S-1

As filed with the Securities and Exchange Commission on July 18, 2022.

Registration Statement No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SOLARMAX TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

Nevada	4931	26-2028786
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

3080 12th Street

Riverside, California 92507

(951) 300-0788

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

David Hsu, Chief Executive Officer

SolarMax Technology, Inc.

3080 12th Street

Riverside, California 92507

(951) 300-0788

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Asher S. Levitsky P.C. Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas, 11th Floor New York, New York 10105-0302 Tel: (646) 895-7152 Cell: (917) 930-0991 Fax: (646) 895-7238 Clayton E. Parker, Esq. K&L Gates LLP 201 South Biscayne Boulevard, Suite 2000 Miami, Florida 33131-2399 Tel: 305-539-3306 Cell: (305) 358-7095 Fax: 305-358-7095

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Preliminary Prospectus Subject To Completion, Dated  July 18, 2022

7,500,000  Shares

SolarMax Technology, Inc.

Common Stock

This is the initial public offering of  7,500,000  shares of common stock of SolarMax Technology, Inc. on a firm commitment basis.

Prior to this offering, there has been no public market for our common stock. The initial public offering price per share  is expected to  be $4.00. We have applied to list our common stock on the NASDAQ Capital Market under the symbol “SMXT” and the listing of our common stock on the NASDAQ Capital Market is a condition to the underwriters’ obligation to close.

We have granted the underwriters the option, exercisable for  45 days from the date of this prospectus, to purchase up to an additional  1,125,000  shares from us at the initial public offering price less the underwriting discount and commissions to cover over-allotments.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such, we have elected to take advantage of certain reduced public company reporting requirements for this prospectus and future filings. Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 16 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock. See “Prospectus Summary - Emerging Growth Company Status.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.  

We are an integrated solar energy company. We were founded in 2008 to conduct business in the United States and subsequently commenced operation in China following two acquisitions in 2015. We operate in two segments – the United States operations and the China operations. We are a holding company, with our United States operations conducted by our United States subsidiaries and our China operations by our Chinese subsidiaries, which operate separately from our United States operations. We are a Nevada corporation that operates through its subsidiaries, all of which are wholly owned.

Our United States operations primarily consist 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. Our China operations, which are conducted by our wholly-owned subsidiaries, consist primarily of identifying and procuring solar farm projects for resale to third parties and performing engineering, procuring and construction (“EPC”) services primarily for solar farm projects. Although we are a Nevada corporation with significant operations in the United States, through our PRC subsidiaries, we conduct business in China and our China business is subject to Chinese law. There are legal and operational risks associated with having operations in China. See “Risk Factors — Any change of regulations and rules by Chinese government may intervene or influence upon our operations in China at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with Chinese operations could result in a material change in our business operations and/or the value of our securities and could also significantly limit or completely hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline or be worthless” and “Business – PRC Government Regulations.” Further, the only customer of our China segment since the middle of 2019 has been a large state-owned enterprise. As of the date of this prospectus, we do not have any agreement for the China segment to perform any ongoing services. The primary business of our China segment is the construction of solar farms and related services. Each solar farm requires a permit from a government agency, and there are a limited number of permits. We are dependent upon our ability to generate business from a large state-owned enterprise and obtaining the necessary permit from a local government agency. Our failure or inability to obtain contracts or permits would materially impact our business and may result in a significant decrease in the value of our common stock.

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Our PRC operations are subject to certain legal and operational risks and may be impacted or influenced by the new regulations and policies by Chinese government. PRC laws and regulations governing our PRC operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in our PRC operations, significant depreciation of the value of our common stock, or a significantly limit or complete hindrance of our ability to offer, or continue to offer, securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using the variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. We believe we are not subject to cybersecurity review by the Cyberspace Administration of China, or “CAC,” because our PRC subsidiaries presently maintain fewer than one million individual clients in their business operations as of the date of this prospectus. However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our PRC daily business operations, the ability to accept foreign investments and list on an U.S. exchange or other foreign exchange. See “Risk Factors — Risks Associated with Doing Business in China” beginning on page  22 for more information. For example, our PRC subsidiaries face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, oversight on cybersecurity and data privacy. Any change in foreign investment regulations, and other policies in China or related enforcement actions by China government could result in a material change in our operations and the value of our securities and could significantly limit or completely hinder our ability to offer, or continue to offer, securities to investors or cause the value of our common stock to significantly decline or be worthless.

We finance our China operations and our United States operations separately. We do not use funds from either segment to provide funds for the other segment. Our equity structure is a direct holding structure, that is, SolarMax Technology Inc., a Nevada corporation, directly controls its U.S. subsidiaries and its subsidiaries in its China segment including: (i) Golden SolarMax Finance. Co. Ltd, a PRC subsidiary, (ii) SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong subsidiary which directly holds SolarMax Technology (Shanghai) Co., Ltd, a PRC subsidiary (together with its subsidiaries thereunder, “ZHTH”); (iii) Accumulate Investment Co., Ltd, a British Virgin Islands subsidiary which then directly holds Accumulate Investment Co., Limited, a Hong Kong subsidiary that directly holds Jingsu Zhonghong Photovoltaic Electric Co., Ltd (“ZHPV”); a PRC subsidiary and (iv) SolarMax Technology Holdings, a Cayman Islands subsidiary. Our business in China is conducted through ZHPV and ZHTH. See “Business – Our Corporate Structure” on page  100 for additional details.

                In the reporting periods presented in this prospectus and throughout the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our United States subsidiaries, on the one hand; and us and our PRC subsidiaries, on the other hand, have not made any dividends, distributions or other transfer of funds to investors. For the foreseeable future, we intend to use the earnings for research and development, to develop new products and to expand its production capacity. As a result, we do not expect to pay any cash dividends. To the extent that we may in the future seek to fund the business through distribution, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to government regulations. The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

1. Within the direct holding structure, the cross-border transfer of funds within us and our PRC subsidiaries is legal and compliant with the laws and regulations of the PRC. After we receive the proceeds of this offering, the funds can be directly transferred to our subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC.

2. If we intend to distribute dividends, we will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to its parent company and then to us, and the dividends will be distributed by us to all shareholders respectively in proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions.

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3. Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable as cash dividends. See “Dividend Distribution” on page  116  for more information.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from our PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

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Pursuant to the Holding Foreign Companies Accountable Act (“HFCA Act”), the Public Company Accounting Oversight Board (the “PCAOB”) issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. In addition to the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations.  Marcum LLP, our independent registered public accounting firm issued an audit opinion on the financial statements included in this prospectus. As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, Marcum LLP is required by the laws of the United States to undergo regular inspections by the PCAOB and was not identified in this report as a firm subject to the PCAOB’s determination. Marcum LLP is headquartered in New York City, has been inspected by the PCAOB on a regular basis with the most recent inspection in 2018, and is subject to an ongoing inspection that started in November 2020. However, recent developments with respect to audits of China-based companies, such as our China segment, create uncertainty about the ability of our auditor to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities.  In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the Determination so that we are subject to the HFCA Act, as the same may be amended, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including “over-the-counter” trading, may be prohibited, under the HFCA Act. See “Risk Factor – Our independent registered public accounting firm’s audit documentation related to their audit reports included in this prospectus include audit documentation located in China. PCAOB may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the HFCA Act or the Accelerating Holding Foreign Companies Accountable Act if the SEC subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.” on page  43  for more details. 

On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), which are now open for public comments. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation is with a major operating entity incorporated in the PRC and such filing obligation shall be completed within three working days after the overseas listing application is submitted. The Measures provides that the determination as to whether a domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance over form basis and if the issuer meets the following conditions, the offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) The total assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; and/or (ii) the senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China. We are a Nevada corporation founded in 2008 to provide solar power solutions in the United States and commenced its China operations in 2016 following the acquisition of two companies in 2015.  More than 50% of our revenues, gross profit and net loss for 2021 were generated from our US operations. In addition, our chief executive officer and other executive officers and a majority of our directors are US citizens.  We believe that we are not a domestic China company as provided in the Measure, thus, this offering might not be qualified as indirect overseas offering and listing under the Administration Provisions and Measures for overseas listings. However, it is uncertain when the Administration Provision and the Measures will take effect or if they will take effect as currently drafted. If it is determined in the future that the approval of the CSRC, the CAC or any other regulatory authority is required for this offering, we may face sanctions by the CSRC, the CAC or other PRC regulatory agencies, or these regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. In addition, if the CSRC, the CAC or other regulatory PRC agencies later promulgate new rules requiring that we obtain their approvals for the merger, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Following the completion of this offering, if applicable PRC laws, regulations or interpretations change and we are required to obtain approval or permissions from the CSRC, the CAC or any other regulatory authority to operate our business in China and/or to offer securities being registered to foreign investors, we may have to obtain such approval or permission or seek wavier from relevant regulatory PRC agencies before we can continue our China operation and to offer securities to foreign investors, the procedures of which may be time consuming, unpredictable and costly, and there is no assurance that we can successfully obtain such approval, permission or seek waiver. Any of those interruptions, uncertainty and/or negative publicity regarding such an approval requirement either prior to the consummation of the Merger or in the future may have a material adverse effect on our business and financial condition, result of operations and prospectus, as well as the value and trading price of our securities. See “Summary-Permission required to obtain from Chinese authorities to operate and issuer securities to foreign investors” on page  9  for more information.

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All of our executive officers and directors are located in the United States except that two directors are located in China and one director is located in Taiwan. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those directors or management members located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on them under United States securities laws. See “Enforceability of Civil Liabilities” on page 63 and “Risk Factors – Risks Associated with Doing Business in China- Three 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” on page  48  of this prospectus.

	Per Share		Total
Initial public offering price	$	4.00	$	30,000,000
Underwriting discounts and commissions(1)	$	0.24	$	1,800,000
Proceeds to us, before expenses	$	3.76	$	28,200,000

________

(1) In addition, we have agreed to provide the underwriters additional compensation and reimburse the underwriters for certain expenses. See “Underwriting” on page  145 of this prospectus for additional information.

The underwriters expect to deliver the shares of common stock to purchasers in the offering against payment on [  ], 2022.

VIEWTRADE SECURITIES, INC.

The date of this prospectus is [  ], 2022.

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TABLE OF CONTENTS

	Page
Prospectus Summary	1
The Offering	15
Selected Consolidated Financial Data	16
Risk Factors	16
Cautionary Note Concerning Forward-Looking Statements	61
Enforceability of Civil Liabilities	63
Use of Proceeds	63
Dividend Policy	64
Capitalization	64
Dilution	65
Management’s Discussion and Analysis of Financial Condition and Results of Operations	66
Business	98
Management	131
Executive Compensation	132
Certain Relationships and Related Party Transactions	136
Principal Stockholders	139
Description of Capital Stock	140
Shares Eligible for Future Sale	143
Underwriting	145
Legal Matters	149
Experts	149
Where You Can Find More Information	149
Index to Consolidated Financial Statements	F-1

You should rely only on the information contained in this prospectus and in any free writing prospectus prepared by or on behalf of us and delivered or made available to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or a free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of shares of our common stock. Our business, financial condition, operating results, and prospects may have changed since that date.

Until [  ], 2022 (25 days after commencement of this offering), all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

Industry and Market Data

The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, government publications and other published independent sources. Some data is also based on our good faith estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications.

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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.

In this prospectus, unless the context otherwise requires, the terms “we,” “us,” “our,” and the “Company” refer to SolarMax Technology, Inc. and its consolidated subsidiaries. 

Company Overview  

We are an integrated solar energy company. Through our subsidiaries, we are primarily engaged in the following business activities:

· Identifying and procuring solar farm system projects for resale to third party developers and related services in the People’s Republic of China, which we refer to as China or the PRC;

· Providing engineering, procuring and construction services, which are referred to in the industry as EPC services, for solar farms and residential and commercial photovoltaic systems in China although we have not performed any significant residential or commercial services in China;

· Operating and maintaining solar farm projects in China following the completion of our EPC work on the projects, although we are not currently performing such services;

· Selling and installing integrated photovoltaic systems for residential and commercial customers in the United States;

· Providing exterior and interior light-emitting diodes, known as LED, lighting sales and retrofitting services for governmental and commercial applications;

· Providing secured loans to purchasers of our photovoltaic systems and servicing installment sales by our customers in the United States;

· Owning and funding renewable energy projects in the United States based on leases entered into prior to 2015, and generating revenue from this business through operating leases and power purchase agreements primarily with commercial users; and,

· Selling and installing backup battery systems for residential and commercial customers in the United States.

We operate in two segments - the United States operations and the China operations. Our United States operations consists primarily 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, (iii) sales of LED systems and services to government and commercial users.

Our China operations consist prima rily of identifying and procuring solar farm projects for resale to third parties and EPC services for solar farm projects .

We commenced operations in China following the completion of two acquisitions on April 28, 2015.

· We acquired the ownership of Chengdu Zhonghong Tianhao Technology Co., Ltd., or Chengdu ZHTH, through a share exchange agreement among us, one of our PRC subsidiaries, and the equity owners of Chengdu ZHTH (together with its subsidiaries thereunder, “ZHTH”).

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· We acquired the ownership of Jiangsu Zhonghong Photovoltaic Electric Co., Ltd., or ZHPV, through a share exchange agreement between us and the holders of the stock of Accumulate Investment Co. Ltd., which we refer to as Accumulate. Accumulate owns ZHPV through a Hong Kong subsidiary. The share exchange agreement for ZHPV was amended on May 12, 2016 to revise certain terms including adjusting the total consideration retroactively to the original acquisition date of April 28, 2015.

Our business in China is conducted through our subsidiaries, primarily ZHTH and ZHPV, which we acquired in April 2015, and their subsidiaries.

ZHTH is engaged in project development. ZHPV’s core business is to provide EPC services. In order to build a solar farm in China it is first necessary to obtain a permit, which covers a specific location. ZHTH and ZHPV establish special subsidiaries to own and acquire a permit for a solar farm. We refer to these subsidiaries as project subsidiaries. When a buyer of a project is identified, we sell to the buyer the equity in the project subsidiary that holds the permit for that specific solar farm project, and the buyer of the project engages ZHPV for the EPC work. The purchase price for the project subsidiary is an amount approximating the project subsidiary’s net assets. Accordingly, we do not generate a material gain or loss from the sale of the project subsidiaries. The sale of the equity in the project subsidiaries is part of the normal course of our operations in China. Because Chinese government regulations prohibit the sale of the permit relating to a solar farm, it is necessary for us to sell the equity in the project subsidiary to effectuate the transfer of the ownership of the solar farm and permit to the buyer. At or prior to completion of the EPC work on the solar farm, we seek to obtain an agreement to operate and maintain the solar farm upon its completion. If we receive a contract for operations and maintenance services, these services are performed by ZHPV or a subsidiary.

Unlike systems in the United States, which are installations for residential and small business users, the projects in China are generally solar farms, which are large land areas where multiple ground-mount solar tracking towers are installed.

Reverse Stock Split

On July 15, 2022, we effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split we reduced our authorized common stock to 297,225,000 shares.  All share and per share information in this prospectus retroactively reflects the reverse stock split and reduced authorized common stock.

Summary of Risks Factors

Our business is subject to a number of risks and uncertainties. These risks are discussed more fully in “Risk Factors” beginning on page 16. Before you make a decision to invest in our common stock, you should carefully consider all of those risks including the following:

Risks Associated with Doing Business in China

· We are subject to numerous risks in engaging in business in China. See “Risk Factors — Risks Associated with Doing Business in China—We are subject to numerous risks in engaging in business in China, including, but not limited to, changes in policies of the Chinese government, a deterioration in the relationships between the United States and China, the legal system in China which may not adequately protect our rights, change in the Chinese economy and steps taken by the government to address the changes, inflation, adverse weather conditions, fluctuations in the currency ratio between the U.S. dollar and the RMB, currency exchange restrictions, the interpretation of tax laws, tariffs and importation regulations.” on page  41 of this prospectus.

· Our China segment is subject to numerous regulations in China. See “Risk Factors— Risks Associated with Doing Business in China—Our China segment is subject to numerous regulations in China, including but not limited to, regulations relating to investments in its China subsidiaries, labor laws and other laws relating to employee relations, the issuance of permits for solar farms, licensing, the development, construction and operation of solar power projects, and the sale of power generated from the projects, cybersecurity and the failure to comply with any such regulations may impair our ability to operate in China. ” on page  42 of this prospectus.

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· Our independent accountants, Marcum LLP, is a United States accounting firm headquartered in New York City and is subject to inspection and is annually inspected by the PCAOB. Marcum LLP is not headquartered in mainland China or Hong Kong and was not identified in the Determination Report as a firm subject to the PCAOB’s determinations. However, recent developments with respect to audits of China-based companies, such as our China segment, create uncertainty about the ability of our auditor to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. Marcum LLP’s audit documentation related to their auditor reports included herein include audit documentation in China. The PCAOB has not requested Marcum LLP to provide the PCAOB with copies of our audit workpapers and consequently Marcum LLP has not sought permission from PRC authorities to provide copies of these materials to the PCAOB. If Marcum is unable to provide requested audit work papers located in China to the PCAOB, investors would be deprived of the benefits of PCAOB’s oversight of such auditors through such inspections. In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the determinations so that post-combination entity will be subject to the HFCA Act, as the same may be amended, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including “over-the-counter” trading, may be prohibited, under the HFCA Act. See “Risk Factors— Risks Associated with Doing Business in China— Our independent registered public accounting firm’s audit documentation related to their audit reports included in this prospectus include audit documentation located in China. PCAOB may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act or the Accelerating Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or market if its auditor is not subject to PCAOB inspections for two consecutive years instead of three” on page  43 of this prospectus.

· Substantial 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. See “Risk Factors— Risks Associated with Doing Business in China— Substantial 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.” on page  48  of this prospectus and “Risk Factors – Risks Related to our Business— Neither we nor our PRC subsidiaries are required to obtain permissions from Chinese authorities for this offering to investors. However, if the Chinese Securities Regulation Commission, or CSRC, or another PRC regulatory body subsequently determines that its approval is needed for this offering, we cannot predict whether we will be able to obtain such approval. As a result, we face uncertainty about future actions by the PRC government that could significantly affect our ability to offer, or continue to offer, securities to investors and cause the value of our securities to significantly decline or be worthless.” from page  23 of this prospectus.

· Rules and regulation in China can change quickly with little advance notice, and Chinese government may intervene or influence our China Segment at any time or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations in China as well as our operations in the United States; and/or the value of our securities. See “Risk Factors— Risks Associated with Doing Business in China— Although we do not believe we are a China-based issuer, our business includes our China Segment which is subject to the rules and regulations in China as well as Chinese governmental intervention and influence. The rules and regulations in China can change quickly with little advance notice, and Chinese government may intervene or influence its China operation at any time, or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations in China and ours operations in the U.S., and could cause the value of our securities to significantly decline or be worthless, and limit the legal protections available to us; and any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in issuers with China operations could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless; and limit the legal protections available to us.” on page  48 of this prospectus.

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· Any change of regulations and rules by Chinese government may intervene or influence our operations at any time. See “Risk Factors – Risks Related to our Business — Although we do not believe we are a China-based issuer, because of our China Segment, any change of regulations and rules by Chinese government, such as those related to data security or anti-monopoly concerns, may intervene or influence our PRC operations at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with significant Chinese operations could result in a material change in our operations and/or the value of our common stock and could significantly limit or completely hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline and possibly be worthless.” on page  23 of this prospectus.

· Under Chinese law, our Chinese subsidiaries are limited in their ability to pay dividends to us. See “Risk Factors – Risks Associated with Doing Business in China— The transfer of funds between our United States and China Segment is subject to restriction.” on page  26  of this prospectus and “Risk Factors-- Risks Associated with Doing Business in China— Under 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.” on page  50 of this prospectus.

· Because of our China Segment, if the PRC regulations change or are interpreted differently in the future, our securities may decline in value or become worthless if we are unable to assert our control rights over the assets of our PRC subsidiaries that conduct substantially of our operations. See “Risk Factors – Risks Related to our Business— Our PRC subsidiaries are wholly-owned subsidiaries, and we do not have any variable interest entity structure in China. Our direct ownership in our PRC subsidiaries is governed by and compliance with PRC regulations. However, if the PRC regulations change or are interpreted differently in the future, our securities may decline in value or become worthless if we are unable to assert its control rights over the assets of its PRC subsidiaries that conduct substantially all of its operations.” on page  24 of this prospectus.

· Because 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. See “Risk Factors – Risks Associated with Doing Business in China— Because 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.” on page  46 of this prospectus.

· Our ability to generate business from the current sole customer of our China segment, a state-owned enterprise, may be subject to government policies relating to such factors as the terms on which our PRC subsidiaries sell the project to SPIC and SPIC’s procurement policies. See “Risk Factors – Risks Associated with Doing Business in China— Our ability to generate business from State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd. (“SPIC”), which has been the sole customer of our China segment since the middle of 2019, may be subject to government policies relating to such factors as the terms on which our PRC subsidiaries sell the project to SPIC and SPIC’s procurement policies. As of the date of this prospectus, we do not have any agreements for projects with SPIC.   As a state-owned enterprise, SPIC may favor Chinese companies over subsidiaries of a United States company.” on page  47 of this prospectus.

· We need to obtain project financing for its China segment on a project-by-project basis, and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China. See “Risk Factors – Risks Associated with Doing Business in China— Because of the cost of construction of the solar farms, we could require financing in order to complete projects in China and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China.” on page  33 of this prospectus.

· We have three directors located outside of the United States. Investors may not be able to enforce United States federal securities laws upon those directors located outside of the United States. See “Enforceability of Civil Liabilities” on page 63 and “Risk Factors – Risks Associated with Doing Business in China- Three 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 agai nst those officers and directors (prior to and after the offering) located outside the United States.” on page  48 of this prospectus.

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· Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections. See “Risk Factors – Risks Associated with Doing Business in China— Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.” on page  55 of this prospectus.

· We 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. See “Risk Factors – Risks Associated with Doing Business in China— we face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or immovable properties located in China owned by a non-PRC company.” on page  54 of this prospectus.

· The development, construction and operation of solar power projects and photovoltaic production projects are highly regulated activities. Our operations in China are governed by various laws and regulations, including national and local regulations relating to urban and rural planning, building codes, safety, environmental protection, fire control, utility transmission, engineering and metering and related matters See “Risk Factors – Risks Associated with Doing Business in China— We may fail to comply with laws and regulations regarding the development, construction and operation of solar power projects and photovoltaic production projects in China.” on page  53 of this prospectus.

· The new Enterprise Income Tax (EIT) Law, which was most recently amended on December 29, 2018, and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. See “Risk Factors – Risks Associated with Doing Business in China— Under the new Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.” on page  52 of this prospectus.

· Our PRC subsidiaries are restricted in their ability to pay dividends to us, and we are restricted in payments to our PRC Subsidiaries. See “Risk Factors – Risks Associated with Doing Business in China— Under 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,” “Risk Factors – Risks Associated with Doing Business in China— Payment by our PRC Subsidiaries of dividends to us are restricted.” on page  50  and “Risk Factors – Risks Associated with Doing Business in China— PRC regulation of direct investment by offshore holding companies to PRC entities may delay or prevent us from making additional capital contributions to its PRC subsidiaries and affiliated entities, which could impair its liquidity and its ability to fund and expand its business.” on page  49 of this prospectus.

Risks Related to our Business

· We had consolidated net losses of $0.8 million for the three months ended March 31, 2022 and $3.3 million for year ended December 31, 2021, and our losses are continuing  and our financial statements for the year ended December 31, 2021 have a going concern footnote. We had negative cash flows from operations of $2.0 million for the three months ended March 31, 2022 and $5.4 million for the year ended December 31, 2021 and $23.2 million for the year ended December 31, 2020, and we cannot assure you that we can or will operate profitably or generate positive cash flow from operations.  At March 31, 2022, we had a stockholders’ deficit of $9.2 million.  We have sustained losses since our organization, and we cannot assure you that we can or will operate profitably.  See “Risk Factors – Risks Related to our Business— We have sustained losses since our organization, our financial statements have a going concern footnote and we cannot assure you that we can or will operate profitably.” on page  16 of this prospectus and “Risk Factors – Risks Related to our Business – We are generating negative cash flow from operations and, if we don’t generate positive cash flow from operations, we may need to rely on the proceeds of this offering to meet our liquidity needs. ” on page 17 of this prospectus.

· Our China segment is dependent upon one customer, SPIC, which is a  large state-owned enterprise under the administration of the Chinese government and prior to 2020 almost all of our revenue was derived from a related party which has not been a customer since 2019.  If we are not able to generate business from other customers we may not be able to continue our business in China.  See “Risk Factors – Risks Related to our Business— Because almost all of our revenue in China since we commenced operations was derived from two customers, one of which is a related party which has not been a customer since the first half of 2019, our inability to develop new business in China could impair our ability to continue our China operations.” on page  17 of this prospectus.

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· We may require significant funds in excess of the proceeds from this offering if we are to expand our financing of solar energy systems in the United States and our solar projects in China and we will require funding from other sources, which may not be available on reasonable terms, if at all.  Our failure to raise sufficient capital could impair our ability to expand our financing operations.  See “Risk Factors – Risks Related to our Business— We may require significant funds in excess of the proceeds from this offering if we are to expand our financing of solar energy systems in the United States and our solar projects in China and we will require funding from other sources, which may not be available on reasonable terms, if at all.” on page  18 of this prospectus.

· We borrowed $55.5 million from two related party partnerships. The funding was made pursuant to the United States government’s EB-5 program, and the lenders made loans from the proceeds of capital contributions of the limited partners who made their investment in the limited partnerships as part of the EB-5 program. The loans are secured and are payable 48 months from the date of the advance and may be extended by the lender as may be necessary to meet applicable USCIS immigrant investor visa requirements, which is the date when the final step of the EB-5 visa process is completed and the limited partners of the lender can become lawful permanent residents of the United States. As of July 13, 2022, the initial four-year term of all of the loans had expired and the loans are on extension until the limited partners have met the USCIS requirements. As the loans matured, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a five-year term with the principal payable in installments. As of July 13, 2022, notes to the CEF and CEF II in the aggregate principal amount of $19.5 million were outstanding, and convertible notes in the principal amount of $34.0 million had been issued to former limited partners of CEF, of which principal payments of $9.8 million had been made on the anniversary of the respective dates of issuance, convertible notes in the principal amount of $2.5 million had been early redeemed for $1.77 million, and the principal amount of convertible notes of $21.7 million was outstanding. We cannot predict when payment of the remaining $19.5 million will be due or when or whether the limited partners will seek a return of their investment. We will offer the limited partners notes that are similar to the notes we have previously issued. If the limited partners do not accept convertible notes, we may need to use our cash to pay the notes. The total principal amount of the note substantially may the net cash that we will have at the closing of this offering, in which event it will be necessary for us to raise funds to make the payment or revise the terms of the convertible notes. We can give no assurance as to whether we will be able to refinance these loans on reasonable, if any terms. Further, if the limited partners accept convertible notes, the sale of the underlying shares or the market’s perception of the effect of the sale of such shares may have a material adverse effect upon the price of our common stock. As of July 13, 2022, two limited partners who made investments of $1.0 million have pending legal proceedings against the limited partnerships, us and certain of our officers and directors.  Although the amounts claimed in the litigation with respect to the plaintiffs’ contribution to capital of the limited partnership and subsequently lent to our subsidiary are treated as current liabilities on our balance sheet, we cannot predict the outcome of the litigation. Any settlement of the litigation which is perceived to be more favorable to the limited partners than the convertible notes that we propose to issue may affect our ability to issue convertible notes to the limited partners.  We settled legal proceeding commenced by three other limited partners whose capital accounts totaled $1,500,000.  See “Risk Factors – Risks Related to our Business — We have relied on loans through the United States government’s EB-5 program, which loans need to be refinanced when they become due, and we cannot assure you that the limited partners will accept our proposed terms of the refinancing or that a substantial portion of the proceeds of this offering will not be required to pay the loans.” on page  19 of this prospectus and “Business – Legal Proceedings” starting on page  129 of this prospectus.

· In addition to the notes relating to the EB-5 program, we require substantial cash for our operations and to pay our short-term debt, and obligations due to related parties. In addition to short-term loans of approximately $2.0 million at July 13, 2022, we owe our chief executive officers and its former executive vice president and one other former employee approximately $1.3 million in connection with our \repurchase of their stock, and at July 13, 2022, we owed our chief executive officer and former executive vice president a total of approximately $1.8 million for deferred salary and bonus due pursuant to their employment agreements, all of which are due following completion of this offering. See “Risk Factors – Risks Related to our Business  — We require significant funds to pay its current debt obligations, including obligations to management.” on page  20 of this prospectus.

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· Changes in utility regulations and pricing could impair the market for our products.  The market for alternative energy products is affected by utility regulation and pricing policies. Changes in regulations or pricing could result in a significant reduction in the demand for solar products.  See “Risk Factors – Risks Related to our Business  — Changes in utility regulations and pricing could impair the market for our products.” on page 29 of this prospectus and “Risk Factors – Risks Related to our Business  — Changes in net metering regulations could impair the market for solar products.” on page 29 of this prospectus.

· Our business in the United States is dependent on the continuation of government benefits and government policies that encourage the use of renewable energy such as solar power.  See “Risk Factors – Risks Related to our Business— Our business in the United States is largely dependent upon government subsidies and incentives.” on page 22 of this prospectus.

· Our failure to adequately assess credit risks of our finance customers for our United States operations could impair our ability to operate profitably, and in the event of foreclosure on defaulting customers, we may have difficulty in recovering any money owed to us.  See “Risk Factors – Risks Related to our Business— Our failure to adequately assess credit risks for financing the sale of our systems in the United States could impair our ability to operate profitably.” on page 37 of this prospectus.

· Changes in government regulations, tariffs and policies, including enforcement policies in the United States and China, the relaxation or elimination of regulations relating to carbon-based fuel or our inability to comply with or correctly interpret present or future government regulations could impair our ability to develop our business.

· We are subject to laws and regulations protecting the privacy of consumers and employees, and our failure to maintain security of protected information can result in liability and could impair our business.  See “Risk Factors – Risks Related to our Business— We may be subject to liability if private information that it receives is not secure or if we violate privacy laws and regulations.” on page 30 of this prospectus.

· Our industry is very competitive, and we compete in both the United States and China with other solar energy companies as well as with local utility companies. A material drop in the price of electricity from a local utility company could impact the market for solar energy systems.  See “Risk Factors – Risks Related to our Business— Within 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/or of our profit margins.” on page 32 of this prospectus.

· To the extent that we continue to reduce prices to meet competition, which has affected our gross margin in 2021 and 2020, our gross profit and gross margin may be impaired.

· Because we offer customers a production guarantee, we may incur additional expenses if the system does not generate the production of electricity covered by the production guarantee regardless of whether the failure results from factors beyond our control, including weather and climate conditions.

· We may have difficulty purchasing solar panels from domestic suppliers as a result of the effect of United States tariffs on imported solar panels.

· Prices of solar panels from domestic suppliers may increase as a result of the effect of United States tariffs on imported solar panels.

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· Fluctuations in the currency exchange rate between the U.S. dollar and the Chinese Renminbi (“RMB”) could affect our value.

· Our business could be affected by uncertainties with respect to China’s legal system.

· The willingness of non-related parties to engage us for EPC services in China and the terms of such services may be impacted by the trade policies of the United States and China.

· Our business could be affected by adverse changes in the relationship between the United States and China.

· There is no public market for our stock and we cannot assure you that an active trading market in our stock will develop or, if developed, will be sustained.

· Our 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.

· Future sales of our common stock in the public market could have an adverse effect upon the market for our common stock.

· We are dependent upon our senior executive officers, and our failure to identify, engage and retain qualified executive and management personnel in the United States and China could impair our ability to develop our business.  See “Risk Factors – Risks Related to our Business— Because we are dependent on our chief executive officer and the head of our China operations, the loss of their services and our failure to hire additional qualified key personnel could harm our business.” on page 36 of this prospectus.

· Because our directors and officers beneficially own approximately 31.6% of our common stock and will beneficially own 26.6% of the common stock after giving effect to the sale of the  7,500,000  shares offered hereby, they may be able to elect all directors, approve all matters requiring stockholder approval and block any action which may be beneficial to stockholders.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

· may present only two years of audited financial statements and related disclosure under Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A;

· are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”;

· are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

· are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes);

· are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure;

· are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and

· will not be required to conduct an evaluation of our internal control over financial reporting until two years after the effective date of the registration statement of which this prospectus is a part.

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We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, or such earlier time that we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenues (as adjusted for inflation), have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Under current Securities and Exchange Commission, or SEC, rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have either (i) a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter or (ii) annual revenues of less than $100 million and a public float of less than $700 million.

Permission required to obtain from Chinese authorities to operate and issuer securities to foreign investors   

As of the date of this prospectus, there are no PRC laws and regulations (including the China Securities Regulatory Commission, or the CSRC, Cyberspace Administration of China, or the CAC, or any other government entity) in force explicitly requiring that we obtain permission from PRC authorities for this offering or to issue securities to investors, and neither we  nor our China subsidiaries have received any inquiry, notice, warning, sanction or any regulatory objection to this offering from any relevant PRC authorities. As of the date of this prospectus, recent regulatory actions by China’s government related to data security or anti-monopoly have not materially impacted our ability to conduct our business, accept foreign investments or list on a U.S. or other foreign exchanges. Based on existing PRC laws and regulations, neither we nor our PRC subsidiaries are currently subject to any pre-approval requirement from the CAC to operate our business or conduct this offering, subject to PRC government’s interpretation and implementation of the draft measures after they take effect. our PRC subsidiaries have obtained business licenses for its business operation and ZHPV obtained its construction enterprise qualification certificates for its power engineering construction business.

On July 6, 2021, the relevant PRC government authorities published the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions call for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As of the date of this prospectus, no official guidance or related implementation rules have been issued in relation to these recently issued opinions and the interpretation and implementation of these opinions remain unclear at this stage. Though we do not believe we are a China-based issuer as our management and headquarter are located in the U.S. and our major operation is the US Segment, because of our China Segment, we could be subject to additional requirements that we obtain pre-approval of the CSRC and potentially other regulatory authorities to pursue this offering, including a cybersecurity review potentially required under the Cybersecurity Review Measures.

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On December 24, 2021, the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), which are now open for public comments. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation is with a major operating entity incorporated in the PRC and such filing obligation shall be completed within three working days after the overseas listing application is submitted. The required filing materials for an initial public offering and listing shall include but not limited to: regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable). The Measures provides that the determination as to whether a domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance over form basis and if the issuer meets the following conditions, the offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) The total assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; and/or (ii) The senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China. We are a Nevada corporation founded in 2008 to provide solar power solutions in the United States and commenced its China operations in 2016 following the acquisition of two companies in 2015.  More than 50% of its revenues, gross profit and net loss for 2021 were generated from its US operations. In addition, its CEO and other executive officers and a majority of its directors are US citizens.  We believe that we are not a domestic China company as provided in the Measure, thus, the merger might not be qualified as indirect overseas offering and listing under the Administration Provisions and Measures for overseas listings. However, it is still unclear if they will take effect as currently drafted and how the draft provision and measure will be explained and implemented by the CSRC and other governmental authorities.

In addition, according to Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”), after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to guidelines for filing, which means it still takes time to make the Administration Provisions and Measures into effect. As the Administration Provisions and Measures have not yet come into effect, we are currently unaffected.

However, it is uncertain when the Administration Provision and the Measures will take effect or if they will take effect as currently drafted. If it is determined in the future that the approval of the CSRC, the CAC or any other regulatory authority is required for this offering, we may face sanctions by the CSRC, the CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. In addition, if the CSRC, the CAC or other regulatory PRC agencies later promulgate new rules requiring that 25usinen their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. If applicable PRC laws, regulations or interpretations change and we are required to obtain approval or permissions from the CSRC, the CAC or any other regulatory authority to operate our business in China and/or to offer securities being registered to foreign investors, we may have to obtain such approval or permission or seek wavier from relevant regulatory PRC agencies before we can continue our China operation and to offer securities to foreign investors, the procedures of which may be time consuming, unpredictable and costly, and there is no assurance that we can successfully obtain such approval, permission or seek waiver. Any of those interruptions, uncertainty and/or negative publicity regarding such an approval requirement may have a material adverse effect on our business and financial condition, result of operations and prospectus, as well as the value and trading price of our securities.

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HFCA Act and PCAOB Determination Report

Pursuant to the HFCA Act, the Public Company Accounting Oversight Board (the “PCAOB”) issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. In addition to the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations.  Marcum LLP, our independent registered public accounting firm issued an audit opinion on the financial statements included in this proxy/prospectus filed with the SEC. As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, Marcum LLP is required by the laws of the United States to undergo regular inspections by the PCAOB and was not identified in this report as a firm subject to the PCAOB’s determination. Marcum LLP is headquartered in New York City and has been inspected by the PCAOB on a regular basis with the most recent inspection in 2018 and is subject to an ongoing inspection that started in November 2020. However, recent developments with respect to audits of China-based companies, such as our China segment, create uncertainty about the ability of our auditor to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. The audit workpapers for our Chinese operations are located in China. The PCAOB has not requested Marcum LLP to provide the PCAOB with copies of our audit workpapers and consequently Marcum LLP has not sought permission from PRC authorities to provide copies of these materials to the PCAOB. In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the Determination so that we are subject to the HFCA Act, as the same may be amended,   you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including “over-the-counter” trading, may be prohibited, under the HFCA Act. See “Risk Factor – our independent registered public accounting firm’s audit documentation related to their audit reports included in this prospectus include audit documentation located in China. PCAOB may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the HFCA Act or the Accelerating Holding Foreign Companies Accountable Act if the SEC subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three  See .”Risk Factors – Risks Associated with Doing Business in China— Our independent registered public accounting firm’s audit documentation related to their audit reports included in this prospectus include audit documentation located in China. PCAOB may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act or the Accelerating Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or market if our auditor is not subject to PCAOB inspections for two consecutive years instead of three.” on page 43 of this prospectus for more details.

Cash flow among our Chinese Subsidiaries and our US holdings company 

We finance our China operations and our United States operations separately. We do does not use funds from either segment to provide funds for the other segment. Our equity structure is a direct holding structure, that is, SolarMax Technology Inc., a Nevada corporation, directly controls its U.S. subsidiaries and its subsidiaries in its China segment including: (i) Golden SolarMax Finance. Co. Ltd, a PRC subsidiary, (ii) SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong subsidiary which directly holds SolarMax Technology (Shanghai) Co., Ltd, a PRC subsidiary (together with its subsidiaries thereunder, “ZHTH”); (iii) Accumulate Investment Co., Ltd, a British Virgin Islands subsidiary which then directly holds Accumulate Investment Co., Limited, a Hong Kong subsidiary that directly holds Jingsu Zhonghong Photovoltaic Electric Co., Ltd (“ZHPV”); a PRC subsidiary and (iv) SolarMax Technology Holdings, a Cayman Islands subsidiary. Our business in China is conducted through ZHPV and ZHTH. See “Business –  Our Corporate Structure” on page 95 for additional details.

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In the reporting periods presented in this prospectus and throughout the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our subsidiaries, on the one hand; and us and our its subsidiaries, on the other hand, have not made any dividends, distributions or other transfer of funds to investors. For the foreseeable future, we intend to use the earnings for research and development, to develop new products and to expand its production capacity. As a result, we do not expect to pay any cash dividends. To the extent that we may in the future seek to fund the business through distribution, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to government regulations. The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

3. Within the direct holding structure, the cross-border transfer of funds within us and our PRC subsidiaries is legal and compliant with the laws and regulations of the PRC. After foreign investors’ funds enter at the closing, the funds can be directly transferred to our subsidiaries, including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC.

2. If we intend to distribute dividends, we will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to its parent company and then to us, and the dividends will be distributed by us all shareholders respectively in proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions.

3. Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable as cash dividends. See “Dividend Distribution” on page  116 for more information.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

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Our Corporate Structure

We are a Nevada corporation formed in January 2008. We have four wholly-owned subsidiaries in the United States.

· SolarMax Renewable Energy Provider, Inc., a California corporation

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

· SolarMax LED, Inc., a California corporation (“LED”)

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

Our wholly-owned subsidiaries outside the United States are as follows:

· Accumulate Investment Co. Ltd. (BVI), a British Virgin Islands corporation (“Accumulate”), which we acquired as part of our acquisition of ZHPV in April 2015.

· SolarMax Technology Holdings (Hong Kong) Limited (“SolarMax Hong Kong”), which was organized under the laws of Hong Kong on October 27, 2014.

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

· SolarMax Technology Holdings (Cayman) Limited (“SolarMax Cayman”), which was organized under the laws of the Cayman Islands on May 8, 2017.

Accumulate has one wholly-owned subsidiary, Accumulate Investment Co., Limited (HK), an entity organized under the laws of Hong Kong (“Accumulate Hong Kong”). Accumulate Hong Kong has one wholly-owned subsidiary, ZHPV.

SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Technology (Shanghai) Co., Ltd. (“SolarMax Shanghai”), which is organized under the laws of the PRC on February 3, 2015. SolarMax Shanghai is a wholly foreign-owned entity, which is referred to as a WFOE.

SolarMax Shanghai had two wholly-owned principal subsidiaries, ZHTH and Jiangsu Honghao, which was organized on September 21, 2015. Jiangsu Honghao was engaged in the project operation and maintenance business. SolarMax Shanghai may also form a separate subsidiary for each solar farm for which it has a contract to operate and maintain that solar farm. Jiangsu Honghao was deregistered by us on March 22, 2019.

The following charts show our corporate structure for our United States and China segments. The chart for the China segment does not include the project subsidiaries or the subsidiaries of ZHTH and ZHPV that are formed for specific projects.

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United States Segment

		SolarMax Technology, Inc.
SolarMax Renewable Energy Provider, Inc.	SolarMax LED Inc.		SolarMax Financial Inc.	SMX Capital, Inc.

China Segment

			SolarMax Technology, Inc.
Golden SolarMax Finance. Co. Ltd.		SolarMax Technology Holdings (Hong Kong) Limited		Accumulate Investment Co. Ltd. (BVI)		SolarMax Technology Holdings (Cayman) Limited
	SolarMax Technology (Shanghai) Co., Ltd.			Accumulate Investment Co., Limited (HK)
					Jiangsu Zhonghong Photovoltaic Electric Co. Ltd. (ZHPV)

Corporate Information

Our principal executive offices are located at 3080 12^th Street, Riverside, California 92507. Our telephone number is (951) 300-0788. Our website address is http://www.solarmaxtech.com. The information contained on, or that can be accessed through, our website or any other website is not a part of this prospectus.

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THE OFFERING

Common stock outstanding prior to this offering:	40,000,186  shares 1
Common stock offered hereby:	7,500,000  shares.
Common stock to be outstanding immediately after completion of this offering:	47,500,18 6  shares (48,625,186 shares if the underwriters’ over-allotment option is exercised in full).
Underwriters’ over-allotment option:	We have granted the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to an additional  1,125,000 shares of our common stock at the initial public offering price, less the underwriting discounts and commissions, to cover over-allotments
Underwriter warrants:	Upon the closing of this offering, we will issue to ViewTrade Securities, Inc., or  the Representative,  warrants entitling the Representative to purchase  up to 600,000 shares of common stock (690,000 shares if the over-allo t ment option is exe r cised in full) . The warrants shall be exercisable for a period of five years from the commencement of sales of this offering, which is the date of this prospectus . For additional information, please refer to “Underwriting.”
Use of proceeds:	We intend to use the net proceeds of this offering, estimated at approximately $28,200,000  for working capital, including payment of accrued liabilities, which include obligations to related parties, and other corporate purposes. See “Use of Proceeds.”
Dividend policy:	We do not anticipate paying any cash dividends on our common stock. We expect that, for the foreseeable future, any earnings will be reinvested in our business. See “Dividend Policy.”
Listing and trading symbol:	We have applied to list our common stock on the NASDAQ Capital Market under the symbol “SMXT.” Listing of our common stock on the NASDAQ Capital Market is a condition to the underwriters’ obligation to close.
Lock-up	All of our directors, officers and certain stockholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable or exchangeable for our common stock for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information.
Risk Factors:	You should carefully read and consider the information set forth under the heading “Risk Factors,” beginning on page 16 of this prospectus and all other information set forth in this prospectus before deciding to invest in our common stock.

¹ The outstanding shares of common stock (a) include 264,500 shares which were issued as restricted stock grants that are subject to forfeiture under certain conditions and are not treated as outstanding shares in our consolidated financial statements, (b) do not include 6,408,716 shares which may be issued pursuant to our 2016 Long-Term Incentive Plan and pursuant to outstanding stock options at a weighted average exercise price of $4.96 per share.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following information as of December 31, 2021 and 2020 has been derived from our audited financial statements which appear elsewhere in this prospectus.  The following information at March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been derived from our unaudited financial statements which appear elsewhere in this prospectus.  Dollars are in thousands, except per share amounts.

Consolidated Statement of Operations Information: 

	Three Months Ended						Year Ended
	March 31,						December 31,
	2022			2021			2021			2020
Solar projects (China)	$	-		$	-		$	7,786		$	93,892
Solar systems (US)		9,031			7,137			27,312			28,810
Finance revenue		217			352			1,176			1,776
LED		345			199			1,282			4,757
Power purchase agreements and other		14			16			185			2,347
Total revenue		9,607			7,704			37,741			131,582
Gross profit		2,193			1,422			5,946			16,450
Operating income (loss)		(790	)		(1,415	)		(6,201	)		3,742
Net income (loss)1		(794	)		(1,279	)		(3,320	)		953
Net income (loss) per share (basic and diluted)	$	(0.02	)	$	(0.03	)	$	(0.08	)	$	0.02
Weighted average shares of common stock outstanding
Basic		39,735,536			39,735,536			39,735,536			40,000,186
Diluted		39,735,536			39,735,536			39,735,536			40,156,119

¹ Net income for the three months ended March 31, 2022 and the year ended December 31, 2020 reflects a net loss attributable to non-controlling interest of ($17) and ($21), respectively .

Consolidated Balance Sheet Information:  

	March 31,			December 31,
	2022			2021			2020
Assets	$	71,141		$	72,016		$	96,137
Current assets		37,851			42,479			59,619
Working capital (deficit)		(10,842	)		(6,151	)		(9,702	)
Accumulated deficit		(62,980	)		(62,185	)		(58,865	)
Stockholders’ deficit1		(9,211	)		(8,447	)		(5,219	)

_________________ 

¹ Stockholders’ deficit at December 31, 2020 reflect s a non-controlling interest of $(219).

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, operating results, financial condition, or prospects could be materially and adversely affected by any of these risks and uncertainties. If any of these risks actually occurs, the trading price of our common stock could decline and you might lose all or part of your investment. Our business, operating results, financial performance, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

Risks Related to Our Business

We have sustained losses since our organization, our financial statements have a going concern footnote and we cannot assure you that we can or will operate profitably.

We reported losses of approximately $0.8 million for the three months ended March 31, 2022 and $3.3 million for the year ended December 31, 2021, and reported net income of approximately $1.0 million for the year ended December 31, 2020. and our financial statements for the years ended December 31, 2021 and 2020 have a going concern footnote. The losses in all periods resulted primarily from losses in the United States segment. Our losses are continuing and we cannot assure you that we can or will operate profitably .   Substantially all the revenues from the China segment for the years ended December 31, 2021 and 2020 were generated from projects with SPIC. Revenues from the United States operations decreased to approximately $30.0 million for the year ended December 31, 2021 from approximately $35.5 million for the year ended December 31, 2020. We will need to increase our revenue and reduce our costs of our operations in both the United States and China in order for us to operate profitably. We cannot assure you that we will be able to operate profitably or achieve positive cash flows from operations in the future, and the failure to do so may impair our ability to continue in business.

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We are generating negative cash flow from operations and, if we don’t generate positive cash flow from operations, we may ne ed to rely on the proceeds of this offering to meet our liquidity needs.

We incurred negative cash flow from operations of approximately $2.0 million for the three months ended March .  31, 2022, $5.4 million in the year ended December 31, 2021 and $23.2 million in the year ended December 31, 2020

Our negative cash flow from operations i s continuing and we cannot assure you that we can or will generate a positive cash flow from operations .  If we cannot generat e positive cash  flow from operations, we may require the proceeds of this offering to meet our liquidity needs .

Because almost all of our revenue in China since we commenced operations was derived from two customers, one of which is a related party which has not been a customer since the first half of 2019, our inability to develop new business in China could impair our ability to continue our China operations.  

Since the second half of 2019, our business in China consisted of EPC services pursuant to agreements with SPIC, which is a large state-owned enterprise under the administration of the Chinese government that holds a range of energy assets. Substantially all of our China revenues for the years ended December 31, 2021 and 2020 were generated from four projects for SPIC. The revenue from our contracts with SPIC includes , for 2021 , revenue from the EPC services performed on one of the four projects begun in 2020 and completed in 2021 for approximately $7.8 million, or 21% of total revenue and , for 2020 , revenue from the EPC services performed on the four projects of approximately $96.1 million, or 73% of total revenue .  Prior to the second half of 2019, most of our revenue from our China segment was generated from subsidiaries or affiliates of Changzhou Almaden Co., Ltd., which is a related party that we refer to in this prospectus as AMD. Revenue from AMD accounted for 96% of the revenue of our China and 11% of our consolidated revenue for the year ended December 31, 2019. We did not generate any revenue from AMD and its subsidiaries and affiliates subsequent to 2019. At July 13, 2022, we do not have any agreements or projects in its China segment, and we can give no assurance that we will enter into additional agreements with SPIC or other parties. Our inability to increase our customer base may impair our ability to grow and operate profitably following completion of the offering. Further, our current dependence on a state-owned enterprise for our business could materially impair our ability to operate profitably in China, and the willingness of non-related parties to enter into agreement with us and the terms of such agreements may be impacted by the trade relationship between the United States and China. In dealing with SPIC, we may be subject to government policies relating to such factors as the terms on which we sell the project and SPIC’s procurement policies. As a state-owned enterprise, SPIC may favor Chinese companies over subsidiaries of a United States company. We cannot assure you that we will be able to continue to sell solar farm projects to SPIC or that it will be able to generate an acceptable gross margin on this work. If we are unable to generate revenue from SPIC on reasonable terms and if we fail to generate business in China from non-affiliated parties it may be necessary for us to discontinue our Chinese operations.

Pandemics and epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks could disrupt our delivery and operations, which could materially and adversely affect our business, financial condition, and results of operations.

Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD), coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu, avian flu and monkeypox , as well as hurricanes, earthquakes, tsunamis, or other natural disasters could disrupt our business operations, reduce or restrict our operations and services, incur significant costs to protect our employees and facilities, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Actual or threatened war, terrorist activities, political unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on our business, financial condition, and results of operations. On February 24, 2022, the Russian Federation launched an invasion of Ukraine that has had an immediate impact on the global economy resulting in higher energy prices and higher prices for certain raw materials and goods and services which in turn is contributing to higher inflation in the United States and other countries across the globe with significant disruption to financial markets. We do not have any operation or business in Russia or Ukraine, however, we may potentially indirectly be adversely impacted any significant disruption it has caused and may continue to escalate. Any one or more of these events may impede our operation and delivery efforts and adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.

Our business has been affected and may in the future be affected by the COVID-19 pandemic and the steps taken by the governments in California and China to address the pandemic.

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we operate. Further, the issuance of permits necessary for residential solar systems was affected because some local California government offices that issued permits for solar installations were closed for parts of the second quarter and, as a result of government workers working from home subsequent to the second quarter, effectively operated with reduced hours. As a result, in the United States, we experienced a lower level of residential solar energy system installations with a decline in revenue in the year ended December 31, 2021, compared to the same period in 2020. In China, the timing of final solar farm project approvals for two projects and the beginning of one new solar farm installation were delayed for approximately three months but the delays did not have a material impact on our China business in 2021 and 2020. Our recognition of revenue from two of our contracts with SPIC was delayed because the government office whose consent was required was closed for the pandemic. Further, the effects of China’s zero tolerance policy with respect to COVID-19 which has resulted in lockdowns in cities and provinces in China, have impaired our ability to negotiate contracts and payment schedules with SPIC, which has been our only customer for our China segment since 2020, with the result that we have no pending agreement with SPIC.  In addition, in December 2018, we filed a registration statementwith the SEC with respect to our proposed initial public offering, which we subsequently withdrew in October 2020. In large part because of the effects of the COVID-19 pandemic and the steps taken by the State of California and the government of the PRC to address the pandemic, we did not complete our proposed initial public offering.   In addition, although we had also sought to become a public company through a merger with a SPAC, we were not able to complete such transaction and the related Merger Agreement was terminated in April 2022.

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To the extent that the government in California or China institutes or recommends further closures, including closures or reduced office hours of the government offices that process permits for solar installation, we may not be able to negotiate new contracts for our China Segment.  As a result of the COVID-19 pandemic, our operations in China were temporarily disrupted due to the lockdown and the operations have gradually returned to normal operation beginning in the second quarter of 2020. In March and April 2020, our United States operations experienced the impact of COVID-19 that resulted in the implementation of headcount reduction and other cost-saving measures in an effort to improve liquidity. We obtained additional liquidity in the United States through the available government assistance programs in the form of loans and grants. As of the date of this prospectus, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.

The effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments, which have the effect of slowing our sales in the United States or increasing the already-existing supply chain problems. Further, China’s policy of effecting closures to avoid infections, including the recent lockdown in many provinces and municipalities in China, is affecting our ability to generate revenue in China.

We may require significant funds in excess of the proceeds from this offering if we are to expand our financing of solar energy systems in the United States and our solar projects in China and we will require funding from other sources, which may not be available on reasonable terms, if at all.

The solar energy systems market is cash intensive, particularly with respect to the financing of purchases by our United States customers and the construction of solar farm projects in China. We require the anticipated funds available upon completion of the offering to finance its customers’ purchases of solar energy systems in the United States and to finance solar farm projects in China and for working capital purposes, including current debt obligations. Our failure to obtain financing could materially impair our ability to expand our financing activities for solar installations in the United States.

Although our contracts with our customers generally provide for progress payments, because of the amount and timing of the receipt of progress payments, we require project financing for our solar projects in China. Because our revenue and cash flow from our China segment can vary significantly from quarter to quarter, following the proceeds from this offering, we may need significant funds to finance our China operations during periods when those operations do not have significant or any revenue or cash flow from operations. Although we have obtained project funding for its four projects with SPIC, the funding is related to the specific project and is not available to us for working capital. The funds available to us from the proceeds of this offering may not be sufficient to enable us to expand our financing activities and meet our requirements to develop and expand our business in China and pay our current liabilities. Furthermore, if subsequent to this offering we need to raise additional funds, we cannot assure you as to the availability or terms of any financing. Any equity financing could result in dilution to our stockholders. Further, to the extent that we have to rely on debt rather than equity, our profit from financing operations will be impacted and changes in interest rates may further reduce our margins on the loans. If we are not able to finance the sale of our systems, whether through loans to customers or leases with customers, our failure to sell our solar energy systems will adversely affect our revenues and the results of our operations. We require funds for our operations regardless of the proceeds from this offering. If the offering is not completed, we will need to look for funding from other sources, with no assurance that such funding will be available on reasonable terms, if at all. We require funding from other sources and the failure to obtain necessary financing may impair our ability to continue in operations.

18

We have relied on loans through the United States government’s EB-5 program, which loans need to be refinanced when they become due, and we cannot assure you that the limited partners will accept our proposed terms of the refinancing or that a substantial portion of the proceeds of this offering will not be required to pay the loans. 

Two of our subsidiaries borrowed a total of $55.5 million from Clean Energy Funding (“CEF”) and Clean Energy Funding II (“CEF II”), who are related parties. CEF and CEF II are limited partnerships of which the general partner is a limited liability company owned and managed by two of our directors, one of whom is the chief executive officer, and a former executive officer/director. The funding was made pursuant to the United States government’s EB-5 program, and the lenders made loans from the proceeds of capital contributions of the limited partners who made their investment as part of the EB-5 program. 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 are secured and are payable 48 months from the date of the advance and may be extended by the lender as may be necessary to meet applicable USCIS immigrant investor visa requirements, which is the date when the final step of the EB-5 visa process is completed and the immigrant investors, who are the limited partners of the lender, can become lawful permanent residents of the United States. As of December 31, 2020, the initial four-year term of all of the loans had expired and the loans are on extension until the limited partners have met the USCIS requirements. As the loans matured, 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 the lenders. As of July 13, 2022, notes to the CEF and CEF II in the aggregate principal amount of $19.5 million were outstanding, and convertible notes in the principal amount of $34.0 million had been issued to former limited partners of CEF, of which principal payments of $9.8 million had been made on the anniversary of the respective dates of issuance, convertible notes in the principal amount of $2.5 million had been early redeemed for $1.77 million, and the outstanding principal amount of $21.7 million was outstanding. With respect to the outstanding notes to CEF and CEF II, limited partners who made investments of $4.5 million can currently demand repayment from the lender of their investment in the partnership which made the loans to us, which can trigger a payment obligation on our subsidiary’s part. Because the date on which the remaining limited partners can demand repayment of their capital account is dependent upon the approval of their petition for permanent residency, we cannot predict when or whether such petition will be approved. We cannot assure you that we will have or be able to obtain the funds to pay the EB-5 loans when they mature, and our inability to pay or refinance these loans could have a material adverse effect upon our business. To the extent that we are unable to refinance these obligations, we will use a portion of the available funds following the offering for such purpose or it may be necessary to modify the terms of the convertible notes. If the limited partners who have the right to demand repayment of their capital accounts exercise their right, which can trigger the maturing of loans in the total principal amount of $4.5 million, the funds available following completion of the offering may not be sufficient to provide us with funds to pay such loans, and we can give have no assurance that we will be able to obtain funding from other sources or reasonable terms, if at all. Following this offering, we intend to offer the limited partners who funded the loans from CEF and CEF II convertible notes, similar to the notes issued by us. We cannot assure you that the remaining limited partners or any significant number of the remaining limited partners will accept the note in lieu of cash repayment of their capital account or that we would not have to revise the terms of the notes in order to obtain the agreement of such limited partners to a refinancing. To the extent that we use these funds to pay the loans, we will have less proceeds for the development and expansion of our business. Two of the limited partners of CEF have  pending  actions against CEF, us and others seeking repayment of the capital contribution to CEF totaling $1.0 million. See “Business of SolarMax – Legal Proceedings.” We cannot predict the outcome of the litigation, but the $1.0 million claimed by the limited partners is included in the amount of the loan due to CEF on our financial statements. Other limited partners may commence litigation rather than accept our convertible notes. Since we cannot predict when additional loans will become due or whether the limited partners will ` our proposed refinancing, it is possible that we may have to raise funds in additional to the funds available upon completion of the offering to make to pay these loans. Further, to the extent that other limited partners perceive that the terms on which we settle litigation are more favorable than the terms of the convertible note we propose to offer, they may not be willing to accept the convertible notes. These loans that can become due based on the approvals of petitions for permanent resident status which have been obtained, together with other loans which may become due substantially exceed the anticipated funds available upon completion of the offering. As a result, we would need to obtain funding from other sources. We cannot assure you that other sources of financing will be available to us on reasonable, if any, terms. Further, to the extent that the limited partners accept our proposed refinancing, the subsequent sale of their common stock issued upon conversion of their convertible notes could have a material negative effect upon the market price of our common stock. Further, the market for and the market price of our common stock at the time we seek to obtain the agreement of the remaining limited partners to accept our convertible notes in lieu of cash payments of their capital accounts may affect the willingness of the limited partners to accept our convertible debt and the terms that they would accept. Further, if the limited partners accept convertible notes, the sale of the underlying shares or the market’s perception of the effect of the sale of such shares may have a material adverse effect upon the price of our common stock. 

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We require significant funds to pay our current debt obligations, including obligations to management.

In May 2020, we borrowed $2.0 million at an interest rate of 6% per annum from an unrelated party which initially matured on April 30, 2021 and which, following several extensions, matures on to  August 31, 2022. A portion of the proceeds from this offering will be used to pay these loans. Further, to the extent that we used funds available upon completion of the offering to pay our debt obligations, including the loans through the United States government’s EB-5 program described in the preceding Risk Factor, we will not have funds available for other uses, including the development of our China segment or the expansion of our financing activities in the United States. In addition to our current debt, we owe our chief executive officers and our former executive vice president and one other former employee a total of $1,275,000 in connection with our repurchase of their stock, and, at July 13, 2022, we owed our chief executive officer and former executive vice president a total of approximately $1.8 million for deferred salary and bonus due pursuant to their employment agreements, all of which are due following completion of the offering. We cannot assure you that we will be able to obtain funding from any sources other than the proceeds of this offering. Our inability to obtain any financing we require could materially impair our ability to develop our business and to operate profitably.

Our China segment requires significant funding in connection with project construction.

                To the extent that our China segment enters into project construction agreements with SPIC or other parties, it will have substantial funding requirements for project construction.  In 2020, we obtained construction financing of $23.0 million for one project for SPIC and in 2019, we obtained construction financings of $31.0 million for two projects for SPIC.  The financings in 2020 and 2019 were the obligations of the project subsidiaries which were owned by us and consolidated by us when the financings were issued but were subsequently deconsolidated when the controlling interest in the project companies were sold to SPIC, and the obligations relating to the funding remained the obligation of the project subsidiary.  As a result of transfer of control of the project subsidiary, we deconsolidated the subsidiary upon transfer of control.  If we enter into project construction agreements, we will need to obtain project financing.  Our failure to obtain such financing on reasonable terms will adversely affect both our operations and our ability to enter into project construction agreements.  As a result, if we are not able to obtain the necessary project financing, we may need to use a portion of this offering for such purchase if we are to continue to engage in project construction in China.  We cannot assure you that we will be able to obtain the necessary financing or that we will be able to operate profitably, if at all, in China.

We may not be successful in developing our solar farm project business in China.

In order to conduct the solar farm project business in China, we will need to:

● obtain required governmental approval and permits;

● complete any applications that may be necessary to enable us or the end user to take advantage of available government benefits;

● identify and obtain land use rights for significant contiguous parcels of land in areas where there is sufficient sunlight to justify a solar farm;

● resolve any problems with residents and businesses in the area where the solar farm is to be constructed;

● negotiate an interconnection agreement with the utility company or government Electricity Bureau;

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● obtain substantial financing for each project, and the proceeds of this offering will not be sufficient to provide us with such financing;

● identify a buyer of the project;

● negotiate a purchase and sale contract with a project buyer, which will involve the sale of the project to the buyer and an agreement with the buyer for us to design and perform the EPC work on the project on time and within the budget;

● receive the required interim and final payments under the purchase and sale contract;

● complete the engineering for the project;

● purchase the photovoltaic panels and other components of the solar farm;

● engage qualified contractors and subcontractors to construct the solar farm;

● accurately evaluate the cost of all aspects of the projects, including any reserve for unexpected factors;

● accurately estimate our potential warranty liability; and

● address any changes resulting from weather or climate conditions, earthquakes, unexpected construction difficulties, changes in the buyer’s specifications or other changes beyond our control.

