美国
证券和交易委员会
华盛顿特区 20549
_________________________
表格
_________________________
（Mark One）
根据1934年证券交易法第13或15(d)节的季度报告 |
截至季度结束日期的财务报告
或者
根据1934年证券交易法第13或15(d)节的转型报告书 |
委员会档案编号
_________________________
(根据其章程规定的注册人准确名称) |
_________________________
| ||
（国家或其他管辖区的 公司成立或组织） |
| （IRS雇主 唯一识别号码） |
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(主要领导机构的地址) |
| (邮政编码) |
(
公司电话号码，包括区号
在法案第12(b)条的规定下注册的证券：
每一类的名称 | 交易标志 | 在其上注册的交易所的名称 |
该 |
请勾选以下选项以指示注册人是否在过去12个月内(或在注册人需要提交此类报告的较短时间内)已提交证券交易法1934年第13或15(d)条所要求提交的所有报告，并且在过去90天内已受到此类报告提交要求的影响。
请勾选方框，以表明注册人是否在过去12个月内（或其要求提交此类文件的较短期限内）提交了每份交互式数据文件，其提交是根据规则405号第S-T条（本章第232.405条）要求提交的。
请通过勾选标记说明注册者是大型加速报告公司、加速报告公司、非加速报告公司、较小报告公司或新兴成长公司。有关“大型加速报告公司”、“加速报告公司”、“较小报告公司”和“新兴成长公司”的定义，请参见《交易所法》第120亿.2条。
大型加速报告人 | ☐ | 加速文件提交人 | ☐ |
☒ | 较小的报告公司 | ||
|
| 新兴成长公司 |
如果是新兴成长型企业，请勾选复选标记，表明注册者已选择不使用延长过渡期来符合根据证券交易法第13(a)条规定提供的任何新财务会计准则。
勾选表示注册人是否为无实质业务的公司（根据法规12b-2条规定）。 是
仅适用于涉及破产的注册者
请在检查标记旁边打勾，表示在过去五年内参与了破产程序的注册管理人：
请打勾表示注册人是否已根据1934年证券交易法第12、13或15(d)条款，在法院确认的计划下分发证券后，提交了所有必需的文件和报告。 是 ☒ 否 ☐
(仅适用于公司注册申请人)
表明在最近的实际日期每个注册公司普通股类别的流通股数。
内容表
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前瞻性陈述
本报告包含有关我们业务、财务状况、营运结果和前景的前瞻性陈述。"预期"、"预言"、"打算"、"计划"、"相信"、"寻求"、"估计"等词或类似词句的出现，意在识别前瞻性陈述，但不被视为代表在本报告中用来识别前瞻性陈述的一种具备全面性的手段。此外，关于未来事项的陈述亦属于前瞻性陈述。
尽管本报告中的前瞻性声明反映了我们管理层的良好信念判断，但这些声明仅能基于我们目前已知的事实和因素。因此，前瞻性声明本质上受到风险和不确定性的影响，实际结果和结果可能与前瞻性声明中所讨论或预期的结果和结果有实质性差异。可能导致或促成这些结果和结果差异的因素包括但不限于，在我们截至2023年12月31日的年度报告《Form 10-K》中明确处理的“前瞻性声明”、“项目1A. 风险因素”和“项目7. 管理层对财务状况和运营结果的讨论与分析”下的内容，在本《Form 10-Q》中的“管理层对财务状况和运营结果的讨论与分析”以及我们向美国证券交易委员会（SEC）提交的其他报告中。您应避免对这些前瞻性声明过度依赖，这些声明仅在本报告的日期内有效。
我们向证券交易委员会（SEC）提交报告。SEC维护一个网站（www.sec.gov），该网站包含我们以及其他以电子方式向SEC提交报告的发行者的报告、委托书和资讯声明及其他资讯。您也可以在位于华盛顿特区20549，F街100号的SEC公共参考室阅读和复印我们提交给SEC的任何资料。您可以通过拨打1-800-SEC-0330联系SEC，以获取有关公共参考室操作的更多资讯。
我们没有任何义务修改或更新任何前瞻性陈述，以反映本报告日期后可能出现的任何事件或情况，除非法律要求。读者被敦促仔细审阅并考虑本季度报告全文中提供的各种披露，这些披露旨在通知有兴趣方面可能影响我们业务、财务状况、营运结果和前景的风险和因素。
| 3 |
| 内容表 |
第一部分 - 财务资讯
项目 1. 未经审核的基本报表
SolarMax 科技公司及其子公司
简明合并资产负债表
截至2024年9月30日和2023年12月31日
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| 九月三十日， 2024 |
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资产 |
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流动资产: |
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现金及现金等价物 |
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限制性现金，流动 |
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应收帐款，净额 |
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短期投资，持有至到期 |
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合约资产净额 |
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由SPIC和项目公司应收款项 |
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客户贷款应收款，流动，净额 |
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存货，净额 |
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其他应收款项和流动资产，净额 |
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流动资产总额 |
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不动产及设备，净额 |
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营运租赁使用权资产 |
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商誉 |
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投资于未合并的太阳能项目公司 |
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客户贷款应收款项，非流动，净额 |
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递延所得税资产 |
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非流动受限现金 |
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其他资产 |
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总资产 |
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负债和股东资本赤字 |
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流动负债： |
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应付账款 |
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营运租赁负债，流动 |
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未经抵押的贷款，流动 |
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关联方提供的抵押贷款，流动 |
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抵押可转换票据，流动 |
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应计费用及其他应付款 |
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流动负债总额 |
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营业租赁负债，非流动 |
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与相关方的担保贷款，非流动，扣除债务折扣和发行成本净额 |
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担保可转换票据，非流动，扣除债务折扣和发行成本净额 |
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其他负债 |
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总负债 |
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承诺和条件（注17） |
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股东资本赤字： |
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优先股，面额 $ |
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普通股，面额 $ |
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资本公积额额外增资 |
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按成本核算的库藏股 |
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累积亏损 |
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累积其他全面损失 |
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股东权益的赤字为 |
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总负债及股东权益赤字 |
| $ |
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| $ |
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请参阅简明合并基本报表附注。
| 4 |
| 内容表 |
SolarMax 科技公司及其子公司
损益综合表简明合并报表
截至2024年9月30日和2023年，三个月和九个月结束日期。
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| 截至三个月 九月三十日， |
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| 九个月结束 九月三十日， |
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| 2024 |
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| 2023 |
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| （未经审核） |
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| (未经审核) |
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收入 |
| $ |
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| $ |
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| $ |
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营收成本（包括股票基础补偿费用 $ |
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毛利润 |
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营运费用： |
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一般及行政费用（包括股权支付补偿费用） |
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销售和行销 |
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商誉减值 |
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总营运开支 |
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营业利润（损失） |
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其他收益（支出）： |
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利息收入 |
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利息支出 |
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太阳能专案公司的收益分享 |
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偿债利益 |
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提前终止租约的收益 |
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其他收入（费用），净额 |
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其他收入（支出）总计 |
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所得（损失）税前 |
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所得税负债（利益） |
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净利润（损失） |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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每股净收益（损失） |
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基本 |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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稀释的 |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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计算每股净利润（亏损）所用的加权平均股份数 |
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基本 |
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摊薄 |
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请参阅简明合并基本报表附注。
| 5 |
| 内容表 |
SolarMax 科技公司及其子公司
综合损益简明合并财务报表
截至2024年9月30日和2023年，三个月和九个月结束日期。
|
| 截至三个月 九月三十日， |
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| 九个月结束 九月三十日， |
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| 2024 |
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| 2023 |
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| 2024 |
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| 2023 |
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| (未经审核) |
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| (未经审计) |
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净利润（损失） |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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其他综合收益（损失） |
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外币转换调整 |
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| ( | ) |
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| ( | ) | |
总全面收益（损失） |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
请参阅简明合并基本报表附注。
| 6 |
| 内容表 |
SolarMax 科技公司及其子公司
股东权益（赤字）变动表合并简明财务报表
截至2024年9月30日和2023年9月30日三个月的数据（金额以千为单位）
|
| 优先股 |
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| 普通股 |
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| 新增已付资本 在 |
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| 库藏股票 |
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| 累积 |
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| 累积 其他 全面性 |
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| 分享 |
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| 金额 |
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| 股份 |
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| 金额 |
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| 资本 |
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| 股份 |
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| 金额 |
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| 赤字 |
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| 损失 |
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| 总计 |
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截至2024年6月30日的余额（未经审核） |
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| - |
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| $ |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
受限股股权发放 |
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| - |
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| - |
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基于股票的薪酬 |
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净利润（损失） |
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| - |
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| - |
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| - |
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货币转换调整 |
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| - |
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| - |
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| - |
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截至2024年9月30日的余额（未经审核） |
|
| - |
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| $ |
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| $ |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
|
| 优先股 |
|
| 普通股 |
|
| 新增已付资本 在 |
|
| 库藏股票 |
|
| 累积 |
|
| 累积 其他 全面性 |
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| ||||||||||||||||||||
|
| 分享 |
|
| 金额 |
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| 分享 |
|
| 金额 |
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| 资本 |
|
| 股份 |
|
| 金额 |
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| 亏损 |
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| 损失 |
|
| 总计 |
| ||||||||||
截至2023年6月30日的余额（未经审核） |
|
| - |
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| $ |
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| $ |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
净利润（损失） |
|
| - |
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| - |
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| - |
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货币转换调整 |
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| - |
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| - |
