SolarMax Technology, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. 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. 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. Item 9B. Other Information We have adopted an insider trading policy. Our insider trading policy is available on our website and is filed as an exhibit to this annual report. Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. Not applicable 88 Table of Contents Part III Item 10. Directors, Executive Officers and Corporate Governance Executive Officers and Directors Set forth below is certain information with respect to our directors and executive officers: Name Age Title David Hsu 61 Chief executive officer and director Stephen Brown 65 Chief financial officer Simon Yuan 70 Director Wei Yuan Chen 65 Director Jinxi Lin 65 Director Wen-Ching (Stephen) Yang, Ph.D. 62 Director Lei Zhang, Ph.D. 42 Director David Hsu, together with Simon Yuan and Ching Liu, who was formerly an executive officer and director and is a 5% stockholder, are our founders. Mr. Hsu has served as our chief executive officer and a director since our organization in February 2008. Mr. Hsu has more than 20 years of experience in sales, international business development and management in the automotive and energy industries. Before starting SolarMax in 2008, Mr. Hsu served as a consultant to China Sunergy, a leading photovoltaic panel manufacturer and solar energy company. Mr. Hsu received a bachelor’s degree in electrical engineering from Shanghai Jiao Tong University School of Engineering. Mr. Hsu’s solar energy industry experience and his relationships with industry experts qualify him to serve as a director. Stephen Brown has served as our chief financial officer since May 2017. From 2013 until April 2017, he was chief financial officer of STAAR Surgical Company. Mr. Brown was vice president, global finance of Bausch & Lomb from 2008 until 2013 and chief financial officer of Hoya Surgical Optics from 2007 to 2008. He served in various capacities over a 13-year period with Johnson & Johnson including chief financial officer of the Advanced Sterilization Products division. His 35-year business career also includes the founding of Degree Baby Products, a privately held company that was sold after six years of operations to Johnson & Johnson. Mr. Brown holds an M.B.A. degree from University of California, Los Angeles Anderson School of Management and earned a B.A. degree in Business Administration from California State University, Fullerton. Simon Yuan, one of our founders, served as a director since February 2008 and chief financial officer from February 2008 until May 2017. In 1989, Mr. Yuan founded Simon& Edward, LLP, a PCAOB registered public accounting firm of which he has been managing partner since its founding. Prior to founding Simon& Edward, Mr. Yuan was employed by Wells Fargo Bank as a senior internal auditor and by the State of California as a tax auditor. Mr. Yuan was also a supervising senior auditor with the international accounting firm of Moore Stephens. Mr. Yuan’s professional experience encompasses more than 30 years of public accounting, with expertise in a broad range of business accounting and auditing, and international taxation, estate planning, business merger and acquisition, and general business consulting. Mr. Yuan is an active leader, officer and participant of many professional and charitable organizations. He is a director of the Sino-American Certified Public Accountants Association and also served as its president in 1998. Mr. Yuan received a Master of Accountancy from Ohio State University. Mr. Yuan’s accounting background, as well as his service as our chief financing officer, qualify him to serve as a director. 89 Table of Contents Wei Yuan Chen has served as a director since April 2010. Mr. Chen, who is semi-retired, was the chief designer and director for Xing Rong Project Management Company, Shanghai, China, a position he held from 1990 to 2010. In 2002, Mr. Chen received the "Design and Build” of the year award for designing the headquarters of Applied Material, Shanghai, China. Mr. Chen earned his bachelor’s degree from Tsinghua University. Mr. Chen brings to us his project management knowledge and 20 years of experience of implementation and integration of renewable sources into his architectural designs. Mr. Chen’s experience in project management and familiarity with the Chinese market qualify him to serve as a director. Jinxi Lin has served as a director since 2014. Mr. Lin serves as the chairman of AMD, a publicly traded solar panel manufacturer in Asia and the Middle East and one of our major stockholders. Mr. Lin founded AMD in 2006 and has served as its chairman since its formation. Mr. Lin received his undergraduate degree in business administration from Northwest Polytechnic University. Mr. Lin’s knowledge of the solar industry and the Chinese market qualify him to serve as a director. Dr. Wen-Ching (Stephen) Yang has been a director since December 2020. Dr. Yang is the founder of Grand Trust International Law Offices and has been the partner-in-charge since 2008. He has also been the chief executive officer of Taoyuan Enterprise Chamber since 2016. Dr. Yang received his bachelor’s and master’s degrees from National Taiwan University and his PhD in economics in law from the law school at Peking University. Dr. Yang was also a research fellow at the John F. Kennedy School of Government at Harvard University. Dr. Yang’s background in economics qualify him as a director. Dr. Lei Zhang has been a director since November 2020. 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. Dr. Zhang received her B.Eng. and M.S. in Material Science and Engineering from China University of Mining & Technology, Beijing, and her Ph.D. from Michigan Technological University. Dr. Zhang’s knowledge of the energy industry qualifies her to serve as a director. All of our executive officers and directors are located in the United States except that two directors (Wei Yuan Chen and Jinxi Lin) are located in China and one director (Wen-Ching (Stephen) Yang) is located in Taiwan. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors under United States securities laws. In particular, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries and regions. 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. Information about the Board of Directors Our board of directors oversees our business and affairs and monitors the performance of management. In accordance with corporate governance principles, the board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with our chief executive officer and other key executives, by reading the reports and other materials that we send them, and by participating in board and committee meetings. Directors hold office for a term of one year and until their successors have been elected and qualified unless the director resigns or by reasons of death or other cause is unable to serve in the capacity of director. Terms of Directors Our directors are elected for a term of one year, until the next annual meeting of stockholders and until their successors are elected and qualified. Pursuant to our bylaws, our officers serve at the pleasure of the board of directors subject to any rights they may have pursuant to employment agreements and applicable law. Committees of the Board of Directors 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. 90 Table of Contents Audit Committee. Our audit committee consists of Dr. Wen-Ching Yang as chair, Wei Yuan Chen and Simon Yuan. We have determined that Dr. Yang, Mr. Chen and Mr. 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. Yang and Mr. Yuan qualify as an "audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. The audit committee is responsible for, among other things: · selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; · reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; · reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; · discussing the annual audited financial statements with management and the independent registered public accounting firm; · reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any special steps taken to monitor and control major financial risk exposures; · annually reviewing and reassessing the adequacy of our audit committee charter; · meeting separately and periodically with management and the independent registered public accounting firm; · monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; · establishing procedures for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and · reporting regularly to the board. 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 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. Compensation Committee . Our compensation committee consists of Wei Yuan Chen, as chair, Lei Zhang, Ph.D. and Jinxi Lin. We have determined that Mr. Chen, Dr. 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. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee is responsible for, among other things: · reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; · reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; · reviewing periodically and approving any incentive compensation or equity plans, programs or other similar arrangements; and · selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. 91 Table of Contents The compensation committee shall, with the assistance of management, have the authority and responsibility to, either by itself or in coordination with the audit committee, make any determinations and take or authorize the taking of any action contemplated by our clawback policy. Nominating and Corporate Governance Committee . Our nominating and corporate governance committee consists of Dr. Wen-Ching Yang, as chair, and Wei Yuan Chen. We have determined that Dr. Yang and Mr. Chen satisfy the "independence” requirements of the Nasdaq Listing Rules. 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. The nominating and corporate governance committee is responsible for, among other things: · recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; · reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience, expertise, diversity and availability of service to us; · selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; · developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and · 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. Mr. Hsu and Mr. Yuan filed a late Form 3. Mr. Chen, Mr. Lin, Dr. Yang and Dr. Zhang are delinquent in their Form 3 filings. Item 11. Executive Compensation The following table sets forth information regarding the compensation awarded to, earned by, or paid during the years ended December 31, 2024 and 2023 to our chief executive officer and the most highly paid executive officer other than the chief executive officer. These two officers, who are our only executive officers, are referred to as our "Named Executive Officers.” Summary Compensation Table Salary Cash Bonus Stock Bonus Option Awards Non-Equity Incentive Plan Compensation Non-qualified Deferred Compensation Earnings All Other Compensation 2 Total Name and principal position Year ($) ($) ($) ($) ($) ($) ($) ($) David Hsu, 2024 $ 737,924 $ - $ - $ - $ - $ - - $ 737,924 Chief executive officer 1 2023 $ 716,431 $ - $ - $ - $ - $ - $ 55,055 $ 771,486 Stephen Brown, 2024 $ 350,000 $ 105,000 $ - $ - $ - $ - $ 13,489 $ 468,489 Chief financial officer 2023 $ 350,000 $ - $ - $ - $ - $ - $ 26,896 $ 376,896 1 Pursuant to his employment agreement, Mr. Hsu is eligible for an annual bonus in which 70% is payable in stock and 30% is payable in cash. Mr. Hsu waived his bonus for 2023 and 2022 in connection with the suspension of incentive programs for our key employees. 