In the event that we are not able to satisfy any of these conditions, we may not be able to generate income from our China operations, and it may be necessary for us to suspend or terminate these operations. Further, the development of solar projects also may be adversely affected by many other factors outside of our control, such as inclement weather, acts of God, and delays in regulatory approvals or in third parties’ delivery of equipment or other materials, shortages of skilled labor. We cannot assure you that we will be able to engage in the solar farm business successfully. Our failure to operate this business successfully will materially impair our financial condition and the results of our operations.

Delays in construction of solar farms could increase our costs and impair our revenue stream from our China operations.

We presently obtain permits and construct solar farms for our end user customers to whom we sell the projects. We incur significant costs prior to completion, and the contracts with the end user typically have a completion schedule. Any delay would delay our receipt of payment from the customer as well as our recognition of revenue from the project. If the delay is significant, it could result in penalties under the contract or a refusal of the customer to pay the stated purchase price or any interim payments that are due under the contract. Delays can result from a number of factors, many of which are beyond our control, and include, but are not limited to:

● unanticipated changes in the project plans;

● defective or late delivery of components or other quality issues with components;

● difficulty in obtaining and maintaining required permits;

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● difficulty in receiving timely payments from the customers;

● the COVID-19 pandemic and steps taken by the government of China to address the pandemic;

● changes in regulatory requirements;

● weather conditions;

● unforeseen engineering and construction problems;

● difficulty in obtaining sufficient land use rights for the proposed project size;

● labor problems and work stoppages;

● equipment problems;

● adverse weather, environmental, and geological conditions, including floods, earthquakes, landslides, mudslides, sandstorms, fire, drought, or other inclement weather and climate conditions or natural disasters; and

● cost overruns resulting from the foregoing factors as well as our miscalculation of the actual costs.

Our business in the United States is largely dependent upon government subsidies and incentives.

The solar energy industry depends on the continued effectiveness of various government subsidies and tax incentive programs existing at the federal and state level to encourage the adoption of solar power. Government policies, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. We and our customers benefit from these regulations in the form of federal tax incentives, state utility rebates and depreciation. Because of the high cost of installing solar energy systems, the existence of tax incentives as well as regulations requiring utility companies to purchase excess power from solar energy systems connected to the grid are important incentives to the installation of a solar energy system. Should any of the incentives be discontinued or materially reduced, our business and the results of our operations may be impaired.

United States trade policy affects our ability to purchase domestic solar panel.

One of the effects of the United States tariffs on imported solar panels, including solar panel from China, is an increased demand for products manufactured in the United States which may affect both our ability to purchase solar panels and the price and other terms at which solar panels are available to us. Our inability to obtain domestically produced solar panels at a reasonable cost can impair our ability to generate revenue and maintain reasonable gross margins.

Risks Associated with Doing Business in China

Changes 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.

Our ability to develop business in China is dependent upon the continuation of government policies relating to solar power and the relationship between the solar farm owner and the local utility company. Any changes in the policies or practices that affect the solar power industry could make the construction and operation of a solar farm less desirable. Although our China subsidiary is a licensed EPC contractor in China, changes in the law or regulations could make it difficult or more expensive for us to maintain our license. Delays in payments from the utility companies or difficulties in connecting with the grid could also make solar farms less attractive. Any regulations or practices that give preference to a China business rather than a subsidiary of a United States business or which would require us to devote a portion of our profit for local uses would also make it more difficult or more expensive to operate our business. We cannot assure you that changes in law or practices will not impair our ability to conduct our business in China. Further, any deterioration in the relationship between the United States and China on trade and related matters may impair our ability to obtain permits for solar farms and to enter into EPC and other agreements for solar farms in China.

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Neither we nor our PRC subsidiaries are required to obtain permissions from Chinese authorities for this offering to foreign investors. However, if the Chinese Securities Regulation Commission, or CSRC, or another PRC regulatory body subsequently determines that our approval is needed for this offering, we cannot predict whether we will be able to obtain such approval. As a result, we face uncertainty about future actions by the PRC government that could significantly affect our ability to offer, or continue to offer, securities to investors and cause the value of our securities to significantly decline or be worthless.

As of the date of this prospectus, our PRC subsidiaries have not been involved in any investigations on cybersecurity review initiated by the Cyberspace Administration of China based on the draft measures, and our PRC subsidiaries have not received any inquiry, notice, warning, sanctions in such respect or any regulatory objections to this offering. As of the date of this prospectus, recent regulatory actions by China’s government related to data security or anti-monopoly have not materially impacted our ability to conduct our business, accept foreign investments or list on a U.S. or other foreign exchanges. Based on existing PRC laws and regulations, neither we nor our PRC subsidiaries are currently subject to any pre-approval requirement from the CAC to operate our business or conduct this offering, subject to PRC government’s interpretation and implementation of the draft measures after they take effect.

On July 6, 2021, the relevant PRC government authorities published the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions call for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As of the date of this prospectus, no official guidance or related implementation rules have been issued in relation to these recently issued opinions and the interpretation and implementation of these opinions remain unclear at this stage. On December 24, 2021, the CSRC, issued the Administration Provisions and the Measures, which are now open for public comments. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Although we do not believe we are a China-based issuer as our management and headquarters are located in the U.S. it conducts major operation in the United States, because of our China Segment, we  could be subject to additional requirements that we obtain pre-approval of the CSRC and potentially other regulatory authorities to pursue this offering, including a cybersecurity review potentially required under the Cybersecurity Review Measures.

As of the date of this prospectus, there are no PRC laws and regulations in force explicitly requiring that we obtain any permission from PRC authorities including the CSRC to issue securities to foreign investors. Based on existing PRC laws and regulations, neither we nor our subsidiaries are required to obtain any pre-approval from the CSRC to conduct this offering, subject to interpretation of the existing PRC laws and regulations by the PRC government authorities. As of the date of this prospectus, we have not received any inquiry, notice, warning, sanctions or any regulatory objections to this offering from the CSRC.

However, the CSRC or other Chinese government agencies may exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers. We do not believe we are a China-based issuer as our management and headquarter are located in the U.S. and our major operation is the US Segment. However, if our interpretation of these laws and regulations are incorrect and the CSRC or another PRC regulatory body determines that its approval is needed for this offering and we are required to obtain any approval or permission in the future, due to the change of applicable laws, regulations, or interpretations or our conclusion that no PRC approval is required is not correct, we may incur additional costs to procure such approval or permission, and there is no guarantee that we can successfully obtain such approval or permission. Any failure to obtain such approval or permission could materially and adversely affect our business, our ability to maintain our listing on Nasdaq and the market for and the value of our common stock and us or our PRC subsidiaries may face approval delays, adverse actions or sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory agencies may delay this offering, impose fines and penalties, limit our acquisitions and operations of our PRC subsidiaries in China, or take other actions that could materially adversely affect us or our PRC subsidiaries business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect our ability to offer, or continue to offer, securities to investors and cause the value of our securities to significantly decline or be worthless.

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Our PRC subsidiaries are wholly-owned subsidiaries, and we do not have any variable interest entity structure in China. Our direct ownership in our PRC subsidiaries is governed by and in compliance with PRC regulations. However, if the PRC regulations change or are interpreted differently in the future, our securities may decline in value or become worthless if we are unable to assert our control rights over the assets of our PRC subsidiaries that conduct substantially of our operations.

Our PRC subsidiaries are wholly-owned subsidiaries. We own equity interests in our PRC subsidiaries and we do not have any variable interest entity structure in China. Our direct ownership in our PRC subsidiaries is governed by and compliance with PRC regulations. However, if the PRC regulations change or are interpreted differently in the future, our common stock may decline in value or become worthless if we are unable to assert our control rights over the assets of our PRC subsidiaries that conduct substantially of our operations.

Although we do not believe we are a China-based issuer, because of our China Segment, any change of regulations and rules by Chinese government, such as those related to data security or anti-monopoly concerns, may intervene or influence our operations at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with significant Chinese operations could result in a material change in our operations and/or the value of our securities and could significantly limit or completely hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline and possibly be worthless.

Although we are a Nevada corporation headquartered in the United States with management team and operations in the United States, through our subsidiaries, we conduct business in China, and our China business is subject to Chinese law. Our operation in China may be impacted or influenced by the new regulations and policies by Chinese government. For example, between July 2 and July 6, 2021, Cyberspace Administration of China, or the CAC, announced cybersecurity investigations of the business operations of certain U.S.-listed Chinese companies. On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued “The Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or “the Opinions.” The Opinions emphasized the needs to strengthen the administration over illegal securities activities and the supervision over overseas listings by Chinese companies. According to the Opinion, measures, including promoting the institution of relevant regulatory systems, will be taken to control the risks and manage the incidents from overseas-listed Chinese companies. On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the “Review Measures (Draft),” and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review. Pursuant to the Cybersecurity Review Measures, Critical Information Infrastructure Operators (“CIIO”) that intend to purchase Internet products and services and online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review. Cybersecurity Review Measures further stipulate that if an network platform operator possesses the personal information of more than one million users and intends to list in a foreign country, it shall apply to the CAC for cybersecurity review. Although we are unlikely to be a CIIO or online platform operator as defined in the Cybersecurity Review Measures, it is not certain whether any future regulations will impose restrictions on the business that we are currently engaging in China. Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office. In the event that, in the future, we possess such data or if the requirements for review are changed, we may be required to obtain such approval, the failure of which could affect our ability to have our common stock traded on Nasdaq. On July 23, 2021, General Office of the State Council promulgated “Opinions on Further Reducing Students’ Homework Burden and After-school Tutoring Burden at the Stage of Compulsory Education,” pursuant to which the institutions that offer tutoring of school curriculum shall be registered as non-profit organizations and are not allowed to make profits and raise capital. The new regulation also disallows foreign investment in these institutions through acquisitions, franchise or contractual agreements. Although we do not engage in CIIO, online platform services or any education or tutoring related business and we are a United States, and not a Chinese, company, our offering and listing on Nasdaq may be negatively affected by these new regulations as they have materially negatively affected stock prices of the U.S. listed Chinese companies which are the CIIO, online platform services, or in the tutoring business. Any additional restriction, scrutiny or negative publicity of the U.S.-listed Chinese companies could cause the U.S. investors less interested in our securities, or hinder our ability to offer, or continue to offer, our securities to investors and cause the value of such securities to significantly decline or be worthless.

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Although we do not believe we a China-based issuer, because of its China Segment, the Chinese government may exert substantial interventions and influences to offerings that are conducted overseas and/or foreign investment in China-based issuers at any time. Any new policies, regulations, rules, actions or laws by the PRC government may subject us to material changes in operations, may cause the value of our common stock significantly decline or be worthless, and may completely hinder our ability to offer, or continue to offer, securities to investors. 

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, The Chinese government may exert substantial interventions and influences to offerings that are conducted overseas and/or foreign investment in China-based issuers at any time. Although we do not believe we are a China-based issuer, because of our China Segment, any new policies, regulations, rules, actions or laws by the PRC government may subject us to material changes in operations, may cause the value of our common stock significantly decline or be worthless, and may completely hinder our ability to offer, or continue to offer, securities to investors.

For example, the Chinese cybersecurity regulator announced in July 2021, that it had begun an investigation of certain U.S. listed Chinese companies and later ordered that companies’ app be removed from smartphone app stores. On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector.

As such, offerings conducted overseas and/or foreign investment in China-based issuers may be subject to various government and regulatory interference in the provinces in which they operate at any time. Because of the China Segment, we may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. If the PRC government initiates an investigation into us at any time alleging us violation of cybersecurity laws, anti-monopoly laws, and securities offering rules in China in connection with this offering, we may have to spend additional resources and incur additional time delays to comply with the applicable rules, and any such action could cause the value of our securities to significantly decline or be worthless and may limit or completely hinder your ability to offer, or continue to offer, securities to investors.

In light of recent events indicating greater oversight by the Cyberspace Administration of China, or CAC, over data security, particularly for companies seeking to list on a foreign exchange, based on the nature of our business in China, we believe that these regulations do not apply to our business in China or to this offering. 

Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Review (Revised Draft for Comments) aiming to, upon its enactment, replace the existing Measures for Cybersecurity Review. On December 28, 2021, CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures which became effective on February 15, 2022, which required that any critical information infrastructure operators that intend to purchase Internet products and services and online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review. Cybersecurity Review Measures further provides “network platform operator” possessing personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review.

Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office. In the even that, in the future, our PRC subsidiaries possess such data or if the requirements for review are changed, we may be required to obtain such approval, the failure of which could affect our ability to have our common stock traded on Nasdaq.

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Notwithstanding the foregoing, as of the date of this prospectus, there are no PRC laws and regulations in force explicitly requiring that we obtain any permission from PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction or any regulatory objection to this offering from the CAC or any other PRC authorities that have jurisdiction over our operations. As of the date of this prospectus, we are not required to submit an application the CAC for the approval of this offering and the listing and trading of the securities on Nasdaq. However, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offering and other capital markets activities. If it is determined in the future that the CAC or other approval were required for this offering, we may face sanctions by the CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our PRC subsidiaries’ ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the common stock. The CAC or other PRC regulatory agencies also may take actions requiring our PRC subsidiaries, or to halt this offering before settlement and delivery of the common stock. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CAC or other regulatory agencies later promulgate new rules requiring that we obtain its approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of the common stock.

The transfer of funds between our United States and China Segments is subject to restriction.

Our equity structure is a direct holding structure, that is, SolarMax Technology Inc., a Nevada corporation, directly controls its U.S. subsidiaries and its subsidiaries in its China segment including: (i) Golden SolarMax Finance. Co. Ltd, a PRC subsidiary, (ii) SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong subsidiary which directly holds SolarMax Technology (Shanghai) Co., Ltd, a PRC subsidiary (together with its subsidiaries thereunder, “ZHTH”); (iii) Accumulate Investment Co., Ltd, a British Virgin Islands subsidiary which then directly holds Accumulate Investment Co., Limited, a Hong Kong subsidiary that directly holds Jingsu Zhonghong Photovoltaic Electric Co., Ltd (“ZHPV”); a PRC subsidiary and (iv) SolarMax Technology Holdings, a Cayman Islands subsidiary. Our business in China is conducted through ZHPV and ZHTH. See “Business of SolarMax- SolarMax Corporate Structure” on page 217 for additional details.

In the reporting periods presented in this prospectus and throughout the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our United States subsidiaries, on the one hand; and us and our PRC subsidiaries, on the other hand, and we have not made any dividends, distributions or other transfer of funds to investors. For the foreseeable future, we intend to use any earnings we generate for research and development, to develop new products and to expand its production capacity. As a result, we do not expect to pay any cash dividends. To the extent that we may in the future seek to fund the business through distributions, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to government regulations. The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

3. Within the direct holding structure, the cross-border transfer of funds within SolarMax and its PRC subsidiaries is legal and compliant with the laws and regulations of the PRC. After foreign investors’ funds enter pursuant to this offering, the funds can be directly transferred to its subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC.

2. If SolarMax intends to distribute dividends, it will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to its parent company and then to SolarMax and the dividends will be distributed to all shareholders respectively in proportion to the shares they hold, regardless of whether the shareholders are U.S. investors or investors in other countries or regions.

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3. Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable as cash dividends. See “Dividend Distribution” on page  116 for more information.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future.

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Our failure to control our costs could impair our financial results.

Our cost of revenues and our operating expenses increased significantly both in U.S. dollars and as a percentage of revenues. Unless we are able to reduce both our cost of revenues and our operating costs, it will not be able to operate profitably. There are many factors beyond our control that may affect our costs, such as the price of components, cost of labor and the availability of warehouse and office space at reasonable rents as well as the effect of competition, and recently, inflation. Unless we are able to control our costs, we will not be able to operate profitably. We cannot assure you that we can or will ever operate profitably.

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Because one customer in China represents 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.

The nature of our business in China is such that a small number of customers is responsible for a significant percentage of both our revenue from the China segment and of our total revenue. Because EPC contracts are of limited duration, once we complete the construction and installation of a solar farm, there is no ongoing revenue stream from the customer. Accordingly, it is necessary for us, on an ongoing basis, to continue to develop new EPC business, and our failure to develop the EPC business will impair our ability to operate profitably and the ability of our China segment to continue operations. Further, we are dependent upon a small number of customers, with our only present contract being with SPIC, a state-owned enterprise, which accounted for almost all of revenue from our China segment for 2021 and 2020 and we did not generate any revenue from our China segment in the three months ended March 31, 2022.  Further, our quarterly revenues from China are affected by the timing of contracts we receive and the time during which the work is performed, which could result in significant changes in revenue and net income from the China segment from quarter to quarter.

Because we rely on our relationship with one leasing company, our failure or inability to maintain this relationship may impair our ability to operate profitably.

In order to provide customers with the ability to lease our solar systems, we entered into a channel agreement with Sunrun, Inc. (“Sunrun”), a third-party leasing company, pursuant to which Sunrun appointed us as its sales representative to solicit orders from residential customers for Sunrun’s products in portions of southern California. We and Sunrun are currently negotiating a new agreement. In the event that we are not able to negotiate an agreement with Sunrun, we believe that we would be able to enter into a leasing agreement with another equipment leasing company, although no assurance can be given as to the ability of us to enter into an extension with Sunrun or enter into an acceptable agreement with another equipment leasing company. We did not generate any revenue for Sunrun in the three months ended March 31, 2022. Sunrun was the largest customer of our United States segment and the second largest customer overall for the year ended December 31, 2021. Sunrun was the fourth largest customer of our United States segment and the fifth largest customer overall for the year ended December 31, 2020. Sales to Sunrun were $412,731, or approximately 1% of total revenue and approximately 1% of United States revenuefor the year ended December 31, 2021. Sales to Sunrun were $0.8 million, or approximately 0.6% of total revenue and approximately 2.4% of United States revenue, respectively, for the year ended December 31, 2020. Pursuant to our agreement with Sunrun, we introduce potential leasing customers to Sunrun, purchase the components and perform the EPC services and sell the completed system to Sunrun, which then leases the system to the customer. Sunrun may terminate the agreement if we fail to meet specified minimum volume requirements. Sunrun also has the right to terminate certain incentives contained in the agreement at any time. In the event that our relationship with Sunrun is terminated or in the event that our customers are not satisfied with the products or terms provided by Sunrun, we may have difficulty finding alternative leasing companies and our revenue and our ability to generate profits would be impaired. We cannot assure you that we will be able to find alternative leasing arrangements. With respect to the systems sold to Sunrun, we are required to install Sunrun meters which are only available for purchase through a subsidiary of Sunrun. For the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, Sunrun meters and panels purchased from a subsidiary of Sunrun amounted to $8,396, $65,766, and $55,016, respectively. There were no accounts payable balances owed to this supplier as of March 31, 2022 or December 31, 2021. The accounts payable balance owed to this supplier as of December 31, 2020 was $43,146. Other than Sunrun meters and panels, we do not make purchases from Sunrun or from any of Sunrun’s subsidiaries or affiliates for the systems sold to Sunrun or to other customers.

Our 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.

Federal, state and local government laws, including tax laws, regulations and policies concerning the electric utility industry, utility rate structures, interconnection procedures, and internal policies and electric utility regulations heavily influence the market for electricity generation products and services. These regulations and policies, which, on the state and local level, differ from state to state, often relate to tax benefits, electricity pricing, net metering the interconnection of customer-owned electricity generation with the local electricity utility company. These laws, regulations and policies are constantly subject to change, and many benefit provisions have sunset clauses, which would result in a termination or reduction of the benefit unless the benefit is expressly extended. The solar power industry is heavily dependent on government incentives and subsidies that constitute an important economic factor in a user’s decision to purchase a solar energy system. We cannot assure you that these benefits will continue at their present levels, if at all. The reduction, elimination or expiration of government benefits and economic incentives for solar energy systems could substantially increase the cost of our systems to our potential customers, which would in turn reduce the demand for our solar energy systems.

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The California Public Utilities Commission may consider a proposal to significantly reduce the incentives homeowners receive for installing rooftop solar systems. If such a change or any significant change in the benefits provided to homeowners for installing rooftop solar systems, our U.S. business will be materially impaired. We cannot assure you that the present benefits provided to homeowners for installing solar systems will not be adopted.

In many areas in China, solar farms, particularly on-grid photovoltaic systems, would not be commercially viable without government subsidies or economic incentives. The cost of generating electricity from solar energy in these markets currently exceeds, and very likely will continue to exceed for the foreseeable future, the cost of generating electricity from conventional or other renewable energy sources. These subsidies and incentives have been primarily in the form of set electricity prices and performance incentive programs, to solar farm operators. To the extent that these incentives are not available, we may not be able to sell our systems to customers in these regions. Further, if we decide to operate the solar farms in these regions for our own account instead of selling the project, we may not be able to generate a profit from those operations, which would impair results of our operations and our ability to operate profitably.

Changes in utility regulations and pricing could impair the market for our products.

The market for alternative energy products is affected by utility regulation and pricing policies. Changes in regulations or pricing could result in a significant reduction in the demand for solar products. Depending on the region, electricity generated by solar energy systems competes most effectively with expensive peak-hour electricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utility companies’ peak hour pricing policies affect the competitive nature of our systems. To the extent that we have to lower prices, the profitability of our systems could be impaired. In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness and cause a significant reduction in demand for our products and services.

Changes in net metering regulations could impair the market for solar products.

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. California’s first net metering policy set a “cap” for the three investor-owned utility companies in the state: Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE). All three have reached their cap where total solar installations in each utility’s territory were capped at five percent of total peak electricity demand. The California Public Utilities Commission (CPUC) created the current program known as “Net Metering 2.0” (NEM 2.0) that extends California net metering. NEM 2.0 is slightly different from the first net metering policy. Under NEM 2.0, customers will still receive the retail credit for electricity produced but will be required to pay more in Non-Bypassable Charges. NEM 2.0 also requires new solar customers to pay a one-time Interconnection Application Fee, the amount of which is dependent upon the utility company. For systems under 1MW this fee is $132 for San Diego Gas & Electric, $145 for Pacific Gas& Electric, and $75 for Southern California Edison. NEM 2.0 customers are also required to use Time of Use (ToU) rates. The California Public Utilities Commission (CPUC) has officially started on the proceedings for NEM 3.0 which will establish the successor to NEM 2.0 in California and have stated they expected to adopt the new program by 2022. The potential changes under NEM 3.0 could alter the return on investment for solar customers, and our pricing needs to reflect this change 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.

To the extent that utility companies are not required to purchase excess electricity from owners of solar systems or are permitted to lower the amounts paid, the market for solar systems may be impaired. Because net metering can enable the solar system owner to further reduce the cost of electricity by selling excess electricity to the utility company, any elimination or reduction of this benefit would reduce the cost savings from solar energy. We cannot assure you that net metering will not be eliminated or the benefits significantly reduced for future solar systems which may dampen the market for solar energy.

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Our 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.

The declining cost of solar panels has been a key factor in the pricing of our solar energy systems, which, in turn affects the potential customer’s decision to use solar energy. With any stabilization or increase of solar panel and other component prices, our ability to market our solar energy systems could be impaired, which would affect our revenues and gross profit. The cost of solar panels and raw materials could increase in the future due to tariff penalties or other factors. The U.S. government has imposed tariffs on solar cells, solar panels and aluminum used in solar panels manufactured overseas. These tariffs have increased the price of solar panels containing foreign manufactured solar cells. At present, we purchase solar panels containing solar cells and panels manufactured overseas for our United States installations. While solar panels containing solar cells manufactured inside the United States are not subject to these tariffs, the prices of these solar panels are, and may continue to be, more expensive than panels produced using overseas solar cells, before giving effect to the tariff penalties and the tariff policies may result in an increase in prices of domestic products. If additional tariffs are imposed or other negotiated outcomes occur, our ability to purchase these products on competitive terms from those countries could be limited. Any of those events could impair our financial results if we incur the cost of trade penalties or purchase solar panels or other system components from alternative, higher-priced sources.

We may be subject to liability if private information that it receives is not secure or if we violate privacy laws and regulations.

We are or may become subject to a variety of laws and regulations in the United States and abroad regarding privacy, data security, cybersecurity and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous United States federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.

In June 2018, California adopted the California Consumer Privacy Act (“CCPA”), which becomes effective in 2020. Under the law, any California consumer has a right to demand to see all the information a company has saved on the consumer, as well as a full list of all the third parties that data is shared with. The consumer also has the right to request that a company delete the information it has on the consumer. The CCPA broadly defines “protected data.” The CCPA also has specific requirements for companies subject to the law. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations, with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater. The CCPA also permits class action lawsuits.

In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first Chinese law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. The costs of compliance with, and other burdens imposed by, CSL may limit the use and adoption of our products and services and could have an adverse impact on our business. 

The European Union Parliament approved a new data protection regulation, known as the General Data Protection Regulation (“GDPR”), which came into effect in May 2018. The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR imposes significant penalties for non-compliance. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our website and input protected information, we may become subject to provisions of the GDPR.

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We are also subject to laws restricting disclosure of information relating to our employees. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, cybersecurity and data protection. However, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us or our third-party service-providers to comply with our privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our business and operating results. Although we maintain cybersecurity insurance, we cannot assure you that this insurance will cover or satisfy any claim made against us or adequately cover any defense costs we may incur.

Our 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.

Our business is subject to numerous federal and state laws and regulations. The installation of solar energy systems performed by us is subject to oversight and regulation under local ordinances, building, zoning and fire codes, environmental protection regulation, utility interconnection requirements, and other rules and regulations. The financing transactions by SolarMax Financial are subject to numerous consumer credit and financing regulations. The consumer protection laws, among other things:

● require us to obtain and maintain licenses and qualifications;

● limit certain interest rates, fees and other charges it is allowed to charge;

● limit or prescribe certain terms of the loans to our customers; and

● require specific disclosures and the use of special contract forms.

Our Chinese subsidiary ZHPV holds a construction enterprise qualification certificate for Level III of general contractor for power engineering constructor issued on December 28, 2021, which permits ZHPV to conduct business as a contractor in power engineering construction. The qualification will expire on December 31, 2022. Although we believe that the renewal of the certificate is routine, we cannot assure you that the certificate will be renewed in a timely manner when it expires. The failure of ZHPV to hold this certificate would impair our ability to perform our obligations under our contracts with our customers. The number of laws affecting both aspects of our business continues to grow. We can give no assurances that it will properly and timely comply with all laws and regulations that may affect it. If we fail to comply with these laws and regulations, it may be subject to civil and criminal penalties. In addition, non-compliance with certain consumer disclosure requirements related to home solicitation sales and home improvement contract sales affords residential customers with a right to rescind such contracts in some jurisdictions.

A material decrease in the retail price of electricity from the local utility company or from other sources would affect our ability to generate revenues.

We believe that a customer’s decision to buy a solar energy system from it is primarily driven by a desire to pay less for electricity. Decreases in the retail prices of electricity from utility companies or other renewable energy sources, which is not likely in the foreseeable future as a result of climbing energy prices, would impair our ability to offer competitive pricing which would, in turn, affect our ability both to generate revenue and to maintain gross margins. The price of electricity from utility companies could decrease as a result of such factors as a reduction in the price of oil or natural gas as a result of new drilling techniques or a relaxation of associated regulatory standards; the development of energy conservation technologies and public initiatives to reduce electricity consumption; the construction of a significant number of new power generation plants, including nuclear, natural gas or renewable energy technologies.

Changes in regulations relating to fossil fuel can impact the market for renewable energy, including solar.

The market for renewable energy in general and solar energy in particular is affected by regulations relating to the use of fossil fuel and the encouragement of renewable energy. To the extent that changes in regulations have the effect of reducing the cost of gas, oil and coal or encouraging the use of such fuels, the market for solar systems may be impaired.

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A material decline in the price of electricity charged by the local utility company to commercial users may impair our ability to attract commercial customers.

Often large commercial customers pay less for energy from utility companies than residential customers. To the extent that utility companies offer commercial customers a lower rate for electricity, they may be less willing to switch to solar energy. Under such conditions, we may be unable to offer solar energy systems in commercial markets that produce electricity at rates that are competitive with the price of retail electricity they are able to obtain from the local utility company. In such event, we would be at a competitive disadvantage compared to the local utility company and may be unable to attract new commercial customers, which would impact our revenues.

Solar 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.

Solar energy competes with other all other forms of energy, including, particularly local utility companies, whose pricing structure effectively determines the market for solar energy. If consumers, whether residential or commercial, believe that they are paying and will continue to pay too much for electricity from a local utility company, they may consider other alternatives, including alternative providers of electricity from local utility companies as well as forms of renewable energy. If they are in a location where, because of the climate and geography, solar energy is a possibility, they may consider solar energy as an alternative, provided they are satisfied that they will receive a net savings in their cost of electricity and their system will provide them with a constant source of energy. Further, although some customers may purchase a solar energy system because of environmental considerations, we believe that the cost of electricity is the crucial factor that influences the decision of a user, particularly a commercial user, to elect to use solar energy.

Within the solar energy market, we face intense and increasing competition in the market of solar energy system providers, which exposes it to the risk of reduction of our market penetration and/or of our profit margins.

The solar energy system installation market is highly and increasingly competitive. The number of new solar energy installation businesses that have entered the industry in California has almost doubled since 2008 when we commenced business. We compete with major companies in the solar business, particularly in California, as well as a large number of small companies. The solar energy industry may continue to expand and possibly consolidate. As a result of increasing competition, our average unit price on solar systems in the United States declined from 2017 to 2018. Competitive factors were a significant cause of the decline in our gross margin in 2018 as compared with 2017. We may continue to encounter increasing competition from larger companies that have greater resources than we and which would enjoy more economies of scale and greater name recognition than we have. Further, increasing competition may also lead to an excessive supply of solar energy installation services on the market which could continue to affect both our ability to generate revenue as well as our gross margin. To the extent that our ability to provide financing to our customers is an important element in selling our systems, we will compete with both other solar companies that provide financing and with banks, leasing companies and other businesses that seek to offer financing alternatives to purchasers of solar systems.

In China, we compete with other companies for a limited number of available permits.

In China, we obtain permits, construct and sell solar farms to major customers who have the financial ability to purchase and operate these systems. The permits are granted by the local government agency and a list of available permits is published by the agency. There is a limited number of potential customers as well as a limited number of permits available and we compete with other firms in seeking to obtain permits and seeking to perform EPC services. In seeking both permits and customers, we compete with other companies, many of which are Chinese companies that have significantly greater financial resources and are better known in China than we are. Further, many of our competitors have or can develop relationships with both the government officials who issue the permits as well as the buyers of the projects, and our competition may not be subject to the restrictions imposed on us by the Foreign Corrupt Practices Act. We cannot assure you that we will be able to obtain the necessary permits for our customers or enter into agreements with end users who would operate the solar farms. As the interest in solar farms in China increases, there is increased competition for permits, and the government entities that issue the permits may prefer Chinese companies over companies that are owned by a United States parent. Our failure to obtain the permits and enter into agreements would impair our ability to generate revenue from this business. In addition, to date, except for our agreements with SPIC, our China segment has generated minimal revenue in China from unrelated parties. If we are not able to develop our business with new customers or if our business with SPIC or with related party decreases, our ability to generate revenue in China will be significantly impaired. Unrelated parties may prefer to work with a Chinese company than a company owned by a United States company, particularly in view of the trade disputes between the United States and China.

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Because of the cost of construction of the solar farms, we could require financing in order to complete projects in China and the inability to obtain such financing may impair our ability to generate contracts for solar farm projects in China.

Although our EPC contracts with solar farm owners provide for progress payments, we cannot assure you that we will be paid in a timely manner or that our customers will not be significantly delinquent on their payments. Because we are dependent upon a small number of customers, our cash flow at any time may be dependent upon the payment policies and practices of one customer. Our China segment revenue for the year ended December 31, 2021 and the year ended December 31, 2020 was derived from four projects for SPIC, and our one pending contract under construction is also with SPIC. Our failure both to receive timely progress payments and to obtain any necessary project financing in China would impair our ability to develop our business in China. Because of the size of the solar farms that we build in China, it is likely to require financing for our projects. We cannot assure you that we will be able to obtain financing or that our business will not be impaired by delinquent customers. Further, we may not be able to generate business without a financing arrangement.

Because our business in China involves 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.

Because of the nature of our China operations, we construct large projects for a small number of customers, who may not require additional services from us after we have completed the projects. As a result, we need to continually market our services to new customers who have the financial resources to purchase a solar farm or to obtain additional projects from existing customers. Thus, each year one customer and its affiliates have been responsible for a large percentage, if not substantially all, of the revenue from the China segment and a large percentage of our total revenue, and the major customers in one year may not generate any significant revenue in future years. Further, to the extent that any customer fails to make timely payments to us, our business and cash flow could be impaired. If we are unable to develop new sales contracts for solar farms, it may not be able to continue our China operations which would impair our operating results and our financial condition.

Because 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.

There is no private ownership of land in China, and the owner or operator of a solar farm must obtain the necessary land use rights from the applicable government agency. Solar farms require a substantial amount of land. It is also crucial to have a land parcel close to the grid connection point in order to control the cost for the construction of transmission lines and to avoid the electricity transmission loss. One solar farm for which we performed EPC services had to reduce the size of the project because of zoning issues and the inability to obtain land use rights to sufficient contiguous parcels of land to support the initial size of the project. The shortage of available land may also result in an increase in the cost of the land use rights as well as increased competition for the land use rights. Further, since the land is owned by the government, the government has the ability to determine what it is the best use of the limited available land and it might determine that the land could be used for purposes other than solar farms. If we or solar farm owners cannot obtain sufficient land use rights at a reasonable cost, the solar farm owner may be reluctant to make the investment in solar farms which would impair our ability to generate revenue and operate profitably in China. Further, changes in the size of a project may result in increased costs as well as construction difficulties which we may be unable to pass on to our customers, resulting in a decrease in our gross margin.

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There is intense competition for a limited number of project sites that are appropriate for solar power projects. As the downstream solar power market in China continues to evolve, the number of attractive project sites available has decreased and will continue to decrease. Even if we sign agreements, it may not be able to find and secure the land use rights to suitable project sites for the relevant projects. We generally use the land for our ground-mounted projects through land use right grants or assignment by the government or leasing from the land use right owners. Our rights to the properties used for our solar power projects may be challenged by property owners or other third parties, in case of any disputes over the ownership or lease of the properties. It is critical to maintain the land use rights on the land parcels and access and use rights on the roof tops during the life cycle of solar power projects. In the event that the relevant lease agreement is determined to be null and void by competent authorities or our land use rights and access and use rights on roof tops are recouped by the government, the solar power projects may be forced to cease operation and our results of operation, financial condition will be materially adversely affected.

The economics of a solar farm are affected by the money that solar farm owners receive from utility companies.

In China, a solar farm sells the power it generates to the electricity utility company at prices which are set by the Electricity Bureau, a government agency, at the beginning of the term of the power sales agreement between the owner and the utility company. The prices have been declining, and we cannot assure you that the price reductions will not continue or that price reductions will not increase substantially and make the ownership of a solar farm uneconomical. The cash flow that the owner receives from the utility company is critical in determining whether the project will be profitable to the owner. If the potential revenue stream is not sufficient to meet the owner’s return, taking into account the cost of the project, the cost of the land use rights and the other operating costs, the owner may be unwilling to develop a solar farm or it may be necessary for us to reduce our charges in order to generate the revenue, which could significantly reduce our gross margin on the project and could result in a negative gross margin. Decreases in the potential revenue stream may also significantly affect the terms on which we could provide maintenance services for a solar farm following its completion. Further, it is possible that the Electricity Bureau could set prices at a level which makes it uneconomical to operate a solar farm, in which event we would not be able to continue in this business. Although the rate is presently set for the duration of the contract with the utility company, we cannot assure you that the Chinese government would not change its policy and reduce the rate during the term of the agreement. We cannot assure you that we will be able to operate our EPC business or manage solar farms in China profitably, and our failure to operate profitably in China could materially impair our overall ability to operate profitably.

Changes in solar farm delivery schedules and order specifications may affect our revenue stream and gross margin.

Although we build solar farms pursuant to agreements with the customers,  we may experience delays in scheduling and changes in the specification of the project. These changes may result from a number of factors, including a determination by the customer that the scope of the project needs to be changed and the effects of the COVID-19 pandemic and steps taken by the government of China to address the pandemic. In the event of such changes, we may suffer a delay in the recognition of revenue from the projects and may increase our costs. We cannot assure you that our revenue and gross margin will not be affected by delays, changes in specifications or increased costs or that we will be able to recoup revenue lost as a result of the delays or changes. Further, if we cannot allocate our personnel to a different project, it will continue to incur expenses relating to the project, including labor and overhead. We cannot assure you that our income will not decline as a result of changes in customers’ orders or their requirements for their projects.

If we operate solar farms in China for our own account it will be subject to additional regulations.

Although we have no present plans to own and operate solar farms for our own account, we may consider the possibility of owning and operating solar farms for our own account in the future, either by direct ownership or by holding a majority equity interest in a company that owns solar farms. Unlike the solar systems that we sell in the United States, which are relatively small in scale and generally provide power for one home or building, the solar farms in China operate on a significantly larger scale. Thus, while a typical residential or small business installation in the United States generally generates between 6.5KW and 0.2MW of power, the solar farms in China can generate between 30MW and 100MW of power. In the event that we operate solar farms for our own account, which would involve constructing the solar farm for our own account and selling the electricity either to end users or to the local utility company, we will be subject to significant additional regulation by the applicable Chinese authorities and we will require significant additional funding for such purpose. Prior to 2013, we entered into power purchase agreements that have a term of up to 20 years. We own and maintain the systems and sell the power generated by the systems to our commercial customers pursuant to the power purchase agreement. These power purchase agreements, which cover a solar system designed for a local commercial user, are significantly different in size and scope from the solar farms in China.

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 Our quarterly revenues may be affected by weather conditions in certain provinces of China

The construction of solar farms in China is subject to adverse weather conditions, including wind, flood, rain, typhoons, snow and temperature extremes, as well as earthquakes, mudslides and similar conditions. These weather conditions are common but difficult to predict and can slow or stop construction. The effects of climate change may increase severe adverse weather conditions. To the extent that we have EPC contracts for solar farms in the provinces affected by adverse seasonal weather, revenue generated during these months may sharply decrease. If we are not able to work on a project on a sustained basis, our ability to operate efficiently may be impaired which may result in reduced revenue, increased expenses and reduced gross margin.

The results of our operations may vary significantly from quarter to quarter.

In our experience in the United States, consumers generally, and residential customers in particular, express interest in a solar energy system during March and April, when they are preparing their tax returns, and in July and August, when they experience high electricity charges from the local utility company. Since the selling cycle is typically three to four months, we generally install systems two to three months after the contract date, and we recognize revenue using a cost-based input method that recognizes revenue as work is performed. If we cannot complete a sale to a customer when the customer expresses interest in a solar system, that potential customer may seek alternative sources. Factors which may cause our quarterly results to fluctuate include:

● local weather and climate conditions and long-term projected climate developments, including the effects of wildfires in California and climate change generally;

● expiration, initiation or reduction of tax and other rebates and utility incentives;

● our revenue recognition policies, whereby significant work can be performed before we recognize revenue;

● our ability to complete installations in a timely manner;

● our ability to process applications for financing;

● our ability to expand our operations and the timing of any expansion;

● changes in competitors’ pricing and financing policies and other changes in the competitive environment in the solar energy industry;

● pricing policies of local electricity providers;

● gas and oil prices; and

● changes in customer demands for solar energy systems.

The results of our China operations may also vary significantly from quarter to quarter, since revenue from our China operations is dependent upon both the timing of contracts and the timing of our work and the completion of our obligations on projects for which we have contracts. Changes in revenue and the results of operations from our China segment from quarter to quarter may have a negative effect on our net income and the market for and price of our common stock.

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Because we are dependent on our chief executive officer and the head of our China operations, who will continue in these capacities following the completion of the offering, the loss of their services and our failure to hire additional qualified key personnel could harm our business.

Our business is largely dependent upon the continued efforts of one of our founders and our chief executive officer, David Hsu. Our operations in China are dependent upon Mr. Hsu and Bin Lu, who is the head of our China operations. Although we have an employment agreement with Mr. Hsu, and SolarMax Technology (Shanghai) Co., Ltd. has an employment agreement with Mr. Lu, these agreements do not guarantee that Mr. Hsu or Mr. Lu will continue to work for us. The loss of Mr. Hsu could affect our ability to operate profitably in both the United States and China and, depending upon the nature of the termination of their relationship, could result in substantial severance payments which we may have difficulty in funding. The loss of Mr. Lu could have a material adverse effect upon our ability to develop and operate our business in China. Because our senior management is based in the United States, our failure to develop senior management personnel in China may strain our management resources and make it difficult for our corporate management to monitor both the China operations and United States operations efficiently. Our failure to have qualified executive personnel in China who can operate in accordance with and implement our business plan and who understand and can comply with applicable United States and Chinese laws and regulations may impair our ability to generate revenue and operating income from the China segment, which could impair our overall operations and financial condition.

In order to develop our business, we need to identify, hire and retain qualified sales, installation and other personnel in both the United States and China.

To develop our business, it needs to hire, train, deploy, manage and retain a substantial number of skilled employees, including sales, installation and other employees and marketing and lending personnel for our financing activities. Identifying, recruiting and training qualified personnel requires significant time, expense and attention. If we are unable to hire, develop and retain qualified personnel or if our personnel are unable to achieve the desired level of productivity for a reasonable period of time, we may have difficulty in developing our business. Competition for qualified personnel in the solar industry is increasing, particularly for skilled installers and other personnel involved in the installation of solar energy systems. We also compete with the homebuilding and construction industries for skilled labor. As these industries recover and seek to hire additional workers, our cost of labor may increase. The unionization of our United States labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, we compete for a limited pool of technical and engineering resources in both the United States and China that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields. We not only compete for highly qualified personnel, but it also faces other companies seeking to hire our personnel, particularly our highly skilled personnel. If we cannot meet our hiring, retention and efficiency goals, we may be unable to complete the customers’ projects on time, in an acceptable manner, if at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than it anticipates, the increased cost may adversely impact our financial results and our ability to develop our business.

Although 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.

We contract with a professional employer organization, or PEO, that administers our human resources, payroll and employee benefits functions for our United States employees. Although we recruit and select our personnel, our United States employees are co-employed by the PEO and us. Pursuant to the agreement with the PEO, our United States personnel are compensated through the PEO, receive their W-2s from the PEO and are governed by the personnel policies of the PEO. This relationship permits management to focus on our operations rather than human resource administration, but this relationship also exposes us to some risks. Among other risks, if the PEO fails to adequately withhold or pay employer taxes or to comply with other laws, such as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act or state and federal anti-discrimination laws, health and safety laws, sexual harassment laws and laws protecting the security of employee information, all of which are outside of our control, we would be liable for such violations, and the indemnification provisions of our agreement with the PEO, if applicable, may not be sufficient to insulate us from those liabilities. Court and administrative proceedings related to these matters could distract management from our business and cause us to incur significant expense. If we were held liable for violations by the PEO of applicable laws, such liability may adversely affect our business and the results of our operations and our cash flow.

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Since we act as a general contractor in the United States, we face typical risks of a construction company.

We act as the licensed contractor for our customers and are subject to risks associated with construction, cost overruns, delays, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations. For our residential projects, it is the general contractor, construction manager and installer. For our commercial projects, it is the general contractor and construction manager, and it typically relies on licensed subcontractors to support some of our solar panel installations. In either case we are responsible for the completion of the project and must take steps to make sure that it and our subcontractors comply with all applicable laws and regulations. We may be liable to customers for any damage we cause to their home or facility, or belongings or property during the installation of our systems. In addition, shortages of skilled labor for our commercial projects could significantly delay a project or otherwise increase costs. Because our profit on a particular installation is based in part on assumptions we make as to the cost of such project, cost overruns, delays or other execution issues may impair our ability to generate the gross margins that we are seeking. In addition, the installation of solar energy systems and the evaluation and modification of buildings as part of our energy efficiency business is subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection, utility interconnection and metering, and related matters. It is difficult and costly to track the requirements of every individual authority with jurisdiction over our installations and to design solar energy systems to comply with these varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our customers and, as a result, could cause a significant reduction in demand for our systems.

Our financing activities are dependent upon the continued development of a market for solar systems as well as factors that affect the lending industry generally.

We generate revenue in the United States from the sale of both residential and commercial solar systems and from financing sales of systems sold by us. Our ability to generate financing revenue is dependent upon such factors as the market for solar systems generally, the creditworthiness of the borrowers and interest rates and loan terms available from banks and consumer lending institutions that compete vigorously for loans. We cannot assure you that we will be able to generate any significant revenue from new loans.

Our failure to adequately assess credit risks for financing the sale of our systems in the United States could impair our ability to operate profitably.

We provide financing to our customers through SolarMax Financial. The principal amount of our loan portfolio was $14.5 million at March 31, 2022, $16.1 million at December 31, 2021 and $26.5 million at December 31, 2020. For the three months ended March 31, 2022,  we did not have any revenue from sales of solar energy systems subject to in-house financing.  For the years ended December 31, 2021 and 2020, approximately 4% and 5% of our United States revenues and approximately 3% and 1% of our consolidated revenues was generated from sales of solar energy systems subject to in-house financing. We do not have significant experience with loans to customers to evaluate the effectiveness of our credit criteria. If we try to meet financing terms of competitors, we may have to reduce our financing criteria, which could increase the possibility of default by the customers. Residential customers could be more adversely impacted during economic slowdowns or recessions, which could affect their ability or willingness to pay. Our failure to collect any significant portion of our customer loan receivables or the need to place a significant reserve against these receivables could materially impair our financial condition and the results of our operations. We cannot assure you that we will not incur significant losses on our customer loan portfolio.

We may have difficulty in collecting in the event we have to foreclose on a customer loan.

Although we file UCC-1 financing statements in connection with our loans, we may have difficulty in generating any money in the event that we foreclose on a defaulting customer. The foreclosure process could be time-consuming and collection is uncertain, particularly if the customer seeks protection under applicable bankruptcy or insolvency laws. Additionally, any defects in the filing of the financing statements could impair the validity of our security interest. Unless the subsequent owner of the building on which the solar power system is located is willing to assume the obligations with respect to the system on terms acceptable to us, we would incur substantial costs in removing and reselling the system. Further, even if we are able to remove the system, the components may not be saleable at their book value, if at all. Our failure to collect the amount due under the customer loan agreements would materially impair our financial condition and the results of our operations.

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Compliance 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.

The installation of solar energy systems requires employees to work at heights with complicated and potentially dangerous electrical systems. The evaluation and modification of buildings as part of our energy efficiency business requires our employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act, or OSHA, and equivalent state laws. Changes to federal or state OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or limit operations. Any such accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.

Because we have relied upon a limited number of suppliers for our products, problems with our suppliers could impair our ability to meet our obligations to our customers.

We have relied on two vendors to provide us with substantially all of our solar panels. We have a supply agreement with Sunspark, Inc., pursuant to which we may purchase solar panels at certain prices with no minimum purchase quantity required. We do not have a supply agreement with the second supplier, and purchases solar panels from this supplier pursuant to purchase orders at prices quoted by the supplier. Although we believe other suppliers are generally available on commercial terms, in the event that we have any quality, delivery or other problems with our existing suppliers or in the event that we are not otherwise able to purchase solar panels from either supplier, it may be more difficult for us to find alternative suppliers, particularly those with whom we do not have an existing supply relationship. If we fail to develop or maintain our relationships with these, or our other, suppliers or if the suppliers are not able to meet our quality, quantity and delivery schedules, we may not be able to meet our delivery and installation schedules for our systems and we may be unable to enter into new contracts with potential customers, thus impairing our revenue stream. Further, any increases in price would affect our ability to market our systems or generate acceptable gross margins. We cannot assure you that Sunspark will be able to meet our quality, quantity and delivery requirements or that we will be able to find alternate suppliers that can meet our quality, quantity, deliver and price requirements. The failure to find alternate suppliers could materially affect our ability to conduct our business. Further, because suppliers may have a limited operating history and limited financial resources, we may not be able obtain an adequate remedy in the event that the suppliers are unable to meet their contractual obligations to us. Although there are a number of suppliers of solar panels, we cannot assure you that we will be able to negotiate reasonable terms for the purchase of solar panels if our existing suppliers are unable to meet our quality, delivery and price requirements. Because we do not control the manufacture of key components for our systems, we are subject to our suppliers’ ability to perform as well as the suppliers’ allocation of their own resources to us and to other customers. We cannot assure you that we will be able to purchase key components for our systems on acceptable terms, if at all, and the failure to obtain these components could materially impair our ability to generate revenue.

The availability and price of silicon raw materials may affect our gross margins and profitability.

Polysilicon is an essential raw material in the production of solar power products. The costs of silicon wafers and other silicon-based raw materials have accounted for a large portion of the costs associated with our solar panel manufacturing facility. Although the price of silicon has declined in recent years, we cannot assure you it will continue to decline or remain at its current level. Increases in the price of polysilicon in the past have resulted in increases in the price of wafers, leading to increases in production 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 and supply chain issues, 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.

Our business is subject to the effects of 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 and supply chain issues that are affecting may domestic and foreign companies. 

The effects of inflation and supply side issues with respect to polysilicon are described in the preceding risk factor.

The effects of inflation may also affect the marketability of our solar systems to residential users.  To the extent that home owners are incurring high expenses generally, they may have less available cash to invest in a solar system.  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 resulting in a lower gross margin and a drop in operating income.

Our China segment is already feeling the effects of both inflation and supply chain issues.  Our China segment had a 0% gross margin for the year ended December 31, 2021 because our cost of revenue for one of our projects with SPIC was significantly adjusted as a result of the unanticipated increase in costs particularly the panel costs which resulted in a significant adjustment in cost which essentially reversed our the profit that was recognized in 2020 for the project.  During the three months ended March 31, 2021, our China operations did not report any revenue as a result of the temporary halt of the construction on this project resulting both from the local holidays and our inability to acquire the solar panels for the project at the budgeted price due to the local supply chain issues. Since the second quarter of 2020, the prices of the solar panels in China have been increasing due to the tight supply in the local market and accordingly, we and SPIC had determined to hold off the purchase of the panels until early 2021 with the anticipation that we would be able to obtain the panels at or close to the price in the original project budget.  Such determination resulted in the temporary suspension of the construction of the project during the three months ended March 31, 2021. In April 2021, we proceeded to purchase the solar panels for the project, albeit at a much higher price than the original budget. We cannot assure you that, if we are able to negotiate contracts with SPIC, that we will be able to accurately price our costs, with the risk that inflationary and supply side issues will not result on our generating a loss on any projects we contract for.

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Because 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.

We currently derive most of our United States revenue from solar energy projects in the United States from California. This geographic concentration exposes us more to government regulations, economic conditions, weather conditions, earthquakes, mudslides, fire, including wildfires, power outages, and other natural disasters and effects of climate change, and changes affecting California than if we operated in more states. 

Because 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.

Commencing in 2015, our standard contract for residential systems provides for a production guarantee, which means that we guarantee that the system would generate a specified minimum amount of solar energy during a year. The agreements generally have a term specified in the contract, which is generally ten years. In our standard contract, we specify a minimum annual production and provide that if the power generated by the system is less than 95% of the estimate, we will reimburse the owner for the cost of the shortfall. Because our obligations are not contingent upon external factors, such as sunlight, changes in weather patterns or increases in air pollution, wildfires and these factors could affect the amount of solar power that is generated and could increase our exposure under the production guarantee. Although our obligations under these agreements have not been significant through March 31, 2022, we cannot assure you that in the future any obligations we have under these agreements will not have a material adverse effect upon our revenue and the results of our operations. Although we believe that the conditions relating to those installations were unique and that we have taken corrective action, we cannot assure you that we will not have unanticipated liability in the future for the failure of systems to comply with applicable production guarantees regardless of the cause of such failure.

We do not maintain adequate internal controls over financial accounting and reporting as is required for a public company, and there are limitations on the effectiveness of such controls, and a failure of our control systems to prevent error or fraud may materially harm us and represent a material weakness in our internal controls over financial reporting.

We are a privately-owned company and we are not subject to the requirements relating to the establishment and maintenance of internal controls over financial accounting and reporting as required of a public company. As a result, we have not established effective internal controls over financial accounting and reporting, and we may be unable to establish effective internal controls. The failure to establish internal controls would leave us without the ability to properly recognize revenues and account for important transactions accurately, and to reliably assimilate and compile our financial information and significantly impair our ability to prevent error and detect fraud. Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all error and fraud. Since we currently have few accounting employees and little, if any, segregation of duties, we may not be able to establish adequate internal controls over financial reporting. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, including the employees of our China segment, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in developing or maintaining internal control. If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the common stock could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, our common stock may not be able to remain listed on the Nasdaq Capital Market.

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Our warranty costs may exceed our warranty reserve.

We provide warranties to the clients of our EPC services for one year in China and for ten years to the purchasers of our solar systems in the United States. Although we generally pass the warranties from our equipment suppliers to the purchasers of the systems, we provide the warranty with respect to our installation and related services. We maintain a warranty reserve on our financial statements, and our warranty claims may exceed the warranty reserve. Any significant warranty expenses could adversely affect our financial condition and results of operations. Our warranty expenses relating to systems with a production guarantee may be affected by significant changes in weather conditions which substantially reduce sun exposure. Significant warranty problems could impair our reputation which could result in lower revenue and a lower gross margin. Although we believe that the problems associated with the systems installed for the leasing company do not apply to our present solar systems, we cannot assure you that we will not incur unanticipated warranty costs in the future.

Because of the rapid development of solar panels and other components for solar systems, we may be subject to inventory obsolescence.

The solar industry has seen rapid technological development. We have an inventory of raw materials that include silicon wafers and other consumables and construction materials used in solar system installations. We evaluate our inventory on a quarterly basis for excess and obsolete inventory, based on assumptions as to market demand, market conditions and technological developments. We cannot assure you that we will not incur significant inventory write-offs resulting from obsolete inventory.

If 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.

In 2013 and 2015, SolarMax acquired three companies, LED in the United States in 2013 and two companies in China. In 2015, SolarMax incurred impairment losses in connection with the LED acquisition, resulting in impairment write-offs relating to the goodwill associated with the acquisition. There are significant risks associated with any acquisition program, including, but not limited to, the following:

● We may incur significant expenses and devote significant management time to the acquisition and we may be unable to consummate the acquisition on acceptable terms.

● If we identify an acquisition, we may face competition from other companies in the industry or from financial buyers in seeking to make the acquisition.

● The integration of any acquisition with our existing business may be difficult and, if we are not able to integrate the business successfully, we may not only be unable to operate the business profitably, but management may be unable to devote the necessary time to the development of our existing business;

● The key employees who operated the acquired business successfully prior to the acquisition may not be happy working for us and may resign, thus leaving the business without the necessary continuity of management.

● Even if the business is successful, our two senior executive officers may need to devote significant time to the acquired business, which may distract them from their other management activities.

● If the business does not operate as we expect, we may incur an impairment charge based on the value of the assets acquired.

● We may have difficulty maintaining the necessary quality control over the acquired business and our products and services.

● To the extent that an acquired company operates at a loss prior to our acquisition, we may not be able to develop profitable operations following the acquisition.

● Problems and claims relating to the acquired business that were not disclosed at the time of the acquisition may result in increased costs and may impair our ability to operate the acquired company.

● The acquired company may have liabilities or obligations which were not disclosed to us, or the acquired assets may not have the value we anticipated.

● Any indemnification obligations of the seller under the purchase agreement may be inadequate to compensate us for any loss, damage or expense which we may sustain, including undisclosed claims or liabilities.

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● To the extent that the acquired company is dependent upon our management to maintain relationships with existing customers, we may have difficulty in retaining the business of these customers if there is a change in management.

● Government agencies may seek damages after we make the acquisition for conduct which occurred prior to the acquisition and may not have adequate recourse against the seller.

● We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated. Our failure to obtain capital on reasonable terms may impair the value of the acquisition and may impair our continuing operations.

● The acquired company may be impacted by unanticipated events, such as a pandemic such as the COVID-19 pandemic, the effect of climate changes or social unrest or other factors over which we or it may have no control.

If any of these risks occur, our business, financial condition and prospects may be impaired.

We are subject to numerous risks in engaging in business in China, including, but not limited to, changes in policies of the Chinese government, a deterioration in the relationships between the United States and China, the legal system in China which may not adequately protect our rights, change in the Chinese economy and steps taken by the government to address the changes, inflation, adverse weather conditions, fluctuations in the currency ratio between the U.S. dollar and the RMB, currency exchange restrictions, the interpretation of tax laws, tariffs and importation regulations.

Our China segment’s operations are mainly located in China. Accordingly, our business, prospects, financial condition and results of operations may be is subject to numerous risks in China, including, but not limited to, changes in policies of the Chinese government, a deterioration in the relationships between the United States and China, the legal system in China which may not adequately protect our rights, change in the Chinese economy and steps taken by the government to address the changes, inflation, adverse weather conditions, fluctuations in the currency ratio between the U.S. dollar and the RMB, currency exchange restrictions, the interpretation of tax laws, tariffs and importation regulations.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The central Chinese government or local governments having jurisdiction within China may impose new, stricter regulations, or interpretations of existing regulations, that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. As such, our subsidiaries in the PRC may be subject to governmental and regulatory interference in the provinces in which they operate. We could also be subject to regulation by various political and regulatory entities, including local and municipal agencies and other governmental subdivisions. Our ability to operate in China may be impaired by any such laws or regulations, or any changes in laws and regulations in the PRC. We may incur increased costs necessary to comply with existing and future laws and regulations or penalties for any failure to comply. The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is inconsistent. As a result, it may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction.

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At various times during recent years, the United States and China have had significant disagreements over political and economic issues. Controversies between these two countries may affect the economic outlook both in the U.S. and in China. Our business and the price of our common stock could be adversely affected.

In addition, our China business is also subject to other risks. For example, the construction of solar farms in China is subject to adverse weather conditions, including wind, flood, rain, typhoons, snow and temperature extremes, as well as earthquakes, mudslides and similar conditions. These weather conditions are common but difficult to predict and can slow or stop construction. The change in value of the RMB against the U.S. dollar and other currencies is affected by various factors, including changes in China’s political and economic conditions.

Our China segment is subject to numerous regulations in China, including but not limited to, regulations relating to investments in our China subsidiaries, labor laws and other laws relating to employee relations, the issuance of permits for solar farms, licensing, the development, construction and operation of solar power projects, and the sale of power generated from the projects, cybersecurity and the failure to comply with any such regulations may impair our ability to operate in China.

Our China segment is subject to numerous regulations in China, including but not limited to, regulations relating to investments in our China subsidiaries, labor laws and other laws relating to employee relations, the issuance of permits for solar farms, licensing, the development, construction and operation of solar power projects, and the sale of power generated from the projects, cybersecurity and the failure to comply with any such regulations may impair our ability to operate in China.

As our China segment operates in China, we are subject to the laws and regulations of the PRC, which can be complex and evolve rapidly. The PRC government has the power to exercise significant oversight and discretion over the conduct of our business, and the regulations to which we are subject may change rapidly and with little notice to us or our shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with our current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:

● Delay or impede our development,

● Result in negative publicity or increase our operating costs,

● Require significant management time and attention, and

● Subject 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.

The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which we conduct our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our products, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease the value of our ordinary shares. 

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For example, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. In addition, on July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the “Review Measures (Draft)” and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review. Pursuant to the Cybersecurity Review Measures, Critical Information Infrastructure Operators (“CIIO”) that intend to purchase Internet products and services and network platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review. Cybersecurity Review Measures further stipulate that if an network platform operator possesses the personal information of more than one million users and intends to list in a foreign country, it shall apply to the CAC for cybersecurity review. Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office. In the event that, in the future, we possess such data or if the requirements for review are changed, we may be required to obtain Cybersecurity Review Office approval, the failure of which could affect our ability to have our common stock traded on Nasdaq.

Our independent registered public accounting firm’s audit documentation related to its audit reports included in this prospectus include audit documentation located in China. PCAOB may not be able to inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection which could result in limitations or restrictions to our access to the U.S. capital markets. Furthermore, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act or the Accelerating Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or market if our auditor is not subject to PCAOB inspections for two consecutive years instead of three.

Our independent registered public accounting firm issued an audit opinion on our financial statements that are included in this prospectus. As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. Our auditor is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis with the last inspection in 2018 and an ongoing inspection that started in November 2020. However, recent developments with respect to audits of China-based companies, such as our China segment, create uncertainty about the ability of our auditor to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections.

Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The PCAOB is currently unable to conduct inspections of audit firms located in China and Hong Kong. They are currently able to conduct inspections of U.S. audit firms where audit workpapers are located in China; however PCAOB requests for workpapers are subject to approval by Chinese authorities. The audit workpapers for our Chinese operations are located in China.

The PCAOB has not requested our auditor to provide the PCAOB with copies of our audit workpapers and consequently our auditors have not sought permission from PRC authorities to provide copies of these materials to the PCAOB. If our auditors are not permitted to provide requested audit workpapers located in China to the PCAOB, investors would be deprived of the benefits of PCAOB’s oversight of such auditors through such inspections.

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In addition, as part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of Congress that would require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for such issuers and, beginning in 2025, the delisting from national securities exchanges such as Nasdaq of issuers included for three consecutive years on the SEC’s list. On December 18, 2020, the HFCA Act was signed into law. In essence, the HFCA Act requires the SEC to prohibit foreign companies from listing securities on U.S. securities exchanges if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. The enactment of the HFCA Act and any additional rulemaking efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including the surviving corporation, and the market price of the surviving corporation’s securities could be adversely affected, and the surviving corporation could be delisted if it is unable to cure the situation to meet the PCAOB inspection requirement in time. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges or stock market, including the over-the-counter market if our auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a determination report (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (i) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (ii) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. In addition, the Determination Report identified the specific registered public accounting firms which are subject to these determinations.

On June 4, 2020, former U.S. President Donald J. Trump issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the U.S. On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address companies from non-cooperating jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate, including China, the PWG recommends enhanced listing standards on U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to workpapers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit workpapers and practices in non-cooperating jurisdictions may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit workpapers and practices to conduct an appropriate inspection of the co-audit firm. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. If the surviving company fails to meet the new listing standards before the deadline specified thereunder, the surviving company could face possible de-listing from Nasdaq, deregistration from the SEC and/or other risks, which may materially and adversely affect, or effectively terminate, securities of the surviving company trading in the United States.

Our independent accountants, Marcum LLP, is a United States accounting firm headquartered in New York City and is subject to inspection and is annually inspected by the PCAOB. Marcum LLP is not headquartered in mainland China or Hong Kong and was not identified in the Determination Report as a firm subject to the PCAOB’s determinations. In the event that, in the future, either PRC regulators take steps to impair Marcum’s access to the workpapers relating to our China operations or the PCAOB expands the scope of the determinations so that we will be subject to the HFCA Act, as the same may be amended,  you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities, including “over-the-counter” trading, may be prohibited, under the HFCA Act. 