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| - |
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| ( | ) |
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截至2023年9月30日的余额（未经审核） |
|
| - |
|
| $ |
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| $ |
|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
请参阅简明合并基本报表附注。
| 7 |
| 内容表 |
SolarMax 科技公司及其子公司
股东权益（赤字）变动表合并简明财务报表
截至二零二四年九月三十日及 2023 年九月三十日止九个月
|
| 优先股 |
|
| 普通股 |
|
| 新增已付资本 在 |
|
| 库藏股票 |
|
| 累积 |
|
| 累积的 其他 全面性 |
|
|
| ||||||||||||||||||||
|
| 分享 |
|
| 金额 |
|
| 股票 |
|
| 金额 |
|
| 资本 |
|
| 股票 |
|
| 金额 |
|
| 赤字 |
|
| 亏损 |
|
| 总计 |
| ||||||||||
2023年12月31日结余 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
受限股股权发放 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
|
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|
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|
|
| |||||||
基于股票的薪酬 |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
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|
|
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| |||||||
因行使warrants而发行的股份 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
|
|
|
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|
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| |||||||
因行使期权而发行的股份 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
首次公开募股 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
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| ||||||||
之前资本化的公开发行成本 |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
净利润（损失） |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
货币转换调整 |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
截至2024年9月30日的余额（未经审计） |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
|
| 优先股 |
|
| 普通股 |
|
| 新增已付资本在 |
|
| 库藏股票 |
|
| 累积的 |
|
| 累积 其他 全面性 |
|
|
|
| |||||||||||||||||||
|
| 股票 |
|
| 金额 |
|
| 股份 |
|
| 金额 |
|
| 资本 |
|
| 股份 |
|
| 金额 |
|
| 亏损 |
|
| 损失 |
|
| 总计 |
| ||||||||||
2022年12月31日结余 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
净利润（损失） |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
货币转换调整 |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
截至2023年9月30日的余额（未经审核） |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
请参阅简明合并基本报表附注。
| 8 |
| 内容表 |
SolarMax 科技公司及其子公司
简明合并现金流量量表
截至2024年和2023年9月30日止九个月
|
| 九个月结束 九月三十日， |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (未经审计) |
| |||||
营运活动 |
|
|
|
|
|
| ||
净利润（损失） |
| $ | ( | ) |
| $ |
| |
调整以便调和 净利润相对于营运活动现金提供者: |
|
|
|
|
|
|
|
|
折旧和摊销费用 |
|
|
|
|
|
| ||
关于客户贷款应收款项的贷款折价摊销 |
|
| ( | ) |
|
| ( | ) |
可转换票据折扣和债务发行成本摊销 |
|
|
|
|
|
| ||
营运租赁权益资产摊销 |
|
|
|
|
|
| ||
信贷损失和贷款损失的提列（收回） |
|
|
|
|
|
| ||
存货过剩和淘汰的提列 |
|
|
|
|
|
| ||
保固和生产担保的提列 |
|
|
|
|
|
| ||
对投资收益的股权，超过分配收益的部分 |
|
| ( | ) |
|
| ( | ) |
延迟所得税支出 |
|
|
|
|
|
| ||
处置不动产和设备所得利益 |
|
| ( | ) |
|
| ( | ) |
偿债利益 |
|
| ( | ) |
|
| ( | ) |
提前终止租约的收益 |
|
| ( | ) |
|
| ( | ) |
基于股票的薪酬 |
|
|
|
|
|
| ||
商誉减值 |
|
|
|
|
|
| ||
营运资产和负债的变化： |
|
|
|
|
|
|
|
|
应收帐款 |
|
| ( | ) |
|
|
| |
合约资产 |
|
|
|
|
| ( | ) | |
来自SPIC和项目公司的应收款项 |
|
|
|
|
|
| ||
客户贷款应收款项 |
|
|
|
|
|
| ||
存货 |
|
| ( | ) |
|
|
| |
其他应收款及流动资产 |
|
|
|
|
| ( | ) | |
其他资产 |
|
| ( | ) |
|
|
| |
应付账款 |
|
| ( | ) |
|
|
| |
租赁负债 |
|
| ( | ) |
|
| ( | ) |
合同负债 |
|
|
|
|
|
| ||
应计费用及其他应付款 |
|
| ( | ) |
|
| ( | ) |
其他负债 |
|
| ( | ) |
|
| ( | ) |
营运活动所提供（使用）的净现金 |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
投资活动 |
|
|
|
|
|
|
|
|
购买短期投资 |
| $ | ( | ) |
| $ |
| |
购买不动产和设备 |
|
|
|
|
| ( | ) | |
处置不动产和设备的收益 |
|
|
|
|
|
| ||
投资活动所提供（使用）的净现金 |
|
| ( | ) |
|
| ( | ) |
融资活动 |
|
|
|
|
|
|
|
|
结算支付 |
|
| ( | ) |
|
| ( | ) |
首次公开发行的净收益 |
|
|
|
|
|
| ||
票据收益 |
|
|
|
|
|
| ||
可转债本金支付 |
|
| ( | ) |
|
| ( | ) |
借款本金支付 |
|
|
|
|
| ( | ) | |
设备资本租赁支付 |
|
|
|
|
| ( | ) | |
与Uonone收购条款相关的支付（附注15） |
|
|
|
|
| ( | ) | |
与Uonone收购条款有关的收益（附注15） |
|
|
|
|
|
| ||
融资活动提供的（使用的）净现金 |
|
|
|
|
|
| ||
汇率变动的影响 |
|
| ( | ) |
|
|
| |
现金、现金等价物及受限现金的净增（减） |
|
| ( | ) |
|
|
| |
现金、现金等价物和受限现金，年初余额 |
|
|
|
|
|
| ||
现金、现金等价物及受限现金，年末 |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
现金流资讯的补充揭示： |
|
|
|
|
|
|
|
|
现金支付的利息（已收到） |
| $ |
|
| $ |
| ||
现金支付的所得税（已收到） |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
投资和融资活动的非现金活动： |
|
|
|
|
|
|
|
|
发行可转换票据给无关方，涉及从相关方处获得的Eb-5贷款 |
| $ |
|
| $ |
| ||
请参阅简明合并基本报表附注。
| 9 |
| 内容表 |
SolarMax 科技公司及其子公司
综合现金流量表
截至2024年9月30日和2023年9月30日的九个月（续）
|
| 至9月30日为止， |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (未经审计) |
| |||||
现金及现金等价物余额年初： |
|
|
|
|
|
| ||
现金及现金等价物 |
| $ |
|
| $ |
| ||
非流动受限现金 |
|
|
|
|
|
| ||
|
| $ | 2,893,816 |
|
| $ | 4,168,951 |
|
|
|
|
|
|
|
|
|
|
现金及现金等价物余额年末： |
|
|
|
|
|
|
|
|
现金及现金等价物 |
| $ |
|
| $ |
| ||
限制性现金，流动 |
|
|
|
|
|
| ||
受限现金，非流动性 |
|
|
|
|
|
| ||
|
| $ | 1,151,868 |
|
| $ | 4,191,670 |
|
请参阅简明合并基本报表附注。
| 10 |
| 内容表 |
SolarMax 科技公司及其子公司
附注至简明综合财务报表
截至2024年9月30日及2023年9月30日的九个月（未经审核）
1. 业务描述
SolarMax 科技公司及其附属公司（以下简称“公司”）是一家集成太阳能和可再生能源公司。太阳能系统保留来自太阳的直流（DC）电力并将其转换为交流（AC）电力，可用于为住宅和商业业务提供电力。太阳能业务建立在太阳能系统用户能够通过与从当地电力公用事业购买的电力相比节省能源成本并减少碳足迹的能力之上。公司成立于2008年，专注进行太阳能业务，在美利坚合众国开展其业务。公司的主要业务包括（i）为住宅和商业客户销售并安装光伏和电池备用系统，（ii）为其光伏和电池备用系统的销售提供融资，以及（iii）向政府和商业用户销售LED系统和服务。
在2015年，公司透过附属公司收购了成都中宏天浩科技有限公司（连同其附属公司“ZHTH”）和江苏中宏光伏电器有限公司（“ZHPV”），并在中华人民共和国（“中国”）开展业务。 公司在中国的业务主要通过ZHTH和ZHPV及其子公司进行。 公司自2022年以来并未从其中国业务中获得任何营业收入，截至本报告日，中国业务亦未有任何项目或协议。 截至2024年9月30日结束的季度，公司针对其中国业务进行了商誉减损评估，考虑了各种因素，主要是基于中国经济持续下行直接影响公司未来能够在可预见的未来生成新业务的能力以及2024年9月30日未有任何协议或协商协议的缺席，公司确认对商誉的全部余额进行减损费用为$
首次公开募股(IPO)
在2024年3月5日，公司发行了
包括从额外股份销售所得，该次发行的总毛收益约为$
根据承销协议，公司向代表发行了可购买的warrants（以下简称“代表的warrants”）
在2024年3月13日，代表的warrants已经完全以无现金方式行使。根据无现金行使的公式，公司共发行了
| 11 |
| 内容表 |
SolarMax 科技公司及其子公司
附注至简明综合财务报表
截至2024年9月30日及2023年9月30日的九个月（未经审核）
2. 呈报基础和重要会计政策摘要
会计基础
公司的未经审核的简明合并基本报表是根据美国通用会计原则（“U.S. GAAP”）以及证券交易委员会（“SEC”）有关临时基本报表的适用规则和规定编制的。根据这些规则和规定，通常包含在遵循GAAP编制的基本报表中的某些资讯和附注披露已被简化或省略。因此，这些未经审核的简明合并基本报表应与截至2023年12月31日的经审核合并基本报表及其附注一起阅读。未经审核的简明合并基本报表是基于与经审核的合并基本报表相同的基础编制的，并且在管理层的意见中，反映了为公正地呈现公司的财务结果而认为必要的所有调整（所有这些调整均被视为正常的经常性性质）。截至2024年9月30日的九个月结果不一定能表明截至2024年12月31日的年度结果或任何其他中期或其他未来年度的结果。
合并原则
在简明合并基本报表中报告的金额以美元为单位，除非另有说明。该公司的外国子公司的功能货币为人民币（“RMB”）。这些交易在报告期间或结束时按汇率从当地货币转换为美元。所有重要的公司内部账户和交易在合并时已被消除。
重新分类
以前期间的基本报表中的特定金额已被重新分类，以符合本期基本报表的呈现。这些重新分类对先前报告的净损失没有影响。
估计的使用
根据美国通用会计准则编制基本报表需要管理层进行影响资产和负债金额报告以及条款性资产和负债披露的估计和假设，时间简明综合基本报表的日期和报告期间内报告金额的重大会计估计反映在公司简明综合基本报表中，包括估计长期施工合同收入的基于成本的输入、应收账款和应收款项的可收回性、资产和设备耐用年限和损耗、商誉、授予期权和股份作为报酬成本的公平价值、在公司合并中获取的资产公平价值和承担的负债、保固和顾客服务储留金、递延所得税资产的估值、存货和所得税赔款。实际结果可能与这些估计有实质差异。
流动性和营运持续性
附表的简明合并基本报表已按照美国通用会计准则编制，该准则考虑公司作为持续经营实体的情况。公司历史上的净亏损和来自营业活动的负现金流量，包括截至2024年9月30日九个月的净亏损和负现金流量，以及累积亏损和股东资本赤字的增加，对公司能够持续作为持续经营实体提出实质疑问。
截至2024年9月30日，公司当报告其工作资本周转不足约$
截至2024年9月30日，本公司的主要流动性来源约为$
| 12 |
| 内容表 |
SolarMax 科技公司及其子公司
附注至简明综合财务报表
截至2024年9月30日及2023年9月30日的九个月（未经审核）
基于上述事实，对于该公司能否在这些基本报表的发行日期起一年内继续作为持续营业实体存疑。该公司无法保证能增加现金余额或限制现金消耗，或取得其目前任何债务交易为已抵押可转换债务，因而维持其计划业务所需的充足现金余额。未来业务需求可能导致现金利用远超最近经历的水准。由于太阳能项目的时间安排，该公司的中国业务营业收入和现金流不规则，并且该公司业务运营需要大量所有基金类型，特别是在没有或仅有少量来自项目的营业收入或现金流的时期，截至2024年9月30日，该公司没有任何与其中国业务段有关的协议，并且对任何协议的谈判亦未进行。该公司将来可能需要进一步筹集资本。但是，鉴于前述情况、该公司普通股价格之低和该普通股可能会从纳斯达克摘牌的可能性，该公司无法保证将能够按可接受条件筹集到额外资本，即使能够也不确定。
现金及约当现金
现金及现金等价物包括存入资金账户以及原始到期日在六个月或更短时间内购买的高度流动性投资。
短期投资
短期投资包括到期日短于的短期应收票据。
受限现金
受限现金包括用于抵押ACH交易和未清偿信用卡借款工具的现金。
2024年9月30日和2023年12月31日的限制性现金包括：
|
| 九月三十日， 2024 |
|
| 12月31日, 2023 |
| ||
|
|
|
|
|
|
| ||
美国金融机构持有的存入资金，作为ACH交易和业务信用卡的担保品 — 美国业务部门 |
| $ |
|
| $ |
| ||
减：当期部分 |
|
| ( | ) |
|
|
| |
非流动部分 |
| $ |
|
| $ |
| ||
应收帐款
应收帐款以客户欠款的本金余额报告。在美国，应收帐款主要包括LED产品和服务销售的客户帐单。在中国业务部门，应收帐款代表根据合同开具的但未收回的已完工施工合同金额。应收帐款按净实现价值记录。
公司保留应收款项的相关部分津贴，包括应收帐款、政府回扣应收款项及其他应收款项，这代表公司对截至财务报表日应收帐款中当前预期损失的估计。信用损失的津贴充分性每季评估一次，并定期评估设立津贴时使用的假设和模型。由于信用损失可能随著时间大幅变化，估计信用损失需要对一些不确定事项作出多项假设。一旦判定应收款项无法收回，将其列入抵减津贴。与回扣应收款项相关的费用将被记录为收入的减少。
| 13 |
| 内容表 |
SolarMax 科技公司及其子公司
附注至简明综合财务报表
截至2024年9月30日及2023年9月30日的九个月（未经审核）
合约资产
合同资产主要系指公司在报告日已完成但尚未开具帐单的工作所拥有的权利，主要是美国太阳能系统销售。当这些权利变成无条件时（即获得运营许可时），合同资产将转为应收款。合同负债主要与客户预付有关，涉及美国太阳能系统销售的预付。在所有权转移前，这部分预付未曾发生。
在ASC主题606《与顾客的合约所得营业收入（“ASC 606”）》的实用豁免条款，即第340-40-25-4段，公司在产生时承认获得合约的增量成本（即佣金费用）作为应付收益的成本，如果公司本应认可的资产摊销期限为一年或更短，这些费用包含在营业成本中。
客户贷款应收款项
在美国板块中，公司向符合公司信用资格标准的客户提供了通过SolarMax Financial核准的分期贷款方式来融资购买太阳能系统的选项。所有贷款均以太阳能系统或其他正在融资的项目作为抵押。未偿客户贷款应收余额已扣除适当的贷款损失准备。足以维持贷款损失准备水平足以覆盖预期客户贷款信贷损失的计提贷款损失准备。在确定预期信用损失时，公司考虑了其历史信用损失水平，当前经济趋势，以及影响未来现金流可收回性的合理和支持性预测。以低于市场利率的促销利率提供的贷款按有效利率法则视为贷款折让，并按照贷款期限将其摊销为利息收入。自2020年初以来，公司没有与任何新贷款协议签订，并且其与现有贷款组合相关的融资收入。
存货
存货包括(a) 在住宅开发项目中尚未出售的太阳能系统的在制品；以及(b) 主要由光伏模块、逆变器、施工及其他材料和LED产品组成的元件，所有这些按照先进先出法以成本或可变现净值中较低者计价。公司定期审查其存货，以判断是否有任何过剩和过时的情况，并确定是否需要设立准备金。
对过剩和过时库存的估算是基于历史销售和使用经验，并结合对现有库存当前状态的审查。
资产和设备
固定资产和设备按成本减少累计折旧和摊销额计量。新增及改良费用资本化，而维修和保养支出则按实际发生的情况计入营业费用。折旧按照资产估计的有用寿命采用直线法计算。承租人装修及租用给客户的太阳能系统按照租赁期限或资产估计有用寿命较短的期限采用直线法摊销。
各类别财产和设备的预计使用寿命如下：
汽车-半导体 |
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家具和设备 |
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租赁改良 |
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太阳能系统出租给客户 |
| 租赁期限， |
| 14 |
| 目录 |
SolarMax科技公司及其子公司
附注至简明合并财务报表
截至2024年9月30日和2023年九个月（未经审计）
商誉
商誉是指企业合并中购买价格超出取得的资产和承担的负债的公允价值的部分。公司的商誉源自于2015年4月在中国收购业务。
公司至少每年审查一次商誉是否减值，或在事件或情况变化时表示其账面金额可能已减值。公司通常在每年的第四季度进行商誉减值测试，或者在事件或情况变化或发生时，指示商誉可能减值。在评估商誉减值时，公司遵循ASC主题350，无形资产-商誉和其他。在确定报告单位的公允价值时，公司考虑基础企业价值，如有必要，还要考虑报告单位的贴现现金流，这涉及假设和估计，包括报告单位的未来财务表现、加权平均资本成本以及对当前实施的税法的解释。可能表明减值并需要公司进行定量减值测试的情况包括报告单位财务结果的显著下降、报告单位企业价值相对于其净账面价值的显著下降、竞争或市场份额的意外变化，以及报告单位战略计划的显著变化。对于公司的商誉年度测试，管理层确定其报告单位与其经营部门相同。因此，商誉年度测试的报告单位是中国区。
截至2024年9月30日的季度，考虑各种因素进行了商誉减值评估，主要基于中国持续的经济衰退直接影响公司未来能力开展新业务，在可预见的将来未与中国业务段达成任何协议或谈判，以及公司股票市场价格显著下跌的情况下，公司对截至2024年9月30日的九个月的全部商誉余额识别了750万美元的减值损失。2023年截至9月30日的9个月并未确认减值损失。
长期资产的减值损失
公司的长期资产包括房地产和设备，其中包括出租给客户的太阳能系统。
根据ASC主题360，物业、厂房和设备，公司在事件或情况变化表明长期资产的账面价值或资产组的账面价值可能无法收回时，会评估长期资产的减值。如果预计因使用和最终处置长期资产而产生的未折现未来净现金流总和低于其账面价值，则公司会确认一个减值损失，计算方式为账面价值与公允价值的差额。
截至2024年和2023年9月30日的九个月内，这些系统没有减值损失。
非合并联营和太阳能项目公司的投资
该公司在美国的非合并投资直接由公司及其子公司SMX Capital持有，包括对总部位于美国的太阳能有限责任公司的投资：Alliance Solar Capital 1, LLC（“A#1”），Alliance Solar Capital 2, LLC（“A#2”）和Alliance Solar Capital 3, LLC（“A#3”）。 该公司的美国业务部门还对总部位于中国的面板制造商常州宏益新能母基科技有限公司（“常州”）进行了投资。
2024年9月30日和2023年12月31日，公司在中国有非合并投资，涉及其对三家项目公司30%的非控股权，该公司于2021年转让了。
对于这些投资，公司并没有控股权，但根据各自的营运协议，公司有权对被投资方的营运和财务决策施加重大影响。在每项投资中，被投资方还为每个投资者维护一个独立的资本账户，因此，公司在每个被投资方都有一个独立的资本账户。由于公司有权对被投资方施加重大影响，公司使用权益法会计处理这些投资，根据指定的利润和亏损比例记录公司对被投资方利润或亏损的相应份额。从权益法投资方收到的分配被视为投资收益，并分类为经营活动的现金流入，除非公司累计收到的分配减去以前确定为投资回报的往期分配大于公司确认的累计权益盈余。当出现这种超额时，今年度分配达到此超额的部分将被视为投资回报，并分类为投资活动的现金流入。
| 15 |
| 目录 |
SolarMax科技公司及其子公司
简明合并财务报表附注
截至2024年9月30日和2023年九个月（未经审计）
由于公司的投资包括私人持有的公司，其中没有提供报价市场价格，因此使用成本法以及其他本质信息来评估投资的公允价值。如果在任何报告期结束时投资的账面价值高于公允价值，则会对投资进行审查，以判断减值是否是除暂时性以外的其他情况。当判断公允价值下降是除暂时性以外的时候，投资被视为受损。一旦确定公允价值下降是除暂时性以外的时候，会计提出减值损失，并建立投资的新成本基础。公司定期监视未纳入合并范围的实体投资的减值情况。在截至2024年9月30日和2023年9月30日的九个月期间，未确定任何减值指标，也未记录任何减值损失。
担保
工艺保修
对于在美国销售太阳能和电池系统，该公司提供25年的工艺保修，以涵盖公司的安装质量。保修旨在涵盖因公司安装太阳能系统和电池存储系统而造成的安装缺陷和客户财产损坏，这些缺陷通常在安装后的2-3年内被发现。25 年保修期与竞争对手提供的期限一致，由公司提供，以保持市场竞争力。工艺保修不包括组件的保修，例如面板和逆变器，这些保修由制造商直接承保，面板和逆变器的保修期通常为25年，以及
EPC服务的质量保证
对于中国大陆市场，公司一般在工程、采购及施工（EPC）服务的施工质量上提供一年的保修期。客户通常保留合同金额的3-5%，直到保修期满后才支付给公司，公司称之为应收尾款。公司目前根据中国大陆市场项目收入的名义百分比提供潜在负债的准备金，金额约为美元的%.目前公司在质量保修方面未发生重大索赔。该负债在保修期到期时会被冲销。
生产保证
对于在美国销售的太阳能系统，该公司还保证，按照商定规格安装的组件将产生至少一定的产量
LED 保修
公司LED产品和服务的质保期从劳动方面为期一年，最长可达七年，适用于出售给政府市政单位的某些产品。公司目前根据LED销售额提供质保准备金。
其他保修
2016年，由于公司从中国一家太阳能面板供应商购买的太阳能模块，该供应商破产，公司将未付尾款的相关责任重新分类为金额为$的质量保证责任。
| 16 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines a framework for determining fair value, establishes a hierarchy of information used in measuring fair value, and enhances the disclosure information about fair value measurements. ASC 820 provides that the “exit price” should be used to value an asset or liability, which is the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale at the measurement date. ASC 820 also provides that relevant market data, to the extent available and not internally generated or entity specific information, should be used to determine fair value.
