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What changed in SolarMax Technology, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SolarMax Technology, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+636 added−654 removedSource: 10-K (2025-03-31) vs 10-K (2024-04-16)

Top changes in SolarMax Technology, Inc.'s 2024 10-K

636 paragraphs added · 654 removed · 437 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

118 edited+48 added−39 removed234 unchanged
Biggest changeAlthough the circular only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals or foreigners, the determining criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners. 23 Table of Contents PRC VAT and Business Tax Pursuant to the Interim Regulation of the People’s Republic of China on Value-Added Tax (the “VAT Regulation”), which was amended on November 10, 2008, February 6, 2016 and November 19, 2017 and its implementation rules, any entity or individual engaged in the sales of goods, provision of specified services and importation of goods into China is generally required to pay a VAT, at the rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by such entity.
Biggest changePRC VAT and Business Tax Pursuant to the Interim Regulation of the People’s Republic of China on Value-Added Tax (the "VAT Regulation”), which was amended on November 10, 2008, February 6, 2016 and November 19, 2017 and its implementation rules, any entity or individual engaged in the sales of goods, provision of specified services and importation of goods into China is generally required to pay a VAT, at the rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by such entity.
According to the Stock Incentive Plan Rules, if PRC “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) that participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises.
According to the Stock Incentive Plan Rules, if PRC "domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) that participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises.
The new FIL further defines “foreign investment” as any foreign investor’s direct or indirect investment in mainland China, including (a) establishing FIEs either individually or jointly with other investors; (b) acquiring shares, equity, property shares, other similar rights and interests in Chinese domestic enterprises; (c) investing in new projects either individually or jointly with other investors; and (d) making investments through other means provided by laws, administrative regulations, or the State Council.
The new FIL further defines "foreign investment” as any foreign investor’s direct or indirect investment in mainland China, including (a) establishing FIEs either individually or jointly with other investors; (b) acquiring shares, equity, property shares, other similar rights and interests in Chinese domestic enterprises; (c) investing in new projects either individually or jointly with other investors; and (d) making investments through other means provided by laws, administrative regulations, or the State Council.
On December 12, 2013, the MOF and SAT issued Notice of the Ministry of Finance and the State Administration of Taxation on Including the Railway Transportation and Postal Industries in the Pilot Program of Replacing Business Tax with Value-Added Tax (2013 Amendment), which was most recently amended in May 2016, along with Pilot Implemental Rules of Replacing Business Tax with VAT, which was effective on January 1, 2014 and was most recently revised on March 23, 2016 (“Pilot Rules”).
On December 12, 2013, the MOF and SAT issued Notice of the Ministry of Finance and the State Administration of Taxation on Including the Railway Transportation and Postal Industries in the Pilot Program of Replacing Business Tax with Value-Added Tax (2013 Amendment), which was most recently amended in May 2016, along with Pilot Implemental Rules of Replacing Business Tax with VAT, which was effective on January 1, 2014 and was most recently revised on March 23, 2016 ("Pilot Rules”).
Although it is the PRC government’s policy to encourage such construction, it is not clear what specific targets have been fulfilled. On May 31, 2018, the NEA, Ministry of Finance and NDRC of the PRC jointly promulgated a Notice regarding the Matters of Photovoltaic Power Generation in 2018 (“2018 PV Power Generation Notice”).
Although it is the PRC government’s policy to encourage such construction, it is not clear what specific targets have been fulfilled. On May 31, 2018, the NEA, Ministry of Finance and NDRC of the PRC jointly promulgated a Notice regarding the Matters of Photovoltaic Power Generation in 2018 ("2018 PV Power Generation Notice”).
The recent changes in California’s net metering payments may have reduce the market for residential solar installations to the extent that the installation of the homeowner’s decision to install a solar system is based on the benefits of the net metering structure, which has been modified to reduce the benefits to the homeowner.
The recent changes in California’s net metering payments may have reduced the market for residential solar installations to the extent that the installation of the homeowner’s decision to install a solar system is based on the benefits of the net metering structure, which has been modified to reduce the benefits to the homeowner.
If the owner of a solar system generates more electricity than it consumes, the excess electricity is sold back to the grid. The California Public Utilities Commission (CPUC) introduced “Net Metering 3.0” (NEM 3.0) as the latest iteration of net metering policies.
If the owner of a solar system generates more electricity than it consumes, the excess electricity is sold back to the grid. The California Public Utilities Commission (CPUC) introduced "Net Metering 3.0” (NEM 3.0) as the latest iteration of net metering policies.
In addition, the Circular Related to Relevant Issues on the Identification of a Chinese holding Company Incorporated Overseas as a Residential Enterprise under the Criterion of De Facto Management Bodies Recognizing issued by the State Administration of Taxation (Circular 82) promulgated by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in China; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (iii) its major assets, accounting books, company seals and minutes and files of its board and shareholders’ meetings are located or kept in China; and (iv) at least half of the enterprise’s directors or senior management with voting rights reside in China.
In addition, the Circular Related to Relevant Issues on the Identification of a Chinese holding Company Incorporated Overseas as a Residential Enterprise under the Criterion of De Facto Management Bodies Recognizing issued by the State Administration of Taxation (Circular 82) promulgated by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a "resident enterprise” with its "de facto management bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in China; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (iii) its major assets, accounting books, company seals and minutes and files of its board and shareholders’ meetings are located or kept in China; and (iv) at least half of the enterprise’s directors or senior management with voting rights reside in China.
It also provides economic incentives, such as the establishment of national funding, preferential loans provided by financial institutions with financial interest subsidies to certain renewable energy development and utilization projects, and tax preferential treatment for the development of certain renewable energy projects. 16 Table of Contents The PRC Energy Conservation Law, which was amended on October 28, 2007, July 2, 2016 and October 26, 2018, encourages utilization of energy-saving building materials like new wall materials and energy-saving equipment, and encourage the installation and application of renewable energy use systems such as solar energy.
It also provides economic incentives, such as the establishment of national funding, preferential loans provided by financial institutions with financial interest subsidies to certain renewable energy development and utilization projects, and tax preferential treatment for the development of certain renewable energy projects. 17 Table of Contents The PRC Energy Conservation Law, which was amended on October 28, 2007, July 2, 2016 and October 26, 2018, encourages utilization of energy-saving building materials like new wall materials and energy-saving equipment, and encourage the installation and application of renewable energy use systems such as solar energy.
On September 29, 2020, the NDRC, the NEA and the MOF jointly issued Supplementary Notice on Matters Relating to Several Opinions on Promoting the Sound Development of Non-Hydro-Renewable Energy Power Generation, in order to further clarify relevant policies of additional subsidy funds for renewable energy electricity prices and stabilize industry expectations. 17 Table of Contents On February 2, 2021, the State Council issued Guiding Opinions on Accelerating the Establishment and Improvement of the Green and Low-Carbon Circular Development Economic System, in order to accelerate the establishment of a robust economic system of green and low-carbon circular development.
On September 29, 2020, the NDRC, the NEA and the MOF jointly issued Supplementary Notice on Matters Relating to Several Opinions on Promoting the Sound Development of Non-Hydro-Renewable Energy Power Generation, in order to further clarify relevant policies of additional subsidy funds for renewable energy electricity prices and stabilize industry expectations. 18 Table of Contents On February 2, 2021, the State Council issued Guiding Opinions on Accelerating the Establishment and Improvement of the Green and Low-Carbon Circular Development Economic System, in order to accelerate the establishment of a robust economic system of green and low-carbon circular development.
In negotiating and entering into contracts with our residential customers, we must comply with a number of state regulations governing home solicitation sales, home improvement contracts and installment sales contracts. 11 Table of Contents Consumer Financing Regulations In the event that we recommence financing operations in California, our finance subsidiary, SolarMax Financial will have to be registered as a California finance lender pursuant to a license issued by the California Department of Corporations, which regulates and enforces laws relating to consumer finance companies, and SolarMax Financial would be required to comply with regulations pertaining to consumer financing.
In negotiating and entering into contracts with our residential customers, we must comply with a number of state regulations governing home solicitation sales, home improvement contracts and installment sales contracts. 12 Table of Contents Consumer Financing Regulations In the event that we recommence financing operations in California, our finance subsidiary, SolarMax Financial, will have to be registered as a California finance lender pursuant to a license issued by the California Department of Corporations, which regulates and enforces laws relating to consumer finance companies, and SolarMax Financial would be required to comply with regulations pertaining to consumer financing.
“Negative list” means a special administrative measure for access of foreign investment in specific fields as imposed by the PRC. Foreign investors are not allowed to invest in the forbidden investment as specified in the negative list.
"Negative list” means a special administrative measure for access of foreign investment in specific fields as imposed by the PRC. Foreign investors are not allowed to invest in the forbidden investment as specified in the negative list.
On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies.
On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the "Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies.
We therefore believe that the timing of the execution of large commercial deals depends largely on the progress of contract negotiations. 9 Table of Contents Financing Activities Because we believe the high cost of buying and installing solar energy systems remains a major barrier for a typical residential customer, we had developed financing programs to enable customers who meet our credit standards to finance the purchase of our solar energy systems through SolarMax Financial.
We therefore believe that the timing of the execution of large commercial deals depends largely on the progress of contract negotiations. 10 Table of Contents Financing Activities Because we believe the high cost of buying and installing solar energy systems remains a major barrier for a typical residential customer, we had developed financing programs to enable customers who meet our credit standards to finance the purchase of our solar energy systems through SolarMax Financial.
We suspect that customers committing to large commercial purchases or leases of solar energy systems have generally made more studied decisions and are therefore less sensitive to seasonal variations or immediate market conditions. The negotiation period for larger projects may range from a couple of months to a year or more.
We believe that customers committing to large commercial purchases or leases of solar energy systems have generally made more studied decisions and are therefore less sensitive to seasonal variations or immediate market conditions. The negotiation period for larger projects may range from a couple of months to a year or more.
If an internet information service provider violates these measures, the MPS and its local branches may revoke its operating license and shut down its websites. The Standing Committee of China’s National People’s Congress passed the Cybersecurity Law (the “CSL”), China’s first cybersecurity law, in November 2016, which took effect in June 2017.
If an internet information service provider violates these measures, the MPS and its local branches may revoke its operating license and shut down its websites. The Standing Committee of China’s National People’s Congress passed the Cybersecurity Law (the "CSL”), China’s first cybersecurity law, in November 2016, which took effect in June 2017.
We cannot estimate the effects of the recent increased rain and flooding in Southern California on our business and the solar market in general.
We cannot estimate the effects of the recent increased wildfires, rain and flooding in Southern California on our business and the solar market in general.
We cannot assure you that net metering will not be eliminated or the benefits significantly reduced for future solar systems, which may dampen the market for solar energy. 13 Table of Contents California Consumer Privacy Act In June 2018, California passed the CCPA, which became effective in 2020.
We cannot assure you that net metering will not be eliminated or the benefits significantly reduced for future solar systems, which may dampen the market for solar energy. 14 Table of Contents California Consumer Privacy Act In June 2018, California passed the CCPA, which became effective in 2020.
The CCPA broadly defined broadly defines “protected data.” The CCPA also has specific requirements for companies subject to the law. For example, the law specifies that companies must have a clear and conspicuous link on their websites to a page from which consumers may exercise their right to opt out of data sharing.
The CCPA broadly defined broadly defines "protected data.” The CCPA also has specific requirements for companies subject to the law. For example, the law specifies that companies must have a clear and conspicuous link on their websites to a page from which consumers may exercise their right to opt out of data sharing.
Competition Solar energy systems in general compete with both the local or regional providers of electricity as well as a number of independent companies that offer to provide electricity at prices that are lower than the regional utility company. Our primary competition is with the local utility companies that supply power to our potential customers.
Competition Solar energy systems in general compete with both the local and regional providers of electricity as well as a number of independent companies that offer to provide electricity at prices that are lower than the regional utility company. Our primary competition is with the local utility companies that supply power to our potential customers.
As of December 31, 2023, the Uonone Group has repaid all amounts agreed to under the debt settlement agreement except for a RMB 3.0 million contingent receivable, which does not arise until and unless we become obligated under a contingent liability. We have not become obligated under the contingent liability.
As of December 31, 2023, Uonone has repaid all amounts agreed to under the debt settlement agreement except for a RMB 3.0 million contingent receivable, which does not arise until and unless we become obligated under a contingent liability.
Moreover, under the PRC Enterprise Income Tax Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income.
Moreover, under the PRC Enterprise Income Tax Law, enterprises organized under the laws of jurisdictions outside China with their "de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income.
Pursuant to these agreements, we were responsible for the design, permitting, financing and installation of a solar energy system on a customer’s property after which we sell the power generated by the system to the customer at an agreed upon rate.
Pursuant to these agreements, we are responsible for the design, permitting, financing and installation of a solar energy system on a customer’s property after which we sell the power generated by the system to the customer at an agreed upon rate.
Local utility companies work with all solar companies to connect their systems to the grid. Title 24 of the California Code of Regulations governs energy savings and efficiency standards for new and remodeled construction for indoor and outdoor lighting requirements.
Local utility companies work with all solar companies to connect their systems to the grid. Title 24 of the California Code of Regulations governs energy savings and efficiency standards for new and remodelled construction for indoor and outdoor lighting requirements.
Pursuant to the Cybersecurity Review Measures, Critical Information Infrastructure Operators (“CIIO”) that intend to purchase Internet products and services and online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review.
Pursuant to the Cybersecurity Review Measures, Critical Information Infrastructure Operators ("CIIO”) that intend to purchase Internet products and services and online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review.
Our only production guarantees are pursuant to agreements with our customers. 8 Table of Contents In 2017, we incurred unanticipated liability based on the failure to of our systems to meet the production guarantee or otherwise perform in accordance with our warranty. Our only production guarantees are pursuant to agreements with our customers.
Our only production guarantees are pursuant to agreements with our customers. 9 Table of Contents In 2017, we incurred unanticipated liability based on the failure to of our systems to meet the production guarantee or otherwise perform in accordance with our warranty. Our only production guarantees are pursuant to agreements with our customers.
On February 17, 2023, the CSRC released the “Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” (the “Trial Measures”) and five supporting guidelines. The new regulations require PRC companies that are listed or in the process of being listed on foreign exchanges (“PRC Companies”) to make certain filings with the CSRC.
On February 17, 2023, the CSRC released the "Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” (the "Trial Measures”) and five supporting guidelines. The new regulations require PRC companies that are listed or in the process of being listed on foreign exchanges ("PRC Companies”) to make certain filings with the CSRC.
On June 23, 2020, the NDRC and the MOFCOM jointly issued the Special Administrative Measures for the Access of Foreign Investment (2020 Edition) (the “Negative List”), which came into force on July 23, 2019.
On June 23, 2020, the NDRC and the MOFCOM jointly issued the Special Administrative Measures for the Access of Foreign Investment (2020 Edition) (the "Negative List”), which came into force on July 23, 2019.
The Implementation Rules define the term “de facto management body” as the management body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise.
The Implementation Rules define the term "de facto management body” as the management body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise.
In this regard, if a non-listed special purpose vehicle grants equity incentives to its directors, supervisors, senior officers and employees in its domestic subsidiaries, the relevant domestic individual residents may register with SAFE before exercising their rights. The Stock Incentive Plan Rules and SAFE Circular 37 were promulgated only recently and many issues require further interpretation.