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Changes in the policies of the PRC government could have a significant impact on our operations in China and the profitability of our business.

The PRC’s economy is in a transition from a planned economy to a market-oriented economy subject to five-year or ten-year plans and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions within the PRC. Although the PRC government has stated that that economic development will follow the model of a market economy, the concept of a market economy in the PRC is different from the way a market economy is understood in the United States. While we believe that this trend toward a market economy, as understood by the PRC government, will continue, there can be no assurance that this will be the case. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Further, the availability of credit in the PRC can have a major impact on the ability of companies to purchase or otherwise acquire capital assets. While the Chinese economy has grown significantly in the past 30 years, the growth has been uneven, both geographically and among various sectors of the economy and it has been impacted by the COVID-19 pandemic. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Accordingly, we cannot assure you that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social environment. The interpretation of some of these measures, including tax measures, is both complex and evolving and it may be difficult to ascertain, with any degree of certainty, whether we are in compliance. our financial condition and results of operations may be adversely affected by the effects of government control over capital investments or changes in and interpretations of tax, currency and other regulations that are applicable to it.

A slowdown or other adverse developments in the PRC economy may harm our customers and the demand for our products.

Although the PRC economy has grown significantly in the past two decades, there is no assurance that this growth will continue and there have been recent periods of declining growth. A slowdown in overall economic growth, an economic downturn, a recession or other adverse economic developments in the PRC could significantly reduce the demand for projects such as ours. The Chinese economy in general, and the market for solar farms, in particular, may be adversely affected by the effects of reciprocal tariffs imposed by the United States on Chinese goods and by China on United States goods.

If relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease.

At various times during recent years, the United States and China have had significant disagreements over political and economic issues. Controversies between these two countries may affect the economic outlook both in the U.S. and in China. Because certain of our revenue is generated in China, any political or trade controversies between the U.S. and China, whether or not directly related to our business, could adversely affect our business and the price of our common stock.

Future inflation in China may inhibit the profitability of our business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to inflation. Any adverse change in the terms on which we construct solar energy projects or sells electricity generated by our China operations may impair our ability to operate profitably in China. Factors such as rapid expansion and inflation have led to the adoption by the PRC government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and services.

The fluctuation of the RMB may have a material adverse effect on your investment.

The change in value of the RMB against the U.S. dollar and other currencies is affected by various factors, including changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under such policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’s Bank of China decided to implement further reform of the RMB exchange regime to enhance the flexibility of RMB exchange rates. Such changes in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar.

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Any significant appreciation or revaluation of the RMB may have a material adverse effect on the value of, and any dividends payable on, shares of our common stock in foreign currency terms. More specifically, if we decide to convert our RMB into U.S. dollars, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert the U.S. dollar we receive from any equity or debt financing into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. In addition, appreciation or depreciation in the exchange rate of the RMB to the U.S. dollar could materially and adversely affect the price of our common stock in U.S. dollars without giving effect to any underlying change in our business or results of operations.

Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.

Revenue from our China operations is denominated in RMB. Restrictions on currency exchange may limit our ability to use any earnings generated in China to fund our business activities in the United States and, if and when we operate profitably, to make dividend payments to our shareholders in U.S. dollars. Under current PRC laws and regulations, RMB is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, RMB is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by the PRC State Administration of Foreign Exchange (“SAFE”). For example, foreign exchange transactions under our subsidiaries’ capital accounts, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval requirement of SAFE. SolarMax Shanghai and ZHPV have completed all necessary filing to qualify as a foreign investment enterprise according to the requirements of SAFE. These limitations could affect our ability to obtain foreign exchange for capital expenditures.

Our Chinese subsidiaries are subject to restrictions on making dividend and other payments to it.

Under the applicable requirements of PRC law, our PRC subsidiaries may only distribute dividends after making allowances to fund certain statutory reserves, consisting of the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriation to the statutory surplus reserve for each entity should be at least 10% of the after-tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of such entity’s registered capital. Our subsidiaries’ statutory reserves were RMB 4,589,510 (approximately $724,000) at March 31, 2022, RMB 4,589,510 (approximately $722,000) at December 31, 2021   and RMB 4,255,199 (approximately $652,000) at December 31, 2020. These reserves are not distributable as cash dividends.

In addition, if our PRC subsidiaries or our affiliated entity in China incurs debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us, which may materially and adversely affect our business, financial condition and results of operations.

Because 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.

We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies and their foreign subsidiaries and controlled entities from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in China. If our competitors engage in these practices, they may receive preferential treatment from personnel of other companies or government agencies, giving competitors an advantage in securing permits or business or from government officials. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties.

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Our ability to generate business from SPIC, which has been the sole customer of our China segment since the middle of 2019, may be subject to government policies relating to such factors as the terms on which our PRC subsidiaries sell the project to SPIC and SPIC’s procurement policies. As a state-owned enterprise, SPIC may favor Chinese companies over subsidiaries of a United States company.

SPIC has been the sole customer of our China segment since the middle of 2019. It may be subject to government policies relating to such factors as the terms on which our PRC subsidiaries sell the project to SPIC and SPIC’s procurement policies. As a state-owned enterprise, SPIC may favor Chinese companies over subsidiaries of a United States company. If SPIC favor Chinese companies, the business of our China segment may be adversely affected.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protection of interest relating to foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system is continuing to evolve, the interpretations of such laws and regulations may not always be consistent, and enforcement of these laws and regulations involves significant uncertainties, any of which could limit available legal protections.

In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations and may affect our ability to enforce our contractual or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase our operating expenses and costs, and materially and adversely affect our business and results of operations.

The PRC’s legal and judicial system may not adequately protect our 68usinesss and operations and the rights of our investors.

The PRC legal and judicial system may negatively impact foreign investors. In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the “lawful rights and interests” of foreign investors in the PRC. However, the PRC’s system of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is inconsistent. As a result, it may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. The PRC’s legal system is based on the civil law regime, which means that it is based on written statutes. A decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes. The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. There can be no assurance that a change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC’s political, economic or social life, will not affect the PRC government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects.

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Three 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.

All of our executive officers and directors will be located in the United States except that two directors are located in China and one director is located in Taiwan. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those officers and directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on them under United States securities laws. In particular, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries and regions. Therefore, recognition and enforcement in the PRC of judgments of United States courts in relation to any matter not subject to a binding arbitration provision may be difficult or impossible. See “Enforceability of Civil Liabilities.”

Substantial 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.

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation and how it may impact the viability of our current corporate governance and business operations in China and our financial results.

Although we do not believe we are a China-based issuer, our business includes our China Segment which is subject to the rules and regulations in China as well as China governmental intervention and influence. The rules and regulations in China can change quickly with little advance notice, and Chinese government may intervene or influence our China operation at any time, or may exert more control over offerings conducted overseas and/or foreign investment in us , which could result in a material change in our operations in China and our operations in the U.S., and could cause the value of our securities to significantly decline or be worthless, and limit the legal protections available to us; and any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in issuers with China operations could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless; and limit the legal protections available to us.

Although we do not believe that we are a China-based issuer, our business includes our China segment. The rules and regulations in China including the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties. The rules and regulations as well as the interpretation and enforcement of laws and that rules and regulations in China can change quickly with little advance notice and the risk that the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, and Chinese government may intervene or influence our China operation at any time, or may exert more control over offerings conducted overseas and/or foreign investment in us, which could result in a material change in our operations in China and our operations in the U.S., and could cause the value of our securities to significantly decline or be worthless, and limit the legal protections available to us; and any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in issuers with China operations could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

We cannot rule out the possibility that the PRC government will institute a licensing regime or pre-approval requirement covering our industry at some point in the future. If such a licensing regime or approval requirement were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.

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From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.

Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.

We have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and was amended in December 2012 and became effective on July 1, 2013, and its implementing rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. We believe our current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may take a different view and impose fines on us.

As the interpretation and implementation of labor-related laws and regulations are still evolving, our employment practices could violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

PRC 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.

Our equity structure is a direct holding structure, that is, SolarMax directly controls its U.S. segment and China segment. In the reporting periods presented in this prospectus and throughout the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our non-P RC subsidiaries, on the one hand; and u s and our PRC subsidiaries, on the other hand, have not made any dividends, distributions or other transfer of funds to investors.

To the extent that we may in the future seek to fund the business through distribution, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to government regulations. The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

3. Within the direct holding structure, the cross-border transfer of funds within us and our PRC subsidiaries is legal and compliant with the laws and regulations of the PRC. After foreign investors’ funds enter at the consummation of this offering, the funds can be directly transferred to its subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC.

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2. If we intend to distribute dividends, it will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to its parent company and then to SolarMax, and the dividends will be distributed to all stockholders respectively in proportion to the shares they hold, regardless of whether the stockholders are U.S. investors or investors in other countries or regions. We do not have any present plans to pay dividends to our stockholders.

3. Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable as cash dividends. See “Dividend Distribution” on page  116 for more information.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by our Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, SolarMax may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our entities in China. If we fail to receive such registrations or approvals, our ability to use capital raised and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

Under 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. 

Under PRC regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, each of our wholly foreign-owned enterprises is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Payment by our PRC Subsidiaries of Dividends to us is restricted.

Under PRC regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, each of our wholly foreign-owned enterprises is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. 

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A 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.

SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

Although we have been advised by AllBright Law Offices, our PRC counsel that these regulations are not applicable to us since we are not a special purpose vehicle under Circular 37, we cannot assure you that SAFE will not reach a different conclusion. If we are subject to these regulations, the regulations may apply to our direct and indirect stockholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations. If filings are required, we cannot assure you that these individuals or any other direct or indirect stockholders or beneficial owners of our company who are PRC residents will be able to successfully complete the registration or update the registration of their direct and indirect equity interest as required in the future. If they fail to make or update the registration, our PRC subsidiaries could be subject to fines and legal penalties, and SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting our PRC subsidiaries’ ability to distribute dividends to, or obtain loans denominated in foreign currencies from SolarMax, or prevent SolarMax from paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.

On August 8, 2006, six PRC regulatory authorities, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulation on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. The M&A Rules established additional procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming and complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. In addition, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities or individuals of the domestic companies, are subject to approval by the MOFCOM. In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by MOFCOM. In addition, any activities attempting to circumvent such review process, including structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited.

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There is significant uncertainty regarding the interpretation and implementation of these regulations relating to merger and acquisition activities in China. In addition, complying with these requirements could be time-consuming, and the required notification, review or approval process may materially delay or affect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially and adversely affected.

Although we do not believe that our business in China is part of an industry with national security concerns, we cannot assure you that MOFCOM will not reach a different conclusion. If MOFCOM determines that we should have obtained its approval, we may be required to file for remedial approvals. There is no assurance that it would be able to obtain such approval from MOFCOM. We may also be subject to administrative fines or penalties by MOFCOM that may require us to limit its business operations in the PRC, delay or restrict the conversion and remittance of its funds in foreign currencies into the PRC or take other actions that could have material and adverse effect on its business, financial condition and results of operations.

Under the new Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.

The new Enterprise Income Tax (EIT) Law, which was most recently amended on December 29, 2018, and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the new EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” It is still unclear if the PRC tax authorities would determine that our China operations, which are owned by its subsidiary, SolarMax Hong Kong, should be classified as a PRC “resident enterprise.”

If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to a PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our stockholders may be decreased as a result of the decrease in distributable profits. In addition, if we were to be considered a PRC “resident enterprise,” dividends we pay with respect to shares of our common stock and the gains realized from the transfer of shares of our common stock may be considered income derived from sources within the PRC and be subject to PRC withholding tax. This could have a material and adverse effect on the value of your investment in us and the price of shares of our common stock.

Our obligations under labor contract laws in China may adversely affect our results of operations.

On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC which became effective on January 1, 2008 and was revised on December 28, 2012. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. In addition, it requires certain terminations be based on the mandatory requirement age. In the event we decide to significantly change or decrease its workforce, the Labor Contract Law could adversely affect its ability to enact such changes in a manner that is most advantageous to its business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

Because we require a license to engage in the EPC business in China, any changes in the certification or qualification requirements could impair our ability to operate in China.

A specific license is required to engage in the EPC business in China. our subsidiary ZHPV currently holds the necessary licenses, including Construction Enterprise Qualification Certificate (“Qualification”) for Level III of General Contractor for Power Engineering Constructor which permits ZHPV to conduct business as a contractor in the power engineering construction business throughout the PRC. However, any changes in the requirements for obtaining and maintaining such licensure could impair ZHPV’s ability to retain its license which could preclude us from performing EPC services in China. The qualification certificate expires on December 31, 2022. We believe that the renewal of the certificate is routine; however, we cannot assure you that the certificate will be renewed in a timely manner.

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If we import polysilicon into China from the United States or South Korea, our gross margin may be impaired.

On July 18, 2013, MOFCOM announced that it would enact preliminary tariffs on imports of solar-grade polysilicon at rates up to 57% for United States suppliers and 48.7% for South Korean suppliers. This decision was affirmed by MOFCOM in January 2014. Import tariffs and limitations imposed on foreign polysilicon suppliers may lead to price increases for products from Chinese domestic suppliers. Although our China segment does not source any significant amount of polysilicon from the United States or South Korea, if it imports polysilicon from these countries its cost of revenue is likely to increase, and we may not be able to pass the increased cost to our customers, which would impair our gross margin.

We may fail to comply with laws and regulations regarding the development, construction and operation of solar power projects and photovoltaic production projects in China.

The development, construction and operation of solar power projects and photovoltaic production projects are highly regulated activities. Our operations in China are governed by various laws and regulations, including national and local regulations relating to urban and rural planning, building codes, safety, environmental protection, fire control, utility transmission, engineering and metering and related matters. For example, the establishment of a solar power project is subject to the approval of the National Development and Reform Commission (“NDRC”) or its local branches, pursuant to the Administrative Provisions on Generation of Electricity by Renewable Energy Resources promulgated by the NDRC on January 5, 2006. Pursuant to the Provisions on the Administration of Electric Power Business Permit, which became effective on December 1, 2005 and were amended on May 30, 2015, certain solar power projects may be required to obtain the electric power business permits specifically for power generation from the State Electricity Regulatory Commission, known as SERC. Pursuant to the Interim Measures for the Administration of Solar Power Projects, promulgated by the National Energy Administration, known as the NEA, on August 29, 2013, solar power projects are subject to filings with the provincial NDRC. Such filing is subject to the national development plan for solar power generation, the regional scale index and implementation plan of the year as promulgated by the competent national energy authority and is a pre-condition for connecting to the power grid. Pursuant to the Interim Measures for the Administration of Distributed Generation Projects, or the Distributed PV Interim Measures, promulgated by the NEA on November 18, 2013, distributed generation projects are subject to filings with the provincial or regional NDRC. Such filing is subject to State Council’s rules for administration of investment projects and the regional scale index and implementation plan of the year as promulgated by the competent national energy authority. Distributed generation projects in the regional scale index of the year that are not completed or put into operation within two years from their respective filing date are cancelled and disqualified from receiving national subsidies. The Distributed PV Interim Measures also provide that the filing procedures should be simplified and the electric power business permit and permits in relation to land planning, environmental impact review, energy saving evaluation and other supporting documents may be waived. Detailed requirements of the filing are also subject to local regulations, and the effects of the Distributed PV Interim Measures on our business are yet to be evaluated. Pursuant to the Standard Conditions of Photovoltaic Production Industry, or the Photovoltaic Production Rule, promulgated by the PRC’s Ministry of Industry and Information Technology (“MIIT”) and, effective on March 25, 2015, the minimum proportion of capital funds contributed by the producer for newly built, renovation and expansion photovoltaic (“PV”) production projects shall be 20%. The Photovoltaic Production Rule also provides, among other matters, requirements in relation to the production scale, cell efficiency, energy consumption and operational life span of various PV products. It also requires companies to obtain pollution discharge permits.

Our failure to obtain or maintain any required approvals, permits, licenses or filings or to comply with the conditions associated therewith could result in fines, sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, or even criminal penalties, which could have a material adverse effect on  our business, financial condition and results of operations. Any new government regulations pertaining to solar power projects may result in significant additional expenses to the development, construction and operation of solar power projects and, as a result, could cause a significant reduction in demand for our solar power projects and services. Currently, some of our project companies in the PRC have not obtained electric power business permits due to the delays in the governmental review or approval processes, which has impacted us with respect to one project. Failure to secure such permits may lead to monetary damages, fines or even criminal penalties.

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We cannot assure you that we will be able to promptly and adequately respond to changes of laws and regulations, or that our employees and contractors will act in accordance with our internal policies and procedures. Failure to comply with laws and regulations where we develop, construct and operate solar power projects may materially adversely affect our business, financial condition and results of operations. We have been advised by our PRC counsel, AllBright Law Offices, that, based on their review of our operations materials, including its approved qualifications and PRC laws and regulations, our operations in the PRC, as presently conducted, comply in all material respects with applicable PRC laws and regulations.

Failure 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.

Pursuant to Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company issued by the SAFE in February 2012, or the Stock Incentive Plan Rules, “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participating in any stock incentive plan of an overseas listed company are required, through qualified PRC agents, including the PRC subsidiary of such overseas-listed company, to register with the SAFE and complete certain other procedures related to the stock incentive plan.

We and our employees who qualify as “domestic individuals” and have been granted stock options, or the PRC optionees, will become subject to the Stock Incentive Plan Rules when we become an overseas listed company upon the completion of the offering. We plan to conduct and complete the registration as required under the Stock Incentive Plan Rules and other relevant SAFE registrations upon the completion of the offering and to update the registration on an on-going basis. If we or our PRC optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules, we and our PRC optionees may be subject to fines and other legal sanctions. We may also face regulatory uncertainties that could restrict our ability to adopt additional option plans for our directors and employees under PRC law. In addition, the General Administration of Taxation has issued circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Its PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If its employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities. Furthermore, there are substantial uncertainties regarding the interpretation and implementation of the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules.

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or immovable properties located in China owned by a non-PRC company.

We 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.

On February 3, 2015, the PRC’s State Administration of Taxation (“SAT”) issued Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfers by Non-RPC Resident Enterprises, or SAT Notice No. 7, to supersede the existing tax rules in relation to the tax treatment of the Indirect Transfer. SAT Notice No. 7 introduces a new tax regime and extends the SAT’s tax jurisdiction to capture transactions involving indirect transfer of (i) real properties in China and (ii) assets of an “establishment or place” situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an overseas holding company. SAT Notice No. 7 also extends the Interpretation with respect to the disposition of equity interests in an overseas holding company. In addition, SAT Notice No. 7 further clarifies how to assess reasonable commercial purposes and introduces safe harbors applicable to internal group restructurings. However, it also brings challenges to both the foreign transferors and transferees as they are required to make self-assessments of whether an Indirect Transfer or similar transaction should be subject to PRC tax and whether they should file or withhold any tax payment accordingly.

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However, there is a lack of clear statutory interpretation, there are uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other taxable assets by us. We and other non-resident enterprises in our group may be subject to filing obligations or taxes if we and other non-resident enterprises in our group are transferors in such transactions and may be subject to withholding obligations if we and other non-resident enterprises in our group are transferees in such transactions. For the transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in filing under the rules and notices. We may be required to expend costly resources to comply with SAT Notice No. 7, or to establish a case to be tax exempt under SAT Notice No. 7, which may cause us to incur additional costs and may have a negative impact on the value of your investment in us.

The PRC tax authorities have discretion under SAT Notice No. 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the transferred equity interests and the investment cost. We may pursue acquisitions in the future that may involve complex corporate structures. If we are considered as a non-PRC resident enterprise under the EIT Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under and SAT Notice No. 7, our income tax expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.

From time to time, we may receive requests from certain US agencies to investigate or inspect our operations, or to otherwise provide information. While we will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, an on-site inspection of our facilities in China by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by us and our affiliates, are subject to the unpredictability of the Chinese enforcers, and may therefore be impossible to facilitate. According to Article 177 of the PRC Securities Law which became effective in March 2020, the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region, to implement cross-border supervision and administration and no overseas securities regulator is allowed to directly conduct an investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.

Risks Related to the Offering and our Common Stock

The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering.

Prior to this offering, our common stock was not traded on any market. The terms of this offering were negotiated by us and the Underwriter and may not bear any relationship to any market-based valuation.  The market price of our common stock could vary significantly as a result of a number of factors, some of which are beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock. The initial public offering price and the other terms of this offering were negotiated by us and the underwriters, based on numerous factors which we discuss in “Underwriting,” and may not be indicative of the market price of our common stock after this offering or any intrinsic value of our common stock. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering.

The following factors, among others, could affect our stock price:

· our operating and financial performance;

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· our working capital and working capital requirements, including our ability or our failure to generate significant revenue from our China segment or to increase our customer base in China;

· the market’s perception of the viability of companies in the solar energy business;

· the market’s perception of companies that have significant operations in China;

· the market’s perception of the effect of proposed or implemented changes in government regulations and public utility company pricing policies in general and in the states in which we conduct business;

· the market’s perception of the effect of any trade disputes between the United States and China on our China business;

· quarterly variations in the rate of growth of our financial indicators, such as net income (loss) per share, net income (loss) and revenues;

· the public reaction to our press releases, our other public announcements and our filings with the SEC;

· strategic actions by our competitors, including consolidation of companies in the solar energy industry in the states in which we operate;

· changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage by equity research analysts;

· speculation in the press or investment community as to our company, the solar industry or companies with significant operations in China;

· the failure of research analysts to cover our common stock;

· sales of our common stock by us or the perception that such sales, including sales of shares issued pursuant to our equity incentive plans, may occur;

· changes in accounting principles, policies, guidance, interpretations or standards;

· additions or departures of key management personnel;

· the effect of changes in weather and climate, including increased wildfires, on the market for solar power;

· actions by our stockholders;

· domestic and international economic, legal and regulatory factors unrelated to our performance;

· overall performance of the domestic and international equity markets;

· the effect on the market price of our common stock resulting from either our inability to obtain the acceptance of our offer to issue our convertible notes to the holders of limited partnership that made loans to two of our United States subsidiaries in settlement of payment of their capital accounts to or otherwise refinance obligations to the limited partners who funded loans to us or from the issuance of common stock issued upon conversion of convertible debt issued to the limited partners who accepted our convertible notes in lieu of a cash payment;

· market performance of companies with significant operations in the PRC; and

· the realization of any risks describes under this “Risk Factors” section.

The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price and the trading volume of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.

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An active, liquid and orderly trading market for our common stock may not develop or be maintained, and our stock price may be volatile.

Since this offering is our initial public offering and there is no market for our common stock, we cannot predict the nature of the market for our common stock, and we cannot assure you that an active, liquid or orderly trading market for our common stock will develop. To the extent that an active market does not develop, you may have difficulty in selling any shares of our common stock which you purchase in this offering or in the open market. If there is no active, liquid or orderly market for our common stock, the reported bid and asked price at the time you seek to purchase or sell shares may not reflect the price at which you could either buy or sell shares of our common stock.

Our 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.

Our amended and restated articles of incorporation authorize our board of directors to issue preferred stock without stockholder approval. If our board of directors issues preferred stock, such issuance could make it more difficult for a third party to acquire us. Our employment agreements with our two senior executive officers provide that, in the event of a termination of employment by David Hsu, our chief executive officer, following a change of control, we are to pay Mr. Hsu, upon termination, a lump sum payment equal to two times the highest annual compensation for the three years preceding the date of termination, multiplied by the number of years he has been employed by us. Mr. Hsu’s employment commenced in February 2008. In addition, some provisions of our amended and restated articles of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:

· limitations on the removal of directors;

· limitations on the ability of our stockholders to call special meetings;

· establishing advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders;

· providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and

· establishing advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Investors in this offering will experience immediate and substantial dilution of $3.73  per share.

Based on an assumed  initial public offering price of $4.00  per share, purchasers of our common stock in this offering will experience an immediate and substantial dilution of $3.73  per share in the adjusted net tangible book value per share of common stock from the initial public offering price, and our net tangible book value as of March 31, 2022 after giving effect to this offering would be $0.27  per share. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased their shares as well as our accumulated deficit of approximately $63.0 million at March 31, 2022. See “Dilution.”

We have broad discretion in the use of the proceeds from this offering, and we may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

A portion of the net proceeds from this offering are expected to be used for general corporate purposes, including working capital. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

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Provisions of our bylaws and Nevada law could deter a change of our management, which could discourage or delay offers to acquire us.

Certain provisions of Nevada law and of our bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include:

· requiring stockholders who wish to request a special meeting of the stockholders to disclose certain specified information in such request and to deliver such request in a specific way within a certain timeframe, which may inhibit or deter stockholders from requesting special meetings of the stockholders;

· requiring that stockholders can only call a special meeting if the request is made by the holders of two-thirds of the entire capital entitled to vote;

· requiring that stockholders who wish to act by written consent request a record date from us for such action and such request must include disclosure of certain specified information, which may inhibit or deter stockholders from acting by written consent;

· requiring that, if a matter is to be brought before a meeting of stockholders which is not specified in the notice of meeting or brought at the direction of the board of directors, it can only be brought up at the meeting if brought by stockholders of record holding two-thirds of the outstanding stock;

· establishing the board of directors as the sole entity to fill vacancies in the board, which lengthens the time needed to elect a new majority of the board;

· establishing a two-thirds majority vote of the stockholders to remove a director or all directors, which lengthens the time needed to elect a new majority of the board;

· providing that our bylaws may be amended only by either the affirmative vote of two-thirds of the stockholders entitled to vote or by the board of directors, which limits the ability of stockholders to amend our bylaws, including amendments to provisions in the bylaws that are described in this risk factor; and

· establishing more detailed disclosure in any stockholder’s advance notice to nominate a new member of the board, including specified information regarding such nominee, which may inhibit or deter such nomination and lengthen the time needed to elect a new majority of the board.

A portion of the compensation to our senior executive officers may not be deductible, which may increase our taxes

Section 162(m) of the Internal Revenue Code limits the deduction that public companies may take for annual compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated officers, who are referred to as “covered employees.”  All compensation in excess of $1.0 million paid to a covered employee, including post termination compensation and death benefits, may be nondeductible for federal income tax purposes, with certain exceptions pursuant to certain contracts that were in effect on November 2, 2017.  In the event that the compensation we pay to any covered employee exceeds $1.0 million, such excess may not be deductible which, if our operations are profitable, could increase our income taxes and reduce our net income, which could negatively affect the price of our stock.

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Because 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.

Our bylaws provide that any person who acquires equity in us shall be deemed to have notice and consented to the forum selection provision of our bylaws, which require actions to be brought only in the state courts in Clark County, Nevada, which may inhibit or deter stockholders’ actions (i) on behalf of us, (ii) asserting claims of breach of fiduciary duty by officers or directors of us, or (iii) arising out of the Nevada Revised Statutes. Further, this exclusive forum provision may limit our stockholders’ ability to obtain what they believe to be a favorable judicial forum for disputes with us and our officers and directors. This provision does not apply to claims brought under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Because we do not intend to pay dividends on our common stock, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We do not plan to declare dividends on shares of our common stock in the foreseeable future. As a result, your only opportunity to achieve a return on your investment will be if you sell your common stock at a price greater than you paid for it. We cannot assure you that the price of our common stock that will prevail in the market will ever equal or exceed the price that you pay in this offering or in the open market.

Future 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.

All of the 40,000,186 shares of common stock that are outstanding prior to this offering, which number includes the 264,500 shares of common stock issued as restricted stock grants, constituting approximately 84.2% of the outstanding shares of common stock, assuming the underwriters’ over-allotment option is not exercised, are eligible for sale pursuant to Rule 144 at various times commencing 90 days from the date of this prospectus, subject to limitations provided by Rule 144 and lock-up agreements which our officers, directors and certain of our stockholders, who hold approximately [  ]% of our common stock, have signed with the underwriters and which are subject to specific release provisions as well as a release from the lock-up restriction at the discretion of the underwriters. See “Shares Eligible for Future Sale.” In addition, to the extent that the limited partners of the partnerships that made loans of $55.5 million to our subsidiaries, accept our proposed refinancing of the loan made by the partnerships to our subsidiaries, we may issue a significant number of shares of common stock at a discount to the offering price of the common stock in this offering. As of July 13, 2022, we have issued convertible notes in the principal amount of $21.7 million which are convertible at 80% of the initial public offering price, which is $3.20  per share based on a n assumed initial public offering price of $4.00 per share, which would result in the issuance of  6,781,250  shares when the notes become convertible commencing six months after the date of this offering, if the notes are converted. Both the sale and the market’s reaction to the possible sale of such shares and any additional shares which may be issued upon conversion of additional convertible notes which we may issue could have a material adverse impact on the market price of and the market for our common stock. Although the partnerships are related parties since the general partner is a related party, the limited partners to whom we issued and propose to issue the convertible notes are not related parties.

We intend to file a registration statement with the SEC on Form S-8 providing for the registration of shares of our common stock issued or reserved for issuance under our equity incentive plan or pursuant to stock options no earlier than approximately six months from the date of this prospectus. Subject to the satisfaction of vesting conditions and the expiration of lock-up agreements, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction other than those restrictions imposed on sales by affiliates pursuant to Rule 144.

We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with any acquisition we may make), or the perception that such sales, including sales by our existing stockholders pursuant to Rule 144, could occur, may adversely affect prevailing market prices of our common stock.

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The managing underwriter may waive or release parties to the lock-up agreements entered into in connection with this offering, which could adversely affect the price of our common stock.

Our directors and executive officers and certain of our stockholders have entered into lock-up agreements with respect to their common stock, pursuant to which they are subject to certain resale restrictions for a period of 180 days following the effective date of the registration statement of which this prospectus forms a part. ViewTrade Securities, Inc, at any time and without notice, may release all or any portion of the common stock subject to the foregoing lock-up agreements. If the restrictions under the lock-up agreements are waived, then common stock will be available for sale into the public markets, which could cause the market price of our common stock to decline and impair our ability to raise capital.

We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.

Our  amended and restated articles of incorporation authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect one or more directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.

For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.

We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation, or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Because our directors and executive officers own approximately 31.6% of our outstanding common stock, they may be able to approve any action which requires stockholder approval. 

Our directors and executive officers beneficially own approximately 31.6% of our outstanding common stock and, upon sale of the 7,500,000 shares offered hereby, will beneficially own approximately 26.6%. Our bylaws provide that one-third of the outstanding common stock constitutes a quorum for a meeting of stockholders. As a result, they may have the ability to elect all of our directors and to approve actions requiring stockholder approval as well as to prevent any action from being taken which they oppose even if such action would benefit stockholders.

Because a significant portion of the proceeds of this offering is allocated to working capital and other corporate purposes, we will have broad discretion in the application of these proceeds.

A significant portion of the proceeds is allocated to working capital and other corporate purposes. As a result, we will have broad discretion as to the specific use of the proceeds and, accordingly, you will be entrusting the proceeds of this offering to us with little information as to the manner in which we use the proceeds.

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Prospectus Summary,” “Use of Proceeds,” “Risk Factors,” “Management Discussion and Analysis of Financial Condition and Result of Operations,” and “Business” sections. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words.

Our operations and business prospects are always subject to risks and uncertainties including, among others:

● Our ability to obtaining any financing we may require to enable us to finance our customer’s purchase of solar systems and to finance any solar projects in China;

● Our ability to pay or finance our existing debt to related parties, which was $19.5 million at July 13, 2022 as well as money owned to present and former executive officer, and the potential market impact of its proposed refinancing of its EB-5 debt through the issuance of secured convertible notes and the issuance of common stock upon conversion of the $21.7 million principal amount of outstanding convertible notes at July 13, 2022 as well as any convertible notes which may be issued in the future;

● Our ability to enter into agreements for the construction and maintenance of solar farms in China;

● Our dependence for revenue on agreements with SPIC, which is a large state-owned enterprise under the administration of the Chinese government and which was the sole source of revenue for our China segment for 2021 and 2020, and a related party, which accounted for most of our revenue in our China segment for 2019 and has not been a customer since 2019, and our ability to attract new clients’ solar projects in China;

● Our ability to continue to provide services for SPIC, which is a state-owned enterprise and any government policies which may affect the procurement practices of SPIC;

● The availability of tax incentives and other benefits sufficient to justify a customer’s purchase of a solar system;

● The effect of the COVID-19 pandemic or any other pandemic and the steps taken by governments in California and China to address the pandemic, including business closures;

● The ability of the solar user to sell excess power to local utility companies on reasonable terms;

● Assumptions regarding the size of the available market, benefits of our products, product pricing, timing of product installations;

● Assumptions relating to our ability to operate a public company;

● Our ability to obtain contracts for solar systems in China;

● Our ability to install solar systems in China at costs which will enable us to operate profitably;

● Our ability to engage and retain qualified executive and management personnel;

● Our ability to implement an effective financing program for our products that enable us to generate revenue from customers in the United States segment who meet our credit criteria;

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● Our dependence upon a small number of key executive officers, principally our chief executive officer;

● Competition with both local utility companies and other companies offering electricity service as well as other solar energy companies;

● The effect of changes in climate and weather patterns in the areas we serve, including the effects of increased wildfires in California;

● Delays in our ability to purchase solar panels and other raw materials for our systems;

● The effect that changes of government regulations affecting fossil fuel and renewable energy and trade and tariff policies have on the solar power industry;

● Our ability to engage and retain qualified executive and management personnel as we seek to expand our operations in the United States and China;

● Our ability to reduce our costs and expenses;

● Our ability to operate profitably;

● The effect of prices of raw materials, including solar panels, and our ability to source raw materials at reasonable prices and the effect on our costs of inflationary pressure and supply chain issues which may increase our cost without being able to pass on the increased cost to customers;

● Our compliance with all applicable regulations;

● Our ability to install systems in a timely manner;

● Our ability to develop and maintain an effective system of disclosure controls and internal control over financial reporting, and our ability to produce timely and accurate financial statements or comply with applicable regulations;

● Our ability to operate without infringing the intellectual property rights of others;

● Our ability to comply with applicable secrecy laws ;

● The effect of general economic and financial conditions in the United States, China and the rest of the world as well as the relationship between the United States and China, including trade disputes between the United States and China, which could adversely affect our operations;

● Other factors which affect the solar energy industry in general; and

● Other factors which affect companies with significant operations in China.

The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention to do so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

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ENFORCEABILITY OF CIVIL LIABILITIES

The assets of our China segment are located in the PRC.  All of our executive officers and directors are located in the United States except that two directors are located in China and one director is located in Taiwan. As a result, it may be difficult for a shareholder to effect service of process within the United States upon the directors who are located outside of the United States.

We have been advised by AllBright Law Firm that there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts obtained against these persons predicated upon the civil liability provisions of the United States federal and state securities laws. AllBbright Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.  Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws because we are incorporated under the laws of the State of Nevada and it will be difficult for U.S. shareholders, by virtue only of holding our common stock, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

We have been advised by our Taiwan counsel, LCS & Partners, that, according to the Taiwan Code of Civil Procedure and Compulsory Enforcement Act, the courts of Taiwan would recognize and enforce judgments of United States courts without further review of merits only if the court of Taiwan in which enforcement is sought is satisfied with the following: (i) the court rendering the judgment had jurisdiction over the subject matter according to the laws of Taiwan; (ii) the judgment and the legal procedures resulting in the judgment were not contrary to the public order or good morals of Taiwan; (iii) if the judgment was rendered by default by the court rendering the judgment, (a) such person were duly served within a reasonable time in the jurisdiction of such court in accordance with the laws and regulations of such jurisdiction or (b) process was served on such person with judicial assistance of Taiwan; and (iv) judgments of the courts of Taiwan would be recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis.  Moreover, LCS & Partners has advised us that a party seeking to remit money in the process of enforcing a foreign final judgment in Taiwan would, under certain circumstances, be required to obtain foreign exchange approval from the Central Bank of the Republic of China (Taiwan) for the remittance out of Taiwan of any amounts recovered in respect of such judgment denominated in a currency other than New Taiwan Dollars.

USE OF PROCEEDS

We expect the net proceeds from this offering to be approximately $27.3  million, assuming an initial public offering price of $4.00  per share and after deducting the underwriting discounts and commissions and the Representative’s non-accountable expense allowance of 1% of the gross proceds and other offering expenses estimated at approximately $895,000.

We intend to use the proceeds of this offering for working capital and other corporate purposes.  Approximately $1.9 million of the proceeds allocated to working capital will be used to pay (i) $1,275,000 due to our chief executive officer, our former chief operating officer and one employee for payment due to them for the purchase by us of their stock in 2019 (see “Related Party Transactions”) and (ii) deferred compensation of approximately due to our former chief operating officer pursuant to her severance agreement with us. Funds for working capital and general corporate purposes include costs incurred in connection with the operation and development of our business in the United States and China, including executive compensation, and costs associated with our status as a public company .  We believe that we can pay our debt obligations from funds generated from operations.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have granted the underwriters a 45-day option to purchase up to  1,125,000  additional shares of common stock solely to cover over-allotments of shares in this offering. We will use the proceeds from the sale of these additional shares for working capital and general corporate purposes.

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As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. Accordingly, we will have broad discretion in the application of these proceeds. Net offering proceeds not immediately applied to the uses summarized above will be invested in short-term interest-bearing deposits and securities.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

Each of our PRC subsidiaries may only distribute dividends after making funding certain statutory reserves, consisting of the statutory surplus reserve and discretionary surplus reserve, based on its after-tax net income determined in accordance with PRC GAAP. Appropriation to the statutory surplus reserve for each entity should be at least 10% of the after-tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of such entity’s registered capital. We anticipate that our PRC subsidiaries will require any available cash for the development of their businesses. Certain of the project subsidiaries have covenants in their financing agreements that restrict the payment of dividends. These restrictions affect our ability to pay dividends to stockholders.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2022:  

· on an actual basis; and

· as adjusted for the 264,500 shares of common stock issued as restricted stock which are not considered outstanding at March 31, 2022 and which, become fully vested upon completion of this offering and the sale of 7,500,000 shares of common stock in this offering at an assumed initial offering price of $4.00 per share and our receipt of the estimated $27,305,000 net proceeds of this offering.  None of the proceeds of this offering are being used to pay long-term debt.

You should read the following table in conjunction with “Prospectus Summary - Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

	March 31, 2022
				As
	Actual			Adjusted
	(Dollars in thousands)
Cash and cash equivalents1	$	5,051		$	30,442
Long-term debt, related parties2*		21,500			21,500
Long-term debt, other2		24,045			24,045
Total long-term debt		45,545			45,545
Stockholders’ equity:
Common stock		41			49
Additional paid-in capital		55,787			84,409
Less, treasury stock, at cost		(1,809	)		(1,809	)
Accumulated deficit		(62,980	)		64,305
Accumulated other comprehensive loss		(250	)		(250	)
Stockholders’ equity (deficit)		(9,211	)		18,904
Total capitalization	$	36,334		$	63,639

_________

1

Cash and cash equivalents as adjusted reflects the cash and cash equivalents at March 31, 2022, plus the net proceeds of this offering less $1,913,000 of the proceeds used to pay (i) $1,275,000 due to our chief executive officer, our former chief operating officer and one employee for payment due for the purchase by us of their stock (see “Related Party Transactions”) and (ii) deferred compensation of approximately $.6 million due to our former chief operating officer pursuant to her severance agreement with us.

2

Includes at March 31, 2021, short-term maturities of long-term debt amounting to $13,500 for long-term debt, related parties, and $7,951 with respect to long-term debt, other. The $20,800 convertible notes issued to limited partners of CEF in exchange for $20,800 debt to related parties will be reflected as long-term debt, other.

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The information presented above assumes no exercise by the underwriters of their over-allotment option and is based on the number of shares of our common stock outstanding as of March 31, 2022. The table does not reflect shares of common stock reserved for issuance under our 2016 Long-Term Incentive Plan or outstanding options or convertible notes.

DILUTION

Purchasers of the common stock issued pursuant to this offering will experience immediate and substantial dilution in the net tangible book value per share of the common stock for accounting purposes. At March 31, 2022, we had a negative net tangible book value of $18.2 million, or $(0.46) per share of common stock. Net tangible book value per share is determined by dividing our tangible net worth (tangible assets less total liabilities) by the total number of shares of common stock that were outstanding on March 31, 2022. After giving effect to the sale of the shares in this offering (after deducting estimated underwriting discounts and commissions, non-accountable expense allowance  and estimated offering expenses) and the vesting of 264,650 shares granted in October 2016 as restricted stock grants, our pro forma net tangible book value as of March 31, 2022 was approximately $12.7  million, or $0.27  per share. This represents an immediate increase in the net tangible book value of $0.73  per share to our existing stockholders and an immediate dilution (i.e., the difference between the offering price and the pro forma net tangible book value after this offering) to new investors purchasing shares in this offering of $3.73  per share:

Assumed initial public offering price per share				$	4.00
Net tangible book value per share as of March 31, 2022	$	(0.46	)
Increase per share attributable to new investors in the offering and the vesting of restricted stock grants		0.73
Pro forma net tangible book value per share					0.27
Dilution to new investors in this offering					3.73

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The following table summarizes the total number of shares of common stock (i) owned by existing stockholders, representing 39,735,536 outstanding shares as of the date of this prospectus plus 264,650 shares granted in October 2016 as restricted stock grants for which no cash consideration was paid and which are not treated as outstanding shares, and (ii) owned by purchasers in this offering, and in each case, the total consideration paid.

											Average
	Shares Purchased					Total Consideration					Price
	Number		Percent			Amount		Percent			Per Share
Existing stockholders1		40,000,186		84.2	%	$	50,782,660		62.9	%	$	1.27
New investors		7,500,000		15.8	%	$	30,000,000		37.1	%	$	4.00
Total		47,500,186		100.0	%	$	80,782,660		100.0	%	$	1.70

________  

¹ The consideration paid by stockholders who received their shares pursuant to an acquisition agreement is equal to the value of the common stock issued.

The shares held by existing stockholders exclude 6,408,716 shares which may be issued pursuant to our 2016 Long-Term Incentive Plan and pursuant to outstanding stock options issued prior to the adoption of the plan.

If the underwriters’ over-allotment option is exercised in full, the number of shares held by new investors will be increased to  8,625,000 shares, or approximately 17.7% of the 48,625,186 shares of common stock that would be outstanding.

To the extent that any outstanding options are exercised or we grant new options, warrants, stock grants or other equity-based incentives, there will be further dilution to purchasers of common stock in this offering.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Concerning Forward-Looking Statements.” Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in “Risk Factors” included elsewhere in this prospectus. All amounts in this prospectus are in U.S. dollars, unless otherwise noted.

Agreement of Merger with Alberton

On October 27, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) among us; the Alberton Acquisition Corporation (“Alberton”), and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of Alberton, as Merger Sub. Merger Sub was formed for the sole purpose of the merger. Under the Merger Agreement, Merger Sub was to have been merged with and into us, and we would continue as the surviving corporation and as a wholly-owned subsidiary of Alberton and our shareholders would receive stock in Alberton. In April 2022, we terminated the Merger Agreement pursuant to the terms of the Merger Agreement.  In connection with the Merger Agreement, we made loans to Alberton in the total amount of $1,664,446.66 and we made loans to the Alberton’s sponsor in the total amount of $651,369.01.  Although the loans are payable by Alberton and Alberton’s sponsor as a result of the termination of the Merger Agreement, we do not anticipate that we will be able to collect any of such loans, with the result that we will recognize an expense in the full amount of these loans in the second quarter of 2022.

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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. We were founded in 2008 to engage in the solar business in the United States and, following the acquisition in 2015 of Chengdu ZHTH. And ZHPV, commenced operations in China in 2016. Following the acquisition of Chengdu ZHTH, the business of Chengdu ZHTH was assumed and developed by its parent company SolarMax Shanghai. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.

We operate in two segments – the United States operations and the China operations. Our United States operations consists primarily of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, (ii) financing the sale of our photovoltaic and battery backup systems, (iii) sales of LED systems and services to government and commercial users.

Our China operations consist primarily of identifying and procuring solar farm projects for resale to third parties and performing the EPC services primarily for solar farm projects. Substantially all revenue from the China segment during the years ended December 31, 2021 and 2020 was generated from four projects for SPIC. All of the revenue for the year ended December 31, 2021 was generated during the second quarter. At March 31, 2022 and December 31, 2021, we did not have any projects pending, and we did not generate any revenue from our China segment during the three months ended March 31, 2022.  As of July 13, 2022, we do not have any agreements which would generate revenue for our China segment. Our China revenue for the year ended December 31, 2021 was $7.8 million, substanti ally all of which was from SPIC.

Our business in China is conducted through its principal subsidiaries, ZHPV and ZHTH, and their subsidiaries. ZHTH is engaged in the business of identifying and procuring solar system projects for resale to third party developers and related services in China. After the project subsidiary acquires the permits for a solar project and obtain a contract for the sale of the project, ZHPV builds the projects pursuant to an EPC contract. The subsidiary that owns the equity in the project subsidiary transfers the equity in the project subsidiary to the project owner. In the case of three of our contracts with SPIC that generated revenue in 2021 and 2020, upon completion and acceptance of the project by SPIC, we transfer 70% of the equity in the project subsidiary to SPIC, retaining a 30% interest, and SPIC has a first right of refusal to purchase the 30% interest in the project subsidiary from us after the project has been in operation at its full capacity for one year, which will be one year from the transfer of the 70% interest in the project. With respect to the fourth contract, we transferred 100% of the equity interest to SPIC.

Unlike systems in the United States, which are installations for residential and small business users, the projects in China are generally solar farms, which are large land areas where multiple ground-mount solar tracking towers are installed.

Transfer of Funds between our United States and China Segments. 

Our equity structure is a direct holding structure, that is, we directly control our U.S. subsidiaries and our subsidiaries in its China segment including: (i) Golden SolarMax Finance. Co. Ltd, a PRC subsidiary, (ii) SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong subsidiary which directly holds SolarMax Technology (Shanghai) Co., Ltd, a PRC subsidiary (together with its subsidiaries thereunder, “ZHTH”); (iii) Accumulate Investment Co., Ltd, a British Virgin Islands subsidiary which then directly holds Accumulate Investment Co., Limited, a Hong Kong subsidiary that directly holds Jingsu Zhonghong Photovoltaic Electric Co., Ltd (“ZHPV”); a PRC subsidiary and (iv) SolarMax Technology Holdings, a Cayman Islands subsidiary. Our business in China is conducted through ZHPV and ZHTH. See “Business – Our Corporate Structure” on page 95 for additional details.

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In the reporting periods presented in this prospectus and through the date of this prospectus, no dividends, distribution or other transfers of funds have occurred between and among us and our subsidiaries, on the one hand; and our Chinese subsidiaries, on the other hand, and we have not made any dividends, distributions or other transfer of funds to our stockholders. For the foreseeable future, we intend to use any earnings for our operations. As a result, we do not expect to pay any cash dividends. To the extent that we may in the future seek to fund the business through distribution, dividends or transfer of funds among and between holding company and subsidiaries, any such transfer of funds with PRC subsidiaries is subject to PRC government regulations. The structure of cash flows within holding company and PRC subsidiaries and a summary of the applicable regulations, is as follows:

1. Within the direct holding structure, the cross-border transfer of funds between us and our PRC subsidiaries is legal and compliant with the laws and regulations of the PRC. Funds can be directly transferred to our subsidiaries including ZHPV and ZHTH, and then transferred to subordinate operating entities through ZHPV and ZHTH according to the laws and regulation of the PRC.

2. If we intend to distribute dividends, we will transfer the dividends from the PRC entities to ZHPV and ZHTH in accordance with the laws and regulations of the PRC, and then ZHPV and ZHTH will transfer the dividends to their respective parent companies and then to us and the dividends will be distributed by us to all stockholders based on their share ownership, regardless of whether the shareholders are U.S. investors or investors in other countries or regions.

3. Our PRC subsidiaries’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable as cash dividends. See “Dividend Distribution” on page  116 for more information.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC resident enterprises are tax resident. Pursuant to the tax agreement between Mainland China and the Hong Kong Special Administrative Region, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10%. However, if the relevant tax authorities determine that our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future. Accordingly, there is no assurance that the reduced 5% withholding rate will apply to dividends received by ours Hong Kong subsidiary from its PRC subsidiaries. This withholding tax will reduce the amount of dividends we may receive from our PRC subsidiaries.

To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future.

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

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Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. 

Agreements with SPIC

Yilong #2 and Xingren Projects

In August 2019, we, through our PRC subsidiaries, entered into MA Agreements with SPIC, pursuant to which we agreed to construct and sell to SPIC the ownership and control of 70% of our project subsidiaries that own the 30MW solar farm project in Xingren (the “Xingren” project) and the 70MW project in Yilong (the “Yilong #2” project) when the projects are completed and accepted by SPIC and the completion of the equity transfer has occurred. Pursuant to the MA agreements, SPIC has the first right of refusal to purchase the remaining 30% ownership interests in either or both of the project subsidiaries one year after each of the projects is completed and operational. The construction on both projects were completed and connected to the grids as of December 31, 2019. On January 1, 2020, the projects began power production and earning revenue from selling power to the PRC utility company, In March 2020 the equity transfer agreement to sell 70% controlling interest to SPIC was executed and in April 2020, the government approval of the equity transfer was registered. We consolidated the project subsidiaries and reported the project subsidiaries’ results of operations through April 2020. Beginning in May 2020, we no longer consolidated the project subsidiaries because 70% of the controlling interest of the project subsidiaries was sold to SPIC in April 2020. Beginning in May 2020, we report our 30% noncontrolling interest in the project subsidiaries under the equity method of accounting. As a result of the completion of the sale of the 70% controlling interest of the project subsidiaries to SPIC in April 2020, we met all the conditions under the MA Agreements and recognized the EPC revenue for the Yilong #2 and Xingren projects.

In October 2019, our project subsidiaries that owned the Yilong #2 and Xingren projects entered into lease finance agreements with Huaxia Financial Leasing Co., Ltd. (“Huaxia”). The financings were structured as lease finance transactions secured by the respective project companies’ revenue stream and accounts receivable. The principal amounts of the loans were RMB 217.0 million (approximately $31.0 million) for Yilong #2 and RMB 93.0 million (approximately $13.3 million) for Xingren. The interest rate was 130 basis point above certain benchmark RMB loan interest rate as announced by the People’s Bank of China on the lease commencement date. The respective project subsidiaries which are 70% owned by SPIC starting on April 30, 2020, are the obligors on the loan which is guaranteed by SPIC. The loans are deconsolidated by us on May 1, 2020 when it deconsolidated the project subsidiaries on May 1, 2020 since the loans are no longer our obligations and are not reflected as liabilities on our financial statement as of the date of the transfer of a controlling interest.

Ancha Project

In February 2020, we, through our PRC subsidiaries, entered into a M&A (Cooperative Development) Agreement (the “Ancha MA Agreement”) with SPIC, pursuant to which we would sell the ownership and control of 70% of our project subsidiary that owns the 59 MW solar farm project in Guizhou (the “Ancha Project”) to SPIC when the project is completed and accepted by SPIC. Pursuant to the Ancha MA Agreement, SPIC shall have the first right of refusal to purchase the remaining 30% ownership interest in the project subsidiary one year after the project is completed and operational. The total value of the project including VAT with 100% ownership at completion is RMB 233.6 million (approximately $33.4 million). The construction began in March 2020 and the construction was completed in December 2020 with the project acceptance was received on January 14, 2021. In December 2020, the equity transfer agreement between us and SPIC was signed to effect the transfer of 70% ownership interest of the project company to SPIC for an initial consideration of RMB 35.6 million ($5.1 million) based on the project company’s paid-in capital at September 30, 2020, such consideration will be adjusted when the final asset appraisal is completed in April 2021. See Note 10 of Notes to Consolidated Financial Statements for the year ended December 31, 2021.

Because the Ancha MA Agreement stipulates that SPIC would purchase the 70% ownership interest when the project was completed and accepted by SPIC, the fact that SPIC completed the equity transfer prior to the acceptance of the project seems to indicate that SPIC has accepted the project since SPIC became the legal owner and has taken legal control of the project as of December 21, 2020. As a result, we deconsolidated the project subsidiary as of December 31, 2020 and reported the EPC revenue for the Ancha project for the year ended December 31, 2020.

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In May 2020, the project subsidiary for the Ancha project entered into project lease financing agreement with CSPG Financial Lease Co., Ltd., an unrelated PRC lender, for RMB 163.5 million (approximately $23 million) to finance the construction of the Ancha project. The financing was structured as a lease finance transaction secured by the project companies’ revenue stream and accounts receivable. The interest rate was based on a stipulated benchmark of approximately 5.311% per year. The financing was secured by the Ancha solar farm project. The project subsidiary which is 70% owned by SPIC starting on December 31, 2020, is the obligor on the loan. The loan was deconsolidated by us as of December 31, 2020 when it deconsolidated the project subsidiary on December 31, 2020 since as of that date the loan is no longer the obligation of SolarMax.

On January 14, 2021, the project acceptance was received on the Ancha project.

Hehua Project

In August 2020, we, through our PRC subsidiaries, commenced the 25 MW EPC work on a the Hehua Project pursuant to an EPC contract between ZHPV and the then wholly-owned project subsidiary. The EPC contract value including VAT is RMB 89.1 million ($12.7 million). Pursuant to the negotiations with SPIC relating to the Hehua Project during 2020, SPIC has agreed to purchase a 100% interest in the project subsidiary. On December 29, 2020, SPIC executed an equity transfer agreement to purchase from us 100% equity interest in the project company that owns the Hehua Project for a consideration of RMB 4.9 million ($706,000) which was determined based on the project company’s paid-in capital at November 30, 2020. Consequently, we deconsolidated the project company for the Hehua project as of December 31, 2020. In connection with the sale of the 100% equity interest of the project company to SPIC and the deconsolidation of the project company by us, our EPC contract with the project company became the obligation of SPIC. The EPC construction was 37% complete at December 31, 2020 and 100% complete at December 31, 2021.

During the year ended December 31, 2021, our revenue in the United States was derived from the sale of solar systems, which accounted for $27.5 million, or 73% of consolidated revenue. During the years ended December 31, 2020, our revenue in the United States accounted for $28.9 million, or 30% of consolidated revenue. Financing revenue, which includes principally interest revenue from loans to purchasers of our solar systems, accounted for $1.2 million, or 3% of consolidated revenue for the year ended December 31, 2021, $1.8 million, or 1.8% of consolidated revenue for the year ended December 31, 2020. The decrease in revenue in the United States segment resulted in part from the effects of the COVID-19 pandemic and the steps taken by the government of California to address the pandemic. The average selling prices per watt increased from $3.28 for the year ended December 31, 2020 to $3.35 for the year ended December 31, 2021. Some of the increase in average selling prices per watt is due to offsetting some of the increase in costs of materials resulting partly from the interruption of the supply chain.

Substantially all of our China revenue for the year ended December 31, 2021 of $7.8 million, and the year ended December 31, 2020, which was $96.1 million, was generated from four contracts with SPIC, and included revenue from SPIC and revenue from the sale of power by two of the four project subsidiaries through April 2020, prior to the sale of the project subsidiaries to SPIC. We refer to the four SolarMax projects with SPIC that generated revenue in the year ended December 31, 2020 as Yilong #2, Xingren, Ancha and Hehua. The Yilong #2 project is a 70 MW project, the Xingren project is a 35 MW project, the Ancha project is a 59 MW project, and the Hehua project is a 25 MW project. Revenues earned from the Yilong #2 project and the Xingren project from the EPC and revenues earned on the power purchase agreements for the Yilong #2 and the Xingren projects were earned at a point in time during the year ended December 31, 2020. Revenues earned on the Ancha project were earned over time during the fourth quarter of 2020. Revenues on the Hehua project were earned over time beginning in the fourth quarter of 2020. At December 31, 2020, the Ancha EPC project was 100% completed and the Hehua EPC project was 37% completed. SPIC purchased the 70% controlling interest in the Ancha project subsidiary in December 2020 and a 100% ownership interest in the Hehua project subsidiary also in December 2020. The Hehua project was 37% complete at December 31, 2020 and 100% complete at December 31, 2021.

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We had consolidated net losses of $0.8 million and $3.3 million for the three month s ended March 21, 2022 and the year ended December 31, 2021, respectively.  We had net income of $1.0 million for the year ended December 31, 2020. Cash flow used by operations was $2.0 million, $5.4 million and $23.2 million in the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, respectively. 

On July 16, 2019, we received a purchase order for a $3.8 million LED project from a California municipality pursuant to which we are to provide 3,000 units of LED luminaires products to be used in its street light conversion project. The contract gives the municipality the right to cancel all or part of the order prior to delivery. We fulfilled this purchase order and recognized $3.7 million of revenue as a result during 2020.

In September 2020, we were awarded an LED contract of $4.5 million with the California Department of General Services, a state agency, to provide traffic control modules. The contract is effective through September 2023 and gives the state agency the right to extend for up to two years and increase or decrease the order quantities. We received the first purchase order under this contract in the third quarter of 2021. We cannot give assurance that the state agency will purchase any significant amount of our products. Recent steps taken by California to address to COVID-19 pandemic may affect the timing and amount of purchases pursuant to this contract.

Prior to 2020, we purchased solar panels from AMD for certain of our solar farm projects.  AMD is a related party because it owns more than 5% of our common stock and its chairman and chief executive officer is one of our directors. We did not make any purchases of solar panels from AMD during 2021 and 2020. In June 2019, December 2019 and December 2020, we entered into offset agreements with AMD to offset certain unpaid project receivables due from AMD with certain accounts payable due to AMD related to solar panels purchased from AMD. In connection with the December 2020 agreement, AMD also agreed to pay the balance of the project receivable owed on Qingshuihe #3 project of RMB 3.8 million (approximately $545,000) which was fully paid at December 31, 2020.

Although our business plan contemplates positive cash flows from our United States segment, we are currently g enerating a negative cash flow from our United States operations, and we cannot assure you that we can or will generate positive cash flow from our United States segment or that any cash flow we may generate, together with any available credit facilities and the cash available following completion of the offering will be sufficient to enable us to meet either our debt service requirement, including debt due to related parties. We are continuing to explore alternatives for additional sources of financing to fund our United States operations including secured borrowing facilities from a bank in the PRC and disposing of a portion of our loan portfolio to financial institutions based in the United States. However, we do not have any formal or informa l agreement or understanding with respect to any financing , and we may not be able to obtain credit facilities.  We cannot assure you that positive cash flows will be achieved or that alternative sources of financing will be available to us if and when needed and under favorable terms, if any.   If we cannot generate positive cash flow and we are not able to enter into any agreement with respect to an alternative source of financing, we will need to use the proceeds of this offering to meet our liquidity needs.

 As a result of our employment agreements with David Hsu, our chief executive officer and the grant of options and restricted stock grants pursuant to our 2016 Long-Term Incentive Plan, as well as the costs associated with being a public corporation, our general and administrative expense will increase. In March 2019, the board of directors granted Mr. Hsu, our chief executive officer,  and Ching Liu, who was then our executive vice president, and one employee the right to exchange their 2,546,625 restricted shares for options to purchase 2,698,150 shares of common stock and cash payments of $1,275,000, which were initially to be paid by December 15, 2019 and the payment date has been extended to December 31, 2022 or earlier upon completion of this offering. Pursuant to his employment agreement, Mr. Hsu was to have received a salary of $655,636 for 2020. In connection with a company-wide salary reduction, Mr. Hsu took a salary cut and his salary for 2020 was $577,779. Mr. Hsu’s salary for 2021 was $675,305. Mr. Hsu’s employment agreement provides for a salary increases of at least 3% annually, and his salary for 2022 compensation will be $695,564. In addition, he is to receive an annual bonus based upon a percentage of revenue in excess of $30 million, which range from a total of $450,000 for revenue between $30 million and $50 million, to a total of 1.9% of revenue if revenue is at least $300 million.

Our United States operations are continuing to operate at a loss resulting from the decrease in both gross profit and gross margin from solar systems in the United States, as well as the write-off of capitalized expenses relating to our proposed initial public offering, which was terminated in 202 0 prior to our merger negotiation with Alberton. In addition, as a result of the termination of our merger agreement with Alberton in April 2022, we will write off the notes receivable from Alberton and Alberton’s s ponsor and the capitalized costs we incurred in connection with the proposed merger.

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Effects of COVID-19 Pandemic

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we operate. Further, the issuance of permits necessary for residential solar systems was affected because some local California government offices that issued permits for solar installations were closed for parts of the second quarter and, as a result of government workers working from home subsequent to the second quarter, effectively operated with reduced hours. As a result, in the United States, we experienced a lower level of residential solar energy system installations with a decline in revenue in the year ended December 31, 2021, compared to the same period in 2020. In China, the timing of final solar farm project approvals for two projects and the beginning of one new solar farm installation were delayed for approximately three months but the delays did not have a material impact on our China business in 2021 and 2020. Our recognition of revenue from two of our contracts with SPIC was delayed because the government office whose consent was required was closed for the pandemic. Further, the effects of China’s zero tolerance policy with respect to COVID-19 which has resulted in lockdowns in cities and provinces in China, have impaired our ability to negotiate contracts and payment schedules with SPIC, which has been our only customer for our China segment since 2020, with the result that we have no pending agreement with SPIC.  In addition, in December 2018, we filed a registration statement (file no. 333-229005) with the SEC with respect to our proposed initial public offering, which we subsequently withdrew in October 2020. In large part because of the effects of the COVID-19 pandemic and the steps taken by the State of California and the government of the PRC to address the pandemic, we did not complete our proposed initial public offering.  Following termination of our proposed initial public offering, we had sought to become a public company through a merger with Alberton, which was a SPAC, and we terminated that the related Merger Agreement in April 2022.

To the extent that the government in California or China institutes or recommends further closures, including closures or reduced office hours of the government offices that process permits for solar installation, we may not be able to negotiate new contracts for our China Segment.  As a result of the COVID-19 pandemic, our operations in China were temporarily disrupted due to the lockdown and the operations have gradually returned to normal operation beginning in the second quarter of 2020. In March and April 2020, our United States operations experienced the impact of COVID-19 that resulted in the implementation of headcount reduction and other cost-saving measures in an effort to improve liquidity. We obtained additional liquidity in the United States through the available government assistance programs in the form of loans and grants. As of the date of this prospectus, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.

The effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments, which have the effect of slowing our sales in the United States or increasing the already-existing supply chain problems. Further, China’s policy of effecting closures to avoid infections, including the recent lockdown in many provinces and municipalities in China, is affecting our ability to generate revenue in China.

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 and supply chain issues that are affecting may domestic and foreign companies. 

Polysilicon is an essential raw material in the production of solar power products. The costs of silicon wafers and other silicon-based raw materials have accounted for a large portion of the costs associated with our solar panel manufacturing facility. Although the price of silicon has declined in recent years, we cannot assure you it will continue to decline or remain at its current level particularly in view of the present inflationary pressures. Increases in the price of polysilicon in the past have resulted in increases in the price of wafers, leading to increases in production 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 and supply chain issues, 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.

