 2024 and December 31, 2023, respectively, and 45,270,860 and 39,735,536 shares outstanding as of December 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

Treasury stock, at cost, 1,248,345 shares at December 31, 2023 and December 31, 2022

Treasury stock, at cost, 1,261,495 and 1,248,345 shares at December 31, 2024 and December 31, 2023, respectively

( 1,979,294 )

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Years Ended December 31,

Cost of revenues

Cost of revenues (includes stock-based compensation expense of $1,264,690 and $0 for the years ended December 31, 2024 and 2023, respectively)

Operating expenses:

General and administrative

General and administrative (includes stock-based compensation expense of $17,271,494 and $0 for the years ended December 31, 2024 and 2023, respectively)

Selling and marketing

Goodwill impairment loss

Total operating expense

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Gain on early termination of lease

Other income (loss), net

Other income (expense), net

Total other income (expense)

14 unchanged sentences

$ ( 34,962,336 )

Other comprehensive loss

Other comprehensive income (loss)

Foreign currency translation adjustments

4 unchanged sentences

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Deficit

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2024 and 2023

Preferred Stock

Additional Paid-

Treasury Stock

Accumulated Other Comprehensive

Comprehensive

Balance at December 31, 2023

4 unchanged sentences

$ ( 15,887,828 )

Vesting of restricted stock

Stock-based compensation

Shares issued on warrant exercise

Shares issued on option exercise

Shares returned for tax withholding on option exercise

Shares issued in initial public offering

Public offering costs previously capitalized

( 1,004,991 )

Net income (loss)

( 34,962,336 )

Currency translation adjustments

6 unchanged sentences

Preferred Stock

Additional Paid-In

Additional Paid-

Treasury Stock

Accumulated Other Comprehensive

Comprehensive

Balance at December 31, 2022

4 unchanged sentences

$ ( 16,207,549 )

( 6,873,278 )

Net income (loss)

Currency translation adjustments

17 unchanged sentences

Amortization of loan discounts on customer loan receivables

Amortization of debt discount and debt issuance costs

Amortization of convertible note discount and debt issuance costs

Amortization of operating lease right-of-use assets

Provision for (recovery of) credit losses and loan losses

Provision for other receivables from SPIC

Provision for excess and obsolete inventories

Provision for warranty, customer care and production guaranty

Equity in income of investment in excess of distribution received

Provision for warranty and production guaranty

Equity in income of investment in solar project company excess of $0 distribution received

Deferred income tax provision

1 unchanged sentence

Gain on debt extinguishment

( 1,946,635 )

Gain on early termination of lease

( 1,079,117 )

Write off of capitalized merger costs

Stock-based compensation

Goodwill impairment

Changes in operating assets and liabilities:

Accounts Receivable

( 3,095,068 )

Contract Assets

( 2,140,577 )

Unbilled receivables

Receivables from SPIC and project companies

Customer loans receivable

1 unchanged sentence

( 1,404,001 )

( 1,098,423 )

Notes and accounts payable

( 2,580,829 )

Accounts payable

Operating lease liabilities

5 unchanged sentences

( 3,716,300 )

( 2,664,360 )

Other liabilities

( 1,097,948 )

( 1,379,324 )

Net cash provided by (used in) operating activities

$ ( 9,130,110 )

See accompanying notes to consolidated financial statements.

SolarMax Technology, Inc.

4 unchanged sentences

Investing activities

Issuance of note receivable to SPAC and Sponsor

Purchase of short-term investments

$ ( 7,685,171 )

Proceeds from short-term investments

Purchase of property and equipment

Proceeds from disposal of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

( 6,315,865 )

Financing activities

Principal repayment on convertible notes

Accrued settlement

$ ( 276,269 )

Proceeds from initial public offering, net of underwriting fees

Share issuance costs relating to the initial public offering

IPO offering costs paid

Proceeds from note payable

Principal payments on convertible notes

( 5,545,007 )

Principal repayment on borrowings

( 4,800,000 )

Principal payment on borrowings

Repayment on equipment capital lease

2 unchanged sentences

Proceeds from Uonone acquisition contingency (Note 15)

Net cash used in financing activities

( 5,045,623 )

Net cash provided by (used in) financing activities

( 5,321,892 )

Effect of exchange rate

Net decrease in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

( 1,830,739 )

4 unchanged sentences

Interest paid (received) in cash

Income taxes paid in cash

Income taxes paid (received) in cash

Non-cash activities for investing and financing activities:

Right-of-use assets acquired through operating leases

Shares returned for tax withholding on options exercised

Reversal of previously capitalized offering cost upon IPO

Right-of-use assets acquired through operating leases, related party

Promissory note issued in lieu of a payable for rent and security deposit

Convertible notes issued to related parties in lieu of EB-5 loans

Convertible notes issued to non-related parties in connection with cancellation of EB-5 loans

See accompanying notes to consolidated financial statements.

SolarMax Technology, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2024 and 2023 (Continued)

As of December 31,

1 unchanged sentence

Cash and cash equivalents

Restricted cash, current

Restricted cash, noncurrent

1 unchanged sentence

Cash and cash equivalents

Restricted cash, current

Restricted cash, noncurrent

9 unchanged sentences

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.

The Company was founded in 2008 to engage in the solar business in the United States of America (the “U.S.”) and, following the acquisition in 2015 of Chengdu Zhonghong Tianhao Technology Co., Ltd.

The Company was founded in 2008 to engage in the solar business in the United States of America.

The Company’s 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 the United States.

In 2015, the Company commenced operations in the People’s Republic of China (the “PRC”) with the acquisition of two subsidiaries, Chengdu Zhonghong Tianhao Technology Co., Ltd.

("Chengdu ZHTH”), which is a subsidiary of SolarMax Technology (Shanghai) Co.

(together with its subsidiaries thereunder, "ZHTH”), and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd.

(“ZHPV”), commenced operations in the People’s Republic of China (the “PRC” or “China”).

The Company’s business in the PRC is primarily conducted through ZHTH and ZHPV, and their subsidiaries.

The Company operates in two segments – the U.S.

operations and the China operations.

The Company’s U.S.

operations primarily consist of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, and (ii) sales of LED systems and services to government and commercial users.

The Company did not generate any revenue from its China segment subsequent to 2021, and the China segment does not have any projects or agreements as of the date of the issuance of these financial statements.

All of the Company’s revenue for the years ended December 31, 2024 and 2023 was generated by the United States segment, and the cost of revenue related to the United States segment.

The Company’s operations primarily consist of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, and (ii) sales of LED systems and services to government and commercial users.

In the U.S., the Company has four wholly-owned subsidiaries at December 31, 2024 as follows:

SolarMax Renewable Energy Provider, Inc., a California corporation ("SREP”)

SolarMax Financial, Inc., a California corporation (“SolarMax Financial”)

SolarMax LED, Inc., a California corporation ("LED”)

SolarMax Financial, Inc., a California corporation ("SolarMax Financial”)

SMX Capital, Inc., a New Jersey corporation ("SMX Capital”)

The Company’s China operations consist of identifying and procuring solar farm projects for resale to third parties and performing engineering, procurement, and construction (“EPC”) services primarily for solar farm projects.

The Company’s operations in China are conducted through its principal Chinese subsidiaries.

The Company’s wholly-owned subsidiaries outside the U.S.

6 unchanged sentences

Golden SolarMax Finance Co., Ltd., ("Golden SolarMax”), which was organized under the laws of the PRC on June 1, 2015.

The entity was liquidated in Q2 2024.

Solarmax Technology Holdings (Cayman) Limited ("Solarmax Cayman”), a Cayman Islands limited company formed on May 8, 2017.

1 unchanged sentence

Accumulate Hong Kong has one wholly-owned subsidiary, ZHPV.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Technology (Shanghai) Co., Ltd.

1 unchanged sentence

SolarMax Shanghai is a wholly foreign-owned entity, referred to as a WFOE.

SolarMax Shanghai currently has subsidiaries that are not significant, but forms subsidiaries which acquire permits for solar farms with a view to selling the project subsidiaries pursuant to the terms of agreements with the ultimate buyer, which during 2022 and 2021 was State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd (“SPIC”), a third party customer.

We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.

On May 8, 2017, Solarmax Technology Holdings (Cayman) Limited (“Solarmax Cayman”) a Cayman Islands limited company, was formed with 1,000,000,000 shares at a par value of U.S.

dollars of $0.01 for an authorized capital of U.S.

dollars of $10.0 million.

SolarMax Shanghai currently has subsidiaries that are not significant.

SolarMax Shanghai and its subsidiaries are collectively referred to as ZHTH.

On May 8, 2017, Solarmax Technology Holdings (Cayman) Limited ("Solarmax Cayman”) a Cayman Islands limited company, was formed.

Solarmax Cayman is a 100% owned direct subsidiary of the Company and was created to potentially serve as an intermediate holding company for the Company’s PRC operations for possible future transactions.

Though Solarmax Cayman is an active company, it does not currently have any operations.

ZHTH is engaged in project development and its business can provide engineering, procurement and construction (“EPC”) services.

Generally, when a buyer of a project is identified, the subsidiary that owns the subsidiary holding the permit (a “project subsidiary”) sells to the buyer the equity in the project subsidiary for that specific solar farm project, and the buyer of the project engages ZHPV for the EPC services.

The purchase price for the project subsidiary is an amount generally approximating the subsidiary’s net assets.

Accordingly, the Company does not generally generate any material gain or loss from the sale of the project subsidiaries.

The sale of the equity in the project subsidiaries is part of the normal course of the Company’s operations in China.

Because government regulations prohibit the sale of the permit related to a solar farm, it is necessary for the Company to sell the equity in the project subsidiary to effectuate the transfer of the ownership of a solar farm permit to buyer.

On April 28, 2015, the Company acquired the ownership of Chengdu Zhonghong Tianhao Technology Co., Ltd., through a share exchange agreement among the Company, SolarMax Shanghai and the equity owners of Chengdu Zhonghong Tianhao Technology Co., Ltd.

Chengdu Zhonghong Tianhao Technology Co., Ltd.

Was formed on March 21, 2014 and Chengdu Zhonghong Tianhao Technology Co., Ltd.

Became a wholly-owned subsidiary of SolarMax Shanghai as a result of the acquisition.

Also on April 28, 2015, the Company acquired the ownership of ZHPV through a share exchange agreement between the Company and the holders of the stock of Accumulate.

After the acquisition, the Company owns all of the stock of Accumulate, which, in turn, through Accumulate Hong Kong, owns all of the stock of ZHPV.

ZHPV was formed on December 31, 2009.

Solarmax Cayman does not currently have any operations.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

At December 31, 2024 and 2023, the Company’s major subsidiaries and the related core business consist of the following:

SREP was established on July 19, 2011 and is engaged in the business of developing, selling and installing integrated photovoltaic systems and energy storage systems for residential and commercial customers in the U.S.

LED was established on July 15, 2013 in connection with the 2013 acquisition of Act One and is engaged in the business of commercial LED light integration projects, customized governmental special projects, commercial consulting projects, as well as battery storage system projects in the U.S.

SolarMax Financial was established on September 9, 2009 and was engaged in the business of providing secured installment financing to purchasers of residential and commercial photovoltaic systems, and servicing installment sales for SREP and LED customers in the U.S.

The Company has not provided financing to purchasers since 2020.

The Company has not provided financing to purchasers since 2020, and all revenues from SolarMax Financial reflects revenue earned on its current portfolio, with no new loans having been added since early 2020.

SMX Capital was acquired by the Company in June 2011.

3 unchanged sentences

SMX Capital has not been engaged in leasing new systems since 2014 and its primary business is the ownership and maintenance of systems under existing leases.

ZHTH is engaged in the business of identifying, procuring and marketing solar energy projects and other roof top solar energy projects in the PRC.

ZHPV is engaged in the EPC business for solar energy projects and other roof top solar energy projects in the PRC.

Jiangsu Honghao was organized on September 21, 2015 and is engaged in the business of operating and maintaining solar farms in the PRC.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Termination of Agreement of Merger with SPAC

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

Alberton Acquisition Corporation (“SPAC”), as the Purchaser;

and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of the SPAC, as Merger Sub.

Under the Merger Agreement, Merger Sub was to be merged with and into the Company, following which the Company would continue as the surviving corporation and as a wholly-owned subsidiary of SPAC.

As consideration for the merger, the Company’s stockholders were to receive from the SPAC shares of SPAC’s common stock having a value of $ 300,000,000 .

The Merger Agreement also provided that the Company would lend SPAC $60,000 per month for up to six months in connection with the SPAC’s obligation to make payments in connection with the postponement of the date by which the SPAC must complete a business combination, failing which it is to be dissolved.

The Merger Agreement was amended several times, and the amendments increased the loans to be made by the Company.

The Company also made additional loans to the SPAC’s sponsor.

The total loans made by the Company to the SPAC and the SPAC’s sponsor were $ 1,664,447 and $ 651,369 , respectively.

On April 20, 2022, the Company terminated the Merger Agreement pursuant to the termination clause provided in the Merger Agreement.

As of December 31, 2022, as a result of the termination of the Merger Agreement, the Company wrote off the notes receivable from the SPAC in the amount of $ 1,664,447 and notes receivable from the SPAC’s sponsor in the amount of a $ 651,369 .

Reverse Stock Split

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

All share and per share information in these financial statements retroactively reflects the reverse stock split.

