SolarMax Technology (SMXT) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01We sustained losses since our organization, our financial statements have a going concern footnote and we cannot assure you that we can or will operate profitably
2. 02Our revenue declined significantly from 2023 to 2024, our cash flow from operations went from $4.0 million in 2023 to negative $9.4 million in 2024, and we cannot operate profitably unless we increase our revenue and reduce our expenses
3. 03We have a working capital deficit of $13.7 million at December 31, 2024 and require funding for our operations
4. 04Although we are seeking to market sales of larger systems to commercial users both in California and in other states; we cannot assure you that we will be successful
5. 05We may have to manage the project after completing the construction
6. 06We require significant funds to pay our debt obligations, including obligations to management
7. 07We did not generate any revenue for our Chinese segment since 2021 and we cannot assure you that we will not have to discontinue our Chinese operations
8. 08Our failure to control our costs could impair our financial results
9. 09We invested $7.7 million from the proceeds of our initial public offering in promissory notes issued by private companies in Hong Kong and China, and such notes were extended at the request of the maker and are outstanding on the date of this annual report
10. 10Changes in utility regulations and pricing could impair the market for our products
11. 11Our business may be affected by increases in the price of solar energy products, including price increases resulting from the United States’ trade and tariff policies
12. 12Changes in net metering regulations in California is likely to result in a reduced level of benefits, which is impairing the market for residential solar products
13. 13We may be subject to cybersecurity risks
14. 14We may be subject to liability if private information that we receive is not secure or if we violate privacy laws and regulations
15. 15Pandemics and epidemics, natural disasters, war, terrorist activities, political unrest, the relationship between China and the United States and other outbreaks could disrupt our delivery and operations, which could materially and adversely affect our business, financial condition, and results of operations
16. 16Our business would be impaired if we lose our licenses, if more stringent government regulations are enacted or if we fail to comply with the growing number of regulations pertaining to solar energy and consumer financing industries
17. 17require specific disclosures and the use of special contract forms
18. 18A material decrease in the retail price of electricity from the local utility company or from other sources would affect our ability to generate revenues
19. 19Changes in regulations relating to fossil fuel can impact the market for renewable energy, including solar
20. 20Solar energy and other forms of renewable energy compete with other forms of energy and the attractiveness of solar energy reflects the cost of electricity from the local grid
21. 21Within the solar energy market, we face intense and increasing competition in the market of solar energy system providers, which exposes us to the risk of reduction of our market penetration and of our gross margin
22. 22The results of our operations may vary significantly from quarter to quarter
23. 23changes in customer demands for solar energy systems
24. 24Because we are dependent on our chief executive officer, the loss of his services and our failure to hire additional qualified key personnel could harm our business
25. 25In order to develop our business, we need to identify, hire and retain qualified sales, installation and other personnel
26. 26Although our employees in the United States are co-employed by a professional employer organization, we may be liable for the failure of the organization to comply with our obligations under applicable law
27. 27Since we act as a general contractor in the United States, we face typical risks of a construction company
28. 28Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant monetary penalties, operational delays and adverse publicity
29. 29The availability and price of silicon raw materials may affect our gross margins and profitability
30. 30Our business is subject to the effects of inflation and has been subject to supply chain issues
31. 31Because we derive most of our United States revenue from sales of our solar energy systems in California, we depend on the economic and regulatory climate and weather and other conditions in California
32. 32Because we provide a production guarantee for some solar systems in California, we may incur additional costs if the output of our systems does not meet the required minimums
33. 33Our warranty costs may exceed our warranty reserve
34. 34Because of the rapid development of solar panels and other components for solar systems, we may be subject to inventory obsolescence
35. 35If we seek to expand our business through acquisition, we may not be successful in identifying acquisition targets or integrating their businesses with our existing business
36. 36If we identify an acquisition, we may face competition from other companies in the industry or from financial buyers in seeking to make the acquisition
37. 37Any indemnification obligations of the seller under the purchase agreement may be inadequate to compensate us for any loss, damage or expense which we may sustain, including undisclosed claims or liabilities
38. 38We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated. Our failure to obtain capital on reasonable terms may impair the value of the acquisition and may impair our continuing operations
39. 39If we recommence business in China, our China segment requires significant funding in connection with project construction
40. 40We may not be successful in developing our solar farm project business in China
41. 41address any changes resulting from weather or climate conditions, earthquakes, unexpected construction difficulties, changes in the buyer’s specifications or other changes beyond our control
42. 42Delays in construction of solar farms could increase our costs and impair our revenue stream from our China operations
43. 43Our business in the United States is largely dependent upon government subsidies and incentives
44. 44United States trade policy affects our ability to purchase domestic solar panel and pricing generally
45. 45Three of our directors are located outside of the United States; therefore, investors may not be able to enforce federal securities laws or their other legal rights against those officers and directors (prior to and after the offering) located outside the United States