ASC 820 requires the Company to estimate and disclose fair values on the following three-level hierarchy that prioritizes market inputs.
Level 1: | Quoted prices in active markets for identical assets or liabilities. |
Level 2: | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, deposits, taxes payable, warranty liability and accrued payroll and expenses approximates fair value because of the short maturity of these instruments.
The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of September 30, 2024:
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The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2023:
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Cash equivalents – Cash equivalents consist of money market accounts and are carried at their fair value.
Customer loans receivable – The fair value of customer loans receivable is calculated based on the carrying value and unobservable inputs which include the credit risks of the customers, the market interest rates and the contractual terms. The Company’s underwriting policies for the customer loans receivable have not changed significantly since the origination of these loans. The overall credit risk of the portfolio also has not significantly fluctuated as evidenced by the minimal historical write-offs, and lastly the market interest rates have remained relatively consistent since the origination of the loans.
| 17 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Short-term investments – Short-term investments consist of short-term note receivables with maturities of 12 months or less. Accordingly, their carrying values approximate their fair value.
Bank and other loans – The fair value of such loans payable had been determined based on the variable nature of the interest rates and the proximity to the issuance date.
Secured loans from related parties – The related party loans were issued at the fixed annual interest rates of
Secured convertible debt – The secured convertible debt was issued at the fixed annual interest rates of
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”). Revenue is measured based on the considerations specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when the Company satisfies a performance obligation by transferring control over a product or service to a customer.
Taxes assessed by government authorities that are imposed on, or concurrent with, a specific revenue-producing transaction are collected by the Company from the customer and excluded from revenue.
The Company’s principal activities from which the Company generates its revenue are described below.
Revenue from EPC Services
For energy generation assets owned and controlled by the customer, the Company recognizes revenue for sales of EPC services over time as the Company’s performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of EPC services represents a single performance obligation for the development and construction of a single generation asset, which is a complete solar energy project. For such sale arrangements, the Company recognizes revenue using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract after consideration of the customer’s commitment to perform its obligations under the contract, which is typically measured through the receipt of cash deposits or other forms of financial security issued by creditworthy financial institutions or parent entities.
Payment for EPC services is made by the customer pursuant to the billing schedule stipulated in the EPC contract which is generally based on the progress of the construction. Once the bills are issued to the customer,
In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred relative to the total estimated costs (including solar module costs) to determine the progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of the Company’s efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying the Company’s performance obligations (“inefficient costs”) are excluded from the Company’s input methods of revenue recognition as the amounts are not reflective of the Company’s transferring control of the solar energy system to the customer. Costs incurred towards contract completion may include costs associated with solar modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance. The Company recognizes solar module and direct material costs as incurred when such items have been installed in a system.
| 18 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Cost-based input methods of revenue recognition require the Company to make estimates of net contract revenues and costs to complete its projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete its projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.
The Company’s arrangements may contain clauses such as contingent repurchase options, delay liquidated damages, rebates, penalties or early performance bonus, most favorable pricing or other provisions, if applicable, that can either increase or decrease the transaction price. The Company has historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606. Under Topic 606, the Company estimates and applies a constraint on variable considerations and includes that amount in the transaction price. Because the Company’s historical policies on estimating variable considerations that would decrease the transaction price have largely mirrored the requirements under Topic 606, and because variable considerations that would increase the transaction price have historically been immaterial or would likely be constrained under Topic 606, there is no cumulative effect adjustment. The Company estimates variable considerations for amounts to which the Company expects to be entitled and for which it is not probable that a significant reversal of cumulative revenue recognized will occur.
For energy generation assets not owned and controlled by the customer during the construction, as well as contracts with customers that do not require progress payments during construction and whereby the contracts include restrictive acceptance provisions before any progress payments are made by the customers, the Company recognizes revenues at a point in time when the Company determines it has transferred control to the customer.
PRC Power Purchase Agreements Revenue
Revenues under certain power purchase agreements are recognized based on the output delivered at an agreed upon rate over the contract term. The Company records the revenue under such power purchase agreements during the period under which it has controlling interest in the project subsidiary. Revenue recognition ceases upon the sale and transfer of controlling interest in the project subsidiary to a third party.
Solar Energy and Battery Storage Systems and Components Sales
Revenue recognition associated with sales of solar energy systems, battery storage systems, and other products is recognized over time as the Company’s performance creates or enhances the property controlled by the customer (the asset is being constructed on a customer’s premises that the customer controls).
The Company’s principal performance obligation is to design and install a solar energy system that is interconnected to the local power grid and for which permission to operate has been granted by a utility company to the customer. The Company recognizes revenue over time as control of the solar energy system transfers to the customer which begins at installation and concludes when the utility company has granted the permission to operate.
All costs to obtain and fulfil contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.
For solar energy and battery storage system sales, the Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract. In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost of the solar energy and battery storage system, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost‑based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance.
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| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
In the U.S., the Company sells solar energy and battery storage systems to residential and commercial customers and recognizes revenue net of sales taxes. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through a third party leasing company.
Direct payments are made by the customer as stipulated in the underlying home improvement or commercial contract which generally includes an upfront down payment at contract signing,
For third-party financing arranged by the Company for the customer, direct payments are made by the financing company to the Company based on an agreement between the financing company and the Company, with the majority of the payments made by the time of completion of installation but not later than the date on which the permission to operate the solar system is granted by the utility company.
For a lease through the third party leasing partner, direct payments are made by the leasing partner to the Company based on an agreement between the leasing partner and the Company, which is generally 80% upon the completion of installation and 20% upon the permission to operate is granted.
LED Product Sales and Service Sales
For product sales, the Company recognizes revenue at a point in time following the transfer of control of the products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For contracts involving both products and services (i.e., multiple performance obligations), the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenue from services is recognized when services are completed which is upon acceptance by the customer. The standalone selling price of the warranty is not material and, therefore, the Company has not allocated any portion of the transaction price to any performance obligation associated with the warranty.
Payment for products is generally made upon delivery or with a 30 day term. Extended payment terms are provided on a limited basis not to exceed twelve months. Payment for services is due when the services are completed and accepted by the customer. For certain LED product sales, the Company provides the customers with a right of return subject to restocking fees. The Company assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration the Company expects to receive after returns are made. Based on the Company’s historical experience, the Company has determined the likelihood and magnitude of a future returns to be immaterial and currently has not provided for a liability for such returns on the LED product sales.
For contracts where the Company agreed to provide the customer with rooftop solar energy systems (including design, materials, and installation of the system) in addition to providing LED products and LED installation, these agreements may contain multiple performance obligations: 1) the combined performance obligation to design and install rooftop solar energy system; 2) the performance obligation to deliver the LED products; and, 3) the performance obligation to install the LED products. Topic 606 permits goods and services that are deemed to be immaterial in the context of a contract to be disregarded when considering performance obligations within an agreement. The Company will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they will represent a separate performance obligation.
| 20 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Operating Leases and Power Purchase Agreements (PPAs) in U.S.
The Company sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, which may qualify as a lease, the Company recognizes revenue each period based on the volume of energy delivered to the customer and the price stated in the PPA.
For leases, the Company was considered the lessor of solar energy systems under ASC Topic 840, Leases (“ASC 840”); however, upon the Company’s adoption of ASC Topic 842, Leases (“ASC 842”), the Company is no longer considered the lessor because the Company owns the solar renewable energy certificates related to these solar energy systems, and the counterparty does not receive substantially all of the economic benefits for the use of these energy solar systems. Therefore, these arrangements are not considered leases in accordance with ASC 842.
Loan Interest Income
In the U.S., in the past, the Company provided installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services, and some of these loans remain outstanding. The Company has not entered into new loans since early 2020, and its revenues are from financing related to its existing loan portfolio. Customer loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and are reduced by an allowance for estimated credit losses as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the interest method. The interest method is applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Interest on loans generally continues to accrue until the loans are charged off. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Loans are transferred from held-for-investment to held-for-sale when management’s intent is not to hold the loans for the foreseeable future. Loans held-for-sale are recorded at the lower of cost or fair value. There were no loans held-for-sale at September 30, 2024 and December 31, 2023.
The following table summarizes the Company’s revenue by business line by segment for the three and nine months ended September 30, 2024 and 2023:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Solar energy and battery storage systems |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales on non-installment basis |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Third-party leasing arrangements |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Power purchase agreement revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total solar energy and battery storage systems |
|
|
|
|
|
|
|
|
|
|
|
| ||||
LED projects |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Financing related |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Advertising Costs
The Company charges advertising and marketing costs related to radio, internet and print advertising to operations as incurred. Advertising and marketing costs for the three months ended September 30, 2024 and 2023 were approximately $
| 21 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Income Taxes
The Company accounts for income taxes pursuant to the FASB ASC Topic 740, Income Taxes (“ASC 740”). The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. The Company accounts for the investment tax credits under the flow-through method which treats the credits as a reduction of federal income taxes of the year in which the credit arises or is utilized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has determined it is more likely than not that its deferred tax assets related to its U.S. operations will not be realizable and has recorded a full valuation allowance against its deferred tax assets. In the event the Company is able to realize such deferred income tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the Company’s condensed consolidated financial statements in accordance with U.S. GAAP. The calculation of the Company’s tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company’s tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized.
The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the three and nine months ended September 30, 2024 and 2023, the Company did not incur any related interest and penalties.
The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. As of September 30, 2024 and December 31, 2023, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes.
Comprehensive Income (Loss)
The Company accounts for comprehensive income loss in accordance with ASC 220, Income Statement – Reporting Comprehensive Income (“ASC 220”). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of September 30, 2024 and December 31, 2023 is the currency translation adjustment.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share by dividing income or losses allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Potentially dilutive securities are excluded from the computation of diluted earnings per share for the nine months ended September 30, 2024 because the effect would be antidilutive.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest for both employees and non-employees. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees and non-employees, net of estimated forfeitures, over the employee requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.
| 22 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Foreign Currency
Amounts reported in the condensed consolidated financial statements are stated in U.S. dollars. The Company’s subsidiaries in the PRC use the Chinese RMB as their functional currency and all other subsidiaries use the U.S. dollar as their functional currency.
In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. Further, foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Losses on those foreign currency transactions of approximately $
Segment Information
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer and the chief financial officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has two operating and reporting segments (U.S. and PRC) as of September 30, 2024 and December 31, 2023.
Recently Issued Accounting Pronouncements
As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.
In November 2023, the FASB issued ASU 2023-07 that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements.
The Company has determined the adoption effective on January 1, 2024 has no impact on the Company’s condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.
| 23 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
The Company is currently evaluating the impact of ASU 2023-09 and does not expect that adoption of this standard will have a material impact on the Company’s income tax disclosures.
The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s condensed consolidated financial statements.
3. Cash, Cash Equivalents and Restricted Cash
As of September 30, 2024 and December 31, 2023, insured and uninsured cash including the balance classified as restricted cash were as follows:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
US Segment |
|
|
|
|
|
| ||
Insured cash |
| $ |
|
| $ |
| ||
Uninsured cash |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
China Segment |
|
|
|
|
|
|
|
|
Insured cash |
|
|
|
|
|
| ||
Uninsured cash |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Total cash and cash equivalents and restricted cash |
|
|
|
|
|
| ||
Less: Cash and cash equivalents |
|
|
|
|
|
| ||
Restricted cash |
| $ |
|
| $ |
| ||
4. Accounts Receivable, net
The activity of the allowance for credit losses for accounts receivable for the nine months ended September 30, 2024 and 2023 is as follows:
|
| Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Balance – beginning of period |
| $ |
|
| $ |
| ||
Provision for credit losses |
|
|
|
|
|
| ||
Recoveries |
|
|
|
|
| ( | ) | |
Effect of exchange rate |
|
|
|
|
| ( | ) | |
Balance – end of period |
| $ |
|
| $ |
| ||
5. Short-term investments
In March 2024, the Company made short-term investments of $
In March 2024, the Company made short-term investments of RMB 5.0 million (approximately $
| 24 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
6. Customer Loans Receivable
In past years, the Company provided financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offered in the U.S. Depending on the credit rating of customers, the interest rate generally ranges from
The customer gives the Company a security interest in the photovoltaic systems and other products financed.
The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at September 30, 2024:
|
|
|
|
| September 30, 2024 |
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| Prior |
|
| Total |
|
| % |
| ||||||
Prime - FICO score 680 and greater |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
|
| 80.7 | % | |||||
Near-prime - FICO score 620 to 679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10.1 | % | |||||
Sub-prime - FICO score less than 620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8.2 | % | |||||
Business entity — FICO not available |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.0 | % | |||||
Total Customer Loan Receivables, gross |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| 100.0 | % | |||||
The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2023:
|
|
|
|
| December 31, 2023 |
| ||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
|
| % |
| |||||||
Prime - FICO score 680 and greater |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| 86.2 | % | ||||||
Near-prime - FICO score 620 to 679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10.3 | % | ||||||
Sub-prime - FICO score less than 620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.3 | % | ||||||
Business entity — FICO not available |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.2 | % | ||||||
Total Customer Loan Receivables, gross |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| 100.0 | % | ||||||
Customer loans receivable consist of the following as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Customer loans receivable, gross |
| $ |
|
| $ |
| ||
Less: unamortized loan discounts |
|
| ( | ) |
|
| ( | ) |
Allowance for loan losses |
|
| ( | ) |
|
| ( | ) |
Customer loans receivable, net |
|
|
|
|
|
| ||
Less: Current portion |
|
|
|
|
|
| ||
Non-current portion |
| $ |
|
| $ |
| ||
| 25 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Principal maturities of the customer loans receivable at September 30, 2024 are summarized as follows:
For the year ending December 31, |
| Amount |
| |
2024 (remainder of) |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
2028 |
|
|
| |
Thereafter |
|
|
| |
Total customer loans receivable |
| $ |
| |
The Company is exposed to credit risk on the customer loans receivable. Credit risk is the risk of loss arising from the failure of customers to meet the terms of their contracts with the Company or otherwise fail to perform as agreed.