The effects of inflation may also affect the marketability of our solar systems to residential users.  To the extent that homeowners are incurring high expenses generally, they may have less available cash to invest in a solar system.  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 resulting in a lower gross margin and a drop in operating income.

Our China segment is already feeling the effects of both inflation and supply chain issues.  our China segment had a 0% gross margin for the year ended December 31, 2021 because our cost of revenue for the Hehua project was significantly adjusted as a result of the unanticipated increase in costs particularly the panel costs which resulted in a significant adjustment in cost during the period which essentially reverses out the profit that was recognized in 2020 for the project.  During the three months ended March 31, 2021, our China operations did not report any revenue as a result of the temporary halt of the construction on the Hehua project during this period resulting both from the local holidays and our inability to acquire the solar panels for the project at the budgeted price due to the local supply chain issues. Since the second quarter of 2020, the prices of the solar panels in China have been increasing due to the tight supply in the local market and accordingly, we and SPIC had determined to hold off the purchase of the panels until early 2021 with the anticipation that we would be able to obtain the panels at or close to the price in the original project budget.  Such determination resulted in the temporary suspension of the construction of the Hehua project during the three months ended March 31, 2021. In April 2021, we proceeded to purchase the solar panels for the Hehua project, albeit at a much higher price than the original budget. The price increase in the solar panels is expected to reduce the overall gross margin on the Hehua project from 8.2% to 3.4% upon completion since we were not able to increase the price to reflect our increased costs. We cannot assure you that, if we are able to negotiate contracts with SPIC, that we will be able to accurately price our costs, with the risk that inflationary and supply side issues will not result on our generating a loss on any projects for which we contract.

Reverse Stock Split

On July 15, 2022, we effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split we reduced our authorized common stock from 500,000,000 shares to 297,225,000 shares. All share and per share information in this prospectus retroactively reflects the reverse stock split.

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Results of Operations

The following tables set forth information relating to our operating results for the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020 (dollars in thousands) and as a percentage of revenue:

	Three Months Ended March 31, 2022
	2022 (unaudited)						2021 (unaudited)
	Dollars			%			Dollars			%
Revenue:
Solar energy sales (US)		9,046			24.0	%		7,153			5.4	%
LED sales (US)		345			0.9	%		199			0.2	%
Financing (US)		217			0.6	%		352			0.3	%
Solar farm EPC (China)		-			0.0	%		-			0.0	%
Power purchase agreements and other		-			0.0	%		-			0.0	%
Total revenues		9,608			25.5	%		7,704			5.9	%
Cost of revenue:
Solar energy sales		7,102			18.8	%		5,848			4.4	%
LED sales		313			0.9	%		180			0.2	%
Financing		-			0.0	%		-			0.0	%
Solar farm EPC (China)		-			0.0	%		254			0.2	%
Power purchase agreements and other		-			0.0	%		-			0.0	%
Total cost of revenues		7,415			19.7	%		6,282			4.8	%
Gross profit		2,193			5.8	%		1,422			1.1	%
Operating expenses:
Sales and marketing (US)		299			0.8	%		297			0.2	%
Sales and marketing (China)		-			0.0	%		-			0.0	%
General and administrative (US)		2,260			6.0	%		2,091			1.6	%
General and administrative (China)		424			1.1	%		449			0.4	%
Impairment		-			0.0	%		-			0.0	%
Total operating expenses		2,983			7.9	%		2,837			2.2	%
Income (loss) from operations (US)		(366	)		-1.0	%		(712	)		-0.5	%
Income (loss) from operations (China)		(424	)		-1.1	%		(703	)		-0.6	%
Equity in income (loss) from unconsolidated ventures		-			0.0	%		4			0.0	%
Equity in income of solar project companies		13			0.0	%		102			0.1	%
Gain on debt extinguishment		13			0.0	%		471			0.4	%
(Loss) on partial sale of equity in solar project company		-			0.0	%		-			0.0	%
Interest (expenses), net		(333	)		-0.8	%		(458	)		-0.4	%
Other income (expenses), net		309			0.8	%		50			0.0	%
Income (loss) before income taxes		(788	)		-2.1	%		(1,246	)		-1.0	%
Income tax benefit (provision)		6			0.0	%		(33	)		0.0	%
Net income (loss)		(794	)		-2.1	%		(1,279	)		-1.0	%
Net income (loss) attributable to noncontrolling interests		-			0.0	%		(17	)		0.0	%
Net income (loss) attributable to stockholders		(794	)		-2.1	%		(1,262	)		-1.0	%
Currency translation adjustment		31			0.1	%		(44	)		0.0	%
Comprehensive income (loss) attributable to stockholders		(763	)		-2.0	%		(1,306	)		-1.0	%

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	Year Ended December 31
	2021						2020
	Dollars			%			Dollars			%
Revenue:
Solar energy sales (US)		27,497			72.9	%		28,918			22.0	%
LED sales (US)		1,282			3.4	%		4,757			3.6	%
Financing (US)		1,176			3.1	%		1,776			1.3	%
Solar farm EPC (China)		7,786			20.6	%		93,892			71.4	%
Power purchase agreements and other		-			0.0	%		2,239			1.7	%
Total revenues		37,741			100.0	%		131,582			100.0	%
Cost of revenue:
Solar energy sales		23,536			62.4	%		23,807			18.1	%
LED sales		476			1.2	%		4,270			3.2	%
Financing		-			0.0	%		-			0.0	%
Solar farm EPC (China)		7,783			20.6	%		86,006			65.4	%
Power purchase agreements and other		-			0.0	%		1,049			0.8	%
Total cost of revenues		31,795			84.2	%		115,132			87.5	%
Gross profit		5,946			15.8	%		16,450			12.5	%
Operating expenses:
Sales and marketing (US)		1,211			3.2	%		1,255			1.0	%
Sales and marketing (China)		-			0.0	%		-			0.0	%
General and administrative (US)		9,066			24.0	%		8,929			6.8	%
General and administrative (China)		1,870			5.0	%		2,524			1.9	%
Impairment		-			0.0	%		-			0.0	%
Total operating expenses		12,147			32.2	%		12,708			9.7	%
Income (loss) from operations (US)		(4,334	)		-11.4	%		(2,810	)		-2.2	%
Income (loss) from operations (China)		(1,867	)		-5.0	%		6,552			5.0	%
Equity in income (loss) from unconsolidated ventures		325			0.9	%		12			0.0	%
Equity in income of solar project companies		544			1.4	%		468			0.4	%
Gain on debt extinguishment		2,809			7.4	%		720			0.5	%
(Loss) on partial sale of equity in solar project company		-			0.0	%		(255	)		-0.2	%
Interest (expenses), net		(1,811	)		-4.8	%		(3,090	)		-2.3	%
Other income (expenses), net		713			1.9	%		844			0.6	%
Income (loss) before income taxes		(3,621	)		-9.6	%		2,441			1.8	%
Income tax benefit (provision)		301			0.8	%		(1,488	)		-1.1	%
Net income (loss)		(3,320	)		-8.8	%		953			0.7	%
Net income (loss) attributable to noncontrolling interests		-			0.0	%		(21	)		0.0	%
Net income (loss) attributable to stockholders		(3,320	)		-8.8	%		974			0.7	%
Currency translation adjustment		311			0.8	%		721			0.6	%
Comprehensive income (loss) attributable to stockholders		(3,009	)		-8.0	%		1,695			1.3	%

Three Months Ended March 31, 2022 and 2021

Revenues  

Revenues for the three months ended March 31, 2022 were $9.6 million, an increase of $1.9 million or 25%, from $7.7 million in the three months ended March 31, 2021. The increase resulted primarily from a $1.9 million increase in solar energy sales in the United States segment. The increase in the solar energy sales in the United States segment in the three months ended March 31, 2022 is attributed to the increase in the battery sales that started in the beginning of 2021 and has ramped up ever since.

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During the three months ended March 31, 2022 and 2021, we did not generate any revenue in the China segment. During the three months ended March 31, 2021, our China segment had one solar farm project under construction known as the Hehua project, however, there was not much activity on the construction during the three months ended March 31, 2021 because asd delayed the purchase and the installation of the panels because of the ongoing panel price volatility. Accordingly, the Hehua project remained 37% complete at March 31, 2021.  Subsequent to March 31, 2021, we entered into a purchase agreement for the panels and proceeded with the panel installation on the Hehua project and the project was completed in June 2021 and we recognized revenue on the project in the second quarter of 2021.  Since we did not have any projects for our China segment in the second quarter of 2022, we do not expect to report either revenue or cost of revenue for the six months ended June 30, 2022.

In the United States segment, revenue increased $1.9 million or 25% to $9.6 million in the three months ended March 31, 2022 from $7.7 million in the prior period. We deployed 2.2MW on 260 completed systems during the three months ended March 31, 2022, compared with 2.4 MW on 287 systems in the comparative prior period, a decrease of 9% in wattages. On average, solar revenue per watt was $3.75 in the three months ended March 31, 2022 compared to $3.04 in the three months ended March 31, 2021, a 23% increase primarily as a result of the overall increase in the prices of panels and inverters from a year ago.  Solar revenue per watt represents the revenue generated during the period from sales of solar systems (excluding battery sales) divided by the wattage installed during the period. our LED revenue increased by $146,000, or 73%, to $345,000 for the three months ended March 31, 2022 from $199,000 in the comparable prior period, 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 fluctuate based on the number of LED projects awarded which may fluctuate based on the bidding process and specific customer purchase requirements and timing. The revenue trend from our LED business is therefore not as consistent as its solar business and revenue tends to fluctuate period to period. Our revenue for the three months ended March 31, 2022 and 2021 includes finance-related revenues of $217,000 and $352,000, respectively, from its portfolio of solar loans provided to its customers, the decrease is expected which corresponds to the pay down and pay off of customer loans over time.

Cost of revenue and gross profit  

During the three months ended March 31, 2022, our China operations did not have any cost of revenue since it did not have any projects under construction during the period. For the three months ended March 31, 2021, cost of revenue for the China segment of $254,000 relates to additional cost of revenue recognized on the Hehua project, for which the construction began in the fourth quarter of 2020 and was 37% complete at March 31, 2021 and 100% complete in June 2021. The additional cost of revenue incurred in the three months ended March 31, 2021 is the result of the revision of the project cost budget stemming from the expected increase in the price of the solar panels from the original budget.

During the three months ended March 31, 2021, our China operations did not report any revenue as a result of the temporary halt of the construction on the Hehua project during this period contributed by the local holidays and our inability to acquire the solar panels for the project at the budgeted price due to the local supply chain issue. Since the second quarter of 2020, the prices of the solar panels in China have been increasing due to the tight supply in the local market and accordingly, SolarMax and SPIC had determined to hold off the purchase of the panels until early 2021 with the anticipation that we would be able to obtain the panels at or close to the price in the original project budget.  Such determination resulted in the temporary suspension of the construction of the Hehua project during the three months ended March 31, 2021. In April 2021, we proceeded to purchase the solar panels for the Hehua project, albeit at a much higher price than the original budget. The price increase in the solar panels is expected to reduce the overall gross margin on the Hehua project from 8.2% to 3.4% upon completion. As a result of our purchase of the solar panels for the Hehua project in April 2021, the project budget was revised resulting in additional cost of revenue being recognized for the three months ended March 31, 2021 even though there was no additional revenue recognized in this period as a result of the temporary halt of the construction. 

Cost of revenue for our United States segment increased 23% from $6.0 million in the three months ended March 31, 2021 to $7.4 million in the three months ended March 31, 2022, primarily as a result of the corresponding increase in revenue in the United States segment. Gross margin for the United States segment increased modestly to 23% for the three months ended March 31 2022 from 22% a year ago, primarily as result of the disproportional decrease in the cost versus the increase in revenue. We had no cost of revenue with respect to interest income on customer loans receivable. Our China segment had no revenue and no cost of revenue for the three months ended March 31, 2022. In the three months ended March 31, 2021, our China segment had no revenue, but incurred cost of revenue in the quarter resulting in a modest negative gross margin. 

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Our overall gross margin for the three months ended March 31, 2022 was 23% compared to 19% for the prior period as a result of the higher gross margin contributed by United States segment, partially offset by the negative gross margin from the China segments in three months ended March 31, 2021. China operations end to yield a lower gross margin than United States operations. We expect, that, if we are able to generate contracts for major solar farm project in China, the China segment will generate higher revenue and a lower gross margin than the United States segment in the future, resulting in the China segment continuing to have a negative impact on our consolidated gross margin.  However, as of July 13, 2022, we did not have any agreements with respect to any solar farm projects in China, either with SPIC or any other customer, and we cannot assure you that we will be able to generate profitable business in China.

Operating expenses 

Sales and marketing expenses for the three months ended March 31, 2022 increased nominally for our United States segment to $299,000, an increase of $2,000, or 1%, from $297,000 in the comparable period of 2021. Sales and marketing expenses in the United States were 3.1% of United States revenue for the three months ended March 31, 2022 compared to 3.9% for the three months ended March 31, 2021. The decrease in the current period resulted from the corporate-wide efforts to reduce all operating expenses since March 2020 as a result of the COVID-19 pandemic.  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. Due to the nature of our EPC business in our China segment, the EPC contracts for solar farm projects are generally obtained through customer relationship with just a few corporate customers, Accordingly, our China segment did not incur sales and marketing expenses for the three months ended March 31, 2022 and 2021. 

General and administrative expenses for the United States segment for the three months ended March 31, 2022 increased to $2.3 million, an increase of $170,000, or 8%, from $2.1 million for the comparable period of 2021,  as a result of  increases in expenses related to compensation/staffing, legal, insurance, and technology/software. General and administrative expenses were 27% of United States revenue for the prior period, compared to 24% for the current period. General and administrative expenses included compensation and benefits, depreciation and amortization (excluding auto depreciation), provision for losses, rental and leasing expense, and other corporate overhead expenses, and, to date, except for contracts with AMD, a related party, prior to 2020, we have only had significant contracts with SPIC in our China segment. We expect an overall increase in compensation expenses in 2022 and 2023 as a result of the expected vesting of stock and options that become vested upon a public stock offering event, and 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 decreased by $25,000, or 6%, from $449,000 in the prior year to $424,000 in the three months ended March 31, 2022. General and administrative expenses relate to the corporate and overhead expenses specifically connected with the China segment and include personnel costs, facilities rental and leasing and other general overhead expenses and certain pre-development project costs that are expensed prior to the execution of the EPC agreements. All of the corporate headquarter overhead is allocated to the United States segment.

Income (loss) from operations 

Our consolidated loss from operations was $790,185 for the three months ended March 31, 2022 compared to a loss from operations of $1.4 million in the prior period, a decrease in loss of $624,000, or 44%, from the comparable period of 2021. Our loss from operations for United States segment was $366,311, an improvement of $346,000, or 49%, from a loss from operations of $711,984 in the prior period. Our loss from operations for our China segment was $423,874, compared to a loss from operations from our China segment in the prior period of $702,694, primarily because our China segment incurred cost of revenue from EPC without any revenue during the three months ended March 31, 2021. The operating results of our China segment fluctuate based on the timing of awards for EPC projects, the construction contracts in progress and completed as well as the underlying timing of the related performance obligations which relate to our recognition of revenue. 

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Equity in income (loss) from unconsolidated entities and (loss) on sale of controlling interest in project companies  

We had no e quity in (loss) from unconsolidated entities for our United States segment for the three months ended March 31, 2022, compared to equity in income of $4,143 in the prior period of 2021. As of December 31, 2021, we had no investment balances in the unconsolidated entities, and accordingly , no additional equity in income or loss from the unconsolidated entities would be recorded through its investment balances. The losses on our United States joint ventures are limited to the remaining balance of its investment because we have no obligation to make any additional funding to these joint ventures.

Equity in income from unconsolidated entities for our China segment relates to the equity in income from unconsolidated project companies for Yilong #2, Xingren and Ancha.  We deconsolidated the Yilong #2 and Xingren project companies on May 1, 2020 as a result of the sale of 70% controlling interest to SPIC in April 2020 and deconsolidated the Ancha project company as of December 31, 2020 as a result of the sale of 70% controlling interest to SPIC in December 2020.  We record our 30% noncontrolling interest under the equity method of accounting. The equity in income reported for the three months ended March 31, 2022  was $12,704 compared to $101,970 in the three months ended March 31, 2021, a decrease of $89,000 or 88%. The decrease is attributed to the lower power production this year resulting from inferior sunshine quality affected the Guizhou region in China, as well as additional costs incurred to comply with SPIC internal safety production requirements and increased interest expense due to the change in SPIC’s accounting from cash to accrual in 2022.

Gain on debt extinguishment

                Gain on debt extinguishment for the three months ended March 31, 2022 was $208,080 and relates primarily to the forgiveness of two PPP loans and related accrued interest on our two US subsidiaries.       

During the three months ended March 31, 2021, we exchanged additional amount of the matured related party debt with CEF in an aggregate principal balance of $5.0 million into 4% secured subordinated convertible notes in the aggregate principal amount of $5.0 million each with ten former limited partners of CEF, all of whom are unrelated to SolarMax. In connection with the exchange, we recorded a gain on debt extinguishment of $80,462 to reflect the debt discount on the new convertible notes which is amortized to interest expense over the term of the convertible notes which is five years. During the three months ended March 31, 2021, we redeemed convertible notes in the aggregate principal amount to of $1.5 million and recognized a gain on the early redemption of $390,384.

Interest expense, net  

Interest expense, net, for the three months ended March 31, 2022 was $333,000, a decrease of $125,000, or 27%, from the comparable period of 2021. Our interest expense in the three months ended March 31, 2022  primarily includes interest at 3% on two loans from affiliated entities in the United States with a total principal balance of $21.5 million at March 31, 2022, 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 $20.8 million at March 31, 2022. 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.

Other income (expenses), net 

                During the three months ended March 31, 2022, other income was $114,000, consisting primarily of $75,000 of sublease income from a month-to-month subtenant for the United States segment and $33,000 of expense related to the foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency.

                During the three months ended March 31, 2021, other income was $50,000, consisting primarily of approximately $45,000 of expense related to the foreign currency transaction loss for our United States segment intercompany receivable denominated in the Chinese currency.

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Income tax benefit (provision)  

Income tax expense for our United States segment for the three months ended March 31, 2022 and 2021 was $6,000 and $150,229, respectively. The increase in income tax expense during the three months ended March 31, 2021 was attributed to our taxable income for California income tax purposes. The taxable income resulted from our inability to deduct certain expenses that were incurred and paid with the paycheck protection program loans, as well as the suspension of the use of NOL for California income tax during this period.  Income tax in the prior period represents primarily the minimum California state franchise taxes and other state taxes. A full valuation allowance was provided because the United States segment is still experiencing recurring net losses. Deferred tax assets primarily consist of net operating losses carryover, investment tax credits, stock compensation expenses, and deferred charges. 

We had no income tax or income tax benefit for our China segment the three months ended March 31, 2022 as compared with a tax benefit of $117,790 for the three months ended March 31, 2021. The China segment had taxable loss in 2021 and it did not have any taxable income or loss in 2022.  

Net loss  

As a result of the foregoing, we had a consolidated net loss of $794,000 for the three months ended March 31, 2022, as compared with a consolidated net loss of $1.3 million for the three months ended March 31, 2021. 

During the three months ended March 31, 2021, we had a 93.75%-owned subsidiary. The net income (loss) attributable to non-controlling interests represents the allocation of the minority interest in the subsidiary’s net income (loss) to non-controlling interests. 

After giving effect to the non-controlling interest, we had a net loss attributed to its stockholders of $794,000, or ($0.0 2 ) per share (basic and diluted), for the three months ended March 31, 2022, as compared with a net loss of $1.3 million, or ($0.0 3 ) per share (basic and diluted), for the three months ended March 31, 2021. 

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 gains of $31,000 for the three months ended March 31, 2022 and net foreign currency translation losses of $44,000 for the three months ended March 31, 2021. 

Years Ended December 31, 2021 and 2020 

Revenues 

Revenues for the year ended December 31, 2021 were $37.7 million, a decrease of $93.8 million or 71%, from $131.6 million in the year ended December 31, 2020. The decrease resulted primarily from a $86.1 million decrease in EPC solar revenues in the China segment, a $1.4 million decrease in solar energy revenues in the United States segment, a $3.5 million decrease in LED sales in the United States segment, a $0.6 million decrease in financing revenue in the United States segment, and a $2.2 million decrease in power purchase agreements revenue from the China segment related to the power purchase agreements on the Yilong #2 and Xingren solar farm projects which were completed in December 2019, began generating power in January 2020, and 70% of ownership sold to SPIC in April 2020. From January 1, 2020 to April 30, 2020, we owned 100% of the Yilong #2 and Xingren solar farm projects and accordingly we recognized 100% of the power purchase agreement revenue earned on these projects during the period. The decrease in the solar energy revenues in the United States segment in the year ended December 31, 2021 is attributed to larger commercial projects in the prior period compared to the current period, namely a 473KW photovoltaic and battery project known as the Woodcrest project, a 607 KW project known as Pulp Studio, and a 238KW project known as The Crossings at Redlands. Revenue in the prior period also benefited from residential projects that were signed during the 0% loan promotion in 2019 that were installed and completed during 2020. Additionally, the 2021 decrease is attributed to the lower revenue in LED sales resulting from the lack of large projects during the period.

During the year ended December 31, 2021, our EPC solar revenue in the China segment was generated from one solar farm project with SPIC known as the Hehua project which was 100% complete during the year ended December 31, 2021. The Hehua project is 100% owned by SPIC since December 31, 2020. 

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In the United States segment, revenue decreased $5.5 million or 15.5% to $30.0 million in the year ended December 31, 2021 from $35.5 million in the prior period. We deployed 7.8 MW on 977 completed systems during the year ended December 31, 2021, compared with 8.8 MW on 1,079 systems in the comparative prior period, a decrease of 12% in wattages. The decrease in wattages is primarily the result of the completion in the prior period of the Woodcrest project, the Pulp Studio project and The Crossings at Redlands project, and the completion of systems that were sold during the 0% interest rate loan promotion that began in 2019. On average, solar revenue per watt was $3.35 in the year ended December 31, 2021, a 2% increase from $3.28 in the comparable period of 2020. Solar revenue per watt represents the revenue generated during the period from sales of solar systems divided by the wattage installed during the period. Our LED revenue decreased by $3.5 million, or 73%, to $1.3 million for the year ended December 31, 2021 as a result of a large LED purchase contract for LED luminaires products with a California municipality that was awarded in the prior period that did not recur in the current period. LED revenues are expected to fluctuate based on the number of LED projects awarded which may fluctuate based on the bidding process and specific customer purchase requirements and timing. The revenue trend from our LED business is therefore not as consistent as our solar business and revenue tends to fluctuate period to period. Our revenue for the years ended December 31, 2021 and 2020 includes finance-related revenues of $1.2 million and $1.8 million, respectively, from our portfolio of solar loans provided to our customers.

Cost of revenue and gross profit 

Cost of revenue for our China segment decreased 91% from $87.1 million in the year ended December 31, 2020 to $7.8 million in the year ended December 31, 2021, reflecting the corresponding decrease in revenue in the China segment. For the year ended December 31, 2021, cost of revenue for our China segment substantially relates to the construction project cost incurred on the Hehua project, which was 100% complete at December 31, 2021. SPIC has a 100% ownership of the Hehua project since December 31, 2020. For the year ended December 31, 2020, cost of revenue for our China segment substantially relates to the construction project cost incurred on the Yilong #2, the Xingren, and the Ancha projects, for which the revenue was recognized during the year ended December 31, 2020. These projects were completed in the year ended December 31, 2020 and the controlling interests of these projects were sold to SPIC in the year ended December 31, 2020.

For the year ended December 31, 2020, cost of revenue also includes $1.0 million of depreciation expense related to the Yilong #2 and Xingren projects prior to the transfer of 70% of the equity to SPIC in April 2020. From January 1, 2020 to April 30, 2020, we consolidated the project subsidiaries that own the Yilong #2 and Xingren projects which were owned by a SolarMax subsidiary, and recognized revenues related to the 25-year power purchase agreements that the Yilong #2 and Xingren project subsidiaries signed with the utility companies, and accordingly we recognized the depreciation expense as the cost of revenue associated with operating the two solar farm projects during that period. Effective May 1, 2020, as a result of the transfer of 70% of the equity in the two project subsidiaries to SPIC, the two project subsidiaries are no longer consolidated, and, accordingly, we no longer recognize the revenue from the power purchase agreements and the related cost of revenue associated with the power purchase agreements. Our 30% non-controlling interest in the project subsidiaries is accounted for on the equity basis.

The gross margin for our China operations for the year ended December 31, 2021 was 0% and relates to the Hehua project with SPIC that was 100% complete at December 31, 2021. During the year ended December 31, 2021, our cost of revenue for the Hehua project was significantly adjusted as a result of the unanticipated increase in costs particularly the panel costs which resulted in a significant adjustment in cost during the period which essentially reverses out the profit that was recognized in 2020 for the project. The gross margin for our China operations for the year ended December 31, 2020 was 9.4% and relates to the gross margin on revenue earned on the EPC completion for the Yilong #2, Xingren, Ancha and Hehua projects, as well as from the power purchase agreements earned on the Yilong #2 and Xingren projects from January 1, 2020 to April 30, 2020. The 70% equity interest of both projects was sold to SPIC in April 2020 and effective May 1, 2020, we no longer consolidated the projects and no power purchase agreement revenues would be reported by us on these projects.

Cost of revenue for our United States segment decreased 14% from $28.1 million in the year ended December 31, 2020 to $24.0 million in the year ended December 31, 2021, partially as a result of the corresponding decrease in revenue related to the large commercial projects completed in the year ended December 31, 2020 and did not recur in 2021. Additionally, the decrease in wattages from the year ended December 31, 2020 to the year ended December 31, 2021 is contributed by the completion of systems that were sold during the 0% interest rate loan promotion that began in 2019. There were no 0% interest rate loan promotions offered by us in 2020 or 2021 which contributed to the decrease in the wattages from 2020 to 2021. Gross margin for the United States segment decreased to 20% for the year ended December 31, 2021 from 21% for 2020, primarily as result of the disproportional decrease in the cost versus the decrease in revenue resulting from pricing competition as well as increased sale incentives. We have no cost of revenue with respect to our interest income on customer loans receivable.

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Our overall gross margin for the year ended December 31, 2021 was 15.8% compared to 12.5% for the prior period as a result of the lower gross margin contributed by both our United States and China segment in 2021. China operations tend to yield a lower gross margin than United States operations. We expect that the China segment will continue to generate both higher revenue and a lower gross margin than the United States segment in the future, resulting in the China segment continuing to have a negative impact on our consolidated gross margin. 

Operating expenses 

Sales and marketing expenses for the year ended December 31, 2021 decreased for our United States segment to $1.21 million, a decrease of $44,000, or 4%, from $1.26 million in the comparable period of 2020. Sales and marketing expenses in the United States were 4.0% of United States revenue for the year ended December 31, 2021 compared to 3.5% for the year ended December 31, 2020. 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. Due to the nature of our EPC business in our China segment, the EPC contracts for solar farm projects are generally obtained through customer relationship with just a few corporate customers. Accordingly, our China segment did not incur sales and marketing expenses for the years ended December 31, 2021 and 2020.

General and administrative expenses for the United States segment for the year ended December 31, 2021 was $9.1 million, an increase of $137,000, or 2%, from $8.9 million for the comparable period of 2020, primarily as a result of the increases in legal fees and insurance costs due to the increase in rates. General and administrative expenses were 25% of United States revenue for the prior period, compared to 30% for the current period. General and administrative expenses included compensation and benefits, depreciation and amortization (excluding auto depreciation), provision for losses, rental and leasing expense, and other corporate overhead expenses. Although we expect corporate overhead expense to decrease for ongoing expenses, we expect an overall increase in compensation expenses in 2022 and 2023 as a result of the expected vesting of stock and options that become vested upon a public stock offering event, and 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 decreased by $654,000, or 26%, from $2.5 million in the prior year to $1.9 million in the year ended December 31, 2021, as a result of pre-development costs expensed in the prior period. General and administrative expenses relate to the corporate and overhead expenses specifically connected with the China segment and include personnel costs, facilities rental and leasing and other general overhead expenses and certain pre-development project costs that are expensed prior to the execution of the EPC agreements. All of the corporate headquarter overhead is currently allocated entirely to the United States segment.

Income (loss) from operations 

Our consolidated loss from operations was $6.2 million for the year ended December 31, 2021 compared to income from operations of $3.7 million in the prior period, a decrease in income of $9.9 million, or 266%, from the comparable period of 2020. Our loss from operations for United States segment was $4.3 million, an increase in loss of $1.5 million, or 54%, from a loss from operations of $2.8 million in the prior period. Our loss from operations for our China segment was $1.9 million, compared to an income from operations from our China segment in the prior period of $6.6 million, primarily because our China segment generated significantly higher revenue during the prior period as a result of the EPC revenue earned on the four large projects, Yilong #2,Xingren, Ancha and Hehua, with SPIC, and the power purchase agreement revenue related to the Yilong #2 and Xingren projects that was earned in the prior period. The operating results of our China segment fluctuate based on the timing of awards for EPC projects, the construction contracts in progress and completed as well as the underlying timing of the related performance obligations.

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Equity in income (loss) from unconsolidated entities and (loss) on sale of controlling interest in project companies 

Equity in income (loss) from unconsolidated entities for our United States segment was $325,000 for the year ended December 31, 2021, compared to equity in income (loss) of $12,000 in the prior period of 2020. The equity in income in the current period is generated primarily from the cash distribution we received from the Alliance entities during the year ended December 31, 2021. Our losses on our United States joint ventures are limited to the remaining balance of our investment because we have no obligation to make any additional funding to these joint ventures. Accordingly, the decrease in losses in the year ended December 31, 2021 from our United States joint ventures is attributed to the losses being recognized only to the extent of the remaining balance on our investment in the joint ventures.

Equity in income from unconsolidated entities for our China segment relates to the equity in income from unconsolidated project companies for Yilong #2, Xingren and Ancha for the year ended December 31, 2021and for Yilong #2 and Xingren for the prior period. We deconsolidated the Yilong #2 and Xingren project companies on May 1, 2020 as a result of the sale of 70% controlling interest to SPIC in April 2020 and deconsolidated the Ancha project company as of December 31, 2020 as a result of the sale of 70% controlling interest to SPIC in December 2020. Equity in income of solar project companies was $544,100 for the year ended December 31, 2021, compared to equity in income of $467,960 for the year ended December 31, 2020, an increase of $76,140 or 16% as a result of the addition of the Ancha project in the current period. We record our 30% noncontrolling interest under the equity method of accounting.

Gain on debt extinguishment

Gain on debt extinguishment consists of gains associated with the exchange of the 3% matured related party debt with CEF into 4% secured subordinated convertible notes with the former limited partners of CEF, gains related to the early redemption of such convertible notes, gains related to forgiveness of the paycheck protection program loans, and a gain from the settlement of a legal action against us by three limited partners of CEF. During the year ended December 31, 2021, we converted a total of $11.0 million 3% related party notes due to with CEF into the same aggregate principal amount of 4% convertible notes, resulting in a total gain on debt extinguishment from the exchange of $137,478 related to the debt discount on the conversion. The debt discount relates to the new convertible notes is amortized to interest expense over the term of the convertible notes which is typically five years. In addition, during the year ended December 31, 2021, we reached agreements to early redeem four convertible notes with the principal of $500,000 each, at various discounted redemption amounts, resulting in a total gain on debt extinguishment from the early redemption of $777,851. In July and September 2021, the paycheck protection program loans were forgiven, and we recognized a gain of $1,820,916 for the principal amount of the loans and accrued interest for the year ended December 31, 2021. In September 2021, the complaints filed by Haijing Lin, Mian Cai and Xing Zhang were settled for $1.29 million, and $1.5 million of debt was extinguished, resulting in a gain of $210,000 for us.

During the year ended December 31, 2020, we converted a total of $15.5 million 3% matured related party notes with CEF into 4% convertible notes in the same principal amount and redeemed one $500,000 convertible note at a discount prior to its maturity date, resulting in a total gain on debt extinguishment from the exchange and early redemption of $720,276 related to the debt discount on the conversion. The debt discount relates to the new convertible notes is amortized to interest expense over the term of the convertible notes which is typically five years.

Interest expense, net 

Interest expense, net, for the year ended December 31, 2021 was $1.8 million, a decrease of $1.3 million, or 41%, from the comparable period of 2020 of $3.1 million. The $1.3 million decrease in interest expense is as a result of the prior period interest expense related to the solar farm construction financing in the China segment, prior to the sale to SPIC of the 70% controlling interest in the project companies that own the solar farm projects. Such construction financings along with the project companies were no longer consolidated by us subsequent to the disposition of the controlling interest. Our interest expense in the year ended December 31, 2021 includes interest at 3% on two loans from affiliated entities in the United States with a total principal balance of $21.5 million at December 31, 2021, 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 us and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $23.6 million at December 31, 2021, interest at 6% on a $2.0 million loan from an individual, and interest at 1% on forgivable COVID-19 government loans of $3,711,629, of which one loan representing 50% of the balance was substantially forgiven in September 2021. Our interest expense in the year ended December 31, 2020 includes interest at 3% on two loans from affiliated entities in the United States with a total principal balance of $34.5 million at December 31, 2020, 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 us and the subsidiary that borrowed the funds from CEF with an aggregate principal balance of $19.4 million at December 31, 2020, interest at 6% on a $2.0 million loan from an individual, and interest at 1% on forgivable COVID-19 government loans of $1,855,816. 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.

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Other income (expenses), net 

During the year ended December 31, 2021, other income was $713,000, consisting primarily of $231,000 of sublease income in the United States segment, approximately $300,000 of income related to the foreign currency transaction gain for our United States segment intercompany receivable denominated in the Chinese currency, and RMB 494,000 ($76,000) of legal settlement gain in the China segment with a construction supplier resulting in the reversal of the accrued payable.

During the year ended December 31, 2020, other income was $844,000 and includes approximately $713,000 of income related to the foreign currency transaction gain for our United States segment intercompany receivable denominated in the Chinese currency.

Income tax benefit (provision) 

Income tax expense for our United States segment for the year ended December 31, 2021 and 2020 was $3,250 and $6,000, respectively, primarily related to minimum California state franchise taxes and other state taxes. A full valuation allowance was provided because the United States segment is still experiencing recurring net losses. Deferred tax assets primarily consist of net operating losses carryover, investment tax credits, stock compensation expenses, and deferred charges. 

The income tax benefit for our China segment was $303,911 in the year ended December 31, 2021 as compared with a tax provision of $1,482,090 for the year ended December 31, 2020, primarily due to the taxable loss or income during the periods.  Taxable income was generated in the prior period as a result of the completion and billings for the two large projects, Yilong #2 and Xingren.

Net loss 

As a result of the foregoing, we had a consolidated net loss of $3.3 million for the year ended December 31, 2021, as compared with a consolidated net income of $952,893 for the year ended December 31, 2020. 

Prior to January 1, 2021, we had a 93.75%-owned subsidiary. During the year ended December 31, 2021, we purchased the non-controlling interest for $500,000. There was no gain or loss recognized associated with this transaction. For the year ended December 31, 2020, the net income (loss) attributable to non-controlling interests represents the allocation of the minority interest in the subsidiary’s net income (loss) to non-controlling interests.

After giving effect to the non-controlling interest, we had a net loss attributed to our stockholders of $3.3 million, or ($0.08) per share (basic and diluted), for the year ended December 31, 2021, as compared with a net income of $974,054, or $0.02 per share (basic and diluted), for the year ended December 31, 2020. 

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.

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As a result of foreign currency translations, which are non-cash adjustments, we reported net foreign currency translation gains of $311,000 for the year ended December 31, 2021 and net foreign currency translation gains of $721,000 for the year ended December 31, 2020.

 Liquidity and Capital Resources

The following tables show consolidated cash flow information for the three months ended March 31, 20 22 and 2021, and the years ended December 31, 2021 and 2020 (dollars in thousands):

	Three Months Ended
	March 31,
	2022 (unaudited)			2021 (unaudited)			$ Increase (Decrease)
Consolidated cash flow data:
Net cash provided by (used in) operating activities	$	(2,023	)	$	(5,655	)	$	3,632
Net cash provided by (used in) investing activities		(289	)		3,464			(3,753	)
Net cash provided by (used in) financing activities		(3,305	)		(1,120	)		(2,185	)
Net increase (decrease) in cash and cash equivalents and restricted cash		(5,631	)		(3,283	)		(2,348	)
Net increase (decrease) in cash and cash equivalents and restricted cash excluding foreign exchange effect		(5,617	)		(3,311	)		(2,306	)

	Year Ended
	December 31,						$ Increase
	2021			2020			(Decrease)
Consolidated cash flow data:
Net cash provided by (used in) operating activities	$	(5,351	)	$	(23,165	)	$	17,814
Net cash provided by (used in) investing activities		2,029			11,218			(9,189	)
Net cash provided by (used in) financing activities		(5,065	)		23,496			(28,561	)
Net increase (decrease) in cash and cash equivalents and restricted cash		(8,446	)		11,544			(20,000	)
Net increase (decrease) in cash and cash equivalents and restricted cash excluding foreign exchange effect		(8,387	)		11,549			(19,936	)

Operating Activities

Three months ended March 31, 2022 and 2021

Net cash used in operating activities for the three months ended March 31, 2022 was $1.9 million, compared to net cash used in operating activities for the three months ended March 31, 2021 of $5.7 million, a decrease of $3.8 million, resulting from an increase in cash of $2.4 million from the overall change in operating assets and liabilities, an increase in cash of $0.8 million from non-cash expense and a decrease in net loss of $0.5 million. During the three months ended March 31, 2022, our operating assets and liabilities used $1.4 million in cash, compared to cash used of $3.8 million for the three months ended March 31, 2021, resulting in a decrease of cash used of $2.4 million in operating assets and liabilities. The decrease in cash used from our operating assets and liabilities during the three months ended March 31, 2022 is primarily due to $159,000 increase in cash from unbilled receivables, $0.5 million increase in cash from inventories, $5.7 million increase in cash from accounts payable, $0.9 million increase in cash from contract liabilities, with an offset from $18,000 decrease in cash from receivables and current assets, $0.5 million decrease in cash from bankers acceptances, $1.3 million decrease in cash from contract assets, $1.5 million decrease in cash from customer loans receivable, and $1.2 million decrease in cash from accrued expenses and 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 EPC projects which could vary from project to project. Non-cash charges for the three months ended March 31, 2022 was a non-cash income of $0.3 million compared to a non-cash expense of $0.5 million, in prior period, an increase in non-cash income of $0.8 million, comprising of an increase of $0.5 million from gain on debt extinguishment, $93,000 increase from equity in income from investments, $0.3 million increase from depreciation and amortization expense, $118,000 increase from deferred income taxes, offset by $92,000 decrease from loss provisions for bad debts, loan losses, inventories and warranties, $32,000 decrease from currency exchanges and other and $89,000 decrease from gain on disposal of property and equipment .

Years Ended December 31, 2021 and 2020

Net cash used by operating activities for the year ended December 31, 2021 was $5.4 million, compared to net cash used in operating activities for the year ended December 31, 2020 of $23.2 million, a decrease in cash used of $17.8 million, resulting from an increase in cash of $28.8 million from our overall change in operating assets and liabilities, a decrease in non-cash expense of $6.6 million and an increase in net loss of $4.3 million. During the year ended December 31, 2021, our operating assets and liabilities provided $1.3 million in cash, compared to cash used of $27.5 million for the year ended December 31, 2020, resulting in a decrease of cash used of $28.8 million in operating assets and liabilities. The decrease in cash used from our operating assets and liabilities during the year ended December 31, 2021 is primarily due to a $0.9 million increase in cash from bankers’ acceptance, a $23.5 million increase in cash from receivables, a $7.6 million increase in cash from unbilled receivables, a $8.0 million increase in cash from costs and estimated earnings in excess of billings on uncompleted contracts, a $0.1 million increase in cash from other assets, a $11.7 million increase in cash from accrued expenses, a $0.3 million increase in cash from other liabilities, offset by a $1.3 million decrease in cash from contract assets, a $2.0 million in cash decrease from inventories, a $0.3 million net cash decrease from customer loans receivable, a $19.6 million decrease in cash from accounts payable, and a $0.3 million decrease in cash from contract liabilities. We expect the fluctuations of working capital over time to vary based on the construction status and the related contractual billings of the EPC projects which could vary from project to project. Non-cash charges for the year ended December 31, 2021 was a non-cash expense of $3.3 million compared to a non-cash income of $3.3 million, a year ago, a decrease in non-cash expense of $6.6 million which was caused by a $255,000 decrease in loss on sale of equity in solar project companies in the China segment, a $2.1 million increase in gain of debt extinguishment primarily from the paycheck protection program loan forgiveness, a $72,000 increase in equity in income from unconsolidated entities, a $0.9 million net decrease in depreciation and amortization expense, a $360,000 decrease in the write-off related to certain LED project costs, a $567,000 net decrease from provisions for bad debts, loan losses, inventories and warranty, a $1.7 million decrease from deferred income taxes, a $23,000 decrease from stock-based compensation expense, and a $607,000 decrease resulting from transaction costs written off, currency exchanges and other.

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Non-cash adjustments changes:

● $255,000 decrease resulting from a net decrease in losses related to the sale of equity in solar project companies in the China segment.

● $2.1 million increased gain resulting from gains from debt extinguishment primarily from the paycheck protection program loan forgiveness during the period.

● $914,000 decrease in depreciation and amortization expense which includes loan and debt discounts amortization.

● $360,000 decrease in the write-off related to certain LED project costs.

● $23,000 decrease in stock compensation expense.

● $567,000 decrease in expenses associated with loss provisions for bad debts, loan losses, inventories, warranty, customer care and production guaranty.

● $1.7 million decrease in deferred income taxes.

● $607,000 decrease resulting from the impact of the write-off of certain transaction costs, non-cash currency exchange and other adjustments.

Changes in operating assets and liabilities:

● $898,000 increase in cash inflow from bankers’ acceptances. Bankers’ acceptances are accepted by us in the China segment for customer payments of project billings, which generally have maturities not to exceed twelve months. We have the ability to negotiate such bankers’ acceptances to cash at the bank at discount.

● $31.2 million increase in net cash inflow primarily attributable to the net increases in receivables and current assets and unbilled.

● $8.0 million increase in net cash inflow related costs and estimated earnings in excess of billings on uncompleted contracts.

● $2.0 million decrease in net cash inflow from inventories.

● $301,000 decrease in net cash inflow from customer loans receivable.

● $7.6 million net decrease in cash inflows from accounts payable, accrued expenses and other payables and other liabilities.

● $302,000 decrease in net cash outflow 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.

● $1.3 million decrease in net cash inflow 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.

Investing Activities

Three months ended March 31, 2022 and 2021

Net cash used in investing activities for the three months ended March 31, 2022 was $187,777, consisting of additional promissory notes due from SPAC and its sponsor. Net cash provided by investing activities for the three months ended March 31, 2021 was $3.5 million, consisting of $3.9 million of proceeds from the sale of project companies, offset by $0.4 million of cash used to fund various promissory notes due from SPAC and its sponsor in connection with the pending merger. The loans made to the SPAC and the SPAC’s sponsor will be expensed in the quarter ended June 30, 2022 since we terminated the merger agreement in April 2022 at which time we determined that the notes are not likely to be collected.

Years ended December 31, 2021 and 2020

Net cash provided by investing activities for the year ended December 31, 2021 was $2.1 million, consisting of $3.5 million of proceeds from the sale of project companies in the China segment, a $107,000 distribution of capital from our unconsolidated ventures in the United States segment, $40,000 from the disposal of property and equipment, and offset by $1.6 million of cash used to fund promissory notes due from SPAC and its sponsor in connection with the proposed merger with Alberton. Net cash provided by investing activities for the year ended December 31, 2020 was $11.3 million, consisting of $11.4 million of cash received for the sale of 70% controlling interest in the project companies for Yilong #2 and Xingren projects, representing partial return of our investment in the two project companies., $338,000 of return of capital from cash distributions from the unconsolidated entities in the United States segment, $20,000 proceeds from disposal of property and equipment, partially offset with cash used of $390,000 to fund multiple loans to Alberton in connection with the proposed merger with Alberton. 

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Financing Activities

Three months ended March 31, 2021 and 2020

Net cash used in financing activities for the three months ended March 31, 2022 was $3.3 million, consisting of $2.8 million principal payments on convertible notes in the United States segment, $25,517 payments on other borrowings and equipment leases in the United States segment, $63,038 payment on refundable vendor bid deposits in the China segment, and $415,992 payment to Uonone related to legal settlement received by SolarMax on Uonone’s behalf in the China segment.

Net cash used in financing activities for the three months ended March 31, 2021 was $1.1 million, consisting of $1.9 million proceeds from paycheck protection program loans at 1% fixed interest rates and $405,000 legal settlement proceeds received in the China segment on behalf of the Uonone Group, offset with $3.3 million cash used for principal payments on various debts and early redemptions on convertible notes, and a repayment of $46,000 of vendor bid deposits in the China segment. Net cash provided by financing activities for the three months ended March 31, 2020 was $2.6 million, consisting of $2.6 million legal settlement proceeds received in the China segment on behalf of the Uonone Group, $186,000 of vendor bid deposits received in the China segments, offset with the principal repayments on various debts of $122,000, and a repayment of $86,000 of vendor bid deposits in the China segment.

Years ended December 31, 2021 and 2020

Net cash used in financing activities for the year ended December 31, 2021 was $5.1 million, consisting of $1.9 million proceeds from the second paycheck protection program loans at 1% fixed interest rates and $406,000 legal settlement proceeds received in the China segment on behalf of the Uonone Group, offset by $6.2 million cash used for principal payments on various debts and early redemptions on convertible notes, $947,000 in repayment of loans and capital leases, and a repayment of $139,000 of vendor bid deposits in the China segment. Net cash provided by financing activities for the year ended December 31, 2020 was $23.5 million. During the year ended December 31, 2020, the project subsidiary for the Ancha project in the China segment borrowed and received $23.7 million of solar financing proceeds to finance the construction of the Ancha project at 5.3% in October 2020, our United States subsidiary borrowed $1,855,816 of forgivable loans under the federal government’s payroll protection program at 1%, we received $348,000 of vendor bid deposits in our China segment, we received legal settlement proceeds related to the pre-merger period on behalf of the Uonone Group of $1.4 million which will be reimbursed to the Uonone Group, we repaid borrowings (loans, convertible notes and capital lease payments) in the United States segment totaling $3.5 million, and refunded vendor bid deposits in our China segment of $283,000. 

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 March 31, 2022 and December 31, 2021 (dollars in thousands):

	March 31,
	2022 (unaudited)		December 31, 2021
US Segment
Insured cash	$	1,000	$	1,634
Uninsured cash		2,229		4,816
		3,229		6,450
China Segment
Insured cash		678		767
Uninsured cash		3,864		6,186
		4,542		6,953
Total cash and cash equivalents and restricted cash		7,771		13,402
Cash and cash equivalents		5,051		9,886
Restricted cash	$	2,720	$	3,516

We currently do not plan to repatriate any cash or earnings from any of our non-United States operations because it intends 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 it does anticipate that it will use the cash generated from our PRC operations in those operations and it does not plan to repatriate such funds to the United States.

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Borrowings

On January 29, 2019 and January 31, 2019, we received six-month loans totaling $2,000,000 from a minority stockholder for which we issued a promissory note dated January 29, 2019. Interest at 10% for six months in the amount of $100,000, was prepaid through deduction from the loan proceeds. The due date of the loans has been extended on a month-to-month basis, most recently to January 30, 2020 and February 1, 2020. On May 4, 2020, the minority stockholder assigned the note to a PRC individual unrelated to us and an amended and restated promissory note was executed at an interest rate of 6%, with interest payable quarterly and the due date of the note was extended from April 20, 2021 to October 31, 2021, and further extended from December 31, 2021 and then to March 31, 2022 was further extended to August 31, 2022.

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 agreed to make loans to the subsidiary in an amount not to exceed $45 million. CEF advanced $45 million pursuant to the agreement. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13,000,000. CEF II advanced $10.5 million pursuant to the agreement. The proceeds of the loans were used by our subsidiaries for their operations. The loans from CEF and CEF II accrue interest at 3% per annum, payable quarterly in arrears. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, a related party . The limited partners of both CEF and CEF II are investors who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program and are not related parties. The 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 March 31, 2022 and are on extension until the limited partner meets applicable immigrant investor visa requirements. We cannot determine the period of the extensions. As of July 13, 2022, limited partners whose capital contributions funded loans of $40.0 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 $5.0 million are pending.

As the loans matured and the limited partners requested return of their capital contribution, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to CEF. As of July 13, 2022, we had issued convertible notes in the principal amount of $34.0 million to former limited partners of CEF, of which principal payments of $9.8 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.77 million, leaving convertible notes in the principal amount of $21.7 million outstanding. As of July 13, 2022, notes to CEF and CEF II in the aggregate principal amount of $19.5 million were outstanding.

                Six of the limited partners commenced an action against CEF, SolarMax and others, including Mr. Hsu and Mr. Yuan, seeking cash payment of their capital contribution to CEF totaling $3.0 million and other relief, including a declaration that the $45.0 million note to CEF is due and payable. Three of these limited partners settled their actions. One of these limited partners had the action dismissed by the court. The action by the fifth and sixth limited partners, whose capital account is $1.0 million is pending. The $1.0 million claimed by these plaintiffs, along with the outstanding principal amount of the loan to CEF, is included in the note payable to CEF. See “Business – Legal Proceedings.”

                During the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, we made payments on account of the EB-5 notes in the amount of $                 , $                  and $                   , respectively , either as payments of installments of principal due under the convertible notes or to pay the principal amount of the notes at a discount.  Such payments were made from our cash flow from operations.  W e plan to use our cash flow to make any payments necessary to pay the convertible notes as they become due to the extent that the note holders do not exercise their conversion rights under the notes.  However, to the extent that we do not have the funds to pay these notes we may use the proceeds of this offering for such purpose.  T o the extent that we do not have sufficient cash flow from operations to enable us to pay the EB-5 notes, as well as other outstanding indebtedness, we may need to rely on the proceeds of this offering to meet our liquidity needs .

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 August 31, 2022. This loan has been extended periodically since the original maturity date.

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On April 15 and April 16, 2020, we received forgivable government loans totaling $1,855,816 pursuant to the paycheck protection program under the CARES Act. The loans were made to three of our United States subsidiaries and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents and utilities, over the subsequent 24 weeks from the loan origination date, and we maintained the required number of full-time employee equivalents by September 30, 2020. For the non-forgivable portion, the loan would be due in two years at a fixed interest rate of one percent with the first payment due in six months. In July and September 2021, $1,798,539 of the paycheck protection program loans were forgiven and in September 2021 the remaining $57,277 of the loans were repaid.

On April 21, 2020 and May 13, 2020, we received advances totaling $24,000 under the EIDL program. The advances will reduce the amount that will ultimately be forgiven under the PPP program.

On February 1, 2021, we received loans pursuant to the Paycheck Protection Program Second Draw totaling $1,855,813. The loans were issued to three of our United States subsidiaries and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents, utilities and other eligible costs allowed by the Small Business Administration, during the 24-week period beginning on the date of the first disbursement of the loans. For the non-forgivable portion, the loans would be due in five years at a fixed interest rate of one percent per annum with the first payment due 16 months from the date of the first disbursement of the loans.  In February and April 2022, $1,852,291 of the loans from the Paycheck Protection Program Second Draw were forgiven and in May 2022 the remaining $3,522 of the loans were repaid.

PRC Solar Farm Project Financings

On May 21, 2020, our PRC project subsidiary for the Ancha project entered into project financings with an unrelated PRC lender in an aggregate amount of RMB 163.5 million (approximately $24 million) to finance the construction of the Ancha project. The interest rate is based on a stipulated benchmark which is currently at 5.311% per year. The financing is secured by the Ancha solar farm project. As a result of the sale and transfer of 70% of the equity interests in the Ancha project company in December 2020, the project company is no longer consolidated by us and accordingly, the financing obtained by the project company is no longer presented as a liability in our consolidated financial statements effective on December 31, 2020.

On October 29, 2019, our PRC project subsidiaries for the Yilong #2 and Xingren projects entered into project financings with an unrelated PRC lender in an aggregate amount of RMB 310 million (approximately $44.5 million) to finance the construction of the Yilong #2 and Xingren projects. The interest rate is based on a stipulated benchmark which is currently at 6.2% per year with interest only payment until April 2020 and interest and principal payments thereafter, due quarterly until October 29, 2034. The financing for each project is are secured by of the solar farm’s assets and are also guaranteed by SPIC. As a result of the sale and transfer of 70% of the controlling interests in Yilong #2 and Xingren project subsidiaries to SPIC on April 30, 2020, the project companies are no longer consolidated by us and accordingly, commencing May 1, 2020, the financing obtained by the two project companies is not presented as a liability on our consolidated financial statements. 

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Contractual Obligations

Borrowings

Principal maturities for the financing arrangements as of March 31, 2022 are as follows (dollars in thousands):

Period ending December 31,	Auto Loans		Bank and Other Unsecured Loans		EB - 5 Related Party Loans		Convertible Notes		Total
2022 (remaining months)		40		2,000		13,500		5,900		21,440
2023		45		-		8,000		5,900		13,945
2024		-		-		-		5,700		5,700
2025		-		-		-		2,500		2,500
2026		-		1,661		-		800		2,461
Thereafter		-		-		-		-		-
Total	$	85	$	3,661	$	21,500	$	20,800	$	46,046

Operating Leases

Future minimum lease commitments for office facilities and equipment for each of the next five years as of March 31, 2022, are as follows (dollars in thousands):

Period ending December 31,	Related Parties		Others		Total
2022 (remaining months)		1,051		138		1,189
2023		1,443		28		1,471
2024		1,486		12		1,498
2025		1,530		-		1,530
2026		1,525		-		1,525
Thereafter		-		-		-
Total	$	7,035	$	178	$	7,213

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Employment Agreements

On October 7, 2016, we entered into employment agreements with our chief executive officer, David Hsu, for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr. 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. M r. Hsu’s annual salary for 2020 is $577,779, which reflects a voluntary reduction in salary as part of a company-wide compensation reduction in view of the COVID 19 pandemic. His salary for 2021 was $675,305, and his salary for 2022 is at the annual rate of $695,564. 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 within three business days of the effective time of the offering. In addition, at July 13, 2022, we owed Mr. Hsu $1,159,142, representing deferred salary from 2019, 2020, 2021 and 2022 and cash bonuses deferred from 2017 and 2018.  Mr. Hsu waived his bonus for 2019, 2020 and 2021 as part of the suspension of incentive programs for key employees.

Effective February 24, 2020, Ching Liu resigned from all her positions with us and her employment agreement with was terminated. She continues to provide services to us pursuant to a consulting agreement consulting agreement which provides for compensation at the rate of $15,000 per month. Pursuant to a release and separation agreement dated October 1, 2020, with certain limited exceptions, we and Ms. Liu released each other from their obligations under her employment agreement, and we paid Ms. Liu $25,497, and agreed to pay her $803,095, representing the outstanding balance due her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. We also owe Ms. Liu $500,000 in connection with her exchange of 998,676 restricted shares for options to purchase 1,058,098 shares of common stock at $5.01 per share a cash payment of $500,000, which was initially payable by December 15, 2019 and has been extended and is now due within three business days of the effective date time of the offering. Ms. Liu waived her cash and equity bonuses for 2019 as part of the suspension of incentive programs for key employees.

Cash Requirements

We require substantial funds for our business and we believe that the anticipated cash available at the effective time of the offering including the proceeds of this offering, together with cash generated by our operations should enable us to meet our cash requirements for at least the twelve months from the effective time of the offering. 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 within three months from the date of this offering. We are seeking to negotiate extensions to our loan obligations 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 and Ms. Liu described above, approximately $1.9 million of which are payable within three business days after the effective time of the offering. 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 as well as their perception that they could get a more favorable result with litigation. To the extent that any settlements of pending litigation provide the plaintiffs with what is perceived to be a more favorable result than acceptance of the convertible notes it may be necessary for us to provide more favorable terms to the limited partners. To the extent that we are not able to extend or refinance our current debt obligations, or satisfy our obligations from cash flow,   we will use funds available upon completion of the offering for that purpose, which will reduce the funds available for the expansion of our business. If our current liabilities exceed the available cash, we will need to obtain alternative financing. We cannot assure you that such financing will be available on acceptable, if any terms, which would impair our ability to develop our business. Our financial statements for the year ended December 31, 2021 have a going concern paragraph.

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Critical Accounting Policies

We are an emerging growth company within the meaning of the Securities Act, and, as such, will utilize certain exemptions from various public company reporting requirements. For example, we will not have to provide an auditor’s attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to utilize this extended transition period. Our financial statements and, following the offering our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards as they become applicable to public companies.

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates, judgments, and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances. We continually evaluate the policies and estimates we use to prepare our consolidated financial statements. Changes in estimates or policies applied could affect our financial position and specific items in the results of operations that are used by our stockholders, potential investors, industry analysts, and lenders in their evaluation our performance.

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. The consolidated financial statements include our accounts and the accounts or our direct and indirect owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our consolidated financial position, results of operations and cash flows have been included.

We evaluate the need to consolidate joint ventures and variable interest entities based on standards set forth in ASC Topic 810, Consolidation (“ASC 810”). In determining whether we have a controlling interest in a joint venture or a variable interest entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. As of December 31, 2020 and 2019, our United States segment held non-controlling interests in Alliance Solar Capital 1, LLC (“A#1”), Alliance Solar Capital 2, LLC (“A#2”), and Alliance Solar Capital 3, LLC (“A#3”) and an investment in a PRC-based panel manufacturer, Changzhou Holysolar Technology, Co., Ltd, which was renamed to “Changzhou Hongyi New Energy Technology Co., Ltd” on March 10, 2017 (“Changzhou”). At December 31, 2020, we have three unconsolidated investments in the PRC related to its 30% non-controlling interests in the previously-consolidated project companies for Yilong #2, Xingren and Ancha.

During 2020, we sold our controlling interests in the three project companies that hold Yilong #2, Xingren and Ancha projects, and sold 100% ownership interest in the project company that holds the Hehua project. Beginning on May 1, 2020, our 30% non-controlling interests in the Yilong #2 and Xingren project companies are accounted for under the equity method of accounting. Because the controlling interests for the project companies for the Ancha and Hehua projects were sold on December 29, 2020, our non-controlling interests in the Ancha and Hehua project companies of 30% and 0%, respectively, are accounted for under the equity method of accounting as of December 31, 2020.

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As of December 31, 2021 and 2020, we did not hold variable interests in any variable interest entities (“VIEs”) and did not consolidate any variable interest entities. We have determined that it is not the primary beneficiary in the only operational VIE, SMX Property LLC (“SMXP”) and therefore, did not consolidate the financial information of SMXP. We are the lessee under an operating lease of our Riverside, CA headquarters facility with SMXP. SMXP is a private entity owned by our founders, one of whom is our chief executive officer and a director, another who is a director, and another is a former officer and director. The lease dated September 16, 2016, has a ten-year term, with one five-year renewal option. We do not have any ownership interest in SMXP. Other than the common ownership  and the operating, we do not have any economic arrangements with SMXP such that we will have an obligation to support the operations of SMXP. Further, we do not have the power to direct and control the activities of SMXP as such power to direct and control resides with SMXP’s principals. Accordingly, we are not considered to be the primary beneficiary of SMXP and has not consolidated SMXP.

Prior to September 10, 2021, our non-controlling interest was comprised of the 6.25% minority interest in SMX Capital, a consolidated subsidiary, held by a former executive of our China segment and a current stockholder. Prior to 2021, the minority interest is reflected as non-controlling interests in the accompanying consolidated financial statements. On September 10, 2021, we purchased the minority interest.

COVID-19, Liquidity and Going Concern

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we operate. Further, the issuance of permits necessary for residential solar systems was affected because some local California government offices that issued permits for solar installations were closed for parts of the second quarter and, as a result of government workers working from home subsequent to the second quarter, effectively operated with reduced hours. As a result, in the United States, we experienced a lower level of residential solar energy system installations with a decline in revenue in the year ended December 31, 2021, compared to the same period in 2020. In China, the timing of final solar farm project approvals for two projects and the beginning of one new solar farm installation were delayed for approximately three months but the delays did not have a material impact on our China business in 2021 and 2020. Our recognition of revenue from two of our contracts with SPIC was delayed because the government office whose consent was required was closed for the pandemic. Further, the effects of China’s zero tolerance policy with respect to COVID-19 which has resulted in lockdowns in cities and provinces in China, have impaired our ability to negotiate contracts and payment schedules with SPIC, which has been our only customer for our China segment since 2020, with the result that we have no pending agreement with SPIC.

To the extent that the government in California or China institutes or recommends further closures, including closures or reduced office hours of the government offices that process permits for solar installation, we may not be able to negotiate new contracts for our China Segment.  As a result of the COVID-19 pandemic, our operations in China were temporarily disrupted due to the lockdown and the operations have gradually returned to normal operation beginning in the second quarter of 2020. In March and April 2020, our United States operations experienced the impact of COVID-19 that resulted in the implementation of headcount reduction and other cost-saving measures in an effort to improve liquidity. We obtained additional liquidity in the United States through the available government assistance programs in the form of loans and grants. As of the date of this prospectus, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.

The effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments, which have the effect of slowing our sales in the United States or increasing the already-existing supply chain problems. Further, China’s policy of effecting closures to avoid infections, including the recent lockdown in many provinces and municipalities in China, is affecting our ability to generate revenue in China.

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The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of SolarMax as a going concern. Our recurring net losses, increased accumulated deficit and stockholders’ deficit, raise substantial doubt about our ability to continue as a going concern. During the three months ended March 31, 2022, we incurred a net loss of approximately $0.8 million and reported negative cash provided by operations of approximately $2.0 million. At March 31, 2022, the accumulated deficit was approximately $63.0 million, the working capital deficiency was $10.8 million and the stockholders’ deficiency was approximately $9.2 million. In connection with these consolidated financial statements, management evaluated whether there were conditions and events, considered in the aggregate, that raise substantial doubt about our ability to meet our obligations as they become due within one year from the date of issuance of these financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities, and significant current debt.