Initial Public Offering

In March 2024, the Company issued 5,039,950 shares of common stock in its initial public offering at a public offering price of $ 4.00 per share less a 6% underwriting discount pursuant to an underwriting agreement (the “Underwriting Agreement”) with Kingswood, a division of Kingswood Capital Partners, LLC (the “Representative”), as representative of the underwriters.

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

Pursuant to the Underwriting Agreement, the Company 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 were approximately $ 20 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company.

Net proceeds from the Company’s 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.

Pursuant to the Underwriting Agreement, the Company issued to the Representative warrants (the “Representative’s Warrants”) to purchase 403,196 shares of common stock at an exercise price of $ 4.80 per share.

On March 13, 2024, the Representative’s Warrants were fully exercised on a cashless basis.

Based on the formula for cashless exercise, the Company issued a total of 207,311 shares of common stock, and, as a result of the exercise, no Representative’s Warrants remained outstanding.

Basis of Presentation and Summary of Significant Accounting Policies

8 unchanged sentences

All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements reflect the accounts and operations of the Company.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation , the Company consolidates any variable interest entity (“VIE”) of which it is the primary beneficiary.

The Company uses a qualitative approach in assessing the consolidation requirement for VIEs.

This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.

All of these determinations involve significant management judgments and estimates.

The Company has determined that it is not the primary beneficiary in the operational VIE, SMX Property LLC (“SMXP”), and therefore, does not consolidate the financial information of SMXP.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

These reclassifications had no effect on the previously reported net loss.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

The Company was the lessee under an operating lease of its Riverside, CA headquarters facility with SMXP (see Note 15 – Related Party Transactions ) through October 2022.

SMXP is a private entity owned by the Company’s founders, one of whom is the Chief Executive Officer and a Director of the Company, another who is a Director of the Company, and another who is a former officer and director of the Company.

The lease term was initially for four years expiring on December 31, 2016, and was extended in September 2016 for a ten-year term, with one five-year renewal option, and was terminated in October 2022 in connection with the sale of the property by SMXP to an unrelated purchaser with whom the Company executed a new master lease.

The Company does not have any ownership interest in SMXP.

Other than the common ownership and the unsecured loans, the Company does not have any economic arrangements with SMXP such that the Company will have an obligation to support the operations of SMXP.

Further, the Company does not have the power to direct and control the activities of SMXP as such power to direct and control resides with SMXP’s principals.

Accordingly, the Company is not considered to be the primary beneficiary of SMXP and has not consolidated SMXP.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

See note 16 below regarding the reclassification of sublease income to net against operating leases.

These reclassifications had no effect on the previously reported net loss.

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant accounting estimates reflected in the Company’s consolidated financial statements include the cost-based inputs to estimate revenues on long-term construction contracts, the collectability of accounts receivable and loans receivable, the useful lives and impairment of property and equipment, goodwill, the fair value of stock options granted and stock-based compensation expense, the fair value of assets acquired and liabilities assumed in a business combination, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes.

Significant accounting estimates reflected in the Company’s consolidated financial statements include the cost-based inputs to estimate revenues on long-term construction contracts, the collectability of accounts receivable, the receivable from SPIC and loans receivable, the value of investments in unconsolidated solar project companies, the value of short-term investments which have been extended and which were not paid on the maturity date, the useful lives and impairment of property and equipment, the fair value of stock options granted and stock-based compensation expense, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes.

Actual results could differ materially from those estimates.

2 unchanged sentences

GAAP, which contemplate continuation of the Company as a going concern.

The Company’s history of net losses and negative cash flow from operating activities, along with its increased accumulated deficit and stockholders’ deficit raise substantial doubt about its ability to continue as a going concern.

At December 31, 2023, the Company reported a working capital deficit of $ 23.5 million.

The Company’s history of net losses and negative cash flow from operating activities, including its net loss and negative cash flow for the year ended December 31, 2024, along with its increased accumulated deficit and stockholders’ deficit raise substantial doubt about the Company's ability to continue as a going concern.

At December 31, 2024, the Company reported a working capital deficit of approximately $ 13.8 million.

In addition, the accumulated deficit was approximately $ 103.6 million and the stockholders’ deficiency was approximately $ 15.1 million.

In connection with these consolidated financial statements, management evaluated whether there were conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements.

In connection with these consolidated financial statements, management evaluated whether there were conditions and events, that, considered in the aggregate, raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements.

Management assessed that there were such conditions and events, including a history of recurring operating losses, a history of negative cash flows from operating activities, and significant current debt.

As of December 31, 2023, the Company’s principal sources of liquidity consisted of approximately $ 2.5 million, of cash and cash equivalents, and estimated cash flow from operations.

The Company believes its current cash balances coupled with anticipated cash flow from operating activities and the net proceeds of its February 2024 initial public offering (See Note 21) are sufficient to meet the Company’s working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, excluding approximately $ 20.7 million of debt that is due in the next twelve months.

Management is focused on expanding the Company’s existing business, as well as its customer base, including its continuing efforts to generate revenue from non-related parties for its China operations and to continue to increase its United States revenues.

As of December 31, 2024, the Company’s principal sources of liquidity consisted of approximately $ 786,000 , of cash and cash equivalents, a significant decline from $ 2.5 million at December 31, 2023 even though the Company completed its initial public offering in March 2024, and estimated cash from operations.

The Company believes its current cash balances coupled with anticipated cash generated from operating activities are sufficient to meet the Company’s working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, excluding approximately $ 18.0 million of debt that is due in the next twelve months which the Company is seeking to have exchanged for five-year convertible notes.

Management is focused on expanding the Company’s existing business, as well as its customer base to expand its marketing to commercial solar installations, including its continuing efforts to generate revenue for its China operations, although the Company has not generated revenue from its China operations since 2021 and as of the date of issuance of these financial statements, the Company was not engaged in negotiations with respect to any contracts for its China segment.

The Company’s China segment has a receivable of RMB 49.5 million ($ 6.8 million) from SPIC, which has been outstanding since 2021, and reflects a reserve taken as of December 31, 2024 of RMB 4.7 million ($ 659,000 ) based on the initial arbitration results which disallow certain items claimed by the Company.

Although the Company expects to collect substantially all of this amount, it can give no assurance that it will recover such funds in 2025 if at all, and its ability to collect may be subject to China’s decline in tax revenue and funds from other sources.

The Company is looking to continue to negotiate an exchange of a large portion of the approximately $ 4.0 million of the current portion of long-term related party loans for convertible notes that mature in periods beyond one year.

The Company cannot predict whether it will be successful in these efforts.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

As a result of the above, there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements.

The Company cannot give assurance that it can increase its cash balances or limit its cash consumption, or obtain the exchange of any of its current debt and thus maintain sufficient cash balances for its planned operations.

The Company cannot give assurance that it can increase its cash balances or limit its cash consumption, or obtain the exchange of any of its current debt for secured convertible debt and thus maintain sufficient cash balances for its planned operations.

Future business demands may lead to cash utilization at levels greater than recently experienced.

Revenue and cash flow from the Company’s China segment is irregular because of the timing of solar projects and the Company requires significant funds for its operations, particularly during periods when there is little or no revenue or cash flow from projects.

Revenue and cash flow from the Company’s China segment is uncertain since as of December 31, 2024, the Company did not have any agreements for its China segment and was not engaged in any negotiations for such a contract.

The Company may need to raise additional capital in the future.

However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all.

However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, if at all.

Further, the Company cannot assure that it will not discontinue its China operations if it is not able to generate revenues from this segment.

Cash and Cash Equivalents

1 unchanged sentence

The standard insurance coverage for non-interest bearing transaction accounts in the U.S.

is $ 250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation.The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $ 73,000 ) per depositor per bank under the applicable Chinese general deposit insurance rules.

is $ 250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation.

The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $ 73,000 ) per depositor per bank under the applicable Chinese general deposit insurance rules.

Short-term Investments

Short-term investments consist of short-term note receivables with original maturities of 12 months or less.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

Restricted Cash

Restricted cash includes cash held to collateralize ACH transactions and outstanding credit card borrowing facilities.

In the prior year, restricted cash also collateralized bankers’ acceptances in the PRC, which are promised future payments accepted and guaranteed by a bank and drawn on a deposit at the bank.

Restricted cash at December 31, 2024 and December 31, 2023 consisted of:

Deposit held by a China financial institution to secure bankers acceptance

Deposit held by a US financial institution as collateral for ACH transactions and business credit cards – US Segment

4 unchanged sentences

In the U.S., accounts receivable substantially include customer billings for the sales of LED products and services.

In the PRC segment, accounts receivable represents the amounts billed under the contracts but uncollected on completed construction contracts and construction contracts in process.

In the PRC segment, accounts receivable represents the amounts billed under the contracts but uncollected on completed construction contracts.

Accounts receivable are recorded at net realizable value.

6 unchanged sentences

The contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date, primarily for the solar energy system sales in the U.S.

The contract assets are transferred to receivables when the rights become unconditional (i.e., when the permission to operate is issued).

The contract liabilities primarily relate to the advance consideration received from customers related to the same above solar energy system sales in the U.S., for which the transfer of ownership has not occurred.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

The contract assets are transferred to accounts receivable when the rights become unconditional (i.e., when the permission to operate is issued).

The contract liabilities primarily relate to the advance consideration received from customers related to the solar energy system sales in the U.S., for which the transfer of ownership has not occurred.

Applying the practical expedient in ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), paragraph 340‑40-25-4, the Company recognizes the incremental costs of obtaining contracts (i.e., commission fees) in cost of revenue when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

1 unchanged sentence

Customer Loans Receivable

segment, the Company offers its customers who meet the Company’s credit eligibility standards the option to finance the purchase of solar energy systems through installment loans underwritten through SolarMax Financial.

segment, the Company offered its customers who meet the Company’s credit eligibility standards the option to finance the purchase of solar energy systems through installment loans underwritten through SolarMax Financial.

All loans are secured by the solar energy systems or other projects being financed.

3 unchanged sentences

Loans offered at the promotional interest rate below the market interest rate are accounted for as loan discounts and are amortized on an effective interest method to interest income over the terms of the loans.

The Company has not entered into any new loan agreements since early 2020, and its revenues from financing related to its existing loan portfolio.

Inventories consist of (a) work in progress on solar systems on housing developments and projects not yet sold;

1 unchanged sentence

The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary.

All of the inventories are in the United States segment;

the China segment has no inventory.

The estimate for excess and obsolete inventories is based on historical sales and usage experience together with a review of the current status of existing inventories.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

Property and Equipment

Property and equipment are initially stated at cost less accumulated depreciation and amortization.

Property and equipment are stated at cost less accumulated depreciation and amortization.

The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred.

8 unchanged sentences

Goodwill represents the excess of the purchase price in a business combination over the fair value of assets acquired and liabilities assumed.

The Company’s goodwill was derived from the acquisitions of businesses in China in April 2015.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

The Company’s goodwill was derived from the acquisitions of businesses in China in April 2015.During the quarter ended September 30, 2024, the Company performed its annual goodwill impairment assessment considering various factors and based primarily on the continued economic downturn in China that directly impacts the Company's ability to generate new businesses in the foreseeable future, the Company recognized impairment loss for the entire balance of the goodwill of $ 7.5 million for the year ended December 31, 2024.

No impairment loss was recognized for the year ended December 31, 2023.

The Company reviews goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired.

The Company generally performs its annual impairment test of goodwill in the fourth quarter each year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired.

When assessing goodwill for impairment, the Company early adopted FASB’s guidance in Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other , for its annual testing in December 2017, which simplifies the accounting for goodwill impairment under ASC Topic 350, Intangibles-Goodwill and Other .

When assessing goodwill for impairment, the Company follows ASC Topic 350, Intangibles-Goodwill and Other.

In determining the reporting unit’s fair value, the Company considers the underlying enterprise value and if necessary, the reporting unit’s discounted cash flow, which involves assumptions and estimates, including the reporting unit’s future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws.

2 unchanged sentences

Accordingly, the reporting unit for the goodwill annual testing is the PRC segment.

There was no impairment loss for the years ended December 31, 2023 and 2022.

Impairment of Long-Lived Assets

8 unchanged sentences

The Company’s U.S.

segment also has an investment in a PRC-based panel manufacturer, Changzhou Holysolar Technology, Co., Ltd, which was renamed to “Changzhou Hongyi New Energy Technology Co., Ltd” on March 10, 2017 (“Changzhou”).

At December 31, 2023 and December 31, 2022, the Company has unconsolidated investments in the PRC related to its 30 % non-controlling interests in the project companies for Yilong #2, Xingren and Ancha.

For these investments, the Company does not have the controlling interests but it has the ability to exercise significant influence over the operations and the financial decisions of the investees under the respective operating agreements.

segment also has an investment in a PRC-based panel manufacturer, Changzhou Hongyi New Energy Technology Co., Ltd (“Changzhou”).

At December 31, 2024 and December 31, 2023, the Company has unconsolidated investments in the PRC related to its 30 % non-controlling interests in three project companies for which it transferred a 70% interest in 2021 to SPIC, which operates the project companies.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

For these investments, the Company does not have the controlling interests but it has the contractual ability to exercise significant influence over the operations and the financial decisions of the investees under the respective operating agreements although these investees are controlled by SPIC, which, as the 70% owner and the operator of the entities, has the ability to make all decisions concerning the investees.