2 All other compensation represents the value of paid time off accrued. 92 Table of Contents Employment Agreements On October 7, 2016, we entered into an employment agreement with David Hsu-pursuant to which it agreed to employ Mr. Hsu as our chief executive officer for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr. Hsu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. We agreed to include Mr. Hsu as a nominee of the board of directors for election as a director during the term of his agreement, and, upon his election as a director, Mr. Hsu is to serve as chairman of the board. Mr. Hsu’s initial salary was $600,000, with an annual increase of not less than 3%. Mr. Hsu’s employment agreement provides for a salary increases of at least 3% annually and a bonus based on our revenues. Mr. Hsu’s compensation was at the annual rate of $716,431 for 2023 and $737,924 for 2024. His compensation for 2025 is at the annual rate of $760,062. Mr. Hsu is entitled to an annual bonus based on consolidated revenues for the year in accordance with the following table: Revenue Bonus in Dollars or Percentage of Revenues Less than $30 million $ - More than $30 million but less than $50 million $ 250,000 More than $50 million but less than $100 million 0.55 % More than $100 million but less than $200 million 0.60 % More than $200 million but less than $300 million 0.75 % More than $300 million 1.00 % 70% of the bonus payable for any calendar year shall be paid in restricted stock and 30% shall be paid in cash and shall be paid no later than the earlier of (i) 30 days following the issuance of our audited financial statements for the calendar year in which the bonus is earned or (ii) the last business day of December of such next following calendar year. Our audited financial statements shall be deemed to be issued on the date we file our annual report on Form 10-K. The equity component of the bonus shall be based on the average closing market price of the common stock on the principal exchange or market on which the common stock is traded for the period beginning on the first day of the quarter in which the bonus is payable and ending on the third trading day prior to the date payment is made; except that, if the common stock is not publicly traded, the common stock shall be valued at the most recent price at which the common stock was sold in a private placement to non-affiliated investors. The restricted stock will vest immediately on issuance. Mr. Hsu waived his bonus for 2023 and 2022 in connection with the suspension of incentive programs for our key employees. Mr. Hsu is eligible for restricted stock grants or stock options, which shall not exceed 1.5% of our outstanding common stock prior to the grant. The agreement also provides Mr. Hsu with $2.0 million of life insurance, medical and dental insurance and long-term disability insurance providing monthly benefits of not less than $25,000. In the event of Mr. Hsu’s termination in the event of his disability or death, we will pay Mr. Hsu or his beneficiary severance payments or death benefits equal to his highest compensation, which is his salary plus bonus, during the three calendar years prior to the year in which the termination of employment for disability or death occurs, multiplied by the number of full years Mr. Hsu has been employed by us. Mr. Hsu’s employment commenced in February 2008. These termination payments shall be made in annual installments, each equal to one year’s total compensation. In the event of a termination not for cause, by Mr. Hsu for good cause or termination of employment within 18 months of a change of control, we shall pay Mr. Hsu, a lump sum termination payment equal to two times his highest annual compensation for the three years preceding the year in which the termination of employment occurs multiplied by the number of full years that Mr. Hsu was employed by us. 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 has not been paid as of December 31, 2024. 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. Mr. 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. Mr. Brown’s agreement provides that his employment is at will. 93 Table of Contents Clawback Policy Our board of directors adopted a clawback policy covering our executive officers. An executive officer is our chief executive officer, president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a significant principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for us. As of the date of this annual report, our only executive officers are our chief executive officer and our chief financial officer. The clawback policy relates to incentive-based compensation, which is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure. The clawback policy covers the recovery of incentive-based compensation from an executive officer only in the event that we are required to prepare an accounting restatement due to the material noncompliance of our financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Questions as to "materiality” will be made by the Compensation Committee in coordination with the Audit Committee. The incentive-based compensation subject to recovery is the incentive-based compensation received during the three completed fiscal years immediately preceding the date that we are required to prepare an accounting restatement as described above, provided that the person served as an executive officer at any time during the performance period applicable to the incentive-based compensation in question provided that the clawback policy shall only apply if the incentive-based compensation is received while we have a class of securities listed on Nasdaq and on or after October 2, 2023. David Hsu, our chief executive officer, has an employment which provides for incentive-based compensation during the year ended December 31. 2023; however, Mr. Hsu waived his bonus for 2023.in connection with the suspension of incentive programs for our key employees. Employee Benefit Plans In October 2016, our board of directors adopted, and in November 2016, our stockholders approved, the 2016 Long-Term Incentive Plan (the "Plan”), pursuant to which a maximum of 3,810,949 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 board and stockholders approved an increase in the number of shares subject to the plan to 8,988,084. As of December 31, 2024, there were outstanding options to purchase a total of 6,195,743 shares of common stock at an average exercise price of $5.01, including options granted prior to the adoption of the Plan. The following table sets forth information as to options held by our officers, directors and 5% stockholders. Name Shares David Hsu 1,428,432 Simon Yuan 1,269,717 Ching Liu 1,058,098 Stephen Brown 199,736 Total 3,955,983 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; 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 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. 94 Table of Contents Outstanding Equity Awards The following table sets forth information as to outstanding equity awards at December 31, 2024 for the Named Executive Officers: Option swards Stock awards Shares underlying unexercised option # exercisable Shares underlying unexercised option # unexercisable Equity incentive plan awards: number of securities underlying unexercised unearned options Option exercise price Option expiration date Number of shares that have not vested Market value of shares that have not vested Equity incentive plan awards: number of unearned shares or other rights that have not vested David Hsu 714,216 714,216 1 - 02/12/34 - - - Stephen Brown 199,736 - 5.01 04/30/27 - - - 1 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 The following table sets forth information as to the compensation paid to our directors in 2024, other than those named in the Summary Compensation Table: Name Cash Compensation Stock Awards Total Wei Yuan Chen - - - Jinxi Lin - - - Simon Yuan - - - Dr. Wen-Ching (Stephen) Yang - - - Lei Zhang, Ph.D. - - - Item 12. 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 March 15, 2025 by: · each person known to us to beneficially own 5% or more of our common stock; · each director; · each of our Named Executive Officers; and · all officers and directors as a group. 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 March 15, 2025. Unless otherwise noted, the mailing address of each listed beneficial owner is 3080 12th Street, Riverside, California 92507. 95 Table of Contents Name of Beneficial Owner Shares Beneficially Owned Percentage 1 David Hsu 2 4,746,514 10.3 % Jinxi Lin 3 3,566,700 7.9 % Changzhou Almaden Co. Ltd. 3 3,566,700 7.9 % Ching Liu 4 2,897,349 6.3 % Simon Yuan 5 2,831,947 6.2 % Wei Yuan Chen 1,757,670 3.9 % Dr. Wen-Ching (Stephen) Yang 6 1,098,544 2.4 % Lei Zhang, Ph.D. - 0 % Stephen Brown 7 199,736 0.4 % All officers and directors as a group 2,3 , 5,6 (seven individuals beneficially owning stock) 14,201,111 30.3 % * Less than 1% 1 The percentages are based on 45,270,860 shares of common stock outstanding. 2 Represents 4,032,298 shares owned by Mr. Hsu and 714,216 shares issuable upon exercise of options held by Mr. Hsu. 3 The shares beneficially owned by Jinxi Lin represent the 3,566,700 shares owned by AMD, of which Mr. Lin is chairman and chief executive officer and has the right to vote and dispose of the shares. The address for Mr. Lin and AMD is No. 639, Qinglong East Road, Changzhou, Jiangsu, China. 4 Represents 2,368,300 shares owned by Ms. Liu and 529,049 shares subject to options held by Ms. Liu. The address for Ms. Liu is 2810 Steeplechase Lane, Diamond Bar, CA 91765 5 Represents 2,197,088 shares owned by Mr. Yuan and 634,859 shares issuable upon exercise of options held by Mr. Yuan. 6 Includes 349,537 shares of common stock owned by Dr. Yang’s wife, as to which he disclaims beneficial interest. 7 Shares beneficially owned by Mr. Brown represents an option to purchase 199,736 shares of common stock. 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. Item 13. Certain Relationships and Related Transactions, and Director Independence Related Party Transactions EB-5 Notes On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF agreed to make loans to the subsidiary in an amount not to exceed $45 million. CEF advanced $45 million pursuant to the agreement. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13,000,000. CEF II advanced $10.5 million pursuant to the agreement. The proceeds of the loans were used by our subsidiaries for their operations. The loans from CEF and CEF II accrue interest at 3% per annum, payable quarterly in arrears. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, LLC ("Inland Empire”). 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. The EB-5 immigrant investor visa is a federal program that grants green cards and a path to citizenship to foreign investors who invest at least $500,000 toward job-creating projects. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve 10 permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States. 96 Table of Contents The loans from CEF and CEF II become due, as to the investment of each limited partner, four years from the date of the loan and may be extended as may be necessary to meet applicable USCIS immigrant investor visa requirements, which will be the date that the limited partner is eligible for a green card. Under the limited partnership agreements for CEF and CEF II, the limited partners may demand repayment of their capital account when the petition is approved, which demand may trigger a maturity of the loan from CEF or CEF II in the amount of the limited partner’s investment. The initial four-year term of notes in the principal amount of $55.5 million, which were issued to CEF and CEF II, and had expired prior to December 31, 2023 and are on extension until the limited partner meets applicable immigrant investor visa requirements. We cannot determine the period of the extensions. 