The activity in the allowance for loan losses for customer loans receivable for the nine months ended September 30, 2024 and 2023 is as follows:
|
| Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Balance – beginning of period |
| $ |
|
| $ |
| ||
Provision (recovery) for loan losses |
|
| ( | ) |
|
| ( | ) |
Chargeoffs and adjustments |
|
|
|
|
|
| ||
Balance – end of period |
| $ |
|
| $ |
| ||
Total interest income on the customer loans receivable included in revenues was approximately $
7. Inventories, net
The activity in the reserve for excess and obsolete inventories for the nine months ended September 30, 2024 and 2023 is as follows:
|
| Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Balance – beginning of period |
| $ |
|
| $ |
| ||
Provision for excess and obsolete inventories |
|
|
|
|
|
| ||
Balance – end of period |
| $ |
|
| $ |
| ||
Inventories consisted of the following as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Solar panels, inverters, battery storage and components |
| $ |
|
| $ |
| ||
LED lights |
|
|
|
|
|
| ||
Total inventories, gross |
|
|
|
|
|
| ||
Less: reserve for excess and obsolete inventories |
|
| ( | ) |
|
| ( | ) |
Total inventories, net |
| $ |
|
| $ |
| ||
| 26 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
8. Other Receivables and Current Assets, Net
Other receivables and current assets, net consisted of the following at September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Receivable from Seller (Uonone Group - Note 15) |
| $ |
|
| $ |
| ||
Deferred project costs |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Advances to suppliers |
|
|
|
|
|
| ||
Accrued interest on short-term investments |
|
|
|
|
|
| ||
Accrued interest on customer loans receivable |
|
|
|
|
|
| ||
Capitalized offering costs |
|
|
|
|
|
| ||
Total other receivables and current assets |
| $ |
|
| $ |
| ||
Deferred project costs consist of work in process and subcontractor costs incurred on the solar energy systems and LED projects that are not fully completed at September 30, 2024 and December 31, 2023.
Prepaid expenses and other current assets include unpaid accrued rent from Sunspark Technology, Inc. ("Sunspark"), one of the Company's sub-lessees at its office in Riverside, California. Sunspark is also one of the Company's panel suppliers. On June 12, 2024, the Company entered into an offset agreement with Sunspark whereby Sunspark's unpaid rents, utilities and security allocations through June 30, 2024 of $
9. Property and Equipment
Components of property and equipment, net are as follows:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Automobiles |
| $ |
|
| $ |
| ||
Furniture and equipment |
|
|
|
|
|
| ||
Solar systems leased to customers |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Total property and equipment, gross |
|
|
|
|
|
| ||
Less: accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total property and equipment, net |
| $ |
|
| $ |
| ||
For the three months ended September 30, 2024 and 2023, depreciation expenses were approximately $
10. Goodwill
The activity of goodwill is as follows:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Balance – beginning of period |
| $ |
|
| $ |
| ||
Effect of exchange rate |
|
| ( | ) |
|
| ( | ) |
Goodwill impairment |
|
| ( | ) |
|
|
| |
Balance – end of period |
| $ |
|
| $ |
| ||
| 27 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
During the three and nine months ended September 30, 2024, as a result of the continued headwinds facing China's economy post the pandemic and the economic indicators seem to indicate further future contraction, all of which will have a direct impact on the Company's ability to generate new businesses in its China segment in the foreseeable future, accordingly the Company recognized a $
11. Investments in Unconsolidated Solar Project Companies
The Company has a
Investee |
| Investment Balance at December 31, 2023 |
|
| Share of Investee’s Net Income |
|
| Effect of Exchange Rate |
|
| Investment Balance at September 30, 2024 |
| ||||
Yilong #2 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Xingren |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Ancha |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Investee |
| Investment Balance at December 31, 2022 |
|
| Share of Investee’s Net Income (Loss) |
|
| Effect of Exchange Rate |
|
| Investment Balance at September 30, 2023 |
| ||||
Yilong #2 |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Xingren |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Ancha |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Total |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
The following tables present the summary of the combined financial statements of the three solar project companies in which the Company has a 30% equity interest as of September 30, 2024 and December 31, 2023, and for the nine months ended September 30, 2024 and 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Current assets |
| $ |
|
| $ |
| ||
Non-current assets |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Current liabilities |
| $ |
|
| $ |
| ||
Noncurrent liabilities |
|
|
|
|
|
| ||
Members’ capital |
|
|
|
|
|
| ||
Total liabilities and members’ capital |
| $ |
|
| $ |
| ||
| 28 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
| ||||
Revenue |
| $ |
|
| $ |
| ||
Gross profit |
|
|
|
|
|
| ||
Net income |
| $ |
|
| $ |
| ||
Revenue of these project companies is generated from the power purchase agreements with the PRC utility companies as well as government subsidies.
12. Financing Arrangements
As of September 30, 2024 and December 31, 2023, the Company had the following borrowings:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Unsecured loan from unrelated party at 8.0% fixed interest due December 31, 2024 |
| $ |
|
| $ |
| ||
Unsecured loan from unrelated party at 12.0% fixed interest due December 31, 2024 |
|
|
|
|
|
| ||
Secured convertible notes payable at 4.0% per annum, due various dates through September 2029 |
|
|
|
|
|
| ||
EB-5 loans - see details below |
|
|
|
|
|
| ||
Notes payable from SMX Property, a related party, at 8% per annum, due October 10, 2025 |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Less: debt discount and debt issuance costs |
|
| ( | ) |
|
| ( | ) |
Current portion |
|
| ( | ) |
|
| ( | ) |
Noncurrent portion |
| $ |
|
| $ |
| ||
Unsecured Loans
Unsecured loans include a loan of $
Related party EB-5 financings
The Company’s borrowings under the EB-5 program from related parties consisted of the following as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
$45.0 million loan from Clean Energy Funding, LP |
| $ |
|
| $ |
| ||
$13.0 million loan from Clean Energy Funding II, LP |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
Noncurrent portion |
| $ |
|
| $ |
| ||
On January 3, 2012, Clean Energy Fund, LP (“CEF”) entered into a secured loan agreement with SREP, a wholly owned subsidiary of the Company. Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $
| 29 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a secured loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $
The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”). The principal owners and managers of IERE consist of the Company’s chief executive officer, its former executive vice president, who is a 5% stockholder, and one of its directors.
Convertible Notes
The Company has issued
All convertible notes issued prior to the Company’s initial public offering have two separate and distinct embedded features. They are: (1) optional conversion upon a public stock event as defined in the convertible note; and (2) redemption put feature upon fundamental transaction.
Commencing six months from the date the Company first receives proceeds from its public stock event for convertible notes made prior to the Company’s initial public offering, and from the date of the convertible note made after the Company’s initial public offering, until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and, with the consent of the Company, accrued interest payable by (y) the conversion price. The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC Topic No. 815, Derivatives and Hedging (“ASC 815”), and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding.
All convertible notes issued contained redemption put features that allow the holders of the convertible notes the right to receive, for each conversion share that would have been issuable upon conversion immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which these convertible notes are convertible immediately prior to such fundamental transaction. The Company evaluated the redemption put feature contained in the convertible notes under the guidance of ASC 815 and concluded that the requirements for contingent exercise provisions as well as the settlement provision for scope exception in ASC 815-10-15-74 has been meet. Accordingly, the redemption put features contained in the convertible notes were not bifurcated and accounted for as freestanding derivative instruments.
During the nine months ended September 30, 2024, the Company redeemed convertible notes in the principal amount of $
The following table sets forth information with respect to the outstanding convertible notes.
Principal amount of convertible notes outstanding at December 31, 2023 |
| $ |
| |
Principal paid during the nine months ended September 30, 2024 |
|
| ( | ) |
Convertible notes converted during the nine months ended September 30, 2024 |
|
|
| |
Convertible notes issued during the nine months ended September 30, 2024 |
|
|
| |
Principal amount of convertible notes outstanding at September 30, 2024 |
| $ |
|
| 30 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Notes Payable to SMX Property, LLC
On October 10, 2022, SMXP made unsecured loans to the Company of $
The $
The $
Interest Expense
For the three months ended September 30, 2024 and 2023, interest expense incurred on the above long-term EB‑5 related party loans was approximately $
Total interest expense incurred (including interest on long-term related party loans) was approximately $
Principal maturities for the financing arrangements as of September 30, 2024 are as follows:
For the year ending December 31, |
| Bank and Other Unsecured Loans |
|
| EB-5 Loans Related – Party |
|
| Notes Payable Related – Party |
|
| Convertible Notes |
|
| Total |
| |||||
2024 (remainder of) |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
13. Accrued Expenses and Other Payables
Accrued expenses and other payables consisted of the following as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Customer deposits |
| $ |
|
| $ |
| ||
Accrued operating and project payables |
|
|
|
|
|
| ||
Payable to Uonone (See Note 15) |
|
|
|
|
|
| ||
Accrued compensation expenses |
|
|
|
|
|
| ||
Retainage payable to vendors |
|
|
|
|
|
| ||
Preacquisition liability |
|
|
|
|
|
| ||
Accrued settlement |
|
|
|
|
|
| ||
Accrued warranty expense |
|
|
|
|
|
| ||
VAT taxes payable |
|
|
|
|
|
| ||
Income taxes payable |
|
|
|
|
|
| ||
Refundable vendor bid deposits |
|
|
|
|
|
| ||
Total accrued expenses and other payables |
| $ |
|
| $ |
| ||
| 31 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
Accrued Compensation
At December 31, 2023 and September 30, 2024, accrued compensation includes $
Customer Deposits
Customer deposits represent customer down payments and progress payments received prior to the completion of the Company’s earnings process. The amounts paid by customers are refundable during the period which, under applicable state and federal law, the customer’s order may be cancelled and the deposit refunded. Once the cancellation period has expired, the customer still may cancel the project but the Company is entitled to retain the deposit payments for work that was completed and materials that were delivered.
Accrued Settlement
In November 2022, the Company entered into a settlement agreement with two former limited partners of Clean Energy Funding L.P., under which the
Accrued Warranty
The activity of the warranty liability (included in other liabilities) for the nine months ended September 30, 2024 and 2023 is as follows:
|
| Nine Months Ended September 30, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
| ||||
Balance – beginning of period |
| $ |
|
| $ |
| ||
Provision for warranty liability |
|
|
|
|
|
| ||
Expenditures and adjustments |
|
| ( | ) |
|
| ( | ) |
Reversal of UE Solar accrual |
|
|
|
|
| ( | ) | |
Effect of exchange rate |
|
|
|
|
| ( | ) | |
Balance – end of period |
|
|
|
|
|
| ||
Less: current portion (accrued expenses and other payables) |
|
| ( | ) |
|
| ( | ) |
Non-current portion (other liabilities) |
| $ |
|
| $ |
| ||
Preacquisition Liability
As part of the April 2015 acquisition of ZHPV, the Company assumed a liability associated with one of ZHPV’s projects consisting of reimbursement of project expenses to an unrelated third-party including reimbursement of certain land rental expenses and land use taxes estimated at a total of approximately RMB 10.7 million ($
| 32 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
14. Third-party Leasing Arrangement and Concentrations
Third-party Leasing Arrangement
The Company sells solar energy and battery storage systems to residential and commercial customers in the U.S. and these customers may pay for these sales in cash. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer from a third-party leasing company.
Concentration Risks
Major Customers
For the nine months ended September 30, 2024 and 2023,
Major Suppliers
During the nine months ended September 30, 2024, one supplier in the U.S. segment accounted for purchases of $
15. Acquisition Contingencies and Other Payable to Uonone Group
Effective on May 12, 2016, in conjunction with the execution of the amendment to the April 2015 share exchange agreement to acquire ZHPV, ZHPV entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of ZHPV, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which ZHPV and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015,
As of December 31, 2021, Uonone Group had repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above. Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated under the contingent liability. At December 31, 2023, the Company had no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to the Company with respect to the contingent receivable.
Under the debt settlement agreement, any legal settlement proceeds, less fees and expenses, received by ZHPV related to the projects completed prior to the April 2015 business combination would be repaid to the Uonone Group. During the nine months ended September 30, 2024 the Company did not receive any additional legal settlement proceeds, nor did the Company make any payments to Uonone.
At both September 30, 2024 and December 31, 2023, the amount payable to Uonone, was approximately RMB 18.0 million ($
16. Related Party Transactions
See Note 12 for related party lease transactions and Note 17 for the termination of related party lease.
| 33 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
17. Commitments and Contingencies
Operating Leases
The Company has entered into various non-cancellable operating lease agreements for certain of its offices, warehouse facilities and office equipment, vehicles, and solar energy systems, both in the U.S. and in the PRC. The Company determines if an arrangement is a lease, or contains a lease, at inception and records the leases in the condensed consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
Related Party Lease Agreements
Effective March 31, 2024, the Company terminated its lease with Fallow Field, LLC, a related party, for office space in Diamond Bar, California. In conjunction with the early lease termination, the Company reported a gain on the lease termination of approximately $
The Company recognized a gain of approximately $
Future minimum lease commitments for offices, warehouse facilities and equipment, payable to related parties and other, as of September 30, 2024, are as follows:
For the year ending December 31, |
| Total |
| |
2024 (remainder of) |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total |
| $ |
| |
For the three months ended September 30, 2024 and 2023, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was approximately $
As of September 30, 2024, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:
For the year ending December 31, |
| Total |
| |
2024 (remainder of) |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
Total minimum lease payments |
|
|
| |
Less: Interest |
|
| ( | ) |
Present value of lease obligations |
|
|
| |
Less: current portion |
|
| ( | ) |
Noncurrent portion |
| $ |
| |
Other information related to leases is as follows:
|
| As of September 30, 2024 |
| |
Weighted average remaining lease term (in years) |
|
|
| |
Weighted average discount rate |
|
| % | |
| 34 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
During September and October 2022, the Company entered into subleases with three unrelated companies for portions of office space through December 31, 2022 and one other unrelated company through March 31, 2024. For the three months ended September 30, 2024 and 2023, the total sublease income recognized was approximately $
The following table summarizes the Company’s operating lease cost for the three and nine months ended September 30, 2024 and 2023:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Operating lease cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Less: Sublease income |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Operating lease cost, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Employment Agreements
On October 7, 2016, the Company entered into employment agreements with its chief executive officer
On February 24, 2020, the Company's then executive vice president resigned. Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement. Pursuant the release and separation agreement, the Company paid the former executive officer $
The Company entered into a consulting agreement dated October 1, 2020 with the former executive vice president pursuant to which the Company engaged her as a consultant for a term ending December 31, 2022, and continuing thereafter on a month-to-month basis for monthly compensation of $
| 35 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
18. Stockholders’ Equity
2016 Long-Term Incentive Plan
In October 2016, the Company’s board of directors adopted and in November 2016 the stockholders approved the 2016 Long-Term Incentive Plan,
Amendment of the 2016 Restricted Stock Grants
Pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted
| · | Granted to the holders of |
| · | Granted to the chief executive officer, the then current executive vice president and one other employee, |
The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur; provided, however, that prior to a forfeiture termination event, (i) the grantees shall have no rights to sell, encumber or otherwise transfer the shares, and (ii) any shares of any class or series of capital stock which are issued to the grantee as a holder of the shares as a result of a stock dividend, stock split, stock distribution, reverse split, recapitalization, or similar event, shall be subject to the same forfeiture provisions as the shares. A forfeiture termination event shall mean such date as is six months following a public stock event. The definition of a public stock event includes, among other events, the effectiveness of a registration statement relating to an underwritten public offering by the Company. The board of directors has the right to defer the date of a forfeiture event to a later date. As a result of the Company’s completion of its initial public offering on February 12, 2024, the restricted shares became non-forfeitable and will vest six months following such date.