In this regard, if a non-listed special purpose vehicle grants equity incentives to its directors, supervisors, senior officers and employees in its domestic subsidiaries, the relevant domestic individual residents may register with SAFE before exercising their rights. 29 Table of Contents The Stock Incentive Plan Rules and SAFE Circular 37 were promulgated only recently and many issues require further interpretation.
Under this circular, the feed-in tariff (“FIT”) (including VAT) for solar power projects approved or filed after September 1, 2013 or beginning operation after January 1, 2014 would be RMB0.90 per kilowatt hour (“kWh”), RMB0.95 per kWh or RMB1.00 per kWh, depending on the locations of the projects (excluding on-grid solar power projects located in Tibet).
Under this circular, the feed-in tariff ("FIT”) (including VAT) for solar power projects approved or filed after September 1, 2013 or beginning operation after January 1, 2014 would be RMB0.90 per kilowatt hour ("kWh”), RMB0.95 per kWh or RMB1.00 per kWh, depending on the locations of the projects (excluding on-grid solar power projects located in Tibet).
We have agreements with a professional employer organization, Insperity PEO Services, L.P., under which the professional employer organization administers our human resources, payroll and employee benefits functions for our United States employees, who are co-employed by us or one of our subsidiaries and Insperity.
We have agreements with a professional employer organization, Insperity PEO Services, L.P., under which the professional employer organization administers our human resources, payroll and employee benefits functions for our United States employees, who are co-employed by us or one of our subsidiaries and Insperity. We have a 401(k) plan through Insperity PEO Services, L.P.
The contract also provides that the purchasers of these systems shall not be entitled to reimbursement for shortfalls caused by overshadowing, shading or other interference not attributable to the design of the system and the accompanying equipment.
The contract also provides that the purchasers of these systems are not entitled to reimbursement for shortfalls caused by overshadowing, shading or other interference not attributable to the design of the system and the accompanying equipment.
The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. We were founded in 2008 to engage in the solar business in the United States.
The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. We were founded in 2008 to engage in the solar business in the United States, where our business is primarily conducted.
Construction Licenses and Permits As a company performing general contractor and design work, we must take steps such that we obtain and timely renew appropriate general contractor and other required licenses. In connection with each installation, we are required to obtain building permits and comply with local ordinances and building codes for each project.
Construction Licenses and Permits As a company performing general contractor and design work, we must take steps such that we obtain and timely renew appropriate general contractor and other required licenses. In connection with each installation, we are required to obtain building permits and comply with all applicable local ordinances and building codes.
It defines “foreign investors” as any “natural person, enterprise, or other organization of a foreign country” and “foreign-invested enterprises” as any enterprise established under Chinese law that is wholly or partially invested by foreign investors.
It defines "foreign investors” as any "natural person, enterprise, or other organization of a foreign country” and "foreign-invested enterprises” as any enterprise established under Chinese law that is wholly or partially invested by foreign investors.
These tariffs have increased the price of solar panels containing China-manufactured solar cells. We do not purchase panels from China or Taiwan for our United States operations. The purchase price of solar panels containing solar cells manufactured in China reflects these tariff penalties.
We do not purchase panels from China or Taiwan for our United States operations. The purchase price of solar panels containing solar cells manufactured in China reflects these tariff penalties.
It has been our experience that we generate a larger percentage of sales in March and April, when residential customers focus on possible tax advantages of solar energy, and in the summer months of July and August, when utility rates and bills typically increase.
Our residential sales are prone to seasonal fluctuations. It has been our experience that we generate a larger percentage of sales in March and April, when residential customers focus on possible tax advantages of solar energy, and in the summer months of July and August, when utility rates and bills typically increase.
This Guideline Catalogue was revised on February 16, 2013 (effective on May 1, 2013) and on October 30, 2019 (effective on January 1, 2020). The solar power industry is still categorized as an encouraged item.
This Guideline Catalogue was revised on February 16, 2013 (effective on May 1, 2013), on October 30, 2019 (effective on January 1, 2020), and on December 27, 2023 (effective on February 1, 2024). The solar power industry is still categorized as an encouraged item.
We have historically experienced a slight increase for small commercial projects during the summer season. As with residential sales, we attribute higher volume in small commercial sales to small business owners’ reaction to the generally higher electricity bills during the summer months. We have generally not experienced any significant seasonal fluctuations for our large commercial projects in the United States.
As with residential sales, we attribute higher volume in small commercial sales to small business owners’ reaction to the generally higher electricity bills during the summer months. We have generally not experienced any significant seasonal fluctuations for our large commercial projects in the United States.
This increased competition has caused some price erosion, which has affected our margins and could result in further reductions in our margins as our PRC subsidiaries may reduce prices to generate new business and could impair their ability to enter into EPC agreements with non-related parties.
This increased competition has caused some price erosion, which affected our margins and, if we negotiate contract in the future, could result in further reductions in our margins as our PRC subsidiaries may reduce prices to generate new business and could impair their ability to enter into EPC agreements with non-related parties.
The construction team will remain on site to perform the EPC services, using local licensed subcontractor as needed. The EPC services include continuing negotiations with local government and utility companies to resolve any issues that may occur on-site until the project is fully connected to the grid. Solar panels and other components are available from a number of suppliers.
The construction team remained on site to perform the EPC services, using local licensed subcontractors as needed. The EPC services included continuing negotiations with local government and utility companies to resolve any issues that may occur on-site until the project is fully connected to the grid. Solar panels and other components are available from a number of suppliers.
Marketing We have an in-house sales and marketing staff of 30, of which 25 market solar and battery backup projects and five market LED products and systems. While we use a variety of marketing and advertising tools, we believe that word of mouth is one of our most effective marketing strategies.
Marketing We have an in-house sales and marketing staff of 21, of whom 16 market solar and battery backup projects and five market LED products and systems. While we use a variety of marketing and advertising tools, we believe that word of mouth is one of our most effective marketing strategies.
For utility-scale solar PV projects that fully feed electricity into grids after July 1, 2019, the FIT will be RMB 0.4 per kWh, RMB 0.45 per kWh, or RMB 0.55 per kWh depending on where the project is located.
The benchmark solar PV tariff has been changed into guiding solar PV tariff. For utility-scale solar PV projects that fully feed electricity into grids after July 1, 2019, the FIT will be RMB 0.4 per kWh, RMB 0.45 per kWh, or RMB 0.55 per kWh depending on where the project is located.
Dividend Distribution The principal regulations governing dividend distributions of wholly foreign-owned enterprises include: · the Company Law (2023 Revision) which will take effect on July 1, 2024; · the Foreign Investment Law · the Regulations on the Implementation of Foreign Investment Law 25 Table of Contents Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations.
Dividend Distribution The principal regulations governing dividend distributions of wholly foreign-owned enterprises include: · the Company Law (2023 Revision) became effective on July 1, 2024; · the Foreign Investment Law · the Regulations on the Implementation of Foreign Investment Law Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations.
ZHPV’s core business is to provide EPC services. _________________________________ 2 IHS Markit; International Energy Agency; GlobalData; mordorintelligence.com; Wikipedia, Solar power by country, April 2023; National Renewable Energy Laboratory; PV Magazine; BNEF (https://about.bnef,com); Bloomberg (https://www.bloomberg.com) 14 Table of Contents Our business in China initially consisted primarily of identifying and procuring solar farm system projects for resale to third party developers and related services in China, identifying potential buyers of solar farms, and providing engineering, procuring and construction services, which are referred to in the industry as EPC services, for solar farms and, to a significantly lesser extent, rooftop solar systems in China.
The description of regulations relating to our business in China generally apply if and to the extent that we are engaged in business in China. ________________________ 2 IHS Markit; International Energy Agency; GlobalData; mordorintelligence.com; Wikipedia, Solar power by country, April 2023; National Renewable Energy Laboratory; PV Magazine; BNEF (https://about.bnef,com); Bloomberg (https://www.bloomberg.com) 15 Table of Contents Our business in China initially consisted primarily of identifying and procuring solar farm system projects for resale to third party developers and related services in China, identifying potential buyers of solar farms, and providing engineering, procuring and construction services, which are referred to in the industry as EPC services, for solar farms and, to a significantly lesser extent, rooftop solar systems in China.
Our business in China is conducted through ZHTH and ZHPV and their subsidiaries. Unlike systems that we sell in the United States, which are installations for residential and small business users, the projects in China are generally solar farms, which are constructed on large land areas where multiple ground-mount solar tracking towers are installed.
Unlike systems that we sell in the United States, which are installations for residential and small business users, the projects in China have generally been solar farms, which are constructed on large land areas where multiple ground-mount solar tracking towers are installed.
On April 9, 2014, the NEA issued the Circular on Clarifying Issues concerning the Administration of Electric Power Business Permit, which was replaced by Circular on Improving the Administration of Electric Power Business Permit by Implementing the Inspiration of the Reforms on Administration, Delegate Powers, and Services issued by NEA on March 23, 2020, which waived requirement to obtain an Electric Power Business Permit for those solar power generation projects with installed capacity less than 6MW and any distributed generation projects approved by or filed with the NDRC or its local branches, and required the local NEA to simplify the Electric Power Business Permit application procedure for the solar power generation companies.
On April 9, 2014, the NEA issued the Circular on Clarifying Issues concerning the Administration of Electric Power Business Permit, which was replaced by Circular on Improving the Administration of Electric Power Business Permit by Implementing the Inspiration of the Reforms on Administration, Delegate Powers, and Services issued by NEA on March 23, 2020, which waived requirement to obtain an Electric Power Business Permit for those solar power generation projects with installed capacity less than 6MW and any distributed generation projects approved by or filed with the NDRC or its local branches, and required the local NEA to simplify the Electric Power Business Permit application procedure for the solar power generation companies. 19 Table of Contents Grid Connection and Dispatchment All electric power generated in China is distributed through power grids, except for electric power generated by facilities not connected to a grid.
In general, the feed-in tariff for general photovoltaic power stations will be reduced by RMB 0.05 per kWh. On April 28, 2019, the NDRC issued a Notice Regarding Issues of Improvement on Mechanism for Grid Price of Photovoltaic Power Generation, effective on July 1, 2019. The benchmark solar PV tariff has been changed into guiding solar PV tariff.
In general, the feed-in tariff for general photovoltaic power stations will be reduced by RMB 0.05 per kWh. 20 Table of Contents On April 28, 2019, the NDRC issued a Notice Regarding Issues of Improvement on Mechanism for Grid Price of Photovoltaic Power Generation, effective on July 1, 2019.
On December 6, 2007, the State Council promulgated the Implementation Rules to the PRC Enterprise Income Tax Law, or the Implementation Rules, which also became effective on January 1, 2008.
On December 6, 2007, the State Council promulgated the Implementation Rules to the PRC Enterprise Income Tax Law, or the Implementation Rules, which also became effective on January 1, 2008 and was later amended on April 23, 2019 and December 6, 2024 .
Pursuant to the Interim Measures for the Administration of Designated Funds for the Development of Clean Energy issued by the MOF and effective on June 12, 2020, the MOF sets up designated funds to support the development and utilization of clean energy in accordance with the national fiscal budget.
Development Funds of Renewable Energy The Renewable Energy Law provides financial incentives, including national funding for the development of renewable energy projects. 21 Table of Contents Pursuant to the Interim Measures for the Administration of Designated Funds for the Development of Clean Energy issued by the MOF and effective on June 12, 2020, the MOF sets up designated funds to support the development and utilization of clean energy in accordance with the national fiscal budget.
As the interest in solar farms in China increases, there is increased competition for permits, and the government entities that issue the permits may prefer Chinese companies over companies that are owned by a United State company.
As the interest in solar farms in China increases, there is increased competition for permits, and the government entities that issue the permits may prefer Chinese companies over companies that are owned by a United State company. Further trade relations between China and the United States may affect our ability to generate business in China.
The U.S. government has imposed tariffs on solar cells, solar panels and aluminum that is used in solar panels manufactured overseas. Based on determinations by the U.S. government under the 2012 solar trade case, the anti-dumping and countervailing tariff rates range from approximately 33%-255%. Such anti-dumping and countervailing tariffs are subject to annual review and may be increased or decreased.
Based on determinations by the U.S. government under the 2012 solar trade case, the anti-dumping and countervailing tariff rates range from approximately 33%-255%. Such anti-dumping and countervailing tariffs are subject to annual review and may be increased or decreased. These tariffs have increased the price of solar panels containing China-manufactured solar cells.
If consumers use less power than the system generates, they can sell the electricity back to their local utility companies and receive a credit on their electric bills.
If consumers use more power than is generated by their solar energy system, they can purchase power from the regional utility company. If consumers use less power than the system generates, they can sell the electricity back to their local utility companies and receive a credit on their electric bills.
Power Purchase Agreements Prior to 2015, we entered into solar power purchase agreements with some commercial customers, and many of these agreements remain in effect.
Power Purchase Agreements We entered into solar power purchase agreements in our United States segment with some commercial customers, and many of these agreements remain in effect.
An enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, a fine of over RMB 10,000 and up to RMB 50,000 may be imposed on the employer, and an application may be made to a local court for compulsory enforcement.
An enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, a fine of over RMB 10,000 and up to RMB 50,000 may be imposed on the employer, and an application may be made to a local court for compulsory enforcement. 24 Table of Contents Taxation PRC Enterprise Income Tax The PRC enterprise income tax is calculated based on the taxable income determined under PRC laws and accounting standards.
We have four wholly-owned subsidiaries in the United States: SolarMax Renewable Energy Provider, Inc., SolarMax Financial, Inc. (“SolarMax Financial”), SolarMax LED, Inc. (“LED”) and SMX Capital, Inc. (“SMX Capital”). Our wholly-owned subsidiaries outside the United States are Accumulate Investment Co. Ltd.
Our Corporate Structure We are a Nevada corporation formed in January 2008. We have four wholly-owned subsidiaries in the United States: SolarMax Renewable Energy Provider, Inc., SolarMax Financial, Inc. ("SolarMax Financial”), SolarMax LED, Inc. ("LED”) and SMX Capital, Inc. ("SMX Capital”). Our wholly-owned subsidiaries outside the United States are Accumulate Investment Co. Ltd.
Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE. 24 Table of Contents In August 2008, the SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or the SAFE Circular No. 142, regulating the conversion by a foreign invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used.
In August 2008, the SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or the SAFE Circular No. 142, regulating the conversion by a foreign invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used.
Intellectual Property We do not have any intellectual property that is material to our business. Operations in China General The photovoltaic market in China was the largest in the world in 2021, reaching a cumulative total installed capacity of 253 GW in 2020, which accounted for more than one-third of the world’s cumulative total installed capacity.
Operations in China General The photovoltaic market in China was the largest in the world in 2021, reaching a cumulative total installed capacity of 253 GW in 2020, which accounted for more than one-third of the world’s cumulative total installed capacity.
(BVI), a British Virgin Islands corporation (“Accumulate’), SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong corporation (“SolarMax Hong Kong”), Golden SolarMax Finance Co., Ltd, a Chinese corporation (“Golden SolarMax”) and SolarMax Technology Holdings (Cayman) Limited, a Cayman Islands corporation (“SolarMax Cayman”).
(BVI), a British Virgin Islands corporation ("Accumulate’), SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong corporation ("SolarMax Hong Kong”), Golden SolarMax Finance Co., Ltd, a Chinese corporation ("Golden SolarMax”) which was liquidated in June 2024, and SolarMax Technology Holdings (Cayman) Limited, a Cayman Islands corporation ("SolarMax Cayman”).