As of March 31, 2022, our principal sources of liquidity consisted of approximately $5.0 million of cash and cash equivalents, as well as anticipated cash flow from operations.  We believe our current cash balances coupled with anticipated cash flow from operating activities may not be sufficient to meet our working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, including approximately $21.5 million of debt that is due in the next twelve months. Management is focused on expanding our existing business, as well as our customer base, including our continuing efforts to generate revenue from non-related parties for our China operations and to continue to increase our revenues. We are looking to continue to negotiate an exchange of a large portion of the approximately $13.5 million of the current portion of long-term related party loans for convertible notes that mature in periods beyond one year. Though we have successfully exchanged a substantial portion of the related party loans that already matured into convertible notes in 2020, 2021 and 2022, we cannot predict whether we will be successful in these continued efforts. We are also looking to raise additional funds through the proposed offering.

As a result of the above, there is substantial doubt regarding our ability to continue as a going concern within one year from the date of issuance of these financial statements. We cannot give assurance that we can increase our cash balances or limit our cash consumption, complete a public offering or other alternative offering or obtain the exchange of any of our current debt and thus maintain sufficient cash balances for our planned operations. Future business demands may lead to cash utilization at levels greater than recently experienced. Revenue and cash flow from our China segment is irregular because of the timing of solar projects and we require significant funds for our operations, particularly during periods when there is little or no revenue or cash flow from the projects. We may need to raise additional capital in the future. However, we cannot assure that it will be able to raise additional capital on acceptable terms, or at all.

Revenue Recognition

Effective on January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”) for interim periods within the year ended December 31, 2019 using the modified retrospective method with a cumulative reduction adjustment to retained earnings as of January 1, 2019 of $580,867, which represents the net impact of recognizing solar energy revenue in the United States over time rather than at a point in time, which resulted in $397,226 of gross profit, and writing off $978,093 in deferred project costs in the PRC. We have applied Topic 606 to all customer contracts not completed by the initial date of application.

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. We recognize revenue when we satisfy 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 us from the customer and excluded from revenue.

Our principal activities from which we generate our revenue are described below.

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Revenue from Engineering, Procurement and Construction (“EPC”) Services

For energy generation assets owned and controlled by the customer, we recognize revenue for sales of EPC services over time as our 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, we recognize 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, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3% to 5%, depending on the contract. The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period.

In applying cost-based input methods of revenue recognition, we use 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 our 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 our performance obligations (“inefficient costs”) are excluded from our input methods of revenue recognition as the amounts are not reflective of our 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. We recognize solar module and direct material costs as incurred when such items have been installed in a system.

Cost-based input methods of revenue recognition require us to make estimates of net contract revenues and costs to complete our 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 our 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, we recognize 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.

Our arrangements may contain clauses such as contingent repurchase options, delay liquidated damages, rebates, penalties or early performance bonus, most favorably pricing or other provisions, if applicable, that can either increase or decrease the transaction price. We have historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606. Variable considerations that increase the transaction price (e.g., performance bonuses) were historically recognized under Topic 605 on a cash basis as such amounts were not fixed and determinable and collectability was not reasonably assured until paid.  However, under Topic 606, we will need to estimate and apply a constraint on such variable considerations and include that amount in the transaction price. Because our 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. We estimate variable considerations for amounts to which we expect 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 duration of 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, we recognize revenues at a point in time when we determine we have sufficient evidence of acceptance, an indicator that obliges the customers to make payments to us pursuant to the contracts. Under this situation, we believe we have the control of the projects until they are accepted by the customers and that all the applicable performance obligations under the customer contract are met, which is the point in time when all the required performance obligations under the customer contract are fully met.

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Sale of Controlling Interests in Project Companies

We account for the sale of the controlling interest in the solar project companies in our China segment under ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets, (“ASC 610-20”). ASC 610-20 provided guidance for recognizing gains and losses from the transfer of nonfinancial assets, which includes the sale of real estate. ASU 2017-05 issued in February 2017, amends the guidance on nonfinancial assets in ASC 610-20. The amendments clarify that (i) a financial asset is within the scope of ASC 610-20 if it meets the definition of an in-substance nonfinancial asset and may include nonfinancial assets transferred within a legal entity to a counter-party, (ii) an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counter-party and de-recognize each asset when a counter-party obtains control of it, and (iii) an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. Further, ASU 2017-05 provides guidance on accounting for partial sales of nonfinancial assets. We applied the provisions of ASC 610-20, for gains or losses on sale of real estate, and recognizes any gains or losses at the time control of a property is transferred and when it is probable that substantially all of the related consideration will be collected. 

During the year ended December 31, 2020, we sold controlling interests in two project companies for the Ancha and Hehua projects in the PRC segment that met the requirements for recognition under ASC 610-20. During the year ended December 31, 2020, we also sold controlling interests in two other project companies for the Yilong #2 and Xingren projects in the PRC segment that met the requirements for recognition under ASC 810 because the project companies for the Yilong #2 and Xingren projects met the definition of a business at the time of the sale and therefore the revenue recognition under ASC 810 was therefore applied for the sale of the project companies for the Yilong #2 and Xingren projects.

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. We record the revenue under such power purchase agreements during the period under which we have 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

We have analyzed the impact of Topic 606 on the sales of solar energy systems, battery storage systems, and other products and has concluded that the revenue recognition associated with these sales should be recognized over time (instead of a point in time prior to the accounting change resulting from the adoption of Topic 606 on January 1, 2019) as our performance creates or enhances the property controlled by the customer (the asset is being constructed on a customer’s premises that the customer controls). Such accounting change has been made effective upon the adoption of Topic 606 on January 1, 2019 with a cumulative adjustment to increase retained earnings of $397,226. The new accounting is reflected in the accompanying consolidated financial statements for the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020.

Our 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. We recognize 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 fulfill contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

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For solar energy and battery storage system sales, we recognize 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, we use 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 our progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost-based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance.

In the United States, we sell solar energy and battery storage systems to residential and commercial customers and recognize revenue net of sales taxes. Customers may pay for these sales in cash or by financing with us. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by us for the customer, and leasing arranged by us for the customer through Sunrun, Inc. (“Sunrun”).

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

For a system sale paid by a customer with third-party financing arranged by us for the customer, direct payments are made by the financing company to us based on an agreement between the financing company and us, 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 system sale paid by a customer with a lease through Sunrun, direct payments are made by Sunrun to SolarMax based on an agreement between Sunrun and SolarMax, which is generally 80% upon the completion of installation and 20% upon the permission to operate is granted.

For a system sale to a customer by financing with us, the customer receivable, less any down payments, becomes a loan receivable following the grant of the permission to operate the solar system by a utility company, at which time the loan is recorded and the loan interest begins to accrue.  Financing terms for sales with financing by us are generally made for terms up to 60 months. 

LED Product Sales and Service Sales

For product sales, we recognize 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), we allocate 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, we have not allocated any portion of the transaction price to any performance obligation associated with the warranty.

Payment of products is generally made upon delivery or with a 30 day term. Extended payment terms are provided on a limited basis not to exceed twelve months. Payment of services is due when the services are completed and accepted by the customer. For certain LED product sales, we provide the customers with a right of return subject to restocking fees. We assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration we expect to receive after returns are made. Based on our historical experience, we have 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.

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For contracts where we 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. We will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they would represent a separate performance obligation.

Operating Leases and Power Purchase Agreements (PPAs) in United States

From 2010 to 2014, we constructed and offered built-to-suit commercial-grade photovoltaic systems for certain commercial and not-for-profit customers in California, Hawaii, Colorado and New Jersey; under long-term leases and PPAs, with terms of up to 20 years. Under these arrangements, we own the systems and receive the 30% upfront federal grant or investment tax credits, as well as any applicable state and utility company rebates on the systems it owns. Upfront grants, rebates and incentives were applied to reduce the cost of the systems. All other annual rebates and performance-based incentive rebates constitute variable consideration and are recognized in revenue when received because, at that point, it becomes probable that a significant reversal in the cumulative amount of revenue recognized will not occur. In connection with our ownership of solar systems primarily in New Jersey, we own a number of Solar Renewable Energy Certificates (“SREC”). There is currently no assigned monetary value to an SREC and the prices are ultimately determined by market forces within the parameters set forth by the state. We recognize the revenue of the SREC when it is sold.

We sell energy generated by PV solar power systems under PPAs. For energy sold under PPAs, which may qualify as a lease, we recognize revenue each period based on the volume of energy delivered to the customer and the price stated in the PPA.

For leases, we are the lessor of solar energy systems, which are accounted for as operating leases in accordance with ASC 840, Leases, since the lease does not provide for the ownership transfer to the lessee at the end of lease, the lease does not contain a bargain purchase option, the lease term does not exceed 75% of the economic life of the underlying solar system which is typically 35-40 years, and the net present value of the lease payments does not exceed 90% of the original investment.

Revenue from all of our operating leases is currently recognized on a straight-line basis over the contractual term.

Loan Interest Income

In the United States, we provide installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services. 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. We recognize 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 March 31, 2022, or December 31, 2021 and 2020.

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Impairment of Long-Lived Assets and Goodwill

We assess the carrying value of our long-lived assets and related intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived asset, or group of assets, may not be recoverable, but at least annually. 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.

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. Based on our annual impairment testing, we determined the estimated fair value of our PRC reporting unit substantially exceeds our carrying value.

Income Taxes

We account for income taxes pursuant to the FASB ASC Topic 740. We recognize 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. We account 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.

We record net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, we consider 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. We have determined it is more likely than not that our deferred tax assets related to our United States operation will not be realizable and has recorded a full valuation allowance against our deferred tax assets. In the event we are able to realize such deferred income tax assets in the future in excess of the net recorded amount we 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 our consolidated financial statements in accordance with GAAP. The calculation of our tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. Our tax liabilities include estimates for all income-related taxes that it believes are probable and that can be reasonably estimated. To the extent that our estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which it determines such understatement. If our income tax estimates are overstated, income tax benefits will be recognized when realized.

We recognize interest and penalties related to unrecognized tax positions as income tax expense. For the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, we did not incur any related interest and penalties.

We do not record U.S. income taxes on the undistributed earnings of our foreign subsidiaries based upon our intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the United States. As of March 31, 2022 and December 31, 2022 and 2021, our foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. In the event we are required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

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On March 27, 2020, in response to COVID-19 the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact our financial statements include removal of certain limitations on the utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enact Tax Cuts and Jobs Act. As we have not generated taxable income in the previous years, the CARES Act feature allowing federal net operating losses originating in 2018, 2019 or 2020 to be carried back five years has no impact on us. In addition, the California net operating losses utilization will be suspended for the year 2020-2022 which is not expected to have any impact as well due to our not having generated any California taxable income.

Effect of Offering on Tax Loss and Investment Credit Carryforwards

We have historically filed United States federal, California, Colorado, Hawaii, and New Jersey corporate income tax returns. As of December 31, 2021, our federal and state income tax net operating loss (“NOL”) carryforwards were $42.2 million and $52.0 million, respectively. These NOLs will expire at various years from 2031 through 2037. Our US federal NOL generated post-2017 of $15.7 million can be carried forward indefinitely. Additionally, we have investment tax credits of $1.0 million as of December 31, 2021, for building qualifying energy properties and projects under IRC Section 48, which will expire at various dates from 2033 through 2034.

We also had unused net operating loss carryforwards from our Chinese subsidiaries in the amount of approximately $1.0 million as of December 31, 2020, which may be applied against future taxable income and which expired at the end of 2020.

The above NOL and investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Code. Similar state provisions limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income as well. In general, as defined by Sections 382 and 383, an ownership change results from transactions increasing ownership of more than 5 percent stockholders or public groups in the stock of the corporation by more than 50 percentage points within three years of the ownership change event. We have not completed a Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. If a change in ownership occurred, our NOL and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. 

BUSINESS

Introduction

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 and, following the acquisition in 2015 of Chengdu Zhonghong Tianhao Technology Co., Ltd. (“Chengdu ZHTH”), which is a subsidiary of Solarmax Technology (Shanhai) Co. Ltd. (together with its subsidiaries thereunder, “ZHTH”), and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd., or ZHPV, commenced operations in China. Our business in China is primarily conducted through ZHTH and ZHPV and their subsidiaries.

We operate in two segments – the United States operations and the China operations. Our United States operations primarily consist of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, (ii) financing the sale of our photovoltaic and battery backup systems, and (iii) sales of LED systems and services to government and commercial users.

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Our China operations consist of identifying and procuring solar farm projects for resale to third parties and performing EPC services primarily for solar farm projects. Our operations in China are conducted through our principal Chinese subsidiaries.

Our China operations did not generate any revenue for the three months ended March 31, 2022 and generated revenue of $7.8 million for the year ended December 31, 2021, and revenue of $96.1 million in the year ended December 31, 2020, substantially all of which was generated pursuant to agreements with SPIC, which is a large state-owned enterprise under the administration of the Chinese government that holds a range of energy assets, on four projects.

Our United States operations generated revenue of $9.6 million for the three months ended March 31, 2022, consisting of solar and battery revenue of $9.0 millio n, LED revenue of $0.3 million and financing revenue of $0.2 million.  For the year ended Dece mber 31, 2021, revenue from our United States operations was approximately $30.0 million, consisting of solar and battery revenue of $27.5 million, LED revenue of $1.3 million and financing revenue of $1.2 million. For the year ended December 31, 2020, revenue from United States operations was approximately $35.5 million, consisting of solar and battery storage revenue of approximately $28.9 million, LED revenue of approximately $4.8 million and financing revenue of approximately $1.8 million.

Effects of COVID-19 Pandemic

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we operate. Further, the issuance of permits necessary for residential solar systems was affected because some local California government offices that issued permits for solar installations were closed for part of the second quarter and, as a result of government workers working from home subsequent to the second quarter, effectively operated with reduced hours. As a result, in the United States, we experienced a lower level of residential solar energy system installations compared to the same periods in 2020 and 2019. In China, the timing of final solar farm project approvals for two projects and the beginning of one new solar farm installation were delayed for approximately three months but the delays did not have a material impact on our China business in 2020 as the projects that we expected to complete in 2020 were completed, and we commenced and completed work on two additional projects, known as the Ancha and Hehua projects. The Ancha project was completed in December 2020 and the Hehua project was completed in June 2021. As of March 31, 2021, we did not have any new contracts for our China segment.

To the extent that the government in California or China institutes or recommends further closures, including closures or reduced office hours of the government offices that process permits for solar installation, we may suffer a further decline in revenue and results of operations. As a result of the COVID-19 pandemic, our operations in China were temporarily disrupted due to the lockdown and the operations have gradually returned to normal operation beginning in the second quarter of 2020. In March and April 2020, our United States operations experienced the impact of COVID-19 that resulted in the implementation of headcount reduction and other cost-saving measures in an effort to improve liquidity. We obtained additional liquidity through the available government assistance programs in the form of loans and grants. As of the date of this prospectus the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.

On December 24, 2018, we filed a registration statement on Form S-1 for a public offering of our common stock, having previously submitted a draft registration statement with the SEC. We filed eight amendments to the registration statement, the last amendment of which was filed on January 16, 2020. The registration statement contemplated an offering of 4,000,000 shares at $4.00 per share. In large part as a result of the COVID-19 pandemic and the actions taken by the State of California and China, we were not able to complete the offering, and the registration statement was withdrawn in October 2020. We then looked to other financing sources, which resulted in the commencement of negotiations with Alberton and the execution of the Merger Agreement with Alberton, which was terminated in April 2022.

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Our Corporate Structure

We are a Nevada corporation formed in January 2008. We have four wholly-owned subsidiaries in the United States: SolarMax Renewable Energy Provider, Inc., SolarMax Financial, Inc. (“SolarMax Financial”), SolarMax LED, Inc. (“LED”) and SMX Capital, Inc. (“SMX Capital”). Prior to September 10, 2021, SMX Capital was a 93.75% owned subsidiary, and our financial statements were consolidated with our consolidated financial statements. The 6.25% minority interest was held by a former executive of our PRC operations and was acquired by us.

Our wholly-owned subsidiaries outside the United States are Accumulate Investment Co. Ltd. (BVI), a British Virgin Islands corporation (“Accumulate’), SolarMax Technology Holdings (Hong Kong) Limited, a Hong Kong corporation (“SolarMax Hong Kong”), Golden SolarMax Finance Co., Ltd, a Chinese corporation (“Golden SolarMax”) and SolarMax Technology Holdings (Cayman) Limited, a Cayman Islands corporation (“SolarMax Cayman”).

Accumulate has one wholly-owned subsidiary, Accumulate Investment Hong Kong, a Hong Kong corporation, which has one wholly-owned subsidiary, ZHPV.

SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Shanghai. SolarMax Shanghai is a wholly foreign-owned entity, which is referred to as a WFOE. SolarMax Shanghai currently has subsidiaries that are not significant, but forms subsidiaries which acquire permits for solar farms with a view to selling the project subsidiaries pursuant to the terms of agreements with the ultimate buyer, which during 2020 and 2021 was SPIC. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.

The following charts show our corporate structure for our United States and China segments. The chart for the China segment does not include the subsidiaries of ZHPV, which are either project subsidiaries or subsidiaries which are formed to perform services for a specific contract; or subsidiaries of SolarMax Shanghai.

United States Segment

		SolarMax Technology, Inc.
SolarMax Renewable Energy Provider, Inc.	SolarMax LED Inc.		SolarMax Financial Inc.	SMX Capital, Inc. (93.75%)

China Segment

			SolarMax Technology, Inc.
Golden SolarMax Finance. Co. Ltd.		SolarMax Technology Holdings (Hong Kong) Limited		Accumulate Investment Co. Ltd. (BVI)		SolarMax Technology Holdings (Cayman) Limited
	SolarMax Technology (Shanghai) Co., Ltd.			Accumulate Investment Co., Limited (HK)
					Jiangsu Zhonghong Photovoltaic Electric Co. Ltd. (ZHPV)

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Our principal executive offices are located at 3080 12th Street, Riverside, California 92507. Our telephone number is (951) 300-0788. Our website is http://www.solarmaxtech.com.  Any information contained on, or that can be accessed through, our website or any other website is not a part of this prospectus.

Operations in China

General

Our business in China is conducted through ZHTH and ZHPV and their subsidiaries. Unlike systems that we sell in the United States, which are installations for residential and small business users, the projects in China are generally solar farms, which are constructed on large land areas where multiple ground-mount solar tracking towers are installed. While a typical residential or small business installation in the United States generally generates between 6.5KW and 0.2MW of power, the solar farms can generate in the range of 30MW to more than 100MW of power. To comply with the local requirements to own and operate the EPC business in China, ZHTH and ZHPV establish subsidiaries for different purposes. These special purpose subsidiaries include project subsidiaries which were formed by ZHTH or ZHPV to own the solar farms and the permits to construct and operate solar farms and the equity in the subsidiaries, or, in the case of the agreements with SPIC, are sold to the buyer of the projects upon completion. ZHTH was primarily engaged in the business of identifying and procuring solar system projects for resale to third party developers and related services in China. ZHPV’s core business is to provide EPC services.

Our business in China initially consisted primarily of identifying and procuring solar farm system projects for resale to third party developers and related services in China, identifying potential buyers of solar farms, and providing engineering, procuring and construction services, which are referred to in the industry as EPC services, for solar farms and, to a significantly lesser extent, rooftop solar systems in China. Approximately 95% of our China revenue in 2019 was generated from Changzhou Almaden Co., Ltd., which is a related party that we refer to in this prospectus as AMD. We did not generate any revenue from AMD  since 2019. See “Business – EPC Services.” Since the second half of 2019, our business in China consisted of EPC services pursuant to agreements with SPIC.  Substantially all  of our China revenues for the year ended December 31, 2021 and the year ended December 31, 2020 were generated from projects for SPIC, and substantially all of such revenues were generated during the second quarter from two of the projects for SPIC. See “Business– Agreements with SPIC.”

Based on the effective light resource and available land use, we are focusing on provinces with large tracts of available land and solar resources sufficient for the development of solar farms. We look to work with local entities on the project development. As part of this process we need to discuss the potential development with local government agencies, which may involve discussions with several departments. The local government agencies publish the availability of permits for solar farms, and we need to obtain the permit for the solar farm from the applicable government agency. We may also find the buyer who will own the solar farm. If we find a buyer to operate the solar farm, we transfer the equity of the project subsidiary related to the solar farm to the buyer. If we identify the buyer, we seek to both obtain the contract to perform the EPC work as well as to operate and maintain the project after completion. For our contracts with SPIC, SolarMax and SPIC jointly select the location of the project and the project subsidiary is formed pursuant to a co-development agreement.

We do not operate any solar farms as an owner, and we have no present plans to operate solar farms for our own account. To the extent that, in the future, it proposes to construct and operate a solar farm for our own account, any decision would be subject to obtaining sufficient financing to enable it to construct and operate the project and complying with government regulations relating to the ownership of a solar farm.

Acquisitions in China

On April 28, 2015, SolarMax acquired the ownership of Chengdu Zhonghong Tianhao Technology Co., Ltd. (“Chengdu ZHTH”), which is currently a subsidiary of ZHTH, and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd., or ZHPV through share exchange agreements with the equity owners of these companies. The purchase price for Chengdu Zhonghong Tianhao Technology Co., Ltd. consisted of cash of RMB 200,000 (approximately $32,786) and 4,032,000 shares of common stock. The purchase price for ZHPV consisted of 593,663 shares of common stock. The ZHPV share exchange agreement, as amended, also included a contingency for us to pay the sellers’ liquidated damages of RMB 10,000,000 (approximately $1.6 million) in the event that we failed to take specified action with respect to a public offering by May 12, 2017, which was one year from the effective date of the amendment. We believe that we satisfied this condition with the confidential submission of a registration statement on Form S-1 in February 2017.

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Effective on May 12, 2016, in connection with the execution of the amendment to the share exchange agreement for ZHPV, ZHPV entered into a debt settlement agreement with Uonone Group Co., Ltd., one of the former owners of ZHPV. Pursuant to the debt settlement agreement, ZHPV and Uonone agreed to settle a list of pending business transactions entered by them during the period from December 31, 2012 to December 31, 2015. The financial impact of the debt settlement agreement was retroactively adjusted to the acquisition date of April 28, 2015 which reflects a receivable balance from Uonone Group in the amount of $1,570,000. As of March 31, 2022, the Uonone Group has repaid all amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable, which does not arise until and unless we become obligated under a contingent liability. We have not become obligated under the contingent liability. Additionally, under the debt settlement agreement, to the extent ZHPV receives settlement proceeds on matters that relate to events prior to the acquisition, ZHPV shall repay to Uonone the amount received less taxes, fees and expenses in connection with such settlement. During the year ended December 31, 2021, we received a total of $3.2 million in legal settlement proceeds and paid Uonone $2.2 million. As of March 31, 2022, the payable balance due to Uonone Group related to the legal settlement received by ZHPV was $3.5 million.

ZHPV holds a construction enterprise qualification certificate for Level III of general contractor for power engineering constructor issued on December 28, 2021, which permits ZHPV to conduct business as a contractor in power engineering construction. The qualification certificate will expire on December 31, 2022. Although we believe that the renewal of the certificate is routine, we cannot assure you that the certificate will be renewed in a timely manner when it expires. The certificate is granted by the local government and enables ZHPV to perform its services throughout China. We engage local licensed engineering firms to perform the initial design work through a bidding process. When the engineering firm completes its design proposal, we obtain owner approval prior to procurement and construction. Following the acquisition of Chengdu ZHTH, the business of Chengdu ZHTH was assumed and developed by its parent company SolarMax Shanghai. Chengdu ZHTH has since ceased to be active and we are in the process of deregistering Chengdu ZHTH with local authorities in China. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.

Agreements with SPIC

Substantially all of our China revenue for the year ended December 31, 2021 of $7.8 million and for the year ended December 31, 2020, of $96.1 million, was generated from four contracts with SPIC, and included revenue from SPIC and revenue from the sale of power by the project subsidiaries for Yilong #2 and Xingren from January 1, 2020 to April 30, 2020, the period prior to the sale of the controlling interests of such project subsidiaries to SPIC. We refer the four projects with SPIC that generated revenue in the year ended December 31, 2020 as Yilong #2, Xingren, Ancha and Hehua, which was 37% complete at December 31, 2020 and 100% complete at December 31, 2021. The Yilong #2 project is a 70 MW project, the Xingren project is a 35 MW project, the Ancha project is a 59 MW project, and the Hehua project is a 25 MW project. The agreements relating to these four projects are with our PRC subsidiaries.

Yilong #2 and Xingren Projects

In August 2019, we, through our PRC subsidiaries, entered into MA Agreements with SPIC, pursuant to which we agreed to construct and sell to SPIC the ownership and control of 70% of our project subsidiaries that own the 30MW solar farm project in Xingren (the “Xingren” project) and the 70MW project in Yilong (the “Yilong #2” project) when the projects are completed and accepted by SPIC and the completion of the equity transfer has occurred. Pursuant to the MA agreements, SPIC shall have the first right of refusal to purchase the remaining 30% ownership interests in either or both of the project subsidiaries one year after each of the projects is completed and operational. The construction on both projects were completed and connected to the grids as of December 31, 2019. On January 1, 2020, the project subsidiaries began power production and earning revenue from selling power to the PRC utility company,

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In March 2020 the equity transfer agreement to sell 70% controlling interest to SPIC was executed and in April 2020, the government approval of the equity transfer was registered. The consideration for the sale of the 70% interest is RMB 50.9 million (approximately $7.3 million) for Yilong #2 which was fully paid as of December 31, 2020, and RMB 27.5 million (approximately $3.9 million) for Xingren, which has an unpaid balance of RMB 54,352 ($7,765) as of December 31, 2020. We recognized a loss on the sale of the Yilong #2 project company of RMB 1.7 million ($244,000), and a gain on sale of the Xingren project company of RMB 801,000 ($116,000). In general, we do not generate a significant gain or loss from the sale of the equity in the project subsidiary. The revenue is generated from the EPC work on the project and, during the period when we own the project subsidiary, sale of power by the project subsidiary.

For the year ended December 31, 2020, our consolidated results of operations included the project subsidiaries’ results of operations from January 1, 2020 to April 30, 2020. Beginning on May 1, 2020, we no longer consolidated the project subsidiaries and report our  30% noncontrolling interest in the project subsidiaries under the equity method of accounting. As a result of the completion of the sale of the 70% controlling interest of the project subsidiaries to SPIC in April 2020, we met all the conditions under the MA Agreements and recognized the EPC revenue for the Yilong #2 and Xingren projects.

In October 2019, our project subsidiaries that owned the Yilong #2 and Xingren projects entered into lease finance agreements with Huaxia Financial Leasing Co., Ltd. (“Huaxia”). The financings were structured as lease finance transactions secured by the respective project companies’ revenue stream and accounts receivable. The principal amounts of the loans were RMB 217.0 million (approximately $31.0 million) for Yilong #2 and RMB 93.0 million (approximately $13.3 million) for Xingren. The interest rate was 130 basis point above certain benchmark RMB loan interest rate as announced by the People’s Bank of China on the lease commencement date. The respective project subsidiaries which are 70% owned by SPIC starting on April 30, 2020, are the obligors on the loan which is guaranteed by SPIC. The loans were deconsolidated by us on May 1, 2020 when it deconsolidated the project subsidiaries on May 1, 2020 because the loans were no longer the obligations of.

Ancha Project

In February 2020, we, through  our PRC subsidiaries, entered into a M&A (Cooperative Development) Agreement (the “Ancha MA Agreement”) with SPIC, pursuant to which we would sell the ownership and control of 70% of our project subsidiary that owns the 59 MW solar farm project in Guizhou (the “Ancha Project”) to SPIC when the project is completed and accepted by SPIC. Pursuant to the Ancha MA Agreement, SPIC shall have the first right of refusal to purchase the remaining 30% ownership interest in the project subsidiary one year after the project is completed and operational. The total value of the project including VAT with 100% ownership at completion is RMB 233.6 million (approximately $33.4 million). The construction began in March 2020 and the construction was completed in December 2020 with the project acceptance received on January 14, 2021. In December 2020, the equity transfer agreement between us and SPIC was signed to affect the transfer of 70% ownership interest of the project company to SPIC for an initial consideration of RMB 35.6 million ($5.1 million) based on the project company’s paid-in capital at September 30, 2020, such consideration will be adjusted when the final asset appraisal is completed in April 2021. The equity transfer agreement effectively transferred control of the project to SPIC.  As a result, we deconsolidated the project subsidiary as of December 31, 2020 and reported the EPC revenue for the Ancha project for the year ended December 31, 2020.

In May 2020, the project subsidiary for the Ancha project entered into project lease financing agreement with CSPG Financial Lease Co., Ltd., an unrelated PRC lender, for RMB 163.5 million (approximately $23 million) to finance the construction of the Ancha project. The financing was structured as a lease finance transaction secured by the project companies’ revenue stream and accounts receivable. The interest rate was based on a stipulated benchmark of approximately 5.311% per year. The financing was secured by the Ancha solar farm project. The project subsidiary which is 70% owned by SPIC starting on December 31, 2020, is the obligor on the loan. The loans were no longer our obligations when we deconsolidated the project subsidiaries on December 31, 2020.

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Hehua Project

In August 2020, we, through our PRC subsidiaries, commenced the 25 MW EPC work on the Hehua Project pursuant to an EPC contract between ZHPV and the then wholly-owned project subsidiary. The EPC contract value including VAT is RMB 89.1 million (approximately $12.7 million). Pursuant to the negotiations with SPIC relating to the Hehua Project during 2020, SPIC has agreed to purchase a 100% interest in the project subsidiary. On December 29, 2020, SPIC executed an equity transfer agreement to purchase from us 100% equity interest in the project company that owns the Hehua Project for a consideration of RMB 4.9 million (approximately $706,000) which was determined based on the project company’s paid-in capital at November 30, 2020. A loss from sale of RMB 880,000 ($128,000) was recognized by us. As a result of the sale, we deconsolidated the project company for the Hehua project as of December 31, 2020. In connection with the sale of the 100% equity interest of the project company to SPIC and the deconsolidation of the project company by us, our EPC contract with the project company became the obligation of SPIC. The EPC construction was approximately 37% complete at December 31, 2020 and accordingly, the revenue and cost attributed to the 37% project completion status were recognized on an over time basis based on the cost input method. The project was 100% complete at December 31, 2021 and the remaining revenue and cost of the EPC project was recognized during the year ended December 31, 2021.

On January 20, 2021, we, through our PRC subsidiaries, entered into an agreement with SPIC, pursuant to which we sold 100% of our project subsidiary to SPIC in December 2020 which has already occurred prior to year-end.

                We currently do not have any project agreements or other agreements with SPIC.

Other EPC Service Agreements

From the time we commenced business in China, through 2019, most of our revenue was derived from contracts with subsidiaries or affiliates of Changzhou Almaden Co., Ltd., which is a related party that we refer to in this prospectus as AMD. Subsidiaries of AMD accounted for approximately $4.7 million, or 95% of China revenue in 2019, $30.9 million, or 53% of China revenue, in 2018, and $55.0 million, or 99.7% of China revenue in 2017. We do not presently have any agreements with AMD, and it cannot assure you that we will have agreements with AMD in the future.

During 2019, our PRC subsidiaries performed EPC services for AMD on one solar farm project. We did not perform EPC services for AMD during 2020 or 2021.

In December 2017, ZHPV and ZHTH, entered into contracts with Yilong AMD New Energy Co., Ltd., an affiliate of AMD, for EPC services on a 30MW solar farm project in Guizhou Yilong province. In January 2018, an additional 5MW was added to the project pursuant to a separate agreement. The total contract value, excluding VAT, for the 35MW project is approximately RMB 202.3 million (approximately $30.6 million). Construction work on the project started in January 2018. The project was completed during the year ended December 31, 2018.

In December 2018, ZHPV entered into a supplemental contract with an AMD subsidiary to construct a 10MW solar farm project in Guizhou, China, which was increased to a 10.5MW project for a contract price of RMB 35.9 million (approximately $5.1 million). This contract is supplemental to a prior project agreement which had been completed in 2017. Construction work on this project began in May 2019 and the project was completed during 2019.

During 2018 and 2019, we, through our PRC subsidiaries, also performed EPC services for unrelated parties. Substantially all of the China revenue from unrelated parties was from a contract which ZHPV entered into in August 2018 with Ningxia MCC Meili Cloud Energy Co., Ltd., a non-affiliate, to construct a 50MW photovoltaic power station for a total contract price excluding VAT, of RMB 179.2 million (approximately $27 million) or $0.63 per watt. Construction work on the project started in August 2018, and the project was completed in 2018.

In these projects, our PRC subsidiary transfers the equity in the project subsidiary to the owner of the solar farm for a price that is approximately the net worth of the project subsidiary. As a result, it does not generate any significant gain or loss on the sale.

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Seasonal weather patterns affect our PRC subsidiaries’ construction of large-scale solar projects. Northern provinces often experience below zero temperatures along with snowstorms which could cause a closure of transportation options along with frozen ground which needs to be cleared for solar equipment, all of which can cause slowdowns in construction and increase our cost. Our EPC contracts to date have been in the southern provinces where cold weather does not have the same effect although the southern provinces may be subject to other adverse weather conditions.

Operation and Maintenance

Prior to 2020, we, through our PRC subsidiaries, offered to perform operation and maintenance services for solar form projects that it constructed. If a PRC subsidiary entered into a maintenance agreement with the solar farm owner, once the project is fully connected to the grid, it would operate and maintain the project at a price and for a term to be agreed upon. In performing these services, our PRC subsidiaries would work with a local maintenance team who is responsible for the daily maintenance work, including one stationmaster and several workers depending on the plant size, subject to our PRC subsidiaries’ overall supervision, and our PRC subsidiaries may engage a subcontractor with specialized experience for certain maintenance services. Our PRC subsidiaries had operations and maintenance contracts with subsidiaries of AMD, and, when these companies sold the projects, the operations and maintenance contracts were terminated by the purchaser. Our PRC subsidiaries do not presently have any operations and maintenance contracts and it cannot give any assurance that it will be able to negotiate operations and maintenance agreements with non-related parties. Our PRC subsidiaries do not have maintenance agreements with respect to any of our agreements with SPIC.

Source of Supply

Our PRC subsidiaries purchase the equipment for the project from local suppliers pursuant to a bidding process. The construction team will remain on site to perform the EPC services, using local licensed subcontractor as needed. The EPC services include continuing negotiations with local government and utility companies to resolve any issues that may occur on-site until the project is fully connected to the grid.

Solar panels and other components are available from a number of suppliers. Our PRC subsidiaries purchase solar panels and other components for our China operations from a number of suppliers, including AMD. The following table sets forth information with respect to each supplier of our China operations that accounted for 10% or more of our total purchases for the year ended December 31, 2020. There were no purchases of panels and other components for our China operations that accounted for 10% or more of our total purchases for the year ended December 31, 2021.

	Year Ended December 31, 2020
Name	Purchases		Percent
Longii Green Energy Technology Co., Ltd	$	14,237,662		24	%
Gui Zhou Wujian Engineering Construction Co. LTD		6,963,826		12	%

Our PRC subsidiaries purchased solar panels from AMD for certain of our solar farm projects. The amount due to AMD was $1.5 million at March 31, 2022, December 31, 2021 and 2020. Pursuant to offset agreements with AMD in June 2019, December 2019 and December 2020, our PRC subsidiaries partially satisfied their obligations to AMD with respect to the balance due for the solar panels, by offsetting the balance of the unpaid project receivables due to our PRC subsidiaries from the AMD subsidiary on three completed projects for AMD subsidiaries or affiliates.

Competition

Within the solar farm industry in China, SolarMax China segment faces increasing competition from other project developers and EPC companies. The solar energy industry is very competitive, consisting of state-owned enterprises and a large number of private companies. Because China’s central government has announced a policy in favor of renewable energy sources, solar companies worldwide seek to develop and expand their business in China. We believe the number of new solar farm installation companies entering the industry in China has increased significantly since 2015 when we commenced business through our PRC subsidiaries in China. This increased competition has caused some price erosion, which has affected our margins and could result in further reductions in our margins as our PRC subsidiaries may reduce prices to generate new business and could impair their ability to enter into EPC agreements with non-related parties. As the interest in solar farms in China increases, there is increased competition for permits, and the government entities that issue the permits may prefer Chinese companies over companies that are owned by a United State company. Since all of our PRC contracts are currently with SPIC, our PRC subsidiaries are dependent upon SPIC’s policies in engaging contractors for the development of solar farm projects. Since SPIC is state-owned enterprise, our procurement policies may be subject to government policies which may favor a Chinese company rather than a subsidiary of a United States company.

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Government Subsidies

The solar investment and the development of the solar industry in China depend on continued government subsidies. Government policies have, and will continue to have, a significant impact on the solar industry in general. Government agencies set the rates that the utility company pays the solar farm owner. In general, the rate set at the beginning of the contract period remains the same during the period, although there is a risk that the rate will be changed. The rate varies from province to province. The government has announced that there will be a yearly decrease in the payment. After 2016, all the solar projects in China are required to be involved with the local government to help alleviate poverty in the region. In addition, solar farm construction needs to be integrated with local agriculture, tourism or animal husbandry, which leads to increases in the cost of our EPC services.

PRC Government Regulations

Renewable Energy Law and Other Government Directive

The Renewable Energy Law of PRC, which originally became effective on January 1, 2006 and was amended on December 26, 2009, sets forth policies to encourage the development and on-grid application of renewable energy, including solar energy. Renewable energy under this law refers to non-fossil fuel energy, including wind energy, solar energy, water energy, biomass energy, geothermal energy, ocean energy and other forms of renewable energy. The law also sets forth a national policy to encourage the installation and use of solar energy water heating systems, solar energy heating and cooling systems, photovoltaic systems and other systems that use solar energy. It also provides economic incentives, such as the establishment of national funding, preferential loans provided by financial institutions with financial interest subsidies to certain renewable energy development and utilization projects, and tax preferential treatment for the development of certain renewable energy projects. 

The PRC Energy Conservation Law, which was amended on October 28, 2007, July 2, 2016 and October 26, 2018, encourages utilization of energy-saving building materials like new wall materials and energy-saving equipment, and encourage the installation and application of renewable energy use systems such as solar energy. The law also encourages and supports the vigorous development of methane in rural areas, promotes the utilization of renewable energy resources such as biomass energy, solar energy and wind power, develops small-scale hydropower generation based on the principles of scientific planning and orderly development, promotes energy-saving-type rural houses and furnaces, encourages the utilization of non-cultivated lands for energy plants, and energetically develops energy forests such as firewood forests.

On September 4, 2006, the Ministry of Finance, or MOF, and Ministry of Construction jointly promulgated the Interim Measures for Administration of Special Funds for Application of Renewable Energy in Building Construction, pursuant to which the MOF will arrange special funds to support the application of Building Integrated Photovoltaics systems, or BIPV applications, to enhance building energy efficiency, protect the environment and reduce consumption of fossil fuel energy. Under these measures, applications to provide hot water supply, refrigeration, heating and lighting are eligible for such special funds.

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On October 10, 2010, the State Council of the PRC promulgated a decision to accelerate the development of seven strategic new industries. Pursuant to this decision, the PRC government will promote the popularization and application of solar thermal technologies by increasing tax and financial policy support, encouraging investment and providing other forms of beneficial support.

In March 2011, the National People’s Congress approved the Outline of the Twelfth Five-Year Plan for National Economic and Social Development of the PRC, which includes a national commitment to promoting the development of renewable energy and enhancing the competitiveness of the renewable energy industry. Accordingly, in January 2012, the Ministry of Industry and Information Technology and the Ministry of Science and Technology respectively promulgated the Twelfth Five-Year Special Plans Regarding the New Materials Industry and the High-tech Industrialization to support the development of the PRC solar power industry.

On March 8, 2011, the MOF and the Ministry of Housing and Urban-Rural Development jointly promulgated the Circular on Further Application of Renewable Energy in Building Construction to increase the utilization of renewable energy in buildings.

On March 27, 2011, the NDRC promulgated the revised Guideline Catalogue for Industrial Restructuring which categorizes the solar power industry as an encouraged item. This Guideline Catalogue was revised on February 16, 2013 (effective on May 1, 2013) and on October 30, 2019 (effective on January 1, 2020). The solar power industry is still categorized as an encouraged item.

In March 2016, the National People’s Congress approved the Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the PRC, which mentions a national commitment to continuing to support the development of PV generation industry.

On February 14, 2019, the NDRC issued the Green Industry Guidance Catalogue (2019 Edition) to include solar power equipment manufacturing into the green industry guidance catalogue, to further encourage the development of solar industry.

On January 20, 2020, the NEA, the NDRC, and the Ministry of Finance jointly issued Opinions on Promoting the Healthy Development of Non-hydroelectric Renewable Energy Power Generation, aiming at (i) improving the current subsidy method, (ii) improving market allocation of resources and subsidy decline mechanism, and (iii) optimizing subsidy redemption process.

On March 5, 2020, the NEA issued Notice on Matters Related to the Construction of Wind Power and Photovoltaic Power Generation Projects in 2020, in order to adjust and improve the specific plans for the construction and management of wind power and photovoltaic power generation projects.

On September 29, 2020, the NDRC, the NEA and the MOF jointly issued Supplementary Notice on Matters Relating to Several Opinions on Promoting the Sound Development of Non-Hydro-Renewable Energy Power Generation, in order to further clarify relevant policies of additional subsidy funds for renewable energy electricity prices and stabilize industry expectations.

On February 2, 2021, the State Council issued Guiding Opinions on Accelerating the Establishment and Improvement of the Green and Low-Carbon Circular Development Economic System, in order to accelerate the establishment of a robust economic system of green and low-carbon circular development.

On February 24, 2021, the NDRC, the MOF, the People’s Bank of China, the China Banking and Insurance Regulatory Commission and the NEA issued Notice on Guiding to Increase Financial Support to Promote the Healthy and Orderly Development of Wind Power and Photovoltaic Power Generation Industries, in order to help solving the problems of renewable energy companies such as tight cash flow and difficulties in production and operation.

On January 30, 2022, the NDRC and NEA jointly released the Opinions on Improving Institutional Mechanisms and Measures for Green and Low-carbon Energy Transition. The Opinions systematically propose institutional mechanisms and measures to support the green and low-carbon transformation of the energy supply side, request to promote the construction of clean, low-carbon energy as the main energy supply system and to promote the construction of energy infrastructure to adapt to the green and low-carbon transition.

On March 17, 2022, the NEA released the Guidance on Energy Work in 2022, one of the primary targets of this Guidance was to increase the share of non-fossil fuels in primary energy consumption to around 17.3% in 2022 and increase the share of wind and solar power in total power consumption to around 12.2%.

Laws and Regulations Concerning the Electric Power Industry

The regulatory framework of the PRC power industry consists primarily of the Electric Power Law of the PRC, which became effective on April 1, 1996, and was most recently amended on December 29, 2018, and the Electric Power Regulatory Ordinance, which became effective on May 1, 2005. One of the stated purposes of the Electric Power Law is to protect the legitimate interests of investors, operators and users and to ensure the safety of power operations. According to the Electric Power Law, the PRC government encourages PRC and foreign investment in the power industry. The Electric Power Regulatory Ordinance sets forth regulatory requirements for many aspects of the power industry, including, among others, the issuance of electric power business permits, the regulatory inspections of power generators and grid companies and the legal liabilities for violations of the regulatory requirements.

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Electric Power Business Permit

On January 5, 2006, the NDRC promulgated the Administrative Provisions on Renewable Energy Power Generation which set forth specific measures for setting the price of electricity generated from renewable energy sources, including solar, and for allocating the costs associated with renewable power generation. The Administrative Provisions on Renewable Energy Power Generation also delegate administrative and supervisory authority among government agencies at the national and provincial levels and assign partial responsibility to electricity grid companies and power generation companies for implementing the Renewable Energy Law.

Pursuant to the Provisions on the Administration of the Electric Power Business Permit, which were issued by the State Electricity Regulatory Commission, known as SERC, and became effective on December 1, 2005 (subsequently revised on May 30, 2015), unless otherwise provided by the SERC, no company or individual in the PRC may engage in any aspect of electric power business (including power generation, transmission, dispatch and sales) without first obtaining an electric power business permit from the SERC. These provisions also require that if an applicant seeks an electric power business permit to engage in power generation, it must also obtain in advance all relevant government approvals for the project including construction, generation capacity and environmental compliance.

However, there are exceptions pursuant to which certain of our photovoltaic power generation projects may not need to obtain an electric power business permit from the SERC. On July 18, 2013, the NDRC issued the Interim Measures for the Administration of Distributed PV Power Generation, which waived the previous requirement to obtain an Electric Power Business Permit for distributed generation projects. On April 9, 2014, the NEA issued the Circular on Clarifying Issues concerning the Administration of Electric Power Business Permit, which was replaced by Circular on Improving the Administration of Electric Power Business Permit by Implementing the Inspiration of the Reforms on Administration, Delegate Powers, and Services issued by NEA on March 23, 2020, which waived requirement to obtain an Electric Power Business Permit for those solar power generation projects with installed capacity less than 6MW and any distributed generation projects approved by or filed with the NDRC or its local branches, and required the local NEA to simplify the Electric Power Business Permit application procedure for the solar power generation companies.

Grid Connection and Dispatchment

All electric power generated in China is distributed through power grids, except for electric power generated by facilities not connected to a grid. The distribution of power to each grid is administered by dispatch centers, which administer and dispatch planned output by power plants connected to the grid. The Regulations on the Administration of Electric Power Dispatch to Networks and Grids, promulgated by the State Council and the former Ministry of Electric Power Industry, effective on November 1, 1993, as amended on January 8, 2011, and its implementation measures, regulate the operation of dispatch centers.

Feed-in Tariff (FIT) Payments

The Renewable Energy Law of the PRC, as amended on December 26, 2009 and effective on April 1, 2010, sets forth policies to encourage the development and utilization of solar power and other renewable energy. The Renewable Energy Law authorizes the relevant pricing authorities to set favorable prices for electricity generated from solar and other renewable energy sources.

The NDRC further issued the Circular on Promoting the Healthy Development of PV Industry by Price Leverage on August 26, 2013, or the 2013 Circular. Under this circular, the feed-in tariff (“FIT”) (including VAT) for solar power projects approved or filed after September 1, 2013 or beginning operation after January 1, 2014 would be RMB0.90 per kilowatt hour (“kWh”), RMB0.95 per kWh or RMB1.00 per kWh, depending on the locations of the projects (excluding on-grid solar power projects located in Tibet).

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In addition, the 2013 Circular sets forth special rules that entitle distributed generation projects (excluding the projects that have received an investment subsidy from the central budget) to a national subsidy of RMB0.42 per kWh. According to the Circular on Further Implementing Polices Relating to Distributed Generation issued by the NEA on September 2, 2014 and the Circular on Implementation Plans of PV Generation Construction for 2015 issued by the NEA on March 16, 2015, rooftop distributed generation projects that sell electricity directly to consumers or to both consumers and grid enterprises receive a national subsidy of RMB0.42 per kWh plus the local desulphurized coal benchmark electricity price for the electricity sold to the State Grid or a negotiated electricity purchase price for electricity sold directly to consumers. Ground-mounted projects and rooftop distributed generation projects which sell all electricity to grid enterprises are entitled to the FIT of RMB0.90 per kWh, RMB0.95 per kWh or RMB1.00 per kWh, depending on where the project is located (excluding on-grid solar power projects located in Tibet).

On December 22, 2015, the NDRC issued the Circular on Improving the Policies on the On-grid Tariffs of Onshore Wind Power Generation and PV Generation, effective on January 1, 2016, which provides that ground mounted projects, as well as rooftop distributed generation projects that sell all electricity generated to the local grid companies, are entitled to FIT of RMB0.80 per kWh, RMB0.88 per kWh or RMB0.98 per kWh, depending on where the project is located (excluding on grid solar power projects located in Tibet), provided that these projects are filed after January 1, 2016 and fall within the regional scale index of the year, or these projects are filed prior to January 1, 2016 and fall within regional scale index of the year, but do not commence operations prior to June 30, 2016.

The difference between the FIT for solar power projects and the desulphurized coal benchmark electricity price, or the subsidies paid to distributed generation projects, are funded by the renewable energy development funds. The above FIT and subsidy policies are valid for 20 years for each power generation project since its formal operation, in principle.

On December 30, 2016, the MIIT, NDRC, the Ministry of Science and Technology and MOF jointly promulgated the Development Guide Regarding the New Materials Industry to support and provide details for the development of the PRC solar power industry.

On February 10, 2017, the NEA promulgated the Circular on Printing and Distributing the Guidance on Energy Work in 2017, which promotes the construction of PV and thermal power projects. According to this circular, the PRC government planned to add the new construction scale of 20 million kilowatts and the new installed capacity of 18 million kilowatts in 2017. Although it is the PRC government’s policy to encourage such construction, it is not clear what specific targets have been fulfilled.

On May 31, 2018, the NEA, Ministry of Finance and NDRC of the PRC jointly promulgated a Notice regarding the Matters of Photovoltaic Power Generation in 2018 (“2018 PV Power Generation Notice”). The 2018 PV Power Generation Notice set forth new policies on general and distributed PV power stations. For example, based on the industry practice, no scale for the construction of general photovoltaic power station will be arranged in 2018. Before the issuance of any new rules in respect of the construction of general photovoltaic power stations, no national government subsidies were provided to general photovoltaic power station. There will be a scale of 10 gigawatts for the construction of distributed photovoltaic power station. In general, the feed-in tariff for general photovoltaic power stations will be reduced by RMB 0.05 per kWh.

On April 28, 2019, the NDRC issued a Notice Regarding Issues of Improvement on Mechanism for Grid Price of Photovoltaic Power Generation, effective on July 1, 2019. The benchmark solar PV tariff has been changed into guiding solar PV tariff. For utility-scale solar PV projects that fully feed electricity into grids after July 1, 2019, the FIT will be RMB 0.4 per kWh, RMB 0.45 per kWh, or RMB 0.55 per kWh depending on where the project is located. Commercial and industrial distributed PV that deliver 100% of output to the grid will apply utility-scale PV FITs, others can receive a subsidy of RMB 0.1/kWh.

On January 7, 2019, NDRC and the NEA jointly promulgated the Circular on Actively Promoting Subsidy-free Grid Price Parity for Wind Power and PV Power, which set forth several measures regarding project organization, construction, operation and supervision to promote PV power generation power projects with grid price equivalent to or below the benchmark grid price of coal-fired power units.

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On March 31, 2020, NDRC issued Notice Regarding Issues of Grid Price of Photovoltaic Power Generation in 2020, effective on June 1, 2020, pursuant to which the guidance price of the new centralized photovoltaic power station in the I~III resource area, which will be included in the scope of state financial subsidy, is 0.35 per kWh (including tax, the same below), RMB 0.4 per kWh and RMB 0.49 per kWh, respectively. In principle, the feed-in electricity price of the new centralized photovoltaic power station shall be determined by means of market competition and shall not exceed the guidance price in the resource area where it is located. The Circular also makes it clear that commercial and industrial distributed PV that deliver 100% of output to the grid will apply utility-scale PV FITs, others can receive a subsidy of RMB 0.05/kWh.

On June 7, 2021, NDRC issued Notice Regarding Issues of Grid Price of New Energy Generation in 2021, effective on August 1, 2021, pursuant to which no subsidy will be provided to the new centralized photovoltaic power station and distributed PV project and onshore wind power project from central government budget in 2021 and achieve grid parity.

We have been advised by AllBright Law Offices,  our PRC counsel, that, based on their review of our operations material provided by us and their review of PRC laws and regulations, our operations in the PRC, as presently conducted, based on our approved qualifications, comply in all material respects with applicable PRC laws and regulations.

Subsidy Catalog

On November 29, 2011, the MOF, NDRC and NEA jointly issued the Interim Measures for the Administration of Levy and Use of Renewable Energy Development Fund, which provides that development funds for renewable energy include designated funds arranged by the public budget of national finance, and renewable energy tariff surcharge collected from electricity consumers. Solar power projects can only receive government subsidies after completing certain administrative and perfunctory procedures with the relevant authorities of finance, price and energy to be listed in the Subsidy Catalog issued by the MOF, NDRC and NEA. These subsidies represent the difference between the FIT for solar power projects and the desulphurized coal benchmark electricity price. In January 2016, the NEA announced that there would be a nation-wide inspection on all solar power projects in operation and under construction, and that fall within the regional scale index of the year would be included in and managed via the Platform for Renewable Energy Power Generation Projects for the purpose of government subsidies application and payment.

In order to be listed in the Subsidy Catalog, ground-mounted projects submit applications to the relevant provincial authorities; and in accordance with the Circular on Issues Concerning Implementing Electric Quantity-based Subsidy Policy for Distributed Generation Projects issued by the MOF on July 24, 2013, rooftop distributed generation projects submit applications to the grid enterprises in the area where the projects are located. After preliminary review of the applications, the provincial authorities will jointly report to the MOF, NDRC and NEA, and the MOF, NDRC and NEA has final review of such applications to decide whether to list in the Subsidy Catalog.

Development Funds of Renewable Energy

The Renewable Energy Law provides financial incentives, including national funding for the development of renewable energy projects.

Pursuant to the Interim Measures for the Administration of Designated Funds for the Development of Renewable Energy issued by the MOF and effective on April 2, 2015, the MOF sets up designated funds to support the development and utilization of renewable energy in accordance with the national fiscal budget.

According to the Implementing Measures for the Administration of Price of Renewable Energy and Cost Sharing Program and the Interim Measures for Adjustment to Additional On-grid Tariff for Renewable Energy issued by the NDRC, the gap between the FIT for solar power projects and the desulphurized coal benchmark electricity price is subsidized by collecting tariff surcharge from the electricity consumers within the service coverage of grid enterprises at or above provincial level.

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Mandatory Purchase of Renewable Energy

The Renewable Energy Law, which was most recently revised by the Standing Committee of the NPC on December 26, 2009, imposes mandatory obligations on grid enterprises to purchase the full amount of on-grid electricity generated by approved renewable energy plants whose power generation projects meet the grid connection technical standards in the areas covered by the grid enterprises’ power grids. Grid enterprises must improve the power grid construction in order to better absorb electricity generated from renewable energy.

Pursuant to the Measures for the Supervision and the Administration of Purchase of Full Amount of Renewable Energy by Grid Companies issued by the SERC in July 2007, the SERC and its local branches supervise the purchase of the full amount of renewable energy by the grid enterprises. If the grid enterprises do not purchase the full volume of the electricity generated from the renewable energy due to the circumstances such as force majeure or any other circumstance endangering the safety and stability of the power grids, the grid enterprises must promptly notify the renewable energy power generation companies of the details in writing and also submit detailed facts to the competent local branches of the SERC.

The Several Opinions on Promoting the Healthy Development of PV Industry also requires the grid enterprises to ensure PV power generation projects’ timely connection to the power grid and purchase the full amount of electricity generated by the PV power generation projects.

On March 20, 2015, the NDRC and NEA issued the Guidance Opinion on Improvement of Electric Power Operation and Adjustment and Promotion of Full Utilization of Clean Energy that emphasizes that the competent provincial authorities must strengthen the implementation of the provisions with regard to the purchase of the full amount of electricity generated by renewable energy and avoid any curtailment of solar power projects. In addition, it also stated that electricity generated by clean energy is encouraged to be sold directly to the consumers in the regions where there is an ample supply of clean energy, and the relevant parities must coordinate the trans-provincial supply of electricity and power transmission capability, in order to maximize the utilization of clean energy. Local governments also announced their intentions to efficiently implement the system regarding the purchase of the full amount of renewable energy, such as the Inner Mongolian Autonomous Government.

On March 24, 2016, the NDRC issued the Measures for the Administration of Guaranteed Purchase of Full Amount of Renewable Energy, to strengthen the administration of, and provide details for, the implementation of the purchase of the full amount of renewable energy by the grid enterprises.

On May 10, 2019, NDRC and NEA jointly released Notice on Establishing a Mandatory Renewable Electricity Consumption Mechanism, pursuant to which, the government will set renewable electricity consumption quotas in electricity power consumption. The renewable consumption quotas will be determined at the provincial level and the provincial energy administrations will lead the implementation process.

Environmental Protection

The construction processes of the solar power projects may generate noise, waste water, gaseous emissions and other industrial wastes. Therefore, we are subject to a variety of government regulations related to the storage, use and disposal of hazardous materials and to the protection of the environment of the community. The major environmental regulations applicable to our business activities in the PRC include the Environmental Protection Law of the PRC, the Law on the Prevention and Control of Noise Pollution, the Law on the Prevention and Control of Air Pollution, the Law on the Prevention and Control of Water Pollution, the Law on the Prevention and Control of Solid Waste Pollution, the Environmental Impact Evaluation of Law, and the Regulations on the Administration of Environmental Protection in Construction Projects.

Foreign Investment in Solar Power Business

The principal regulation governing foreign ownership of solar power businesses in the PRC is the Foreign Investment Industrial Guidance Catalog. Under the current catalog, which was amended in 2017 and effective on July 28, 2017, the construction and operation of new energy power stations (including solar power, wind power, etc.) is classified as an “encouraged foreign investment industry.” Foreign-invested enterprises in the encouraged foreign investment industry may be entitled to certain preferential treatment, such as exemption from tariffs on equipment imported for their operations, after obtaining approval from the PRC government authorities.

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On March 15, 2019, the National People’s Congress adopted the Foreign Investment Law, or new FIL which became effective on January 1, 2020, and replaced the previous fragmented foreign investment regime: three separate foreign investment laws previously enacted, which are the Wholly Foreign-Owned Enterprises Law, the Chinese-Foreign Equity Joint Ventures Law, and the Chinese-Foreign Contractual Joint Ventures Law. On December 26, 2019, State Counsel of PRC issued Regulation on the Implementation of the Foreign Investment Law of PRC, or Implementation of new FIL, effective on January 1, 2020. The new FIL sets forth a few definitions and guiding principles vis-à-vis foreign investment. It defines “foreign investors” as any “natural person, enterprise, or other organization of a foreign country” and “foreign-invested enterprises” as any enterprise established under Chinese law that is wholly or partially invested by foreign investors. The new FIL further defines “foreign investment” as any foreign investor’s direct or indirect investment in mainland China, including (a) establishing FIEs either individually or jointly with other investors; (b) acquiring shares, equity, property shares, other similar rights and interests in Chinese domestic enterprises; (c) investing in new projects either individually or jointly with other investors; and (d) making investments through other means provided by laws, administrative regulations, or the State Council. The new FIL also reaffirms that the State supports the policy of opening up and encourages foreign investment made by foreign investors in mainland China, and implements policies in high level freedom and convenience in investment to build a market environment of stability, transparency, predictability, and fair competition. In addition, the State established pre-establishment national treatment plus negative list. National treatment means foreign investment will be treated no less favorably than domestic investment during the investment access stage unless otherwise stipulated under negative list which impose special administrative measures in foreign investment access. The negative list will be approved or published by the State Council. The new FIL also sets out a list of policy measures for promoting foreign investment, such as equal treatment of foreign and domestic with respect to the application of business development policies, formulation of standards and application of compulsory standards, and government procurement. Furthermore, the new FIL lists protective measures and regulating provisions foreign investment. For example, in general foreign investors’ investments are not subject to governmental expropriation; forced technology transfer by administrative measures will be prohibited; the laws including the Company Law and the Partnership Enterprise will govern FIEs’ organizational forms, institutional frameworks and standard of conduct. The new FIL sets forth certain legal responsibilities. For example, if a foreign investor invests in a prohibited industry, it will be ordered to cease investment activities, restore the conditions that existed prior to the activities by, for instance, disposing of its shares or assets, and forfeiting any illegal proceeds. If a foreign investor investing in a restricted industry violates the conditions specified by the negative list, it will be ordered to make corrections to satisfy the conditions within a certain period. As a matching regulation to new FIL, the regulation highlights the promotion and protection of foreign investment and details measures to ensure the effective implementation of new FIL.

On June 23, 2020, the NDRC and the MOFCOM jointly issued the Special Administrative Measures for the Access of Foreign Investment (2020 Edition) (the “Negative List”), which came into force on July 23, 2019. In December 2021, the MOFCOM and the NDRC promulgated the Special Administrative Measures for Foreign Investment Access (2021 Version), which became effective on January 1, 2022. The 2021 version of the Negative list replaced the 2020 version of the Negative list. “Negative list” means a special administrative measure for access of foreign investment in specific fields as imposed by the PRC. Foreign investors are not allowed to invest in the forbidden investment as specified in the negative list. Foreign investors must comply with the special equity management requirements, senior management requirements and other restrictive access special management measures when making investments in the restricted investments as specified in the negative list. The Negative List provides that sectors that are not specified in the Negative List shall be subject to administration under the principle of treating domestic investments and foreign investments equally. The NDRC and the MOFCOM jointly also issued the Industrial Catalogue to Encourage Foreign Investment, or the Encourage Catalogue, which sets forth the industries and economic activities that foreign investment in China is encouraged to be engaged in. According to the Encouraged Catalogue amended on June 30, 2019, the construction and operation of new energy power stations (including solar power, wind power, etc.) is within the scope of industries that encourage foreign investment.

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Work Safety

The Work Safety Law of the PRC, which became effective on November 1, 2002 and was amended on August 31, 2014, is the principal law governing the supervision and administration of work safety for solar power projects. In accordance with the Measures for the Supervision and the Administration of Work Safety of Electricity Industry promulgated by the NDRC, which became effective on March 1, 2015, power plants are responsible for maintaining their safety operations in accordance with the relevant laws, regulations, rules and standards regarding the work safety. The NEA and its local branches supervise and administer the work safety of electricity industry at the national and local level. On April 20, 2015, the NEA and the State Administration of Work Safety jointly promulgated the Circular on Standardizing Safe Production Process for PV Generation Enterprises, which detailed the standards of production process for PV generation enterprises for work safety purpose.

Labor Laws and Social Insurance

Pursuant to the PRC Labor Law, which first took effect on January 1, 1995 and was most recently amended on December 29, 2019 (also the effective date), a written labor contract is required when an employment relationship is established between an employer and an employee. On June 29, 2007, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the Labor Contract Law, as amended on December 28, 2012 (effective as of July 1, 2013), which formalizes employees’ rights concerning employment contracts, overtime hours, layoffs and the role of trade unions and provides for specific standards and procedures for the termination of an employment contract. In addition, the Labor Contract Law requires the payment of a statutory severance payment upon the termination of an employment contract in most cases, including in cases of the expiration of a fixed-term employment contract. In addition, under the Regulations on Paid Annual Leave for Employees and its implementation rules, which became effective on January 1, 2008 and on September 18, 2008 respectively, employees are entitled to a paid vacation ranging from 5 to 15 days, depending on their length of service and to enjoy compensation of three times their regular salaries for each such vacation day in case such vacation days are deprived by employers, unless the employees waive such vacation days in writing. Although we are currently in compliance with the relevant legal requirements for terminating employment contracts with employees in our business operation, in the event that we decide to lay off a large number of employees or otherwise change its employment or labor practices, provisions of the Labor Contract Law may limit its ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity insurance plan and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, without force majeure reasons, employers must not suspend or reduce their payment of social insurance for employees, otherwise the employer may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% of the amount overdue per day from the original due date by the relevant authority. If the employer still fails to rectify the failure to make social insurance contributions within such stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to Regulations on Management of Housing Fund, employers must not suspend or reduce the payment of house provident funds for their employees. Under the circumstances where financial difficulties do exist due to which an employer is unable to pay or pay up house provident funds, permission of labor union of the employer and approval of the local house provident funds commission must first be obtained before the employer can suspend or reduce their payment of house provident funds. An enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, a fine of over RMB 10,000 and up to RMB 50,000 may be imposed on the employer, and an application may be made to a local court for compulsory enforcement.