On October 7, 2016, the Company entered into an advisory services agreement with a consultant who has been providing services to the Company including, among other things, business planning, financial strategy and implementation and corporate structure related to the Company’s business development, financing and acquisition transactions. The term of the service commenced on September 1, 2016 and has been extended to April 30, 2019 pursuant to amendments. As compensation for the service, the Company issued to the consultant
All shares granted above pursuant to the 2016 Long-Term Incentive Plan had vested on August 12, 2024 and are included in common shares outstanding as of September 30, 2024.
As of December 31, 2023, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $
Out-of-Period Adjustment
During the three months ended September 30, 2024, the Company recorded an out-of-period adjustment of $
| 36 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
The following table below summarizes the activity of the restricted stock shares:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
| ||
Outstanding at December 31, 2023 |
|
|
|
|
|
| ||
Nonvested as of December 31, 2023 |
|
|
|
|
|
| ||
Outstanding at September 30, 2024 (Unaudited) |
|
| - |
|
|
|
| |
Nonvested as of September 30, 2024 (Unaudited) |
|
| - |
|
|
|
| |
Stock Options
From time to time, the Company granted non-qualified stock options to its employees and consultants for their services. Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant; those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven to ten years. The vested options are exercisable for six months after the termination date unless (i) termination is due to optionee’s death or disability, in which case the option shall be exercisable for 12 months after the termination date, or (ii) the optionee is terminated for cause, in which case the option will immediately terminate.
A summary of option activity is as follows:
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual (years) |
|
| Aggregate Intrinsic Value |
| ||||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Nonvested as of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Exercisable as of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exchanged |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Cancelled or forfeited |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding at September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Nonvested as of September 30, 2024 |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |
Exercisable as of September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Forfeitures are accounted for as actual forfeitures occur.
The aggregate intrinsic value represents the total pretax intrinsic value. The aggregate intrinsic values as of December 31, 2023 are based upon the value per share of $
Non-vested Option Awards
The following table summarizes the Company’s nonvested option awards activity:
Balance at December 31, 2023 |
| $ |
| |
Granted |
|
| - |
|
Exchanged |
|
| - |
|
Forfeited |
|
| ( | ) |
Vested |
|
| ( | ) |
Balance at September 30, 2024 (Unaudited) |
| $ | - |
|
As a result of the Company’s completion of its initial public offering, all the stock options which are performance-based awards are vested and compensation cost of $
See Note 12 for information relating to the 4% secured subordinated convertible notes to former limited partners of CEF and CEF II, pursuant to exchange agreements with the limited partners. At December 31, 2023, there were convertible notes in the principal amount of $
| 37 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
19. Income Taxes
The components of the Company's income (loss) before income taxes and income (loss) from operations for the three and nine months ended September 30, 2024 and 2023 are as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Domestic (U.S. Segment) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Foreign (PRC Segment) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Income (loss) before income taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Income tax expense (benefit) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
| ||
Income (loss) from operations |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Effective tax rate |
|
| ( | )% |
|
| ( | )% |
|
| % |
|
| % | ||
The Company is subject to taxation in the U.S. and various states jurisdictions. The Company is also subject to taxation in China. The Company’s effective tax rate is determined quarterly, reflecting actual activities and various tax-related items.
The Company’s effective income tax rate for the three months ended September 30, 2024 and 2023 were (
As of September 30, 2024, the Company determined that, based on an evaluation of its history of net losses and all available evidence, both positive and negative, including the Company’s latest forecasts and cumulative losses in recent years, it was more likely than not that none or substantially none of its deferred tax assets would be realized and, therefore, the Company continued to record a valuation allowance on U.S. side and partially on the Chinese side.
| 38 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
20. Net Income (Loss) Per Share
The following table presents the calculation of the Company's basic and diluted net income (loss) per share for the three and nine months ended September 30, 2024 and 2023:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute net loss per share, basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares used to compute net loss per share, diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net income (loss) per share |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Diluted net income (loss) per share |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
For the nine months ended September 30, 2023, outstanding options to purchase
21. Segment Reporting
The Company uses the management approach for segment reporting disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reporting segments. For the nine months ended September 30, 2024 and 2023, the Company operates under two operating segments on the basis of geographical areas: The U.S. and the PRC. Operating segments are defined as components of an enterprise about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company evaluates performance based on several factors, including revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company’s operating segments for the three and nine months ended September 30, 2024 and 2023:
| 39 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
|
| Three Months Ended September 30, 2024 |
|
| Nine Months Ended September 30, 2024 |
| ||||||||||||||||||
|
| US |
|
| PRC |
|
| Total |
|
| US |
|
| PRC |
|
| Total |
| ||||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Solar energy systems |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Finance revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LED and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest (expense) income, net |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Goodwill impairment |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Equity in income of solar farm projects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
Net income (loss) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| Three Months Ended September 30, 2023 |
|
| Nine Months Ended September 30, 2023 |
| ||||||||||||||||||
|
| US |
|
| PRC |
|
| Total |
|
| US |
|
| PRC |
|
| Total |
| ||||||
Revenue from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Solar energy systems |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Finance revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LED and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest (expense) income, net |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Equity in income of solar farm projects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for income taxes |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||
and as of September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
| |||||||||
|
| US |
|
| PRC |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Equity investments in solar farm projects |
| $ |
|
| $ |
|
| $ |
| |||
Capital expenditures |
|
|
|
|
|
|
|
|
| |||
Long-lived assets |
|
|
|
|
|
|
|
|
| |||
Total reportable assets |
|
|
|
|
|
|
|
|
| |||
|
| December 31, 2023 |
| |||||||||
|
|
|
| PRC |
|
|
| |||||
|
| US |
|
|
|
|
| Total |
| |||
Equity investments in solar farm projects |
| $ |
|
| $ |
|
| $ |
| |||
Capital expenditures |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Long-lived assets |
|
|
|
|
|
|
|
|
| |||
Total reportable assets |
|
|
|
|
|
|
|
|
| |||
| 40 |
| Table of Contents |
SolarMax Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2024 and 2023 (Unaudited)
22. Subsequent Events
The Company has evaluated subsequent events through November 14, 2024, the date the September 30, 2024 condensed consolidated financial statements were available to be issued, and except as disclosed below and in Note 5 - Short-term investments, and Note 12 -Unsecured Loans, no other events require adjustment of, or disclosure in, the condensed consolidated financial statements.
Convertible Notes Issued
In October, 2024, the Company issued a convertible note in the principal amount of $
| 41 |
| Table of Contents |
Item 2. 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 report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in “Risk Factors” included in our annual report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted.
Initial Public Offering
On February 27, 2024, we sold 4,500,000 shares of common stock, at a price of $4.00 per share in our initial public offering. On March 5, 2024, the underwriters purchased 539,950 shares of common stock upon the partial exercise of the over-allotment option. Net proceeds received by us from our initial public offering, including the partial exercise of the over-allotment option, were approximately $18.6 million. We are using the proceeds of our initial public offering for working capital and other corporate purposes, including payment of debt.
Impairment of China Segment Goodwill
During the quarter ended September 30, 2024, we performed a goodwill impairment assessment with respect to our China segment considering various factors and based primarily on the continued economic downturn in China that directly impacts our ability to generate new businesses in the foreseeable future and the absence of any agreements or negotiations for agreements at September 30, 2024, We recognized an impairment charge for the entire balance of the goodwill of $7.5 million for the three and nine months ended September 30, 2024. We can give no assurance as to our ability to generate revenue from our China operations.
Elimination of Forfeiture Provisions of Options upon Initial Public Offering
During the years 2015 to 2019, we granted stock options to employees and consultants, of which options to purchase 5,898,137 shares were outstanding at the date of our initial public offering. Under the terms of the options, the options became non-forfeitable upon our completion of an initial public offering, which occurred on February 12, 2024, the effective date of the registration statement relating to our initial public offering. Under GAAP, upon the termination of the forfeiture provisions, the value of the options is treated as a compensation expense in the period in which the options become non-forfeitable. Using the Black Scholes valuation method, the fair value of the options at the time of our initial public offering was approximately $17.2 million, which is stock-based compensation that does not reflect a cash expense, of which approximately $1.3 million is included in cost of revenues and $15.9 million is included in general and administrative expense. The $17.2 million stock-based compensation expense, which is not deductible for federal and state income tax purposes and is a non-cash expense, together with the $7.5 million impairment charge, represents the major portion of our $31.1 million loss for the nine months ended September 30, 2024.
Effects of NEM 3.0
Net metering is a billing mechanism that credits solar energy system owners for the electricity that they add to the electricity grid. 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 has adopted the current net metering regulations, known as NEM 3.0, which became effective in April 2023. NEM 3.0 features a 75% reduction in export rates (the value of excess electricity pushed onto the grid by solar systems) from the rate set forth in the previous net metering regulations, NEM 2.0, thereby reducing the overall savings and increasing the payback period of home solar installations. The changes under NEM 3.0, which are likely to result in reduced benefits for most residential solar users, could alter the return on investment for solar customers.
In January 2024, we laid off a portion of our employees associated with the design and installation of residential solar systems in response to a slowdown in demand after NEM 3.0 took effect in April 2023. The layoff represented approximately 25% of our residential solar system design and installation team. Approximately half of the employees who were laid off had been hired in late 2022 to help install our growing backlog of residential solar systems under contract in anticipation of NEM 3.0, and the contracts representing that backlog were completed during 2023. We may need to revise our pricing metrics to reflect the change resulting from NEM 3.0 in order for the purchase of a solar system to be economically attractive to the customer, which may result in lower prices and reduced margins. Although we anticipate the near-term impact of NEM 3.0 on residential solar contracts will be offset by commercial solar contracts for which we use third-party subcontractors to complete the installations, we cannot assure you that our overall business will not be impacted by the effects of NEM 3.0. Our significant decrease in both revenue and gross margin in both the three and nine months ended September 30, 2024 from the comparable periods of 2023 reflect both a surge in revenue in 2023 in anticipation of the effectiveness of NEM 3.0 in April 2023 and a sharp decline in revenue resulting from the effectiveness of NEM 3.0.
Notice of Noncompliance with Nasdaq Continued Listing Standards
As reported on Form 8-K current reports that we filed with the SEC on October 29, 2024 and November 1, 2024, on October 22, 2024, we received a notice from The Nasdaq Stock Market that we do not meet the Nasdaq Global Market continued listing requirement that we maintain a minimum market value of listed securities of $50,000,000, and on October 24, 2024, we received a notice from Nasdaq that we do not meet the Nasdaq Global Market continued listing requirement that we maintain a minimum bid price of $1 per share. We have 180 days from the date of each notice to become compliant. These 180-day periods expire on April 21, 2025 and April 22, 2025, respectively. We cannot assure you that we will be able to comply with the Nasdaq continued listing requirements, and our failure to comply would result in our common stock being delisted from Nasdaq which could have a material adverse effect upon our operations, including our ability to raise funds in the equity market.
| 42 |
| Table of Contents |
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. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. We were founded in 2008 to engage in the solar business in the United States, where our business is primarily conducted. Our primary business consists of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, (ii) financing the sale of its photovoltaic and battery backup systems, and (iii) sales of LED systems and services to government and commercial users.
In 2015, we commenced operations in the PRC. We did has not generate any revenue from our China segment since 2022, and the China segment does not have any projects or agreements as of the date of this report. All of our revenue for the three and nine months ended September 30, 2024 and 2023 was generated by our United States segment, and our cost of revenue related to our United States segment.
We are seeking to offset our decline in residential solar sales in California for the three and nine months of 2024 as compared with the comparable periods of 2023 by marketing commercial sales of larger systems to commercial users both in California and in other states; however, we cannot assure you that we will be successful in marketing to commercial users. As of the date of this report, we do not have any contacts for major commercial solar projects. Although we have a non-binding letter of intent with respect to one proposed project and a non-binding term sheet with respect to a second proposed project, both of these proposed projects are subject to the negotiation of development agreements with the owners of the property on which the solar system is to be installed, the identification of a financing source to provide the full financing for each project, the negotiation and execution of an agreement with the financing sources, who would own the project on completion, and the negotiation and execution of a power purchase agreement between the property owner (and in the case of one of these projects, the tenant) and the financing source as the project owner for the purchase of the electricity generated by the project. We cannot assure you that either of these projects or any other projects will be completed or that we will be successful in developing our commercial business as planned
Inflation and Supply Chain Issues
Prior to mid-to-late 2021, our business was not impacted by inflation or supply chain issues. With the recent inflationary pressures combined with the world-wide supply chain issues, our business is subject to the inflationary pressure and we were subject to supply chain issues that were affecting many domestic and foreign companies, and we expect that the inflationary pressures will continue to affect our ability to sell our products, the price at which can sell products in both the United States and China and our gross margin in both the United States and China. To the extent that we are not able to raise our prices or to the extent that we cannot accurately project our costs when we set our prices, our gross margin and the results of our operations will be impacted.
Polysilicon is an essential raw material in the production of solar power products, principally solar panels. The costs of silicon wafers and other silicon-based raw materials have accounted for a large portion of the costs associated with solar panels. Although the price of silicon had declined in recent years, increases in the price of polysilicon have resulted in increases in the price of wafers, leading to increases in our costs. Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels particularly in view of inflationary pressures, especially if the global solar power market gains its growth momentum. Moreover, in the event of an industry-wide shortage of polysilicon, we may experience late or non-delivery from suppliers and it may be necessary for us to purchase silicon raw materials of lower quality that may result in lower efficiencies and reduce its average selling prices and revenues. 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 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. Thus, the effects of inflation may also affect the marketability of our solar systems to residential users which are also impacted by the effects of NEM 3.0
| 43 |
| Table of Contents |
Our cost of revenue per watt of solar systems, which makes up approximately 80% of our costs, increased approximately 47.7% during the nine months ended September 30, 2024 compared to the same period in 2023. We have increased the price of solar system installations in our United States segment to offset the increase in cost in 2024, 2023 and during the first half of 2022. Although we do not have any data as to the effect of higher utility costs on purchases of solar systems, it has been our experience during the years ended December 31, 2023 and 2022 that, as inflationary pressures are increasing the cost of electricity generally, our domestic business grew as homeowners are seeking alternatives to what they see as high utility bills, although, as discussed above, the effects of NEM 3.0 have resulted in a significant decline in U.S. revenues for solar systems. As a result, we have been able to increase our prices, which reduced the effect of increased cost of raw materials and the general increase in overhead costs. Our gross margin from United States operations decreased from 19.6% for the nine months ended September 30, 2023 to 8.3% for the nine months ended September 30, 2024. The effect of increased costs on our margin was reduced because we were able to increase prices; although our gross margin was affected by both the $1.3 million of stock-based compensation described above under “Elimination of Forfeiture Provisions of Options upon Initial Public Offering” and the 63% decrease in revenues which was not accompanied by a comparable decrease in cost of revenues. Competitive factors limit the amount we can increase our prices, but our price increases reduced what would otherwise have been a greater decline in gross margin for the nine months ended September 30, 2024. If our prices are too high, the residential customer may not see the value of installing a solar system. We are seeking to reduce the effect of increased prices in raw materials by purchasing in greater quantities. However, to the extent inflation continues or increases, we may not be able to raise prices sufficiently to prevent a further significant decline in our gross margins and the results of our operations.