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 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 and CEF II. As of March 15, 2025, we had issued convertible notes in the principal amount of $41.5 million to former limited partners of CEF, of which principal payments of $22.0 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $3.0 million had been purchased by us for $2.1 million, leaving convertible notes in the principal amount of $16.5 million outstanding. As of March 15, 2025, notes to CEF and CEF II in the aggregate principal amount of $11.0 million were outstanding. Six of the limited partners commenced an action against CEF, SolarMax and others, including Mr. Hsu and Mr. Yuan, seeking cash payment of their capital contribution to CEF totaling $3.0 million and other relief, including a declaration that the $45.0 million note to CEF is due and payable. All six of these limited partners settled their actions. One of these limited partners accepted a convertible note for $500,000, the amount of his claim. 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 was initially due on October 10, 2024 and was extended to October 10, 2025. 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, 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 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 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. Fallow Field is owned by Mr. Hsu, Ms. Liu and a minority stockholder. 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. 97 Table of Contents Equity Transactions with Officers and Directors In October 2016, the board of directors granted 3,810,949 shares, of which 3,045,963 shares were granted to officers and directors. The following table set forth information relating to the restricted stock grants to officers and directors. Name No. of Restricted Shares David Hsu 1,348,213 Ching Liu 1 998,676 Simon Yuan 599,206 Chung Jen Tsai 2 99,868 ____________ 1 Ms. Liu resigned as an officer and director on February 24, 2020. 2 Mr. Tsai resigned as a director on July 6, 2020. On March 23, 2019, the board of directors: · Granted to the holders of 1,184,434 restricted shares, including Mr. Yuan and Mr. Tsai, 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; and · Granted to Mr. Hsu, Ms. Liu 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 for each share exchanged and (b) transfer to us 50% of their restricted shares for $1,275,000, or $1.01 per share. These payments were initially due in December 2019 and the payment date was extended and we made these payments from the proceeds of our initial public offering. Pursuant to their exchange agreements with us, we granted Mr. Yuan, a director, an option to purchase 1,269,717 shares and Mr. Tsai, who was a director, an option to purchase 211,620 shares in exchange for their restricted shares. Pursuant to their exchange agreements with us, Mr. Hsu converted 674,107 shares of common stock into options to purchase 1,428,432 shares of common stock and transferred 674,107 of his restricted shares stock to us for $675,000, and Ms. Liu converted 499,338 of common stock into options to purchase 1,058,098 shares of common stock and transferred 499,338 shares of common stock to us for $500,000. The payments to Mr. Hsu and Ms. 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 five of our directors, Mr. Chen, Dr. Yang, Dr. Zhang, Mr. Lin and Mr. Yuan are independent directors using the Nasdaq definition of independence. Item 14. 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. Years Ended December 31, 2024 2023 Audit fees $ 542,000 $ 645,810 Audit – related fees $ 16,260 $ 41,200 Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements and our registration statement on Form S-1 relating to our initial public offering. Audit-related fees consist of fees related to the annual audit of the standalone financial statements of a subsidiary. Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Since we do not have an audit committee, the pre-approval is made by the board of directors. Our board approved all services that our independent accountants provided to us in the past two fiscal years. 98 Table of Contents Part IV Item 15 . Exhibits, Financial Statement Schedules Financial Statements begin on Page F-1 Exhibits Exhibit number Description 3.1 Amended and Restated Articles of Incorporation, as amended. 1 3.2 Amended and Restated Bylaws. 1 4.1 Description of Securities of the Registrant 3 10.1 Employment agreement dated October 7, 2016 between the Company and David Hsu. 1† 10.2 Form of restricted stock agreement. 1† 10.3 2016 Long-term incentive plan. 1† 10.4 Loan agreement dated August 26, 2014, between Clean Energy Funding II, LP and SolarMax LED, Inc. 1 10.5 Loan agreement dated January 3, 2012, between Clean Energy Funding, LP ("CEF”) and SolarMax Renewable Energy Provider, Inc. ("SREP”) 1 10.6 Lease agreement dated October 13, 2022 between the Company and 3080 12th Street, LLC. 1 10.7 Client Service Agreement dated October 14, 2019 between SolarMax Renewable Energy Provider, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 10.8 Client Service Agreement dated October 14, 2019 between SMX Capital, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 10.9 Client Service Agreement dated October 14, 2019 between SolarMax LED, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 10.10 Promissory note dated October 24, 2019 payable to SMX Property, LLC 1 10.11 Form of exchange agreement among CEF, SREP, the issuer and the limited partners of CEF 1 10.12 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 10.13 Form of exchange agreement among CEF II, LED, the Company and the limited partners of CEF II 3 10.14 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 10.15 Exchange agreement dated March 27, 2019 between and Company and David Hsu 1 10.16 Promissory note dated October 10, 2022 issued by the Company to SMX Property, LLC. For $944,076.88. 1 10.17 Promissory note dated October 10, 2022 issued by the Company to SMX Property, LLC. For $414,580.65. 1 10.18 Letter agreement dated March 27, 2025 between the Company and David Hsu deferring payment of deferred compensation 3 . 10.19 Form of stock purchase used in March 2025 stock placement 3 . 14.1 Code of Ethics 2 19.1 Insider Trading Policy 2 21.1 List of Subsidiaries. 3 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 3 . 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 3 32.1 Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer. 4 97.1 Executive Compensation Clawback Policy 2 101.INS Inline XBRL Instance Document. 3 101.SCH Inline XBRL Taxonomy Extension Schema Document. 3 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 3 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 3 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 3 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 3 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 3 1 Filed as an exhibit to the Company’s registration statement on Form S-1, File No. 333-266206 and incorporated herein by reference. 2 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. 3 Filed herewith 4 Furnished herewith † Compensatory plan or arrangement. Item 16. Form 10-K Summary Not Applicable 99 Table of Contents SIGNATURES 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. * Date: March 31, 2025 SOLARMAX TECHNOLOGY, INC. By: /s/ David Hsu Name: David Hsu Title: Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ David Hsu Chief executive officer and director (principal executive officer) March 31, 2025 David Hsu /s/ Stephen Brown Chief financial officer (principal financial officer) March 31, 2025 Stephen Brown /s/ Simon Yuan Director March 31, 2025 Simon Yuan /s/ Jinxi Lin Director March 31, 2025 Jinxi Lin /s/ Wei Yuan Chen Director March 31, 2025 Wei Yuan Chen /s/ Wen-Chang (Stephen) Yang Director March 31, 2025 Wen-Chang (Stephen) Yang /s/ Lei Zhang Director March 31, 2025 Lei Zhang 100 Table of Contents Part IV INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Accounting Firm (PCAOB ID 688 ) F-2 Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023 F-3 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 F-5 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2024 and 2023 F-6 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2024 and 2023 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 F-8 Notes to consolidated Financial Statements F-11 Condensed Financial Information of Parent F-42 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of SolarMax Technology, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SolarMax Technology Inc. (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. 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, 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. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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 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 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. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2015 . Costa Mesa, California March 31, 2025 Financial Statements F-2 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Balance Sheets As of December 31, 2024 and December 31, 2023 December 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 786,333 $ 2,539,312 Accounts receivable, net 4,231,575 4,176,322 Receivable from SPIC, net 2,963,272 3,728,865 Short-term investments 6,337,574 - Contract assets, net 474,280 549,118 Customer loans receivable, current, net 1,287,397 2,212,574 Inventories, net 1,302,568 1,341,397 Deferred project costs 1,841,509 1,603,355 Other receivables and current assets, net 1,725,351 3,770,642 Total current assets 20,949,859 19,921,585 Property and equipment, net 200,889 291,416 Operating lease right-of-use assets 3,178,978 5,411,820 Goodwill - 7,584,779 Investments in unconsolidated solar project companies 10,020,888 9,698,308 Customer loans receivable, noncurrent, net 3,076,186 4,322,942 Deferred tax assets - 189,226 Restricted cash, noncurrent 276,744 354,504 Other assets 926,347 880,621 Total assets $ 38,629,891 $ 48,655,201 See accompanying notes to consolidated financial statements. F-3 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Balance Sheets As of December 31, 2024 and December 31, 2023 (Continued) December 31, 2024 December 31, 2023 Liabilities and stockholders' deficit Current liabilities: Accounts payable $ 2,665,721 $ 3,384,195 Operating lease liabilities, current 1,571,084 1,497,555 Unsecured loans, current 2,900,000 2,000,000 Secured loans from related parties, current 5,358,658 11,358,658 Secured convertible notes, current 9,770,000 8,680,000 Accrued expenses and other payables 12,474,559 16,480,896 Total current liabilities 34,740,022 43,401,304 Operating lease liabilities, noncurrent 1,712,330 4,078,569 Secured loans from related parties, noncurrent, net of debt discount and issuance costs 7,000,000 7,000,000 Secured convertible notes, noncurrent, net of debt discount and issuance costs 6,530,448 7,269,768 Deferred tax liability 1,620,495 - Other liabilities 2,105,538 2,793,388 Total liabilities 53,708,833 64,543,029 Commitments and contingencies (Note 17) Stockholders’ deficit: Preferred stock, par value $ 0.001 per share; 15,000,000 shares authorized, none issued and outstanding as of December 31, 2024 and December 31, 2023 - - Common stock, par value $ 0.001 per share; 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 