In each of the investments, the investee also maintains a separate capital account for each of its investors and accordingly, the Company has a separate capital account at each of the investees.

Since the Company has the ability to exercise significant influence over the investees, the Company accounts for each of these investments using the equity method of accounting, under which the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage.

Since the Company has the contractual ability to exercise significant influence over the investees, the Company accounts for each of these investments using the equity method of accounting, under which the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage.

Distributions received from equity method investees are accounted for as returns on investment and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the Company.

When such an excess occurs, the current year distribution up to this excess would be considered a return of investment and classified as cash inflows from investing activities.

Since the Company’s investments include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment.

Because the Company’s investments include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment.

If the carrying value is above the fair value of an investment at the end of any reporting period, the investment is reviewed to determine if the impairment is other than temporary.

3 unchanged sentences

No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2024 and 2023.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Workmanship Warranty

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The 25-year warranty is consistent with the term provided by competitors and is provided by the Company to remain market competitive.

The workmanship warranty does not include the product warranties (panels and inverters) which are covered directly by the manufacturers, generally for 25 years on panels and inverters, and 10 years for energy storage systems.

The Company determined that its 25-year workmanship warranty for solar energy systems constitutes an assurance-type warranty and should continue to be accounted for under ASC Topic 460, Guarantees , instead of a service-type warranty which should be accounted for under Topic 606.

The workmanship warranty does not include the warranties on components, such as panels and inverters which are covered directly by the manufacturers and are, generally provided for 25 years on panels and inverters, and 10 years for energy storage systems.

The Company determined that its 25-year workmanship warranty for solar energy systems constitutes an assurance-type warranty and should continue to be accounted for under ASC Topic 460, Guarantees, instead of a service-type warranty which would be accounted for under Topic 606 as a cost of revenues.

Quality Warranty for EPC Services

For the PRC segment, the Company provides construction quality warranty on Engineering, Procurement and Construction (“EPC”) services generally for one year after completion.

For the PRC segment, the Company provided construction quality warranty on Engineering, Procurement and Construction (“EPC”) services generally for one year after completion.

The customer typically retains 3-5% of the contract price which will not be paid to the Company until the expiration of the warranty period which is accounted by the Company as retainage receivable.

3 unchanged sentences

Production Guaranty

For solar systems sold in the U.S., the Company also warrants that modules installed in accordance with agreed-upon specifications will produce at least 98 % of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5 % every year thereafter throughout the approximate 10 -year production guaranty period.

For solar systems sold in the U.S., the Company warrants that modules installed in accordance with agreed-upon specifications will produce at least 98 % of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5 % every year thereafter throughout the approximate 10 -year production guaranty period.

In resolving claims under the production guaranty, the Company typically makes cash payments to customers who claim for the production shortfall in power output on an annual basis.

3 unchanged sentences

The Company currently provides a warranty reserve for LED sales based on 1.0 % of LED revenue.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

Other Warranties

In 2016, as a result of the bankruptcy of a Chinese panel supplier from whom the Company purchased solar modules, the Company has reclassified the liability related to unpaid retentions to warranty liability in the amount of $ 651,000 .

Since 2016, the Company has not received any claims against the liability and accordingly, the Company reversed the liability against cost of revenue during the third quarter of 2023.

In 2016, as a result of the bankruptcy of a Chinese panel supplier from whom the Company purchased solar modules, the Company reclassified the liability related to unpaid retentions to warranty liability in the amount of $ 651,000 .

As of September 30, 2023, the Company had not received any claims against the liability and accordingly, the Company reversed the liability against cost of revenue during the third quarter of 2023.

See Note 14 - Accrued Expenses and Other Payables.

Fair Value Measurements

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ASC 820 also provides that relevant market data, to the extent available and not internally generated or entity specific information, should be used to determine fair value.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

ASC 820 requires the Company to estimate and disclose fair values on the following three-level hierarchy that prioritizes market inputs.

8 unchanged sentences

Customer loans receivable

Short-term investments

Bank and other loans

1 unchanged sentence

Secured convertible debt

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2023:

8 unchanged sentences

The overall credit risk of the portfolio also has not significantly fluctuated as evidenced by the minimal historical write-offs, and lastly the market interest rates have remained relatively consistent since the origination of the loans.

Short-term investments – Short-term investments consist of short-term note receivables with original maturities of 12 months or less.

Accordingly, their carrying values approximate their fair value.

Bank and other loans – The fair value of such loans payable had been determined based on the variable nature of the interest rates and the proximity to the issuance date.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Secured loans from related parties – The related party loans were issued at the fixed annual interest rates of 3.0 % in the U.S.

12 unchanged sentences

For such sale arrangements, the Company recognizes revenue using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract after consideration of the customer’s commitment to perform its obligations under the contract, which is typically measured through the receipt of cash deposits or other forms of financial security issued by creditworthy financial institutions or parent entities.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

Payment for EPC services is made by the customer pursuant to the billing schedule stipulated in the EPC contract which is generally based on the progress of the construction.

Once the bills are issued to the customer, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3% to 5%, depending on the contract.

Once the bills are issued to the customer, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3-5%, depending on the contract.

The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period .

11 unchanged sentences

Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

The Company’s arrangements may contain clauses such as contingent repurchase options, delay liquidated damages, rebates, penalties or early performance bonus, most favorable pricing or other provisions, if applicable, that can either increase or decrease the transaction price.

The Company has historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606.

Variable considerations that increase the transaction price (e.g., performance bonuses) were historically recognized under Topic 605 on a cash basis as such amounts were not fixed and determinable and collectability was not reasonably assured until paid.

However, under Topic 606, the Company needs to estimate and apply a constraint on such variable considerations and include that amount in the transaction price.

Under Topic 606, the Company estimates and applies a constraint on variable considerations and includes that amount in the transaction price.

Because the Company’s historical policies on estimating variable considerations that would decrease the transaction price have largely mirrored the requirements under Topic 606, and because variable considerations that would increase the transaction price have historically been immaterial or would likely be constrained under Topic 606, there is no cumulative effect adjustment.

The Company estimates variable

considerations for amounts to which the Company expects to be entitled and for which it is not probable that a significant reversal of cumulative revenue recognized will occur.

The Company estimates variable considerations for amounts to which the Company expects to be entitled and for which it is not probable that a significant reversal of cumulative revenue recognized will occur.

For energy generation assets not owned and controlled by the customer during the construction, as well as contracts with customers that do not require progress payments during construction and whereby the contracts include restrictive acceptance provisions before any progress payments are made by the customers, the Company recognizes revenues at a point in time when the Company determines it has transferred control to the customer.

PRC Power Purchase Agreements Revenue

Revenues under certain power purchase agreements are recognized based on the output delivered at an agreed upon rate over the contract term.

The Company records the revenue under such power purchase agreements during the period under which it has controlling interest in the project subsidiary.

Revenue recognition ceases upon the sale and transfer of controlling interest in the project subsidiary to a third party.

Solar Energy and Battery Storage Systems and Components Sales

3 unchanged sentences

All costs to obtain and fulfil contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

For solar energy and battery storage system sales, the Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract.

In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost of the solar energy and battery storage system, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize.

Cost‑based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts.

Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance.

In the U.S., the Company sells solar energy and battery storage systems to residential and commercial customers and recognizes revenue net of sales taxes.

Customers may pay for these sales in cash or by financing with the Company.

Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through a third party partner.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Cost‑based input methods of revenue recognition are considered a faithful depiction of the Company's efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts.

In the U.S., the Company sells solar energy and battery storage systems to residential and commercial customers and recognizes revenue net of sales taxes.

Direct payments are made by the customer as stipulated in the underlying home improvement or commercial contract which generally includes an upfront down payment at contract signing, payments at delivery of materials and installation ranging from 70% to 85% of the contract price , and the payment of the final balance at the time of the city signoff or when the permission to operate the solar system is granted by a utility company.

1 unchanged sentence

For a lease through the third party leasing partner, direct payments are made by the leasing partner to the Company based on an agreement between the leasing partner and the Company, which is generally 80% upon the completion of installation and 20% upon the permission to operate is granted.

For customers financing with the Company, the customer receivable, less any down payments, becomes a loan receivable following the grant of the permission to operate the solar system by a utility company, at which time the loan is recorded and the loan interest begins to accrue.

Financing terms for sales with financing by the Company are generally made for terms up to 60 months.

LED Product Sales and Service Sales

3 unchanged sentences

The standalone selling price of the warranty is not material and, therefore, the Company has not allocated any portion of the transaction price to any performance obligation associated with the warranty.

Payment of products is generally made upon delivery or with a 30 day term.

Payment for products is generally made upon delivery or with a 30 day term.

Extended payment terms are provided on a limited basis not to exceed twelve months.

Payment of services is due when the services are completed and accepted by the customer.

Payment for services is due when the services are completed and accepted by the customer.

For certain LED product sales, the Company provides the customers with a right of return subject to restocking fees.

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Operating Leases and Power Purchase Agreements (PPAs) in U.S.

From 2010 to 2014, the Company constructed and offered built-to-suit commercial-grade photovoltaic systems for certain commercial and not-for-profit customers in California, Hawaii, Colorado and New Jersey;

under long-term leases and PPAs, with terms of up to 20 years.

Under these arrangements, the Company owns the systems and receives the 30% upfront federal grant or investment tax credits, as well as any applicable state and utility company rebates on the systems it owns.

Upfront grants, rebates and incentives were applied to reduce the cost of the systems.

All other annual rebates and performance-based incentive rebates constitute variable consideration and are recognized in revenue when received because, at that point, it becomes probable that a significant reversal in the cumulative amount of revenue recognized will not occur.

In connection with the Company’s ownership of solar systems primarily in New Jersey, the Company owns a number of Solar Renewable Energy Certificates (“SREC”).

There is currently no assigned monetary value to an SREC and the prices are ultimately determined by market forces within the parameters set forth by the state.

The Company recognizes the revenue of the SREC when it is sold.

The Company sells energy generated by PV solar power systems under PPAs.

1 unchanged sentence

For leases, the Company was considered the lessor of solar energy systems under ASC Topic 840, Leases (“ASC 840”);

however, upon the Company’s adoption of ASC Topic 842, Leases (“ASC 842”), the Company is no longer considered the lessor because the Company owns the SRECs related to these solar energy systems, and the counterparty does not receive substantially all of the economic benefits for the use of these energy solar systems.

however, upon the Company’s adoption of ASC Topic 842, Leases (“ASC 842”), the Company is no longer considered the lessor because the Company owns the solar renewable energy certificates related to these solar energy systems, and the counterparty does not receive substantially all of the economic benefits for the use of these energy solar systems.

Therefore, these arrangements are not considered leases in accordance with ASC 842.

Loan Interest Income

In the U.S., the Company provides installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services.

In the U.S., in the past, the Company provided installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services, and some of these loans remain outstanding.

The Company has not entered into new loans since early 2020, and its revenues are from financing relates to its existing loan portfolio.

Customer loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity.

17 unchanged sentences

Total revenues

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Advertising Costs

The Company charges advertising and marketing costs related to radio, internet and print advertising to operations as incurred.

Advertising and marketing costs for the years ended December 31, 2023 and 2022 were $ 1,157,793 and $ 1,081,264 , respectively.

Advertising and marketing costs for the years ended December 31, 2024 and 2023 were approximately $ 517,000 and $ 1.2 million, respectively.

The Company accounts for income taxes pursuant to the FASB ASC Topic 740, Income Taxes (“ASC 740”).

3 unchanged sentences

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized.

22 unchanged sentences

Potentially dilutive securities are excluded from the computation of diluted earnings per share for the year ended December 31, 2024 because the effect would be antidilutive.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Stock-Based Compensation

The Company accounts for stock-based compensation costs under the provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest.

Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees and non-employees, net of estimated forfeitures, over the employee requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718.

ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.

The Company also early adopted ASU 2017‑09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting , with respect to changes on terms and conditions of a share-based payment award that occurred in 2019 and thereafter.

Foreign Currency

Amounts reported in the consolidated financial statements are stated in U.S.

dollars, unless stated otherwise.

The Company’s subsidiaries in the PRC use the Chinese RMB as their functional currency and all other subsidiaries use the U.S.

dollar as their functional currency.

For subsidiaries that use the local currency as the functional currency, all assets and liabilities are translated to U.S.

dollars using exchange rates in effect at the end of the respective periods and the results of operations have been translated into U.S.

dollars at the weighted average rates during the periods in which the transactions were recognized.

Resulting translation gains or losses are recognized as a component of other comprehensive income (loss).

In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company translates the assets and liabilities into U.S.

4 unchanged sentences

Losses on those foreign currency transactions of approximately $ 167,000 and $ 115,000 for the years ended December 31, 2024 and 2023, respectively, are included in other income (expense), net for the period in which exchange rates change.

Segment Information

Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer and the chief financial officer.

Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has two operating and reporting segments (U.S.

and PRC) as of December 31, 2023 and December 31, 2022.

Recently Issued Accounting Pronouncements

As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update) ,which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

This ASU simplifies the current accounting under ASC 470-20 for convertible debt with a cash conversion feature and convertible instrument with a beneficial conversion feature.

As a result, after adopting the ASU, entities will not separately present in equity an embedded conversion feature in such debt.

Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium.

An entity can use either a full or modified retrospective approach to adopt the ASU.