Compensation costs per employee, excluding stock-based compensation, for sales, marketing and administrative personnel in our United States segment increased approximately 19% for the nine months ended September 30, 2024 compared to the same period in 2023 in response to the increased cost of retaining and attracting talent, and such costs may continue to increase as labor costs in California continue to increase as a result of the inflationary pressures. In addition, to the extent that inflationary pressure affects our cost of revenue and general overhead, we may face the choice of raising prices to try and maintain our margins or reduce or maintain our price structure to generate business. In addition, to the extent that inflationary pressure affects our cost of revenue and general overhead, we may face the choice of raising prices to try and maintain our margins or reduce or maintain our price structure to meet competition which would resulting in a lower gross margin and a drop in operating income. Supply chain issues have caused us to periodically stock up on components such as solar panels and battery systems to ensure an adequate supply to meet expected demand, putting pressure on our cash flow. We do not believe that the supply chain issues that affected our operations in prior periods are currently affecting us. We cannot assure you that such delays and increased costs will not affect our business in the future.
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. We believe that our available cash and cash equivalents and short-term investments will enable us in dealing with the effects of inflation on our business.
To the extent that the United States government imposes tariffs on products imported from China or any other foreign country and we are not able to obtain comparable products at a lower cost from domestic suppliers, our costs of these products may increase, and, depending on the tariff, such increase may be substantial. Such increases may impact both our ability to sell our systems and the price we are able to charge for systems which we sell, which could impair our margins.
| 44 |
| Table of Contents |
Results of Operations
The following tables set forth information relating to our operating results for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands) and as a percentage of revenue:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||||||||||||||||
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
|
| Dollars |
|
| % |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Solar energy sales (US) |
| $ | 5,132 |
|
|
| 81.1 | % |
| $ | 13,326 |
|
|
| 93.4 | % |
| $ | 12,907 |
|
|
| 78.0 | % |
| $ | 39,354 |
|
|
| 93.9 | % |
LED sales (US) |
|
| 1,110 |
|
|
| 17.5 | % |
|
| 823 |
|
|
| 5.8 | % |
|
| 3,359 |
|
|
| 20.3 | % |
|
| 2,125 |
|
|
| 5.1 | % |
Financing (US) |
|
| 89 |
|
|
| 1.4 | % |
|
| 125 |
|
|
| 0.8 | % |
|
| 284 |
|
|
| 1.7 | % |
|
| 416 |
|
|
| 1.0 | % |
Total revenues |
|
| 6,331 |
|
|
| 100.0 | % |
|
| 14,274 |
|
|
| 100.0 | % |
|
| 16,550 |
|
|
| 100.0 | % |
|
| 41,895 |
|
|
| 100.0 | % |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy sales |
|
| 4,118 |
|
|
| 65.0 | % |
|
| 9,631 |
|
|
| 67.5 | % |
|
| 12,201 |
|
|
| 73.8 | % |
|
| 32,092 |
|
|
| 76.7 | % |
LED sales |
|
| 956 |
|
|
| 15.1 | % |
|
| 594 |
|
|
| 4.1 | % |
|
| 2,968 |
|
|
| 17.9 | % |
|
| 1,602 |
|
|
| 3.7 | % |
Total cost of revenues |
|
| 5,074 |
|
|
| 80.1 | % |
|
| 10,225 |
|
|
| 71.6 | % |
|
| 15,169 |
|
|
| 91.7 | % |
|
| 33,694 |
|
|
| 80.4 | % |
Gross profit |
|
| 1,257 |
|
|
| 19.9 | % |
|
| 4,049 |
|
|
| 28.4 | % |
|
| 1,381 |
|
|
| 8.3 | % |
|
| 8,201 |
|
|
| 19.6 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (US) |
|
| 140 |
|
|
| 2.2 | % |
|
| 300 |
|
|
| 2.1 | % |
|
| 392 |
|
|
| 2.4 | % |
|
| 964 |
|
|
| 2.3 | % |
General and administrative (US) |
|
| 3,517 |
|
|
| 55.6 | % |
|
| 2,188 |
|
|
| 15.3 | % |
|
| 24,242 |
|
|
| 146.5 | % |
|
| 6,565 |
|
|
| 15.7 | % |
General and administrative (China) |
|
| 163 |
|
|
| 2.5 | % |
|
| 640 |
|
|
| 4.5 | % |
|
| 591 |
|
|
| 3.5 | % |
|
| 136 |
|
|
| 0.3 | % |
Goodwill impairment (China) |
|
| 7,464 |
|
|
| 117.9 | % |
|
| - |
|
|
| 0.0 | % |
|
| 7,464 |
|
|
| 45.1 | % |
|
| - |
|
|
| 0.0 | % |
Total operating expenses |
|
| 11,284 |
|
|
| 178.2 | % |
|
| 3,128 |
|
|
| 21.9 | % |
|
| 32,689 |
|
|
| 197.5 | % |
|
| 7,665 |
|
|
| 18.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations (US) |
|
| (2,400 | ) |
|
| (37.9 | )% |
|
| 1,561 |
|
|
| 10.9 | % |
|
| (23,253 | ) |
|
| (140.5 | )% |
|
| 672 |
|
|
| 1.6 | % |
Income (loss) from operations (China) |
|
| (7,627 | ) |
|
| (120.5 | )% |
|
| (640 | ) |
|
| (4.5 | )% |
|
| (8,055 | ) |
|
| (48.7 | )% |
|
| (136 | ) |
|
| (0.3 | )% |
Equity in income of solar project companies |
|
| 254 |
|
|
| 4.0 | % |
|
| 452 |
|
|
| 3.2 | % |
|
| 553 |
|
|
| 3.3 | % |
|
| 887 |
|
|
| 2.1 | % |
Gain on debt extinguishment |
|
| 13 |
|
|
| 0.2 | % |
|
| - |
|
|
| 0.0 | % |
|
| 289 |
|
|
| 1.7 | % |
|
| 13 |
|
|
| 0.0 | % |
Gain on early termination of lease |
|
| - |
|
|
| 0.0 | % |
|
| - |
|
|
| 0.0 | % |
|
| 77 |
|
|
| 0.5 | % |
|
| 4 |
|
|
| 0.0 | % |
Interest income |
|
| 206 |
|
|
| 3.3 | % |
|
| 18 |
|
|
| 0.1 | % |
|
| 363 |
|
|
| 2.2 | % |
|
| 53 |
|
|
| 0.1 | % |
Interest (expense) |
|
| (399 | ) |
|
| (6.3 | )% |
|
| (329 | ) |
|
| (2.3 | )% |
|
| (1,169 | ) |
|
| (7.1 | )% |
|
| (1,177 | ) |
|
| (2.8 | )% |
Other income (loss), net |
|
| 387 |
|
|
| 6.1 | % |
|
| 263 |
|
|
| 1.9 | % |
|
| 83 |
|
|
| 0.6 | % |
|
| 183 |
|
|
| 0.5 | % |
Income (loss) before income taxes |
|
| (9,566 | ) |
|
| (151.1 | )% |
|
| 1,325 |
|
|
| 9.3 | % |
|
| (31,112 | ) |
|
| (188.0 | )% |
|
| 499 |
|
|
| 1.2 | % |
Income tax provision (benefit) |
|
| 57 |
|
|
| 0.9 | % |
|
| (141 | ) |
|
| (1.0 | )% |
|
| (53 | ) |
|
| (0.3 | )% |
|
| 149 |
|
|
| 0.4 | % |
Net income (loss) |
|
| (9,623 | ) |
|
| (152.0 | )% |
|
| 1,466 |
|
|
| 10.3 | % |
|
| (31,059 | ) |
|
| (187.7 | )% |
|
| 350 |
|
|
| 0.8 | % |
Currency translation adjustment |
|
| 173 |
|
|
| 2.7 | % |
|
| (43 | ) |
|
| (0.3 | )% |
|
| (99 | ) |
|
| (0.6 | )% |
|
| (444 | ) |
|
| (1.0 | )% |
Comprehensive income (loss) |
| $ | (9,450 | ) |
|
| (149.3 | )% |
| $ | 1,423 |
|
|
| 10.0 | % |
| $ | (31,158 | ) |
|
| (188.3 | )% |
| $ | (94 | ) |
|
| (0.2 | )% |
Three and Nine Months Ended September 30, 2024 and 2023
The following table set forth information relating to our revenue and gross profit results for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
|
| 2024 |
|
| 2023 |
|
| Change |
|
| % Change |
|
| 2024 |
|
| 2023 |
|
| Change |
|
| % Change |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Solar energy sales (US) |
| $ | 5,132 |
|
| $ | 13,326 |
|
| $ | (8,194 | ) |
|
| (61.5 | )% |
| $ | 12,907 |
|
| $ | 39,354 |
|
| $ | (26,447 | ) |
|
| (67.2 | )% |
LED sales (US) |
|
| 1,110 |
|
|
| 823 |
|
|
| 287 |
|
|
| 34.9 | % |
|
| 3,359 |
|
|
| 2,125 |
|
|
| 1,234 |
|
|
| 58.1 | % |
Financing (US) |
|
| 89 |
|
|
| 125 |
|
|
| (36 | ) |
|
| (28.8 | )% |
|
| 284 |
|
|
| 416 |
|
|
| (132 | ) |
|
| (31.7 | )% |
Total revenues |
|
| 6,331 |
|
|
| 14,274 |
|
|
| (7,943 | ) |
|
| (55.6 | )% |
|
| 16,550 |
|
|
| 41,895 |
|
|
| (25,345 | ) |
|
| (60.5 | )% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar energy sales |
|
| 4,118 |
|
|
| 9,631 |
|
|
| (5,513 | ) |
|
| (57.2 | )% |
|
| 12,201 |
|
|
| 32,092 |
|
|
| (19,891 | ) |
|
| (62.0 | )% |
LED sales |
|
| 956 |
|
|
| 594 |
|
|
| 362 |
|
|
| 60.9 | % |
|
| 2,968 |
|
|
| 1,602 |
|
|
| 1,366 |
|
|
| 85.3 | % |
Total cost of revenues |
|
| 5,074 |
|
|
| 10,225 |
|
|
| (5,151 | ) |
|
| (50.4 | )% |
|
| 15,169 |
|
|
| 33,694 |
|
|
| (18,525 | ) |
|
| (55.0 | )% |
Gross profit |
| $ | 1,257 |
|
| $ | 4,049 |
|
| $ | (2,792 | ) |
|
| (69.0 | )% |
| $ | 1,381 |
|
| $ | 8,201 |
|
| $ | (6,820 | ) |
|
| (83.2 | )% |
| 45 |
| Table of Contents |
Revenues
Revenues for the three months ended September 30, 2024 were $6.3 million, a decrease of $7.9 million or 55.6% from $14.3 million in the three months ended September 30, 2023. The decrease resulted from a $8.2 million decrease in solar energy and battery sales, offset with a $287,000 increase in LED sales. Our revenue from solar systems decreased from $13.3 million for the three months ended September 30, 2023 to $5.1 million for the three months ended September 30, 2024, a 61.5% decrease. , primarily as a result of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, reflecting a significant surge in 2023 in the consumer demand for solar energy systems for which orders were placed prior to NEM 3.0 becoming effective, generating a backlog of orders which were mostly filled in 2023. The dramatic decrease in revenue in the three months ended September 30, 2024 also reflects the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation, the effect of which diminishes the appeal of solar as a cost-saving investment for the consumers, which is experienced by the solar industry generally. The decrease in the solar energy and battery sales in the three months ended September 30, 2024 reflects a 56.0% decrease in the number of systems completed and a 71.4% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the three months ended September 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 NEM 2.0 deadline in California. During the three months ended September 30, 2024 and 2023, our battery sales were $208,000 and $124,000, respectively. Battery sales refer to the sale of batteries sold other than as part of a solar system.
Revenues for the nine months ended September 30, 2024 were $16.5 million, a decrease of $25.3 million or 60.5% from $41.9 million in the nine months ended September 30, 2023. The decrease resulted from a $26.4 million decrease in solar energy and battery sales, offset by a $1.2 million increase in LED sales. Our revenue from solar systems decreased from $39.4 million for the nine months ended September 30, 2023 to $12.9 million for the nine months ended September 30, 2024, a 67.2% decrease. As with the decrease in revenue for the three months ended September 30, 2024, the significant decrease reflected the effect of the change in the net metering regulations in April 2023 from NEM 2.0 to NEM 3.0, the prior period sales reflected a significant surge in the consumer demand for solar energy systems generating a backlog of orders which were mostly filled in 2023 as well as the continued decrease in consumer demand for solar energy systems due to higher interest rates leading to higher borrowing costs as well as the ongoing economic inflation. The decrease in the solar energy and battery sales i in the nine months ended September 30, 2024 reflects a 64.8% decrease in the number of systems completed and a 74.9% decrease in the wattages deployed. The number of completed systems and the wattages deployed in the nine months ended September 30, 2023 reflects incremental business resulting from customers signing solar contracts for solar systems prior to the April 2023 effectiveness of NEM 3.0 deadline in California. During the nine months ended September 30, 2024 and 2023, our battery only sales were $816,000 and $858,000, respectively. Battery sales refer to the sale of batteries sold other than as a part of a solar system.
We expect the revenue from our residential sales to decrease in 2024, but we are looking to offset the decrease with commercial sales and, commencing in the second quarter of 2024, sales to residential customers through third party leasing companies which can offer favorable terms to customers when compared with third party financing during a time of high interest rates.
Our LED revenue increased by $287,000 or 34.9% to $1.1 million for the three months ended September 30, 2024 from $823,000 for the three months ended September 30, 2023, and by $1.2 million, or 58.1%, to $3.4 million for the nine months ended September 30, 2024 from $2.1 million for the nine months ended September 30, 2023, primarily resulting from the increase in the number of LED projects. LED revenues include LED product sales and LED consulting revenues and are expected to continue to fluctuate based on the number of LED projects awarded which is based on the bidding process and specific customer purchase requirements and timing. The revenue trend from our LED business therefore tends to fluctuate period to period.