46,532 40,984 Additional paid-in capital 91,889,317 55,786,634 Treasury stock, at cost, 1,261,495 and 1,248,345 shares at December 31, 2024 and December 31, 2023, respectively ( 1,979,294 ) ( 1,808,889 ) Accumulated deficit ( 103,586,305 ) ( 68,623,969 ) Accumulated other comprehensive loss ( 1,449,192 ) ( 1,282,588 ) Total stockholders’ deficit ( 15,078,942 ) ( 15,887,828 ) Total liabilities and stockholders’ deficit $ 38,629,891 $ 48,655,201 See accompanying notes to consolidated financial statements. F-4 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31, 2024 and 2023 Years Ended December 31, 2024 2023 Revenues $ 22,986,881 $ 54,139,330 Cost of revenues (includes stock-based compensation expense of $1,264,690 and $0 for the years ended December 31, 2024 and 2023, respectively) 20,672,306 42,990,393 Gross profit 2,314,575 11,148,937 Operating expenses: General and administrative (includes stock-based compensation expense of $17,271,494 and $0 for the years ended December 31, 2024 and 2023, respectively) 27,439,177 9,507,293 Selling and marketing 517,058 1,157,793 Goodwill impairment loss 7,461,888 - Total operating expense 35,418,123 10,665,086 Operating income (loss) ( 33,103,548 ) 483,851 Other income (expense): Interest income 500,540 68,853 Interest expense ( 1,565,732 ) ( 1,576,749 ) Equity in income of solar project companies 634,802 864,132 Gain on debt extinguishment 302,729 26,821 Gain on early termination of lease 77,207 4,212 Other income (expense), net ( 144,504 ) 499,472 Total other income (expense) ( 194,958 ) ( 113,259 ) Income (loss) before income taxes ( 33,298,506 ) 370,592 Income tax provision (benefit) 1,663,830 ( 64,194 ) Net income (loss) $ ( 34,962,336 ) $ 434,786 Net income (loss) per share Basic $ ( 0.79 ) $ 0.01 Diluted $ ( 0.79 ) $ 0.01 Weighted average shares used to compute net income (loss) per share Basic 44,342,876 39,735,536 Diluted 44,342,876 40,025,153 See accompanying notes to consolidated financial statements. F-5 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2024 and 2023 Years Ended December 31, 2024 2023 Net income (loss) $ ( 34,962,336 ) $ 434,786 Other comprehensive income (loss) Foreign currency translation adjustments ( 166,604 ) ( 115,065 ) Total comprehensive income (loss) $ ( 35,128,940 ) $ 319,721 See accompanying notes to consolidated financial statements. F-6 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the Years Ended December 31, 2024 and 2023 Preferred Stock Common Stock Additional Paid- In Treasury Stock Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Capital Shares Amount Deficit Loss Total Balance at December 31, 2023 - $ - 40,983,881 $ 40,984 $ 55,786,634 ( 1,248,345 ) $ ( 1,808,889 ) $ ( 68,623,969 ) $ ( 1,282,588 ) $ ( 15,887,828 ) Vesting of restricted stock - - 264,650 264 ( 264 ) - - - - - Stock-based compensation - - - - 18,536,184 - - - - 18,536,184 Shares issued on warrant exercise - - 207,311 207 ( 207 ) - - - - - Shares issued on option exercise - - 36,563 37 ( 37 ) - - - - - Shares returned for tax withholding on option exercise - - - - - ( 13,150 ) ( 170,405 ) ( 170,405 ) Shares issued in initial public offering - - 5,039,950 5,040 18,571,998 - - - - 18,577,038 Public offering costs previously capitalized - - - - ( 1,004,991 ) - - - - ( 1,004,991 ) Net income (loss) - - - - - - - ( 34,962,336 ) - ( 34,962,336 ) Currency translation adjustments - - - - - - - - ( 166,604 ) ( 166,604 ) Balance at December 31, 2024 - $ - 46,532,355 $ 46,532 $ 91,889,317 ( 1,261,495 ) $ ( 1,979,294 ) $ ( 103,586,305 ) $ ( 1,449,192 ) $ ( 15,078,942 ) Preferred Stock Common Stock Additional Paid- In Capital Treasury Stock Accumulated Accumulated Other Comprehensive Shares Amount Shares Amount Shares Shares Amount Deficit Loss Total Balance at December 31, 2022 - $ - 40,983,881 $ 40,984 $ 55,786,634 ( 1,248,345 ) $ ( 1,808,889 ) $ ( 69,058,755 ) $ ( 1,167,523 ) $ ( 16,207,549 ) Net income (loss) - - - - - - - 434,786 - 434,786 Currency translation adjustments - - - - - - - - ( 115,065 ) ( 115,065 ) Balance at December 31, 2023 - $ - 40,983,881 $ 40,984 $ 55,786,634 ( 1,248,345 ) $ ( 1,808,889 ) $ ( 68,623,969 ) $ ( 1,282,588 ) $ ( 15,887,828 ) See accompanying notes to consolidated financial statements. F-7 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2024 and 2023 Years Ended December 31, 2024 2023 Operating activities Net income (loss) $ ( 34,962,336 ) $ 434,786 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense 81,545 180,670 Amortization of loan discounts on customer loan receivables ( 2,332 ) ( 53,909 ) Amortization of convertible note discount and debt issuance costs 198,418 180,760 Amortization of operating lease right-of-use assets 1,464,601 1,432,343 Provision for (recovery of) credit losses and loan losses 164,198 56,751 Provision for other receivables from SPIC 659,316 - Provision for excess and obsolete inventories 45,930 110,863 Provision for warranty and production guaranty 410,108 639,279 Equity in income of investment in solar project company excess of $0 distribution received ( 634,802 ) ( 864,132 ) Deferred income tax provision 1,831,735 ( 84,194 ) Gain on disposal of property and equipment ( 12,068 ) ( 21,449 ) Gain on debt extinguishment ( 302,729 ) ( 26,821 ) Gain on early termination of lease ( 77,207 ) ( 4,212 ) Stock-based compensation 18,536,183 - Goodwill impairment 7,461,888 - Other - 295,348 Changes in operating assets and liabilities: Accounts Receivable ( 214,474 ) 1,536,755 Contract Assets 74,838 4,152,380 Customer loans receivable 2,046,295 3,849,570 Inventories ( 7,101 ) 1,952,642 Other receivables and current assets 1,133,595 ( 1,404,001 ) Other assets ( 45,726 ) 27,283 Accounts payable ( 718,474 ) 1,152,763 Operating lease liabilities ( 1,447,263 ) ( 1,372,274 ) Contract liabilities - ( 4,036,348 ) Accrued expenses and other payables ( 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 ) $ 4,091,169 See accompanying notes to consolidated financial statements. F-8 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2024 and 2023 (Continued) Years Ended December 31, 2024 2023 Investing activities Purchase of short-term investments $ ( 7,685,171 ) $ - Proceeds from short-term investments 1,348,334 - Purchase of property and equipment - ( 27,999 ) Proceeds from disposal of property and equipment 20,972 21,449 Net cash provided by (used in) investing activities ( 6,315,865 ) ( 6,550 ) Financing activities Accrued settlement ( 276,269 ) $ ( 276,269 ) Proceeds from initial public offering, net of underwriting fees 18,950,212 - Share issuance costs relating to the initial public offering ( 373,174 ) - IPO offering costs paid ( 346,427 ) - Proceeds from note payable 900,000 - Principal payments on convertible notes ( 5,545,007 ) ( 4,800,000 ) Principal payment on borrowings - ( 33,451 ) Repayment on equipment capital lease - ( 15,488 ) Payments related to Uonone acquisition contingency (Note 15) - ( 6,841,501 ) Proceeds from Uonone acquisition contingency (Note 15) - 6,644,817 Net cash provided by (used in) financing activities 13,309,335 ( 5,321,892 ) Effect of exchange rate 305,901 ( 37,862 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 1,830,739 ) ( 1,275,135 ) Cash, cash equivalents, and restricted cash, beginning of year 2,893,816 4,168,951 Cash, cash equivalents, and restricted cash, end of year $ 1,063,077 $ 2,893,816 Supplemental disclosures of cash flow information: Interest paid (received) in cash $ 1,355,835 $ 1,086,314 Income taxes paid (received) in cash $ 158,795 $ 177,377 Non-cash activities for investing and financing activities: Shares returned for tax withholding on options exercised $ 170,405 $ - Reversal of previously capitalized offering cost upon IPO $ 658,564 $ - Right-of-use assets acquired through operating leases, related party $ - $ 912,983 Convertible notes issued to non-related parties in connection with cancellation of EB-5 loans $ 6,000,000 $ 1,000,000 See accompanying notes to consolidated financial statements. F-9 Table of Contents SolarMax Technology, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2024 and 2023 (Continued) As of December 31, 2024 2023 Cash balance at the beginning of the year: Cash and cash equivalents $ 2,539,312 $ 3,821,952 Restricted cash, noncurrent 354,504 346,999 $ 2,893,816 $ 4,168,951 Cash balance at the end of the year: Cash and cash equivalents $ 786,333 $ 2,539,312 Restricted cash, noncurrent 276,744 354,504 $ 1,063,077 $ 2,893,816 See accompanying notes to consolidated financial statements. F-10 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 1. Description of Business SolarMax Technology, Inc. and subsidiary companies (the "Company”) is an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. 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. Ltd. (together with its subsidiaries thereunder, "ZHTH”), and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. ("ZHPV”). 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 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 wholly-owned subsidiaries outside the U.S. are as follows: · Accumulate Investment Co. Ltd ("Accumulate”), a British Virgin Islands corporation. The Company acquired Accumulate as part of its acquisition of Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. ("ZHPV”) in April 2015. · SolarMax Technology Holdings (Hong Kong) Limited ("SolarMax Hong Kong”), which was established under the laws of Hong Kong on October 27, 2014. · 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. Accumulate has one wholly-owned subsidiary, Accumulate Investment Co., Limited (HK), an entity organized under the laws of Hong Kong ("Accumulate Hong Kong”). Accumulate Hong Kong has one wholly-owned subsidiary, ZHPV. SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Technology (Shanghai) Co., Ltd. ("SolarMax Shanghai”), organized under the laws of the PRC and formed on February 3, 2015. SolarMax Shanghai is a wholly foreign-owned entity, referred to as a WFOE. 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. Solarmax Cayman does not currently have any operations. F-11 Table of Contents 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, 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. SMX Capital is engaged in the business of owning and funding renewable energy projects in the U.S. and operates its business through operating leases and power purchase agreements primarily in the commercial markets. Its business is conducted directly and indirectly through a 30% equity interest in three companies. 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. 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. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Accounting The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”). Principles of Consolidation Amounts reported in the consolidated financial statements are stated in U.S. dollars, unless stated otherwise. The functional currency of the Company’s foreign subsidiaries is the Chinese renminbi ("RMB”). These transactions are translated from the local currency into U.S. dollars at exchange rates during or at the end of the reporting period. All significant intercompany accounts and transactions have been eliminated in consolidation. 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. F-12 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Use of Estimates The preparation of financial statements in conformity with U.S. 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, 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. Liquidity and Going Concern The accompanying consolidated financial statements have been prepared in conformity with U.S. 