Taxation

PRC Enterprise Income Tax

The PRC enterprise income tax is calculated based on the taxable income determined under PRC laws and accounting standards. On March 16, 2007, the National People’s Congress of China enacted a new PRC Enterprise Income Tax Law, which became effective on January 1, 2008 and was later amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council promulgated the Implementation Rules to the PRC Enterprise Income Tax Law, or the Implementation Rules, which also became effective on January 1, 2008. On December 26, 2007, the State Council issued the Notice on Implementation of Enterprise Income Tax Transition Preferential Policy under the PRC Enterprise Income Tax Law, or the Transition Preferential Policy Circular, which became effective simultaneously with the PRC Enterprise Income Tax Law. The PRC Enterprise Income Tax Law imposes a uniform enterprise income tax rate of 25% on all domestic enterprises, including foreign-invested enterprises unless they qualify for certain exceptions, and terminates most of the tax exemptions, reductions and preferential treatments available under previous tax laws and regulations.

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Moreover, under the PRC Enterprise Income Tax Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementation Rules define the term “de facto management body” as the management body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In addition, the Circular Related to Relevant Issues on the Identification of a Chinese holding Company Incorporated Overseas as a Residential Enterprise under the Criterion of De Facto Management Bodies Recognizing issued by the State Administration of Taxation (Circular 82) promulgated by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in China; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (iii) its major assets, accounting books, company seals and minutes and files of its board and shareholders’ meetings are located or kept in China; and (iv) at least half of the enterprise’s directors or senior management with voting rights reside in China. Although the circular only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals or foreigners, the determining criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

PRC VAT and Business Tax

Pursuant to the Interim Regulation of the People’s Republic of China on Value-Added Tax (the “VAT Regulation”), which was amended on November 10, 2008, February 6, 2016 and November 19, 2017 and its implementation rules, any entity or individual engaged in the sales of goods, provision of specified services and importation of goods into China is generally required to pay a VAT, at the rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by such entity.

Pursuant to the PRC Provisional Regulations on Business Tax, which was eliminated on November 9, 2017, taxpayers falling under the category of service industry in China are required to pay a business tax at a normal tax rate of 5% of their revenues. In November 2011, the MOF and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. Pursuant to this plan and relevant notices, from January 1, 2012, the value-added tax has been imposed to replace the business tax in the transport and shipping industry and some of the modern service industries in certain pilot regions, of which Shanghai is the first one. A VAT rate of 6% applies to revenue derived from the provision of some modern services.

On December 12, 2013, the MOF and SAT issued Notice of the Ministry of Finance and the State Administration of Taxation on Including the Railway Transportation and Postal Industries in the Pilot Program of Replacing Business Tax with Value-Added Tax (2013 Amendment), which was most recently amended in May 2016, along with Pilot Implemental Rules of Replacing Business Tax with VAT, which was effective on January 1, 2014 and was most recently revised on March 23, 2016 (“Pilot Rules”). Pursuant to the Pilot Rules, the entity and individual who provide service in transportation, postal and other modern service industrial shall be obligated to pay VAT. Taxpayers who provide taxable service shall pay VAT instead of the Business Tax. The tax rate for provision of modern service industry (exclusive of leasing of tangible chattel) is 6%.

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In March 2016, the MOF and the SAT jointly issued the Circular on the Pilot Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which took effect in May 2016. Pursuant to the Circular 36, all of the companies operating in construction, real estate, finance, modern service or other sectors which were required to pay business tax are required to pay VAT, in lieu of business tax. In November 2017, PRC State Counsel issued the amendment to Interim Regulations of PRC Value Added Taxes, or the VAT Regulation, pursuant to which entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the PRC are taxpayers of VAT, and shall pay VAT. The tax rate for VAT shall be, among others, (1) 17% for taxpayers engaged in sale of goods, services, lease of tangible movables or importation of goods, unless otherwise stipulated in VAT Regulation; (2) 11% for taxpayers engaged in sale of transportation, postal, basic telecommunications, construction, lease of immovables, sale of immovable, transfer of land use rights, sale or importation of certain types of goods; (3) 6% for taxpayers engaged in sale of services and intangible assets, unless otherwise stipulated in VAT Regulation. Pursuant to the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates promulgated on April 4, 2018 and effective on May 1, 2018, by the Ministry of Finance and State Administration of Taxation, where a taxpayer engages in a taxable sales activity for the value-added tax purpose or imports goods, the previous applicable 17% and 11% tax rates are adjusted to 16% and 10%, respectively. Pursuant to Announcement on Policies for Deepening the VAT Reform issued by the PRC Ministry of Finance, PRC State Taxation Administration and the General Administration of Customs on May 20, 2019 and effective on April 1, 2019, the previous rate of 16% or 10% are adjusted to be 13% or 9%, respectively, for taxpayer’s general sale activities or imports.

Dividend Withholding Tax

Pursuant to the PRC Enterprise Income Tax Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.  

Foreign Currency Exchange

Foreign currency exchange regulation in the PRC is primarily governed by the Regulations on the Administration of Foreign Exchange, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration Regarding Direct Investment issued by SAFE on February 13, 2015, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Conversion of RMB for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to registration with the SAFE. Foreign-invested enterprises may buy, sell and remit foreign currencies at financial institutions engaged in foreign currency settlement and sale after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign enterprises are also subject to limitations, which include approvals by the NDRC, the Ministry of Construction, and registration with the SAFE.

In August 2008, the SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or the SAFE Circular No. 142, regulating the conversion by a foreign invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. Pursuant to the SAFE Circular No. 142, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, the SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without the SAFE’s approval, and such RMB capital may not in any case be used to repay RMB-denominated loans if the proceeds of such loans have not been used. Violations may result in severe monetary or other penalties. Furthermore, on March 30, 2015, the SAFE issued the Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises, or SAFE Circular No. 19, which became effective on June 1, 2015 and replaced Circular 142. SAFE Circular No. 19 provides that, the conversion from foreign currency registered capital of foreign-invested enterprises into the Renminbi capital may be at foreign-invested enterprises’ discretion, which means that the foreign currency registered capital of foreign-invested enterprises for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry of monetary contribution has been registered) can be settled at the banks based on the actual operational needs of the enterprises. However, SAFE Circular No. 19 does not materially change the restrictions on the use of foreign currency registered capital of foreign-invested enterprises. For instance, it still prohibits foreign-invested enterprises from, among other things, spending RMB capital converted from its foreign currency registered capital on expenditures beyond its business scope.

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In February 2012, the SAFE promulgated the Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed Companies, or the Stock Option Notice. Under the Stock Option Notice, domestic individuals who participate in equity incentive plans of an overseas listed company are required, through a PRC agent or PRC subsidiary of such listed company, to register with SAFE and complete certain other bank and reporting procedures. The Stock Option Notice simplifies the requirements and procedures for the registration of stock incentive plan participants, especially in respect of the required application documents and the absence of strict requirements on offshore and onshore custodian banks.

The Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment issued by the SAFE on November 19, 2012 and amended on May 4, 2015 substantially amends and simplifies the foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts (e.g. pre-establishment expense accounts, foreign exchange capital accounts, guarantee accounts), the reinvestment of lawful incomes derived by foreign investors in the PRC (e.g. profit, proceeds of equity transfer, capital reduction, liquidation and early repatriation of investment), and purchase and remittance of foreign exchange as a result of capital reduction, liquidation, early repatriation or share transfer in a foreign-invested enterprise no longer require the SAFE’s approval, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible before. In addition, the SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by the SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by the SAFE and its branches.

On February 13, 2015, the SAFE promulgated the Circular on Further Simplification and Improvement of Foreign Currency Administration Policies on Direct Investment, which became effective on June 1, 2015. This circular aims to further remove or simplify the approval requirements of SAFE upon the direct investment by foreign investors.

Dividend Distribution

The principal regulations governing dividend distributions of wholly foreign-owned enterprises include:

● the Company Law (2018 Revision);

● the Foreign Investment Law

● the Regulations on the Implementation of Foreign Investment Law

Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations.  In addition, each of our wholly foreign-owned enterprises is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital.

Regulations Relating to Internet Information Security and Privacy Protection

Internet information in China is regulated from a national security standpoint. The National People’s Congress, or the NPC, enacted the Decisions on Preserving Internet Security in December 2000, as amended in August 2009, which subject violators to potential criminal punishment in China for any attempt to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security of the PRC, or the MPS, has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leak of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the MPS and its local branches may revoke its operating license and shut down its websites.

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The Standing Committee of China’s National People’s Congress passed the Cybersecurity Law (the “CSL”), China’s first cybersecurity law, in November 2016, which took effect in June 2017. The CSL is the first Chinese law that systematically lays out the regulatory requirements for cybersecurity and data protection, and any individual or organization using the network must comply with the PRC constitution and applicable laws, follow the public order and respect social moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others. Usually, a network is broadly defined and includes, but is not limited to, the Internet. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. The costs of compliance with, and other burdens imposed by, CSL may limit the use and adoption of our products and services and could have an adverse impact on our business.

On July 10, 2021, CAC published the Cybersecurity Review Measures (Revised Draft for Public Comments), or the “Review Measures (Draft)”, and on December 28, 2021, the CAC and other ministries and commissions jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022, targeting to further restate and expand the applicable scope of the cybersecurity review. Pursuant to the Cybersecurity Review Measures, Critical Information Infrastructure Operators ("CIIO”) that intend to purchase Internet products and services and online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review. Cybersecurity Review Measures further stipulate that if a network platform operator possesses the personal information of more than one million users and intends to list in a foreign country, it shall apply to CAC for cybersecurity review. Because our PRC subsidiaries do not deal with the public and do not possess personal data of at least 1,000,000 users, we do not believe that we are required to apply for review by the Cybersecurity Review Office. In the even that, in the future, we possess such data or if the requirements for review are changed, we may be required to obtain such approval, the failure of which could affect our ability to have our common stock traded on Nasdaq.

PRC Civil Code passed by China’s National People’s Congress on May 22, 2020, effective on January 1, 2021, also stipulates that the personal information of a natural person shall be protected by the law. Furthermore, the Data Security Law of the PRC (Draft) was published on July 3, 2020 by the National People’s Congress for public comment. The draft law consists of seven chapters, namely General Provisions, Data Security and Development, Data Security System, Data Security Protection Obligation, Security and Openness of Government Data, Legal Liability and Supplementary Provisions. However, the relationship between the Data Security Law of the PRC and the implemented National Security Law of the PRC, the Cyber Security Law of the PRC, PRC Civil Code, the Confidentiality Law of the PRC and the ongoing Personal Information Protection Law of the PRC needs to be carefully clarified.

Qualification of Construction Enterprise

According to the Construction Law of the PRC issued by the Standing Committee of the National People’s Congress on November 1, 1997, effective on March 1, 1998, and as amended on April 22, 2011 and most recently on April 23, 2019 (effective on the same day), building construction enterprises, survey enterprises, design enterprises and construction supervision enterprises that engage in construction activities shall meet the following conditions: (1) having registered capital conforming to state provisions; (2) having specialized technical personnel with legally required qualifications who are commensurate with the construction activities being engaged in; (3) having technical equipment for engaging in related construction activities; and (4) other conditions as may be prescribed by laws and administrative regulations. In addition, building construction enterprises, survey enterprises, design enterprises and project supervision enterprises that engage in construction activities shall be classified into different grades of qualifications in accordance with their registered capital, specialized technical personnel, technical equipment in their possession and previous performance in construction projects completed, and may engage in construction activities within the scope permitted under their respective qualifications only after acquirement of the corresponding grade of qualification certificates upon passing qualification examination. Under circumstances where a construction enterprise undertakes projects out of the scope permitted under its level of qualification, the relevant governing authorities will have the power to demand such enterprise to cease its illegal conduct and impose on such enterprise administrative penalties which include fines, suspension of operation for rectification, lowering its grade of qualification, revocation of qualification certificates and confiscation of illegal income.

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Pursuant to the Administration Rules Regarding Qualification of Construction Enterprise issued by the Ministry of Housing and Urban-Rural Development of the PRC on September 13, 2016, which was most recently modified by the Decisions of the Ministry of Housing and Urban-Rural Development on the Modification of the Administration Rules Regarding Qualification of Construction Enterprise and Other Regulations on December 22, 2018 (effective on the same day), a construction enterprise may conduct its construction business after the receipt of a qualification which is classified into three categories, named as General Construction Contractor Qualification, Professional Contractor Qualification, and Construction Labor Service Qualification, with each category having several grades. In addition, construction enterprises must maintain their assets, major personnel, technical equipment, etc., at the level required by their respective grades of construction qualifications, otherwise, the relevant local authorities will have the power to demand the enterprises to rectify within a prescribed time limit, the longest of which shall not exceed three months. During the period in which the enterprises are rectifying in regard to its qualifications, the enterprises cannot apply to upgrade their construction qualifications or add items into their current construction qualifications and cannot undertake new construction projects. Provided that the enterprises have failed to rectify to reach the standards of their construction qualifications within the prescribed time limit, the authorities which grant such enterprises the qualifications will have the power to revoke the qualification certificates.

Regulations on Overseas Listing

On December 24, 2021, the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), which are now open for public comments.

The Administration Provisions and Measures for overseas listings lay out requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve such supervision. Companies endangering national security are among those off-limits for overseas listings.

According to Relevant Officials of the CSRC Answered Reporter Questions ("CSRC Answers”), after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to guidelines for filing, which means it will still take time to put the Administration Provisions and Measures into effect. As the Administration Provisions and Measures have not yet come into effect, the Company is currently unaffected by them.

In August 2006, six PRC regulatory agencies jointly adopted the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rule. As amended in 2009, this rule requires that, if an overseas company established or controlled by PRC domestic companies or citizens intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC domestic companies or citizens, such acquisition must be submitted to the Ministry of Commerce, rather than local regulators, for approval. In addition, this regulation requires that an overseas company controlled directly or indirectly by PRC companies or citizens and holding equity interests of PRC domestic companies needs to obtain the approval of the CSRC prior to listing its securities on an overseas stock exchange.

While the application of the M&A Rule remains unclear, based on our understanding of current PRC laws, regulations, and the Provisions on Indirect Issuance of Securities Overseas by a Domestic Enterprise or Overseas Listing of Its Securities for Trading announced by the CSRC on September 21, 2006 (effective the same day), we believe it is not applicable to us since we are not an overseas company controlled by PRC domestic companies or natural persons.

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If, conversely, it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, delays or restrictions on the repatriation into the PRC of the proceeds from this offering, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock.

Regulations on Stock Incentive Plans

On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, setting forth the respective requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens) under either the current account or the capital account. Additionally, individuals shall not evade foreign exchange supervisions by partitioning the intended amount of foreign exchange into separate transactions.

On February 15, 2012, SAFE issued the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Incentive Plan Rules. The purpose of the Stock Incentive Plan Rules is to regulate foreign exchange administration of PRC domestic individuals who participate in employee stock holding plans and stock option plans of overseas listed companies. According to the Stock Incentive Plan Rules, if PRC “domestic individuals” (both PRC residents and non-PRC residents who reside in China for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) that participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises. In addition, the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles promulgated by SAFE in July 2014 (SAFE Circular No. 37) also provides certain requirements and procedures for foreign exchange registration in relation to an equity incentive plan of a special purpose vehicle before listing. In this regard, if a non-listed special purpose vehicle grants equity incentives to its directors, supervisors, senior officers and employees in its domestic subsidiaries, the relevant domestic individual residents may register with SAFE before exercising their rights.

The Stock Incentive Plan Rules and SAFE Circular 37 were promulgated only recently and many issues require further interpretation. Although, based on advice of AllBright Law offices, our PRC counsel we do not believe that it is subject to these rules, we cannot assure you that SAFE will not come to a different conclusion. If we are subject to these rules and we or our PRC employees fail to comply with the Stock Incentive Plan Rules, we and our PRC employees may be subject to fines and other legal sanctions. In addition, the General Administration of Taxation has issued several circulars concerning employee stock options, and, under these circulars, our employees working in China who exercise stock options would be subject to PRC individual income tax. Our PRC subsidiary would have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or other PRC government authorities.

United States Operations

Solar Energy Systems

We design, install and sell or finance high performance photovoltaic solar energy systems and, commencing in the third quarter of 2016, backup battery systems. A photovoltaic system generates electricity directly from sunlight via an electric process that occurs naturally in certain types of materials. A system consists of one or more photovoltaic modules and an inverter. Photovoltaic modules, which are manufactured in different sizes and shapes, generate direct current (DC) electricity. The electricity current is then fed through an inverter to produce the alternating current (AC) electricity that can be used to power residences and commercial businesses. The major components of our solar energy systems include solar panels that convert sunlight into electrical current, inverters that convert the DC electrical output from the panels to AC current compatible with the electric grid, racking that attaches the solar panels to the roof or ground and electrical hardware that connects the solar energy system to the electric grid. The backup battery system is an optional system that is used by some of our clients who want to store solar power and use it when there is a disruption in electricity power for any reason. We currently install solar systems only in California.

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We provide and install both grid-tied and off-grid systems. Grid-tied systems remain connected to the electric grid, so that the energy generated by the system is sent back to the grid during the day and power is drawn back at night. The electric grid thus serves as a “storage device” for photovoltaic-generated power. If consumers use more power than is generated by their solar energy system, they can purchase power from the regional utility company. If consumers use less power than the system generates, they can sell the electricity back to their local utility companies and receive a credit on their electric bills. In order to sell power back to the utility company, the owners need to make an application to the utility company and the utility company then gives the owners a standard agreement covering the purchase of the excess power. Grid-tied systems generally represent the most common, affordable and feasible option for urban and suburban residences.

Off-grid systems are not connected to the utility grid and therefore require battery backup. Off-grid solutions are less common and are mostly employed for residences that do not have the option of connecting to the utility grid. Almost all of our installations are grid-tied systems.

Sale and Installation Process

Our system sale and installation process consists of five stages - feasibility, design, permitting, procurement and installation. In addition, when a customer requests additional services, we will enter into post-installation maintenance agreements with customers who own the systems.

We market to our customers using print ad, internet, radio and television adverting along with customer referrals. We are in the process of shifting our focus from traditional radio advertisements to sponsorships and other public relation initiatives. After the initial contact with a prospective customer, our construction and solar engineers visit the customer to conduct an on-site evaluation and assess the customer’s electricity needs. The site assessment includes a shading analysis, roof inspection and review of any existing mechanical systems. Additionally, we review the customer’s recent utility bills so that it can present a proposal designed to meet the customer’s energy requirements and answer the customer’s questions. At this stage, the customer has not made any commitment to purchase a system from us.

At the design stage, we analyze the information obtained during the feasibility stage to design a proposed solar energy solution, based on the customer’s stated energy needs, financial means and the specifics of the building location. Upon completion of the design stage, we present the customer with a detailed written proposal outlining the components of the system, the proposed timeline of the system implementation, the estimated price and estimated energy savings as well as the expected return on the investment based on existing rate information. Approved customers who purchase our systems sign a purchase agreement and tender to us a down payment equal to the lesser of 10% of the overall cost or $1,000, which can be refunded within three days.

The period of time between the initial customer contact at the feasibility stage and the signing of the contract upon the completion of the design stage (the negotiation period) may range from less than a month to more than a year, with six to nine months being the average negotiation period for larger commercial projects.

Before installing any solar or backup battery system, we must obtain required permits and approvals from the local fire department and the department of building and safety and other applicable state and local agencies, as well as from utility companies. We prepare a full permitting package and apply for these permits on behalf of the customer. We may also assist the customer with necessary paperwork to apply for and obtain the tax rebates and incentives. The permitting process typically takes four to eight weeks. Upon completion of this stage, we require customers paying to pay 40% of the total purchase price.

Once the customer orders the system, we order products, parts and materials necessary to implement the project. Upon delivery of the materials to the customer’s site, we require an additional 40% of the purchase price.

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Finally, we assemble and install the system at the customer’s site. Once installation is complete, we meet with the customer to conduct a final walk-through of the system and review its components. Upon the final walk-through and sign-off by the city inspector, the system becomes fully operational, and we require the remaining 20% of the purchase price. The payment schedules do not apply to customers for whom we are providing financing.

Source of Supply

We have a supply agreement dated March 2020 with Sunspark Technology, Inc. (“Sunspark”) to provide us with the right but not the obligation to purchase panels from Sunspark at certain pricings stipulated in the agreement.

Battery back-up systems are available from a number of suppliers.

One supplier, Consolidated Electrical Distributors, accounted for 10% or more of the purchases for our United States operations. This supplier accounted for purchases of approximately $1.5 million, or 15% for three months ended March 31, 2022 and $5.4 million, or 13% of purchases for the year ended December 31, 2021, and $6.7 million, or 11% of purchases, for the year ended December 31, 2020.

Warranty Obligations; Production Guarantee

All parts of the system provided by us are under manufacturers’ warranties, typically for 25 years for the panels and inverters. The manufacturer’s warranty on the solar energy systems’ components, which is typically passed-through to the customers, ranges from one to ten years. We provide a limited installation services warranty that warrants the installation services related to the system owner’s photovoltaic modules and inverters to be free from defects in the installation services under normal application, use and service conditions for a period of 10 years from the first date of the original installation services. Our agreement with our customers provides that we are not responsible for damage resulting from natural disasters, such as hurricanes, or other weather conditions. For leased systems we require the customer to maintain insurance covering these risks.

Prior to 2015, we entered into power purchase agreements that have a term of up to 20 years. We own and maintain the systems and sell the power generated by the systems to commercial customers pursuant to the power purchase agreement. Revenue from power purchase agreements is not material.

Commencing in 2015, our standard contract for residential systems provides for a production guarantee, which means that we guarantee that the system will generate a specified minimum solar energy during a given year. The agreements generally have a ten-year term. In the standard form of contract, we specify a minimum annual production and provide that if the power generated by the system is less than 95% of the estimate, we will reimburse the owner for the cost of the shortfall. Because our obligations are not contingent upon external factors, such as sunlight, changes in weather patterns, forest fires, or increases in air pollution, these factors could affect the amount of solar power that is generated and could increase our exposure under the production guarantee. The contract also provides that the purchasers of these systems shall not be entitled to reimbursement for shortfalls caused by overshadowing, shading or other interference not attributable to the design of the system and the accompanying equipment.

We no longer sell and install systems for Sunpower. All of our systems for leasing customers are sold to Sunrun. Sunrun establishes its own production guarantees, conducts its own reviews of those guarantees in conjunction with system design, and modifies its contracts accordingly.

Although we believe we have taken steps designed to prevent a misalignment of system designs and production guarantees, we cannot assure you that we will not be subject to unanticipated liability based on the failure of our systems to meet production guarantees or otherwise perform in accordance with our warranty.

Our only production guarantees are pursuant to agreements with our customers, and we believe that our current procedures are designed to enable it to correct the deficiencies that resulted in the unanticipated liability under the Sunpower contract.

Our warranty for the LED products sold and services rendered ranges from one year for labor and up to seven years for certain products sold to governmental municipalities,

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For the EPC services in the PRC, we generally provide a one-year quality warranty on our EPC services from the date of completion of the EPC work.

Leasing Agreements with us as the Lessor

Prior to 2014, we leased systems primarily to commercial and not-for-profit customers through our subsidiaries and three entities in which we have a 30% interest. These leases are operating leases and we own the systems, which it leases primarily to commercial and not-for-profit customers. Although we no longer lease new systems, we continue to own the equipment subject to the existing leases. The leases do not include a production guarantee. At the end of the lease, the customer has an option to purchase the equipment at its then fair market value for commercial customers. For not-for-profit customers, we generally have agreed up front to donate the system to the customers at the end of the lease

We have not leased systems for our account after 2014. Instead, we use a third-party leasing company. In January 2015, we entered into a channel agreement with Sunrun pursuant to which Sunrun appointed us as its sales representative to solicit orders for Sunrun’s products in portions of southern California. Pursuant to this agreement, we introduce potential leasing customers to Sunrun. Sunrun pays us for our services in connection with the projects. Upon a customer signing a Sunrun lease, we purchase the equipment from Sunrun or another vendor from a list of preapproved equipment suppliers provided by Sunrun. We then perform the design and EPC work until the system receives the permit to operate. Sunrun pays us 80% of the purchase price of the system after the system receives the city sign off and the final 20% after receiving the permit to operate. Similar to the solar systems that we sell directly to residential and commercial customers, we recognize the revenue on the solar systems sold to Sunrun when the permit to operate is received. Sunrun owns the equipment, leases the equipment and services the lease. When we complete the installation of the system, Sunrun performs an inspection to ensure the system meets Sunrun’s quality standards, and we are required to fix any issues identified by Sunrun that are caused by us.

Sunrun may terminate the agreement if we fail to meet specified minimum volume requirements. Sunrun also has the right to terminate certain incentives contained in the agreement at any time. We did not recognize any revenue for Sunrun in the three months ended March 31, 2022.  Sunrun was the largest customer of our United States segment during the year ended December 31, 2021 and the fourth largest customer for the United States segment for the years ended December 31, 2020. Revenue from Sunrun was less than 10% of total revenues for all periods. The channel agreement had an initial term that expired January 2018 and, by its terms, was automatically extended for 36 months, and now expires in January 2021 and was further extended to May 2021. We are currently negotiating an extension of the agreement. In the event that we are not able to negotiate an agreement with Sunrun, we believe that it could enter into a leasing agreement with another equipment leasing company, although no assurance can be given as to our ability to enter into an extension with Sunrun or enter into an acceptable agreement with another equipment leasing company.

Our relationship with Sunrun’s residential customers is only during the sales and installation process, although we continue to have obligations under our ten-year warranty that relates to the EPC services that we perform. We have no warranty obligation with respect to the equipment, which is provided by the equipment manufacturer, or any production guarantee.

Power Purchase Agreements

Prior to 2015, we entered into solar power purchase agreements with some commercial customers, and many of these agreements remain in effect. Pursuant to these agreements, we were responsible for the design, permitting, financing and installation of a solar energy system on a customer’s property after which we sell the power generated by the system to the customer at an agreed upon rate. To the extent that the system does not generate sufficient power to meet its obligations, we may have to purchase power from a local utility company, which will be a cost of revenues. We receive the income from the sales of electricity pursuant to these agreements as well as any tax credits and other incentives generated from the system, and we are responsible for the operation and maintenance of the system for the duration of the agreement. At the end of the term, a customer may extend the agreement, have us remove the system or buy the solar energy system from us. We have generated nominal revenue from power purchase agreements. From 2015 until March 2019, we did not offer power purchase agreements.

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In March 2019, we entered into a 10-year power purchase agreement with a not-for-profit entity in California pursuant to which we constructed a commercial-grade photovoltaic system with a battery storage system on the customer’s premise. The contract value over the 10-year term is estimated at approximately $1.6 million. On December 26, 2019, we executed an agreement with a third-party purchaser pursuant to which we would complete construction, including utility connection, and would transfer ownership of the system described above. Additionally, we would assign the 10-year power purchase agreement to the purchaser for a purchase price of approximately $1.6 million. During the year ended December 31, 2020, we completed construction of the system and fulfilled all of the performance obligations under the agreement including the transfer of the power purchase agreement to the purchaser. We also were entitled to receive $167,250 of self-generation incentive rebate from the utility company which we used to offset the construction cost. We received 50% of the rebate in early 2021 and the remaining rebate will be payable by the utility company to us over five years.

Seasonality

Since the inception of our business in 2008, we have experienced different levels of seasonality for our residential sales, small commercial and large commercial projects.

Our residential sales are prone to seasonal fluctuations. It has been our experience that it generates a larger percentage of sales in March and April, when residential customers focus on possible tax advantages of solar energy, and in the summer months of July and August, when utility rates and bills typically increase. We believe that the increase in residential sales during March and April results from consumers’ increased awareness of the tax benefits of solar energy system systems. We believe that the higher volume of sales in the summer months results from typically higher electrical bills in the summer, when electricity use is highest, which we think heightens consumers’ awareness of the opportunity to reduce their energy costs in the future through the use of solar energy.

We have historically experienced a slight increase for small commercial projects during the summer season. As with residential sales, we attribute higher volume in small commercial sales to small business owners’ reaction to the generally higher electricity bills during the summer months. The effect of the COVID-19 pandemic and actions taken by the State of California to address the pandemic have affected the timing and willingness of residential and commercial user to purchase solar energy systems.

We have generally not experienced any significant seasonal fluctuations for our large commercial projects in the United States. We suspect that customers committing to large commercial purchases or leases of solar energy systems have generally made more studied decisions and are therefore less sensitive to seasonal variations or immediate market conditions. The negotiation period for larger projects may range from a couple of months to a year or more. We therefore believe that the timing of the execution of large commercial deals depends largely on the progress of contract negotiations.

Financing Activities

Because we believe the high cost of buying and installing solar energy systems remains a major barrier for a typical residential customer, we have developed financing programs to enable customers who meet our credit standards to finance the purchase of our solar energy systems through SolarMax Financial.

Before providing financing to potential customers, we evaluate the suitability of customers for participation in our financing program based on our assessment of the customer’s ability to make payments, a verification of the customers’ income, the likelihood that the customer will continue to make payments, the customer’s credit history, the amount of the down payment and security we will receive and such other factors as it may deem appropriate. Since we have recently developed our financing business, and does not have a history of successful financing operations, we anticipate that, on an ongoing basis, we will refine our procedures and criteria to reflect our experience.

Based on our evaluation of the customer’s response, we either approve the application, conditionally approve the application, reject the application or defer a decision pending receipt of additional information.

● If we approve the application, we will notify the applicant and send the applicant a financing contract for signature.

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● If we approve the application conditionally (that is, on terms different from the terms of requested by the applicant), we will send the applicant a proposal amortization table as well as an Adverse Action Notice and Risk Based Pricing Disclosure, as required by the Fair and Accurate Credit Transactions Act.

● If we reject the application, we will notify the applicant within ten days of the decision.

● If additional information is required to make a decision on an application, we will defer the application. The decision process will be completed if and when the additional information is received. If we do not receive the information within a reasonable time, it will treat the application as abandoned by the applicant.

Finally, we prepare the contract and payment schedule based on the anticipated completion date. The first contract payment would usually be due on the first of the month following 30 days after the completion date.

To manage our financial risks, we have developed a pricing matrix for setting the interest rate percentages based on the applicant’s FICO score and the down payment percentage.

We generate financing revenue from the interest on loans that were made to our customers by SolarMax Financial to assist them in the purchase of our solar systems, and from installment sale contracts, financing sales of solar systems, backup battery systems and LED systems. SolarMax Financial is licensed in California as a finance lender pursuant to the California Finance Lenders Law.

Our ability to generate revenue from our financing activities is dependent upon our ability to generate installment sales contracts and our ability to provide either debt or equity financing for SolarMax Financial.

The following table sets forth customer loan receivables at March 31, 2022, December 31, 2021 and December 31, 2020 (in thousands): 

	March 31,
	2022 (unaudited)			December 31, 2021			December 31, 2020
Customer loan receivable, gross	$	14,469		$	16,156		$	26,486
Less: unamortized loan discounts		(158	)		(203	)		(478	)
Less, allowance for loan losses		(226	)		(358	)		(694	)
Customer loans receivable, net		14,085			15,595			25,314
Less, current portion, net		(4,549	)		(4,936	)		(6,984	)
Customer loans receivable, long-term		9,536			10,659			18,330

Financing Program

In addition to financing our solar systems directly, we have financing programs with third-party financing companies, the most significant of which is a home improvement financing program agreement executed on October 12, 2021, with GoodLeap, LLC (“GoodLeap” formerly known as LoanPal, LLC), pursuant to which GoodLeap provides financing to our customers who meet GoodLeap’s credit criteria. This agreement replaces an agreement dated January 9, 2020. We sell the systems to our customers, and GoodLeap pays us the purchase price, less a program fee. The financing agreement is between the customer and GoodLeap, and we are not a party to the agreement.

LED Projects

We provide LED products that help commercial customers save money by lowering electricity costs through the advanced technology of LED light bulbs. The energy-saving incandescent bulbs use approximately 25% less energy than traditional varieties, while the LED light bulbs use approximately 75% less energy, last 40 times longer, and are considered safer to use.

We have relationships with a number of LED system manufacturers that provide us with access to a variety of high-performance products and ultimately enables us to meet customers’ energy needs and budgets. Our LED streetlight system has an exclusive ETL Mark under our company name, which is evidence that our product complies with North American safety standards and is a requirement for contracts with municipal customers.

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There are several steps to completing an LED installation with a customer. The first step is to review the customer’s previous year’s power bill and to look at its financial statements for the last three years. The next step is to conduct a lighting survey to effectively present an energy saving proposal to the potential customer. We typically offer financing services similar to our solar system financing. Some commercial projects require us to engage a third-party vendor to help install the LED lighting systems for our clients while other projects customers choose to be responsible for the installation of the system.

On June 24, 2019, we were informed that we were awarded a contract for a $3.8 million project from a California municipality to provide 3,000 units of LED Luminaires products to be used in its street light conversion project. Pursuant to the award, the municipality can place purchase orders through 2021. Revenue from this award were approximately $38,507 for the year ended December 31, 2019 and $3.7 million for the year ended December 31, 2020. No revenues were earned on this contract for the year ended December 31, 2021.

In September 2020, we were awarded an LED contract of $4.5 million with the California Department of General Services, a state agency, to provide traffic control modules. The contract is effective through September 2023 and gives the state agency the right to extend for up to two years and increase or decrease the order quantities. We received the first purchase order under this contract in the second quarter of 2021. We cannot give assurance that the state agency will purchase any significant amount of our products. Recent steps taken by California to address to COVID-19 pandemic may affect the timing and amount of purchases pursuant to this contract.

During the year ended December 31, 2020, our LED subsidiary paid $110,000 to a company owned by our former executive vice president and one of our current 5% stockholders. The payment represented 80% of the gross profit (computed prior to making the payment) on an LED government project which had been introduced to us by the former executive. As a result of this payment, we incurred and accrued approximately $110,000 of additional cost of revenue related to the project as of December 31, 2020. Such accrued amount was fully paid in February 2021.

Marketing

We have an in-house sales and marketing staff of 31, of which 26 market solar and battery backup projects and five market LED products and systems. While we use a variety of marketing and advertising tools, it believes that word of mouth is one of our most effective marketing strategies. We estimate that approximately 40% of our sales are generated through referrals by our customers.

We also participate in industry trade shows, use telemarketing, radio, television, and Internet advertising as well as participating in local community events such as local festivals and door-to-door sales. It is in the process of shifting our focus from traditional radio advertisements to sponsorships and other public relation initiatives.

Personal meetings with prospective customers and site visits at the feasibility stage are also part of our advertising budget. In our experience, on average, we make three to four visits at the feasibility stage before it can generate a contract from the customer. As we expand the breadth of our operations, we plan to hire additional professionals and general sales personnel to market our systems to a larger number of prospective customers.

Our marketing effort includes our ability to offer financing in connection with purchases of our systems. We do not have a separate marketing staff for our financing activities.

Competition

Solar energy systems in general compete with both the local or regional providers of electricity as well as a number of independent companies that offer to provide electricity at prices that are lower than the regional utility company. Our primary competition is with the local utility companies that supply power to our potential customers.

Within the solar energy industry, we face intense and increasing competition from other solar energy system providers. The solar energy industry is highly fragmented, consisting of many small, privately-held companies with limited resources and operating histories, and we believe that no solar energy provider has a significant percentage of the California market. We also compete with major companies, as well as a large number of smaller companies. We have experienced price erosion as a result of increased competition which has affected our gross margin. Because California has much sun and little rain, solar power companies seek to market in California rather than in states with less sun and more rain. We believe that the number of new solar energy installation companies that have entered the industry in California has increased significantly since 2008 when we commenced business, and the increased competition is reflected in lower margins as we may have to reduce our prices to generate business. We expect additional companies to enter the business in the future, considering that the entry barrier in this industry is relatively low and the government incentives currently remain high.

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We believe that competition is primarily based on price and, if financing is required, the availability and terms of financing, and, to a lesser extent, the ability to schedule installation to meet the customer’s schedule. Some of our competitors may offer financing with payments over a longer period and with either a lower down payment or no down payments, which may make them more attractive to potential customers. Although we intend to offer terms which it believes are competitive, if we maintain our proposed underwriting criteria, we may lose business to companies whose standards are less strict. If we reduce our underwriting criteria to meet competition we may suffer an increase in the reserve for loan losses.

Government Regulation

Although we are not a regulated utility company, our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, regulations and ordinances. Additionally, our business is materially affected by federal and state programs and policies related to financial incentives for solar energy users and providers. Local utility companies work with all solar companies to connect their systems to the grid. Title 24 of the California Code of Regulations governs energy savings and efficiency standards for new and remodeled construction for indoor and outdoor lighting requirements.

Construction Licenses and Permits

As a company performing general contractor and design work, we must take steps such that our employees obtain and timely renew appropriate general contractor and other required licenses. In connection with each installation, we are required to obtain building permits and comply with local ordinances and building codes for each project. Our operations are also subject to generally applicable laws and regulations relating to discharge of materials into the environment and protection of the environment. We are also subject to federal and state occupational health and safety regulations. We may also be subject to federal or state wage requirements, at least in connection with any solar projects on government land or buildings or other public works projects.

Consumer Protection Laws

In negotiating and entering into contracts with our residential customers, we must comply with state and federal consumer protection laws. In conducting our marketing campaigns, we must comply with the federal Telemarketing and Consumer Fraud and Abuse Prevention Act, and Telemarketing Sales Rule promulgated by the Federal Trade Commission, as well as state regulations governing telemarketing and door-to-door sales practices. In negotiating and entering into contracts with our residential customers, we must comply with a number of state regulations governing home solicitation sales, home improvement contracts and installment sales contracts.

Consumer Financing Regulations

SolarMax Financial operates in California as a California finance lender pursuant to a license issued by the California Department of Corporations, which regulates and enforces laws relating to consumer finance companies. SolarMax Financial must comply with regulations pertaining to consumer financing. Such rules and regulations generally provide for licensing of consumer finance companies, limitations on the amount of financing provided, duration and charges, including finance charge rates, for various categories of contracts, requirements as to the form and content of the loans and other documentation, and restrictions on collection practices and creditors’ rights. As a licensed finance lender, SolarMax Financial will be subject to periodic examination by state regulatory authorities.

SolarMax Financial is also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act, Fair Debt Collection Practices Act and the Fair Credit Reporting Act. These laws require SolarMax Financial to provide certain disclosures to prospective customers and protect against discriminatory lending practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants on the basis of race, color, sex, age, or marital status, among other things. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, lenders are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The Fair Credit Reporting Act requires SolarMax Financial to provide certain information to consumers whose applications were not approved or were conditionally approved on terms materially less favorable than the most favorable terms normally offered on the basis of a report obtained from a consumer-reporting agency.

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In addition, SolarMax Financial is subject to the provisions of the federal Gramm-Leach-Bliley financial reform legislation, which imposes additional privacy obligations on SolarMax Financial with respect to our applicants and our customers. SolarMax Financial has appropriate policies in place to comply with these additional obligations.

Government Subsidies and Incentives

The solar energy industry depends on the continued effectiveness of various government subsidies and tax incentive programs existing at the federal and state level to encourage the adoption of solar power. Government policies, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. We and our customers benefit from these regulations in the form of federal tax incentives, state utility rebates and depreciation. Because of the high cost of installing solar energy systems, the existence of tax incentives as well as regulations requiring utility companies to purchase excess power from solar energy systems connected to the grid are important incentives to the installation of a solar energy system.

Federal Tax Incentive. The American Recovery and Reinvestment Act gives effect to the Residential Renewable Energy Tax Credit and the Business Energy Investment Tax Credit programs. The Residential Renewable Energy Tax Credit is described as a personal tax credit, whereas the Business Energy Investment Tax Credit is identified as a corporate tax credit. These programs may allow the owner of the system a federal income tax credit of up to 30% of the approved cost of the installation of a solar energy system. This tax credit is now available to homeowners in some form through 2021. The tax credit remains at 30% of the cost of the system for 2016 through 2019. Owners of new residential and commercial solar can deduct 26% of the cost of the system from their taxes in 2020. This percentage decreases to 22% in 2021 and 10% in 2022.

State Incentives and Utility Company Rebates. In addition to federal income tax credit, utility companies in California and other states offer various incentives and rebate programs. Capital cost rebates provide funds to customers based on the cost and size of a customer’s solar energy system. The value of the rebate is subtracted from the total purchase price, resulting in a net adjusted cost for the purpose of determining the value of the federal tax credit. Performance-based rebates provide funding to customers based on the energy produced by their systems. Under a feed-in tariff subsidy, the government sets prices that regulated utility companies are required to pay for renewable electricity generated by end-users. Under that subsidy program, prices are set above market rates and may be differentiated based on system size or application.

The building standard approved by the California Energy Commission in May 2018 mandates the installation of solar arrays on new single-family residences and on multi-family buildings of up to three stories starting in 2020. This new standard will be reviewed by the California Building Standards Commission, which is expected in the fall of 2018. Although the Building Standards Commission traditionally accepts California Energy Commission recommendations without change, we cannot assure you that the Building Standards Commission will approve this standard or that the standard will survive any legal challenges which may be brought in opposition to the standard.

The California Public Utilities Commission may consider a proposal to significantly reduce the incentives homeowners receive for installing rooftop solar systems. If such a change or any significant change in the benefits provided to homeowners for installing rooftop solar systems, our U.S. business will be materially impaired. We cannot assure you that the present benefits provided to homeowners for installing solar systems will not be adopted.

Depreciation. Solar projects typically qualify for a five-year accelerated depreciation, which provides a major financial incentive for our commercial customers. The depreciation of these systems can be up to 50% of the purchase price in the first year and 12.5% in each of the succeeding four years. In December 2015, Congress passed a five-year extension of bonus depreciation, including a phase-out that is structured as follows: 2015-2017: 50% bonus depreciation; 2018: 40%; 2019: 30%, 2020 and beyond: 0%.

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Tariffs and Trade Policies. The solar energy industry has recently experienced decreasing prices in solar panels, a principal component in any solar energy system. Most solar panels are imported and the price of the solar panels is impacted by trade policies, such as tariffs and quotas. The U.S. government has imposed tariffs on solar cells, solar panels and aluminum that is used in solar panels manufactured overseas. Based on determinations by the U.S. government under the 2012 solar trade case, the anti-dumping and countervailing tariff rates range from approximately 33%-255%. Such anti-dumping and countervailing tariffs are subject to annual review and may be increased or decreased. These tariffs have increased the price of solar panels containing China-manufactured solar cells. We do not purchase panels from China or Taiwan for our United States operations. The purchase price of solar panels containing solar cells manufactured in China reflects these tariff penalties. While solar panels containing solar cells manufactured outside of China are not subject to these tariffs, the prices of these solar panels are, and may continue to be, more expensive than panels produced using Chinese solar cells, before giving effect to the tariff penalties.

On January 23, 2018, the United States placed tariffs on imported solar cells and modules for a period of four years with an effective date of February 7, 2018. The tariff level was set at 30%, with a 5% declining rate per year for the four- year term of the tariff. The tariff includes a 2.5 GW exemption for cells per year, which does not include any sub quotas for individual countries. Additionally, the only countries excluded from the tariff are those that the U.S. government deems as developing nations, with the exception of the Philippines and Thailand that are eligible for the U.S. Generalized System of Preferences program.

While the state and federal incentives benefit the industry by making solar energy systems more affordable and attractive to consumers, they also expose the industry to the risk of negative consequences should these incentives be discontinued or reduced. The market for solar energy products is, and will continue to be, heavily dependent on public policies that support growth of solar energy. There can be no assurances that such policies will continue. Decreases in the level of rebates, incentives or other governmental support for solar energy would materially and adversely affect the demand for solar energy products, including our business.

California Consumer Privacy Act

In June 2018, California passed the CCPA, which became effective in 2020. As a practical matter, companies needed to have their data tracking systems in place by the start of 2019, since the law gives consumers the right to request all the data a company has collected on them over the previous 12 months. This law covers all companies that serve California residents and have at least $25 million in annual revenue. Under the law, any California consumer has a right to demand to see all the information a company has saved on the consumer, as well as a full list of all the third parties that data is shared with. The consumer also has the right to request that the company delete the information it has on the resident. The CCPA broadly defined broadly defines “protected data.” The CCPA also has specific requirements for companies subject to the law. For example, the law specifies that companies must have a clear and conspicuous link on their websites to a page from which consumers may exercise their right to opt out of data sharing. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations, with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater. The CCPA also permits class action lawsuits. Because the law was recently adopted, we have not been able to determine the extent to which the law applies to us, our website and our privacy policies.

Employment Regulations

California labor law is more pro-employee than the laws of other states, and the damages and penalties an employee can recover are higher under California labor law than under federal labor law. California has numerous laws and regulations relating to the relationship between an employer and our employees, including wage and hour laws, laws relating to anti-discrimination, and laws mandating expanded training to employees to prevent sexual harassment. In 2004, California passed a law requiring employers with 50 or more employees to provide two hours of sexual-harassment-prevention training to supervisors every two years. A recently passed law requires that by January 1, 2020, employers with five or more employees provide at least two hours of sexual-harassment-prevention training to supervisory employees and one hour of training to nonsupervisory employees. The law also requires that, beginning January 1, 2020, seasonal, temporary and other employees hired to work for less than six months need to be trained within the earlier of 30 calendar days of hire or within 100 hours worked. Our professional employer organization has implemented our sexual harassment prevention program.

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Intellectual Property

We do not have any intellectual property that is material to our business. 

Legal Proceedings

In October 2019, Jiangsu Zhongxinbo New Energy Technology Co., Ltd. commenced a court hearing in the Shanghai Pudong New District People’s Court in Shanghai, PRC against our subsidiary, Shanghai Zhongzhao Technology Development Ltd., seeking RMB 13 million (approximately $1.9 million) representing the unpaid portion of the purchase price of steel structure supporting products for the Company’s Ningxia Meili Cloud project. Our subsidiary filed a pleading objecting to the court’s jurisdiction and believes that the products were delivered late and were defective. In February 2021, the court judgment was received awarding us the liquidated damage of RMB 2.4 million. After netting out the legal fees and other costs, we recorded a gain of RMB 493,723 (approximately $76,000) for the year ended December 31, 2021.

On July 1, 2020, a legal action was filed in the Los Angeles Superior Court by Haijing Lin against various defendants which include us, SolarMax Renewable Energy Provider, Inc. (“SREP”), CEF, Inland Empire Renewable Energy Regional Center, LLC, David Hsu, Ching Liu and Simon Yuan. At the time of the filing, the plaintiff was a limited partner in CEF and sought to have his $500,000 investment returned. The plaintiff’s $500,000 capital contribution to CEF, which was used in part to fund CEF’s loan to our subsidiary is reflected as a current liability on our consolidated balance sheet.

On or about February 4, 2021, an amended complaint was filed and Mian Cai and Xing Zhang were added to Haijing Lin as plaintiffs in the action initially commenced by Mr. Lin. The total capital contribution by the three plaintiffs was $1.5 million, including the $500,000 contributed by Mr. Lin as described in the previous paragraph. The plaintiffs sought return of their capital contributions and other relief, including costs, punitive and exemplary damages and a declaration that the $45.0 million loan by CEF to SREP is due. We prepared our response to the legal action and a case management conference and hearing was scheduled for September 15, 2021.  The plaintiffs’ $1.5 million capital contribution to CEF, which was used in part to fund CEF’s loan to a SREP is reflected as a current liability on our consolidated balance sheet.

On September 23, 2021, the complaints filed by Haijing Lin, Mian Cai and Xing Zhang were settled for $1.29 million, and $1.5 million of debt was extinguished, resulting in a gain of $210,000 for us.

On November 10, 2020, a legal action was filed in the Los Angeles Superior Court by Carmelia Chiang against and various defendants which include us, SREP, CEF, Inland Empire Renewable Energy Regional Center, LLC, David Hsu and Ching Liu. At the time of the filing, the plaintiff was a limited partner in CEF and sought to have her $500,000 investment returned.  At the time, we could not predict the outcome of the legal action. The plaintiff’s $500,000 capital contribution to CEF, which was used in part to fund CEF’s loan to our subsidiary is reflected as a current liability on our consolidated balance sheet.

On February 23, 2022, the Los Angeles Superior Court granted and sustained the demurrer by us without leave to amend in the legal action by Carmelia Chiang and the case was dismissed.

If other limited partners of CEF or CEF II do not accept the convertible note in lieu of a cash payment, they may commence litigation against us for the amount of their investment, all of which is included in liabilities on the balance sheet and any settlement of litigation may affect the willingness of limited partners to accept the terms of the convertible notes that we propose to issue.

On June 1, 2021, a legal action was filed in the Los Angeles Superior Court by Pu Dong against various defendants which include us, David Hsu and one other stockholder. At the time of the filing, the plaintiff was a shareholder and seeks to have shares that are issued in the name of the other stockholder defendant reissued in the name of the plaintiff. We believe that this is a dispute between two stockholders and will comply with any final court order as to the ownership of the shares.

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On November 19, 2021, a first amended complaint to a legal action was filed in the Los Angeles Superior Court by Qian Liu and Qingfeng He against various defendants which include us, SREP, Inland Empire Renewable Energy Regional Center, LLC (“IERERC”), our chief executive officer, one of our directors and a former officer/director who are members of IERERC, the general partner of CEF. The original complaint was filed on September 7, 2021, but never served on us. At the time of the filing, the plaintiffs were limited partners in CEF and seek to have their $500,000 investments returned. Currently there is not enough information for us to determine an outcome; however, the plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.

In the ordinary course of our business, we and our subsidiaries are involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. We do not believe there are any such pending legal proceedings that will have a material impact on our financial position or results of operations.

Employees

On May 31, 2022, we had 100 employees in the United States, of which five are executive, 31 are in sales and marketing, 51 are in operations and installation and 13 are in accounting and administrative, and it had 26 employees in China, of which three are executives, four are in sales and marketing, seven are in operations and engineering and 12 are in accounting and administrative. None of our employees are represented by a labor union. We consider our employee relations to be good. We have agreements with a professional employer organization, Insperity PEO Services, L.P., under which the professional employer organization administers our human resources, payroll and employee benefits functions for our United States employees, who are co-employed by us or one of our subsidiaries and Insperity. On July 1, 2021, we began a 401(k) plan through Insperity PEO Services, L.P.

Property

We do not own any real property. The following table sets forth information as to the real property leased by us:

Location	Square Feet		Current Annual Rent		Expiration date
3080 12th Street, Riverside, CA (1)		101,556	$	1,101,072	12/31/26
3230 Fallow Field Dr., Diamond Bar, CA (2)		9,928		259,238	10/31/26
Room 1108 Cheng Xin Building No. 885 Cheng Xin Rd., Nanjing, China		4,800		45,291	10/14/22
Room 402, Floor 4, No. 558 Tongxie Rd., Shanghai, China		5,920		96,403	12/31/22

1 This property is owned by SMX Property, LLC (“SMX”). The owners and principal management group of SMX Property. LLC consist of David Hsu, our chief executive officer and a director, Simon Yuan, a director, and Ching Liu, our executive vice president, chief strategy officer and treasurer and a director. The lease is subject to an annual 2.99% increase in the base rent and provides us with one option to renew the lease for a five-year term at the then current base rent with a 2.99% escalation in each year.

2 This property is owned by Fallow Field, LLC, which is owned and managed by Mr. Hsu and Ms. Liu and one other stockholder who is not a 5% stockholder. The lease provides for annual increase of 2.99%. SolarMax has the right to renew the lease for one five-year period upon the expiration of the current term.

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MANAGEMENT

Executive Officers and Directors

Set forth below is certain information with respect to our directors and executive officers:

Name	Age	Title
David Hsu	58	Chief executive officer and director
Stephen Brown	63	Chief financial officer
Simon Yuan	68	Director
Wei Yuan Chen	63	Director
Jinxi Lin	62	Director
Wen-Ching (Stephen) Yang, Ph.D.	59	Director
Lei Zhang, Ph.D.	39	Director

David Hsu, together with Simon Yuan and Ching Liu, who was formerly an executive officer and director and is a 5% stockholder, are our founders. Mr. Hsu has served as our chief executive officer and a director since our organization in February 2008. Mr. Hsu has more than 20 years of experience in sales, international business development and management in the automotive and energy industries. Before starting SolarMax in 2008, Mr. Hsu served as a consultant to China Sunergy a leading photovoltaic panel manufacturer and solar energy company. Mr. Hsu received a bachelor’s degree in electrical engineering from Shanghai Jiao Tong University School of Engineering. Mr. Hsu’s solar energy industry experience and his relationships with industry experts qualify him to serve as a director.

Stephen Brown has served as our chief financial officer since May 2017. From 2013 until April 2017, he was chief financial officer of STAAR Surgical Company. Mr. Brown was vice president, global finance of Bausch & Lomb from 2008 until 2013 and chief financial officer of Hoya Surgical Optics from 2007 to 2008. He served in various capacities over a 13-year period with Johnson & Johnson including chief financial officer of the Advanced Sterilization Products division. His 35-year business career also includes the founding of Degree Baby Products, a privately held company that was sold after six years of operations to Johnson & Johnson. Mr. Brown holds a M.B.A. degree from University of California, Los Angeles Anderson School of Management and earned a B.A. degree in Business Administration from California State University, Fullerton.

Simon Yuan, one of our founders, served as a director since February 2008 and chief financial officer from February 2008 until May 2017. In 1989, Mr. Yuan founded Simon& Edward, LLP, a PCAOB registered public accounting firm of which he has been managing partner since its founding. Prior to founding Simon& Edward, Mr. Yuan was employed by Wells Fargo Bank as a senior internal auditor and by the State of California as a tax auditor. Mr. Yuan was also a supervising senior auditor with the international accounting firm of Moore Stephens. Mr. Yuan’s professional experience encompasses more than 30 years of public accounting, with expertise in a broad range of business accounting and auditing, and international taxation, estate planning, business merger and acquisition, and general business consulting. Mr. Yuan is an active leader, officer and participant of many professional and charitable organizations. He is a director of the Sino-American Certified Public Accountants Association and also served as its president in 1998. Mr. Yuan received a Masters of Accountancy from Ohio State University. Mr. Yuan’s accounting background, as well as his service as our chief financing officer, qualify him to serve as a director.

Wei Yuan Chen has served as a director since April 2010. Mr. Chen, who is semi-retired, was the chief designer and director for Xing Rong Project Management Company, Shanghai, China, a position he held from 1990 to 2010. In 2002, Mr. Chen received the “Design and Build” of the year award for designing the headquarters of Applied Material, Shanghai, China. Mr. Chen earned his bachelor degree from Tsinghua University. Mr. Chen brings to us his project management knowledge and 20 years of experience of implementation and integration of renewable sources into his architectural designs. Mr. Chen’s experience in project management and familiarity with the Chinese market qualify him to serve as a director.

Jinxi Lin has served as a director since 2014. Mr. Lin serves as the chairman of AMD, a publicly traded solar panel manufacturer in Asia and the Middle East and one of our major stockholders. Mr. Lin founded AMD in 2006 and has served as its chairman since its formation. Mr. Lin received his undergraduate degree in business administration from Northwest Polytechnic University.  Mr. Lin’s knowledge of the solar industry and the Chinese market qualify him to serve as a director.

Dr. Wen-Ching (Stephen) Yang has been a director since December 2020. Dr. Yang is the founder of Grand Trust International Law Offices and has been the partner-in-charge since 2008. He has also been the chief executive officer of Taoyuan Enterprise Chamber since 2016. Dr. Yang received his bachelor and master degrees from National Taiwan University and his PhD in economics in law from the law school at Peking University. Dr. Yang was also a research fellow at the John F. Kennedy School of Government at Harvard University. Dr. Yang’s background in economics qualify him as a director.

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Dr. Lei Zhang, has been a director since November 2020. She has been associate professor, which is a tenured position, in the Department of Mechanical Engineering at the University of Alaska, Fairbanks since July 2018, having been an assistant professor in that department from August 2013 to June 2018. She is co-author of a number of annual books on energy technology and is co-author of a number of articles in her field in peer reviewed journals. Dr. Zhang received her B.Eng. and M.S. in Material Science and Engineering from China University of Mining & Technology, Beijing, and her Ph.D. from Michigan Technological University.   Dr. Zhang’s knowledge of the energy industry qualifies her to serve as a director.

All of our executive officers and directors are located in the United States except that two directors (Wei Yuan Chen and Jinxi Lin) are located in China and one director (Wen-Ching (Stephen) Yang) is located in Taiwan. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors under United States securities laws. In particular, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries and regions. Therefore, recognition and enforcement in the PRC of judgement of United States courts in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Key Employee

Bin Lu, age 54, is the head of the China segment.  Mr. Lu has been employed by in our China segment since we acquired ZHPV in 2015.  Mr. Lu was employed with ZHPV prior to our acquisition of ZHPV.   Mr. Lu received a bachelor’s degree from Shanxi University.

Information about the Board of Directors

Our board of directors oversees our business and affairs and monitors the performance of management. In accordance with corporate governance principles, the board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with our chief executive officer, other key executives, by reading the reports and other materials that we send them, and by participating in board and committee meetings. Directors hold office for a term of one year and until their successors have been elected and qualified unless the director resigns or by reasons of death or other cause is unable to serve in the capacity of director.

Director Independence

We believe that three of our directors, Mr. Chen, Dr. Yang and Dr. Zhang, are independent directors using the Nasdaq definition of independence.

EXECUTIVE COMPENSATION

The following table sets forth information regarding the compensation awarded to, earned by, or paid during the years ended December 31, 2021 and 2020 to our chief executive officer and the two most highly paid executive officers other than the chief executive officer. These three officers are referred to as our “Named Executive Officers.”

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Summary Compensation Table

												Non-qualified
										Non-Equity		Deferred
				Cash		Stock		Option		Incentive Plan		Compensation		All Other
		Salary		Bonus		Bonus		Awards		Compensation		Earnings		Compensation2		Total
Name and principal position	Year	($)		($)		($)		($)		($)		($)		($)		($)
David Hsu,	2021	$	675,305	$	-	$	-	$	-	$	-	$	-	$	51,895	$	727,200
Chief executive officer1	2020		577,779		-		-		-		-		-		44,400		622,179
Stephen Brown,	2021		350,000		-		-		-		-		-		26,896		376,896
Chief financial officer3	2020		308,437		-		-		-		-		-		5,932		314,369

¹ Pursuant to his employment agreement, Mr. Hsu is eligible for an annual bonus in which 70% is payable in stock and 30% is payable in cash. Mr. Hsu waived his bonus for 2020, and 2021 in connection with the suspension of incentive programs for our key employees.

² All other compensation represents the value of paid time off accrued during 2020 and 2021.

³ In connection with a company-wide salary reduction, Mr. Brown took a salary cut and his salary for 2020, which reduced his salary from $350,000 to $308,437.

Employment Agreements

On October 7, 2016, we entered into an employment agreement with David Hsu-pursuant to which it agreed to employ Mr. Hsu as our chief executive officer for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr. Hsu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. We agreed to include Mr. Hsu as a nominee of the board of directors for election as a director during the term of his agreement, and, upon his election as a director, Mr. Hsu is to serve as chairman of the board. Mr. Hsu’s initial salary was $600,000, with an annual increase of not less than 3%. Pursuant to his employment agreement, he was to have received a salary of $655,636 for 2020. In connection with a company-wide salary reduction, Mr. Hsu took a salary cut and his salary for 2020 will be $577,779. Mr. Hsu’s employment agreement provides for a salary increases of at least 3% annually and a bonus based on our revenues. Mr. Hsu’s compensation for 2021 was at the annual rate of $675,305. Mr. Hsu’s compensation for 2022 is at the annual rate of $695,564. Mr. Hsu is entitled to an annual bonus based on consolidated revenues for the year in accordance with the following table:

Revenue	Bonus in Dollars or Percentage of Revenues
Less than $30 million	$	0
More than $30 million but less than $50 million	$	250,000
More than $50 million but less than $100 million		0.55	%
More than $100 million but less than $200 million		0.60	%
More than $200 million but less than $300 million		0.75	%
More than $300 million		1.00	%

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70% of the bonus payable for any calendar year shall be paid in restricted stock and 30% shall be paid in cash and shall be paid no later than the earlier of (i) 30 days following the issuance of our audited financial statements for the calendar year in which the bonus is earned or (ii) the last business day of December of such next following calendar year. Our audited financial statements shall be deemed to be issued on the date we file our annual report on Form 10-K; provided, that if we are not a reporting company, our financial statements are deemed issued on the date of the auditors’ report. The equity component of the bonus shall be based on the average closing market price of the common stock on the principal exchange or market on which the common stock is traded for the period beginning on the first day of the quarter in which the bonus is payable and ending on the third trading day prior to the date payment is made; except that, if the common stock is not publicly traded, the common stock shall be valued at the most recent price at which the common stock was sold in a private placement to non-affiliated investors. The restricted stock will vest immediately on issuance. Mr. Hsu waived his cash and equity bonus for 2019. For 2018, Mr. Hsu’s bonus was composed of 69, 076 shares of common stock valued at $345,835 and cash of $148,218. Mr. Hsu is eligible for restricted stock grants or stock options, which shall not exceed 1.5% of our outstanding common stock prior to the grant. The agreement also provides Mr. Hsu with $2.0 million of life insurance, medical and dental insurance and long-term disability insurance providing monthly benefits of not less than $25,000. In the event of Mr. Hsu’s termination in the event of his disability or death, we will pay Mr. Hsu or his beneficiary severance payments or death benefits equal to his highest compensation, which is his salary plus bonus, during the three calendar years prior to the year in which the termination of employment for disability or death occurs, multiplied by the number of full years Mr. Hsu has been employed by us. Mr. Hsu’s employment commenced in February 2008. These termination payments shall be made in annual installments each equal to one year’s total compensation. In the event of a termination not for cause, by Mr. Hsu for good cause or termination of employment within 18 months of a change of control, we shall pay Mr. Hsu, a lump sum termination payment equal to two times his highest annual compensation for the three years preceding the year in which the termination of employment occurs multiplied by the number of full years that Mr. Hsu was employed by us. We owe Mr. Hsu $675,000 in connection with his exchange of 674,107 restricted shares for options to purchase 1,428,432 shares of common stock at $5.01 per share and 674,107 restricted shares for a cash payment of $675,000, which was initially payable by December 15, 2019 and has been extended and is due within three business days of the effective time of the offering. In addition, we owe Mr. Hsu $1,159,142 , representing deferred salary from 2019, 2020, 2021 and 2022 of and cash bonus deferred from 2017 and 2018.