Accumulate has one wholly-owned subsidiary, Accumulate Investment Hong Kong, a Hong Kong corporation, which has one wholly-owned subsidiary, ZHPV. SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Shanghai. SolarMax Shanghai is a wholly foreign-owned entity, which is referred to as a WFOE.
Accumulate has one wholly-owned subsidiary, Accumulate Investment Hong Kong, a Hong Kong corporation, which has one wholly-owned subsidiary, ZHPV. SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Shanghai. SolarMax Shanghai is a wholly foreign-owned entity, which is referred to as a WFOE. SolarMax Shanghai currently no significant subsidiaries. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.
Our finance revenue currently reflects revenue earned on our current portfolio, with no new loans having been added since early 2020. We have no present plans to re-commence financing operations.
Since early 2020, because we did not have the capital to support such operations, we suspended making loans to our solar customers, and we have no present plans to re-commence financing operations. Our finance revenue reflects revenue earned on our current portfolio, with no new loans having been added since early 2020.
Commercial and industrial distributed PV that deliver 100% of output to the grid will apply utility-scale PV FITs, others can receive a subsidy of RMB 0.1/kWh. 19 Table of Contents On January 7, 2019, NDRC and the NEA jointly promulgated the Circular on Actively Promoting Subsidy-free Grid Price Parity for Wind Power and PV Power, which set forth several measures regarding project organization, construction, operation and supervision to promote PV power generation power projects with grid price equivalent to or below the benchmark grid price of coal-fired power units.
On January 7, 2019, NDRC and the NEA jointly promulgated the Circular on Actively Promoting Subsidy-free Grid Price Parity for Wind Power and PV Power, which set forth several measures regarding project organization, construction, operation and supervision to promote PV power generation power projects with grid price equivalent to or below the benchmark grid price of coal-fired power units.
We expect additional companies to enter the business in the future, considering that the entry barrier in this industry is relatively low and the government incentives currently remain high.
We expect additional companies to enter the business in the future, considering that the entry barrier in this industry is relatively low and the government incentives currently remain high although we cannot give assurance that changes in government policy will not negatively impact our business and the solar industry in general.
After 2016, all the solar projects in China are required to be involved with the local government to help alleviate poverty in the region. In addition, solar farm construction needs to be integrated with local agriculture, tourism or animal husbandry, which leads to increases in the cost of our EPC services.
In addition, solar farm construction needs to be integrated with local agriculture, tourism or animal husbandry, which leads to increases in the cost of our EPC services.
According to the Encouraged Catalogue amended on June 30, 2019 and subsequently amended on October 26, 2022, which became effective on January 1, 2023, the construction and operation of new energy power stations (including solar power, wind power, etc.) is within the scope of industries that encourage foreign investment.
According to the Encouraged Catalogue amended on June 30, 2019 and subsequently amended on October 26, 2022, which became effective on January 1, 2023, the construction and operation of new energy power stations (including solar power, wind power, etc.) is within the scope of industries that encourage foreign investment. 23 Table of Contents Work Safety The Work Safety Law of the PRC, which became effective on November 1, 2002 and was amended on August 31, 2014 and June 10, 2021 is the principal law governing the supervision and administration of work safety for solar power projects.
During the year ended December 31, 2023, we received additional legal settlement proceeds of $6.6 million and paid Uonone and expenses on behalf of Uonone $6.9 million. 15 Table of Contents Agreements with SPIC We have not generated any revenue from our China operations during 2022, 2023 and 2024 through the date of this annual report.
There were no additional proceeds received or payments made during the year ended December 31, 2024. 16 Table of Contents Agreements with SPIC We have not generated any revenue from our China operations during 2022, 2023 and 2024 through the date of this annual report.
As of December 31, 2023, we had a receivable from SPIC in the amount of $7.7 million, which we expect to collect during 2024. Although we are negotiating with SPIC for additional projects, we cannot give any assurance that we will be successful in our negotiations or that any agreements we enter into with SPIC will be profitable to us.
Although we expect to collect this receivable during 2025, we had previously anticipated that we would collect the receivable in 2024. Although we are negotiating with SPIC for additional projects, we cannot give any assurance that we will be successful in our negotiations or that, if we enter into any agreements with SPIC, such agreements will be profitable to us.
The major environmental regulations applicable to our business activities in the PRC include the Environmental Protection Law of the PRC, the Law on the Prevention and Control of Noise Pollution, the Law on the Prevention and Control of Air Pollution, the Law on the Prevention and Control of Water Pollution, the Law on the Prevention and Control of Solid Waste Pollution, the Environmental Impact Evaluation of Law, and the Regulations on the Administration of Environmental Protection in Construction Projects.
The major environmental regulations applicable to our business activities in the PRC include the Environmental Protection Law of the PRC, the Law on the Prevention and Control of Noise Pollution, the Law on the Prevention and Control of Air Pollution, the Law on the Prevention and Control of Water Pollution, the Law on the Prevention and Control of Solid Waste Pollution, the Environmental Impact Evaluation of Law, and the Regulations on the Administration of Environmental Protection in Construction Projects. 22 Table of Contents Foreign Investment in Solar Power Business The principal regulation governing foreign ownership of solar power businesses in the PRC was the Foreign Investment Industrial Guidance Catalog.
Approximately 95% of our China revenue in 2019 was generated from Changzhou Almaden Co., Ltd., which is a related party that we refer to in this annual report as AMD. We have not generated any revenue from AMD since 2019. Since the second half of 2019, our business in China consisted of EPC services pursuant to agreements with SPIC.
Approximately 95% of our China revenue in 2019 was generated from Changzhou Almaden Co., Ltd., which is a related party that we refer to in this annual report as AMD. We have not generated any revenue from AMD since 2019. Substantially all of our China revenues for 2021 and 2020 were generated from projects for SPIC.
The following table sets forth customer loan receivables at December 31, 2023 and December 31, 2022: December 31, 2023 2022 Customer loan receivable, gross $ 6,795 $ 10,625 Less: unamortized loan discounts (2 ) (56 ) Less, allowance for loan losses (257 ) (289 ) Customer loans receivable, net 6,536 10,280 Less, current portion, net (2,213 ) (3,437 ) Customer loans receivable, long-term 4,323 6,843 Financing Program We have financing programs with third-party financing companies, the most significant of which is a home improvement financing program agreement executed on October 12, 2021, with GoodLeap, LLC (“GoodLeap” formerly known as LoanPal, LLC), pursuant to which GoodLeap provides financing to our customers who meet GoodLeap’s credit criteria.
The following table sets forth customer loan receivables at December 31, 2024 and December 31, 2023: December 31, 2024 December 31, 2023 Customer loans receivable, gross $ 4,644 $ 6,795 Less: unamortized loan discounts - (2 ) Allowance for loan losses (280 ) (257 ) Customer loans receivable, net 4,364 6,536 Less: Current portion 1,287 2,213 Non-current portion $ 3,076 $ 4,323 Financing Program We have financing programs with third-party financing companies, the most significant of which is a home improvement financing program agreement executed on February 28, 2019, with Dividend, a division of Fifth Third Bank (“Dividend”), pursuant to which Dividend provides financing to our customers who meet Dividend’s credit criteria.
Under circumstances where a construction enterprise undertakes projects out of the scope permitted under its level of qualification, the relevant governing authorities will have the power to demand such enterprise to cease its illegal conduct and impose on such enterprise administrative penalties which include fines, suspension of operation for rectification, lowering its grade of qualification, revocation of qualification certificates and confiscation of illegal income. 26 Table of Contents Pursuant to the Administration Rules Regarding Qualification of Construction Enterprise issued by the Ministry of Housing and Urban-Rural Development of the PRC on September 13, 2016, which was most recently modified by the Decisions of the Ministry of Housing and Urban-Rural Development on the Modification of the Administration Rules Regarding Qualification of Construction Enterprise and Other Regulations on December 22, 2018 (effective on the same day), a construction enterprise may conduct its construction business after the receipt of a qualification which is classified into three categories, named as General Construction Contractor Qualification, Professional Contractor Qualification, and Construction Labor Service Qualification, with each category having several grades.
Pursuant to the Administration Rules Regarding Qualification of Construction Enterprise issued by the Ministry of Housing and Urban-Rural Development of the PRC on September 13, 2016, which was most recently modified by the Decisions of the Ministry of Housing and Urban-Rural Development on the Modification of the Administration Rules Regarding Qualification of Construction Enterprise and Other Regulations on December 22, 2018 (effective on the same day), a construction enterprise may conduct its construction business after the receipt of a qualification which is classified into three categories, named as General Construction Contractor Qualification, Professional Contractor Qualification, and Construction Labor Service Qualification, with each category having several grades.
Under the most recent catalog, which was amended in 2017 and effective on July 28, 2017, the construction and operation of new energy power stations (including solar power, wind power, etc.) is classified as an “encouraged foreign investment.” Foreign-invested enterprises in the encouraged foreign investment industry might be entitled to certain preferential treatment, such as exemption from tariffs on equipment imported for their operations, after obtaining approval from the PRC government authorities. 21 Table of Contents On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law, or new FIL which became effective on January 1, 2020, and replaced the previous fragmented foreign investment regime: three separate foreign investment laws previously enacted, which are the Wholly Foreign-Owned Enterprises Law, the Chinese-Foreign Equity Joint Ventures Law, and the Chinese-Foreign Contractual Joint Ventures Law.
Under the most recent catalog, which was amended in 2017 and effective on July 28, 2017, the construction and operation of new energy power stations (including solar power, wind power, etc.) is classified as an "encouraged foreign investment.” Foreign-invested enterprises in the encouraged foreign investment industry might be entitled to certain preferential treatment, such as exemption from tariffs on equipment imported for their operations, after obtaining approval from the PRC government authorities.
Under a feed-in tariff subsidy, the government sets prices that regulated utility companies are required to pay for renewable electricity generated by end-users. Under that subsidy program, prices are set above market rates and may be differentiated based on system size or application.
Under a feed-in tariff subsidy, the government sets prices that regulated utility companies are required to pay for renewable electricity generated by end-users.
On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the “Review Measures (Draft)”, and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review.
The costs of compliance with, and other burdens imposed by, CSL may limit the use and adoption of our products and services and could have an adverse impact on our business. 27 Table of Contents On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the "Review Measures (Draft)”, and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review.
The Building Standards Commission has adopted these recommendations without change, and we cannot assure you that the Building Standards Commission will not change this standard or that the standard will survive any legal challenges which may be brought in opposition to the standard. 12 Table of Contents The California Public Utilities Commission may consider a proposal to significantly reduce the incentives homeowners receive for installing rooftop solar systems.
The Building Standards Commission has adopted these recommendations without change, and we cannot assure you that the Building Standards Commission will not change this standard or that the standard will survive any legal challenges which may be brought in opposition to the standard.
One supplier, Consolidated Electrical Distributors, accounted for 10% or more of the purchases for our United States operations. This supplier accounted for purchases of approximately $4.9 million, or 12% of our purchases, for the year ended December 31, 2023, and $5.2 million, or 18% of our purchases, for the year ended December 31, 2022.
Two suppliers accounted for 10% or more of our purchases for the years ended December 31, 2024 and 2023. Consolidated Electrical Distributors accounted for purchases of approximately $4.0 million, or 12% of our purchases, for the year ended December 31, 2024, and $4.9 million, or 12% of our purchases, for the year ended December 31, 2023.
In the event that the CSRC disagrees with this opinion, we and our controlling stockholders may be subject to fines and penalties, which may be significant. 27 Table of Contents If, conversely, it is determined that CSRC approval was required for our initial public offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for our initial public offering.
If, conversely, it is determined that CSRC approval was required for our initial public offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for our initial public offering.
We also participate in industry trade shows, use telemarketing, radio, television, Internet advertising and social media as well as participating in local community events such as local festivals and door-to-door sales. 10 Table of Contents Personal meetings with prospective customers and site visits at the feasibility stage are also part of our advertising budget.
We estimate that approximately 30% of our sales are generated through referrals by our customers. 11 Table of Contents We also participate in industry trade shows, use telemarketing, radio, television, Internet advertising and social media as well as participating in local community events such as local festivals and door-to-door sales.
The building standard approved by the California Energy Commission in May 2018 mandates the installation of solar arrays on new single-family residences and on multi-family buildings of up to three stories starting in 2020.
Under that subsidy program, prices are set above market rates and may be differentiated based on system size or application. 13 Table of Contents The building standard approved by the California Energy Commission in May 2018 mandates the installation of solar arrays on new single-family residences and on multi-family buildings of up to three stories starting in 2020.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe have relied on loans through the United States government’s EB-5 program, which loans need to be refinanced when they become due, and we cannot assure you that the limited partners will accept our proposed terms of the refinancing or that we may need to use a substantial portion of the proceeds of our initial public offering to pay the loans.
Biggest changeIn order to successfully market and construct larger systems for commercial customers: · We will need to enter into an EPC agreement with the customer or the financing source pursuant to which we will construct the project; · We would need to obtain all necessary licenses for us to perform these services in the state in which we propose to operate and engage qualified subcontractors to the extent necessary; · The customer would have to provide the financing for the program; · The customer would need to enter into a power purchase agreement either with us or with the financing source; · We would need to price our work in a manner that would enable us to generate a profit and positive cash flow from the project; and · We may have to manage the project after completing the construction. 31 Table of Contents We have relied on loans through the United States government’s EB-5 program, which loans need to be refinanced when they become due, and we cannot assure you that the limited partners will accept our proposed terms of the refinancing or, if we cannot refinance these loans that we will have the funds to pay the loans or be able to raise such funds on reasonable, if any, terms.
Risks Related to Our Business We have sustained losses since our organization, our financial statements have a going concern footnote and we cannot assure you that we can or will operate profitably.
Risks Related to Our Business We sustained losses since our organization, our financial statements have a going concern footnote and we cannot assure you that we can or will operate profitably.
The loans are secured and are payable 48 months from the date of the advance and may be extended by the lender as may be necessary to meet applicable USCIS immigrant investor visa requirements, which is the date when the final step of the EB-5 visa process is completed and the immigrant investors, who are the limited partners of the lender, can become lawful permanent residents of the United States.
The loans are secured and are payable 48 months from the date of the advance and are extended by the lender as may be necessary to meet applicable USCIS immigrant investor visa requirements, which is the date when the final step of the EB-5 visa process is completed and the immigrant investors, who are the limited partners of the lender, can become lawful permanent residents of the United States.
Although we are a Nevada corporation headquartered in the United States with management team and operations in the United States, through our subsidiaries, we conduct business in China, and our China business is subject to Chinese law. Our operations in China may be impacted or influenced by the new regulations and policies of the Chinese government.
Although we are a Nevada corporation headquartered in the United States with management team and operations in the United States, through our subsidiaries, we may conduct business in China, and our China business is subject to Chinese law. Our operations in China may be impacted or influenced by the new regulations and policies of the Chinese government.
Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office.
Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office.
In the reporting periods presented in this annual report and throughout the date of this annual report, no dividends, distribution or other transfers of funds have occurred between and among us and our United States subsidiaries, on the one hand; and us and our PRC subsidiaries, on the other hand, and we have not made any dividends, distributions or other transfer of funds to investors.
In the reporting periods presented in this annual report and throughout the date of this annual report, no dividends, distribution or other transfers of funds have occurred between and among us and our United States subsidiaries, on the one hand; and our PRC subsidiaries, on the other hand, and we have not made any dividends, distributions or other transfer of funds to investors.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership.