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, 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, 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, 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. 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 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 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, 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 Cash and cash equivalents consist of deposit accounts and highly liquid investments purchased with an original maturity of six months or less. 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. Short-term Investments Short-term investments consist of short-term note receivables with original maturities of 12 months or less. F-13 Table of Contents 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. Restricted cash at December 31, 2024 and December 31, 2023 consisted of: December 31, 2024 December 31, 2023 Deposit held by a US financial institution as collateral for ACH transactions and business credit cards – US Segment $ 276,744 $ 354,504 Less: current portion - - Noncurrent portion $ 276,744 $ 354,504 Accounts Receivable Accounts receivable are reported at the outstanding principal balance due from customers. 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. Accounts receivable are recorded at net realizable value. The Company maintains allowances for the applicable portion of receivables, including accounts receivable, government rebate receivables and other receivables, represents the Company’s estimate of the current expected loss inherent in accounts receivable as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Once a receivable is deemed to be uncollectible, it is written off against the allowance. The expense related to rebates receivable is recorded as a reduction to revenues. Contract Assets 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 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. These costs are included in cost of revenues. Customer Loans Receivable In the U.S. 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. The outstanding customer loan receivable balance is presented net of an allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover expected credit losses on the customer loans. In determining expected credit losses, the Company considers its historical level of credit losses, current economic trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows. 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 Inventories consist of (a) work in progress on solar systems on housing developments and projects not yet sold; and (b) components principally consisting of photovoltaic modules, inverters, construction and other materials, and LED products, all of which are stated at the lower of cost or net realizable value under the first-in first-out method. 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. F-14 Table of Contents 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 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. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements and solar systems leased to customers are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives of the major classification of property and equipment are as follows: Automobiles 4 - 5 years Furniture and equipment 3 - 10 years Leasehold improvements Shorter of the asset’s useful life or lease term Solar systems leased to customers Lease term, 10 - 20 years Goodwill 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.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 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. Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the reporting unit’s financial results, a significant decline in the reporting unit’s enterprise value relative to its net book value, an unanticipated change in competition or market share and a significant change in the reporting unit’s strategic plans. For the Company’s goodwill annual testing, management determined that its reporting units are the same as its operating segments. Accordingly, the reporting unit for the goodwill annual testing is the PRC segment. Impairment of Long-Lived Assets The Company’s long-lived assets include property and equipment which include solar energy systems leased to customers. In accordance with ASC Topic 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the excess of the carrying value over the fair value. There was no impairment loss on such systems for the years ended December 31, 2024 and 2023. Investments in Unconsolidated Joint Ventures and Solar Project Companies The Company’s unconsolidated investments in the U.S. are held directly by the Company as well as through its subsidiary, SMX Capital, and consist of investments in U.S.-based solar limited liability companies: Alliance Solar Capital 1, LLC (“A#1”), Alliance Solar Capital 2, LLC (“A#2”), and Alliance Solar Capital 3, LLC (“A#3”). The Company’s U.S. 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. F-15 Table of Contents 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 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. 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. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The Company monitors its investments in unconsolidated entities periodically for impairment. No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2024 and 2023. Warranties Workmanship Warranty For the sale of solar and battery systems in the U.S., the Company provides a workmanship warranty for 25 years to cover the quality of the Company’s installation. The warranty is designed to cover installation defects and damages to customer properties caused by the Company’s installation of the solar energy systems and battery storage systems which generally are uncovered within 2-3 years after the installation. 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 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 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. The Company currently provides a reserve for such potential liabilities based on a nominal percentage of project revenues for the PRC segment in the approximate amount of $ 241,000 and $ 249,000 as of December 31, 2024 and December 31, 2023, respectively, which is included in accrued expenses and other liabilities. To date the Company has not incurred significant claims on the quality warranty. The liability is reversed when the warranty period expires. Production Guaranty 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. The Company currently provides a reserve for the production guaranty at 0.2% of the total solar revenue . LED Warranties The Company’s warranty for LED products and services ranges from one year for labor and up to seven years for certain products sold to governmental municipalities. The Company currently provides a warranty reserve for LED sales based on 1.0 % of LED revenue. F-16 Table of Contents 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 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 ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines a framework for determining fair value, establishes a hierarchy of information used in measuring fair value, and enhances the disclosure information about fair value measurements. ASC 820 provides that the “exit price” should be used to value an asset or liability, which is the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale at the measurement date. 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. ASC 820 requires the Company to estimate and disclose fair values on the following three-level hierarchy that prioritizes market inputs. Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, deposits, taxes payable, warranty liability and accrued payroll and expenses approximates fair value because of the short maturity of these instruments. The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2024: Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Cash equivalents $ 276,744 $ - $ - $ 276,744 Customer loans receivable - - 4,686,809 4,363,583 Short-term investments - 6,337,574 - 6,337,574 Liabilities Bank and other loans - 2,900,000 - 2,900,000 Secured loans from related parties - - 10,054,200 12,358,658 Secured convertible debt - - 12,172,858 16,300,448 F-17 Table of Contents 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: Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Cash equivalents $ 358,290 $ - $ - $ 358,290 Customer loans receivable - - 6,847,185 6,535,516 Liabilities Bank and other loans - 2,000,000 - 2,000,000 Secured loans from related parties - - 16,200,860 17,000,000 Secured convertible debt - - 13,324,921 15,949,768 Cash equivalents – Cash equivalents consist of money market accounts and are carried at their fair value. Customer loans receivable – The fair value of customer loans receivable is calculated based on the carrying value and unobservable inputs which include the credit risks of the customers, the market interest rates and the contractual terms. The Company’s underwriting policies for the customer loans receivable have not changed significantly since the origination of these loans. 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. Secured loans from related parties – The related party loans were issued at the fixed annual interest rates of 3.0 % in the U.S. segment, and the fair value of the loans has been estimated by applying the prevailing borrowing annual interest rates for a comparable loan term which the Company estimated to be 9.0% to the estimated cash flows through the maturities of the loans. Secured convertible debt – The secured convertible debt was issued at the fixed annual interest rates of 4.0 % in the U.S. segment, and the fair value of the loans was determined based on the proximity to the issuance date. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”). Revenue is measured based on the considerations specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when the Company satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by government authorities that are imposed on, or concurrent with, a specific revenue-producing transaction are collected by the Company from the customer and excluded from revenue. The Company’s principal activities from which the Company generates its revenue are described below. Revenue from EPC Services For energy generation assets owned and controlled by the customer, the Company recognizes revenue for sales of EPC services over time as the Company’s performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of EPC services represents a single performance obligation for the development and construction of a single generation asset, which is a complete solar energy project. 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. F-18 Table of Contents 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 3-5%, depending on the contract. The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period . In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred relative to the total estimated costs (including solar module costs) to determine the 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 the Company’s efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying the Company’s performance obligations (“inefficient costs”) are excluded from the Company’s input methods of revenue recognition as the amounts are not reflective of the Company’s transferring control of the solar energy system to the customer. Costs incurred towards contract completion may include costs associated with solar modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance. The Company recognizes solar module and direct material costs as incurred when such items have been installed in a system. Cost-based input methods of revenue recognition require the Company to make estimates of net contract revenues and costs to complete its projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete its projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. 