On October 7, 2016, we entered into an employment agreement with Ching Liu pursuant to which we agreed to employ Ms. Liu as our executive vice president, chief strategy officer and treasurer for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Ms. Liu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. Ms. Liu resigned as an executive officer and director on February 24, 2020. Pursuant to a release and separation agreement dated October 1, 2020, with certain limited exceptions, the Company and Ms. Liu released each other from their obligations under the employment agreement, and we paid Ms. Liu $25,497, and agreed to pay her $803,095, representing the outstanding balance due her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. This amount is payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020, until the completion by SolarMax of its initial public offering, and any unpaid balance then outstanding shall be paid within three business days after we receive the proceeds of our initial public offering. We also owe Ms. Liu $500,000 in respect of her exchange of 499, 338 restricted shares for options to purchase 1,058,098 shares of common stock at $5.01 and 499,338 restricted shares for a cash payment of $500,000 which was initially payable by December 15, 2019 and has been subsequently extended to three business days from the effective time of the offering. We entered into a consulting agreement dated October 1, 2020 with Ms. Liu to which we engaged her as a consultant for a term which is currently on a month-to-month basis for monthly compensation of $3,000.

We have an employment agreement dated March 23, 2017 with Stephen Brown pursuant to which we pay Mr. Brown an annual salary of $350,000 and, on May 1, 2017, we granted him an option to purchase 199,7 36 shares at $5.01 per share. Mr. Brown’s agreement provides that his employment is at will.

Employee Benefit Plans

In October 2016, our board of directors adopted, and in November 2016, our stockholders approved, the 2016 Long-Term Incentive Plan, pursuant to which a maximum of 3,810,949 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted. In March 2019, the board and stockholders approved an increase in the number of shares subject to the plan to 8,988,084.

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In October 2016, the board of directors granted 3 ,810,949 shares, of which 3,045,963 shares were granted to officers and directors. The following table set forth information relating to the restricted stock grants.

Name	No. of Restricted Shares
David Hsu		1,348,213
Ching Liu1		998,676
Simon Yuan		599,206
Others		864,854
Total		3,810,949

¹ Ms. Liu resigned as a director and officer on February 20, 2020.

See “Executive Compensation –  Outstanding Equity Awards” for information with respect to the exchange by Mr. Hsu and Ms. Liu of their restricted shares for options and cash payments and the exchange by Mr. Yuan and Mr. Tsai of their restricted shares for options.

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, which is the vesting date with respect to the shares. The definition of a public stock event includes the effectiveness of the offering. The shares are forfeited and are to be conveyed to us for no consideration if a public stock event has not occurred by December 31, 2022, although the board of directors has the right to extend that date.

In October 2016, the board of directors also granted non-qualified stock options to purchase 1,947,41 8 shares and incentive stock options to purchase 325,070 shares at an exercise price of $5.01 per share.

Outstanding Equity Awards

On March 23, 2019, the board of directors:

● Extended to April 30, 2019 the date by which a public stock event must occur failing which a forfeiture would occur with respect to the restricted shares, which date was subsequently extended to December 31, 2020 and has been subsequently extended to April 20, 2021;

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

● Granted to Mr. Hsu, Ms. Liu and one other employee, who held 1,348,213, 998,676 and 199,736 restricted shares, respectively, the right (a) to exchange 50% of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $5.01 per share and (b) transfer to us 50% of their restricted shares for $1,275,000, or $1.01 per share;

● Granted seven-year options to purchase 362,520 shares of common stock at $5.01 per share to employees;

The holders of 984,698 restricted shares, including Simon Yuan, a director, and Mr. Tsai, a former director, exchanged their restricted shares for options to purchase 2,086,573 shares of common stock; Mr. Hsu, Ms. Liu and one other employee converted 1,273,313 of their restricted shares for options to purchase 2,698,150 shares and transferred 1,273,313 shares to us for cash payments of $1,275,000 which were initially payable by December 15, 2019, which date was extended to the effective time of the offering, and 264,650 restricted shares remain outstanding. In connection with the foregoing, Mr. Yuan exchanged 599,206 shares of restricted common stock for a ten-year option to purchase 1,269,717 shares of common stock at $5.01 per share. The option becomes exercisable six months from the date of this prospectus, provided that the registration statement of which this prospectus is a part is declared effective by December 31, 2022, which date may be extended by the board of directors. The exchange did not result in compensation to Mr. Yuan. The board of directors provided that the rights to these restricted shares will vest on the effective time of the offering.

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The following table sets forth information as to outstanding equity awards at March 31, 2022 for the Named Executive Officers:

	Option awards										Stock awards
	Shares underlying unexercised option # exercisable		Shares underlying unexercised option # unexercisable		Equity incentive plan awards: number of securities underlying unexercised unearned options		Option exercise price		Option expiration date		Number of shares that have not vested		Market value of shares that have not vested		Equity incentive plan awards: number of unearned shares or other rights that have not vested
David Hsu				1,428,432		-	$	5.01		1		-		-		-
Stephen Brown		149,80 2		49,934		-		5.01	04/30/27			-		-		-

¹ These options will become exercisable in two installments, commencing six months from the effective date of the offering, and will expire ten years from such effective date.

Director Compensation

The following table sets forth information as to the compensation paid to our directors in 2021, other than those named in the Summary Compensation Table:

Name	Cash Compensation		Stock Awards		Total
Wei Yuan Chen		-		-		-
Jinxi Lin		-		-		-
Simon Yuan		-		-		-
Dr. Wen-Ching (Stephen) Yang		-		-		-
Lei Zhang, Ph.D.		-		-		-

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Related Party EB-5 Notes

On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF agreed to make loans to the subsidiary in an amount not to exceed $45 million. CEF advanced $45 million pursuant to the agreement. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13,000,000. CEF II advanced $10.5 million pursuant to the agreement. The proceeds of the loans were used by our subsidiaries for their operations. The loans from CEF and CEF II accrue interest at 3% per annum, payable quarterly in arrears. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, LLC (“Inland Empire”). Inland Empire is owned by David Hsu, our chief executive officer and a director, Ching Liu, our former executive vice president and director and a 5% stockholder of SolarMax, and Simon Yuan, a director. The limited partners of both CEF and CEF II are investors who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program and are not related parties. The 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.

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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 March 31, 2022 and are on extension until the limited partner meets applicable immigrant investor visa requirements. We cannot determine the period of the extensions. As of July 13, 2022, limited partners whose capital contributions funded loans of $40.0 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 capital contribution was returned. The petitions of limited partners of CEF whose capital contribution funded loans of $5.0 million are pending.

As the loans matured and the limited partners requested return of their capital contribution, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to CEF. As of July 13, 2022, we had issued convertible notes in the principal amount of $34.0 million to former limited partners of CEF, of which principal payments of $9.8 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.77 million, leaving convertible notes in the principal amount of $21.7 million outstanding. As of July 13, 2022, notes to CEF and CEF II in the aggregate principal amount of $19.5 million were outstanding.

Six of the limited partners commenced an action against CEF, SolarMax and others, including Mr. Hsu and Mr. Yuan, seeking cash payment of their capital contribution to CEF totaling $3.0 million and other relief, including a declaration that the $45.0 million note to CEF is due and payable. Three of these limited partners settled their actions. One of these limited partners had their action dismissed by the court. The action by the fifth and sixth limited partners, whose capital account is $1.0 million is pending. The $1.0 million claimed by these plaintiffs, along with the outstanding principal amount of the loan to CEF, is included in the note payable to CEF. See “Business of SolarMax – Legal Proceedings.”

Interest expense on the loans from CEF and CEF II were $55,274 and $233,425 for the three months ended March 31, 2022 and 2021, and $825,822 and $1,130,178 for the years ended December 31, 2021 and 2020, respectively.

Other Related Party Loan

On October 25, 2019, we borrowed $250,000 from SMX Property, LLC, a related party and the lessor of our headquarter facility. The loan bears interest at 6% per annum and was originally due on January 24, 2020. We paid this loan in March 2020 ($100,000) and April 2020 ($150,000).

Related Party Leases

In September 2016, we executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease our headquarters in Riverside, California. This lease effectively extends a prior lease with SMXP which ended on December 31, 2016 with an increase in the rental rate. The new lease is for ten years and has a five-year renewal option. The annual base rent under the lease is initially $978,672 plus our share of the utilities. The base rent is subject to an annual escalation of 2.99%.  David Hsu, our chief executive officer and a director, Ching Liu, our former executive vice president and director and a 5% stockholder, and Simon Yuan, a director are the principal management group of SMXP.

In September 2016, we amended two lease agreements for our Diamond Bar, California office with Fallow Field, LLC. Fallow Field, LLC, a related party. The amended lease commenced on November 1, 2016 and has a ten year term with one five-year renewal option. The initial annual base rent is $229,272 plus the Company’s share of utilities.  Fallow Field is owned by Mr. Hsu, Ms. Liu and a minority stockholder.

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For the three months ended March 31, 2022 and 2021 and for the years ended December 31, 2021 and 2020, total related party rental expenses included in general and administrative expenses for the Riverside, California corporate headquarters and the Diamond Bar, California office, were $356,758, $373,440, $1,497,067 and $1,553,693, respectively.

Transactions with AMD

In our PRC segment, we had earned revenues from AMD or its subsidiaries related to EPC contracts and the operation and maintenance contracts on the solar projects prior to the year ended December 31, 2020. The Company had historically purchased solar panels from AMD or its subsidiaries to be used on certain solar project. AMD is a related party because its chairman and chief executive officer is a director of SolarMax.

We did not generate any revenue from subsidiaries or affiliates of AMD during the three months ended March 31, 2022 and 2021 or for the years ended December 31, 2021 and 2020. The affiliates of AMD, which had maintenance contracts with our China segment, sold the projects and the transferee terminated the maintenance contracts with us.

In June 2019, December 2019 and December 2020, we entered into offset agreements with AMD to offset certain unpaid project receivables (including unpaid retainage) due from AMD with certain accounts payable due from us related to solar panels purchased from AMD. In connection with the December 2020 agreement, AMD agreed to pay the balance of the project receivable on the Qingshuihe #3 project of RMB 3.8 million (approximately $545,000), which was fully paid at December 31, 2020.

Payables to AMD or its subsidiaries at March 31, 2022, December 31, 2021 and December 31, 2020 were RMB 9.9 million ($1.5 million) for all periods and will be repaid upon the conclusion of the legal matters related to the Yilong #1.

Asset Management Services

Prior to August 31, 2020, we provided asset management and accounting services to three unconsolidated joint ventures, Alliance Capital 1, LLC, Alliance Capital 2, LLC and Alliance Capital 3, LLC (the “Alliance entities”) in which we had a 30% equity interest pursuant to management contract and business services agreement dated January 20, 2011 between us and one of these entities, pursuant to which we received 3% of revenues collected from Solar Renewable Energy Certificate (SREC) and payments from public utility companies received by the three entities. The 70% interest in these entities was held by a Chinese public company that is not affiliated with us. The agreement covered services rendered for all three entities, although there is no written agreement executed by two of these entities. Effective August 31, 2020, the management service agreement was terminated for the Alliance entities and during the year ended December 31, 2021, we incurred expense associated with unreimbursed fees and expense of $25,736. Total fees earned by us included in other income was $5,776 for the year ended December 31, 2020 and $29,073 for the year ended December 31, 2020, respectively.

Receivable from related party

Our PRC subsidiary provided a loan of RMB 5.1 million (approximately $780,000 at March 31, 2022) to Changzhou Yifu Co., Ltd, a PRC company owned by a stockholder of SolarMax, to purchase inventory on behalf of SolarMax. The loan was made to fund Changzhou Yifu Co., Ltd. to purchase inventory on behalf of SolarMax and a loan agreement was signed in March 2018 stipulating the terms for the payment. However, the inventory was ultimately not received and the advances to the supplier were not returned. Accordingly, the loan was not repaid and we have provided a full reserve for the unpaid receivable since December 31, 2018.

Equity Transactions with Officers and Directors

In October 2016, the board of directors granted 3,810,949 shares, of which 3,045,963 shares were granted to officers and directors. The following table set forth information relating to the restricted stock grants to officers and directors.

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Name	No. of Restricted Shares
David Hsu		1,348,213
Ching Liu1		998,676
Simon Yuan		599,206
ChungJen Tsai		99,868
Total		3,045,963

____________

¹ Ms. Liu resigned as an offi c er and director on February 24, 2020.  

On March 23, 2019, the board of directors:

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

● Granted to Mr. Hsu, Ms. Liu and one other employee, who held 1,348,213, 998,676 and 199,736 restricted shares, respectively, the right (a) to exchange 50% of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $5.01 per share for each share exchanged and (b) transfer to us 50% of their restricted shares for $1,275,000, or $1.01 per share.  These payments were initially due in December 2019 and was extended until three business days following completion of the offering.

Pursuant to their exchange agreements with us, we granted Mr. Yuan, a director, an option to purchase 1,269 ,717 shares and Mr. Tsai, who was a director, an option to purchase 211,620 shares in exchange for their restricted shares.

Pursuant to their exchange agreements with us, Mr. Hsu converted 674,107 shares of common stock into options to purchase 1,428,432 shares of common stock and transferred 674,107 of his restricted shares stock to us for $675,000, and Ms. Liu converted 499,338 of common stock into options to purchase 1,058,098 shares of common stock and transferred 499,338 shares of common stock to us for $500,000. The payments to Mr. Hsu and Ms. Liu were initially to have been paid by December 15, 2019, which date has been extended several times and is due upon completion of the offering.

See “SolarMax Executive Compensation – Employment Agreements” for information with respect to our employment agreement with Mr. Hsu and a separation and release agreement with Ms. Liu, who remains a 5% stockholder.

Payment to Company owned by Principal Stockholder and Former Executive

During the year ended December 31, 2020, our LED subsidiary paid a company owned by Ching Liu, our former executive vice president and a 5% stockholder, $110,000, representing 80% of the gross profit, earned by us on an LED government project, determined prior to the payment to the company owned by Ms. Liu. The payment was made for introducing the project to us. As a result, we incurred and accrued approximately $110,000 of additional cost of revenue related to the project as of December 31, 2020.

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial ownership of our common stock as of July 13, 2022 and as adjusted to give effect to the offering by:

● each person known to SolarMax to beneficially own more than 5% of common stock;

● each member of our board of directors;

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● each of our Named Executive Officers; and

● all of our directors and executive officers as a group.

All information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, directors or executive officers, as the case may be. Unless otherwise noted, the mailing address of each listed beneficial owner is 3080 12th Street, Riverside, California 92507.

			Percentage1
Name of Beneficial Owner	Shares Beneficially Owned		Prior to Offering			After Offering
David Hsu		4,032,298		10.0	%		8.5	%
Jinxi Lin2		3,566,700		8.9	%		7.5	%
Changzhou Almaden Co. Ltd.2		3,566,700		8.9	%		7.5	%
Ching Liu		2,509,292		6.2	%		5.3	%
Simon Yuan		2,197,088		5.5	%		4.6	%
Bin Lu3		2,177,114		5.4	%		4.6	%
Wei Yuan Chen		1,757,670		4.4	%		3.7	%
Dr. Wen-Ching (Stephen) Yang4		1,098,544		2.7	%		2.3	%
Lei Zhang, Ph.D.		-		0.0	%		0.0	%
Stephen Brown5		149,802		*			*
All officers and directors as a group2,4,5 (six individuals beneficially owning stock)		12,802,102		31.9	%		26.9	%

* Less than 1%

¹ The percentages are based on 40,000,186 shares of SolarMax common stock outstanding, which includes the 264,650 restricted shares held subject to forfeiture under certain conditions as described under “Management of SolarMax – Employee Benefit Plans . ”.

² The shares beneficially owned by Jinxi Lin represent the 3,566,700 shares owned by AMD, of which Mr. Lin is chairman and chief executive officer and has the right to vote and dispose of the shares. The address for Mr. Lin and AMD is No. 639, Qinglong East Road, Changzhou, Jiangsu, China.

³ The address for Bin Lu is Room 402, Floor 4, No. 558 Tongxie Rd., Shanghai, China.

⁴ Includes 34 9,537 shares of common stock owned by Dr. Yang’s wife, as to which he disclaims beneficial interest.

⁵ Shares beneficially owned by Mr. Brown r epresent an option to purchase 149,802 shares of common stock.

Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his name. Each person is deemed to own beneficially shares of common stock that are issuable upon exercise of warrants or upon conversion of convertible securities if they are exercisable or convertible within 60 days of July 13, 2022.

Options held by Mr. Hsu, Ms. Liu and Mr. Yuan , which become exercisable six months from the date of this prospectus, provided that the registration statement of which this prospectus is a part is declared effective by December 31, 2022, which date may be extended by the board of directors, are not reflected in the table since they are not exercisable within 60 days of July 13, 2022 .  See “ Executive Compensation – Outstanding Equity Awards.”

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 15,000,000 shares of preferred stock, par value $0.001 per share, and 297,225,000 shares of common stock, par value $0.001 per share. As of the date of this prospectus there were no shares of preferred stock and 40,000,186 shares of common stock outstanding, including 264,650 shares which were issued as restricted stock grants but are not treated as outstanding for accounting purposes.

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The following summary of the capital stock and our amended and restated articles of incorporation and amended and restated bylaws does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law and to our amended and restated articles of incorporation and amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.

Common Stock

Voting Rights. Holders of shares of common stock are entitled to one vote per share held of record on all matters to be voted upon by the stockholders. The holders of common stock do not have cumulative voting rights in the election of directors. Our bylaws provide that one-third of the outstanding shares constitutes a quorum.

Dividend Rights. Holders of shares of common stock are entitled to ratably receive dividends when and if declared by the board of directors out of funds legally available for that purpose, subject to any statutory or contractual restrictions on the payment of dividends and to any prior rights and preferences that may be applicable to any outstanding preferred stock.

Liquidation Rights. Upon liquidation, dissolution, distribution of assets or other winding up, the holders of common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of any of our outstanding shares of preferred stock.

Other Matters. The shares of common stock have no preemptive or conversion rights and are not subject to further calls or assessment by us. No redemption or sinking fund provisions are applicable to the common stock. All outstanding shares of our common stock are fully paid and non-assessable.

Preferred Stock

Our amended and restated articles of incorporation give the board of directors the power to issue shares of preferred stock in one or more series without stockholder approval. The board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The purpose of authorizing the board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock. We have no present plans to issue any shares of preferred stock.

Nevada Anti-Takeover Provisions

Nevada law, NRS Sections 78.411 through 78.444, regulate business combinations with interested stockholders. Nevada law defines an interested stockholder as a beneficial owner (directly or indirectly) of 10% or more of the voting power of the outstanding shares of the corporation. Pursuant to Sections NRS 78.411 through 78.444, combinations with an interested stockholder remain prohibited for three years after the person became an interested stockholder unless (i) the transaction is approved by the board of directors or the holders of a majority of the outstanding shares not beneficially owned by the interested party, or (ii) the interested stockholder satisfies certain fair value requirements. NRS 78.434 permits a Nevada corporation to opt-out of the statute with appropriate provisions in its articles of incorporation.

NRS Sections 78.378 through 78.3793 regulates the acquisition of a controlling interest in an issuing corporation. An issuing corporation is defined as a Nevada corporation with 200 or more stockholders of record, of which at least 100 stockholders have addresses of record in Nevada and does business in Nevada directly or through an affiliated corporation. NRS Section 78.379 provides that an acquiring person and those acting in association with an acquiring person obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of the stockholders. Stockholders who vote against the voting rights have dissenters’ rights in the event that the stockholders approve voting rights. NRS Section 378 provides that a Nevada corporation’s articles of incorporation or bylaws may provide that these sections do not apply to the corporation. Our amended and restated articles of incorporation provide that these sections do not apply.

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Articles of Incorporation and Bylaw Provisions

Provisions of our amended and restated articles of incorporation and amended and restated bylaws may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.

Among other things, our amended and restated articles of incorporation or amended and restated bylaws:
●	permit our board of directors to issue up to 15,000,000 shares of preferred stock, with such rights, preferences and privileges as the board may designate;
●	provide that the authorized number of directors may be changed only by resolution of the board of directors;
●	provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum, and not by the stockholders;
●	eliminate the personal liability of our directors for damages as a result of any act or failure to act in his or her capacity as a director or officer except as described below;
●	provide that stockholders can only call a special meeting if the request is made by the holders of two-thirds of the entire capital entitled to vote;
●	provide that, if a matter is to be brought before a meeting of stockholders which is not specified in the notice of meeting or brought at the direction of the board of directors, it can only be brought up at the meeting if brought by stockholders of record holding two-thirds of the outstanding stock;
●	provide that our bylaws may be amended only by either the affirmative vote of two-thirds of the stockholders entitled to vote or by the board of directors;
●	provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; and
●	do not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election if they should so choose.

Our bylaws also provide that any person who acquires equity in us shall be deemed to have notice and consented to the forum selection provision of our bylaws, which require actions to be brought only in state count in Clark County, Nevada. This provision does not apply to claims brought under the Securities Act or the Securities Exchange Act.

Further, NRS Section 78.335 provides that any director or one or more of the incumbent directors may be removed from office by the vote of stockholders representing not less than two-thirds of the voting power of the issued and outstanding stock entitled to vote. Our bylaws have a similar provision.

Transfer Agent

The transfer agent for our common stock is Continental Stock Transfer & Trust Company, One State Street, 30th Floor, New York, New York 10004, telephone: (212) 509-4000.

Limitation of Liability and Indemnification

Our amended and restated articles of incorporation provide that, except as otherwise provided by law, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that, (a) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer; and (b) the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

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Our amended and restated articles of incorporation provide that we shall provide indemnification to our directors and officers to the maximum extent permitted by law. We shall pay advancements of expenses in advance of the final disposition of the action, suit, or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount even if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. Our bylaws also provide for indemnification of our directors and officers.

Pursuant to Nevada law, NRS 78.7502, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person (i) is not liable pursuant to Nevada law; (ii) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and (iii) with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, the corporation shall indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense. Any amendment, repeal or modification of these provisions will be prospective only and would not affect any limitation on liability of a director for acts or omissions that occurred prior to any such amendment, repeal or modification.

Pursuant to NRS 78.751, any discretionary indemnification, unless ordered by a court or advanced by the Corporation in a matter as permitted by Nevada law, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made (i) by the stockholders; (ii) by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (iii) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (iv) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

We intend to enter into indemnification agreements with each of our current and future directors and officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Nevada law against liability that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect the market price of our common stock prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price of our common stock at such time and our ability to raise equity-related capital at a time and price we deem appropriate.

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Upon completion of this offering, we will have outstanding an aggregate of  47,500,186  shares of common stock, or  48,625,186  shares if the over-allotment option is exercised in full. Of these shares, all of the  7,500,000 shares of common stock to be sold in this offering, or  8,625,000  shares if the underwriters’ overallotment option is exercised in full, will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act. All of the remaining 40,000,186 shares of common stock held by existing stockholders, which constitute approximately 84.2% of the outstanding shares of common stock, assuming the over-allotment option is not exercised, will be deemed “restricted securities” as such term is defined under Rule 144. The restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration, including exemptions provided by Rule 144 or Rule 701 under the Securities Act.

As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, the shares of our common stock (excluding the shares to be sold in this offering) that will be available for sale in the public market are as follows:

· no shares will be eligible for sale on the date of this prospectus or prior to 90 days after the date of this prospectus;

· [  ] shares will be eligible for sale pursuant to Rule 144 commencing 90 days from the date of this prospectus; and

· 21,405,543  shares held by officers, directors and certain stockholders, which includes 4,066,837 shares subject to options held by our officers and directors, subject to lock-up agreements shares will be eligible for sale upon the expiration of the lock-up agreements, beginning six months after the date of this prospectus and when permitted under Rule 144 or Rule 701, with the managing underwriter having the right to permit shares to be sold during such six-month period.

In addition, as of the date of this prospectus, a total of 6,408,716 shares of common stock are subject to options or may be issued pursuant to the 2016 Long-Term Incentive Plan. We intend to register the sale of these shares on a Form S-8.

In the event that we issue convertible notes to the limited partners of CEF and CEF II in refinancing the loans made from the capital contributions of the limited partners of CEF and CEF II, the shares of common stock issuable upon conversion of the notes may become publicly tradeable six months after the date of issuance, but not earlier than six months after the date of this prospectus. We cannot predict the number of shares, if any, which may be issued by former limited partners of CEF and CEF II.

Lock-up Agreements

All of our directors and officers and certain of our stockholders, who, together with our directors and officers, hold 43.2% of our outstanding common stock,  have agreed not to sell any common stock for a period of 180 days from the date of this prospectus. See “Underwriting” for a description of these lock-up provisions.

Rule 144

In general, under Rule 144 of the Securities Act as currently in effect, once we have been subject to the public company reporting requirements for at least 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person (who has been unaffiliated for at least three months prior to the sale) who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

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A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported by The NASDAQ Capital Market during the four calendar weeks preceding the filing of notice of the sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

No shares may be sold pursuant to Rule 144 until we have been subject to the reporting requirements of the Securities Exchange Act for at least 90 days. We will become subject to these reporting requirements on the effective date of the registration statement of which this prospectus forms a part.

UNDERWRITING

ViewTrade Securities, Inc. is serving as book-running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have severally agreed to purchase from us on a firm commitment basis the following respective number of shares of common stock at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:

Underwriter	Number of Shares
ViewTrade Securities, Inc.
Total	7,500,000

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all of the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed an assumed price of $4.00  per share. If all of the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. The Representative has advised us that the underwriters do not intend to make sales to discretionary accounts.

If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to  1,125,000  additional shares at the initial public offering price less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.

Prior to this offering, there has been no public market for our securities. Consequently, the initial public offering price for the shares was determined by negotiations between us and the Representative.

The determination of our per share offering price was determined by negotiations between us and the Representative and does not necessarily bear any relationship to our book value, results of operations, cash flows or other indicia of value. Among the factors considered in determining the initial public offering price were our history and prospects, our management, our capital structure, and currently prevailing general conditions in equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.

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We have applied for the listing of our common stock on the NASDAQ Capital Market under the symbol “SMXT.” Listing of our common stock on the NASDAQ Capital Market is a condition to the underwriters’ obligation to close. The underwriting discounts and commissions are equal to 6% of the initial public offering price set forth on the cover page of this prospectus.

The following table shows the underwriting discounts and commissions payable to the underwriters by us in connection with this offering (assuming both the exercise and non-exercise of the over-allotment option that we have granted to the underwriters):

	Per Share		Total Without Exercise of Over-Allotment Option		Total With Exercise of Over-Allotment Option
Public offering price	$	4.00	$	30,000,000	$	34,500,000
Underwriting discounts and commissions(1)	$	0.24	$	1,800,000	$	2,070,000

(1) Does not include (i) the warrant to purchase shares of our common stock equal to 8% of the number of shares sold in the offering, inclusive of the underwriters’ over-allotment option, (ii) a 1% non-accountable expense allowance or (iii) certain out-of-pocket expenses, each as described below. 

We have agreed to issue warrants to the Representative to purchase a number of shares of common stock equal to 8% of the total number of shares sold in this offering, inclusive of shares sold pursuant to the underwriters’ over-allotment option, at an exercise price equal to 120% of the public offering price of the shares sold in this offering. We refer to these warrants as the underwriter warrants. The underwriter warrants will be exercisable upon issuance, will have a cashless exercise provision and will terminate on the fifth anniversary of the commencement of sales of this offering, which is the date of this prospectus .

The underwriter warrants and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the underwriter warrants nor any of our shares issued upon exercise of the underwriter warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the underwriter warrants are being issued, subject to certain exceptions.

We will also pay to the Representative by deduction from the net proceeds of the offering contemplated herein a non-accountbale expense allowance equal to 1% of the gross proceeds received by us from the sale of the shares.

We have agreed to pay all expenses relating to the offering, including, but not limited to, (A) all filing fees and communication and printing expenses relating to the registration of the shares and the filing of the offering materials with FINRA; (B) all fees and expenses relating to the listing of such shares; (C) all reasonable fees,  expenses and disbursements relating to background checks of our officers and directors; (D) costs of preparing, printing and delivering the underwriting documents, registration statements, prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final prospectuses as the Representative may reasonably deem necessary; (E) the costs and expenses of a financial public relations firm; (F) the costs of preparing, printing and delivering certificates representing the shares and the fees and expenses of the transfer agent for such shares and any stock transfer taxes payable upon the transfer of securities from us to the Representative; (G) fees associated with translating documents for due diligence purposes; (H) fees of our counsel and accountants and other agents and representatives ; (I) fees to translate documents for due diligence purposes; (J) reasonable costs for road show meetings, including the cost of informational meetings and and (K) the cost of “tombstone” or “Lucite” advertisements, which shall announce the completion of the offering to the financial community, of at least 5 x 5 inches in publications to be designated by the Representative, at a total cost not to exceed $8,000.00. 

In addition, we have agreed that at closing we will reimburse the Representative for its accountable expenses, including legal expenses, up to a maximum of $175,000. To the extent that the Representative’s incurred expenses are less than the amount of these advances previously paid, the Representative will return to us that portion of the advances not offset by out-of-pocket accountable expenses. We estimate that our portion of the total expenses of this offering payable by us will be $550,000, excluding underwriting discounts and commissions and the non-accountable expense allowance.

We have also agreed that for a period of 18 months from the closing of this offering, the Representative will have a right of first refusal to act as lead manager and bookrunner, or lead placement agent, with respect to any public or private sale of any of our securities and/or any of our subsidiaries’ financings; provided, however, that such right shall be subject to FINRA Rule 5110(g). In connection with such right, we shall furnish the Representative with the terms and conditions of any financing and/or bona fide proposed private or public sale of securities to be made by us and/or any of our subsidiaries, and the name and address of such person, entity, or representative. This section shall not apply to transactions with existing stockholders, Clean Energy Funding LP and Clean Energy Funding II LP, or any acquisition, joint venture, or strategic alliance or other business agreement which is not primarily a fundraising transaction. Notwithstanding the foregoing, we at our option, may consider engaging the Representative to act as our financial advisor or placement agent for any other form of financing or strategic transaction, on terms to be mutually determined by the parties.

In addition, we have agreed, until the closing of this offering, as long as the Representative is proceeding in good faith with preparations for this offering, not to solicit, negotiate or enter into any agreement with other any source of public financing (whether equity, debt (excluding commercial debt) or otherwise), any underwriter, potential underwriter, placement agent, financial advisor or any other person or entity in connection with a public offering of our securities, or any financial advisor or placement agent for a private financing without the express written consent of the Representative. For the avoidance of doubt, the previous sentence shall not be construed as restricting us from negotiating or entering into agreements and issuing securities to the limited partners of Clean Energy Funding LP and Clean Energy Funding II LP. If our engagement with the Representative ends prior to the consummation of this offering, other than a termination for “cause” as defined in our letter of intent with the Representative, or prior to the expiration of the engagement period set forth in our letter of intent with the Representative, and, within three months following such termination, we complete any public financing of equity, equity-linked or debt or other public capital raising activity (other than the exercise by any person or entity of any options, warrants or other convertible securities), then we will pay the Representative for its actual out of pocket accountable expenses up to a maximum of $175,000, provided, however, that such fees shall be subject to FINRA Rule 5110(g), and provided further that such fees shall not apply if and to the extent the Representative has advised us of its inability or unwillingness to proceed with this offering.

No Sales of Similar Securities

We have agreed not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any common stock or any securities convertible into or exercisable or exchangeable for common stock or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such transaction is to be settled by delivery of common stock or such other securities, in cash or otherwise, without the prior written consent of the representative, for a period of six months days from the effective date of the registration statement of which this prospectus is a part; provided, that this restriction does not affect our right to grant options or restricted stock grants under an equity incentive plan or to issue common stock upon exercise of any option or issue convertible debt to limited partners of CEF or CEF II in exchange for debt issued to CEF or CEF II or the issuance of equity or convertible securities pursuant to an agreement relating to an acquisition, joint venture, or strategic alliance or other business transaction which is not primarily a fundraising transaction.

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In addition, all of our directors and officers and certain of our stockholders will enter into lock-up agreements with the Representative prior to the commencement of this offering pursuant to which each of these persons or entities, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part, agree not to: (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any common stock or any securities convertible into, exercisable or exchangeable for or that represent the right to receive common stock (including common stock which may be deemed to be beneficially owned by such person in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired; (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the foregoing securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to, the registration of any common stock or any security convertible into or exercisable or exchangeable for common stock; or (4) publicly disclose the intention to do any of the foregoing; except that we may file a registration statement on Form S-8 to permit the exercise of options granted under an equity incentive plan.

The lock-up restrictions described in the two immediately preceding paragraph do not apply with respect to any transfer:

(i)	as a bona fide gift or gifts,
(ii)	immediate family member of the holder or to a to any trust for the direct or indirect benefit of the holder or the immediate family of the holder,
(iii)	to any partnership, corporation, limited liability company or other business entity that is controlled by the holder,
(iv)	to any partnership, corporation, limited liability company or other business entity that is a direct or indirect affiliate of the holder,
(v)	that is a distribution to equity holders (including, without limitation, stockholders, general or limited partners, members and beneficiaries) of the holder,
(vi)	upon the completion of a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all holders of our securities involving a change of control of SolarMax whereby all or substantially all of the shares of common stock are acquired by a third party and where such transaction occurs after the consummation of the offering and is approved by the board; provided, however, that in the event that such tender offer, merger, consolidation or other such transaction is not completed, such securities held by the holder shall remain subject to the terms set forth in the lock-up agreement and as specified above,
(vii)	pursuant to an order of a court or regulatory agency, and
(viii)	pursuant to a domestic order, divorce settlement, divorce decree, or separation agreement

provided that in the case of a transfer pursuant to the foregoing clauses (vii) or (viii), if the stockholder is required to file a report under Section 16(a) of the Exchange Act related thereto, such report shall disclose that such transfer was pursuant to an order of a court or regulatory agency, domestic order, divorce settlement, divorce decree, or separation agreement; provided further that in the case of clauses (i)-(viii), that (a) such transfer will not involve a disposition for value, (b) the transferor shall provide at least ten days written notice to the representative prior to the proposed transfer (c) the transferee agrees in writing with the representative to be bound by the terms of a lock-up agreement, (d) no filing by any party under Section 16(a) of the Exchange Act which is not required will be made voluntarily in connection with such transfer, and (e) in the case of any transfer pursuant to clauses (a)-(d), no filing by any party under Section 16(a) of the Exchange Act shall be required in connection with such transfer.  

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Electronic Offer, Sale and Distribution of Securities

A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of common stock to selling group members for sale to their online brokerage account holders. The common stock to be sold pursuant to Internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.

Price Stabilization, Short Positions and Penalty Bids

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under option to purchase additional shares. The underwriters can close out a covered short sale by exercising the over-allotment option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our common stock in this offering because the underwriters repurchase those shares in stabilizing or short covering transactions.

Finally, the underwriters may bid for, and purchase, our common stock in market making transactions, including “passive” market making transactions as described below.

These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities and may discontinue any of these activities at any time without notice. These transactions may be effected on the NASDAQ Capital Market, in the over-the-counter market, or otherwise.

Passive Market Making

In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on the NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

Potential Conflicts of Interest

The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

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Selling Restrictions

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

The underwriters are expected to make offers and sales both in and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by broker-dealers registered with the SEC.

Hong Kong

The common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 622, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.

People’s Republic of China

This prospectus has not been and will not be circulated or distributed in China, and common stock may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of China except pursuant to applicable laws and regulations of China. For the purpose of this paragraph, China does not include Taiwan, and the special administrative regions of Hong Kong and Macau.

LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this offering will be passed upon for us by Ellenoff Grossman & Schole LLP, New York, New York. The underwriters have been represented by K&L Gates LLP, Miami, Florida.

EXPERTS

Our audited consolidated financial statements for the years ended December 31, 2021 and 2020 have been included herein in reliance upon the report of Marcum LLP, independent registered public accounting firm and upon the report of such firm given upon the authority of said firm as experts in accounting and auditing.

Certain information concerning the laws of the PRC is included in this prospectus in reliance of the opinion of AllBright Law Offices, Shanghai, China, who are licensed attorneys in the PRC.

Certain information concerning the laws of the Republic of China (Taiwan) is included in this prospectus in reliance on the opinion of LCS & Partners, Taipei, Taiwan, who are licensed attorneys in the Republic of China.

WHERE YOU CAN FIND MORE INFORMATION

The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

As a result of this offering, we will become subject to information requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish our stockholders with annual reports containing financial statements certified by an independent public accounting firm.

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SolarMax Technology, Inc

Index to Consolidated Financial Statements

	Page
Condensed Consolidated Balance Sheets as of March 31, 2022 and March 31, 2021 (Unaudited)	F-2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (Unaudited)	F-4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (Unaudited)	F-5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended March 31, 2022 and 2021 (Unaudited)	F-6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)	F-7
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-9

Report of independent registered accounting firm	F-39
Consolidated balance sheets as of December 31, 2021 and December 31, 2020	F-40
Consolidated statements of operations for the years ended December 31, 2021 and 2020	F-42
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2021 and 2020	F-43
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2021 and 2020	F-44
Consolidated statements of cash flows for the years ended December 31, 2021 and 2020	F-45
Notes to consolidated financial statements for the years ended December 31, 2021 and 2020	F-47
Condensed financial information of Parent	F-102

F-1

SolarMax Technology, Inc. and Subsidiaries

Consolidated Balance Sheets

As of March 31, 2022 and March 31, 2021

	March 31, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,050,564	$	9,886,195
Restricted cash, current		2,400,112		3,195,731
Accounts receivable, net		3,003,029		3,211,972
Notes receivable from SPAC and Sponsor (Note 1)		2,315,816		2,026,960
Contract assets		3,460,828		2,560,921
Unbilled receivables on completed contracts		4,948,150		5,093,921
Receivable from SPIC and project companies (Note 2)		4,156,947		4,154,370
Customer loans receivable, current, net		4,549,506		4,935,920
Inventories, net		3,257,297		3,355,882
Other receivables and current assets, net		4,708,679		4,057,063
Total current assets		37,850,928		42,478,935
Property and equipment, net		564,381		650,610
Operating lease right-of-use assets		4,913,446		-
Goodwill		8,455,528		8,432,901
Investments in unconsolidated solar project companies		9,336,936		9,299,274
Customer loans receivable, noncurrent, net		9,535,613		10,659,199
Deferred tax assets		18,662		18,612
Restricted cash, noncurrent		320,196		320,348
Other assets		145,227		156,619
Total assets	$	71,140,917	$	72,016,498

F-2

SolarMax Technology, Inc. and Subsidiaries

Consolidated Balance Sheets

As of March 31, 2022 and December 31, 2021 (Continued)

	March 31, 2022			December 31, 2021
	(Unaudited)
Liabilities and Stockholders’ Equity
Current liabilities
Notes and accounts payable	$	2,887,222		$	3,983,336
Operating lease liabilities, current		1,074,783			-
Bank and other unsecured loans, current		2,051,207			2,033,711
Secured loans from related parties, current		13,500,000			12,500,000
Secured convertible notes, current		5,900,000			5,900,000
Contract liabilities		1,660,546			1,386,978
Accrued expenses and other payables		20,060,750			21,272,262
Accrued expenses and other payables to related parties		1,558,096			1,553,926
Deferred tax liabilites		-			-
Total current liabilities		48,692,604			48,630,213
Operating lease liabilities, noncurrent		5,019,416			-
Bank and other unsecured loans, noncurrent		1,695,069			1,923,793
Secured loans from related parties, noncurrent		8,000,000			9,000,000
Secured convertible notes, noncurrent, net of debt discount		14,398,763			17,172,389
Other liabilities		2,545,616			3,737,381
Total liabilities		80,351,468			80,463,776
Commitments and Contingencies (Note 18)
Stockholders’ equity (deficit)
Preferred stock, par value $0.001 per share; 15,000,000 shares authorized, none issued and outstanding as of March 31, 2022 and December 31, 2021		-			-
Common stock, par value $0.001 per share; 297,225,000 shares authorized, 40,983,881 shares issued, and 39,735,536 shares outstanding as of March 31, 2022 and December 31, 2021		40,984			40,984
Additional paid-in capital		55,786,634			55,786,634
Less: treasury stock at cost – 1,248,345 shares		(1,808,889	)		(1,808,889	)
Accumulated deficit		(62,979,836	)		(62,185,477	)
Accumulated other comprehensive loss		(249,444	)		(280,530	)
Total stockholders’ equity (deficit) attributable to stockholders of the Company		(9,210,551	)		(8,447,278	)
Noncontrolling interest		-			-
Total stockholders’ equity (deficit)		(9,210,551	)		(8,447,278	)
Total liabilities and stockholders’ equity	$	71,140,917		$	72,016,498

See accompanying notes to consolidated financial statements.

F-3

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended March 31, 2022 and 2021

	Three Months Ended March 31,
	2022			2021
	(Unaudited)			(Unaudited)
Revenue
United States operations	$	9,608,196		$	7,704,149
Total revenues		9,608,196			7,704,149
Cost of revenue		7,415,174			6,281,899
Gross profit		2,193,022			1,422,250
Operating expenses
General and administrative		2,684,289			2,539,751
Selling and marketing		298,918			297,177
Total operating expense		2,983,207			2,836,928
Operating income (loss)		(790,185	)		(1,414,678	)
Other income (expense)
Interest income		9,845			54,601
Interest expense		(343,284	)		(512,894	)
Equity in income of unconsolidated joint ventures		-			4,143
Equity in income of solar project companies		12,704			101,970
Gain on debt extinguishment		208,080			470,846
Other income (expense), net		114,481			49,872
Total other income (expense)		1,826			168,538
Income (loss) before income taxes		(788,359	)		(1,246,140	)
Income tax (benefit) provision		6,000			32,439
Net income (loss)		(794,359	)		(1,278,579	)
Net income (loss) attributable to noncontrolling interest		-			(16,700	)
Net income (loss) attributable to stockholders of the Company	$	(794,359	)	$	(1,261,879	)
Net income (loss) per share attributable to stockholders of the Company
Basic and diluted	$	(0.02	)	$	(0.03	)
Weighted average shares
Basic and diluted		39,735,536			39,735,536

See accompanying notes to consolidated financial statements.

F-4

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the Three Months Ended March 31, 2022 and 2021

	Three Months Ended March 31,
	2021			2020
	(Unaudited)			(Unaudited)
Net income (loss)	$	(794,359	)	$	(1,278,579	)
Other comprehensive income (loss)
Foreign currency translation adjustments		31,086			(43,819	)
Total comprehensive income (loss)		(763,273	)		(1,322,398	)
Comprehensive income (loss) attributed to noncontrolling interest		-			(16,700	)
Comprehensive income (loss) attributable to stockholders of the Company	$	(763,273	)	$	(1,305,698	)

See accompanying notes to consolidated financial statements.

F-5

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

	Preferred Stock				Common Stock				Additional Paid-In		Treasury Stock						Accumulated			Accumulated Other Comprehensive			Non-controlling
	Shares		Amount		Shares		Amount		Capital		Shares			Amount			Deficit			Loss			Interest			Total
Balance at December 31, 2021		—	$	—		40,983,881	$	40,984	$	55,786,634		(1,248,345	)	$	(1,808,889	)	$	(62,185,477	)	$	(280,530	)	$	—		$	(8,447,278	)
Net loss		—		—		—		—		—		—			—			(794,359	)		—			—			(794,359	)
Currency translation adjustments		—		—		—		—		—		—			—			—			31,086			—			31,086
Balance at March 31, 2022 (Unaudited)		—	$	—		40,983, 881	$	40,984	$	55,786,634		(1,248,345	)	$	(1,808,889	)	$	(62,979,836	)	$	(249,444	)	$	—		$	(9,210,551	)
Balance at December 31, 2020		—	$	—		40,983,881	$	40,984	$	56,005,577		(1,248,345	)	$	(1,808,889	)	$	(58,865,210	)	$	(591,103	)	$	(218,943	)	$	(5,437,584	)
Net loss		—		—		—		—		—		—			—			(1,261,879	)		—			(16,700	)		(1,278,579	)
Currency translation adjustments		—		—		—		—		—		—			—			—			(43,819	)		—			(43,819	)
Balance at March 31, 2021 (Unaudited)		—	$	—		40,983,881	$	40,984	$	56,005,577		(1,248,345	)	$	(1,808,889	)	$	(60,127,089	)	$	(634,922	)	$	(235,643	)	$	(6,759,982	)

See accompanying notes to consolidated financial statements.

F-6

SolarMax Technology, Inc. and Subsidiaries 

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net income (loss)	$	(794,359	)	$	(1,278,579	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Forgiveness of PPP Loan		(194,670	)		-
Gain on debt extinguishment		(13,410	)		(470,846	)
Equity in loss (income) of investment in excess of distribution received		(12,703	)		(106,113	)
Depreciation and amortization expense		86,247			94,467
Amortization of operating lease right-of-use assets		252,057			-
Amortization of loan discounts		(45,727	)		(79,404	)
Amortization of debt discount		26,374			30,781
Provision for (recovery of) bad debts and loan losses		(109,303	)		(20,418	)
Provision for (recovery of) excess and obsolete inventories		-			65,724
Provision for warranty, customer care and production guaranty		105,494			42,596
Deferred income taxes (benefit)		-			(117,790	)
Impact of currency exchanges and other		-			31,659
Changes in operating assets and liabilities:
Bankers' acceptance		-			503,463
Receivables and current assets		(498,006	)		(570,851	)
Receivables from SPIC and project companies		8,566			-
Contract assets		(899,907	)		427,532
Unbilled receivables		159,348			-
Inventories		98,585			(409,474	)
Customer loans receivable		1,687,225			3,148,917
Other assets		11,498			11,256
Notes and accounts payable		(296,324	)		(5,997,685	)
Operating lease liabilities		(255,938	)		-
Accrued expenses and other payables		(1,507,930	)		(190,386	)
Accrued expenses and other payables to related parties		-			(110,545	)
Contract liabilities		273,568			(605,000	)
Other liabilities		(103,669	)		(54,122	)
Net cash provided by (used in) operating activities	$	(2,022,984	)	$	(5,654,818	)

F-7

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021 (Continued)

	Three Months Ended March 31,
	2022			2021
Investing activities:
Proceeds from sale of project companies to SPIC	$	-		$	3,907,667
Issuance of note receivable to SPAC and Sponsor		(288,856	)		(444,080	)
Net cash provided by (used in) investing activities		(288,856	)		3,463,587
Financing activities:
Proceeds from PPP loans		-			1,855,813
Principal repayment on borrowings		(16,558	)		(15,836	)
Principal repayment on convertible notes		(2,800,000	)		(3,310,000	)
Repayment on equipment capital lease		(8,959	)		(8,449	)
Refundable vendor bid deposits paid		(63,038	)		(46,282	)
Proceeds from Uonone acquisition contingency, net (Note 5)		(415,992	)		404,606
Net cash provided by (used in) financing activities		(3,304,547	)		(1,120,148	)
Effect of exchange rate		(15,015	)		28,180
Net increase (decrease) in cash and cash equivalents and  restricted cash		(5,631,402	)		(3,283,199	)
Cash and cash equivalents and restricted cash, beginning of period		13,402,274			21,848,750
Cash and cash equivalents and restricted cash, end of period	$	7,770,872		$	18,565,551
Supplemental disclosures of cash flow information:
Interest paid in cash	$	303,210		$	473,562
Income taxes paid in cash		127,791			306,121
Non-cash activities for investing and financing activities:
Right-of-use assets acquired through operating leases	$	5,165,503		$	-
Cash reconciliation:
Cash and cash equivalents	$	9,886,195		$	17,010,388
Restricted cash, current		3,195,731			4,728,154
Restricted cash, noncurrent		320,348			110,208
Balance at beginning of period	$	13,402,274		$	21,848,750
Cash and cash equivalents	$	5,050,564		$	14,183,441
Restricted cash, current		2,400,112			4,091,887
Restricted cash, noncurrent		320,196			290,223
Balance at end of period	$	7,770,872		$	18,565,551

See accompanying notes to consolidated financial statements.

F-8

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Note 1. Description of Business

SolarMax Technology, Inc. and subsidiary companies (the “Company”) is an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. The Company was founded in 2008 to engage in the solar business in the United States and, following the acquisition in 2015 of Chengdu Zhonghong Tianhao Technology Co., Ltd. (“Chengdu ZHTH”), which is a subsidiary of Solarmax Technology (Shanghai) Co. Ltd. (together with its subsidiaries thereunder, “ZHTH”), and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. (“ZHPV”), commenced operations in the People's Republic of China (the “PRC” or “China”). The Company’s business in the PRC is primarily conducted through ZHTH and ZHPV, and their subsidiaries.

The Company operates in two segments – the United States operations and the China operations. The Company’s United States operations primarily consist 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. The Company’s China operations consist of identifying and procuring solar farm projects for resale to third parties and performing engineering, procurement, and construction (“EPC”) services primarily for solar farm projects. The Company’s operations in China are conducted through its principal Chinese subsidiaries.

Termination of Agreement of Merger with SPAC

On October 27, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company; the Alberton Acquisition Corporation (“SPAC”), as the Purchaser; and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of the SPAC, as Merger Sub. Merger Sub was formed for the sole purpose of the merger. Under the Merger Agreement, Merger Sub and the Company shall consummate the merger, pursuant to which Merger Sub shall be merged with and into the Company, following which the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Purchaser. As consideration for the merger, the Company stockholders collectively shall be entitled to receive from the Purchaser, in the aggregate, a number of shares of Purchaser Common Stock equal to (i) $300,000,000 divided by the Redemption Price, as defined in the Merger Agreement. Consummation of the merger is subject to customary closing conditions including approval by the stockholders of the Company and SPAC, regulatory approvals, a registration statement declared effective by the United States Securities and Exchange Commission and NASDAQ approval.

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

On November 10, 2021, the SPAC, the Company and the Merger Sub entered into an amendment to the Merger Agreement to increase the monthly advances to be made by the Company from $60,000 to $70,674, which would increase the Company’s maximum obligation from $360,000, to $402,696. On March 19, 2022, the SPAC, the Company, and the Merger Sub, entered into a second amendment to the merger agreement to make up to two additional loans in the amount of $70,674 in each of March and April, 2022, increasing the Company’s maximum obligation from $402,696 to 544,044. As of March 31, 2022, the Company has made loans to the SPAC pursuant to these provisions in the total amount of $473,370 and had obligations to make additional loans of $70,674.  These loans are payable by the SPAC upon the first to occur of (i) the date on which the Merger is consummated, or (ii) the date on which, revenues pursuant to the SPAC’s articles of association, the SPAC must complete a business combination, which date is presently April 26, 2022, and certain other events. The notes are non-interest bearing; provided, that if the notes are not paid in full when due, the notes will bear interest at the annual rate of 5% from the due date until the day on which all sums due are received by SolarMax. If the Merger is completed, the notes will be eliminated in consolidation. If the Merger is not completed, the unpaid loan receivable will be written off as transaction expense.

F-9

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

On April 13, 2022, the Company notified the SPAC that it intended to terminate the Merger Agreement because it reasonably believed that the proposed merger would not be completed by April 26, 2022. The Company provided a written notice to the SPAC on April 20, 2022 and terminated the Merger Agreement pursuant to the termination clause provided in the Merger Agreement.

Loans to SPAC Sponsor

The Company entered into loan agreements with Hong Ye Hong Kong Shareholding Co., Limited, the sponsor of the SPAC (“Sponsor”), pursuant to which the Company made non-interest bearing loans to the Sponsor to enable the sponsor to provide funds to SPAC to pay expenses incurred by in connection with the Merger Agreement, the SEC filing fees relating to the proxy statement/prospectus in connection with the proposed Merger and accrued expense of SPAC. Upon consummation of the Merger, Sponsor was to repay these notes by delivery of the number of the SPAC Shares held by the Sponsor divided by the Redemption Price. As the Company terminated the proposed merger, the notes became immediately payable and carry an annual interest of 5% from the maturity date. As of March 31, 2022, the Company has made loans to the Sponsor in the total amount of $651,369.

Reverse Stock Split

On July 15, 2022, we effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split we reduced our authorized common stock to 297,225,000 shares.  All share and per share information in this prospectus retroactively reflects the reverse stock split.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included elsewhere. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the three months ended March 31, 2022 are not necessary indicative of the results to be expected for the fiscal year ending December 31, 2022 and for any other interim period or other future year.

Principles of Consolidation

The condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. All of these determinations involve significant management judgments and estimates. The Company has determined that it is not the primary beneficiary in the operational VIE, SMX Property LLC (“SMXP”) and therefore, does not consolidate the financial information of SMXP.

F-10

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

The functional currency of the Company’s foreign subsidiaries is the Chinese Renminbi (“RMB”). These transactions are translated from the local currency into U.S. Dollars at exchange rates during or at the end of the reporting period. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is the lessee under an operating lease of its Riverside, CA headquarters facility with SMXP (see Note 14 – Other Related Party Transactions). SMXP is a private entity owned by the Company’s founders, one of whom is the Chief Executive Officer and a Director of the Company, another who is a Director of the Company, and another who is a former officer and director of the Company. The lease term was initially for four years expiring on December 31, 2016, and was extended in September 2016 for a ten-year term, with one five-year renewal option. The Company does not have any ownership interest in SMXP. Other than the common ownership, the operating lease and the unsecured loan, the Company does not have any economic arrangements with SMXP such that the Company will have an obligation to support the operations of SMXP. Further, the Company does not have the power to direct and control the activities of SMXP as such power to direct and control resides with SMXP’s principals. Accordingly, the Company is not considered to be the primary beneficiary of SMXP and has not consolidated SMXP.

As of May 1, 2020, the Company no longer consolidated two PRC solar project companies, Yilong #2 solar project and the Xingren solar project, as a result of the Company’s completion of the sale and transfer of 70% of the controlling interest in these project companies in April 2020 to a third party customer, State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd (“SPIC”), pursuant to the M&A (Cooperative Development) Agreements entered into in August 2019 for these projects.

Additionally in December 2020, the Company no longer consolidated the PRC solar project company for the solar farm project known as the Ancha project, as a result of the Company’s sale and transfer of 70% controlling interest in the related project company to SPIC.

The Company’s 30% non-controlling interest in these three project companies is presented under the equity method of accounting effective in May 2020 and December 2020, respectively. Under the respective equity transfer agreements, the Company’s interest in each project company including the allocation of profit and losses is proportionate to its ownership interest. At March 31, 2022, the Company’s maximum exposure to a potential loss includes the Company’s carrying value of the 30% non-controlling interest of $9.3 million and the unpaid net contractual receivables under the EPC agreements and equity transfer agreements for the three projects of RMB 51.2 million (approximately $8.1 million).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include the cost-based inputs to estimate revenues on  long-term construction contracts,  the collectability of accounts receivable and loans receivable, the useful lives and impairment of property and equipment, goodwill and intangible assets, the fair value of stock options granted and stock-based compensation expense, the fair value of assets acquired and liabilities assumed in a business combination, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes. Actual results could differ materially from those estimates.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company’s recurring net losses, increased accumulated deficit and stockholders’ deficit, raise substantial doubt about its ability to continue as a going concern.

F-11

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

During the three months ended March 31, 2022, the Company incurred a net loss of approximately $794,000 and reported net cash used in operations of approximately $2.1 million. At March 31, 2022, the accumulated deficit was approximately $63.0 million and the stockholders’ deficiency was approximately $9.2 million. In connection with these condensed consolidated financial statements, management evaluated whether there were conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, and negative cash flows from operating activities, and significant current debt.

As of March 31, 2022, the Company’s principal sources of liquidity consisted of approximately $5.1 million, of cash and cash equivalents, and estimated cash flow from operations. The Company believes its current cash balances coupled with anticipated cash flow from operating activities may not be sufficient to meet its working capital requirements for at least one year from the date of the issuance of the accompanying condensed consolidated financial statements, including approximately $21.4 million of debt that is due in the next twelve months. Management is focused on expanding the Company’s existing business, as well as its customer base, including its continuing efforts to generate revenue from non-related parties for its China operations and to continue to increase its revenues. The Company is looking to continue to negotiate an exchange of a large portion of the approximately $13.5 million of the current portion of long-term related party loans for convertible notes that mature in periods beyond one year. The Company cannot predict whether it will be successful in these efforts. The Company is also looking to raise funds through a proposed equity financing.

As a result of the above, there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption, complete a public offering or other alternative offering or obtain the exchange of any of its current debt and thus maintain sufficient cash balances for its planned operations. Future business demands may lead to cash utilization at levels greater than recently experienced. Revenue and cash flow from the Company’s China segment is irregular because of the timing of solar projects and the Company requires significant funds for its operations, particularly during periods when there is little or no revenue or cash flow from the projects. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all.

Cash and Cash Equivalents

Cash and cash equivalents consist of deposit accounts and highly liquid investments purchased with an original maturity of three months or less.  The standard insurance coverage for non-interest bearing transaction accounts in the United States is $250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation. The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $79,000) per depositor per bank under the applicable Chinese general deposit insurance rules.

F-12

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

As of March 31, 2022 and December 31, 2021, insured and uninsured cash including the balance classified as restricted cash were as follows:

	March 31, 2022		December 31, 2021
	(Unaudited)
US Segment
Insured cash	$	1,000,466	$	1,634,146
Uninsured cash		2,228,907		4,815,667
		3,229,373		6,449,813
China Segment
Insured cash		677,530		766,802
Uninsured cash		3,863,969		6,185,660
		4,541,499		6,952,462
Total cash and cash equivalents & restricted cash		7,770,872		13,402,275
Cash and cash equivalents		5,050,564		9,886,195
Restricted cash	$	2,720,308	$	3,516,080

Restricted cash at March 31, 2022 and December 31, 2021 consisted of:

	March 31, 2022			December 31, 2021
	(Unaudited)
Deposit held by a China financial institution to secure bankers acceptance	$	2,400,112		$	3,195,731
Deposit held by a US financial institution as collateral for ACH transactions and business credit cards – US Segment		320,196			320,349
		2,720,308			3,516,080
Less: current portion		(2,400,112	)		(3,195,731	)
Noncurrent portion	$	320,196		$	320,349

Income Taxes

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 United States. In the event the Company is required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

F-13

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Fair Value Measurements

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of March 31, 2022:

	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Cash equivalents	$	2,471,709	$	-	$	-	$	2,471,709
Customer loans receivable		-		-		14,437,102		14,085,119
Liabilities
Bank and other loans		-		3,746,276		-		3,746,276
Secured loans from related parties		-		-		20,722,227		21,500,000
Secured convertible debt		-		-		20,214,356		20,298,763

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2021:

	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Cash equivalents	$	2,866,576	$	-	$	-	$	2,866,576
Customer loans receivable		-		-		16,168,716		15,595,119
Liabilities
Bank and other loans		-		3,957,504		-		3,957,504
Secured loans from related parties		-		-		20,813,484		21,500,000
Secured convertible debt		-		-		23,142,703		23,072,389

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 March 31, 2022 and 2021 were $298,918 and $297,177, respectively.

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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of this update is to provide users of financial statements with more useful information by changing the incurred loss methodology for recognizing credit losses to a more forward-looking methodology that reflects expected credit losses. Under this ASU, the Company’s accounts receivable, unbilled receivables, customer loans receivable and certain contract assets are considered financial assets measured at an amortized cost basis and will need to be presented at the net amount expected to be collected. This ASU will be effective for the Company beginning on January 1, 2023. The Company has not yet begun to evaluate the impact if any of adopting this update on its condensed consolidated financial statements when it becomes effective.

F-14

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

In August 2021, the FASB issued ASU 2021-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU simplifies the current accounting under ASC 470-20 for convertible debt with a cash conversion feature and convertible instrument with a beneficial conversion feature. As a result, after adopting the ASU, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. An entity can use either a full or modified retrospective approach to adopt the ASU. This ASU is effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The ASU may be early adopted for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company has not yet determined if the adoption will have any impact on the Company’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively and early adoption is also permitted, including adoption in an interim period. The Company does not plan to adopt this ASU earlier than the effective date but it is currently not expected to have a material impact on the Company’s condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted ASC 842 as of January 1, 2022 using the optional transition method to apply the standard as of the effective date. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented. Agreements for solar energy systems where the Company was previously defined as the lessor under legacy lease accounting (ASC 840) and were accounted for as operating leases no longer meet the definition of a lease upon the adoption of ASC 842 and will instead be accounted for in accordance with ASC 606. Under these arrangements, the customer has the right to direct the use of the asset but does not receive the right to obtain substantially all of the economic benefits from its use. There is no change to the amount and timing of revenue recognition for these arrangements.

The new standard also provides practical expedients for an entity’s ongoing accounting as a lessee. The Company elected to utilize the practical expedient to not separate lease and non-lease components for all its existing leases. The Company has also elected not to present short-term leases on the condensed consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, it used its incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

F-15

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Adoption of the new lease standard on January 1, 2022 had a material impact on the Company’s interim unaudited condensed consolidated financial statements. The most significant impacts related to the (i) recognition of ROU assets of $5.2 million and lease liabilities of $6.4 million for operating leases on the condensed consolidated balance sheet, and (ii) de-recognition of the historical deferred rent balance in the amount of $1.2 million. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The standard did not materially impact the Company’s condensed consolidated statement of operations and condensed consolidated statement of cash flows.

Note 3. Revenues and Construction Contracts

Disaggregation of Revenues

The following table summarizes the Company’s revenue by business line by segment for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)		(Unaudited)
Solar energy and battery storage systems
Sales on installment basis	$	-	$	40,160
Sales on non-installment basis		9,011,675		6,981,175
Third-party leasing arrangements		-		94,307
Operating lease revenues		20,747		21,644
Power purchase agreement revenues		13,764		15,932
Total solar energy and battery storage systems		9,046,186		7,153,218
LED projects		344,595		198,984
Financing related		217,415		351,947
Total revenue of US Segment		9,608,196		7,704,149
Total revenue of PRC Segment		-		-
Total revenues	$	9,608,196	$	7,704,149

Note 4. Third-party Leasing Arrangement and Concentrations

Third-party Leasing Arrangement with Sunrun

In the United States, the Company sells solar energy and battery storage systems to residential and commercial customers and these customers may pay for these sales in cash or by financing with the Company. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through Sunrun, Inc. (“Sunrun”).

The Sunrun channel agreement had an initial term through January 2018. Pursuant to the terms of the agreement, upon expiration of the initial term, the agreement continues for an additional 36 months unless either party gives notice of non-renewal at least 30 days before the initial expiration date. As a result, the agreement was automatically renewed for a 36-month term which ended in January 2021 and has been further extended to May 24, 2021. The agreement will be automatically renewed for an additional 36-month term after May 24, 2021. In the United States segment, the Company did not recognize any revenue from Sunrun-related sales during the three months ended March 31, 2022; however, Sunrun was the Company’s third largest customer during the three months ended March 31, 2021.