Funds from our initial public offering can be directly transferred to our subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC. 2.
Funds from our initial public offering can be directly transferred to our subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC. 2.
Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.
Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%.
However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.
Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments.
SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event.
SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a "special purpose vehicle.” SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event.
A portion of the compensation to our senior executive officers may not be deductible, which may increase our taxes Section 162(m) of the Internal Revenue Code limits the deduction that public companies may take for annual compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated officers, who are referred to as “covered employees.” All compensation in excess of $1.0 million paid to a covered employee, including post termination compensation and death benefits, may be nondeductible for federal income tax purposes, with certain exceptions pursuant to certain contracts that were in effect on November 2, 2017.
A portion of the compensation to our senior executive officers may not be deductible, which may increase our taxes Section 162(m) of the Internal Revenue Code limits the deduction that public companies may take for annual compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated officers, who are referred to as "covered employees.” All compensation in excess of $1.0 million paid to a covered employee, including post termination compensation and death benefits, may be nondeductible for federal income tax purposes, with certain exceptions pursuant to certain contracts that were in effect on November 2, 2017.
Pursuant to Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company issued by the SAFE in February 2012, or the Stock Incentive Plan Rules, “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participating in any stock incentive plan of an overseas listed company are required, through qualified PRC agents, including the PRC subsidiary of such overseas-listed company, to register with the SAFE and complete certain other procedures related to the stock incentive plan.
Pursuant to Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company issued by the SAFE in February 2012, or the Stock Incentive Plan Rules, "domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participating in any stock incentive plan of an overseas listed company are required, through qualified PRC agents, including the PRC subsidiary of such overseas-listed company, to register with the SAFE and complete certain other procedures related to the stock incentive plan.
There are significant risks associated with any acquisition program, including, but not limited to, the following: · We may incur significant expenses and devote significant management time to the acquisition, and we may be unable to consummate the acquisition on acceptable terms. · If we identify an acquisition, we may face competition from other companies in the industry or from financial buyers in seeking to make the acquisition. · The integration of any acquisition with our existing business may be difficult and, if we are not able to integrate the business successfully, we may not only be unable to operate the business profitably, but management may be unable to devote the necessary time to the development of our existing business; · The key employees who operated the acquired business successfully prior to the acquisition may not be happy working for us and may resign, thus leaving the business without the necessary continuity of management. · Even if the business is successful, our two senior executive officers may need to devote significant time to the acquired business, which may distract them from their other management activities. · If the business does not operate as we expect, we may incur an impairment charge based on the value of the assets acquired. · We may have difficulty implementing and maintaining the necessary quality control over the acquired business and our products and services. · To the extent that an acquired company operates at a loss prior to our acquisition, we may not be able to develop profitable operations following the acquisition. · Problems and claims relating to the acquired business that were not disclosed at the time of the acquisition may result in increased costs and may impair our ability to operate the acquired company. · The acquired company may have liabilities or obligations and cybersecurity issues or problems which were not disclosed to us, or the acquired assets may not have the value we anticipated. · Any indemnification obligations of the seller under the purchase agreement may be inadequate to compensate us for any loss, damage or expense which we may sustain, including undisclosed claims or liabilities. · To the extent that the acquired company is dependent upon our management to maintain relationships with existing customers, we may have difficulty in retaining the business of these customers if there is a change in management. · Government agencies may seek damages after we make the acquisition for conduct which occurred prior to the acquisition and may not have adequate recourse against the seller. · We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated.
There are significant risks associated with any acquisition program, including, but not limited to, the following: · We may incur significant expenses and devote significant management time to the acquisition, and we may be unable to consummate the acquisition on acceptable terms. · If we identify an acquisition, we may face competition from other companies in the industry or from financial buyers in seeking to make the acquisition. · The integration of any acquisition with our existing business may be difficult and, if we are not able to integrate the business successfully, we may not only be unable to operate the business profitably, but management may be unable to devote the necessary time to the development of our existing business; · The key employees who operated the acquired business successfully prior to the acquisition may not be happy working for us and may resign, thus leaving the business without the necessary continuity of management. · Even if the business is successful, our two senior executive officers may need to devote significant time to the acquired business, which may distract them from their other management activities. · If the business does not operate as we expect, we may incur an impairment charge based on the value of the assets acquired. · We may have difficulty implementing and maintaining the necessary quality control over the acquired business and our products and services. · To the extent that an acquired company operates at a loss prior to our acquisition, we may not be able to develop profitable operations following the acquisition. · Problems and claims relating to the acquired business that were not disclosed at the time of the acquisition may result in increased costs and may impair our ability to operate the acquired company. 43 Table of Contents · The acquired company may have liabilities or obligations and cybersecurity issues or problems which were not disclosed to us, or the acquired assets may not have the value we anticipated. · Any indemnification obligations of the seller under the purchase agreement may be inadequate to compensate us for any loss, damage or expense which we may sustain, including undisclosed claims or liabilities. · To the extent that the acquired company is dependent upon our management to maintain relationships with existing customers, we may have difficulty in retaining the business of these customers if there is a change in management. · Government agencies may seek damages after we make the acquisition for conduct which occurred prior to the acquisition and may not have adequate recourse against the seller. · We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated.
On December 16, 2021, the PCAOB issued a determination report (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (i) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (ii) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.
On December 16, 2021, the PCAOB issued a determination report (the "Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (i) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (ii) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.
Because we are dependent upon a small number of customers, our cash flow at any time may be dependent upon the payment policies and practices of one customer. During the years ended December 31, 2023 and 2022 and continuing through the date of this annual report, we did not generate revenues in the China segment.
Because we are dependent upon a small number of customers, our cash flow at any time may be dependent upon the payment policies and practices of one customer. During the years ended December 31, 2024, 2023 and 2022 and continuing through the date of this annual report, we did not generate revenues in the China segment.
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 officers and directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on them under United States securities laws.
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 them under United States securities laws.
On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued “The Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or “the Opinions.” The Opinions emphasized the needs to strengthen the administration over illegal securities activities and the supervision over overseas listings by Chinese companies.
On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued "The Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or "the Opinions.” The Opinions emphasized the needs to strengthen the administration over illegal securities activities and the supervision over overseas listings by Chinese companies.
The Accelerating Holding Foreign Companies Accountable Act amended the HFCA Act and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or market if our auditor is not subject to PCAOB inspections for two consecutive years instead of three.
The Accelerating Holding Foreign Companies Accountable Act amended the HFCA Act and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or market if the issuer’s auditor is not subject to PCAOB inspections for two consecutive years instead of three.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. We are classified as an “emerging growth company” under the JOBS Act.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. We are classified as an "emerging growth company” under the JOBS Act.
On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the “Review Measures (Draft),” and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review.
On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the "Review Measures (Draft),” and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review.
Under the applicable requirements of PRC law, our PRC subsidiaries may only distribute dividends after making allowances to fund certain statutory reserves, consisting of the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Under the applicable requirements of PRC law, our PRC subsidiaries may only distribute dividends after making allowances to fund certain statutory reserves, consisting of the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC ("PRC GAAP”).
In addition, some provisions of our amended and restated articles of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including: · limitations on the removal of directors; · limitations on the ability of our stockholders to call special meetings; · establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders; · providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and · establishing advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. 63 Table of Contents Provisions of our bylaws and Nevada law could deter a change of our management, which could discourage or delay offers to acquire us.
In addition, some provisions of our amended and restated articles of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including: · limitations on the removal of directors; · limitations on the ability of our stockholders to call special meetings; · establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders; · providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and · establishing advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. 67 Table of Contents Provisions of our bylaws and Nevada law could deter a change of our management, which could discourage or delay offers to acquire us.
Item 1A. Risk Factors An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report, including “Item 7.
Item 1A. Risk Factors An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report, including "Item 7.
The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. 46 Table of Contents Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996.
The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. 50 Table of Contents Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996.
The change in value of the RMB against the U.S. dollar and other currencies is affected by various factors, including changes in China’s political and economic conditions. 50 Table of Contents Our China segment is subject to numerous regulations in China, including but not limited to, regulations relating to investments in our China subsidiaries, labor laws and other laws relating to employee relations, the issuance of permits for solar farms, licensing, the development, construction and operation of solar power projects, and the sale of power generated from the projects, cybersecurity and the failure to comply with any such regulations may impair our ability to operate in China.
The change in value of the RMB against the U.S. dollar and other currencies is affected by various factors, including changes in China’s political and economic conditions. 54 Table of Contents Our China segment is subject to numerous regulations in China, including but not limited to, regulations relating to investments in our China subsidiaries, labor laws and other laws relating to employee relations, the issuance of permits for solar farms, licensing, the development, construction and operation of solar power projects, and the sale of power generated from the projects, cybersecurity and the failure to comply with any such regulations may impair our ability to operate in China.
If the limited partners who have the right to demand repayment of their capital accounts exercise their right, which can trigger the maturing of loans in the total principal amount of $2.5 million, the funds available from our initial public offering may not be sufficient to provide us with funds to pay such loans, and we can give have no assurance that we will be able to obtain funding from other sources or reasonable terms, if at all.
If the limited partners who have the right to demand repayment of their capital accounts exercise their right, which can trigger the maturing of loans in the total principal amount of $2.0 million, the funds available from our initial public offering may not be sufficient to provide us with funds to pay such loans, and we can give have no assurance that we will be able to obtain funding from other sources or reasonable terms, if at all.
Our auditor is headquartered in New York City, and has been inspected by the PCAOB on a regular basis with the last inspection in 2018 and an ongoing inspection that started in November 2020.
Our auditor is headquartered in New York City, and it has been inspected by the PCAOB on a regular basis with the last inspection in 2018 and an ongoing inspection that started in November 2020.
In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the determinations so that we will be subject to the HFCA Act, as the same may be amended, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including “over-the-counter” trading, may be prohibited, under the HFCA Act.
In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the determinations so that we will be subject to the HFCA Act, as the same may be amended, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including "over-the-counter” trading, may be prohibited, under the HFCA Act.
Further, any deterioration in the relationship between the United States and China on trade and related matters may impair our ability to obtain permits for solar farms and to enter into EPC and other agreements for solar farms in China. 42 Table of Contents Neither we nor our PRC subsidiaries were required to obtain permissions from Chinese authorities for our initial public offering to foreign investors.
Further, any deterioration in the relationship between the United States and China on trade and related matters may impair our ability to obtain permits for solar farms and to enter into EPC and other agreements for solar farms in China. 46 Table of Contents Neither we nor our PRC subsidiaries were required to obtain permissions from Chinese authorities for our initial public offering to foreign investors.
As a result, we face uncertainty about future actions by the PRC government that could significantly affect our ability to offer, or continue to offer, securities to investors and cause the value of our securities to significantly decline or be worthless. 43 Table of Contents Our PRC subsidiaries are wholly-owned subsidiaries, and we do not have any variable interest entity structure in China.
As a result, we face uncertainty about future actions by the PRC government that could significantly affect our ability to offer, or continue to offer, securities to investors and cause the value of our securities to significantly decline or be worthless. 47 Table of Contents Our PRC subsidiaries are wholly-owned subsidiaries, and we do not have any variable interest entity structure in China.
As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections. 51 Table of Contents Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections. 55 Table of Contents Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
As a result, our business operations and our ability to make distributions to you could be materially and adversely affected. 58 Table of Contents Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.
As a result, our business operations and our ability to make distributions to you could be materially and adversely affected. 62 Table of Contents Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.
Although we do not believe we are a China-based issuer, because of our China segment, any change of regulations and rules by the Chinese government, such as those related to data security or anti-monopoly concerns, may intervene or influence our operations at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with significant Chinese operations could result in a material change in our operations and/or the value of our securities and could significantly limit or completely hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline and possibly be worthless.
Although we do not believe we are a China-based issuer, because of our China segment, any change of regulations and rules by the Chinese government, such as those related to data security or anti-monopoly concerns, may affect or otherwise influence our operations at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with significant Chinese operations could result in a material change in our operations and/or the value of our securities and could significantly limit or completely hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline and possibly be worthless.
On July 23, 2021, General Office of the State Council promulgated “Opinions on Further Reducing Students’ Homework Burden and After-school Tutoring Burden at the Stage of Compulsory Education,” pursuant to which the institutions that offer tutoring of school curriculum shall be registered as non-profit organizations and are not allowed to make profits and raise capital.
On July 23, 2021, General Office of the State Council promulgated "Opinions on Further Reducing Students’ Homework Burden and After-school Tutoring Burden at the Stage of Compulsory Education,” pursuant to which the institutions that offer tutoring of school curriculum shall be registered as non-profit organizations and are not allowed to make profits and raise capital.
We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies and their foreign subsidiaries and controlled entities from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions.
We are required by law to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies and their foreign subsidiaries and controlled entities from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions.
High inflation may in the future cause the PRC government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and services. 53 Table of Contents The fluctuation of the RMB may have a material adverse effect on your investment.
High inflation may in the future cause the PRC government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and services. 57 Table of Contents The fluctuation of the RMB may have a material adverse effect on your investment.
SAT Notice No. 7 introduces a new tax regime and extends the SAT’s tax jurisdiction to capture transactions involving indirect transfer of (i) real properties in China and (ii) assets of an “establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas holding company.
SAT Notice No. 7 introduces a new tax regime and extends the SAT’s tax jurisdiction to capture transactions involving indirect transfer of (i) real properties in China and (ii) assets of an "establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas holding company.
The costs of compliance with, and other burdens imposed by, CSL may limit the use and adoption of our products and services and could have an adverse impact on our business. The European Union Parliament approved a new data protection regulation, known as the General Data Protection Regulation (“GDPR”), which came into effect in May 2018.
The costs of compliance with, and other burdens imposed by, CSL may limit the use and adoption of our products and services and could have an adverse impact on our business. The European Union Parliament approved a new data protection regulation, known as the General Data Protection Regulation ("GDPR”), which came into effect in May 2018.
Any additional restriction, scrutiny or negative publicity of the U.S.-listed Chinese companies could cause the U.S. investors less interested in our securities, or hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline or be worthless. 44 Table of Contents Although we do not believe we a China-based issuer, because of our China segment, the Chinese government may exert substantial interventions and influences to offerings that are conducted overseas and/or foreign investment in China-based issuers at any time.
Any additional restriction, scrutiny or negative publicity of the U.S.-listed Chinese companies could cause the U.S. investors less interested in our securities, or hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline or be worthless. 48 Table of Contents Although we do not believe we a China-based issuer, because of our China segment, the Chinese government may exert substantial interventions and influences on offerings that are conducted overseas and/or foreign investment in China-based issuers at any time.
Under current PRC laws and regulations, RMB is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, RMB is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by the PRC State Administration of Foreign Exchange (“SAFE”).
Under current PRC laws and regulations, RMB is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, RMB is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by the PRC State Administration of Foreign Exchange ("SAFE”).
However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” It is still unclear if the PRC tax authorities would determine that our China operations, which are owned by its subsidiary, SolarMax Hong Kong, should be classified as a PRC “resident enterprise.” If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to a PRC “resident recipient” status.
However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining "de facto management body.” It is still unclear if the PRC tax authorities would determine that our China operations, which are owned by its subsidiary, SolarMax Hong Kong, should be classified as a PRC "resident enterprise.” If we are deemed as a PRC "resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to a PRC "resident recipient” status.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a "non-inspection” year under a process to be subsequently established by the SEC.