Risks Related to Doing Business in China

1. 46Changes in the PRC Government policies on solar power and industry conditions as well as changes in the trade relationship between the United States and China could affect our ability to generate business in China
2. 47The transfer of funds between our United States and China segments is subject to restriction
3. 48Because one customer in China has represented substantially all of our of our revenue from our China segment, we need to develop new clients if we are to generate revenue from our China segment
4. 49Our business in both the United States and China is dependent on the continuation of government benefits, and no assurance can be given that such benefits will be continued
5. 50California legislation has reduced the formula for paying the resident for selling us used power to the local utility, which affects the benefits to the residential homeowner and may affect their willingness to have solar systems installed which may affect our pricing, our sales and our gross margin
6. 51In China, we would compete with other companies for a limited number of available permits
7. 52Because of the cost of construction of the solar farms, we are likely to require financing in order to complete projects in China, and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China
8. 53Because our business in China would involve the construction of large projects for a small number of customers; we do not have an ongoing revenue base and needs to obtain new customers
9. 54Because of the amount of land required for a solar farm, it may be difficult to obtain the necessary land use rights, which may increase the cost of the land
10. 55The economics of a solar farm are affected by the money that solar farm owners receive from utility companies
11. 56Changes in solar farm delivery schedules and order specifications may affect our revenue stream and gross margin
12. 57Our China revenues may be affected by weather conditions, including climate changes, in certain provinces of China
13. 58Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our business practices
14. 59Changes in the policies of the PRC government could have a significant impact on our operations in China and the profitability of our business
15. 60A slowdown or other adverse developments in the PRC economy may harm our customers and the demand for our products
16. 61Future inflation in China may inhibit the profitability of our business in China
17. 62The fluctuation of the RMB may have a material adverse effect on your investment
18. 63Restrictions on currency exchange may limit our ability to receive and use our revenue effectively
19. 64Our Chinese subsidiaries are subject to restrictions on making dividend and other payments to it
20. 65Because we must comply with the Foreign Corrupt Practices Act, we may face a competitive disadvantage in competing with Chinese companies that are not bound by those prohibitions
21. 66Uncertainties with respect to the PRC legal system could have a material adverse effect on us
22. 67The PRC’s legal and judicial system may not adequately protect our business and operations and the rights of our investors
23. 68Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business operations and financial results
24. 69Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation
25. 70PRC regulation of direct investment by offshore holding companies to PRC entities may delay or prevent us from making additional capital contributions to our PRC subsidiaries and affiliated entities, which could impair our liquidity and our ability to fund and expand our business
26. 71Under Chinese law, our Chinese subsidiaries are limited in their ability to pay dividends to us, which may impair our ability to pay dividends and to fund our United States segment in the future
27. 72A failure by the beneficial owners of our common stock who are PRC residents to comply with certain PRC foreign exchange regulations may restrict our ability to distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law
28. 73Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China
29. 74Under the new Enterprise Income Tax Law, we may be classified as a "resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC stockholders
30. 75Because we require a license to engage in the EPC business in China, any changes in the certification or qualification requirements could impair our ability to operate in China
31. 76If we import polysilicon into China from the United States or South Korea, our gross margin may be impaired
32. 77We may fail to comply with laws and regulations regarding the development, construction and operation of solar power projects and photovoltaic production projects in China
33. 78Failure to comply with PRC regulations regarding the registration of share options held by our employees who are "domestic individuals” may subject such employee or us to fines and legal or administrative sanctions
34. 79We face uncertainties on the reporting and consequences of private equity financing transactions, private share exchange transactions and private transfer of shares, including private transfer of public shares, in our company by non-resident investors
35. 80Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China

Risks Related to our Common Stock

1. 81An active, liquid and orderly trading market for our common stock may not be maintained, and our stock price is volatile
2. 82If our stock price falls, we may be delisted from Nasdaq which would have a material adverse effect on the price and market for our common stock, and you could lose all or part of your investment
3. 83general economic conditions and slow or negative growth of our markets
4. 84Our amended and restated articles of incorporation and amended and restated bylaws and our employment agreement with our chief executive officer, as well as Nevada law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock
5. 85providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and
6. 86Provisions of our bylaws and Nevada law could deter a change of our management, which could discourage or delay offers to acquire us
7. 87A portion of the compensation to our senior executive officers may not be deductible, which may increase our taxes
8. 88Because our bylaws limit the court in which you may bring an action against us, you may have difficulty enforcing any rights which you may claim
9. 89Because we do not intend to pay dividends on our common stock for the foreseeable future, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates
10. 90Future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us
11. 91We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock
12. 92For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies
13. 93Because our directors and executive officers own or have the right to vote approximately 27.9% of our outstanding common stock, they may be able to elect all directors, approve all matters requiring stockholder approval and block any action which may be beneficial to stockholders