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. 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. 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. 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. Solar Energy and Battery Storage Systems and Components Sales Revenue recognition associated with sales of solar energy systems, battery storage systems, and other products is recognized over time as the Company’s performance creates or enhances the property controlled by the customer (the asset is being constructed on a customer’s premises that the customer controls). The Company’s principal performance obligation is to design and install a solar energy system that is interconnected to the local power grid and for which permission to operate has been granted by a utility company to the customer. The Company recognizes revenue over time as control of the solar energy system transfers to the customer which begins at installation and concludes when the utility company has granted the permission to operate. 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. F-19 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 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 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. 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. 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 leasing company. 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. For third-party financing arranged by the Company for the customer, direct payments are made by the financing company to the Company based on an agreement between the financing company and the Company, with the majority of the payments made by the time of completion of installation but not later than the date on which the permission to operate the solar system is granted by the utility company. 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. LED Product Sales and Service Sales For product sales, the Company recognizes revenue at a point in time following the transfer of control of the products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For contracts involving both products and services (i.e., multiple performance obligations), the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenue from services is recognized when services are completed which is upon acceptance by the customer. 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 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 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. The Company assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration the Company expects to receive after returns are made. Based on the Company’s historical experience, the Company has determined the likelihood and magnitude of a future returns to be immaterial and currently has not provided for a liability for such returns on the LED product sales. For contracts where the Company agreed to provide the customer with rooftop solar energy systems (including design, materials, and installation of the system) in addition to providing LED products and LED installation, these agreements may contain multiple performance obligations: 1) the combined performance obligation to design and install rooftop solar energy system; 2) the performance obligation to deliver the LED products; and, 3) the performance obligation to install the LED products. Topic 606 permits goods and services that are deemed to be immaterial in the context of a contract to be disregarded when considering performance obligations within an agreement. The Company will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they would represent a separate performance obligation. F-20 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Operating Leases and Power Purchase Agreements (PPAs) in U.S. The Company sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, which may qualify as a lease, the Company recognizes revenue each period based on the volume of energy delivered to the customer and the price stated in the PPA. 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 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., 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. Loans held-for-investment are carried at amortized cost and are reduced by an allowance for estimated credit losses as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the interest method. The interest method is applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Interest on loans generally continues to accrue until the loans are charged off. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Loans are transferred from held-for-investment to held-for-sale when management’s intent is not to hold the loans for the foreseeable future. Loans held-for-sale are recorded at the lower of cost or fair value. There were no loans held-for-sale at December 31, 2024 and December 31, 2023. The following table summarizes the Company’s revenue by business line for the years ended December 31, 2024 and 2023: Years Ended December 31, 2024 2023 Solar energy and battery storage systems Sales on non-installment basis $ 13,828,244 $ 50,399,417 Third-party leasing arrangements 3,983,612 - Operating lease revenues 71,082 81,774 Power purchase agreement revenues 26,757 41,558 Total solar energy and battery storage systems 17,909,695 50,522,749 LED projects 4,737,075 3,054,526 Financing related 340,111 562,055 Total revenues $ 22,986,881 $ 54,139,330 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, 2024 and 2023 were approximately $ 517,000 and $ 1.2 million, respectively. Income Taxes The Company accounts for income taxes pursuant to the FASB ASC Topic 740, Income Taxes (“ASC 740”). The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. The Company accounts for the investment tax credits under the flow-through method which treats the credits as a reduction of federal income taxes of the year in which the credit arises or is utilized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. F-21 Table of Contents 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. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has determined it is more likely than not that its deferred tax assets related to its U.S. operations will not be realizable and has recorded a full valuation allowance against its deferred tax assets. In the event the Company is able to realize such deferred income tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements in accordance with U.S. GAAP. The calculation of the Company’s tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company’s tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized. The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the years ended December 31, 2024 and 2023, the Company did not incur any related interest and penalties. The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. As of December 31, 2024 and December 31, 2023, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. Comprehensive Income (Loss) The Company accounts for comprehensive income loss in accordance with ASC 220, Income Statement – Reporting Comprehensive Income (“ASC 220”). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of December 31, 2024 and December 31, 2023 is the currency translation adjustment. Net Income (Loss) Per Share The Company calculates net income (loss) per share by dividing income or losses allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. 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. 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 for both employees and non-employees. 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. Foreign Currency Amounts reported in the consolidated financial statements are stated in U.S. dollars. 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. In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. Further, foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. 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. F-22 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 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 chief executive 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 segments, the United States and China; 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 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. 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. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the 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). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. 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. F-23 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 3. Cash, Cash Equivalents and Restricted Cash As of December 31, 2024 and December 31, 2023, insured and uninsured cash including the balance classified as restricted cash were as follows: December 31, 2024 December 31, 2023 US Segment Insured cash $ 523,096 $ 818,534 Uninsured cash 497,311 813,199 1,020,407 1,631,733 China Segment Insured cash 42,669 295,503 Uninsured cash - 966,580 42,669 1,262,083 Total cash and cash equivalents and restricted cash 1,063,076 2,893,816 Less: Cash and cash equivalents 786,332 2,539,312 Restricted cash $ 276,744 $ 354,504 4. Accounts Receivable, net 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, 2024 2023 Balance – beginning of period $ 4,598 $ 1,185,046 Provision for bad debts 36,228 107,489 Recoveries - ( 1,266,474 ) Effect of exchange rate - ( 21,463 ) Balance – end of period $ 40,826 $ 4,598 5. 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. 6. 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. F-24 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 7. Customer Loans Receivable 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. At December 31, 2024 and December 31, 2023, the percentage of the Company’s loan portfolio with a 0 % interest rate is .4% and 2.7 %, respectively. 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, 2024: Year of origination December 31, 2024 2022 2021 2020 Prior Total % Prime - FICO score 680 and greater $ - $ - $ 23,094 $ 4,000,091 4,023,185 86.7 % Near-prime - FICO score 620 to 679 12,699 - 2,809 481,901 497,409 10.7 % Sub-prime - FICO score less than 620 - - - 83,973 83,973 1.8 % Business entity — FICO not available - 31,904 7,194 - 39,098 0.8 % Total Customer Loan Receivables, gross $ 12,699 $ 31,904 $ 33,097 $ 4,565,965 $ 4,643,665 100.0 % 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 December 31, 2023 2022 2021 2020 2019 Prior Total % Prime - FICO score 680 and greater $ - $ - $ 181,315 $ 438,676 $ 5,234,583 $ 5,854,574 86.2 % Near-prime - FICO score 620 to 679 19,117 - 18,107 42,175 622,398 701,797 10.3 % Sub-prime - FICO score less than 620 - - - 72,489 84,992 157,481 2.3 % Business entity — FICO not available - 52,753 28,051 - - 80,804 1.2 % Total Customer Loan Receivables, gross $ 19,117 $ 52,753 $ 227,473 $ 553,340 $ 5,941,973 $ 6,794,656 100.0 % Customer loans receivable consist of the following as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Customer loans receivable, gross $ 4,643,665 $ 6,794,656 Less: unamortized loan discounts - ( 2,332 ) Allowance for loan losses ( 280,082 ) ( 256,808 ) Customer loans receivable, net 4,363,583 6,535,516 Less: Current portion 1,287,397 2,212,574 Non-current portion $ 3,076,186 $ 4,322,942 F-25 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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, Amount 2025 $ 1,287,397 2026 1,150,229 2027 975,613 2028 667,681 2029 353,039 Thereafter 209,706 Total customer loans receivable $ 4,643,665 The Company is exposed to credit risk on the customer loans receivable. Credit risk is the risk of loss arising from the failure of customers to meet the terms of their contracts with the Company or otherwise fail to perform as agreed. 