A specific license is required to engage in the EPC business in China. our subsidiary ZHPV currently holds the necessary licenses, including Construction Enterprise Qualification Certificate (“Qualification”) for Level III of General Contractor for Power Engineering Constructor which permits ZHPV to conduct business as a contractor in the power engineering construction business throughout the PRC.
A specific license is required to engage in the EPC business in China. our subsidiary ZHPV currently holds the necessary licenses, including Construction Enterprise Qualification Certificate ("Qualification”) for Level III of General Contractor for Power Engineering Constructor which permits ZHPV to conduct business as a contractor in the power engineering construction business throughout the PRC.
On February 3, 2015, the PRC’s State Administration of Taxation (“SAT”) issued Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfers by Non-RPC Resident Enterprises, or SAT Notice No. 7, to supersede the existing tax rules in relation to the tax treatment of the Indirect Transfer.
On February 3, 2015, the PRC’s State Administration of Taxation ("SAT”) issued Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfers by Non-RPC Resident Enterprises, or SAT Notice No. 7, to supersede the existing tax rules in relation to the tax treatment of the Indirect Transfer.
With respect to the outstanding notes to CEF and CEF II, limited partners who made investments of $2.5 million can currently demand repayment from the lender of their investment in the partnership which made the loans to us, which can trigger a payment obligation on our subsidiary’s part.
With respect to the outstanding notes to CEF and CEF II, limited partners who made investments of $2.0 million can currently demand repayment from the lender of their investment in the partnership which made the loans to us, which can trigger a payment obligation on our subsidiary’s part.
In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the “lawful rights and interests” of foreign investors in the PRC. However, the PRC’s system of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is inconsistent.
In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the "lawful rights and interests” of foreign investors in the PRC. However, the PRC’s system of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is inconsistent.
For example, the establishment of a solar power project is subject to the approval of the National Development and Reform Commission (“NDRC”) or its local branches, pursuant to the Administrative Provisions on Generation of Electricity by Renewable Energy Resources promulgated by the NDRC on January 5, 2006.
For example, the establishment of a solar power project is subject to the approval of the National Development and Reform Commission ("NDRC”) or its local branches, pursuant to the Administrative Provisions on Generation of Electricity by Renewable Energy Resources promulgated by the NDRC on January 5, 2006.
In order to conduct the solar farm project business in China, we will need to: · identify a buyer of the project; · negotiate a purchase and sale contract with a project buyer, which will involve the sale of the project to the buyer and an agreement with the buyer for us to design and perform the EPC work on the project on time and within the budget; · obtain required governmental approval and permits; · complete any applications that may be necessary to enable us or the end user to take advantage of available government benefits; · identify and obtain land use rights for significant contiguous parcels of land in areas where there is sufficient sunlight to justify a solar farm; · resolve any problems with residents and businesses in the area where the solar farm is to be constructed; · negotiate an interconnection agreement with the utility company or government Electricity Bureau; · obtain substantial financing for each project; · receive the required interim and final payments under the purchase and sale contract; · complete the engineering for the project; · purchase the photovoltaic panels and other components of the solar farm; · engage qualified contractors and subcontractors to construct the solar farm; · accurately evaluate the cost of all aspects of the projects, including any reserve for unexpected factors; · accurately estimate our potential warranty liability; and · address any changes resulting from weather or climate conditions, earthquakes, unexpected construction difficulties, changes in the buyer’s specifications or other changes beyond our control.
In order to conduct the solar farm project business in China, we will need to: · identify a buyer of the project; · negotiate a purchase and sale contract with a project buyer, which will involve the sale of the project to the buyer and an agreement with the buyer for us to design and perform the EPC work on the project on time and within the budget; · obtain and maintain required governmental approval and permits; · complete any applications that may be necessary to enable us or the end user to take advantage of available government benefits; · identify and obtain land use rights for significant contiguous parcels of land in areas where there is sufficient sunlight to justify a solar farm; · resolve any problems with residents and businesses in the area where the solar farm is to be constructed; · negotiate an interconnection agreement with the utility company or government Electricity Bureau; · obtain substantial financing for each project; · receive payment for our work in a timely manner; · receive the required interim and final payments under the purchase and sale contract; · complete the engineering for the project; 44 Table of Contents · purchase the photovoltaic panels and other components of the solar farm; · engage qualified contractors and subcontractors to construct the solar farm; · accurately evaluate the cost of all aspects of the projects, including any reserve for unexpected factors; · accurately estimate our potential warranty liability; and · address any changes resulting from weather or climate conditions, earthquakes, unexpected construction difficulties, changes in the buyer’s specifications or other changes beyond our control.
In addition, if we were to be considered a PRC “resident enterprise,” dividends we pay with respect to shares of our common stock and the gains realized from the transfer of shares of our common stock may be considered income derived from sources within the PRC and be subject to PRC withholding tax.
In addition, if we were to be considered a PRC "resident enterprise,” dividends we pay with respect to shares of our common stock and the gains realized from the transfer of shares of our common stock may be considered income derived from sources within the PRC and be subject to PRC withholding tax.
Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Review (Revised Draft for Comments) aiming to, upon its enactment, replace the existing Measures for Cybersecurity Review.
Due to the lack of further interpretations, the exact scope of "critical information infrastructure operator” remains unclear. On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Review (Revised Draft for Comments) aiming to, upon its enactment, replace the existing Measures for Cybersecurity Review.
Although our obligations under these agreements have not been significant through December 31, 2023, we cannot assure you that in the future any obligations we have under these agreements will not have a material adverse effect upon our revenue and the results of our operations.
Although our obligations under these agreements have not been significant through December 31, 2024, we cannot assure you that in the future any obligations we have under these agreements will not have a material adverse effect upon our revenue and the results of our operations.
We and our employees who qualify as “domestic individuals” and have been granted stock options, or the PRC optionees, will become subject to the Stock Incentive Plan Rules when we become an overseas listed company upon the completion of the offering.
We and our employees who qualify as "domestic individuals” and have been granted stock options, or the PRC optionees, will become subject to the Stock Incentive Plan Rules when we become an overseas listed company upon the completion of the offering.
In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by MOFCOM.
In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in "any industry with national security concerns” be subject to national security review by MOFCOM.
The implementing rules promulgated under the new EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise.
The implementing rules promulgated under the new EIT Law define the term "de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise.
Further, if we decide to operate the solar farms in these regions for our own account instead of selling the project, we may not be able to generate a profit from those operations, which would impair results of our operations and our ability to operate profitably. In China, we compete with other companies for a limited number of available permits.
Further, if we decide to operate the solar farms in these regions for our own account instead of selling the project, we may not be able to generate a profit from those operations, which would impair results of our operations and our ability to operate profitably. 51 Table of Contents In China, we would compete with other companies for a limited number of available permits.
Cybersecurity Review Measures further provides “network platform operator” possessing personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review.
Cybersecurity Review Measures further provides "network platform operator” possessing personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review.
Under the new Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.
Under the new Enterprise Income Tax Law, we may be classified as a "resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.
Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. 56 Table of Contents Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations. Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
We cannot predict the effect of the recent heavy rains and flooding in California will have on both the market for solar systems in California and on our business in particular and on our ability to solar systems in a timely manner.
We cannot predict the effect of the recent forest fires, heavy rains and flooding in California will have on both the market for solar systems in California and on our business in particular and on our ability to solar systems in a timely manner.
On December 15, 2022, the PCAOB announced that it “was able to secure complete access to inspect and investigate audit firms in the People’s Republic of China (PRC) for the first time in history, in 2022.
On December 15, 2022, the PCAOB announced that it "was able to secure complete access to inspect and investigate audit firms in the People’s Republic of China (PRC) for the first time in history, in 2022.
As a result, we need to continually market our services to new customers who have the financial resources to purchase a solar farm or to obtain additional projects from existing customers.
As a result, we need to continually market our services to SPIC and to new customers who have the financial resources to purchase a solar farm or to obtain additional projects from existing customers.
This could have a material and adverse effect on the value of your investment in us and the price of shares of our common stock. 59 Table of Contents Because we require a license to engage in the EPC business in China, any changes in the certification or qualification requirements could impair our ability to operate in China.
This could have a material and adverse effect on the value of your investment in us and the price of shares of our common stock. Because we require a license to engage in the EPC business in China, any changes in the certification or qualification requirements could impair our ability to operate in China.
Actual or threatened war, terrorist activities, political unrest, civil strife, including the Russian invasion of Ukraine and the war between Israel and Hamas or any other hostilities in the Middle East and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations.
Actual or threatened war, terrorist activities, political unrest, civil strife, including the war between Israel and Hamas or any other hostilities in the Middle East and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations.
Changes in utility regulations and pricing could impair the market for our products. The market for alternative energy products is affected by utility regulation and pricing policies. Changes in regulations or pricing could result in a significant reduction in the demand for solar products.
The market for alternative energy products is affected by utility regulation and pricing policies. Changes in regulations or pricing could result in a significant reduction in the demand for solar products.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, avian flu and monkeypox, as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our operations and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, avian flu and monkeypox, as well as hurricanes, earthquakes, tsunamis, or other natural disasters and political unrest and the relationship between the United States and China could disrupt our business operations, reduce or restrict our operations and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations.
Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the common stock. The transfer of funds between our United States and China segments is subject to restriction.
Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the common stock. 49 Table of Contents The transfer of funds between our United States and China segments is subject to restriction.
To the extent that we use the proceeds of our initial public offering to pay the loans, we will have less proceeds for the development and expansion of our business.
To the extent that we use the proceeds of our initial public offering to pay the loans, we will have less funds available for the development and expansion of our business.
Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience during 2022 and 2023 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business has grown as homeowners are seeking alternatives to what they see as high utility bills.
Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience that, as inflationary pressures are increasing the cost of electricity generally, our domestic business has grown as homeowners are seeking alternatives to what they see as high utility bills.
In the event that we are not able to satisfy any of these conditions, we may not be able to generate revenue from our China operations, and it may be necessary for us to suspend or terminate these operations.
In the event that we are not able to satisfy any of these conditions, we may not be able to generate revenue and positive cash flow from our China operations, and it may be necessary for us to suspend or terminate these operations.
Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
Similarly, the repurchase or redemption rights or liquidation preferences we might grant to holders of preferred stock could affect the residual value of the common stock.
Although we maintain cybersecurity insurance, we cannot assure you that this insurance will cover or satisfy any claim made against us or adequately cover any defense costs we may incur. In addition, we are required to report security breaches and describe steps we are taking to address potential cybersecurity threats.
Although we maintain cybersecurity insurance, we cannot assure you that this insurance will cover or satisfy any claim made against us or adequately cover any defense costs we may incur. 36 Table of Contents In addition, we are required to report security breaches and describe steps we are taking to address potential cybersecurity threats.
The new Enterprise Income Tax (EIT) Law, which was most recently amended on December 29, 2018, and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws.
The new Enterprise Income Tax (EIT) Law, which was most recently amended on December 29, 2018, and its implementing rules provide that enterprises established outside of China whose "de facto management bodies” are located in China are considered "resident enterprises” under PRC tax laws.
Pursuant to the Standard Conditions of Photovoltaic Production Industry, or the Photovoltaic Production Rule, promulgated by the PRC’s Ministry of Industry and Information Technology (“MIIT”) and, effective on March 25, 2015, the minimum proportion of capital funds contributed by the producer for newly built, renovation and expansion photovoltaic (“PV”) production projects shall be 20%.
Pursuant to the Standard Conditions of Photovoltaic Production Industry, or the Photovoltaic Production Rule, promulgated by the PRC’s Ministry of Industry and Information Technology ("MIIT”) and, effective on March 25, 2015, the minimum proportion of capital funds contributed by the producer for newly built, renovation and expansion photovoltaic ("PV”) production projects shall be 20%.
CEF and CEF II are limited partnerships of which the general partner is a limited liability company owned and managed by two of our directors, one of whom is the chief executive officer, and a former executive officer/director.
CEF and CEF II are limited partnerships of which the general partner is a limited liability company owned by two of our directors, one of whom is the chief executive officer, and a former executive officer/director, and which is managed by our chief executive officer and a former executive officer who is a major stockholder.
Because of the cost of construction of the solar farms, we could require financing in order to complete projects in China, and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China.
Because of the cost of construction of the solar farms, we are likely to require financing in order to complete projects in China, and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China.
Factors which may cause our quarterly results to fluctuate include: · local weather and climate conditions and long-term projected climate developments, including the effects of wildfires, unusually heavy rain and floods in California and climate change generally, which may affect both our ability to enter into contracts for the installation of solar systems and our ability to complete the construction and installation in a timely manner; · expiration, initiation or reduction of tax and other rebates and utility incentives; · our revenue recognition policies, whereby significant work can be performed before we recognize revenue; · our ability to complete installations in a timely manner; · our ability to process applications for third-party financing; · our ability to expand our operations and the timing of any expansion; · changes in competitors’ pricing and financing policies and other changes in the competitive environment in the solar energy industry; · pricing policies of local electricity providers; · gas and oil prices; and · changes in customer demands for solar energy systems.
Factors which may cause our quarterly results to fluctuate include: · local weather and climate conditions and long-term projected climate developments, including the effects of wildfires, unusually heavy rain and floods in California and climate change generally, which may affect both our ability to enter into contracts for the installation of solar systems and our ability to complete the construction and installation in a timely manner and may result in financial obligation to customers pursuant to production guarantees; · expiration, initiation or reduction of tax and other rebates and utility incentives; 38 Table of Contents · our revenue recognition policies, whereby significant work can be performed before we recognize revenue; · our ability to complete installations in a timely manner; · our ability to process applications for third-party financing; · our ability to expand our operations and the timing of any expansion; · changes in competitors’ pricing and financing policies and other changes in the competitive environment in the solar energy industry; · pricing policies of local electricity providers; · gas and oil prices; and · changes in customer demands for solar energy systems.
Since early 2020, because we did not have the capital to support such operations, we suspended making loans to our solar customers. 34 Table of Contents The results of our operations may vary significantly from quarter to quarter.
Since early 2020, because we did not have the capital to support such operations, we suspended making loans to our solar customers. The results of our operations may vary significantly from quarter to quarter.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeBoth our vendors maintain teams to review alerts, confirming true or false positives in the network. 66 Table of Contents Threat Response Our vendors provide SOC teams that automatically investigate and address potential attacks. They collaborate to ensure immediate responses, utilizing playbooks and auto-remediation methods such as password resets, IP blocking, software removal, and risk mitigation.
Biggest changeThreat Response Our vendors provide SOC teams that automatically investigate and address potential attacks. They collaborate to ensure immediate responses, utilizing playbooks and auto-remediation methods such as password resets, IP blocking, software removal, and risk mitigation. 70 Table of Contents
Detect Issues Our system employs active scanners to constantly monitor for potential threats, suspicious behavior, and harmful activity. It utilizes user behavioral analysis and learning to stop potential threats in real time.
Detect Issues Our system employs active scanners to constantly monitor for potential threats, suspicious behavior, and harmful activity. It utilizes user behavioral analysis and learning to stop potential threats in real time. Both our vendors maintain teams to review alerts, confirming true or false positives in the network.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIf we require additional or substitute space, we believe that we will be able to obtain such space on acceptable, commercially reasonable terms.
Biggest changeRent for the first lease year is at the annual rate of $1,618,418 and increases 3% per year. We believe our current facilities are adequate for the foreseeable future. If we require additional or substitute space, we believe that we will be able to obtain such space on acceptable, commercially reasonable terms.