This ASU is effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The ASU may be early adopted for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The Company has determined the adoption has no impact on the Company’s consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) .

This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606.

At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts.

The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years.

Adoption of the ASU should be applied prospectively and early adoption is also permitted, including adoption in an interim period.

The Company does not plan to adopt this ASU earlier than the effective date but it is currently not expected to have a material impact on the Company’s consolidated financial statements.

Segment Information

The Company’s chief operating decision maker is the chief executive officer.

however, the Company has one reporting segment which is the operation in the United States for the year ended December 31, 2024.

Prior to January 1, 2024, the Company considered its operation in China a reporting segment.

However, because the operation in China has had no significant revenues since 2022, the Company no longer considers its operation in China a reporting segment.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07 that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280.

2 unchanged sentences

Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments.

For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources.

ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances.

The amendments in ASU 2023-07 do not change or remove those disclosure requirements.

3 unchanged sentences

A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements.

The Company does not expect that adoption of ASU 2023-07 will have a material impact on the Company’s consolidated financial statements.

The adoption effective on January 1, 2024 has no significant impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740).

2 unchanged sentences

ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.

The Company is currently evaluating the impact of ASU 2023-09 and does not expect that adoption of this standard will have a material impact on the Company’s income tax disclosures.

The Company does not expect that adoption of this standard will have a material impact on the Company’s income tax disclosures.

The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.

3 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The objective of this update is to provide users of financial statements with more useful information by changing the incurred loss methodology for recognizing credit losses to a more forward-looking methodology that reflects expected credit losses.

Under this ASU, the Company’s accounts receivable, customer loans receivable and certain contract assets are considered financial assets measured at an amortized cost basis and will need to be presented at the net amount expected to be collected.

The Company adopted ASU 2016-13 on January 1, 2023, using a modified retrospective approach with cumulative effect adjustments to the opening balance of accumulated deficit.

In adopting ASU 2016-13 for the financial assets listed above, the Company implemented an expected credit loss allowance methodology for accounts receivable, customer loans receivable, and certain contracts assets using historical collection experience, current and forecasted economic and business conditions, and a review of the status of each customer’s financial asset account.

Specifically, the Company estimates loss reserve based on the aging of the financial asset balances and the financial condition of customers and provides for specific allowance amounts for those customers that have a higher probability of default.

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

We apply this expected credit loss allowance methodology to all our financial assets listed above.

For accounts receivable, the Company deemed accounts receivable for the US segment to be immaterial with respect to total assets and any methodology change to the related allowance for credit losses to be immaterial in nature.

With respect to its China segment, the Company utilized an expected loss model as it considers factors like current and future economic conditions and China’s political landscape, and how these factors may affect its receivable from SPIC, a state-owned entity.

The Company determined that no change was required to the accounts receivable allowance for its China segment.

In regard to customer loan receivables, the Company determined that no adjustment to the existing allowance for loan losses was necessary as the current allowance already approximates losses on the remaining term of customer loans and includes a process to identify specific accounts that are expected to result in a loss.

Lastly, with respect to contract assets, the Company concluded that no reserve was required as, in majority of instances, contract assets are fully paid upon billing.

This is because the Company’s solar system contracts require full payment of the contract before the system can obtain a permit to operate and be turned on.

Customers are incentivized to pay in full to benefit from the solar system.

Contract assets that are not fully paid are a minority exception, and the Company determined that an allowance would be immaterial to the consolidated financials.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Therefore, the adoption of ASU 2016-13 to implement an expected credit loss allowance methodology did not have a material impact on the Company’s consolidated financial statements and no adjustments were deemed required to the opening balances of accumulated deficit for any cumulative effect adjustments under the modified retrospective adoption approach nor to the related allowances for credit losses for accounts receivable, customer loan receivable, and certain contract assets.

Cash, Cash Equivalents and Restricted Cash

3 unchanged sentences

Uninsured cash

Total cash and cash equivalents & restricted cash

Total cash and cash equivalents and restricted cash

Cash and cash equivalents

( 2,539,312 )

( 3,821,952 )

Restricted cash

1 unchanged sentence

The activity of the allowance for credit losses for accounts receivable for the years ended December 31, 2024 and 2023 is as follows:

Years Ended December 31,

Balance – beginning of period

Provision for the year

Accounts written off, net of recoveries

Provision for bad debts

( 1,266,474 )

Receivables charged off

Effect of exchange rate

Balance – end of period

At December 31, 2022, the reserve balance includes a reserve for unbilled receivable of RMB 7.9 million (approximately $ 1.1 million) related to the Yilong #1 project that was completed in 2018, of which RMB 7.6 million (approximately $ 1.1 million) was paid to the Company in February 2023 pursuant to a court judgment.

See additional discussion in Note 16 Commitments and Contingencies – Legal Matters .

Short-term investments

In March 2024, the Company's United States segment made short-term investments of $ 7.0 million in 8% promissory notes due June 1, 2024 issued by Webao Limited, an unrelated party, based in Hong Kong.

The maturity date of the notes has been extended to June 30, 2025 .

The total amortized cost, the fair value and the carrying value of the investments is $ 5.7 million at December 31, 2024.

There was no unrecognized holding gains or losses and other-than-temporary impairment recognized on this investment at December 31, 2024.

In March 2024, the Company's China segment made short-term investments of RMB 5.0 million in a 5% promissory note due June 25, 2024 issued by Qingdao Xiaohuangbei Technology Co., Ltd.

, an unrelated party based in PRC.

The maturity date of the note has been extended to June 30, 2025 .

At December 31, 2024, the unpaid balance of the promissory note was RMB 4.7 million (approximately $ 638,000 ).

In January 2025, an additional principal payment of RMB 679,288 (approximately $ 95,000 ) was made along with the accrued interest.

Receivable from SPIC, net

The Company’s receivables due from SPIC relate to four EPC projects the Company’s China segment completed in 2020 and 2021.

The gross balance of the receivables of RMB 54.2 million ($ 7.4 million) was unchanged through December 31, 2023 consisting of accounts receivable of RMB 27.9 million ($ 3.8 million) and other receivables related to project advances and reimbursements of RMB 26.4 million ($ 3.6 million).

As a result of the COVID-19 pandemic, the settlement discussions were halted and did not resume until 2023 at which time the new management of SPIC raised additional questions regarding certain provisions of the contracts which resulted in arbitration meetings being held during 2024.

The final arbitration rulings are expected in the first half of 2025.

However, based on the initial opinion of the Company’s representative counsel at the arbitration, the receivables that were deemed supportable and realizable at the arbitration meetings are approximately RMB 49.5 million ($ 6.8 million).

Accordingly, a reserve for uncollectible amount of RMB 4.7 million ($ 659,000 ) was recorded by the Company at December 31, 2024.

The receivable balance due from SPIC, net of the reserve is RMB 49.5 million ($ 6.8 million) at December 31, 2024.

SolarMax Technology, Inc.

3 unchanged sentences

Customer Loans Receivable

The Company provides financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offers in the U.S.

In past years, the Company provided financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offered in the U.S.

Depending on the credit rating of customers, the interest rate generally ranges from 0.00 % to 10.99 % per annum with financing terms ranging from one to fifteen years.

1 unchanged sentence

The customer gives the Company a security interest in the photovoltaic systems and other products financed.

The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2023 and 2022:

The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2024:

Year of origination

5 unchanged sentences

Total Customer Loan Receivables, gross

The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2023:

Year of origination

11 unchanged sentences

Current portion

( 2,212,574 )

( 3,437,634 )

Non-current portion

Principal maturities of the customer loans receivable at December 31, 2023 are summarized as follows:

For the year ending December 31,

Total customer loans receivable

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Principal maturities of the customer loans receivable at December 31, 2024 are summarized as follows:

For the year ending December 31,

Total customer loans receivable

The Company is exposed to credit risk on the customer loans receivable.

1 unchanged sentence

The activity in the allowance for loan losses for customer loans receivable for the years ended December 31, 2024 and 2023 is as follows:

Years Ended December 31,

Balance – beginning of period

Recovery for loan losses

Accounts written off, net of recoveries

Provision (recovery) for loan losses

Chargeoffs and adjustments

Balance – end of period

Total interest income on the customer loans receivable included in revenues was $ 523,582 and $ 767,071 for the years ended December 31, 2023 and 2022, respectively.

Total interest income on the customer loans receivable included in revenues was approximately $ 332,000 and $ 412,000 for the years ended December 31, 2024 and 2023, respectively.

Inventories, net

The activity in the reserve for excess and obsolete inventories for the years ended December 31, 2024 and 2023 is as follows:

Years Ended December 31,

Balance – beginning of period

3 unchanged sentences

Solar panels, inverters, battery storage and components

Inventory in transit

Total inventories, gross

8 unchanged sentences

Receivable from Seller (Uonone Group - Note 15)

Deferred project costs

Prepaid expenses and other current assets

1 unchanged sentence

Accrued interest on customer loans receivable

VAT tax receivable

Capitalized offering costs

1 unchanged sentence

Deferred project costs consist of work in process and subcontractor costs incurred on the solar energy systems and LED projects that are not fully completed at December 31, 2024 and December 31, 2023.

Prepaid expenses and other current assets include unpaid accrued rent from Sunspark Technology, Inc.

("Sunspark"), one of the Company's sub-lessees at its office in Riverside, California.

Sunspark is also one of the Company's panel suppliers.

On June 12, 2024, the Company entered into an offset agreement with Sunspark whereby Sunspark's unpaid rents, utilities and security allocations through June 30, 2024 of $ 638,000 was offset against the Company's accrued payables for the panels and other expenses of $ 601,000 .

Following the offset agreement, the remaining balance owed by Sunspark is approximately $ 197,000 at December 31, 2024.

Property and Equipment

8 unchanged sentences

Total property and equipment, net

For the years ended December 31, 2023 and 2022, depreciation expenses were $ 180,085 and $ 277,932 , respectively.

For the years ended December 31, 2024 and 2023, depreciation expenses were approximately $ 82,000 and $ 144,000 , respectively.

The activity of goodwill is as follows:

1 unchanged sentence

Effect of exchange rate

Asset impairment

( 7,461,888 )

Balance – end of period

During the years 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 the Company's ability to generate new businesses in its China segment in the foreseeable future, accordingly the Company recognized a $ 7.5 million impairment loss related to goodwill that originated in its 2015 acquisitions ZHTH and ZHPB.

SolarMax Technology, Inc.

3 unchanged sentences

Investments in Unconsolidated Solar Project Companies

Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2023 consisted of the following:

Investment Balance at December 31,

The Company has a 30 % non-controlling interest in three PRC companies that were project subsidiaries that performed EPC services.

Upon completion of the project, a 70 % equity interest in the project subsidiary was transferred to the customer, with the customer having a first right of refusal to purchase the 30% interest in the project subsidiary during a specified period.

Upon the transfer of the 70 % interest in these entities, the entities, which are referred to by the projects for which the Company’s China segment performed services, were de-consolidated and the Company’s 30 % non-controlling interest is treated as an equity investment.

Activity in the Company’s 30 % non-controlling investments in these entities’ solar project companies in the China segment for the years ended December 31, 2024 and December 31, 2023 is reflected in the following tables:

Investment Balance at

Share of Investee’s

Effect of Exchange

Investment Balance at

$ ( 135,524 )

Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2022 consisted of the following:

Investment Balance at December 31,

Investee’s Net

Income (Loss)

Exchange Rate

$ ( 312,223 )

Investment Balance at

Share of Investee’s

Net Income (Loss)

Effect of Exchange

Investment Balance at

$ ( 220,932 )

The following tables present the summary of the combined financial statements for the Company’s 30% non‑controlling investments in solar project companies as of December 31, 2023 and December 31, 2022:

The following tables present the summary of the combined financial statements of the three solar project companies in which the Company has a 30 % equity interest as of December 31, 2024 and December 31, 2023, and for the years ended December 31, 2024 and 2023:

Current assets

1 unchanged sentence

$ 101,008,831

$ 104,065,425

Current liabilities

3 unchanged sentences

$ 101,008,831

$ 104,065,425

and for the years ended December 31, 2023 and 2022:

Revenue of the project companies that hold Yilong #2, Xingren, and Ancha is generated from the power purchase agreements with the PRC utility companies as well as government subsidies.

Years Ended December 31,

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Revenue of these project companies is generated from the power purchase agreements with the PRC utility companies as well as government subsidies.

Financing Arrangements

As of December 31, 2024 and December 31, 2023, the Company had the following borrowings:

Loan from unrelated party at 6.0% fixed interest due December 31, 2023

Secured convertible notes payable at 4.0% per annum, due in instalments at various dates through June 2027

Unsecured loan from unrelated party at 8.0% fixed interest due June 30, 2025

Unsecured loan from unrelated party at 12.0% fixed interest due June 30, 2025

Secured convertible notes payable at 4.0% per annum, due various dates through September 2029

EB-5 loans - see details below

Notes payable from SMX Property, a related party, at 8% per annum, due October 10, 2024

Various auto loans payable, at 4.19%-4.92% per annum due with maturities through 2023

Notes payable to SMX Property, a related party, at 8% per annum, due October 10, 2025

debt discount and debt issuance costs

3 unchanged sentences

Noncurrent portion

On February 1, 2021, the Company received loans pursuant to the Paycheck Protection Program Second Draw totaling $ 1,855,813 .