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, 2024 2023 Balance – beginning of period $ 256,808 $ 288,457 Provision (recovery) for loan losses 127,970 ( 50,738 ) Chargeoffs and adjustments ( 104,696 ) 19,089 Balance – end of period $ 280,082 $ 256,808 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. 8. 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, 2024 2023 Balance – beginning of period $ 596,367 $ 485,504 Provision for excess and obsolete inventories 45,930 110,863 Balance – end of period $ 642,297 $ 596,367 Inventories consisted of the following as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Solar panels, inverters, battery storage and components $ 1,342,148 $ 1,336,066 LED lights 602,717 601,698 Total inventories, gross 1,944,865 1,937,764 Less: reserve for excess and obsolete inventories ( 642,297 ) ( 596,367 ) Total inventories, net $ 1,302,568 $ 1,341,397 F-26 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 9. Other Receivables and Current Assets, Net Other receivables and current assets, net consisted of the following at December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Receivable from Seller (Uonone Group - Note 15) $ 419,471 $ 436,698 Prepaid expenses and other current assets 626,820 1,342,834 Advances to suppliers 667,140 1,300,009 Accrued interest on customer loans receivable 11,920 32,537 Capitalized offering costs - 658,564 Total other receivables and current assets $ 1,725,351 $ 3,770,642 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. 10. Property and Equipment Components of property and equipment, net are as follows: December 31, 2024 December 31, 2023 Automobiles $ 723,703 $ 971,384 Furniture and equipment 1,375,634 1,396,936 Solar systems leased to customers 1,663,468 1,663,468 Leasehold improvements 2,287,650 2,343,815 Total property and equipment, gross 6,050,455 6,375,603 Less: accumulated depreciation and amortization ( 5,849,566 ) ( 6,084,187 ) Total property and equipment, net $ 200,889 $ 291,416 For the years ended December 31, 2024 and 2023, depreciation expenses were approximately $ 82,000 and $ 144,000 , respectively. 11. Goodwill The activity of goodwill is as follows: December 31, 2024 December 31, 2023 Balance – beginning of period $ 7,584,779 $ 7,774,472 Effect of exchange rate ( 122,891 ) ( 189,693 ) Asset impairment ( 7,461,888 ) - Balance – end of period $ - $ 7,584,779 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. F-27 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 12. Investments in Unconsolidated Solar Project Companies 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: Investee Investment Balance at December 31, 2023 Share of Investee’s Net Income Effect of Exchange Rate Investment Balance at December 31, 2024 Yilong #2 $ 4,213,276 $ 268,156 $ ( 135,524 ) $ 4,345,909 Xingren 2,031,774 103,741 ( 64,964 ) 2,070,551 Ancha 3,453,258 262,905 ( 111,735 ) 3,604,428 Total $ 9,698,308 $ 634,802 $ ( 312,223 ) $ 10,020,888 Investee Investment Balance at December 31, 2022 Share of Investee’s Net Income (Loss) Effect of Exchange Rate Investment Balance at December 31, 2023 Yilong #2 $ 3,966,824 $ 343,240 $ ( 96,788 ) $ 4,213,276 Xingren 1,953,048 126,380 ( 47,654 ) 2,031,774 Ancha 3,134,887 394,861 ( 76,490 ) 3,453,258 Total $ 9,054,759 $ 864,481 $ ( 220,932 ) $ 9,698,308 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: December 31, 2024 December 31, 2023 Current assets $ 23,521,069 $ 24,984,444 Non-current assets 68,737,593 76,024,387 Total assets $ 92,258,662 $ 101,008,831 Current liabilities $ 2,987,980 $ 9,775,803 Noncurrent liabilities 55,663,978 58,680,520 Members’ capital 33,606,704 32,552,508 Total liabilities and members’ capital $ 92,258,662 $ 101,008,831 Years Ended December 31, 2024 2023 Revenue $ 9,146,808 $ 11,216,922 Gross profit 4,109,153 5,081,846 Net income $ 2,116,007 $ 2,880,439 F-28 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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. 13. Financing Arrangements As of December 31, 2024 and December 31, 2023, the Company had the following borrowings: December 31, 2024 December 31, 2023 Unsecured loan from unrelated party at 8.0% fixed interest due June 30, 2025 $ 2,000,000 $ 2,000,000 Unsecured loan from unrelated party at 12.0% fixed interest due June 30, 2025 900,000 - Secured convertible notes payable at 4.0% per annum, due various dates through September 2029 16,550,000 16,250,000 EB-5 loans - see details below 11,000,000 17,000,000 Notes payable to SMX Property, a related party, at 8% per annum, due October 10, 2025 1,358,658 1,358,658 Total 31,808,658 36,608,658 Less: debt discount and debt issuance costs ( 249,552 ) ( 300,232 ) Current portion ( 18,028,658 ) ( 22,038,658 ) Noncurrent portion $ 13,530,448 $ 14,269,768 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: December 31, 2024 December 31, 2023 Loan from Clean Energy Funding, LP $ 3,500,000 $ 7,000,000 Loan from Clean Energy Funding II, LP 7,500,000 10,000,000 Total 11,000,000 17,000,000 Less: current portion ( 4,000,000 ) ( 10,000,000 ) Noncurrent portion $ 7,000,000 $ 7,000,000 On January 3, 2012, Clean Energy Fund, LP (“CEF”) entered into a secured loan agreement with SREP, a wholly owned subsidiary of the Company. 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. 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 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. 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. F-29 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”). 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 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. 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 or for convertible notes issued after the initial public offering, six months after the issuance of the notes. All convertible notes issued prior to the Company’s initial public offering have two separate and distinct embedded features. They are: (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 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. 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. The Company evaluated the redemption put feature contained in the convertible notes under the guidance of ASC 815 and concluded that the requirements for contingent exercise provisions as well as the settlement provision for scope exception in ASC 815-10-15-74 has been meet. Accordingly, the redemption put features contained in the convertible notes were not bifurcated and accounted for as freestanding derivative instruments. 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. F-30 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 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. 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, 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, Bank and Other Unsecured Loans EB-5 Loans - Related Party Notes Payable - Related Party Convertible Notes Total 2025 $ 2,900,000 $ 4,000,000 $ 1,358,658 $ 9,770,000 $ 18,028,658 2026 - 2,000,000 - 3,090,000 5,090,000 2027 - 3,000,000 - 1,690,000 4,690,000 2028 - 2,000,000 - 1,200,000 3,200,000 2029 - - - 800,000 800,000 Total $ 2,900,000 $ 11,000,000 $ 1,358,658 $ 16,550,000 $ 31,808,658 14. Accrued Expenses and Other Payables Accrued expenses and other payables consisted of the following as of December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Customer deposits $ 1,621,943 $ 2,487,227 Accrued operating and project payables 1,353,291 3,258,844 Payable to Uonone (See Note 16) 2,471,864 2,551,458 Accrued compensation expenses 3,282,481 4,480,343 Retainage payable to vendors 684,609 802,886 Preacquisition liability 1,470,295 1,517,639 Accrued settlement 276,428 276,428 Accrued warranty expense 540,756 248,508 VAT taxes payable 611,412 697,480 Income taxes payable 147,777 145,938 Refundable vendor bid deposits 13,703 14,145 Total accrued expenses and other payables $ 12,474,559 $ 16,480,896 F-31 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Accrued Compensation 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. Customer Deposits Customer deposits represent customer down payments and progress payments received prior to the completion of the Company’s earnings process. The amounts paid by customers are refundable during the period which, under applicable state and federal law, the customer’s order may be cancelled and the deposit refunded. 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, 2024 2023 Balance – beginning of period $ 2,175,487 $ 2,419,254 Provision for warranty liability 410,108 639,279 Expenditures and adjustments ( 431,321 ) ( 225,868 ) Reversal of UE Solar accrual - ( 650,962 ) Effect of exchange rate ( 7,752 ) ( 6,216 ) Balance – end of period 2,146,522 2,175,487 Less: current portion (accrued expenses and other payables) ( 540,756 ) ( 254,508 ) Non-current portion (other liabilities) $ 1,605,766 $ 1,920,979 Preacquisition Liability 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. 15. 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. F-32 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 16. 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 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, 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). 17. Related Party Transactions See Note 13 for related party lease and loan transactions and Note 18 for the termination of related party lease. 18. Commitments and Contingencies Operating Leases The Company has entered into various non-cancellable operating lease agreements for certain of its offices, warehouse facilities and office equipment, vehicles, and solar energy systems, both in the U.S. and in the PRC. The Company determines if an arrangement is a lease, or contains a lease, at inception and records the leases in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Related Party Lease Agreements 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 as of December 31, 2024, are as follows: For the year ending December 31, Total 2025 $ 1,760,055 2026 1,768,488 Total $ 3,528,543 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. F-33 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 As of December 31, 2024, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows: For the year ending December 31, Total 2025 $ 1,725,564 2026 1,768,488 Total minimum lease payments 3,494,052 Less: Interest ( 210,638 ) Present value of lease obligations 3,283,414 Less: current portion ( 1,571,084 ) Noncurrent portion $ 1,712,330 Other information related to leases is as follows: As of December 31, 2024 Weighted average remaining lease term (in years) 2 Weighted average discount rate 8.00 % 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. 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: Years Ended December 31, 2024 2023 Operating lease cost $ 1,731,244 $ 1,825,715 Short-term lease cost 39,978 188,927 Less: Sublease income ( 981,509 ) ( 1,136,516 ) Operating lease cost, net $ 789,713 $ 878,126 Employment Agreements 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. F-34 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 19. Stockholders’ Equity 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 . 