Removed
Item 2. Properties We lease our offices and do not own any real estate. Our corporate headquarters is located in Riverside, California and currently consists of approximately 159,000 square feet pursuant to a lease which expires on December 31, 2026 at a current annual rent of approximately $1.6 million.
Added
Item 2. Properties We lease our offices and do not own any real estate.
Removed
We also lease office space in Diamond Bar, California from a related party pursuant to a lease that expires on October 31, 2026 at a current annual rent of approximately $0.3 million. We also lease office space in China. We believe our current facilities are adequate for the foreseeable future.
Added
The following table set forth information as to the real property leased by us: Location Square Feet Current Annual Rent Expiration Date 3080 12th Street, Riverside, CA (1) 158,693 $ 1,618,418 12/31/26 Room 402, Floor 4, No. 558 Tongxie Rd., Shanghai, China 5,920 104,693 12/31/23 (1) This property is owned by 3080 Landlord pursuant to a net lease dated October 13, 2022.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Added
During 2024, we commenced an arbitration procedures with SPIC to collect on the receivables owed by SPIC related to the EPC contracts as well as other advances and reimbursements for a total of RMB 54.2 million (approximately $7.7 million).
Added
Based on the initial arbitration hearing which concluded in May 2024, we reserved RMB 4.7 million (approximately $659,000) at December 31, 2024 for a potential uncollectible amount. The net balance of the receivable after adjusting for the reserve is RMB 49.5 million ($6.8 million) at December 31, 2024. We expect the final arbitration ruling during 2025.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 31, 2024, we used approximately $0.8 million to make payments due to our former executive vice president and $0.1 million to a former employee pursuant to our agreements with them.
Biggest changeAs of March 15, 2025, we used approximately $0.8 million to make compensation payments due to our former executive vice president and $0.1 million to a former employee pursuant to our agreements with them. Our initial public offering was commenced on February 28, 2024 pursuant to a registration statement on Form S-1, File.
Based on information provided to us we believe that we have more than 700 beneficial owners of our common stock. Transfer Agent Continental Stock Transfer & Trust Company, One State Street, 30th floor, New York, New York 10004-1561 is the transfer agent for our common stock.
Based on information provided to us we believe that we have more than 1,500 beneficial owners of our common stock. Transfer Agent Continental Stock Transfer & Trust Company, One State Street, 30th floor, New York, New York 10004-1561 is the transfer agent for our common stock.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. 68 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans The following table gives information concerning common stock that may be issued by us with respect to compensation plans, including individual compensation arrangements) as of December 31, 2023: Equity Compensation Agreements Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (#) Weighted average exercise price of outstanding options, warrants, and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding outstanding options and warrants) (#) As of December 31, 2023 Equity compensation plans approved by security holders 6,096,122 $ 5.01 9,023,878 Equity compensation plans not approved by security holders 199,736 $ 3.50 0 Total 6,295,858 $ 4.96 9,023,878 Use of Proceeds from Our Initial Public Offering The net proceeds from our initial public offering were approximately $18.6 million.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. 72 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans The following table gives information concerning common stock that may be issued by us with respect to compensation plans, including individual compensation arrangements) as of December 31, 2024: Equity Compensation Agreements Information Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (#) Weighted average exercise price of outstanding options, warrants, and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding outstanding options and warrants) (#) As of December 31, 2024 Equity compensation plans approved by security holders 6,045,941 $ 5.01 9,074,059 Equity compensation plans not approved by security holders 149,802 $ 3.50 0 Total 6,195,743 9,074,059 Use of Proceeds from Our Initial Public Offering The net proceeds from our initial public offering were approximately $18.6 million.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the Nasdaq Global Market under the symbol SMXT. Stockholders As of April 10, 2024, we had 74 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the Nasdaq Stock Market under the symbol SMXT. Stockholders As of March 15, 2025, we had 81 stockholders of record.
Removed
We also used $2.9 million to pay the principal payments due on the convertible debentures issued to the former limited partners of CEF pursuant to the terms of the debentures. The balance is being held in short-term interest-bearing deposits and securities. Item 6. [ Reserved ]
Added
No. 333-26606, which was declared effective by the SEC on February 12, 2024. We invested $7.0 million from the proceeds of our initial public offering in an 8% promissory note issued by Webao Limited, a Hong Kong based social media company.
Added
The initial maturity was June 1, 2024 and it was extended twice at the request of the maker to June 30, 2025. Our China segment invested RMB 5,000,000, or approximately $688,000, in a 5% note due June 25, 2024 issued by Qingdao Xiaohuangbei Technology Co., Ltd., a PRC-based company.
Added
The initial maturity was June 25, 2024 and it was extended twice at the request of the maker to June 30, 2025. These notes are shown on our balance sheet as short-term investments. The full principal amount of these notes is outstanding on the date of this annual report.
Added
The balance of the proceeds was used for working capital, which included $5.5 million principal payments on convertible notes and $276,000 payment on legal settlement with former EB-5 noteholders.
Added
Recent Sale of Common Stock On March 19, 2025, we issued to an accredited investor 561,798 shares of common stock to 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.
Added
The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering. The proceeds from the sale are being used for working capital.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

94 edited+54 added−93 removed45 unchanged
Biggest changeFurthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. 73 Table of Contents Years Ended December 31, 2023 and 2022 Results of Operations The following tables set forth information relating to our operating results for the years ended December 31, 2023 and 2022 (dollars in thousands) and as a percentage of revenue: Years ended December 31, 2023 2022 Dollars % Dollars % Revenue: Solar energy sales (US) $ 50,523 93.3 % $ 40,599 90.8 % LED sales (US) 3,055 5.7 % 3,305 7.4 % Financing (US) 562 1.0 % 814 1.8 % Total revenues 54,139 100.0 % 44,718 100.0 % Cost of revenue: Solar energy sales 40,891 75.5 % 35,093 78.5 % LED sales 2,099 3.9 % 2,143 4.8 % Solar farm EPC (China) - 0.0 % - 0.0 % Power purchase agreements and other - 0.0 % - 0.0 % Total cost of revenues 42,990 79.4 % 37,236 83.3 % Gross profit 11,149 20.6 % 7,482 16.7 % Operating expenses: Sales and marketing (US) 1,158 2.1 % 1,080 2.4 % Sales and marketing (China) - 0.0 % - 0.0 % General and administrative (US) 8,789 16.3 % 12,848 28.7 % General and administrative (China) 718 1.3 % 1,522 3.4 % Total operating expenses 10,665 19.7 % 15,450 34.5 % Income (loss) from operations (US) 1,202 2.2 % (6,448 ) (14.4 )% Income (loss) from operations (China) (718 ) (1.2 )% (1,522 ) (3.4 )% Equity in income of solar project companies 864 1.6 % 494 1.1 % Gain on debt extinguishment 27 0.0 % 1,947 4.4 % Gain on early termination of lease 4 0.0 % 1,079 2.4 % Interest income 69 0.1 % 62 0.1 % Interest (expense) (1,577 ) (2.9 )% (1,829 ) (4.1 )% Other income (loss), net 500 0.9 % (615 ) (1.4 )% Income (loss) before income taxes 371 0.7 % (6,832 ) (15.3 )% Income tax benefit (provision) 64 0.1 % (41 ) (0.1 )% Net income (loss) 435 0.8 % (6,873 ) (15.4 )% Currency translation adjustment (115 ) (0.2 )% (887 ) (2.0 )% Comprehensive income (loss) $ 320 0.6 % $ (7,760 ) (17.4 )% Revenues Revenues for the year ended December 31, 2023 were $54.1 million, an increase of $9.4 million or 21% from $44.7 million in the year ended December 31, 2022, all of which was generated by the United States segment.
Biggest changeWe believe that our available cash and cash equivalents and short-term investments will enable us in dealing with the effects of inflation on our business. 76 Table of Contents Results of Operations The following tables set forth information relating to our operating results for the years ended December 31, 2024 and 2023 (dollars in thousands) and as a percentage of revenue: Years Ended December 31, 2024 2023 Dollars % Dollars % Revenue: Solar energy sales $ 17,910 77.9 % $ 50,523 93.3 % LED sales 4,737 20.6 % 3,055 5.6 % Financing 340 1.5 % 562 1.1 % Total revenues 22,987 100.0 % 54,140 100.0 % Cost of revenue: Solar energy sales 16,319 71.0 % 40,891 75.6 % LED sales 4,353 18.9 % 2,099 3.9 % Total cost of revenues 20,672 89.9 % 42,990 79.5 % Gross profit 2,315 10.1 % 11,150 20.5 % Operating expenses: Sales and marketing (US) 517 2.2 % 1,158 2.1 % General and administrative (US) 26,074 113.4 % 8,789 16.2 % General and administrative (China) 1,365 5.9 % 719 1.3 % Asset impairment (China) 7,462 32.5 % - 0.0 % Total operating expenses 35,418 154.0 % 10,666 19.6 % Income (loss) from operations (US) (24,276 ) (105.6 )% 1,203 2.2 % Income (loss) from operations (China) (8,827 ) (38.4 )% (719 ) (1.3 )% Equity in income of solar project companies 635 2.8 % 864 1.6 % Gain on debt extinguishment 303 1.3 % 27 0.0 % Gain on early termination of lease 77 0.3 % 4 0.0 % Interest income 501 2.2 % 69 0.1 % Interest (expense) (1,566 ) (6.8 )% (1,577 ) (2.9 )% Other income (loss), net (145 ) (0.7 )% 500 1.0 % Income (loss) before income taxes (33,298 ) (144.9 )% 371 0.7 % Income tax provision (benefit) 1,664 7.2 % (64 ) 0.7 % Net income (loss) (34,962 ) (152.1 )% 435 0.0 % Currency translation adjustment (167 ) (0.6 )% (115 ) (0.2 )% Comprehensive income (loss) $ (35,129 ) (152.7 )% $ 320 (0.2 )% 77 Table of Contents Years Ended December 31, 2024 and 2023 The following table set forth information relating to our revenue and gross profit results for the years ended December 31, 2024 and 2023 (dollars in thousands), all of which related to our United States segment: Years Ended December 31, 2024 2023 Change % Change Revenue: Solar energy sales $ 17,910 $ 50,523 $ (32,613 ) (64.6 )% LED sales 4,737 3,055 1,682 55.1 % Financing 340 562 (222 ) (39.5 )% Total revenues 22,987 54,140 (31,153 ) (57.5 )% Cost of revenue: Solar energy sales 16,319 40,891 (24,572 ) (60.1 )% LED sales 4,353 2,099 2,254 107.4 % Total cost of revenues 20,672 42,990 (22,318 ) (51.9 )% Gross profit $ 2,315 $ 11,150 $ (8,835 ) (79.2 )% Revenues Revenues for the year ended December 31, 2024 were $23.0 million, a decrease of $31.2 million or 57.5% from $54.1 million in the year ended December 31, 2023, all of which was generated by the United States segment.
The limited partners of both CEF and CEF II are investors who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program and are not related parties.
The limited partners of both CEF and CEF II are investors who are not related parties who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program.
With the recent inflationary pressures combined with the world-wide supply chain issues, our business is subject to the inflationary and we were subject to supply chain issues that were affecting many domestic and foreign companies, and we expect that the inflationary pressures will continue to affect our ability to sell our products, the price at which can sell products in both the United States and China and our gross margin in both the United States and China.
With the recent inflationary pressures combined with the world-wide supply chain issues, our business is subject to the inflationary pressure and we were subject to supply chain issues that were affecting many domestic and foreign companies, and we expect that the inflationary pressures will continue to affect our ability to sell our products, the price at which can sell products in both the United States and China and our gross margin in both the United States and China.
We are seeking to reduce the effect of increased prices in raw materials by purchasing in greater quantities. However, to the extent inflation continues or increases, we may not be able to raise prices sufficiently to prevent a significant decline in our gross margins and the results of our operations.
We are seeking to reduce the effect of increased prices in raw materials by purchasing in greater quantities. However, to the extent inflation continues or increases, we may not be able to raise prices sufficiently to prevent a further significant decline in our gross margins and the results of our operations.
Approximately half of the employees who were laid off had been hired in late 2022 to help install the growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023.
Approximately half of the employees who were laid off had been hired in late 2022 to help install our growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023.
As COVID restrictions eased in late 2022, discussions, negotiations, design work and permitting on potential projects resumed in the first quarter of 2023, although, as of the date of this annual report, we have not entered into any agreements.
As COVID restrictions eased in late 2022, discussions, negotiations, design work and permitting on potential projects resumed in the first quarter of 2023, although, as of the date of this report, we have not entered into any agreements.
We have extended our loan obligation to an unrelated third party for $2.0 million to June 30, 2024 and, with respect to the loans made under the EB-5 program, as described above, we are seeking to refinance the loans through the issuance of secured subordinated convertible notes to the limited partners of the lenders. We also have obligations to Mr.
We have extended our loan obligation to an unrelated third party for $2.0 million to June 30, 2025 and, with respect to the loans made under the EB-5 program, as described above, we are seeking to refinance the loans through the issuance of secured subordinated convertible notes to the limited partners of the lenders. We also have obligations to Mr.
Other income (expenses), net During the year ended December 31, 2023, other income was $500,000, consisting primarily of $308,000 cash distributions declared from zero basis equity investments in Alliance entities in the United States segment, $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $266,000 of expense related to the foreign currency transaction for our United States segment intercompany receivable denominated in the Chinese currency, $114,000 of additional payment on one of the SPIC projects representing interest on the amount previously owed on the project in the China segment, and $54,000 of income related to a vendor invoice on the project due to the poor product quality in the China segment.
During the year ended December 31, 2023, other expense was $499,000, consisting primarily of $308,000 cash distributions declared from zero basis equity investments in Alliance entities in the United States segment, $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $266,000 of expense related to the foreign currency transaction for our United States segment intercompany receivable denominated in the Chinese currency, $114,000 of additional payment on one of the SPIC projects representing interest on the amount previously owed on the project in the China segment, and $54,000 of income related to a vendor invoice on the project due to the poor product quality in the China segment.
Because of the COVID restrictions, we were not able to complete negotiation for new projects with SPIC and with one other potential customer. In China, in order for us to generate business, we need to have face-to-face meetings with the representatives of SPIC or any other potential customers rather than remote meetings such as Zoom.
Because of the COVID restrictions, we were not able to complete negotiation for new projects with SPIC and with one other potential customer. In China, in order for us both to generate business and collect receivables, we need to have face-to-face meetings with the representatives of SPIC or any other potential customers rather than remote meetings such as Zoom.
Hsu $675,000 as the cash payment in connection with his exchange of 1,348,213 restricted shares of common stock for options to purchase 1,428,432 shares of common stock at $5.01 per share and a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is now due commencing on February 27, 2025 in twelve equal monthly installments.
Hsu $675,000 as the cash payment in connection with his exchange of 1,348,213 restricted shares of common stock for options to purchase 1,428,432 shares of common stock at $5.01 per share and a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is now due commencing on June 30, 2025 in twelve equal monthly installments.
We currently are able to obtain the raw material we request, although the prices pay are increasing as a result of the inflationary pressures. 71 Table of Contents The inflationary pressures that are affecting us are not unique to our industry, and relate to the cost of raw materials, labor costs generally and the price at which we can sell our products.