The loans were issued to three U.S.

subsidiaries, and were substantially forgiven in accordance with the applicable loan terms and government regulations.

As a result of the foregiveness, the Company recognized a gain on debt extinguishment of $ 1.9 million for the year ended December 31, 2022.

Other loans include a loan of $ 2,000,000 from an unrelated PRC individual at an interest rate of 6 %, interest payable quarterly in arrears, with the original due date of April 30, 2021 and the maturity date of the note has been extended several times, most recently to June 30, 2024.

Unsecured Loans

Unsecured loans include a loan of $ 2.0 million from an unrelated PRC individual at an interest rate of 8 %, interest payable quarterly in arrears, a maturity date of June 30, 2025 , and a short-term loan of $ 900,000 from another unrelated party at a fixed interest rate of 12 % with a maturity of June 30, 2025 .

Related party EB-5 financings

The Company’s borrowings under the EB-5 program from related parties consisted of the following as of December 31, 2024 and December 31, 2023:

$45.0 million loan from Clean Energy Funding, LP

$13.0 million loan from Clean Energy Funding II, LP

Loan from Clean Energy Funding, LP

Loan from Clean Energy Funding II, LP

current portion

4 unchanged sentences

Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $ 45.0 million, to be used to finance the installment purchases for customers of the solar energy systems.

The proceeds of the loans are advanced in increments of $ 2.5 million and CEF may determine in its sole and absolute discretion to advance a lesser amount.

The loan accrues interest at a fixed interest rate of 3% per annum, payable quarterly in arrears.

A total of $ 45.0 million was lent.

The loan accrues interest at 3 % per annum, payable quarterly in arrears.

Each advanced principal amount is due and payable 48 months from the advance date or the U.S.

Immigration Form I-829 approval date if longer.

Immigration Form I-829 approval date if later.

The I-829 petition includes evidence that the immigrant investors successfully met all U.S.

Citizenship and Immigration Services requirements of the EB‑5 program.

A UCC filing was filed on behalf of CEF, the secured party, to pledge the collateral for the loan, which is inventory and accounts.

As of December 31, 2024 and December 31, 2023, the principal loan balance was $ 3.5 million and $ 7.0 million, respectively.

On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a secured loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $ 13.0 million.

A total of $ 10.5 million was lent.

The proceeds of the loan were used by LED for its operations.

The loan accrues interest at fixed interest rate of 3.0 % per annum, payable quarterly in arrears.

Each advance of principal is due and payable in 48 months or the U.S.

Immigration Form I-829 approval date if longer.

As of December 31, 2024 and December 31, 2023, the principal loan balance was $ 7.5 million and $ 10.0 million, respectively.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $ 13.0 million.

The proceeds of the loan would be used by LED for its operations.

The loan accrues interest at a fixed interest rate of 3.0% per annum, payable quarterly in arrears.

Principal is due and payable in 48 months or the U.S.

Immigration Form I-829 approval date if longer.

In 2016, LED borrowed an additional $ 4.5 million under the loan, the proceeds of which were used to fulfill the purchases required related to the new $ 4.3 million LED contract.

During the year ended December 31, 2017, the Company drew down an additional $ 6.0 million under the loan.

As of December 31, 2023 and December 31, 2022, the remaining undrawn amount under the loan was $ 3.0 million.

The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”).

The principal owners and managers of IERE consist of the Company’s chief executive officer, its former executive vice president, who is a 5% stockholder, and one of its directors.

The principal members and managers of IERE consist of the Company’s chief executive officer and its former executive vice president, who is a 5% stockholder.

A current director resigned from IERE in January 2024 and was not involved in its management.

Convertible Notes

The Company has issued 4 % secured subordinated convertible notes to former limited partners of CEF, pursuant to exchange agreements with the limited partners.

The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s notes to CEF in the same amount, reducing the outstanding EB-5 loan balance.

Payment of the notes is secured by a security interest in SREP’s accounts receivable and inventory.

The convertible notes are payable in five equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance.

The convertible notes are convertible into common stock at a conversion price equal to 80% of the public stock price of the Company’s common stock as defined in the convertible note, which is $3.20 per share.

The convertible notes may be converted into common stock at the first, second, third, fourth and fifth anniversaries of the date of issuance, but not earlier than six months from the date of the Company’s initial public offering, as defined in the note.

All convertible notes have two separate and distinct embedded features.

The Company has issued 4 % secured subordinated convertible notes to former limited partners of CEF and CEF II, pursuant to exchange agreements with the limited partners.

The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s and LED's notes to CEF and CEF II, respectively, in the same amount, reducing the outstanding EB-5 loan balance.

Payment of the notes is secured by a security interest in SREP’s and LED's accounts and inventory, which are the same assets as secure the note to CEF and CEF II.

The convertible notes are payable in equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance.

The convertible notes made prior to, or on or about the date of, the Company’s initial public offering are convertible into common stock at a conversion price equal to 80% of the public stock price of the Company’s common stock as defined in the convertible note, which is $3.20 per share.

The convertible notes made after the Company’s initial public offering are convertible into common stock at a conversion price equal to 80% of the average closing price of the Company’s common stock for the ten trading days preceding the date of the exchange agreement with the limited partner which range from $0.66 to $9.07.

All convertible notes issued prior to the Company’s initial public offering have two separate and distinct embedded features.

(1) optional conversion upon a public stock event as defined in the convertible note;

and (2) redemption put feature upon fundamental transaction.

Commencing six months from the date the Company first receives proceeds from its public stock event until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date.

The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and accrued interest payable by (y) the conversion price defined as a fixed 80% discounted percentage per share price of a public stock price.

Commencing six months from the date the Company first receives proceeds from its public stock event for convertible notes made prior to the Company’s initial public offering, and from the date of the convertible note made after the Company’s initial public offering, until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date.

The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and, with the consent of the Company, accrued interest payable by (y) the conversion price.

The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC Topic No.

815, Derivatives and Hedging (“ASC 815”), and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding.

Further, because the conversion price is a fixed discounted percentage per share price of a contingent future public stock event that has not been realized as of both the issuance date and December 31, 2023, the Company shall record the intrinsic value of the beneficial conversion feature calculated as of the issuance date of the convertible notes upon the realization of the contingent IPO event.

All convertible notes issued contained redemption put features that allow the holders of the convertible notes the right to receive, for each conversion share that would have been issuable upon conversion immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which these convertible notes are convertible immediately prior to such fundamental transaction.

1 unchanged sentence

Accordingly, the redemption put features contained in the convertible notes were not bifurcated and accounted for as freestanding derivative instruments.

There were no redemptions for new convertible notes during the years ended December 31, 2023 and 2022.

During the years ended December 31, 2023 and 2022, the Company recognized a gain on debt extinguishment related to limited partner interest in CEF who exchanged their limited partner interest for convertible notes in the amount of $ 26,821 and $ 77,781 , respectively.

During the year ended December 31, 2024, the Company issued convertible notes in the aggregate principal amount of $ 6.0 million pursuant to exchange agreements which resulted in a reduction of EB-5 notes in the principal amount of $ 6.0 million and recognized a gain on debt extinguishment of $ 303,000 .

During the year ended December 31, 2023, the Company issued convertible notes in the aggregate principal amount of $ 500,000 pursuant to exchange agreements which resulted in a reduction of EB-5 note in the principal amount of $ 500,000 and recognized a gain on debt extinguishment of $ 27,000 .

Notes Payable to SMX Property, LLC, a related party

On October 10, 2022, SMXP made unsecured loan to the Company of $ 944,077 and $ 414,581 , for which the Company issued its 8 % promissory notes due October 10, 2025, with interest payable quarterly.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Notes Payable to SMX Property, LLC

On October 10, 2022, SMXP made an unsecured loan to the Company for $ 944,077 under a promissory note at a fixed interest rate of 8 %, with interest payable quarterly at the end of each quarter.

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

The $ 944,077 loan was used to pay the security deposit and lease obligations for one month owed to the new owner of the Company’s headquarters building under the new lease agreement.

On October 10, 2022, SMXP made a second unsecured loan to the Company for $ 414,581 under a promissory note at a fixed interest rate of 8 %, with interest payable quarterly at the end of each quarter.

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

The $414,581 note was issued in payment of lease obligations owing to SMXP by the Company for rent on the Company’s headquarters from June 1, 2022 to October 12, 2022.

David Hsu, the Company's chief executive officer and a director, and Ching Liu, formerly the Company's executive vice president and a director and currently a 5% stockholder, are the principal management group of SMXP.

Simon Yuan, a director, has a non-controlling interest in SMXP and is not part of its management.

Interest Expense

For the years ended December 31, 2023 and 2022, interest expense incurred on the long-term EB‑5 related party loans was $ 530,057 and $ 604,931 , respectively.

Total interest expense incurred (including interest on long-term related party loans) was $ 1,576,749 and $ 1,826,934 for the years ended December 31, 2023 and 2022, respectively.

The weighted average interest rate on loans outstanding was 3.7 % and 3.9 % as of December 31, 2023 and December 31, 2022, respectively.

For the years ended December 31, 2024 and 2023, interest expense incurred on the above long-term EB‑5 related party loans was approximately $ 400,000 and $ 531,000 , respectively.

Total interest expense incurred (including interest on long-term related party loans) was approximately $ 1.6 million and $ 1.6 million for the years ended December 31, 2024 and 2023, respectively.

The weighted average interest rate on loans outstanding was 4.0 % and 3.7 % as of December 31, 2024 and December 31, 2023.

Principal maturities for the financing arrangements as of December 31, 2024 are as follows:

For the year ending December 31,

Other Unsecured

Bank and Other

Unsecured Loans

Related Party

1 unchanged sentence

Related Party

Convertible Notes

Accrued Expenses and Other Payables

17 unchanged sentences

Accrued Compensation

Accrued compensation includes $ 1,275,000 of restricted stock units that were cancelled and exchanged for cash in March 2019 by the Company for the Company’s chief executive officer, former executive vice president and one other former employee, $ 2,092,769 of accrued but unpaid salaries and wages for the Company’s chief executive officer and former executive vice president pursuant to their employment agreements.

The employment agreement for the former executive vice president was cancelled upon her resignation effective February 24, 2020.

At December 31, 2024, accrued compensation includes $ 675,000 of compensation to the Company’s chief executive officer in connection with the cancellation in March 2019 of restricted stock grants and $ 1.8 million of accrued but unpaid compensation to the chief executive officer pursuant to his employment agreement.

At December 31, 2023, accrued compensation includes $ 675,000 of compensation to the Company’s chief executive officer in connection with the cancellation in March 2019 of restricted stock grants, $ 1.7 million of accrued but unpaid compensation to the chief executive officer pursuant to his employment agreement, $ 600,000 due to the former executive vice president, who is also a 5% stockholder, and one other employee in connection with the cancellation in March 2019 of restricted stock grants and $ 338,095 of deferred compensation to its former executive vice president, all of which was paid in March 2024.

The remaining balance relates to accrued unpaid commissions and accrued paid time off.

3 unchanged sentences

Once the cancellation period has expired, the customer still may cancel the project but the Company is entitled to retain the deposit payments for work that was completed and materials that were delivered.

Accrued Settlement

In November 2022, the Company entered into a settlement agreement with two former limited partners of Clean Energy Funding L.P., pursuant to which the Company agreed to pay each of the limited partners a sum of $533,749.98, payable $50,000 at the time of the agreement execution and the remainder shall be paid in 14 quarterly installments of $34,533.57 .

At December 31, 2024 and December 31, 2023, the balance of the accrued settlement is $ 414,963 and $ 622,164 , respectively, of which $276,000 represents the current portion of such liability at December 31, 2024.

Accrued Warranty

The activity of the warranty liability (included in other liabilities) for the years ended December 31, 2024 and 2023 is as follows:

Years Ended December 31,

Balance – beginning of period

7 unchanged sentences

Preacquisition Liability

As part of the April 2015 acquisition of ZHPV, the Company assumed a liability associated with the Ningxia project consisting of reimbursement of project expenses to an unrelated third-party including reimbursement of certain land rental expenses and land use taxes estimated at a total of approximately RMB 10.7 million ($ 1.5 million at December 31, 2023).

As part of the April 2015 acquisition of ZHPV, the Company assumed a liability associated with the former ZHPV project consisting of reimbursement of project expenses to an unrelated third-party including reimbursement of certain land rental expenses and land use taxes estimated at a total of approximately RMB 10.7 million ($ 1.6 million at December 31, 2024).

The Company expects to negotiate to offset the entire liability with the unpaid contract receivables and reimbursements from the third party.

All the receivables and reimbursements were previously fully reserved by the Company.

Third-party Leasing Arrangement and Concentrations

Third-party Leasing Arrangement with Sunrun

The Company sells solar energy and battery storage systems to residential and commercial customers in the U.S.

and these customers may pay for these sales in cash or by financing with the Company.

Concentrations

Major Customers

For the years ended December 31, 2024 and 2023, there were no customers that accounted for 10% or more of the Company’s revenues .

Major Suppliers

During the years ended December 31, 2024 and 2023 , one supplier in the U.S.

segment accounted for purchases of $ 4.0 million, or 11.9 %, and purchases of $ 4.9 million, or 12.0 %, respectively.

During the year ended December 31, 2024, another supplier in the U.S.

segment accounted for purchases of $ 4.0 million, or 11.9%.