We have not originated any loans to our solar customers since early 2020. As a result, our finance revenue for the three months ended September 30, 2024 and 2023 was $89,000 and $125,000, respectively, and for the nine months ended September 30, 2024 and 2023 was $284,000 and $416,000, respectively, from our portfolio of solar loans. Finance revenue will decrease as loans in our portfolio are paid and not replaced by new loans.
Cost of revenue and gross profit
Our cost of revenue for the three months ended September 30, 2024 was $5.4 million, a decrease of $5.2 million, or 50.4% from $10,225 for the three months ended September 30, 2023, reflecting the decrease in revenues. Our cost of revenue for the nine months ended September 30, 2024 was $15.2 million, a decrease of $18.5 million, or 55.0% from $33.7 million for the nine months ended September 30, 2023, reflecting the decrease in revenues. During the nine months ended September 30, 2024, we recognized a one-time non-cash stock-based compensation expense of approximately $1.3 million in cost of revenue as a result of performance options vesting upon our initial public offering on February 12, 2024. Excluding this one-time stock-based compensation expense, cost of revenue decreased 58.7% from $33.7 million in the nine months ended September 30, 2023 to $13.9 million in the nine months ended September 30, 2024. Gross margin decreased to 19.9% for the three months ended September 30, 2024 from 28.4% in the three months ended September 30, 2023, and 8.3% for the nine months ended September 30, 2024 from 19.6% in the nine months ended September 30, 2023, primarily as result of the decreased sales in the current period while the labor components of the cost remain fixed which adversely impacted the gross margin. We have no cost of revenue with respect to interest income on customer loans.
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| Table of Contents |
Operating expenses
Sales and marketing expenses for the three months ended September 30, 2024 decreased to $140,000, a decrease of $160,000, or 53.3%, from $300,000 in the comparable period of 2023. Sales and marketing expenses were 2.2% of revenue for the three months ended September 30, 2024 compared to 2.1% for the three months ended September 30, 2023. Sales and marketing expenses for our United States segment for the nine months ended September 30, 2024 decreased to $392,000, a decrease of $571,000, or 59.3%, from $964,000 in the comparable period of 2023. Sales and marketing expenses in the United States were 2.4% of revenue for the nine months ended September 30, 2024 compared to 2.3% for the nine months ended September 30, 2023. Our sales and marketing expenses in the United States may fluctuate from time to time based on the types of marketing and promotion initiatives we deploy. Our China segment did not incur sales and marketing expenses for the three and nine months ended September 30, 2024 and 2023.
General and administration expenses for the United States segment for the three months ended September 30, 2024 increased $1.3 million or 60.7% to $3.5 million compared to $2.2 million for the three months ended September 30, 2023, representing 55.6% of revenue for the three months ended September 30, 2024 compared to 15.3% of revenue for the three months ended September 30, 2023. The increase during the three months ended September 30, 2024 is principally attributed to the stock compensation expense recognized as a result of the vesting in August 2024 of 264,650 shares of restricted stock previously issued to two former consultants. Additionally, the quarter to quarter increase reflects the increase in compliance costs associated with being a publicly-traded company beginning in February 2024 and the incremental compensation related to full-time headcounts as we hired employees in 2023 to manage sales though dealers who are selling on the Company’s behalf. We have decreased our headcount as a result of the decrease in orders reflected in our reduced revenue in the 2024 period. The increase in the percentage in the three months ended September 30, 2024 is primarily attributed to the large decline in revenue in the 2024 period compared to the comparable prior of 2023.
During the nine months ended September 30, 2024, our United States operations recognized a one-time stock-based compensation expense of approximately $17.3 million in general and administrative expense as a result of performance options vesting of 5,898,137 option shares upon our initial public offering in February 2024 and the vesting in August 2024 of 264,650 restricted shares granted to two former consultants. Excluding the stock-based compensation expense, general and administrative expenses for the United States segment for the nine months ended September 30, 2024 increased by $406,000 to $7.0 million compared to $6.6 million for the nine months ended September 30, 2023. General and administrative expenses were 15.7% of revenue for the nine months ended September 30, 2023, compared to 42.1% for the nine months ended September 30, 2024. Our overall increase in general and administrative expenses in 2024 reflects the cost of compliance and other regulatory costs associated with being a public reporting company. All of our corporate overhead, other than overhead directly related to the China segment, is allocated to the United States segment.
General and administrative expenses relating to the China segment were $164,000 in the three months ended September 30, 2024 compared to $640,000 in the three months ended September 30, 2023, and $591,000 in the nine months ended September 30, 2024, as compared with $136,000 in the nine months ended September 30, 2023. During the nine months ended September 30, 2023, we had a $1.1 million recovery of previously reserved receivable on one of our projects for SPIC as a result of the settlement of a legal proceeding.
During the three and nine months ended September 30, 2024, as a result of the continued headwinds facing China's economy post the pandemic and the economic indicators seem to indicate further future contraction, all of which will have a direct impact on our ability to generate new businesses in our China segment in the foreseeable future, accordingly, we recognized a $7.5 million impairment loss related to goodwill that originated in our 2015 business combinations.
Income (loss) from operations
As a result of the factors described above, our loss from operations for the United States segment was $2.4 million for the three months ended September 30, 2024, compared to income from operations of $1.6 million for the three months ended September 30, 2023, and a loss from operations of $23.3 million for the nine months ended September 30, 2024, compared to income from operations of $673,000 in the nine months ended September 30, 2023. Our loss from operations for the China segment was $7.6 million for the three months ended September 30, 2024, compared to a loss from operations of $640,000 for the three months ended September 30, 2023, and a loss from operations of $8.1 million for the nine months ended September 30, 2024, compared to a loss from operations of $136,000 in the nine months ended September 30, 2023.
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| Table of Contents |
The consolidated loss from operations was $10.0 million for the three months ended September 30, 2024 compared to a consolidated income from operations of $920,000 for the three months ended September 30, 2023, and a consolidated loss from operations of $31.3 million for the nine months ended September 30, 2024 compared to a consolidated income from operations of $537,000 for the nine months ended September 30, 2023.
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. The equity in income reported for the three months ended September 30, 2024 was $254,000 compared to $452,000 in the three months ended September 30, 2023, a decrease of $(198,000) or 43.8%. The equity in income for the nine months ended September 30, 2024 was $553,000, compared to $887,000 in the nine months ended September 30, 2023, a decrease of $334,000 or 37.7%. The change period over period correlates with the lower power production in the Guizhou region in China, which can vary from year to year depending on the weather.
Gain on debt extinguishment
Gain on debt extinguishment for the three months ended September 30, 2024 was $13,000 and for the nine months ended September 30, 2024 was $289,000. During the three months ended September 30, 2024, we exchanged a 3% secured EB-5 notes payable to related party in principal amount of $500,000 to 4% convertible notes, resulting in gain on debt extinguishment of approximately $13,000. During the nine months ended September 30, 2024, we exchanged $5.5 million of secured EB-5 notes payable to related party to 4% convertible notes in the same principal amount, resulting in gain on debt extinguishment of $147,000, and settled $500,000 principal amount of 4% convertible note for a gain of approximately $142,000. The gain on debt extinguishment for the three months ended September 30, 2023 was zero and for the nine months ended September 30, 2023 was $13,000, representing the gain on exchange of $500,000 principal amount of EB-5 notes for a convertible note in the same principal note.
Interest expense, net
Interest expense, net, for the three months ended September 30, 2024 was $193,000, a decrease of $118,000 or 37.9%, from the three months ended September 30, 2023. Interest expense, net, for the nine months ended September 30, 2024 was $805,000, a decrease of $319,000, or 28.4%, from the nine months ended September 30, 2023. Our interest expense in the nine months ended September 30, 2024 primarily includes interest at 3% on two loans from related parties in the United States with a total principal balance of $11.5 million at September 30, 2024, interest at 4% on convertible notes issued to former limited partners of CEF in transactions in which the former limited partners of CEF accepted a 4% convertible note issued by SolarMax and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $16.3 million at September 30, 2024, interest at 8% on promissory notes issued to SMX Property (a related party) due in October 2024 with a principal balance of $1.4 million at September 30, 2024, interest at 6% on a promissory note issued to an unrelated individual due in December 2024 with a principal balance of $2.0 million at June 30, 2024, and interest at 12% on a promissory note issued to an unrelated investment company due in November 2024 with a principal balance of $900,000. The convertible notes issued to the former limited partners of CEF were issued as payment of the former limited partner’s capital account in CEF and replace debt of an equal amount that had been due to CEF. The notes are secured by the same collateral as the notes to CEF. Our interest income in the nine months ended September 30, 2024 includes interest earned on $7.0 million promissory notes receivable at 8.0% in the United States segment due June 1, 2024, extended to September 25, 2024 and further extended to December 31, 2024, and interest earned on RMB 5.0 million (approximately $688,000) promissory notes receivable at 5% in the China segment due June 25, 2024, extended to September 25, 2024 and further extended to December 25, 2024.
Other income (expenses), net
During the three months ended September 30, 2024, other income, net was $387,000 consisting primarily of $371,000 of foreign currency transaction gains for our United States segment intercompany receivable denominated in the Chinese currency. During the three months ended September 30, 2023, other income, net was $263,000 consisting of $277,000 of sublease income, partially offset by $57,000 of foreign currency transaction losses for our United States segment intercompany receivable denominated in the Chinese currency.
During the nine months ended September 30, 2024, other income, net was $81,000 consisting primarily of a $85,000 of foreign currency transaction gains for our United States segment intercompany receivable denominated in the Chinese currency, a $30,000 loss associated with the write-off of legal settlement receivable as a result of the debtor's bankruptcy, and a gain on disposal of property in the amount of $14,000. During the nine months ended September 30, 2023, other expense was $182,000, consisting primarily of $264,000 of gain on insurance settlement related the fire claim at the Riverside headquarters for the United States segment, $48,000 of income related to the foreign currency transaction gain for our United States segment intercompany receivable denominated in the Chinese currency, offset with $17,000 of expense related to a legal settlement involving a former employee.
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| Table of Contents |
Income tax benefit (provision)
For the three months ended September 30, 2024 and 2023, our United States segment reported an income tax expense of $0 and $0, respectively, attributable to state minimum tax liabilities. For the nine months ended September 30, 2024 and 2023, our United States segment reported an income tax expense of $6,000 and $6,000, respectively, attributable to minimum state tax liabilities.
For the China segment, an income tax benefit of approximately $57,000 and an income tax expense of $141,000 was reported for the three months ended September 30, 2024 and 2023, respectively. For the China segment, an income tax benefit of approximately $59,000 and an income tax expense of $143,000 was reported for the nine months ended September 30, 2024 and 2023, respectively, arising from profitable operations subject to China income tax.
Net income (loss)
As a result of the foregoing, we had consolidated net loss of $9.6 million or $(0.21) per share (basic and diluted) for the three months ended September 30, 2024, compared with a consolidated net income of $1.5 million or $0.04 per share (basic and diluted) for the three months ended September 30, 2023.
As a result of the foregoing, we had consolidated net loss of $31.1 million, or $(0.71) per share (basic and diluted), for the nine months ended September 30, 2024, compared with a consolidated net income of $0.3 million, or $0.01 per share (basic and diluted), for the nine months ended September 30, 2023.
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. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and reflects changes in the exchange rates between U.S. dollars and RMB.
As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation losses of $173,000 and $43,000 for the three months ended September 30, 2024 and 2023, respectively, and losses of $99,000 and $444,000 for the nine months ended September 30, 2024 and 2023, respectively.
Liquidity and Capital Resources
The following tables show consolidated cash flow information for the nine months ended September 30, 2024 and 2023 (dollars in thousands):
|
| Nine Months Ended September 30, |
|
| $ Increase |
| ||||||
|
| 2024 |
|
| 2023 |
|
| (Decrease) |
| |||
Consolidated cash flow data: |
|
|
|
|
|
|
|
|
| |||
Net cash provided by (used in) operating activities |
| $ | (7,819 | ) |
| $ | (389 | ) |
| $ | (7,430 | ) |
Net cash provided by (used in) investing activities |
|
| (7,692 | ) |
|
| (6 | ) |
|
| (7,686 | ) |
Net cash provided by (used in) financing activities |
|
| 13,856 |
|
|
| 22 |
|
|
| 13,834 |
|
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
| (1,742 | ) |
|
| 23 |
|
|
| (1,765 | ) |
Net increase (decrease) in cash and cash equivalents and restricted cash excluding foreign exchange effect |
| $ | (1,655 | ) |
| $ | (374 | ) |
| $ | (1,281 | ) |
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was $7.8 million, compared to net cash used by operating activities for the nine months ended September 30, 2023 of $0.4 million. The cash used in operations for the nine months ended September 30, 2024, resulting from our net loss of $31.1 million, increases in non-cash expense from increases of $18.5 million in stock-based compensation expenses and an increase of $7.5 million in China goodwill impairment loss, and an increase of $3.4 million in cash use for our operating assets and liabilities. During the nine months ended September 30, 2024, our operating assets and liabilities used $3.5 million in cash, compared to $1.8 million of cash used in the nine months ended September 30, 2023.
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Net cash used by operations for the nine months ended September 30, 2023 of $389,000 resulted from net loss of $350,000, increased by a $2.0 million decrease in cash from contract assets, $3.6 million decrease in cash from other receivables and current assets, with an offset from $740,000 increase in cash from accounts receivable, $3.1 million increase in cash from customer loans receivable, $1.6 million increase in cash from inventories, $27,000 increase in cash from other assets, $1.4 million increase in cash from accounts payable, $1.0 million decrease in cash from operating lease liabilities, $2.3 million increase in cash from contract liabilities, $3.5 million decrease in cash from accrued expenses and other payables, and $1.1 million decrease in cash from other liabilities. We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the projects in progress.
Non-cash adjustments changes:
| ● | $334,000 net increase resulting from equity in income from our equity investments. |
|
|
|
| ● | $13,000 net decrease in depreciation and amortization expense which includes loan and debt discounts amortization. |
|
|
|
| ● | $276,000 net decrease from the reduction in gain on debt extinguishment. |
|
|
|
| ● | $73,000 decrease from the gain on early termination of leases |
|
|
|
| ● | $240,000 decrease in expenses associated with loss provisions for bad debts, loan losses, inventories, warranty, customer care and production guaranty. |
|
|
|
| ● | $102,000 decrease in deferred income taxes. |
|
|
|
| ● | $18.5 million increase in stock-based compensation expense |
|
|
|
| ● | $7.5 million increase in goodwill impairment loss |
Changes in operating assets and liabilities:
| ● | $3.3 million increase in net cash inflow from accounts receivable, other receivables and current assets |
|
|
|
| ● | $1.9 million decrease in net cash inflow from inventories. |
|
|
|
| ● | $1.4 million decrease in net cash inflow from customer loans receivable. |
|
|
|
| ● | $2.0 million decrease in cash inflows from accounts payable. |
|
|
|
| ● | $0.9 million increase in cash from accrued expenses and other payables and other liabilities. |
|
|
|
| ● | $2.3 million decrease in net cash from contract liabilities related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019. |
|
|
|
| ● | $2,137,000 increase in net cash from contract assets related to projects for which the performance obligations have not been satisfied under the revenue recognition standard which became effective January 1, 2019. |
|
|
|
| ● | $57,000 decrease in net cash from operating lease liabilities. |
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Investing Activities
Net cash used by investing activities for the nine months ended September 30, 2024 was approximately $7.7 million, consisting of $7.7 million of short-term investment in three promissory notes (of which $713,000 relates to the China segment), offset by $21,000 of cash proceeds received from disposal of property and equipment. Net cash used by investing activities for the nine months ended September 30, 2023 was 6,000, consisting of cash received of $22,000 related to the disposal of property and equipment, offset by $28,000 used in the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $13.9 million, consisting of $18.6 million of net cash proceeds from the initial public offering completed in February and March 2024, $900,000 loan proceeds from a new short term borrowing, offset by $5.3 million principal payments on convertible notes in the United States segment.