We currently are able to obtain the raw material we request, although the prices pay are increasing as a result of the inflationary pressures. The inflationary pressures that are affecting us are not unique to our industry, and relate to the cost of raw materials, labor costs generally and the price at which we can sell our products.
Because we currently do not have any projects under contract for our China segment, we have neither revenue nor cost of revenue for our China segment for the years ended December 31, 2023 and 2022.
Because we currently do not have any projects under contract for our China segment, we have neither revenue nor cost of revenue for our China segment for the years ended December 31, 2024 and 2023.
In addition, at March 31, 2024, we owed Mr. Hsu $1,833,378, representing deferred salary from 2019, 2020, 2021, 2022, 2023, and 2024 and cash bonuses deferred from 2017 and 2018. Mr.
In addition, at December 31, 2024, we owed Mr. Hsu $1,833,378, representing deferred salary from 2019, 2020, 2021, 2022, 2023, and 2024 and cash bonuses deferred from 2017 and 2018. Mr.
Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and reflect changes in the exchange rates between U.S. dollars and RMB.
Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and reflects changes in the exchange rates between U.S. dollars and RMB.
Sales and marketing expenses in the United States were 2.1% of revenue for the year ended December 31, 2023 compared to 2.4% for the year ended December 31, 2022. Our sales and marketing expenses in the United States may fluctuate from time to time based on the types of marketing and promotion initiatives we deploy.
Sales and marketing expenses in the United States were 2.2% of revenue for the year ended December 31, 2024 compared to 2.1% for the year ended December 31, 2023. Our sales and marketing expenses in the United States may fluctuate from time to time based on the types of marketing and promotion initiatives we deploy.
Basis of Presentation and Summary of Significant Accounting Policies." Impairment assessment of goodwill Nature of Estimates Required At least annually, we are required to assess the carrying value of our long-lived assets and related intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived asset, or group of assets, may not be recoverable.
Basis of Presentation and Summary of Significant Accounting Policies.” Impairment assessment of goodwill Nature of Estimates Required We assess the carrying value of our long-lived assets and related intangibles for impairment at least annually and also whenever events or changes in circumstances indicate that the carrying value of the long-lived asset, or group of assets, may not be recoverable.
Hsu described above, approximately $2.5 million of which will be paid in twelve equal monthly installments with the first payment becoming due on February 27, 2025. We cannot assure you that we will be able to negotiate extensions to our loans or refinancing of our EB-5 debt.
Hsu described above, approximately $2.5 million of which will be paid in twelve equal monthly installments with the first payment becoming due on June 30, 2025. We cannot assure you that we will be able to negotiate extensions to our loans or refinancing of our EB-5 debt.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our financial statements and the related notes appearing elsewhere in this annual report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this annual report.
As of March 31, 2024, limited partners whose capital contributions funded loans of $41.5 million had received their green card approval and their extensions expired and one limited partner whose capital contribution funded $500,000 had withdrawn from CEF II and the limited partner’s capital contribution was returned.
As of March 15, 2025, limited partners whose capital contributions funded loans of $41.5 million had received their green card approval and their extensions expired and one limited partner whose capital contribution funded $500,000 had withdrawn from CEF II and the limited partner’s capital contribution was returned.
However, competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a decline in gross margin for the year ended December 31, 2023, and, if our prices are too high, the residential customer may not see the value of installing a solar system.
Competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a greater decline in gross margin for the year ended December 31, 2024. If our prices are too high, the residential customer may not see the value of installing a solar system.
Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels particularly in view of inflationary pressures and supply chain issues, especially if the global solar power market gains its growth momentum.
Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels particularly in view of inflationary pressures, especially if the global solar power market gains its growth momentum.
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, a related party.
The loans from CEF and CEF II bear interest at 3% per annum. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, a related party.
For more information on our accounting policies, see "Notes to Consolidated Financial Statements—Note 2.
For more information on our accounting policies, see “Notes to Consolidated Financial Statements—Note 2.
We are seeking to address the inflationary pressures by seeking to cut overhead expenses where possible and raising prices to levels that we believe are both competitive and attractive to customers in view of the increases in utility prices in California and maintaining an inventory of raw materials to enable us to better price our products.
We are seeking to address the inflationary pressures by seeking to cut overhead expenses where possible and raising prices to levels that we believe are both competitive and attractive to customers in view of the increases in utility prices in California and maintaining an inventory of raw materials to enable us to better price our products and by marketing effort directed at commercial sales.
The notes are secured by the same assets that secured the notes issued to CEF.
The notes are secured by the same assets that secured the notes issued to CEF and CEF II.
We had no cost of revenue with respect to interest income on customer loans. Our China segment had no revenue and no cost of revenue for the year ended December 31, 2023 and 2022.
We have no cost of revenue with respect to interest income on customer loans. Our China segment had no revenue and no cost of revenue for the years ended December 31, 2024 and 2023.
For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see "Notes to Consolidated Financial Statements—Note 18. Income Taxes." 84 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 8.
For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see Note 20 of “Notes to Consolidated Financial Statements.” 86 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable Item 8.
We have increased the price of solar system installations in our United States segment to offset the increase in cost in 2023 and during the first half of 2022.
We have increased the price of solar system installations to offset the increase in cost in 2024, 2023 and during the first half of 2022.
Income tax benefit (provision) For the year ended December 31, 2023 and 2022, our United States segment reported an income tax benefit (expense) of $(6,000) for both periods attributable to state minimum tax liabilities.
Income tax benefit (provision) For the years ended December 31, 2024 and 2023, our United States segment reported an income tax expense of $6,000 and $6,000, respectively, attributable to state minimum tax liabilities.
LED revenues include LED product sales and LED consulting revenues and are expected to continue to fluctuate based on the number of LED projects awarded which is based on the bidding process and specific customer purchase requirements and timing.
LED revenues include LED product sales and LED consulting revenues and are expected to continue to fluctuate based on the number of LED projects awarded which is based on the bidding process and specific customer purchase requirements and timing. The revenue trend from our LED business therefore tends to fluctuate period to period.
Our interest expense in the year ended December 31, 2023 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $17.0 million at December 31, 2023, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted a 4% convertible note issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $7.6 million at December 31, 2023, and interest at 8% on promissory notes issued to SMX Property (a related party) in October 2022 with a principal balance of $1.4 million at December 31, 2023.
Our interest expense in the year ended December 31, 2024 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $11.0 million at December 31, 2024, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted a 4% convertible note issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $16.6 million at December 31, 2024, interest at 8% on promissory notes issued to SMX Property (a related party) due in October 2025 with a principal balance of $1.4 million at December 31, 2024, interest at 8% on a promissory note issued to an unrelated individual due on June 30, 2025 with a principal balance of $2.0 million at December 31, 2024, and interest at 12% on a promissory note issued to an unrelated investment company due on June 30, 2025 with a principal balance of $900,000 at December 31, 2024.
Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $6,550, consisting of $27,999 for the purchase of property and equipment, partially offset by cash received of $21,449 related to the disposal of property and equipment.
Net cash used by investing activities for the year ended December 31, 2023 was $7,000, consisting of cash received of $21,000 related to the disposal of property and equipment, offset by $28,000 used in the purchase of property and equipment.
Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience during the years ended December 31, 2023 and 2022 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business has grown as homeowners are seeking alternatives to what they see as high utility bills.
Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience during the years ended December 31, 2023 and 2022 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business grew as homeowners are seeking alternatives to what they see as high utility bills, although, as discussed above, the effects of NEM 3.0 have resulted in a significant decline in U.S. revenues for solar systems.
Because solar energy can be seen as a way to provide a homeowner with relief from the increasing utility prices for electricity, the market for solar systems generally, and our business specifically, has enabled us to sell more solar systems. Thus, the effects of inflation may also affect the marketability of our solar systems to residential users.
Because solar energy can be seen as a way to provide a homeowner with relief from the increasing utility prices for electricity, the market for solar systems generally, and our business specifically, has enabled us to sell solar systems.
Due to the nature of our EPC business in our China segment, the EPC contracts for solar farm projects are generally obtained through customer relationship with just a few corporate customers, with substantially all revenues for our China segment since the second half of 2019 being generated by agreements with SPIC, Accordingly, our China segment did not incur sales and marketing expenses for the year ended December 31, 2023 and 2022.
Due to the nature of our EPC business in our China segment, the EPC contracts for solar farm projects are generally obtained through customer relationship with just a few corporate customers, with substantially all revenues for our China segment since the second half of 2019 being generated by agreements with SPIC.
We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the EPC projects which could vary from project to project.
We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the projects in progress.
Both notes provide for quarterly payments of interest during the term with the principal being due at maturity. One note, in the principal amount of $414,581, was issued to pay past due rent under our former lease with SMXP for the period June 1, 2022 to October 12, 2022.
One note, in the principal amount of $414,581, was issued to pay past due rent under our former lease with SMXP for the period June 1, 2022 to October 12, 2022.
The financial statements of our subsidiaries are translated to U.S. dollars using period end exchange rates for assets and liabilities, and average exchange rates for the period for revenues, costs, and expenses.
Currency translation adjustment Although our functional currency is the U.S. dollar, the functional currency of our China subsidiaries is the Renminbi (“RMB”). The financial statements of our subsidiaries are translated to U.S. dollars using period end exchange rates for assets and liabilities, and average exchange rates for the period for revenues, costs, and expenses.
Financing Activities Net cash used in financing activities for the year ended December 31, 2023 was $5.0 million, consisting of $4.8 million principal payments on convertible notes in the United States segment, $48,939 payments on other borrowings and equipment leases in the United States segment, $6.6 million of additional legal settlement proceeds received on behalf of Uonone in the China segment, and $6.8 million payment to Uonone and related expenses on Uonone’s behalf related to the legal settlement received on its behalf in the China segment.
Net cash used by financing activities for the year ended December 31, 2023 was $5.3 million, consisting of $4.8 million principal payments on convertible notes in the United States segment, $276,000 payment on legal settlement with former EB-5 noteholders in the United States segment, $49,000 payments on other borrowings and equipment leases in the United States segment, and $6.8 million payment to Uonone, offset by $6.6 million of proceeds from Uonone, related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.
As of March 31, 2024, we had issued convertible notes in the principal amount of $36.5 million to former limited partners of CEF, of which principal payments of $19.75 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.77 million, leaving convertible notes in the principal amount of $14.25 million outstanding.
As of 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.
In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Concerning Forward-Looking Statements.” Our actual results may differ materially from those discussed below.
In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Concerning Forward-Looking Statements.” Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in “Risk Factors.".
The petitions of limited partners of CEF whose capital contribution funded loans of $3.5 million are pending.
The petitions of limited partners of CEF and CEF II whose capital contribution funded loans of $9.0 million are pending.
On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13.0 million. CEF II advanced $10.5 million pursuant to the agreement. The proceeds of the loans were used by our subsidiaries for their operations.
EB-5 Loans On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF advanced $45.0 million. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13.0 million. CEF II advanced $10.5 million pursuant to the agreement.
Despite the interruption of COVID in China, we believe that the macroeconomic conditions for the solar market in China continues to be strong. China remains the number one market in the world for photovoltaic systems, which includes the solar farms that our China segment designs and builds for third parties.
China remains the number one market in the world for photovoltaic systems, which includes the solar farms of the type that our China segment designs and builds for third parties.
Contractual Obligations Borrowings Principal maturities for the financing arrangements as of December 31, 2023 are as follows (dollars in thousands): For the year ending December 31, Bank and Other Unsecured Loans EB-5 Loans - Related Party Notes Payable - Related Party Convertible Notes Total 2024 $ 2,000 $ 10,000 $ 1,359 $ 8,680 $ 22,039 2025 7,000 4,990 11,990 2026 1,890 1,890 2027 500 500 2028 190 190 Total $ 2,000 $ 17,000 $ 1,359 $ 16,250 $ 36,609 Operating Leases Future minimum lease commitments for office facilities and equipment for each of the next five years as of December 31, 2023, are as follows (dollars in thousands): For the year ending December 31, Related Parties Others Total 2024 $ 133 $ 1,684 $ 1,817 2025 133 1,726 1,859 2026 133 1,768 1,901 2027 133 - 133 2028 133 - 133 Thereafter 554 - 554 Total $ 1,219 $ 5,178 $ 6,397 Employment Agreements On October 7, 2016, we entered into employment agreements with our chief executive officer, David Hsu, for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr.
Contractual Obligations Borrowings Principal maturities for the financing arrangements as of December 31, 2024 are as follows (dollars in thousands): 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 $ 4,000 $ 1,359 $ 9,770 $ 18,029 2026 - 2,000 - 3,090 5,090 2027 - 3,000 - 1,690 4,690 2028 - 2,000 - 1,200 3,200 2029 - - - 800 800 Total $ 2,900 $ 11,000 $ 1,359 $ 16,550 $ 31,809 Operating Leases Future minimum lease commitments for office facilities and equipment for each of the next five years as of December 31, 2024, are as follows (dollars in thousands): For the year ending December 31, Total 2025 $ 1,760 2026 1,768 Total $ 3,528 Employment Agreements On October 7, 2016, we entered into an employment agreement with our chief executive officer, David Hsu, for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr.
Our LED revenue decreased by $250,000, or 8%, to $3.1 million for the year ended December 31, 2023 from $3.3 million for the year ended December 31, 2022, primarily resulting from the decrease in the number of LED projects.
Our LED revenue increased by $1.7 million, or 55.1%, to $4.7 million for the year ended December 31, 2024 from $3.1 million for the year ended December 31, 2023, primarily resulting from the increase in the number of LED projects.
The decrease in cash used by our operating assets and liabilities during the year ended December 31, 2023 is primarily due to a $4.8 million decrease in cash from unbilled receivables, $1.3 million decrease in cash from contract liabilities, $1.7 million decrease in cash from customer loans receivable, $281,000 decrease in cash from operating lease liabilities, and $2.3 million decrease in cash from accrued expenses and other liabilities, with an offset from a $4.0 million increase in cash from receivables and current assets, receivables from SPIC and project companies, and other receivables and current assets and other assets, $2.1 million increase in cash from inventories, $3.7 million increase in cash from accounts payable, and $0.9 million increase in cash from contract assets.
Net cash provided by operations for the year ended December 31, 2023 of $4.1 million resulted primarily from net income of $435,000, increased by a $4.2 million decrease in cash from contract assets, $1.4 million decrease in cash from other receivables and current assets, with an offset from $1.5 million increase in cash from accounts receivable, $3.8 million increase in cash from customer loans receivable, $2.0 million increase in cash from inventories, $27,000 increase in cash from other assets, $1.2 million increase in cash from accounts payable, $1.4 million decrease in cash from operating lease liabilities, $4.0 million increase in cash from contract liabilities, $2.7 million decrease in cash from accrued expenses and other payables, and $1.4 million decrease in cash from other liabilities.
We cannot assure you that such delays and increased costs will not affect our business in the future. Our China segment has felt the effects of both inflation and supply chain issues.
We cannot assure you that such delays and increased costs will not affect our business in the future.
Since the lease is a net lease, we pay all of the operating expenses of the building. Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, we issued two two-year 8% notes to SMXP.
Borrowings Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, a related party, in 2022, we issued two two-year 8% notes to SMXP.
Equity in income (loss) from unconsolidated entities Equity in income from unconsolidated entities relates to our China segment and comprises the 30% equity in income from three unconsolidated project companies for which we had previously transferred a 70% interest to SPIC. We record our 30% noncontrolling interest under the equity method of accounting.