No other supplier accounted for 10 % or more of the Company’s purchases in either period.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

The channel agreement with Sunrun had an initial term through January 2018.

Pursuant to the terms of the agreement, the agreement was automatically renewed for a 36-month term which ended in January 2021 and further extended again to May 24, 2021.

The Company did not extend the Sunrun channel agreement beyond May 24, 2021;

however, the Company did continue to use Sunrun as the leasing partner from time to time beyond the contract expiration date until Sunrun terminated the agreement due to non-renewal.

The Company did not recognize significant revenue from Sunrun-related sales during the years ended December 31, 2023 and 2022.

Effective November 6, 2023, the Company entered into a channel partner agreement with another leasing partner for two years which may be extended by additional one-year periods.

With respect to the systems sold to a leasing partner, the Company is required to install meters and panels which are only available for purchase through the leasing partner.

For the years ended December 31, 2023 and 2022, meters purchased from a subsidiary of Sunrun amounted to $ 7,616 and $ 15,582 , respectively.

No amount was owed to Sunrun as of December 31, 2023 and December 31, 2022.

Concentration Risks

Major Customers

For the years ended December 31, 2023 and 2022, there were no customers that accounted for 10% or more of the Company’s revenues .

Major Suppliers

The following table provides information for Supplier C from whom the Company purchased more than 10% of its total purchases for the years ended December 31, 2023 and 2022:

Supplier C (material supplier for US segment)

% of total purchases

Accounts payable

% of accounts payable

Acquisition Contingencies and Other Payable to Uonone Group

Effective on May 12, 2016, in conjunction with the execution of the amendment to the April 2015 share exchange agreement to acquire ZHPV, ZHPV entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of ZHPV, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which ZHPV and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015, pursuant to which Uonone Group agreed and had paid ZHPV a total amount of RMB 8,009,716 .

An additional contingent liability related to estimated costs of a project known as Ningxia project completed prior to the Company’s acquisition of ZHPV of approximately RMB 3.0 million (or approximately $ 437,000 ) was also included as a receivable from Uonone Group (see Note 7 – Other Receivables and Current Assets, Net ) with the corresponding liability recognized by the Company on the date of acquisition.

As of December 31, 2021, Uonone Group repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above.

Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated under the contingent liability.

An additional contingent liability related to estimated costs of a project known as Ningxia project completed by ZHPV prior to the Company’s acquisition of ZHPV of approximately RMB 3.0 million (or approximately $ 437,000 ) was also included as a receivable from Uonone Group (see Note 9 – Other Receivables and Current Assets, Net) with the corresponding liability recognized by the Company on the date of acquisition.

As of December 31, 2021, Uonone Group had repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above.

Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated to pay the contingent liability.

At December 31, 2023, the Company had no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to the Company with respect to the contingent receivable.

Under the debt settlement agreement, any legal settlement proceeds, less fees and expenses, received by ZHPV related to the projects completed prior to the April 2015 business combination would be repaid to the Uonone Group.

During the year ended December 31, 2023 the Company received additional legal settlement proceeds of RMB 47.0 million (approximately $ 6.7 million) and paid Uonone RMB 20.66 million (approximately $ 2.9 million) and paid fees and taxes on behalf of Uonone of RMB 27.7 million (approximately $ 3.9 million).

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

At December 31, 2023 and December 31, 2022, the amount payable to Uonone, which includes both the Weifang legal settlement as well as the bond payable related to the Zhonglianda project, was approximately RMB 18.0 million ($ 2.5 million) and approximately RMB 19.4 million ($ 2.8 million), respectively.

During the year ended December 31, 2024 the Company did not receive any additional legal settlement proceeds, nor did the Company make any payments to Uonone.

At both December 31, 2024 and December 31, 2023, the amount payable to Uonone, was approximately RMB 18.0 million ($ 2.5 million).

Related Party Transactions

See Note 11 for related party lease transactions.

See Note 13 for related party lease and loan transactions and Note 18 for the termination of related party lease.

Commitments and Contingencies

4 unchanged sentences

Related Party Lease Agreements

In September 2016, the Company executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease its headquarters in Riverside, California.

This lease effectively extends the prior lease with SMXP which ended on December 31, 2016 with an increase in the rental rate.

The new lease is for ten years and has a five-year renewal option.

The annual base rent under the lease is initially $ 978,672 plus the Company’s share of the utilities.

The base rent is subject to an annual escalation of 2.99% .

In October 2022, SMXP sold its interest in this building to an unrelated party known as 3080 12th Street, LLC and the Company signed a new 50 -month lease agreement with 3080 12th Street, LLC effective October 13, 2022.

In relation to SMXP’s sale of the building, the Company recognized a gain of approximately $ 1.1 million for the early termination of the operating lease and de‑recognized an ROU asset of $ 5.2 million and a lease liability of $ 4.1 million on the consolidated balance sheet.

In September 2016, the Company amended two lease agreements for its Diamond Bar, California office with Fallow Field, LLC, a related party.

The amended lease commenced on November 1, 2016 and has a ten-year term with one five-year renewal option.

The initial annual base rent is $ 229,272 plus the Company’s share of utilities.

In March 2023, the Company terminated its lease for certain office space used by one of its subsidiaries and amended the lease for another subsidiary in this building.

The Company negotiated a reduction in office space by over half of the square footage that was previously occupied and the lease term was extended another five years with one five-year renewal option, which the Company anticipates on exercising.

The annual base rent is $ 132,924 plus the Company’s share of utilities, and the rent will not increase over the entire term of the lease.

The Company recognized a gain of approximately $ 4,200 for the early termination and amendment of the leases and de recognized an ROU asset of approximately $ 478,000 and a lease liability of approximately $ 520,000 on the consolidated balance sheet.

Effective March 31, 2024, the Company terminated its lease with Fallow Field, LLC, a related party, for office space in Diamond Bar, California.

In conjunction with the early lease termination, the Company reported a gain on the lease termination of approximately $ 77,000 .

Related party rent expense related to Fallow Field was $ 36,436 for the year ended December 31, 2024.

The Company recognized a gain of approximately $ 4,200 for the early termination and amendment of the leases and derecognized an ROU asset of approximately $ 478,000 and a lease liability of approximately $ 520,000 on the consolidated balance sheet.

Also for the amendment of one of the leases, the Company recognized an additional $ 221,000 for an ROU asset, in relation to the extended lease term, and a corresponding lease liability of approximately $ 254,000 on the consolidated balance sheet.

Future minimum lease commitments for offices, warehouse facilities and equipment, payable to related parties and other, as of December 31, 2023, are as follows:

Future minimum lease commitments as of December 31, 2024, are as follows:

For the year ending December 31,

Related Parties

For the years ended December 31, 2024 and 2023, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was approximately $ 1.8 million and $ 1.5 million, respectively.

These amounts include short-term leases and variable lease costs, which are immaterial.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

For the years ended December 31, 2023 and 2022, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was $ 1,988,730 and $ 1,712,721 , respectively.

These amounts include short-term leases and variable lease costs, which are immaterial.

Adoption of ASC 842

On January 1, 2022, the Company adopted ASC 842 using the optional transition method to apply the standard as of the effective date.

Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented.

Agreements for solar energy systems where the Company was previously defined as the lessor under legacy lease accounting (ASC 840) and were accounted for as operating leases no longer meet the definition of a lease upon the adoption of ASC 842 and will instead be accounted for in accordance with ASC 606.

Under these arrangements, the customer has the right to direct the use of the asset but does not receive the right to obtain substantially all of the economic benefits from its use.

There is no change to the amount and timing of revenue recognition for these arrangements.

The new standard also provides practical expedients for an entity’s ongoing accounting as a lessee.

The Company elected to utilize the practical expedient to not separate lease and non-lease components for all its existing leases.

The Company has also elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise.

All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date.

Because most of the Company’s leases do not provide an implicit rate of return, the Company used its incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

Adoption of the new lease standard on January 1, 2022 had a material impact on the Company’s consolidated financial statements.

The most significant impacts related to the (i) recognition of ROU assets of $ 5.2 million and lease liabilities of $ 6.4 million for operating leases on the consolidated balance sheet, and (ii) de-recognition of the historical deferred rent balance in the amount of $ 1.2 million.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

The standard did not materially impact the Company’s consolidated statement of operations and consolidated statement of cash flows.

As of December 31, 2024, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

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Noncurrent portion

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Other information related to leases is as follows:

2 unchanged sentences

Between September and October 2022, the Company entered into subleases with three unrelated companies for portions of office space through December 31, 2022 and one other unrelated company through March 31, 2024.

Monthly sublease payments totaled approximately $ 68,700 and the related sublease income is recognized as other income in the Company’s consolidated statements of operations.

This is consistent with the Company’s recognition of sublease income prior to the adoption of FASB ASC Topic 842.

The tenants under the subleases provided security deposits of approximately $ 73,100 to the Company.

The Company continues to be responsible for performance under the lease until it expires on December 31, 2026.

For the years ended December 31, 2024 and 2023, the total sublease income recognized totaled approximately $ 982,000 and $ 1.1 million, respectively.

The sublease income is recognized as an offset to operating lease costs reported in general and administrative expenses.

At December 31, 2024, the Company has two tenants and both are on a month-to-month lease.

At December 31, 2024, the Company has security deposits payable of approximately $ 71,000 .

The following table summarizes the Company’s operating lease cost for the years ended December 31, 2024 and 2023:

5 unchanged sentences

Operating lease cost, net

Pre-development Agreements in PRC

In connection with the pre development phase of each solar farm project by the Company’s China segment, the applicable project subsidiary typically secures one or more land rental agreement with the holder of the land use rights, a development permit, and a power purchase agreement with the local utility company whereby the local utility company agrees to pay the project owner an agreed-upon rate for the electricity produced by the solar farm upon its completion (collectively, “Pre-development Agreements”).

Upon transfer of the equity in the project subsidiary to the buyer, the Company no longer has any rights or obligations under the Pre-development Agreements.

Any costs incurred by the Company pursuant to the Pre-development Agreements are capitalized and amortized to cost of revenue when the construction of the project begins.

At December 31, 2023, the Company was not a party to any Pre-development Agreements.

Employment Agreements

On October 7, 2016, the Company entered into employment agreements with its chief executive officer and its then executive vice president (collectively, the “Executives”), each for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the Executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension .

The agreements provide for an initial annual salary of $ 600,000 and $ 560,000 , respectively, with an increase of not less than 3 % on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year.

The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million .

The agreements provide for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the Executive has been employed by the Company.

The employment of both Executives commenced in February 2008.

As of December 31, 2023 and December 31, 2022, the amount accrued by the Company was $ 0 and $ 4,322 , respectively, related to the annual bonuses pursuant to the agreements.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

On February 24, 2020, the then executive vice president resigned.

Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement.

Pursuant the release and separation agreement, the Company paid the former executive officer $ 25,497 , and agreed to pay to her $ 803,095 , representing the outstanding balance due to her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits.

This amount is payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020 , until the completion by the Company of its public offering, and any unpaid balance then outstanding shall be paid within three business days after the Company receives the proceeds of its public offering.

For the years ended December 31, 2023 and 2022, the former vice president was paid $ 165,000 and $ 195,000 , respectively, under the release and separation agreement.

See note 21 below for further discussion on the Company’s completion of its initial public offering.

The Company entered into a consulting agreement dated October 1, 2020 with the former executive vice president pursuant to which the Company engaged her as a consultant for a term ending December 31, 2022, and continuing thereafter on a month-to-month basis for monthly compensation of $ 3,000 .

The release and separation agreement provides that since the long-term incentive plan pursuant to which the options granted to the former executive vice president were granted provides that options may be held by and exercised by a consultant to the Company, the Company agreed that the option shall continue in full force and effect as long as she, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company.

As of December 31, 2023, the former executive officer was a consultant to the Company.

Legal Matters

On November 10, 2020, a legal action was filed in the Los Angeles Superior Court by Carmelia Chiang against various defendants which include SolarMax, SREP, CEF, Inland Empire Renewable Energy Regional Center, LLC, the Company’s chief executive officer and a former officer/director who are managers of CEF’s general partner.

At the time of the filing, the plaintiff was a limited partner in CEF and sought to have her $ 500,000 investment returned.

On February 23, 2022, the court granted and sustained a demurrer by the Company without leave to amend and the case was dismissed.

The plaintiff has a right to file an appeal to the court’s granting of the demurrer.

The plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.

On September 1, 2021, a legal action was filed in the Los Angeles Superior Court by Pu Dong, a stockholder, against various defendants which include the Company, the Company’s chief executive officer and one other stockholder.

At the time of the filing, the plaintiff was a stockholder of the Company and sought to have shares that are issued in the name of the other stockholder defendant reissued in the name of the plaintiff.

The Company believed that this is a dispute between two stockholders and will comply with any final court order as to the ownership of the shares.

In November 2023, the court dismissed the case without prejudice.

Yilong #1 Receivable

On February 19, 2020, the Company’s attorney sent a demand letter to China Nuclear Construction Finance Leasing Co., Ltd.

(the “Finance Company”), claiming the unpaid amount due from the Finance Company of RMB 8.0 million (approximately $ 1.1 million) related to the Yilong #1 project, pursuant to the entrustment payment agreement signed by the Company, respondent and the Finance Company.

The Company has provided a full reserve for this portion of the receivable at December 31, 2023 and December 31, 2022.