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. F-35 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 The following table below summarizes the activity of the restricted stock shares: Number of Shares Weighted Average Grant Date Fair Value per Share Outstanding at December 31, 2023 264,650 5.01 Nonvested as of December 31, 2023 264,650 5.01 Outstanding at December 31, 2024 - - Nonvested as of December 31, 2024 - - Stock Options 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 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: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual (years) Aggregate Intrinsic Value Outstanding at December 31, 2023 6,295,858 4.96 4.5 - Nonvested as of December 31, 2023 5,946,320 5.01 4.7 - Exercisable as of December 31, 2023 349,538 4.15 2.5 300,000 Granted - - - - Exchanged - - - - Exercised ( 49,934 ) - - - Cancelled or forfeited ( 50,181 ) - - - Outstanding at December 31, 2024 6,195,743 4.93 4.3 - Nonvested as of December 31, 2024 - - - - Exercisable as of December 31, 2024 6,195,743 4.93 4.3 - Forfeitures are accounted for as actual forfeitures occur. The aggregate intrinsic value represents the total pretax intrinsic value. 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. F-36 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Non-vested Option Awards The following table summarizes the Company’s nonvested option awards activity: Balance at December 31, 2023 $ 5,946,320 Granted - Exchanged - Forfeited ( 48,183 ) Vested ( 5,898,137 ) Balance at December 31, 2024 $ - 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 year ended December 31, 2023. 20. Income Taxes 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, 2024 2023 Domestic (U.S. Segment) $ ( 25,131,654 ) $ ( 18,674 ) Foreign (PRC Segment) ( 8,166,852 ) 389,266 Income (loss) before income taxes $ ( 33,298,506 ) $ 370,592 The income tax provisions (benefits) for the years ended December 31, 2024 and 2023 are as follows: Years Ended December 31, 2024 2023 Current U.S. federal $ - $ - State and local 6,000 6,000 Foreign (PRC Segment) ( 173,904 ) 14,000 Total current income tax expense (benefit) ( 167,904 ) 20,000 Deferred U.S. federal - - State and local - - Foreign (PRC Segment) 1,831,734 ( 84,194 ) Total deferred income tax expense (benefit) 1,831,734 ( 84,194 ) Income tax expense (benefit) $ 1,663,830 $ ( 64,194 ) F-37 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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, 2024 and 2023: December 31, 2024 December 31, 2023 Rate Amount Rate Amount Income taxes at statutory rates 21.00 % $ ( 6,992,686 ) 21.00 % $ 77,825 State income tax, net of federal benefit 4.05 % ( 1,348,747 ) 15.86 % 58,762 Foreign rate differential 0.08 % ( 26,723 ) 13.19 % 48,882 Non-deductible interest ( 0.53 )% 177,673 47.08 % 174,494 Other permanent items ( 0.04 )% 13,621 2.57 % 9,532 Goodwill impairment ( 4.71 )% 1,566,997 - % - Section 162(m) adjustment ( 2.37 )% 788,746 - % - Stock-based compensation ( 0.05 )% 17,694 - % - Subpart F ( 0.02 )% 6,721 2.99 % 11,094 State rate change ( 0.05 )% 16,231 2.02 % 7,479 Return-to-provision true-up 0.22 % ( 73,256 ) 42.49 % 157,457 Change in valuation allowance ( 22.43 )% 7,469,750 ( 186.99 )% ( 692,977 ) Other adjustment ( 0.15 )% 47,809 22.47 % 83,258 ( 5.00 )% $ 1,663,830 ( 17.32 )% $ ( 64,194 ) 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: December 31, 2024 December 31, 2023 Deferred tax assets Investment credit $ 1,037,362 $ 1,037,362 Net operating loss carryforwards 16,836,965 14,512,494 Stock-based compensation and accrued bonus 4,078,345 478,128 Depreciation 62,445 63,519 Operating lease liabilities 907,557 1,552,194 Contract accounting 3,029,238 3,096,586 Other 1,396,714 1,677,624 Total deferred tax assets 27,348,626 22,417,907 Valuation allowance ( 25,132,983 ) ( 17,666,794 ) Total deferred tax assets, net of allowance 2,215,643 4,751,113 Deferred tax liabilities Operating lease right-of-use assets ( 878,693 ) ( 1,506,457 ) Contract Accounting ( 2,957,445 ) ( 3,055,426 ) Total deferred tax liabilities ( 3,836,138 ) ( 4,561,883 ) Deferred tax assets (liability), net $ ( 1,620,495 ) $ 189,230 F-38 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 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 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. The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2024 and 2023: December 31, 2024 December 31, 2023 Unrecognized tax benefits – beginning $ 2,137,790 $ 2,137,790 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 - - Other - - Unrecognized tax benefits – ending $ 2,137,790 $ 2,137,790 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. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. 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 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. The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. In the event the Company is required to repatriate funds from outside of the U.S., such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. F-39 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 21. Net Income (Loss) Per Share The following table presents the calculation of the Company's basic and diluted net income (loss) per share for the years ended December 31, 2024 and 2023: Years Ended December 31, 2024 2023 Numerator Net income (loss) $ ( 34,962,336 ) $ 434,786 Denominator Weighted average shares used to compute net loss per share, basic 44,342,876 39,735,536 Weighted average shares used to compute net loss per share, diluted 44,342,876 40,025,153 Basic net income (loss) per share $ ( 0.79 ) $ 0.01 Diluted net income (loss) per share $ ( 0.79 ) $ 0.01 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. F-40 22. Segment Reporting 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, 2024 2023 Segment revenue Solar energy systems $ 16,675,612 $ 49,204,671 Battery only sales 1,136,065 1,226,868 LED operations 4,737,254 3,054,998 22,548,931 53,486,537 Reconciliation of revenue Finance revenue 336,937 529,461 Other non-core revenue 101,013 123,332 22,986,881 54,139,330 Less Direct and indirect costs 10,949,411 22,467,201 Subcontractor costs 2,154,031 5,849,413 Commissions and lender fees 2,805,218 8,595,460 Compensation and benefits 6,991,057 9,454,865 Leasing and rental expense 752,086 750,414 Insurance expense 1,041,734 1,054,583 Selling and marketing expense 517,058 1,153,244 Professional services 1,658,190 1,556,167 ( 3,881,904 ) ( 3,257,983 ) Reconciliation of segment profit or loss Other corporate overhead expense 1,238,470 1,276,379 Provision for various reserves 620,236 779,424 Stock-based compensation 18,536,184 - Interest expense, net 1,094,244 1,562,360 Other (gains) and other (income), net ( 239,384 ) ( 346,237 ) China goodwill impairment 7,461,888 - China other expenses 699,060 ( 389,267 ) Elimination adjustment 5,904 4,732 Income before income taxes $ ( 33,298,506 ) $ 370,592 23. Subsequent Events 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. F-41 Condensed Financial Information of Parent Condensed Balance Sheets As of December 31, 2024 and 2023 December 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 20,244 $ 107,822 Other current assets 488,473 1,900,679 Inventories, net 64,723 44,544 Short-term investments 5,700,000 - Total current assets 6,273,440 2,053,045 Due from affiliates 30,192,630 42,825,769 Other assets 4,043,284 5,567,391 Total assets $ 40,509,354 $ 50,446,205 Liabilities and stockholders' deficit Current liabilities: $ 3,424,405 $ 4,957,223 Long-term debt, current 2,000,000 2,000,000 Total current liabilities 5,424,405 6,957,223 Long-term debt, noncurrent 1,358,658 24,958,658 Losses in excess of invested capital in unconsolidated subsidiaries 46,943,931 30,555,520 Other liabilities 1,861,302 3,862,633 Total liabilities 55,588,296 66,334,034 Stockholders’ deficit: Preferred stock - - Common stock 46,532 40,984 Additional paid-in capital 91,889,317 55,786,634 Treasury stock ( 1,979,294 ) ( 1,808,889 ) Accumulated deficit ( 103,586,305 ) ( 68,623,970 ) Accumulated other comprehensive loss ( 1,449,192 ) ( 1,282,588 ) Total stockholders’ deficit ( 15,078,942 ) ( 15,887,829 ) Total liabilities and stockholders’ deficit $ 40,509,354 $ 50,446,205 F-42 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Condensed Financial Information of Parent Condensed Statement of Operations For the Years Ended December 31, 2024 and 2023 Years Ended December 31, 2024 2023 Trade sales $ - $ 1,909,689 Management fee income 2,455,855 5,661,812 Total Revenues 2,455,855 7,571,501 Cost of revenues (includes stock-based compensation expense of $1,264,690 for the year ended December 31, 2024) 1,218,342 2,524,006 Gross profit 1,237,513 5,047,495 Expenses: General and administrative (includes stock-based compensation expense of $17,271,494 for the year ended December 31, 2024) 19,852,421 2,784,317 Interest income ( 464,952 ) ( 7,365 ) Interest expense 257,867 217,054 Other income (expense), net 329,907 263,113 Total expenses 19,975,243 3,257,119 Income (loss) before equity in losses of affiliates ( 18,737,730 ) 1,790,376 Equity in losses of affiliates ( 16,221,806 ) ( 1,352,790 ) Income (loss) before income taxes ( 34,959,536 ) 437,586 Income tax provision (benefit) 2,800 2,800 Net income (loss) $ ( 34,962,336 ) $ 434,786 F-43 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Condensed Financial Information of Parent Condensed Statement of Cash Flows For the Years Ended December 31, 2024 and 2023 Years Ended December 31, 2024 2023 Net cash provided by (used in) operating activities $ ( 13,179,446 ) $ ( 69,960 ) Net cash provided by (used in) investing activities ( 6,385,171 ) - Net cash provided by (used in) financing activities 19,477,038 - Net increase (decrease) in cash, cash equivalents, and restricted cash ( 87,579 ) ( 69,960 ) Cash, cash equivalents, and restricted cash, beginning of year 107,823 177,783 Cash, cash equivalents, and restricted cash, end of year $ 20,244 $ 107,823 Supplemental disclosures of cash flow information: Interest paid in cash 111,512 217,054 Income taxes paid (received) in cash - 551 F-44 Table of Contents SolarMax Technology, Inc. and Subsidiaries Notes to Consolidated Financial Statements For the Years Ended December 31, 2024 and 2023 Condensed Financial Information of Parent Notes to Condensed Financial Statements For the Years Ended December 31, 2024 and 2023 1. Basis of Presentation The accompanying condensed financial statements of SolarMax Technology, Inc. ("Parent”) should be read in conjunction with the consolidated financial statements and notes thereto of SolarMax Technology, Inc. and Subsidiaries (the "Company”). Parent’s significant accounting policies are consistent with those of the Company. 2. Related Party Transactions Intercompany Sales Parent’s revenues include sales of solar panels, LED components, as well as certain battery storage system components to its subsidiaries. Parent does not have any sales to external customers. Management Fee Income At a board of directors meeting in July 2016, the board discussed charging management fees from Parent to each United States subsidiary. Subsequently, executive directors implemented a management fee based on 10% of the subsidiary’s revenue to compensate for Parent’s management of each United States subsidiary. Headquarter Rent Expense Allocation During the years ended December 31, 2024 and 2023, the total rent expense of the headquarters was $ 1,694,808 and $ 1,694,808 , respectively, of which $ 1,257,786 and $ 847,818 , respectively, was allocated to United States subsidiaries, based on the estimated square feet occupied by employees and other personnel assigned to such subsidiaries. Intercompany receivables and payables Currently, Parent does not have any plans to settle the receivables from and payables to its various subsidiaries. Accordingly, Parent reports the balances in the receivables from and payables to subsidiaries in its investments in subsidiaries. F-45