Equity in income (loss) from unconsolidated entities Equity in income from unconsolidated entities relates to our China segment and comprises the equity in income from three unconsolidated project companies in which we have a non-controlling 30% interest.
As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of approximately $0.1 million for the year ended December 31, 2023 and approximately $1.2 million for the year ended December 31, 2022. 77 Table of Contents Liquidity and Capital Resources The following tables show consolidated cash flow information for the years ended December 31, 2023 and 2022 (dollars in thousands): Years Ended December 31, $ Increase (Decrease) 2023 2022 Consolidated cash flow data: Net cash provided by (used in) operating activities $ 3,815 $ (1,972 ) $ 5,615 Net cash provided by (used in) investing activities (6 ) (281 ) 275 Net cash provided by (used in) financing activities (5,046 ) (7,500 ) 2,454 Net increase (decrease) in cash and cash equivalents and restricted cash (1,275 ) (9,233 ) 7,958 Net increase (decrease) in cash and cash equivalents and restricted cash excluding foreign exchange effect (1,237 ) (9,752 ) 8,515 Operating Activities Net cash provided by operating activities for the year ended December 31, 2023 was $3.8 million, compared to net cash used by operating activities for the year ended December 31, 2022 of $2.0 million, a decrease in cash used of $5.8 million, resulting from a decrease in cash of $1.6 million from the overall change in operating assets and liabilities, a increase in cash used of $91,000 from non-cash expense and a decrease in net loss of $7.3 million.
As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of $167,000 and $115,000 for the years ended December 31, 2024 and 2023, respectively. 80 Table of Contents Liquidity and Capital Resources The following tables show consolidated cash flows information for the years ended December 31, 2024 and 2023 (dollars in thousands): Years Ended December 31, $ Increase (Decrease) 2024 2023 Consolidated cash flows data: Net cash provided by (used in) operating activities $ (9,130 ) $ 4,091 $ (13,221 ) Net cash provided by (used in) investing activities (6,316 ) (7 ) (6,309 ) Net cash provided by (used in) financing activities 13,309 (5,322 ) 18,631 Net increase (decrease) in cash and cash equivalents and restricted cash (1,831 ) (1,275 ) (556 ) Net increase (decrease) in cash and cash equivalents and restricted cash excluding foreign exchange effect $ (2,137 ) $ (1,237 ) $ (900 ) Operating Activities Net cash used in operating activities for the year ended December 31, 2024 was $9.1 million, compared to net cash provided by operating activities for the year ended December 31, 2023 of $4.1 million.
As a result, we have been able to increase our prices, which reduced the effect of increased cost of raw materials and the general increase in overhead costs.
As a result, we have been able to increase our prices, which reduced the effect of increased cost of raw materials and the general increase in overhead costs. Our gross margin from United States operations decreased from 20.6% for the year ended December 31, 2023 to 10.1% for the year ended December 31, 2024.
The equity in income reported for the year ended December 31, 2023 was $864,000 compared to $494,000 in the year ended December 31, 2022, an increase of $370,000 or 75%.
The equity in income reported for the year ended December 31, 2024 was $635,000 compared to $864,000 in the year ended December 31, 2023, a decrease of $229,000 or 26.5%.
All share and per share information in this annual report retroactively reflects the reverse stock split. Overview We are an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses.
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.
These negotiations were initially deferred from late 2021 until 2022 and further deferred to 2023 as a result of COVID restrictions. We are now engaged in negotiations with respect to new projects for our China segment. In addition, our negotiations were impacted by a temporary spike in panel prices in China, which began to moderate in 2022.
These negotiations were initially deferred from late 2021 until 2022 and further deferred to 2023 as a result of COVID restrictions. At December 31, 2024 we increased our bad debt reserve relating to this receivable as a result of initial arbitration meetings during 2024. We are now engaged in negotiations with respect to new projects for our China segment.
The second note, for $944,077 was issued in respect of a loan from SMXP to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord. 80 Table of Contents EB-5 Loans On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF advanced $45.0 million.
The second note, for $944,077 was issued in respect of a loan from SMXP to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord.
Income (loss) from operations Our income from operations was $484,000 for the year ended December 31, 2023 compared to a loss from operations of $8.0 million in the year ended December 31, 2022, a decrease in loss of $8.5 million, or 106%, from the comparable period of 2022.
The consolidated loss from operations was $33.1 million for the year ended December 31, 2024 compared to a consolidated income from operations of $484,000 for the year ended December 31, 2023.
Net income (loss) As a result of the foregoing, we had consolidated net income of $434,786 for the year ended December 31, 2023, compared with a consolidated net (loss) of $(6.9) million for the year ended December 31, 2022.
Net income (loss) As a result of the foregoing, we had consolidated net loss of $35.0 million, or $(0.79) per share (basic and diluted), for the year ended December 31, 2024, compared with a consolidated net income of $0.4 million, or $0.01 per share (basic and diluted), for the year ended December 31, 2023.
During the year ended December 31, 2022, other expenses, net was $615,000, consisting primarily of $262,000 cash distributions from zero basis equity investments in Alliance entities in the United States, offset by $938,000 of expense related to the foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency.
Other income (expenses), net During the year ended December 31, 2024, other expense, net was $145,000 consisting primarily of a $332,000 of foreign currency transaction losses for our United States segment intercompany receivable denominated in the Chinese currency, a $30,000 loss associated with the write-off of legal settlement receivable as a result of the debtor's bankruptcy, offset by cash distributions declared of $198,000 from our zero basis equity investments in Alliance joint venture entities in the United States segment and a gain on disposal of property in the amount of $21,000.
Our finance revenue reflects revenue earned on our current portfolio, with no new loans having been added since early 2020. Our business in China is conducted through our subsidiaries, primarily ZHTH and ZHPV, and their subsidiaries.
Our finance revenue reflects revenue earned on our current portfolio, with no new loans having been added since early 2020. In 2015, we commenced operations in the PRC.
We did not generate any revenue for our China segment for the years ended December 31, 2023 and 2022 and 2024 through the date of this annual report.
We did has not generate any revenue from our China segment in 2022, 2023, 2024 and 2025 to the date of this annual report, and the China segment does not have any projects or agreements as of the date of this annual report.
We do not believe that this restriction will impair our operations since we do not anticipate that we will use the cash generated from our PRC operations in those operations and we do not plan to repatriate such funds to the United States.
We do not believe that this restriction will impair our operations since we do not anticipate that we will use the cash generated from our PRC operations in those operations and we do not plan to repatriate such funds to the United States. 82 Table of Contents We invested $7,000,000 from the proceeds of our initial public offering in an 8% promissory note issued by Webao Limited, a Hong Kong based social media company.
Our financial statements for the year ended December 31, 2023 have a going concern paragraph. Critical Accounting Estimates and Policies The accounting policies described below are considered critical to obtaining an understanding of our consolidated financial statements because their application requires the use of significant estimates and judgments by management in preparing the consolidated financial statements.
To the extent that we are not able to obtain the proceeds of these loans in a timely manner, our operations may be impaired. 84 Table of Contents Critical Accounting Estimates and Policies The accounting policies described below are considered critical to obtaining an understanding of our consolidated financial statements because their application requires the use of significant estimates and judgments by management in preparing the consolidated financial statements.
Hsu waived his bonus for 2019, 2020, 2021, 2022, and 2023 as part of the suspension of incentive programs for key employees, and he agreed that the $1,833,378 deferred salary and bonus be paid in twelve equal monthly installments with the first payment becoming due on February 27, 2025. 82 Table of Contents Cash Requirements We require substantial funds for our business, and we believe that the net proceeds from our initial public offering, together with cash generated by our operations should enable us to meet our cash requirements for at least the twelve months from the date of this annual report.
Hsu waived his bonus for 2019, 2020, 2021, 2022, and 2023 as part of the suspension of incentive programs for key employees, and he agreed that the $1,833,378 deferred salary and bonus be paid in twelve equal monthly installments with the first payment becoming due on June 30, 2025.
Our United States operations primarily consist of the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, and sales of LED systems and services to government and commercial users. Prior to 2020, we also financed the purchase of solar equipment from us.
Our primary business consists of the sale and installation of photovoltaic and battery backup systems for residential and commercial customers sales of LED systems and services to government and commercial users in California. We also generate revenue from financing the sale of its photovoltaic and battery backup systems.
General and administrative expenses for the United States segment for the year ended December 31, 2023 decreased to $8.8 million, a decrease of $4.1 million, or 32%, from $12.8 million for the comparable period of 2022.
Operating expenses Sales and marketing expenses for the year ended December 31, 2024 decreased for our United States segment to $517,000, a decrease of $641,000, or 55.3%, from $1.2 million in the comparable period of 2023, as a result of decreased sales in 2024.
During the year ended December 31, 2023 and 2022, our battery sales were $3.2 million and $3.4 million, respectively. Battery sales refer to the sale of batteries sold other than as a part of a solar system.
Battery sales refer to the sale of batteries sold other than as a part of a solar system.
Net cash used in financing activities for the year ended December 31, 2022 was $7.5 million, consisting of $7.1 million principal payments on convertible notes in the United States segment, $93,636 payments on other borrowings and equipment leases in the United States segment and $356,329 payment to Uonone related to legal settlement received by SolarMax on Uonone’s behalf in the China segment. 79 Table of Contents Cash and Cash Equivalents and Restricted Cash The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China segments at December 31, 2023 and 2022 (dollars in thousands): December 31, 2023 2022 US Segment Insured cash $ 819 $ 1,458 Uninsured cash 813 1,163 1,632 2,621 China Segment Insured cash 295 391 Uninsured cash 967 1,157 1,262 1,548 Total cash and cash equivalents & restricted cash 2,894 4,169 Cash and cash equivalents 2,539 3,822 Restricted cash $ 355 $ 347 We currently do not plan to repatriate any cash or earnings from any of our non-United States operations because we intend to utilize such funds to expand our China operations.
Cash and Cash Equivalents and Restricted Cash The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China segments at December 31, 2024 and December 31, 2023 (dollars in thousands): December 31, 2024 December 31, 2023 US Segment Insured cash $ 523 $ 819 Uninsured cash 497 813 1,020 1,632 China Segment Insured cash 43 295 Uninsured cash - 967 43 1,262 Total cash and cash equivalents & restricted cash 1,063 2,894 Less: Cash and cash equivalents 786 2,539 Restricted cash $ 277 $ 355 We currently do not plan to repatriate any cash or earnings from any of our non-United States operations because we intend to utilize such funds to expand our China operations.
Financial Statements and Supplementary Data The financial statements start on Page F-1 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable
Financial Statements and Supplementary Data The financial statements start on Page F-1
We expect an overall increase in compensation expenses in 2024 as a result of the expected vesting of stock and options that became vested upon a public stock offering event, and the cost of compliance and other regulatory costs associated with being a public reporting company.
Excluding the one-time stock-compensation expense in 2024, general and administrative expenses were 38.3% of revenue in 2024. We expect a modest increase in general and administrative expenses in 2025 as a result of the cost of compliance and other regulatory costs associated with being a public reporting company for the entire year.
Key Assumptions and Approach Used In determining the expected loss, we make assumptions based on historical collection experience, current and forecasted economic and business conditions, and a review of the status of each customer’s financial asset account.
Allowance for credit and loan losses Nature of Estimates Required In adopting ASU 2016-13, we are required to estimate credit and loan losses based on a forward-looking methodology and, if needed, record a reserve for each of the following assets: accounts receivable, customer loans receivable and certain contract assets. 85 Table of Contents Key Assumptions and Approach Used In determining the expected loss, we make assumptions based on historical collection experience, current and forecasted economic and business conditions, and a review of the status of each customer’s financial asset account.
We have no immediate plans to re-enter the business of providing financing to our customers unless we have sufficient funds for such purpose. 74 Table of Contents During the years ended December 31, 2023 and 2022 and continuing through the date of this annual report, we did not generate any revenue in the China segment because there are no projects under construction.
During the years ended December 31, 2024 and 2023, we did not generate any revenue in the China segment because there are no projects under construction and no agreements for such projects.
However, we cannot assure you that we will not require additional funds to meet our commitments or that funds will be available on reasonable terms, if at all. We have significant debt obligations which mature or may mature during the next year.
In March 2025, we received $500,000 from the sale of 561,798 shares of common stock, which we are using for working capital. However, we cannot assure you that we will not require additional funds to meet our commitments or that funds will be available on reasonable terms, if at all.
Compensation costs per employee for sales, marketing and administrative personnel in our United States segment increased approximately 16% for the year ended December 31, 2023 compared to the year ended December 31, 2022, and approximately 12% during the year ended December 31, 2022 compared to 2021 in response to the increased cost of retaining and attracting talent, and such costs may continue to increase as labor costs in California continue to increase as a result of the inflationary pressures.
The increase in 2023 also reflected the increased cost of retaining and attracting talent, and such costs may continue to increase as labor costs in California continue to increase as a result of the inflationary pressures.
Effect if Different Assumptions Used Under different assumptions, there could be a likelihood that the fair value of our China segment is less than its carrying value and would require an impairment. 83 Allowance for credit and loan losses Nature of Estimates Required In adopting ASU 2016-13, we are required to estimate credit and loan losses based on a forward-looking methodology and, if needed, record a reserve for each of the following assets: accounts receivable, customer loans receivable and certain contract assets.
Effect if Different Assumptions Used Under different assumptions, there could be a likelihood that the fair value of our China segment is less than its carrying value and would require an impairment.
General and administrative expenses relating to the China segment decreased by $0.8 million, or 53%, from $1.5 million in the prior year to $718,000 in the year ended December 31, 2023, primarily due to a $1.1 million recovery of previously reserved receivable on from a legal settlement relating to one of our projects for SPIC.
During the year ended December 31, 2023, we had a $1.1 million recovery of previously reserved receivable on one of our projects for SPIC as a result of the settlement of a legal proceeding.
For the China segment, an income tax benefit (expense) of $70,194 and $(35,431) was reported for the year ended December 31, 2023 and 2022, respectively, arising from profitable operations subject to China income tax.
For the China segment, income tax expense of approximately $1.7 million and $70,000 were reported for the years ended December 31, 2024 and 2023, respectively, arising from an increase in the valuation allowance against deferred tax assets as of December 31, 2024 and current tax expense for the year ended December 31, 2023.
China operations did not generate any revenue and did not incur any cost of revenue for the year ended December 31, 2023.
Accordingly, our China segment did not incur sales and marketing expenses for the years ended December 31, 2024 and 2023.
In our United States segment, our revenue from solar systems increased from $40.6 million for the year ended December 31, 2022 to $50.5 million for the year ended December 31, 2023 and from $27.5 million in the year ended December 31, 2021 to $40.6 million for the year ended December 31, 2022.
The decrease resulted from a $32.6 million decrease in solar energy and battery sales, offset with a $1.7 million increase in LED sales. Our revenue from solar systems decreased from $50.5 million for the year ended December 31, 2023 to $17.9 million for the year ended December 31, 2024, a 64.6% decrease.
Our income from operations for the United States segment was $1.2 million, compared to a loss from operations of $6.4 million in the year ended December 31, 2022, or a decrease in loss of $7.7 million or 119%, from the year ended December 31, 2022.
Our loss from operations for the China segment was $8.8 million for the year ended December 31, 2024, compared to a loss from operations of $718,000 in the year ended December 31, 2023, principally as a result of the recognition of impairment loss associated with goodwill of $7.5 million.

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