As a result of the dispute regarding the unpaid amount, in July 2021 the Company filed an application with the court to freeze an amount of RMB 5.3 million on the account of Southwest Guizhou Autonomous Prefecture Yilong Almaden New Energy Co., Ltd., the project owner of Yilong #1.

As of December 31, 2021, the RMB 5.3 million has been frozen by the court.

In February 2023, the court judgment in the Company’s favor was received and the Company received a payment in February 2023 of RMB 7.6 million (approximately $ 1.1 million).

In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters.

The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.

Clean Energy Fund, LP Settlement

On November 12, 2022, the Company reached a settlement with two limited partners of CEF whereby the Company will pay to each limited partner a total of $533,749.98 with the first payment of $50,000 to each of them each being made on November 18, 2022 and quarterly payments of $34,533.57 each over the next 14 quarters beginning on January 1, 2023 .

As a result, the Company extinguished $ 1.0 million of debt and recognized a loss of $ 67,500 .

On October 7, 2016, the Company entered into an employment agreement with its chief executive officer for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension.

The agreement provides for an initial annual salary of $ 600,000 and $ 560,000 , respectively, with an increase of not less than 3 % on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year.

The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 for revenue in excess of $30 million but less than $50 million, to 1.0% of revenue in excess of $300 million .

The agreement provides for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the executive has been employed by the Company, which commenced in February 2008.

The Company entered into a consulting agreement dated October 1, 2020 with the Company’s former executive vice president, who is also a major stockholder, pursuant to which the Company engaged her as a consultant for a term ending December 31, 2022, and continuing thereafter on a month-to-month basis for monthly compensation of $ 3,000 .

The options previously granted to the former executive vice president continue in effect according to their terms as long as she remains a consultant.

SolarMax Technology, Inc.

3 unchanged sentences

Stockholders’ Equity

Amendment of 2016 Long-Term Incentive Plan

2016 Long-Term Incentive Plan

In October 2016, the Company’s board of directors adopted and in November 2016 the stockholders approved the 2016 Long-Term Incentive Plan, pursuant to which a maximum of 6,491,394 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted.

In March 2019, the Company’s board of directors and stockholders approved an increase in the maximum number of shares of common stock subject to the 2016 long-term incentive plan to 15,120,000 shares .

Amendment of the 2016 Restricted Stock Grants

Pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted 3,819,949 shares as restricted stock grants in October 2016, of which 3,045,963 shares were granted to officers and directors.

On March 23, 2019, the Company’s board of directors approved the following modifications with respect to the 2016 Restricted Stock Grants:

Granted to the holders of 1,184,434 restricted shares the right to exchange their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $ 5.01 per share for each share of restricted stock exchanged;

Granted to the chief executive officer, the then current executive vice president and one other employee, who held 1,348,213, 998,676 and 199,736 restricted shares, respectively, the right (a) to exchange 50% of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $ 5.01 per share and (b) transfer to the Company 50% of their restricted shares for a total of $1,275,000, or $1.01 per share.

The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur;

A forfeiture termination event shall mean such date as is six months following a public stock event.

The definition of a public stock event includes, among other events, the effectiveness of a registration statement relating to an underwritten public offering by the Company.

The board of directors has the right to defer the date of a forfeiture event to a later date.

The shares are forfeited and are to be conveyed to the Company for no consideration if a public stock event shall not have occurred by December 31, 2023.

On October 7, 2016, the Company entered into an advisory services agreement with a consultant who has been providing services to the Company including, among other things, business planning, financial strategy and implementation and corporate structure related to the Company’s business development, financing and acquisition transactions.

The term of the service commenced on September 1, 2016 and has been extended to April 30, 2019 pursuant to amendments.

As compensation for the service, the Company issued to the consultant 336,000 shares of restricted stock valued at $5.01 per share based on the then current fair value of the common stock, subject to forfeiture if the public stock event has not occurred by December 31, 2023.

The restricted stock was granted on October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan and is subject to restrictions and forfeiture provisions that are applicable to other restricted stock grants pursuant to the plan as described under the caption “2016 Restricted Stock Grants.”

None of the shares granted above pursuant to the 2016 Long-Term Incentive Plan had vested at December 31, 2023 and are not considered to have been issued under the requirement of U.S.

GAAP since the shares are subject to vesting and forfeiture provisions of the agreement.

During the year ended December 31, 2019, 3,798,480 of the restricted shares were exchanged for options to purchase 4,784,715 shares of common stock at $ 5.01 per share and 2,142,000 of the restricted shares were cancelled for cash of $ 1,275,000 which was to be paid on or before December 31, 2019, and 25,200 of the restricted shares were cancelled for no compensation.

This date was extended to December 31, 2021 and subsequently extended to March 31, 2024.

Elimination of Forfeiture Provisions of Options and Stock Grants

During the years 2015 to 2019, the Company granted shares of restricted stock and incentive stock options to employees and consultants, of which 264,650 shares of restricted stock and incentive stock options to purchase 5,898,137 shares were outstanding at the date of the Company’s initial public offering.

Under the terms of the restricted stock and incentive stock options, the restricted stock and options became vested and non-forfeitable upon the completion of the Company’s initial public offering, which occurred on February 12, 2024, the effective date of the registration statement relating to the Company’s initial public offering.

Under GAAP, upon the completion of the initial public offering, the value of the restricted stock as well as the incentive stock options is treated as compensation expense in the period in which the restricted stock and incentive stock options become non-forfeitable and are deemed to have met the performance-based indicator (i.e., the completion of the initial public offering).

Using the Black Scholes valuation method, the fair value of the incentive stock options at the time of the Company’s initial public offering was approximately $ 18.5 million, which is stock-based compensation that does not reflect a cash expense, of which approximately $ 1.3 million is included in cost of revenues and $ 17.2 million is included in general and administrative expense.

Restricted Stock

As of December 31, 2023, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $ 1.3 million, based on the estimate of the then most recent price at which shares were sold of $ 5.01 per share.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

As of both December 31, 2023 and December 31, 2022, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $ 1.3 million, based on the estimate of the current stock price of $ 5.01 per share.

Such cost would be recognized beginning when the public stock event, as defined, occurs.

The following table below summarizes the activity of the restricted stock shares:

Weighted Average Grant Date Fair Value per Share

Number of Shares

Weighted Average Grant

Date Fair Value per Share

Outstanding at December 31, 2023

3 unchanged sentences

Stock Options

From time to time, the Company grants non-qualified stock options to its employees and consultants for their services.

From time to time, the Company granted non-qualified stock options to its employees and consultants for their services.

Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant;

those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven years.

those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven to ten years.

The vested options are exercisable for six months after the termination date unless (i) termination is due to optionee’s death or disability, in which case the option shall be exercisable for 12 months after the termination date, or (ii) the optionee is terminated for cause, in which case the option will immediately terminate.

A summary of option activity is as follows:

Weighted Average Exercise Price

Weighted Average Remaining

Contractual (years)

Intrinsic Value

Number of Options

Weighted Average Exercise

Weighted Average

Remaining Contractual

Aggregate Intrinsic Value

Outstanding at December 31, 2023

7 unchanged sentences

The aggregate intrinsic value represents the total pretax intrinsic value.

The aggregate intrinsic values as of December 31, 2023 and December 31, 2022 are based upon the value per share of $ 5.01 , which was the latest sale price of the Company’s common stock in May 2018.

The aggregate intrinsic values as of December 31, 2023 are based upon the value per share of $ 5.01 , which was the latest sale price of the Company’s common stock in May 2018.

SolarMax Technology, Inc.

5 unchanged sentences

Balance at December 31, 2023

( 5,898,137 )

Balance at December 31, 2024

For the years ended December 31, 2023 and 2022, no compensation cost has been charged to general and administrative expenses related to stock options.

As a result of the Company’s completion of its initial public offering, all the stock options which are performance-based awards are vested and compensation cost of $ 18.5 million related to such stock options was recognized for the year ended December 31, 2024 as the performance condition of such awards, which was the completion of the Company' initial public offering, had been met.

The compensation cost of $ 17.2 million is determined using the Black Scholes model that includes key assumptions for each grant of options as follows:

volatility ranging from 54.34% to 67.75%, the risk-free interest rate ranging from 1.55% to 2.34%, and an expected term ranging from 5 to 6.5 years .

For the year ended December 31, 2024, approximately $ 1.3 million and $ 15.9 million of compensation cost resulting from the termination of the forfeiture provision of the options was charged to cost of revenue and general and administrative expenses, respectively.

During the years ended December 31, 2024 and 2023, no vested options to purchase shares of common stock were cancelled.

No nonvested options to purchase common stock were cancelled during the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, total unrecognized compensation costs for outstanding unvested options awarded was $ 13.1 million, all of which is related to performance-based awards.

The performance condition for such awards was not deemed probable at grant dates or at December 31, 2022 and the cost related to such awards will begin to be recognized once the performance condition is deemed probable.

and PRC components of the Company’s income (loss) before income taxes for the years ended December 31, 2023 and 2022 are as follows:

No nonvested options to purchase common stock were cancelled during the year ended December 31, 2023.

The components of the pretax income (loss) from operations for the years ended December 31, 2024 and 2023 are as follows:

Years Ended December 31,

2 unchanged sentences

Foreign (PRC Segment)

Income (loss) before income taxes

( 8,166,852 )

The components of the Company’s provision (benefit) for income taxes for the year ended December 31, 2023 consist of:

Year Ended December 31, 2023

Change in valuation allowance

The components of the Company’s provision for income taxes for the year ended December 31, 2022 consist of:

Year Ended December 31, 2022

( 1,152,627 )

Income (loss) before income taxes

$ ( 33,298,506 )

Change in valuation allowance

The income tax provisions (benefits) for the years ended December 31, 2024 and 2023 are as follows:

Years Ended December 31,

State and local

Foreign (PRC Segment)

Total current income tax expense (benefit)

State and local

Foreign (PRC Segment)

Total deferred income tax expense (benefit)

Income tax expense (benefit)

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

Significant components of the deferred tax assets and liabilities for federal income taxes as of December 31, 2023 and 2022 consisted of the following:

Significant components of the deferred tax assets and liabilities for federal income taxes as of December 31, 2024 and 2023:

December 31, 2024

December 31, 2023

Income taxes at statutory rates

$ ( 6,992,686 )

State income tax, net of federal benefit

( 1,348,747 )

Foreign rate differential

Non-deductible interest

Other permanent items

Goodwill impairment

Section 162(m) adjustment

Stock-based compensation

State rate change

Return-to-provision true-up

Change in valuation allowance

Other adjustment

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2024 and 2023 are as follows:

Deferred tax assets

Investment credits

Investment credit

Net operating loss carryforwards

Stock compensation and accrued bonus

Stock-based compensation and accrued bonus

Operating lease liabilities

Contract accounting

Deferred tax assets, gross

Total deferred tax assets

Valuation allowance

1 unchanged sentence

( 17,666,794 )

Deferred tax assets, net

Total deferred tax assets, net of allowance

Deferred tax liabilities

1 unchanged sentence

( 1,506,457 )

( 1,926,494 )

Contract Accounting

Deferred tax liabilities, gross

( 2,957,445 )

( 3,055,426 )

Deferred tax assets, net

A 100 % valuation allowance was provided for the deferred tax assets related to the U.S.

segment as of December 31, 2023 and 2022 due to the uncertainty surrounding the timing of realizing the benefits of the favorable tax attributes in future tax returns.

The following table reconciles the U.S.

statutory rates to the Company’s effective tax rate for the years ended December 31, 2023 and 2022:

Years Ended December 31,

statutory rate

Total deferred tax liabilities

( 3,836,138 )

Foreign rate differential

Non-deductible interest

Other permanent items

Uncertain tax positions

Other adjustments

State rate change

Return-to-provision true-up

( 4,561,883 )

Change in valuation allowance

Effective tax

Deferred tax assets (liability), net

$ ( 1,620,495 )

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

As of December 31, 2023, the Company’s federal and state income tax net operating loss (“NOL”) carryforwards were $49.4 million and $56.5 million, respectively.

As of December 31, 2022, the Company’s federal and state income tax net operating loss (“NOL”) carryforwards were $50.4 million and $57.3 million, respectively.

These NOLs will expire at various dates from 2031 through 2042.

The Company’s US federal NOL generated post 2017 of $ 27.3 million can be carried forward indefinitely.

Additionally, the Company has investment tax credits of $ 1.0 million as of December 31, 2023 and 2022, for building qualifying energy properties and projects under IRC Section 48, which will expire at various dates from 2033 through 2034.

The above NOL carryforward and the investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions which limit the amount NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively.

The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets.

The Company periodically evaluates the recoverability of the deferred tax assets.

At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced.

The Company has recorded a full valuation allowance of $ 25.1 million as of December 31, 2024 as it does not believe it is more likely than not that certain deferred tax assets will be realized primarily due to the generation of pre-tax book losses in the current year, the lack of feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future.

The Company increased its valuation allowance by approximately $ 7.5 million during the year ended December 31, 2024.

As of December 31, 2024, the Company had federal and state tax net operating loss ("NOL”) carryforwards of $ 57.5 million, and $ 64.1 million, respectively.

The federal NOL generated in 2018 and after for the amount of $35.1 million will carry forward indefinitely and be available to offset up to 80% of future taxable income each year.