Net cash provided by financing activities for the nine months ended September 30, 2023 was $22,000, consisting of $4.1 million principal payments on convertible notes in the United States segment, $40,000 payments on other borrowings and equipment leases in the United States segment, and $2.2 million payment to Uonone, offset by $6.7 million of proceeds from Uonone, related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.
Cash and Cash Equivalents and Restricted Cash
The following table sets forth, our cash and cash equivalents and restricted cash held by our United States and China segments at September 30, 2024 and December 31, 2023 (dollars in thousands):
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
US Segment |
|
|
|
|
|
| ||
Insured cash |
| $ | 887 |
|
| $ | 819 |
|
Uninsured cash |
|
| 155 |
|
|
| 813 |
|
|
|
| 1,042 |
|
|
| 1,632 |
|
China Segment |
|
|
|
|
|
|
|
|
Insured cash |
|
| 109 |
|
|
| 296 |
|
Uninsured cash |
|
| - |
|
|
| 966 |
|
|
|
| 109 |
|
|
| 1,262 |
|
Total cash and cash equivalents & restricted cash |
|
| 1,151 |
|
|
| 2,894 |
|
Less: Cash and cash equivalents |
|
| 871 |
|
|
| 2,539 |
|
Restricted cash |
| $ | 280 |
|
| $ | 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. Therefore, we do not accrue any China exit taxes related to the repatriation.
Under applicable PRC law and regulations, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated after-tax profits, if any, each year, to fund certain reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital before they may pay dividends. 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 invested $7,000,000 from the proceeds of our initial public offering in an 8% promissory note issued by Webao Limited, a Hong Kong based social media company. The initial maturity was June 1, 2024 and, at the request of the maker, it was extended to September 25, 2024 and further extended to December 31, 2024. Our China segment invested RMB 5,000,000, or approximately $688,000, in a 5% note issued by Qingdao Xiaohuangbei Technology Co., Ltd., a PRC-based company. The initial maturity was June 25, 2024 and, at the request of the maker, it was extended to September 25, 2024 and further extended to December 25, 2024. These notes are shown on our balance sheet as short-term investments. Maintaining any significant portion of our cash in non-financial institutions, which do not have any of the protections provided United States banks and which have requested extensions of the payment date, is subject to adverse conditions in the financial or credit markets, which could impact access to our invested cash and could adversely impact our operating liquidity and financial performance.
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Borrowings
At September 30, 2024, our current liabilities included secured convertible notes in the principal amount of $9.2 million, secured notes to related parties of $7.9 million and unsecured notes payable of $2.9 million.
Contemporaneously with the execution of our lease with 3080 Landlord and the termination of our former lease with SMXP, we issued two two-year 8% notes to SMXP. Both notes provide for quarterly payments of interest during the term with the principal being due at maturity on October 10, 2024 which was extended to October 10, 2025. One note, in the principal amount of $414,581, was issued to pay past due rent under our former lease with SMXP for the period June 1, 2022 to October 12, 2022. The second note, for $944,077 was issued to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord.
In June 2024, our United States LED subsidiary borrowed $900,000 at a fixed interest rate of 12% from a non-affiliated party for working capital purposes. The note was due on November 10, 2024 which was extended to December 31, 2024 at our request.
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. The loans from CEF and CEF II bear interest at 3% per annum. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, a related party. The limited partners of both CEF and CEF II are investors who are not related parties who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program. The EB-5 immigrant investor visa is a federal program that grants green cards and a path to citizenship to foreign investors who invest at least $500,000 toward job-creating projects. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve 10 permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States.
The loans from CEF and CEF II become due, as to the investment of each limited partner, four years from the date of the loan and may be extended as may be necessary to meet applicable USCIS immigrant investor visa requirements, which will be the date that the limited partner is eligible for a green card. Under the limited partnership agreements for CEF and CEF II, the limited partners have the right to demand repayment of their capital account when the petition is approved, which demand may trigger a maturity of the loan from CEF or CEF II in the amount of the limited partner’s investment. The initial four-year term of notes in the principal amount of $55.5 million, which were issued to CEF and CEF II, and had expired prior to December 31, 2023 and are on extension until the limited partners meet applicable immigrant investor visa requirements. We cannot determine the period of the extensions. As of September 30, 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. The petitions of limited partners of CEF whose capital contribution funded loans of $3.5 million are pending.
As the loans matured and the limited partners requested return of their capital contribution, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to CEF. As of September 30, 2024, we had issued convertible notes in the principal amount of $37.5 million to former limited partners of CEF, of which principal payments of $21.1 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.8 million, leaving convertible notes in the principal amount of $16.3 million outstanding. As of September 30, 2024, notes to CEF and CEF II in the aggregate principal amount of $11.5 million were outstanding and convertible notes in the principal amount of $16.3 million were outstanding.
Other Debt Obligations
We have a loan for $2.0 million from an unrelated party bearing interest rate at 6% per annum which becomes due at December 31, 2024. This loan had been extended periodically since the original maturity date of April 30, 2021.
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Contractual Obligations
Borrowings
Principal maturities for the financing arrangements as of September 30, 2024 are as follows (dollars in thousands):
For the year ending December 31, |
| Bank and Other Unsecured Loans |
|
| EB5 Related Party Loans |
|
| Notes Payable - Related Party |
|
| Convertible Notes |
|
| Total |
| |||||
2024 (remainder of) |
| $ | 2,900 |
|
| $ | 2,500 |
|
| $ | 1,359 |
|
| $ | 3,680 |
|
| $ | 10,439 |
|
2025 |
|
| - |
|
|
| 4,000 |
|
|
| - |
|
|
| 6,190 |
|
|
| 10,190 |
|
2026 |
|
| - |
|
|
| 5,000 |
|
|
| - |
|
|
| 2,990 |
|
|
| 7,990 |
|
2027 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,590 |
|
|
| 1,590 |
|
2028 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,100 |
|
|
| 1,100 |
|
Thereafter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 700 |
|
|
| 700 |
|
Total |
| $ | 2,900 |
|
| $ | 11,500 |
|
| $ | 1,359 |
|
| $ | 16,250 |
|
| $ | 32,009 |
|
Operating Leases
Future minimum lease commitments for office facilities and equipment for each of the next five years as of September 30, 2024, are as follows (dollars in thousands):
For the year ending December 31, |
| Total |
| |
2024 (remainder of) |
| $ | 444 |
|
2025 |
|
| 1,726 |
|
2026 |
|
| 1,768 |
|
Total |
| $ | 3,938 |
|
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. Hsu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreements provide for an annual salary with an increase of not less than 3% and an annual bonus in restricted stock and cash equal to a specified percentage of consolidated revenues for each year. Mr. Hsu’s annual salary for 2023 was $716,431, and his salary for 2024 is at the annual rate of $737,924. We also owe Mr. Hsu $675,000 as the cash payment in connection with his exchange of 1,348,213 restricted shares of common stock for options to purchase 1,428,432 shares of common stock at $5.01 per share and a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is now due commencing on February 27, 2025 in twelve equal monthly installments. In addition, at September 30, 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. Hsu waived his bonus for 2019, 2020, 2021, 2022, and 2023 as part of the suspension of incentive programs for key employees, and he agreed that the $1,833,378 deferred salary and bonus be paid in twelve equal monthly installments with the first payment becoming due on February 27, 2025.
Cash Requirements
We require substantial funds for our business, and we believe that the cash and cash equivalents and short-term investment, together with cash generated by our operations should enable us to meet our cash requirements for at least the twelve months from the date of this report. 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. We have extended our loan obligation to an unrelated third party for $2.0 million to December 31, 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. 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. The willingness of the limited partners of CEF and CEF II to accept convertible notes rather than a cash payment of their investment in the limited partnership may be affected by their perception of our performance and the performance of our common stock, including our low stock price and the possibility of our being delisted from Nasdaq, as well as their perception that they could get a more favorable result with litigation. We cannot assure you that such financing will be available on acceptable, if any terms, which would impair our ability to develop our business. The low price of our common stock may make it difficult for us to issue convertible notes that are convertible at a discount from the market price of our common stock. Our financial statements for the year ended December 31, 2023 and the nine months ended September 30, 2024 have a going concern paragraph.
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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. Management estimates and judgments are inherently uncertain and may differ significantly from actual results achieved. Management considers an accounting estimate to be critical if the estimate requires significant assumptions and changes in the estimate or, the use of alternative estimates, could have a material impact on our results of operations or financial position. For more information on our accounting policies, see “Notes to Consolidated Financial Statements—Note 2. 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. Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived assets to the respective estimated future undiscounted cash flows. The estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If our analysis indicates that the carrying value of the long-lived assets is not recoverable on an undiscounted cash flow basis, it recognizes an impairment charge for the amount by which the carrying value exceeds the fair value of the long-lived asset.
Key Assumptions and Approach Used
Goodwill is tested for impairment at least annually based on certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When assessing goodwill for impairment, we consider the enterprise value and if necessary, the discounted cash flow model, which involves assumptions and estimates, including our future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require us to perform a quantitative impairment test include a significant decline in the financial results, a significant decline in the enterprise value relative to our net book value, an unanticipated change in competition or the market share and a significant change in the strategic plans.
Our China segment did not complete any new projects in 2021, 2022 or 2023 and did not generate any revenue since 2022. As of September 30, 2024, we did not have any contracts for the China segment and we were no engaged in any active negotiations with respect to potential contracts. As a result of the continued economic downturn in China that directly impacts our ability to generate new businesses in the foreseeable future and the absence of any agreements or negotiations for agreements at September 30, 2024, we recognized an impairment charge for the entire balance of the goodwill for our China segment of $7.5 million for the three and nine months ended September 30, 2024.
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.
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.
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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. Specifically, we estimate loss reserve based on the aging of the financial asset balances and the financial condition of customers and provide for specific allowance amounts for those customers that have a higher probability of default. With respect to our China segment, we review China’s current and future economic conditions along with its political landscape, and how these factors may affect our receivable from SPIC, a state-owned entity. We regularly monitor collection status of these financial assets through account reconciliation, payment tracking, customer’s financial condition and macroeconomics conditions.
Effect if Different Assumptions Used
We believe that assumptions not based on the use of historical collection experience, current and forecasted economic, political (China segment) and business conditions, and a review of the status of each customer’s financial asset account would be contra to the requirements of ASU 2016-13 and a departure from GAAP.
Income Taxes
Nature of Estimates Required
As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes for each jurisdiction in which we operate. This process involves estimating actual current period tax expense together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our balance sheets, including net operating loss and tax credit carryforwards. Certain estimates and assumptions are required to determine whether deferred tax assets can and will be utilized in future periods.
We take certain tax positions we believe are in accordance with the applicable tax laws. However, these tax positions are subject to interpretation by the Internal Revenue Service, state tax authorities and the courts. We determine uncertain tax positions in accordance with the authoritative guidance.
Key Assumptions and Approach Used
In determining whether it is more likely than not that all or some portion of net operating loss and tax credit carryforwards can be utilized, we analyze the trend of GAAP earnings and then estimates the impact of future taxable income, reversing temporary differences and available prudent and feasible tax planning strategies based on currently enacted tax laws.
Accounting for tax obligations requires management judgment. We use judgment in determining whether the evidence indicates it is more likely than not, based solely on the technical merits, that a tax position will be sustained, and to determine the amount of tax benefits to be recognized. Judgment is also used in determining the likelihood a tax position will be settled and possible settlement outcomes. In assessing uncertain tax positions we consider, among others, the following factors: the facts and circumstances of the position, regulations, rulings, and case law, opinions or views of legal counsel and other advisers, and the experience gained from similar tax positions. We evaluate uncertain tax positions at the end of each reporting period and make adjustments when warranted based on changes in fact or law.
Effect if Different Assumptions Used
Should a change in facts or circumstances, including a change in enacted tax legislation, lead to a change in judgment about the ultimate realizability of a deferred tax asset, we would record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in the provision for income taxes.
Actual income taxes may differ from the estimated amounts which could have a significant impact on the liabilities, revenue and expenses recorded in the financial statements. Significant judgment is required to determine the tax treatment of particular tax positions that involve interpretations of complex tax laws. Such liabilities are based on judgment and a final determination could take many years from the time the liability is recorded. Furthermore, settlement of tax positions included in open tax years may be resolved by compromises of tax positions based on current factors and business considerations that may result in material adjustments to income taxes previously estimated. For a discussion of current and deferred taxes, net operating losses and tax credit carryforwards, accounting for uncertainty in income taxes, unrecognized tax benefits, and tax disputes, see Note 19. Income Taxes of “Notes to Consolidated Financial Statements.”
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting described below.
Notwithstanding the material weakness, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the condensed consolidated financial statements included in this quarterly report present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.
Material Weakness
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant's financial statements will not be prevented or detected on a timely basis.
Lack of adequate controls enabling us to identify the change in the status of the permit-to-operate field in the system, which affects recognition of revenue, coupled with lack of any monitoring and review controls to identify changes to the permit-to-operate field resulted in a material audit adjustment during the quarter ended September 30, 2024. The adjustment to revenue in the third quarter was corrected in the financial statements included in this quarterly report. Additionally, a manual detective control related to the contract asset accrual calculation, which would have facilitated a review of the accrual against all previously billed projects to flag for projects previously billed, has not been designed by us.
Changes in Internal Control over Financial Reporting
Subsequently to the revenue adjustment described under “Material Weakness,” management added additional controls into its accounting processes and closing procedures and believes the additional controls will enable us to detect changes the error of this nature in the future. Further, the identified overstatement error has been remediated and corrected in the condensed consolidated financial statements for the periods ended September 30, 2024.
Other than the additional controls added to the revenue process to address the identified error caused by a unique situation and the underlying control deficiency uncovered during the three months ended September 30, 2024, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
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Part II - Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2024, the Company issued convertible notes in the principal amount of $5,500,000 to former limited partners of CEF and CEF II pursuant to exchange agreements with the former limited partners. These notes have a conversion price ranging from $0.66 per share to $9.07 per shares. The convertible notes were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as transactions not involving a public offering.
Item 5. Other Information
During the three months ended September 30, 2024, no officer or director adopted or terminated any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
Item 6. Exhibits
| Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS |
| Inline XBRL Instance Document. |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SOLARMAX TECHNOLOGY, INC |
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Date: November 14, 2024 | By: | /s/ David Hsu |
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| David Hsu, Chief Executive Officer |
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| (Principal Executive Officer) |
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| By: | /s/ Stephen Brown |
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| Stephen Brown, Chief financial Officer |
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| (Principal Financial Officer) |
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