The remaining federal and state NOL carryforwards will begin to expire in 2031, and the state NOL carryforwards will begin to expire in 2032 unless previously utilized.

The Company also had China NOL carryforwards of $ 1.3 million as of December 31, 2024.

The China NOL will begin to expire in 2027, unless previously utilized.

In addition, as of December 31, 2024 the Company had investment tax credits of $ 1.0 million, for building qualifying energy properties and projects under IRC section 48, which will expire in 2034.

The above NOL carryforwards and the investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions that limit the amount NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively.

In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period.

The Company has performed an IRC Section 382 analysis as of December 31, 2020 which it was determined that no significant change in ownership had occurred.

The Company has performed an IRC Section 382 as of December 31, 2020, in which it was determined that no significant change in ownership had occurred.

In addition, the Company has not experienced the ownership change greater than 50% subsequent to December 31, 2020 and up to 2024.

As of December 31, 2023 and 2022, the Company had unused net operating loss carryforwards from its PRC subsidiaries in the amount of approximately $ 0.9 and $ 1.5 million, respectively, which may be applied against future taxable income and which begin to expire after 2024.

The Inflation Reduction Act 2022, which incorporates a Corporate Alternative Minimum Tax, was signed on August 16, 2022.

The changes will become effective for the tax years beginning after December 31, 2022.

The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability.

The act is not expected to have a material impact for the Company.

The Company is no longer subject to income tax examination by the U.S.

federal and certain state tax authorities for years ended December 31, 2018 or prior, however, its tax attributes such as NOL carryforwards and tax credits, are still subject to examination in the year they are used;

therefore, the tax attributes from 2011 and forward are still subject to examination by the U.S.

tax authorities.

The Company applies the two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.

Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods.

This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods and transition.

After applying the approach, the following table summarizes the changes to the Company’s gross unrecognized tax benefits for the years ended December 31, 2023 and 2022:

Balance - beginning of period

Increase related to prior period tax positions

Balance - end of period

The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense.

For the years ended December 31, 2023 and 2022, the Company did not incur any related interest and penalties.

The Company’s PRC subsidiaries are subject to a 25 % statutory income tax rate according to the income tax laws of the PRC.

The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2024 and 2023:

Unrecognized tax benefits – beginning

Increases (decreases) related to current year tax positions

Increases (decreases) related to prior year tax positions

Expiration of the statute of limitations for the assessment of taxes

Unrecognized tax benefits – ending

Included in the balance of unrecognized tax benefits as of December 31, 2024, is $ 1.9 million that, if recognized, would not impact the Company's income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance.

The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

The Company had no accrual for interest or penalties on the Company's balance sheets as of December 31, 2024 and has not recognized interest and/or penalties in the Statement of Operations for the year ended December 31, 2024.

The company is subject to taxation in the United States, various state jurisdictions and China.

Due to the existence of federal, state, and foreign net operating loss and credit carryovers, the Company's tax years that remain open and subject to examination by tax jurisdiction are years 2011 forward for federal and years 2012 and forward for the state.

The Company’s PRC subsidiaries are subject to a 25 % statutory income tax rate according to the PRC's income tax laws.

Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

1 unchanged sentence

The Company's PRC subsidiaries' tax filings are subject to the PRC tax bureau’s examination for a period up to five years.

These subsidiaries are not currently under examination by the PRC tax bureau.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

As of December 31, 2023 and 2022, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S.

These subsidiaries are not currently being examined by the PRC tax bureau.

As of December 31, 2024, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S.

earnings and profit purposes.

3 unchanged sentences

Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2024 and 2023

Net Income (Loss) Per Share

7 unchanged sentences

Diluted net income (loss) per share

For the year ended December 31, 2023, outstanding options to purchase 6,295,858 shares of common stock and 5,079,111 equivalent shares of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those option shares would be anti-dilutive.

For the year ended December 31, 2022, outstanding options to purchase 6,387,741 shares and 264,650 outstanding nonvested shares of restricted stock, and 6,396,447 equivalent shares of convertible notes were excluded from the computation of diluted net loss per share as the impact of including those option shares and those restricted shares would be anti-dilutive.

For the year ended December 31, 2024, outstanding options to purchase 6,195,743 shares of common stock and 5,934,756 shares issuable upon conversion of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those shares would be anti-dilutive.

For the year ended December 31, 2023, outstanding options to purchase 6,295,858 shares of common stock and 5,079,111 shares issuable upon conversion of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those shares would be anti-dilutive.

Segment Reporting

The Company uses the management approach for segment reporting disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reporting segments.

For the years ended December 31, 2023 and 2022, the Company operates under two operating segments on the basis of geographical areas:

Operating segments are defined as components of an enterprise about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company evaluates performance based on several factors, including revenue, cost of revenue, operating expenses, and income from operations.

The following tables show the operations of the Company’s operating segments for the years ended December 31, 2023 and 2022:

Year Ended December 31, 2023

Revenue from external customers

Solar energy systems

Finance revenue

LED and other

Cost of revenue

Solar energy systems

Depreciation and amortization expense

Interest (expense) income, net

( 1,562,360 )

( 1,507,896 )

Equity in income of solar farm projects

Provision for income taxes

Net income (loss)

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Year Ended December 31, 2022

Revenue from external customers

The Company operates under two operating segments, the United States and China.

The chief operating decision maker ("CODM") is the Chief Executive Officer.

As of January 1, 2024, the Company has determined that it has one reporting segment which is the United States.

The Company’s operation in China have not generated significant revenues since 2022 and is no longer considered a reporting segment.

The CODM regularly reviews operations and financial performance at the consolidated level and uses net income (loss) to allocate resources (including labor, technology and capital resources) for the single reporting segment to make decisions regarding annual budget, entering new markets, marketing decisions, pursuing new business, and driving the Company's mission.

The following table shows the operations of the Company’s reporting segment for the years ended December 31, 2024 and 2023:

Years Ended December 31,

Segment revenue

Solar energy systems

Battery only sales

LED operations

Reconciliation of revenue

Finance revenue

LED and other

Cost of revenue

Solar energy systems

Depreciation and amortization expense

Interest (expense) income, net

( 1,816,082 )

Other non-core revenue

Direct and indirect costs

Subcontractor costs

Commissions and lender fees

Compensation and benefits

Leasing and rental expense

Insurance expense

Selling and marketing expense

Professional services

( 3,881,904 )

Equity in income of solar farm projects

Provision for income taxes

( 3,257,983 )

Reconciliation of segment profit or loss

Other corporate overhead expense

Provision for various reserves

Stock-based compensation

Interest expense, net

Other (gains) and other (income), net

China goodwill impairment

China other expenses

Elimination adjustment

Income before income taxes

$ ( 33,298,506 )

and as of December 31, 2023 and December 31, 2022:

December 31, 2023

Equity investments in solar farm projects

Capital expenditures

Long-lived assets

Total reportable assets

December 31, 2022

Equity investments in solar farm projects

Capital expenditures

Long-lived assets

Total reportable assets

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Subsequent Events

The Company has evaluated subsequent events through April 16, 2024, the date the December 31, 2023 consolidated financial statements were available to be issued and except as disclosed below, no other events require adjustment of, or disclosure in, the consolidated financial statements.

Initial Public Offering

On February 27, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Kingswood, a division of Kingswood Capital Partners, LLC (the “Representative”), as representative of the underwriters.

Pursuant to the Underwriting Agreement, the Company agreed to sell to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 4,500,000 shares of common stock, at a price of $ 4.00 per share.

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, SolarMax 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.

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

Pursuant to the Underwriting Agreement, the Company issued to the Representative a warrant (the “Representative’s Warrant”) to purchase 360,000 shares of Common Stock.

a per share exercise price of $ 4.80 and are exercisable at any time and from time to time, in whole or in part, during the period commencing February 29, 2024 and terminating on February 12, 2029 .

The Representative’s Warrant also provides for certain demand and “piggyback” registration rights for the shares of Common Stock issuable upon exercise of the Representative’s Warrant and contains customary anti-dilution provisions.

On March 5, 2024, the Underwriters purchased 539,950 shares of common stock upon the partial exercise of the over-allotment option at the initial public offering price of $ 4.00 per share.

Including proceeds from the sale of the additional shares, the aggregate gross proceeds from the offering was approximately $ 20 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company.

In connection with the sale of the additional shares, the Company issued Representative’s Warrants to purchase 43,196 shares of common stock at an exercise price of $ 4.80 per share to the Representative.

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

On March 13, 2024, the Representative’s Warrants were fully exercised on a cashless basis.

Based on the formula for cashless exercise, the Company issued a total of 207,311 shares of common stock, and, as a result of the exercise, no Representative’s Warrants remained outstanding.

Clawback Policy

On February 7, 2024, the Company adopted a clawback policy r equiring the Company to recover incentive-based compensation in the event of a financial restatement, and if the restatement affected the financial reporting measure on which the incentive-based compensation was paid.

Extension of Forfeiture Date for Restricted Stock and Options

On February 14, 2024, the date for forfeiture of restricted stock and options if a public stock event has not occurred was extended to April 30, 2024.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

Convertible Notes Issued

In February and March, 2024, the Company issued convertible notes in the principal amount of $ 1.0 million to limited partners of CEF I, which resulted in a reduction of $ 1.0 million in the principal amount of the related party notes to CEF I.

In February and March, 2024, the Company issued convertible notes in the principal amount of $ 1.0 million to limited partners of CEF II, which resulted in a reduction of $ 1.0 million in the principal amount of the related party notes to CEF II.

Promissory Notes Receivable

On March 1, 2024, the Company used $ 5,000,000 of its excess IPO proceeds to issue a short-term promissory note to Webao Limited, an unrelated party.

The note yields 8% and matures on June 1, 2024 .

On March 7, 2024, the Company used $ 2,000,000 of its excess IPO proceeds to issue a short-term promissory note to Webao Limited, an unrelated party.

The note yields 8% and matures on June 1, 2024 .

Payments Owed to Former Vice President

On March 21, 2024, the Company paid its former vice president $ 338,095 for the remaining balance owed on the deferred compensation component of the release and separation agreement and $ 500,000 owed in connection with the cash portion of the restricted stock exchanged for options.

See Note 16–Commitments and Contingencies, under Employment Agreements.

Insider Trading Policy

On March 27, 2024, the Company adopted an insider trading policy which prohibits trading based on “material, nonpublic information” regarding the Company or any company whose securities are listed for trading or quotation in the United States.

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

SolarMax Technology, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2023 and 2022

SolarMax Technology, Inc.

and Subsidiaries

On March 19, 2025, the Company 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 proceeds from the sale are being used for working capital.

The Company has evaluated subsequent events through the date the December 31, 2024 consolidated financial statements were issued, and no other events require adjustment of, or disclosure in, the consolidated financial statements.

Condensed Financial Information of Parent

5 unchanged sentences

Inventories, net

Short-term investments

Total current assets

Investments in and receivables from affiliates

Due from affiliates

Liabilities and stockholders' deficit

Current liabilities:

Current liabilities

Long-term debt, current

1 unchanged sentence

Long-term debt, noncurrent

Losses in excess of invested capital in unconsolidated subsidiaries

Other liabilities

16 unchanged sentences

Total liabilities and stockholders’ deficit

See accompanying notes to condensed financial information of parent.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

SolarMax Technology, Inc.

and Subsidiaries

Condensed Financial Information of Parent

4 unchanged sentences

Total Revenues

Cost of revenues

General and administrative

Cost of revenues (includes stock-based compensation expense of $1,264,690 for the year ended December 31, 2024)

General and administrative (includes stock-based compensation expense of $17,271,494 for the year ended December 31, 2024)

Interest income

Interest expense

Other expense (income), net

Other income (expense), net

Total expenses

9 unchanged sentences

$ ( 34,962,336 )

See accompanying notes to condensed financial information of parent.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

SolarMax Technology, Inc.

and Subsidiaries

Condensed Financial Information of Parent

Condensed Statements of Cash Flows

Condensed Statement of Cash Flows

For the Years Ended December 31, 2024 and 2023

1 unchanged sentence

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash used in financing activities

$ ( 13,179,446 )

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the period

Net cash provided by (used in) investing activities

( 6,385,171 )

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash, beginning of year

Cash, cash equivalents, and restricted cash, end of year

Supplemental disclosures of cash flow information:

1 unchanged sentence

Income taxes paid (received) in cash

Non-cash activities for investing and financing activities:

Right-of-use assets acquired through operating leases

Right-of-use assets acquired through operating leases, related party

Promissory note issued in lieu of a payable for rent and security deposit

Convertible notes issued to related parties in lieu of EB-5 loans

See accompanying notes to condensed financial information of parent.

SolarMax Technology, Inc.

2 unchanged sentences

For the Years Ended December 31, 2024 and 2023

SolarMax Technology, Inc.

and Subsidiaries

Condensed Financial Information of Parent

18 unchanged sentences

Accordingly, Parent reports the balances in the receivables from and payables to subsidiaries in its investments in subsidiaries.

Intercompany Loan

During the year ended December 31, 2023 and 2022, Parent issued $0 million and $2.1 million, respectively, of 4% secured subordinated convertible notes to settle the CEF related party loans issued by its subsidiary.

The intercompany loan issued on behalf of its subsidiary is non-interest bearing and currently has no written agreement.

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 9A. Controls and Procedures