F-16

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

The summary of revenue and cost of revenue related to Sunrun for the three months ended March 31, 2022 and 2021 is as follows:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)
Revenue	$	-	$	94,307
Cost of revenue		-		51,377

With respect to the systems sold to Sunrun, the Company is required to install Sunrun meters and panels which are only available for purchase through a subsidiary of Sunrun. For the three months ended March 31, 2022 and 2021, Sunrun meters purchased from the subsidiary of Sunrun amounted to $8,396 and $36,188, respectively. No amounts were owed to this supplier as of March 31, 2022 and December 31, 2021.

Concentration Risks

Major Customers

For the three months ended March 31, 2022 and 2021, there were no customers with sales greater than 10% of revenues.

Major Suppliers

The following table provides information for Supplier C from whom the Company purchased over 10% of its total purchases for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022			2021
Supplier C (1)
Purchases	$	1,534,295		$	1,211,194
% of total purchases		15	%		12	%
Accounts payable	$	1,242,316		$	721,009
% of accounts payable		43	%		4	%

⁽¹⁾ Material supplier for US segment.

Note 5. Acquisition Contingencies and Other Payable to Uonone Group

Effective on May 12, 2016, in conjunction with the execution of the amendment to the April 2015 share exchange agreement to acquire ZHPV, ZHPV entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of ZHPV, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which ZHPV and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015, pursuant to which Uonone Group agreed and had paid ZHPV a total amount of RMB 8,009,716. An additional contingent liability related to estimated costs of a project known as Ningxia project completed prior to the Company’s acquisition of ZHPV of approximately RMB 3.0 million ($473,055 as of March 31, 2022) was also included as a receivable from Uonone Group (see Note 9 – Other Receivables and Current Assets, Net) with the corresponding liability recognized by the Company on the date of acquisition.

F-17

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

As of March 31, 2021, Uonone Group repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above. Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated under the contingent liability. At March 31, 2022, the Company has no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to us 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 three months ended March 31, 2022, the Company repaid Uonone RMB 2.4 million (approximately $378,000).

At March 31, 2022 and December 31, 2021, the amount payable to Uonone, which includes both the Weifang legal settlement as well as the bond payable related to the Zhonglianda project, was approximately RMB 19.4 million ($3.1 million) and approximately RMB 21.8 million ($3.4 million), respectively.

Note 6. Accounts Receivable, net

The activity of the allowance for bad debts for accounts receivable for the three months ended March 31, 2022 and 2021 is as follows:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)
Balance – beginning of period	$	1,523,982	$	1,616,595
Provision for (recovery of) bad debts		22,195		161,837
Recoveries		-		-
Effect of exchange rate		3,332		(6,067	)
Balance – end of period	$	1,549,509	$	1,772,365

At March 31, 2022 and December 31, 2021, the reserve balance includes a reserve for unbilled receivable of RMB 7.9 million (approximately $1.2 million) related to the Yilong #1 project that was completed in 2018. See additional discussion in Commitments and Contingencies – Legal Matters.

Note 7. Customer Loans Receivable

The Company provides financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offers in the United States. Depending on the credit rating of customers, the interest rate generally ranges from 0.00% to 10.99% per annum with financing terms ranging from one to fifteen years. At March 31, 2022 and December 31, 2021, the percentage of the Company’s loan portfolio with a 0% interest rate is 20% and 26%, respectively.

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

F-18

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Customer loans receivable consist of the following as of March 31, 2022 and December 31, 2021:

	March 31, 2022			December 31, 2021
	(Unaudited)
Customer loans receivable, gross	$	14,468,999		$	16,156,223
Less: unamortized loan discounts		(157,564	)		(203,291	)
Less: allowance for loan losses		(226,316	)		(357,814	)
Customer loans receivable, net		14,085,119			15,595,118
Current portion		4,549,506			4,935,920
Non-current portion	$	9,535,613		$	10,659,198

Principal maturities of the customer loans receivable at March 31, 2022 are summarized as follows:

Period ending December 31,	Amount
2022 (remaining months)	$	3,571,125
2023		3,543,574
2024		1,925,130
2025		1,137,935
2026		965,585
2027		863,058
Thereafter		2,462,592
Total loans receivable	$	14,468,999

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 three months ended March 31, 2022 and 2021 is as follows:

	Three Months Ended March 31,
	2022			2021
	(Unaudited)
Balance – beginning of period	$	357,814		$	693,718
Provision for (recovery of) loan losses		(131,498	)		(182,255	)
Recoveries		-			65,393
Balance – end of period	$	226,316		$	576,856

Total interest income on the customer loans receivable included in revenues was $216,260 and $349,432 for the three months ended March 31, 2022 and 2021, respectively.

F-19

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Note 8. Inventories, net

The activity in the reserve for excess and obsolete inventories for the three months ended March 31, 2022 and 2021 is as follows:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)
Balance – beginning of period	$	415,140	$	319,416
Provision for excess and obsolete inventories		-		65,724
Balance – end of period	$	415,140	$	385,140

Inventories consisted of the following as of March 31, 2022 and December 31, 2021:

	March 31, 2022			December 31, 2021
	(Unaudited)
Construction in progress	$	36,227		$	58,200
Solar panels, inverters and components		2,342,644			2,597,013
Battery storage systems		624,602			471,644
LED lights		668,964			644,165
Reserve for excess and obsolete inventories		(415,140	)		(415,140	)
Total inventories, net	$	3,257,297		$	3,355,882

Note 9. Other Receivables and Current Assets, Net

Other receivables and current assets, net consisted of the following at March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
	(Unaudited)
Receivable from Seller (Uonone Group) (See Note 5)	$	473,055	$	471,789
Deferred project costs		735,010		1,240,159
Prepaid expenses and other current assets		1,303,696		802,869
Accrued interest on customer loans receivable		32,348		36,138
VAT tax receivable		1,168,035		614,946
Income tax receivable		268		-
Capitalized merger costs		990,492		886,787
Total other receivables and current assets		4,702,904		4,052,688
Other receivables and current assets, related party		5,775		4,375
Total	$	4,708,679	$	4,057,063

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 March 31, 2022 and December 31, 2021.

F-20

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Note 10. Property and Equipment

Components of property and equipment, net are as follows:

	March 31, 2022			December 31, 2021
	(Unaudited)
Automobiles	$	1,179,746		$	1,178,692
Furniture and equipment		1,340,025			1,339,605
Solar systems leased to customers		1,663,468			1,663,468
Leasehold improvements		2,369,328			2,368,665
Total property and equipment		6,552,567			6,550,430
Less: accumulated depreciation and amortization		(5,988,186	)		(5,899,820	)
Property and equipment, net	$	564,381		$	650,610

For the three months ended March 31, 2022 and 2021, depreciation expense was $86,247 and $94,467, respectively.

Note 11. Goodwill

The activity of goodwill is as follows:

	Three Months Ended March 31,
	2022		2021
	(Unaudited)
Balance – beginning of period	$	8,432,901	$	8,214,665
Effect of exchange rate		22,627		(32,465	)
Balance – end of period	$	8,455,528	$	8,182,200

Note 12. Investments in Unconsolidated in Solar Project Companies

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

Investee	Investment Balance at January 1, 2022		Share of Investee’s Net Income (loss)			Effect of Exchange Rate		Investment Balance at March 31, 2022
Yilong #2	$	4,129,772	$	(43,520	)	$	11,081	$	4,097,333
Xingren		2,040,069		30,016			5,474		2,075,559
Ancha		3,129,433		26,215			8,396		3,164,044
Total	$	9,299,274	$	12,711		$	24,951	$	9,336,936

F-21

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Activity in the Company’s 30% non-controlling investments in solar project companies for the three months ended March 31, 2021 consisted of the following:

Investee	Investment Balance at January 1, 2020		Share of Investee’s Net Income (loss)		Effect of Exchange Rate			Investment Balance at March 31, 2021
Yilong #2	$	3,821,479	$	34,225	$	(15,477	)	$	3,840,227
Xingren		1,879,889		17,642		(7,622	)		1,889,909
Ancha		2,819,629		50,103		(11,690	)		2,858,042
Total	$	8,520,997	$	101,970	$	(34,789	)	$	8,588,178

The following tables present the summary of the unaudited condensed combined financial statements for the Company’s 30% non-controlling investments in solar project companies as of March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
Current assets	$	14,039,213	$	28,985,692
Non-current assets		103,696,495		89,828,592
Total assets		117,735,708		118,814,284
Current liabilities		8,191,709		13,074,765
Non-current liabilities		78,290,724		75,084,168
Members’ capital		31,253,289		30,655,351
Liabilities and members’ capital	$	117,735,722	$	118,814,284

and for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022			2021
Revenue	$	2,263,157		$	1,998,114
Gross profit		828,970			693,491
Net income (loss)		(42,369	)		339,901

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

F-22

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Note 13. Financing Arrangements

As of March 31, 2022 and December 31, 2021, the Company had the following borrowings:

	March 31, 2022			December 31, 2021
Loan from an unrelated individual, at 6.0% fixed interest, due October 31, 2021	$	2,000,000		$	2,000,000
PPP loans payable, at 1.0% fixed interest, due January 20, 2026		1,661,143			1,855,813
Secured convertible notes payable at 4.0% per annum, due various dates through December 2024		20,800,000			23,600,000
EB-5 Loans (see detail below)		21,500,000			21,500,000
Various auto loans payable, interest accrues at 4.19%-4.92% per annum with maturities through 2023.		85,133			101,691
Total		46,046,276			49,057,504
Less: debt discount		(501,237	)		(527,611	)
Less: current portion		(21,451,207	)		(20,433,711	)
Noncurrent portion	$	24,093,831		$	28,096,182

SBA Loans

On April 15 and April 16, 2020, the Company received loans pursuant to the PPP totaling $1,855,816. The loans were issued to three subsidiaries in the United States and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents and utilities, over the subsequent 24 weeks from the loan origination date, and the Company maintains the required number of full-time employee equivalents. For the non-forgivable portion, the loan would be due in two years at a fixed interest rate of one percent. In September 2021, the Company received loan forgiveness in the amount of $1,798,539 related to this tranche of the PPP loan, and repaid $58,066 which included $789 of accrued interest, and recognized a gain on debt extinguishment of $1,820,917 related to the forgiven balance of the PPP loan plus accrued interest of $22,377 in the year ended December 31, 2021.

On February 1, 2021, the Company received loans pursuant to the Paycheck Protection Program Second Draw totaling $1,855,813. The loans were issued to three subsidiaries in the United States and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents, utilities and other eligible costs allowed by the Small Business Administration, during the 24-week period beginning on the date of the first disbursement of the loans. For the non-forgivable portion, the loans would be due in five years at a fixed interest rate of 1% per annum. For the three months ended March 31, 2022, the Company recognized an additional gain on debt extinguishment of $194,670 related to the forgiveness of two of the three PPP loans received in the second tranche. In May 2022, the Company was notified by its lender that the last of the three PPP loans in the amount of $1.7 million and the accrued interest were substantially forgiven.

F-23

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Other Loans

Other loans include a loan of $2,000,000 from a PRC individual at an interest rate of 6%, interest payable quarterly in arrears, with the original due date of April 30, 2021 and has been extended to August 31, 2022.

Related party EB-5 financings

The Company’s borrowings under the EB-5 program from related parties consisted of the following as of March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
$45.0 million loan from Clean Energy Funding, LP	$	11,500,000	$	11,500,000
$13.0 million loan from Clean Energy Funding II, LP		10,000,000		10,000,000
		21,500,000		21,500,000
Current portion		13,500,000		12,500,000
Noncurrent portion	$	8,000,000	$	9,000,000

On January 3, 2012, Clean Energy Fund, LP (“CEF”) entered into a secured loan agreement with SREP, a wholly-owned subsidiary of the Company. Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $45.0 million, to be used to finance the installment purchases for customers of the solar energy systems. The proceeds of the loans are advanced in increments of $2.5 million and CEF may determine in its sole and absolute discretion to advance a lesser amount. The loan accrues interest at a fixed interest rate of 3% per annum, payable quarterly in arrears. Each advanced principal amount is due and payable 48 months from the advance date or the U.S. Immigration Form I-829 approval date if longer. The I-829 petition includes evidence that the immigrant investors successfully met all United States Citizenship and Immigration Services requirements of the EB-5 program. A UCC filing was filed in March 2015 on behalf of CEF, the secured party, to pledge all assets of SREP as the collateral for the loan. Such assets include, but are not limited to, all present and future personal property of SREP which includes receivables, goods, inventory, equipment fixtures, intangibles, deposit accounts and collateral control accounts. As of March 31, 2022 and December 31, 2021, the principal loan balance was $11.5 million.

On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $13.0 million. The proceeds of the loan would be used by LED for its operations. The loan accrues interest at a fixed interest rate of 3.0% per annum, payable quarterly in arrears. Principal is due and payable in 48 months or the U.S. Immigration Form I-829 approval date if longer. In 2016, LED borrowed an additional $4.5 million under the loan, the proceeds of which were used to fulfill the purchases required related to the new $4.3 million LED contract. During the year ended December 31, 2017, the Company drew down an additional $6.0 million under the loan. As of March 31, 2022 and December 31, 2021, the remaining undrawn amount under the loan was $3.0 million.

The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”). The principal owners and managers of IERE consist of the Company’s chief executive officer, its former executive vice president and one of its directors.

Convertible Notes

The Company has issued 4% secured subordinated convertible notes to former limited partners of CEF, pursuant to exchange agreements with the limited partners. The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s notes to CEF in the same amount, reducing the outstanding EB-5 loan balance. Payment of the notes is secured by a security interest in SREP’s accounts receivable and inventory. The convertible notes are payable in five equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance. The convertible notes are convertible into common stock at a conversion price equal to 80% of the public stock price of the Company’s common stock as defined in the convertible note. The convertible notes may be converted into common stock at the first, second, third, fourth and fifth anniversaries of the date of issuance, but not earlier than six months from the date of the Company’s initial public offering.

F-24

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

All convertible notes 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 until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and accrued interest payable by (y) the conversion price defined as a fixed 80% discounted percentage per share price of a public stock price. The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC Topic No. 815, Derivatives and Hedging (“ASC 815”), and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding. Further, because the conversion price is a fixed discounted percentage per share price of a contingent future public stock event that has not been realized as of both the issuance date and March 31, 2022 the Company shall record the intrinsic value of the beneficial conversion feature calculated as of the issuance date of the convertible notes upon the realization of the contingent IPO event.

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

There was no redemption for new convertible notes during the three months ended March 31, 2022. For the three months ended March 31, 2021 the Company entered into an agreement with convertible noteholders to redeem three $500,000 convertible note principal balances for cash payments totaling $1,110,000. The Company recognized a gain on debt extinguishment related to these convertible notes in the amount of $13,410 and $470,846 for the three months ended March 31, 2022 and 2021, respectively.

Interest Expense

For the three months ended March 31, 2022 and 2021, interest expense incurred on the above long-term EB-5 related party loans was $55,274 and $233,425, respectively.

Total interest expense incurred (including interest on long-term related party loans) was $343,284 and $512,894 for the three months ended March 31, 2022 and 2021, respectively. The weighted average interest rates on loans outstanding were 3.6% and 3.6% as of March 31, 2022 and December 31, 2021, respectively.

F-25

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Principal maturities for the financing arrangements as of March 31, 2022 are as follows:

Period ending December 31,	Auto Loans		Bank and Other Unsecured Loans		EB-5 Related Party Loans		Convertible Notes		Total
2022 (remaining months)	$	40,022	$	2,000,000	$	13,500,000	$	5,900,000	$	21,440,022
2023		44,740		-		8,000,000		5,900,000		13,944,740
2024		371		-		-		5,700,000		5,700,371
2025		-		-		-		2,500,000		2,500,000
2026		-		1,661,143		-		800,000		2,461,143
Thereafter		-		-		-		-		-
Total	$	85,133	$	3,661,143	$	21,500,000	$	20,800,000	$	46,046,276

Note 14. Other Related Party Transactions

Transactions with AMD New Energy Co., Ltd. and Its Subsidiaries

Payables to AMD New Energy Co., Ltd. (“AMD”) or its subsidiaries relate to the solar panels the Company purchased from AMD or its subsidiaries to be used on certain solar projects and amounted to approximately $1.6 million and $1.6 million at March 31, 2022 and December 31, 2021, respectively. AMD is a related party because its chairman and chief executive officer is a director of the Company.

Transaction with Other Related Parties

Prior to August 31, 2020, the Company provided asset management and accounting services to the three unconsolidated Alliance joint ventures under the management contract and business services agreement dated January 20, 2011 between Alliance Solar Capital I, LLC and the Company, pursuant to which the Company received 3% of revenues collected from SREC and payments from public utilities received by the Alliance entities. The provisions of this agreement also extended to services rendered for Alliance Solar Capital II, LLC and Alliance Solar Capital III, LLC; however, there was no formal agreement executed for the two entities. During the three months ended March 31, 2022, the Company did not earn any fees from the Alliance entities. Total fees earned by the Company from the Alliance entities included in other income were $7,268 for the three months ended March 31, 2021.

The Company also made advances for expenses on behalf of the three Alliance entities and SMXP’s tenant prior to August 31, 2020. At March 31, 2022 and December 31, 2021, the Company had a receivable for management fees and the expenses paid on behalf of these entities in the amount of $5,775 and $88,063, respectively.

Lease Agreements with Related Parties

In September 2016, the Company executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease its headquarters in Riverside, California. This lease effectively extends the prior lease with SMXP which ended on December 31, 2016 with an increase in the rental rate. The new lease is for ten years and has a five-year renewal option. The annual base rent under the lease is initially $978,672 plus the Company’s share of the utilities. The base rent is subject to an annual escalation of 2.99%.

In September 2016, the Company amended two lease agreements for its Diamond Bar, California office with Fallow Field, LLC. Fallow Field, LLC, a related party. The amended lease commenced on November 1, 2016 and has a ten  year term with one five-year renewal option. The initial annual base rent is $229,272 plus the Company’s share of utilities.

F-26

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

For the three months ended March 31, 2022 and 2021, total related party rental expenses included in general and administrative expenses for the Riverside, California corporate headquarters and the Diamond Bar, California office, were $356,758 and $373,440 respectively.

Note 15. Accrued Expenses and Other Payables

Accrued expenses and other payables consisted of the following as of March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
Accrued compensation expenses	$	4,244,967	$	4,326,050
Accrued operating and project payables		1,897,913		2,601,804
Customer deposits		3,852,472		3,481,542
Refundable vendor bid deposits		126,148		918,970
VAT tax payable		1,623		-
Income taxes payable		3,250		172,863
Accrued warranty expense		277,038		276,296
Preacquisition liability		1,691,867		1,687,340
Retainage payable to vendors		4,901,751		5,167,776
Payable to Uonone (See Note 5)		3,063,724		2,639,621
Total accrued expenses and other payables		20,060,753		21,272,262
Accrued expenses and other payables, related party		1,558,096		1,553,926
Total accrued expenses and other payables	$	21,618,849	$	22,826,188

Accrued Compensation

Accrued compensation includes $1,275,000 of restricted stock units that were cancelled and exchanged for cash in March 2019 by the Company for the Company’s chief executive officer, former executive vice president and one other former employee, $1,588,117 of accrued but unpaid salaries and wages for the Company’s chief executive officer and former executive vice president, and $182,730 of accrued but unpaid executive cash bonuses for the Company’s chief executive officer and former executive vice president pursuant to their employment agreements. The employment agreement for the former executive vice president was cancelled upon her resignation effective February 24, 2020. The remaining balance relates to accrued unpaid commissions and accrued paid time offs.

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.

F-27

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Refundable Vendor Bid Deposits

Vendor bid deposits represent cash deposits received by ZHPV and ZHTH on sealed bids from trade contractors who are proposing to work on the EPC construction projects. Vendor bid deposits are 100% refundable when the bid process is concluded if the bid is not accepted.

VAT Taxes

The Company recognizes its revenue in the PRC net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the procurement cost for materials purchased and collected at the invoiced value of sales provided to customers. The Company accounts for VAT on a net basis at the entity level. The contractual amount related to the designing and construction and installation services is subject to 3% sales and other taxes for the amount invoiced before May 1, 2016 which is included as part of cost of revenue. VAT tax receivable generally is available to offset future VAT tax liabilities.

Accrued Warranty

The activity of the warranty liability for the three months ended March 31, 2022 and 2021 is as follows:

	Three Months Ended March 31,
	2022			2021
	(Unaudited)
Balance – beginning of period	$	723,766		$	2,193,652
Provision		105,494			42,596
Expenditures and adjustments		(81,096	)		(35,300	)
Effect of exchange rate		4,932			(987	)
Balance – end of period		753,096			2,199,961
Current portion (accrued expenses and other payables)		277,038			248,925
Non-current portion (other liabilities)	$	476,058		$	1,951,036

Preacquisition Liability

As part of the April 2015 acquisition of ZHPV, the Company assumed a liability associated with the Ningxia project consisting of reimbursement of project expenses to an unrelated third-party including reimbursement of certain land rental expenses and land use taxes estimated at a total of approximately RMB 9.8 million ($1.5 million at March 31, 2022). The Company expects to negotiate to offset the entire liability with the unpaid contract receivables and reimbursements from the third party. All the receivables and reimbursements were previously fully reserved by the Company.

Note 16. 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 United States 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.

F-28

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Leases with Related Parties

In September 2016, the Company executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease its headquarters in Riverside, California. This lease effectively extends the prior lease with SMXP which ended on December 31, 2016 with an increase in the rental rate. The new lease is for ten years and has a five-year renewal option. The annual base rent under the lease is initially $978,672 plus the Company’s share of the utilities. The base rent is subject to an annual escalation of 2.99%.

In September 2016, the Company amended two lease agreements for its Diamond Bar, California office with Fallow Field, LLC. Fallow Field, LLC, a related party. The amended lease commenced on November 1, 2016 and has a ten year term with one five-year renewal option. The initial annual base rent is $229,272 plus the Company’s share of utilities.

Future minimum lease commitments for offices, warehouse facilities and equipment, payable to related parties and other as of March 31, 2022 are as follows:

Period ending December  31,	Related Parties		Others		Total
2022 (remaining months)	$	1,051,067	$	137,603	$	1,188,670
2023		1,442,872		28,367		1,471,239
2024		1,486,013		11,820		1,497,833
2025		1,530,445		-		1,530,445
2026		1,524,902		-		1,524,902
Thereafter		-		-		-
Total	$	7,035,299	$	177,790	$	7,213,089

For the three months ended March 31, 2022 and 2021, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was $405,528 and $440,745, respectively. These amounts include short-term leases and variable lease costs, which are immaterial.

Adoption of ASC 842

On January 1, 2022, the Company adopted ASC 842 using the optional transition method to apply the standard as of the effective date. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented. Agreements for solar energy systems where the Company was previously defined as the lessor under legacy lease accounting (ASC 840) and were accounted for as operating leases no longer meet the definition of a lease upon the adoption of ASC 842 and will instead be accounted for in accordance with ASC 606. Under these arrangements, the customer has the right to direct the use of the asset but does not receive the right to obtain substantially all of the economic benefits from its use. There is no change to the amount and timing of revenue recognition for these arrangements.

The new standard also provides practical expedients for an entity’s ongoing accounting as a lessee. The Company elected to utilize the practical expedient to not separate lease and non-lease components for all its existing leases. The Company has also elected not to present short-term leases on the condensed consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the  Company’s leases do not provide an implicit rate of return, it used its incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

F-29

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Adoption of the new lease standard on January 1, 2022 had a material impact on the Company’s interim unaudited condensed consolidated financial statements. The most significant impacts related to the (i) recognition of ROU assets of $5.2 million and lease liabilities of $6.4 million for operating leases on the condensed consolidated balance sheet, and (ii) de-recognition of the historical deferred rent balance in the amount of $1.2 million. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The standard did not materially impact the Company’s condensed consolidated statement of operations and condensed consolidated statement of cash flows.

As of March 31, 2022, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:

Period ending December  31,	Operating Lease Liabilities
2022 (remaining months)	$	1,051,067
2023		1,442,872
2024		1,486,013
2025		1,530,445
2026		1,524,902
Thereafter		-
Total minimum lease payments		7,035,299
Less: interest		(941,100	)
Present value of lease obligations		6,094,199
Less: current portion		(1,074,783	)
Noncurrent portion	$	5,019,416

Other information related to leases is as follows:

	Three Months Ended March 31, 2022
Weighted average remaining lease term (in years)		4.72
Weighted average discount rate		6	%

Panel Purchase Agreement

In June 2016, the Company entered into a supply agreement with Sunspark Technology, Inc. (“Sunspark”), a United States-based panel supplier and a subsidiary of a PRC-based public company, which was terminated as of March 3, 2021. On March 3, 2021, the Company and Sunspark entered into a new purchase agreement that stipulates that the Company has the right but not the obligation to purchase panels from Sunspark at certain pricings as stipulated in the agreement. This new agreement supersedes all prior agreement between the Company and Sunspark.

Pre-development Agreements in PRC

In connection with the pre-development phase of each solar farm project by the Company’s China segment, the applicable project subsidiary typically secures one or more land rental agreement with the holder of the land use rights, a development permit, and a power purchase agreement with the local utility company whereby the local  utility company agrees to pay the project owner an agreed-upon rate for the electricity produced by the solar farm upon its completion (collectively, “Pre-development Agreements”). Upon transfer of the equity in the project subsidiary to the buyer, the Company no longer has any rights or obligations under the Pre-development Agreements. Any costs incurred by the Company pursuant to the Pre-development Agreements are capitalized and amortized to cost of revenue when the construction of the project begins.

F-30

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Employment Agreements

On October 7, 2016, the Company entered into employment agreements with its chief executive officer and its then executive vice president (collectively, the “Executives”), each for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the Executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreements provide for an initial annual salary of $600,000 and $560,000, respectively, with an increase of not less than 3% on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year. The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million. The agreements provide for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the Executive has been employed by the Company. The employment of both Executives commenced in February 2008. As of March 31, 2022 and December 31, 2021, the amount accrued by the Company was $184,322 and $199,322, respectively, related to the annual bonuses pursuant to the agreements. During the year ended December 31, 2019, the Company issued to the Executives a total of 125,594 shares of common stock with a value of $628,795, as part of their bonuses for 2018 pursuant to their employment agreements. Effective January 1, 2019, all bonus programs were suspended by management and accordingly, no additional bonuses were accrued under the agreement since January 1, 2019. In November 2019, the Executives irrevocably waived their cash and equity bonuses due under their employment agreement for the 2019.

On February 24, 2020, the then executive vice president resigned.  Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement. Pursuant the release and separation agreement, the Company paid the former executive officer $25,497, and agreed to pay to her $803,095, representing the outstanding balance due to her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. This amount is payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020, until the completion by the Company of its public offering, and any unpaid balance then outstanding shall be paid within three business days after the Company receives the proceeds of its public offering.  As of March 31, 2022, no payment has been made under the agreement. 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 March 31, 2022 and continuing thereafter on a month-to-month basis for monthly compensation of $3,000.  The release and separation agreement provides that since the long-term incentive plan pursuant to which the options granted to the former executive vice president were granted provides that options may be held by and exercised by a consultant to the Company, the Company agreed that the option shall continue in full force and effect as long as she, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company. As of March 31, 2022, the former executive officer was a consultant to the Company.

Legal Matters

On July 1, 2020, a legal action was filed in the Los Angeles Superior Court by Haijing Lin (the “Plaintiff”) and various defendants which include SolarMax Technology, Inc., SolarMax Renewable Energy Provider, Inc., Clean Energy Funding, L.P., Inland Empire Renewable Energy Regional Center, LLC, David Hsu, Ching Liu and Simon Yuan. At the time of the filing, the Plaintiff is a limited partner in Clean Energy Funding, L.P. and seeks to have his $500,000 investment returned.

F-31

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

On or about February 4, 2021, an amended complaint was filed in the action initially commenced by Haijing Lin and Mian Cai and Xing Zhang were added to Haijing Lin as plaintiffs. The total capital contribution by the three plaintiffs was $1.5 million, including the $500,000 contributed by Mr. Lin. The plaintiffs sought return of their capital contributions and other relief, including costs, punitive and exemplary damages and a declaration that the $45.0 million loan by CEF to SREP is due.

On September 23, 2021, the complaints filed by Haijing Lin, Mian Cai and Xing Zhang were settled for $1.29 million and consequently, $1.5 million of the related CEF debt was extinguished. Pursuant to the settlement, the Company paid $300,000 at the time of the settlement and the remaining $990,000 was paid in March 2022. In connection with the settlement, a gain on debt extinguishment of $210,000 was recognized by the Company.

On November 10, 2020, a legal action was filed in the Los Angeles Superior Court by Carmelia Chiang against various defendants which include SolarMax, SREP, CEF, Inland Empire Renewable Energy Regional Center, LLC, the Company’s chief executive officer and a former officer/director who are managers of CEF’s general partner. At the time of the filing, the plaintiff was a limited partner in CEF and sought to have her $500,000 investment returned. On February 23, 2022, the court granted and sustained a demurrer by the Company without leave to amend and the case was dismissed. The plaintiff has a right to file an appeal to the court’s granting of the demurrer. The plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.

On June 1, 2021, a legal action was filed in the Los Angeles Superior Court by Pu Dong, a stockholder, against various defendants which include SolarMax, David Hsu and one other SolarMax stockholder. At the time of the filing, the plaintiff was a SolarMax stockholder and sought to have shares that are issued in the name of the other SolarMax stockholder defendant reissued in the name of the plaintiff. SolarMax believes that this is a dispute between two stockholders and will comply with any final court order as to the ownership of the shares.

Yilong #1 Receivable

In early January 2020, the Company filed an application for arbitration of the dispute with the Shanghai Arbitration Commission against Yilong AMD New Energy Co., Ltd., the project owner of the Yilong #1 project, claiming the amount due to the Company under the construction contract on the Yilong #1 project of RMB 22,687,458 (approximately $3,241,000) plus overdue interest. Yilong #1 project was completed and accepted by the respondent and commenced operation in 2018. On January 13, 2020, the Guizhou People’s Court issued an order to freeze the deposits of the respondent of RMB 22,687,458 (approximately $3,241,000). On November 6, 2020, an arbitration decision was reached in the Company’s favor. After certain offset adjustments, the Company expects to receive the payment of the net amount owed of RMB 21.8 million (approximately $3.1 million) plus interest prior to December 31, 2020. In December 2020, the Company received a payment of RMB 19.8 million (approximately $2.8 million) including interest and the remaining unpaid balance of approximately RMB 2.9 million (approximately $414,000) was fully reserved at December 31, 2020 as the Company determined the collectability to be uncertain and was written off during the year ended December 31, 2021.

On February 19, 2020, the Company’s attorney sent a demand letter to China Nuclear Construction Finance Leasing Co., Ltd. (the “Finance Company”), claiming the unpaid amount due from the Finance Company to the Company of RMB 8.0 million (approximately $1.1 million) related to the Yilong #1 project, pursuant to the entrustment payment agreement signed by the Company, Respondent and the Finance Company. The Company has provided a full reserve for this portion of the receivable at December 31, 2021 and December 31, 2020. As a result of the dispute regarding the unpaid amount, in July 2021 the Company filed an application with the court to freeze an amount of RMB 5.3 million on the account of Southwest Guizhou Autonomous Prefecture Yilong Almaden New Energy Co., Ltd., the project owner of Yilong #1. As of December 31, 2021, the RMB 5.3 million has been frozen by the court and the Company is waiting to receive the formal judgment of the court which is expected sometime during 2022.

F-32

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.

Note 17. Stockholders’ Equity

Amendment of 2016 Long-Term Incentive Plan

In October 2016, the Company’s board of directors adopted and in November 2016 the stockholders approved the 2016 Long-Term Incentive Plan, pursuant to which a maximum of 6,491,394 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted. In March 2019, the Company’s board of directors and stockholders approved an increase in the maximum number of shares of common stock subject to the 2016 long-term incentive plan to 8,988,084 shares.

Amendment of the 2016 Restricted Stock Grants

Pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted 3,819,949 shares in October 2016, of which 3,045,963 shares were granted to officers and directors as restricted stock grants. On March 23, 2019, the Company’s board of directors approved the following modifications with respect to the 2016 Restricted Stock Grants:

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

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

The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur; 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. The shares are forfeited and are to be conveyed to the Company for no consideration if a public stock event shall not have occurred by June 30, 2022.

F-33

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

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 June 1, 2016 and has been extended to April 30, 2019 pursuant to amendments. As compensation for the service, the Company issued to the consultant 199,736 shares of restricted stock valued at $5.01 per share based on the then current fair value of the common stock, subject to forfeiture if the public stock event has not occurred by June 30, 2022. The restricted stock was granted on October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan and is subject to restrictions and forfeiture provisions that are applicable to other restricted stock grants pursuant to the plan as described under the caption “2016 Restricted Stock Grants.”

None of the shares granted above pursuant to the 2016 Long-Term Incentive Plan have vested and not considered to have been issued under the requirement of U.S. GAAP since the shares are subject to vesting and forfeiture provisions of the agreement.

During the year ended December 31, 2019, 2,258,011 of the restricted shares were exchanged for options to purchase 4,784,723 shares of common stock at $5.01 per share and 1,272,313 of the restricted shares were cancelled for cash of $1,275,000 which shall be paid on or before December 31, 2019, and 14,981 of the restricted shares were cancelled for no compensation. In December 2019, this date was extended to December 31, 2021 and subsequently extended again to June 30, 2022.

As of March 31, 2022 and December 31, 2021, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $1.3 million for both periods, based on the estimate of the current stock price of $5.01 per share. Such cost would be recognized beginning when the public stock event, as defined, occurs.

The following table below summarizes the activity of the restricted stock shares:

	Number of Shares		Weighted Average Grant Date Fair Value per Share
Outstanding at December 31, 2021		264,500	$	5.01
Nonvested as of December 31, 2021		264,500	$	5.01
Outstanding at March 31, 2022		264,500	$	5.01
Nonvested as of March 31, 2022		264,500	$	5.01

Stock Options

From time to time, the Company grants non-qualified stock options to its employees and consultants for their services. Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant; those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven years. The vested options are exercisable for three 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.

F-34

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

October 7, 2016 Option Grants

On October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted to employees non-qualified stock options to purchase 1,947,419 shares and incentive stock options to purchase 324,570 shares, at an exercise price of $5.01 per share. The options are exercisable cumulatively as to (a) 50% of the shares of common stock initially subject to the option on the later to occur of (i) six months after a public stock event, or (ii) October 7, 2017 (the “Initial Exercise Date”), provided that the option holder is employed or engaged by the Company or an affiliate of the Company on the Initial Exercise Date, and (b) the remaining 50% of the shares of common stock initially subject to the option on the first anniversary of the Initial Exercise Date. Further, without the consent of the Company, the option cannot be exercised prior to the date that an S-8 registration statement covering the shares issuable pursuant to the 2016 long term incentive plan becomes effective. In the event that a public stock event does not occur by the expiration date of the options, the options will expire.

March 2019 Option Grants

On March 23, 2019, the Company’s board of directors (i) granted seven-year non-qualified stock options to certain employees to purchase 362,520 shares of common stock at $5.01 per share which was determined by the board of directors to be the fair value of the common stock on the date of grant and (ii) granted ten-year non-qualified stock options to certain employees to purchase 4,784,723 shares of common stock at $5.01 per share in exchange for 2,258,011 restricted shares as described under “Amendment of the 2016 Restricted Stock Grants.” The options are subject to the same forfeiture provision as the restricted stock if the public stock event does not occur by December 31, 2022. The options are also subject to the lock-up and leak-out agreements. All of the options described above vest cumulatively, 50% six months after a public stock event and 50% eighteen months after a public stock event.

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, 2021		6,408,716	$	5.01		6.5		-
Nonvested as of December 31, 2021		6,059,178		5.01		6.6		-
Exercisable as of December 31, 2021		347,538		4.15		4.5		300,000
Granted		-		-		-		-
Exchanged		-		-		-		-
Exercised		-		-		-		-
Cancelled or forfeited		-		-		-		-
Outstanding at March 31, 2022		6,408,716		5.01		6.2		-
Nonvested as of March 31, 2022		6,059,178		5.01		5.6		-
Exercisable as of March 31, 2022		349,538		4.15		4.1		300,000

Forfeitures are accounted for as actual forfeitures occur.

The aggregate intrinsic value represents the total pretax intrinsic value. The aggregate intrinsic values as of March 31, 2022 and December 31, 2021 are based upon the value per share of $5.01, which is the latest sale price of the Company’s common stock in May 2018.

F-35

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

Non-vested Option Awards

The following table summarizes the Company’s nonvested option awards activity:

	Shares
Balance at December 31, 2021		6,059,178
Granted		-
Exchanged		-
Replaced		-
Vested		-
Forfeited		-
Balance at March 31, 2022		6,059,178

For the three months ended March 31, 2022 and 2021, no compensation cost has been charged to general and administrative expenses related to stock options. During the three months ended March 31, 2022 and 2021, no vested options to purchase shares of common stock were cancelled. No nonvested options to purchase common stock were cancelled during the three months ended March 31, 2022; however, nonvested options to purchase 12,983 shares of common stock were cancelled during the three months ended March 31, 2021.

As of March 31, 2022, total unrecognized compensation costs for outstanding unvested options awarded was $16.3 million,  all of which is related to performance-based awards. The performance condition for such awards was not deemed probable at grant dates or at March 31, 2022 and the cost related to such awards will begin to be recognized once the performance condition is deemed probable. The fair value of options issued during the three months ended March 31, 2021 was $25,000.

Note 18. Net Income (Loss) Per Share

The following table presents the calculation of the Company’s basic and diluted income (loss) per share for the three months ended March 31, 2022 and 2021:

	Three months ended March 31,
	2022			2021
Numerator
Net income (loss) attributable to stockholders of SolarMax Technology, Inc.	$	(794,359	)	$	(1,261,879	)
Denominator
Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted		39,735,536			39,735,536
Basic and diluted net income (loss) per share	$	(0.02	)	$	(0.03	)

F-36

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

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 months ended March 31, 2022 and 2021:

	Three months ended March 31, 2022
	US			PRC			Total
Revenue from external customers
Solar energy systems	$	9,046,185		$	-		$	9,046,185
Finance revenue		217,415			-			217,415
LED and other		344,595			-			344,595
Total		9,608,195			-			9,608,195
Cost of revenue
Solar farm projects		-			-			-
Solar energy systems		7,102,461			-			7,102,461
Other		312,713			-			312,713
Total		7,415,174			-			7,415,174
Depreciation and amortization expense		86,009			238			86,247
Interest (expense) income, net		(340,114	)		6,675			(333,439	)
Equity in (loss) of unconsolidated ventures		-			-			-
Equity in (loss) income of solar farm projects		-			12,704			12,704
(Benefit) provision for income taxes		6,000			-			6,000
Net income (loss)		(391,055	)		(403,304	)		(794,359	)

	Three months ended March 31, 2021
	US			PRC			Total
Revenue from external customers
Solar energy systems	$	7,153,218		$	-		$	7,153,218
Finance revenue		351,947			-			351,947
LED and other		198,984			-			198,984
Total		7,704,149			-			7,704,149
Cost of revenue
Solar farm projects		-			253,781			253,781
Solar energy systems		5,847,813			-			5,847,813
Other		180,305			-			180,305
Total		6,028,118			253,781			6,281,899
Depreciation and amortization expense		86,577			7,890			94,467
Interest (expense) income, net		(506,699	)		48,406			(458,293	)
Equity in (loss) of unconsolidated ventures		4,143			-			4,143
Equity in (loss) income of solar farm projects		-			101,970			101,970
(Benefit) provision for income taxes		150,229			(117,790	)		32,439
Net income (loss)		(920,657	)		(357,922	)		(1,278,579	)

F-37

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021 (Unaudited)

and as of March 31, 2022 and December 31, 2021:

	March 31, 2022
	US		PRC		Total
Investments in unconsolidated ventures	$	-	$	-	$	-
Equity investments in solar farm projects		-		9,336,936		9,336,936
Capital expenditures		-		-		-
Long-lived assets		15,441,799		17,848,191		33,289,990
Total reportable assets		35,222,482		35,918,435		71,140,917

	December 31, 2021
	US		PRC		Total
Investments in unconsolidated ventures	$	-	$	-	$	-
Equity investments in solar farm projects		-		9,299,274		9,299,274
Capital expenditures		-		39,887		39,887
Long-lived assets		11,738,100		17,799,464		29,537,564
Total reportable assets		34,154,702		37,861,797		72,016,499

Note 20. Subsequent Events

The Company has evaluated subsequent events through July 13, 2022, the date the March 31, 2022 condensed consolidated financial statements were available to be issued and except as disclosed below and in Note 1- Description of Business and in Note 13 –Financing Arrangements, no other events require adjustment of, or disclosure in, the condensed consolidated financial statements.

Termination of Agreement of Merger with SPAC

On April 13, 2022, the Company notified the SPAC that it intended to terminate the Merger Agreement because it reasonably believed that the proposed merger would not be completed by April 26, 2022. The Company provided a written notice to the SPAC on April 20, 2022 and terminated the Merger Agreement pursuant to the termination clause provided in the Merger Agreement.  As of July 13, 2022, the Sponsor and Alberton owed loans to the Company totaling approximately $2.3 million.  Because the merger has been terminated, we will recognize an expense for the Sponsor and Alberton loans owed to the Company of approximately $2.3 million in the second quarter of 2022.  In addition, we will expense approximately $1.0 million in capitalized costs related to the merger in the second quarter of 2022.

Convertible Notes Issued

In April, May and June 2022, the Company issued four convertible notes in the principal amount of $2.0 million to limited partners of CEF, in exchange for a reduction of $2.0 million in the principal amount of the related party notes to CEF.  See Note 13.

SBA Loans

In February and April 2022, $1,852,291 of the loans from the Paycheck Protection Program Second Draw were forgiven and in May 2022 the remaining $3,522 of the loans were repaid.  See Note 13.

Extension of Forfeiture Date for Restricted Stock

In May 2022, the date for forfeiture if a Public Stock Event has not occurred is extended to December 31, 2022 which date includes restricted shares and options outstanding.

F-38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

SolarMax Technology, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SolarMax Technology, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020 the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Report on Supplementary Information

The Condensed Financial Information of Parent has been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. The Condensed Financial Information of Parent is the responsibility of the Company's management. Our audit procedures included determining whether the Condensed Financial Information of Parent reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the Condensed Financial Information of Parent. In forming our opinion on the Condensed Financial Information of Parent, we evaluated whether the Condensed Financial Information of Parent, including its form and content, is presented in conformity with Rule 12-04 of Regulation S-X of the Securities Act of 1933. In our opinion, the Condensed Financial Information of Parent is fairly stated, in all material respects, in relation to the financial statements as a whole.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2015.

Costa Mesa, California

March 25, 2022, except for the Reverse Stock Split paragraph in Note 1, as to which the date is July 18, 2022

F-39

SolarMax Technology, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2021 and December 31, 2020

	December  31, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	9,886,195	$	17,010,388
Restricted cash, current		3,195,731		4,728,154
Bankers’ acceptance		-		499,938
Accounts receivable, net		3,211,972		1,148,468
Notes receivable from SPAC and Sponsor (Note 1)		2,026,960		389,814
Contract assets		2,560,921		2,287,180
Unbilled receivables on completed contracts		5,093,921		9,131,440
Costs and estimated earnings in excess of billings and cash advances on uncompleted contracts		-		3,677,694
Receivable from SPIC and project companies (Note 2)		4,154,370		7,927,169
Customer loans receivable, current, net		4,935,920		6,983,646
Inventories, net		3,355,882		2,098,096
Other receivables and current assets, net		4,057,063		3,661,568
Other receivables and current assets, net (related party)		-		75,242
Total current assets		42,478,935		59,618,797
Property and equipment, net		650,610		987,718
Goodwill		8,432,901		8,214,665
Investments in unconsolidated joint ventures		-		121,534
Investments in unconsolidated solar project companies		9,299,274		8,520,997
Customer loans receivable, noncurrent, net		10,659,199		18,329,863
Deferred tax assets		18,612		-
Restricted cash, noncurrent		320,348		110,208
Other assets		156,619		233,614
Total assets	$	72,016,498	$	96,137,396

F-40

SolarMax Technology, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2021 and December 31, 2020 (Continued)

	December 31, 2021			December 31, 2020
Liabilities and Stockholders’ Equity
Current liabilities
Notes and accounts payable	$	3,983,336		$	22,388,949
Bank and other unsecured loans, current		2,033,711			2,064,284
Secured loans from related parties, current		12,500,000			23,000,000
Secured convertible notes, current		5,900,000			4,100,000
Contract liabilities		1,386,978			1,804,322
Accrued expenses and other payables		21,272,262			13,917,283
Accrued expenses and other payables to related parties		1,553,926			1,624,257
Deferred tax liabilities		-			421,277
Total current liabilities		48,630,213			69,320,372
Bank and other unsecured loans, noncurrent		1,923,793			1,957,579
Secured loans from related parties, noncurrent		9,000,000			11,500,000
Secured convertible notes, noncurrent, net of debt discount		17,172,389			14,852,761
Other liabilities		3,737,381			3,944,268
Total liabilities		80,463,776			101,574,980
Commitments and Contingencies (Note 18)
Stockholders’ equity (deficit)
Preferred stock, par value $0.001 per share; 15,000,000 shares authorized, none issued and outstanding as of December 31, 2021 and 2020		-			-
Common stock, par value $0.001 per share; 297,225,000 shares authorized, 40,983,881 shares issued, and 39,735,536 shares outstanding as of  December 31, 2021 and 2020		40,984			40,984
Additional paid-in capital		55,786,634			56,005,577
Less: treasury stock at cost – 1,248,345 shares		(1,808,889	)		(1,808,889	)
Accumulated deficit		(62,185,477	)		(58,865,210	)
Accumulated other comprehensive loss		(280,530	)		(591,103	)
Total stockholders’ equity (deficit) attributable to stockholders of the Company		(8,447,278	)		(5,218,641	)
Noncontrolling interest		-			(218,943	)
Total stockholders’ equity (deficit)		(8,447,278	)		(5,437,584	)
Total liabilities and stockholders’ equity	$	72,016,498		$	96,137,396

See accompanying notes to consolidated financial statements.

F-41

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31, 2021 and 2020

	Year Ended December 31,
	2021			2020
Revenue
United States operations	$	29,954,565		$	35,450,691
China operations
Unrelated party		7,786,316			96,131,011
Total		7,786,316			96,131,011
Total revenues		37,740,881			131,581,702
Cost of revenue		31,794,524			115,131,927
Gross profit		5,946,357			16,449,775
Operating expenses
General and administrative		10,936,132			11,452,939
Selling and marketing		1,210,790			1,255,230
Total operating expense		12,146,922			12,708,169
Operating income (loss)		(6,200,565	)		3,741,606
Other income (expense)
Interest income		185,579			121,001
Interest expense		(1,996,500	)		(3,211,475	)
Equity in income (loss) of unconsolidated joint ventures		325,005			12,499
Equity in income of solar project companies		544,100			467,960
Gain on debt extinguishment		2,808,767			720,276
(Loss) on sale of equity in solar project companies		-			(255,379	)
Other income (expense), net		712,688			844,495
Total other income (expense)		2,579,639			(1,300,623	)
Income (loss) before income taxes		(3,620,926	)		2,440,983
Income tax (benefit) provision		(300,661	)		1,488,090
Net income (loss)		(3,320,265	)		952,893
Net income (loss) attributable to noncontrolling interest		-			(21,161	)
Net income (loss) attributable to stockholders of the Company	$	(3,320,265	)	$	974,054
Net income (loss) per share attributable to stockholders of the Company
Basic	$	(0.08	)	$	0.02
Diluted	$	(0.08	)	$	0.02
Weighted average shares
Basic		39,735,536			40,000,186
Diluted		39, 735,536			40,156,119

See accompanying notes to consolidated financial statements.

F-42

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended December 31, 2021 and 2020

	Year Ended December 31,
	2021			2020
Net income (loss)	$	(3,320,265	)	$	952,893
Other comprehensive income (loss)
Foreign currency translation adjustments		310,573			720,804
Total comprehensive income (loss)		(3,009,692	)		1,673,697
Comprehensive income (loss) attributed to noncontrolling interest		-			(21,161	)
Comprehensive income (loss) attributable to stockholders of the Company	$	(3,009,692	)	$	1,694,858

See accompanying notes to consolidated financial statements.

F-43

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2021 and 2020

									Additional												Accumulated Other			Non-
	Preferred Stock				Common Stock				Paid-in			Treasury Stock						Accumulated			Comprehensive			controlling
	Shares		Amount		Shares		Amount		Capital			Shares			Amount			Deficit			Loss			Interest			Total
Balance at January 1, 2020		-	$	-		40,983,881	$	40,984	$	55,983,076			(1,248,345	)	$	(1,808,889	)	$	(59,839,264	)	$	(1,311,907	)	$	(197,782	)	$	(7,133,782	)
Stock-based compensation		-		-		-		-		22,501			-			-			-			-			-			22,501
Issuance of bonus shares																												-
Net income (loss)		-		-		-		-		-			-			-			974,054			-			(21,161	)		952,893
Currency translation adjustments		-		-		-		-		-			-			-			-			720,804			-			720,804
Balance at December 31, 2020		-	$	-		40,983,881	$	40,984	$	56,005,577			(1,248,345	)	$	(1,808,889	)	$	(58,865,210	)	$	(591,103	)	$	(218,943	)	$	(5,437,584	)
Balance at January 1, 2021			$	-		40,983,881	$	40,984	$	56,005,577			(1,248,345	)	$	(1,808,889	)	$	(58,865,210	)	$	(591,103	)	$	(218,943	)	$	(5,437,584	)
Buyout of non-controlling interest		-		-		-		-		(218,943	)		-			-			-			-			218,943			-
Net income (loss)		-		-		-		-		-			-			-			(3,320,267	)		-			-			(3,320,267	)
Currency translation adjustments		-		-		-		-		-			-			-			-			310,573			-			310,573
Balance at December 31, 2021		-	$	-		40,983,881	$	40,984	$	55,786,634			(1,248,345	)	$	(1,808,889	)	$	(62,185,477	)	$	(280,530	)	$	-		$	(8,447,278	)

See accompanying notes to consolidated financial statements.

F-44

SolarMax Technology, Inc. and Subsidiaries 

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

	Year Ended December 31,
	2021			2020
Cash flows from operating activities
Net income (loss)	$	(3,320,265	)	$	952,893
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss on partial sale of equity in solar project company		-			255,379
Gain on debt extinguishment		(2,808,767	)		(720,276	)
Equity in loss (income) of investment in excess of distribution received		(529,674	)		(458,155	)
Loss on disposal of property and equipment		(39,084	)		(19,721	)
Depreciation and amortization expense		359,860			1,482,271
Deferred LED project costs written off		-			360,000
Amortization of loan discounts		(274,860	)		(448,351	)
Amortization of debt discount		137,478			103,037
Provision for (recovery of) bad debts and loan losses		(241,333	)		241,576
Provision for (recovery of) excess and obsolete inventories		95,724			(38,684	)
Provision for warranty, customer care and production guaranty		365,837			584,450
Deferred income taxes (benefit)		(444,704	)		1,218,217
Stock-based compensation expense		-			22,501
IPO offering costs written off		-			480,671
Impact of currency exchanges and other		96,190			222,684
Changes in operating assets and liabilities:
Bankers’ acceptance		505,964			(391,775	)
Receivables and current assets		(2,172,985	)		(25,060,820	)
Receivables from SPIC and project companies		-			(551,301	)
Other receivables and current assets, net (related party)		75,242			(17,216	)
Contract assets		(273,741	)		1,029,764
Unbilled receivables		4,219,598			(3,348,438	)
Costs and estimated earnings in excess of billings on uncompleted contracts		3,722,022			(4,274,344	)
Advances to suppliers		-			-
Inventories		(1,353,511	)		615,119
Customer loans receivable		10,434,981			10,735,821
Other assets		78,212			(56,071	)
Notes and accounts payable		(18,672,058	)		(1,653,487	)
Accounts payable to related parties		-			-
Accrued expenses and other payables		5,868,111			(2,919,144	)
Accrued expenses and other payables to related parties		(110,545	)		(442,461	)
Contract liabilities		(417,343	)		(115,642	)
Other liabilities		(651,615	)		(953,938	)
Net cash provided by (used in) operating activities	$	(5,351,266	)	$	(23,165,441	)

F-45

SolarMax Technology, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020 (Continued)

	Year Ended December 31,
	2021			2020
Cash flows from investing activities
Return of capital distributions received from equity method investments	$	107,109		$	337,696
Proceeds from sale of project companies to SPIC		3,518,895			11,356,662
Proceeds from disposal of property and equipment		-			20,284
Issuance of note receivable to SPAC and Sponsor		(1,637,146	)		(389,814	)
Purchase of property and equipment		39,887			(107,103	)
Net cash provided by (used in) investing activities		2,028,745			11,217,725
Cash flows from financing activities
Loan proceeds from solar project financing		-			23,693,935
Proceeds from PPP loans		1,855,813			1,855,816
Principal repayment on borrowings		(121,632	)		(1,785,945	)
Proceeds from loans from related parties		-			-
Repayment of related party loan		(800,000	)		(250,000	)
Principal repayment on convertible notes		(6,240,000	)		(1,430,000	)
Early settlement of convertible notes		-			-
Repayment on equipment capital lease		(25,715	)		(29,733	)
Refundable vendor bid deposits received		-			347,801
Refundable vendor bid deposits paid		(139,536	)		(282,588	)
Proceeds (repayments) from Uonone acquisition contingency, net (Note 5)		405,593			1,377,172
Net cash provided by (used in) financing activities		(5,065,477	)		23,496,458
Effect of exchange rate		(58,477	)		5,473
Net increase (decrease) in cash and cash equivalents and  restricted cash		(8,446,475	)		11,554,215
Cash and cash equivalents and restricted cash, beginning of period		21,848,750			10,294,535
Cash and cash equivalents and restricted cash, end of period	$	13,402,275		$	21,848,750
Supplemental disclosures of cash flow information:
Interest paid in cash	$	(14,164	)	$	3,443,503
Income taxes paid in cash	$	371,705		$	11,408
Non-cash activities for investing and financing activities:
Uncollected proceeds from partial sale of project companies	$	-		$	7,927,169
Issuance of convertible notes to limited partners of CEF and CEF II (both are related party)	$	11,000,000		$	-
Settlement of related party loans in accrued liabilities	$	990,000		$	-

See accompanying notes to consolidated financial statements.

F-46

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

1. Description of Business

SolarMax Technology, Inc. (“SolarMax” or the “Company”) is a Nevada corporation formed in January 2008, with headquarters located in Riverside, California. Currently, the Company operates its business in the United States and the People’s Republic of China (“China” or the “PRC”). In the United States, the Company has four wholly-owned subsidiaries at December 31, 2021 as follows:

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

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

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

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

As of and during the year ended December 31, 2020, SMX Capital was a 93.75% owned subsidiary of the Company, and its financial statements were consolidated in the Company’s consolidated financial statements as of and for the year ended December 31, 2020. The 6.25% minority interest was held by a former executive of the Company’s China segment. The minority interest was reflected as non-controlling interests in the accompanying consolidated financial statements. On August 31, 2021, the Company purchased the 6.25% non-controlling interest in the subsidiary, SMX Capital, Inc., and it is mutually agreed that the Company would own 100% of SMX Capital, Inc. effective as of September 10, 2021.

The Company’s wholly-owned subsidiaries outside the United States are as follows:

● Accumulate Investment Co. Ltd (“Accumulate”), a British Virgin Islands corporation. The Company acquired Accumulate as part of its acquisition of Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. (“ZHPV”) in April 2015.

● SolarMax Technology Holdings (Hong Kong) Limited (“SolarMax Hong Kong”), which was established under the laws of Hong Kong on October 27, 2014.

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

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

Accumulate has one wholly-owned subsidiary, Accumulate Investment Co., Limited (HK), an entity organized under the laws of Hong Kong (“Accumulate Hong Kong”). Accumulate Hong Kong has one wholly-owned subsidiary, ZHPV.

SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Technology (Shanghai) Co., Ltd. (“SolarMax Shanghai”), organized under the laws of the PRC and formed on February 3, 2015. SolarMax Shanghai is a wholly foreign-owned entity, referred to as a WFOE. SolarMax Shanghai currently has subsidiaries that are not significant, but forms subsidiaries which acquire permits for solar farms with a view to selling the project subsidiaries pursuant to the terms of agreements with the ultimate buyer, which during 2020 and 2021 was SPIC. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.

On May 8, 2017, Solarmax Technology Holdings (Cayman) Limited (“Solarmax Cayman”) a Cayman Islands limited company, was formed with 1,000,000,000 shares at a par value of United States dollars of $0.01 for an authorized

F-47

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

capital of United States dollars of $10.0 million. Solarmax Cayman is a 100% owned direct subsidiary of the Company and was created to potentially serve as an intermediate holding company for the Company’s PRC operations for possible future transactions. Though Solarmax Cayman is an active company, it does not currently have any operations.

ZHTH is engaged in project development and its business can provide engineering, procurement and construction (“EPC”) services. Generally, when a buyer of a project is identified, the subsidiary that owns the subsidiary holding the permit (a “project subsidiary”) sells to the buyer the equity in the project subsidiary for that specific solar farm project, and the buyer of the project engages ZHPV for the EPC services. The purchase price for the project subsidiary

is an amount generally approximating the subsidiary’s net assets. Accordingly, the Company does not generally generate any material gain or loss from the sale of the project subsidiaries. The sale of the equity in the project subsidiaries is part of the normal course of the Company’s operations in China. Because government regulations prohibit the sale of the permit related to a solar farm, it is necessary for the Company to sell the equity in the project subsidiary to effectuate the transfer of the ownership of a solar farm permit to buyer.   

On April 28, 2015, the Company acquired the ownership of Chengdu Zhonghong Tianhao Technology Co., Ltd., through a share exchange agreement among the Company, SolarMax Shanghai and the equity owners of Chengdu Zhonghong Tianhao Technology Co., Ltd. Chengdu Zhonghong Tianhao Technology Co., Ltd. was formed on March 21, 2014 and Chengdu Zhonghong Tianhao Technology Co., Ltd. became a wholly-owned subsidiary of SolarMax Shanghai as a result of the acquisition.

Also on April 28, 2015, the Company acquired the ownership of ZHPV through a share exchange agreement between the Company and the holders of the stock of Accumulate. After the acquisition, the Company owns all of the stock of Accumulate, which, in turn, through Accumulate Hong Kong, owns all of the stock of ZHPV. ZHPV was formed on December 31, 2009.

F-48

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

At December 31, 2021 and 2020, the Company’s major subsidiaries and the related core business consist of the following:

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

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

● SMX Capital was acquired by the Company in June 2011. SMX Capital is engaged in the business of owning and funding renewable energy projects in the United States and operates its business through operating leases and power purchase agreements primarily in the commercial markets. Its business is conducted directly and indirectly through a 30% equity interest in three companies. SMX Capital has not been engaged in leasing new systems since 2014 and its primary business is the ownership and maintenance of systems under existing leases.

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

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

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

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

Withdrawal of Registration Statement on Form S-1

On October 28, 2020, the Company filed a request with the SEC to withdraw its registration statement on Form S-1.

Consequently, the Company expensed the previously capitalized IPO offering costs of $480,381.

Agreement of Merger with SPAC

On October 27, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company; the Alberton Acquisition Corporation (“SPAC”), as the Purchaser; and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of the SPAC, as Merger Sub. Merger Sub was formed for the sole purpose of the merger. Under the Merger Agreement, Merger Sub and the Company shall consummate the merger, pursuant to which Merger Sub shall be merged with and into the Company, following which the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of SPAC. The Merger Agreement also provides that, immediately prior to the Closing, Alberton will re-domesticate from a British Virgin Islands corporation into a Nevada corporation so as to continue as a Nevada corporation (the “Redomestication”). Upon the effectiveness of the Merger, Alberton will change its name to “SolarMax Technology Holdings, Inc.” The Merger Agreement was amended by five amendments, dated November 10, 2020, Mach 19, 2021, August 11, 2021, September 10, 2021 and October 4, 2021. References to the Merger Agreement refer to the Merger Agreement as amended.

F-49

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

As consideration for the merger, the Company stockholders collectively shall be entitled to receive from the Purchaser, in the aggregate, a number of shares of Purchaser Common Stock equal to (i) $300,000,000 divided by $10.50, which results in a conversion ratio of 0.42461 shares of Alberton common stock for each share of SolarMax common stock. SolarMax options and convertible securities will be adjusted based on the conversion ratio. Consummation of the merger is subject to customary closing conditions including approval by the stockholders of the Company and SPAC, regulatory approvals, a registration statement declared effective by the United States Securities and Exchange Commission and NASDAQ approval.

Under the terms of SPAC’s organization documents, SPAC was required to complete its first business combination by a fixed date or failing to complete the business combination by that date, SPAC was required to be dissolved and distribute the proceeds held in a special trust account to its shareholders. After two permitted extensions which did not require shareholder approval, SPAC can extend the date only with the approval of its shareholders. When SPAC requests an extension requiring shareholder approval, the shareholders have the right to have their shares redeemed from the trust fund at the time of the approval. In connection with each extension requiring shareholder approval, SPAC agrees to make a monthly payment based on the number of shares that were not redeemed in connection with the extension. These monthly payments are referred to as Extension Payments. At the time the Company and SPAC negotiated the Merger Agreement, SPAC had obtained an extension from April 26, 2020 to October 26, 2020, in connection with which SPAC was to make a monthly Extension Payment of $60,000. In October 2020, April 2021 and October 2021, SPAC obtained shareholder approval for six month extensions to April 26, 2021, October 26, 2021 and April 26, 2022, respectively. The current monthly Extension Payment is $127,836.

Pursuant to the Merger Agreement:

● The Company made the Extension Payments that were to be made by SPAC. As of December 31, 2021, the Company had made Extension Payments in the amount of $1,259,944 and had agreed to make up to four additional payments in the total amount of $511,344. The Extension Notes are payable at the Closing of the Merger.

● The Company made loans to the SPAC sponsor in order to enable the SPAC sponsor to make loans to the SPAC. At December 31, 2021, the Company had made loans to the sponsor in the total amount of $651,369. At the Closing, these loans will be repaid from the proceeds of payment by SPAC to the sponsor.

● At December 31, 2021, the Company had made loans to the SPAC with respect to expenses of the SPAC in the total amount of $115,647. These loans will be repaid at the Closing of the Merger.

● Any additional loans to be made by the Company to the SPAC will be paid at the closing.

● SPAC entered into a securities purchase agreement with two non-affiliated investors pursuant to which the investors agreed to invest a total of $10 million in convertible notes that automatically convert into common stock at a conversion price equal to ten times the average trading price of the rights of the SPAC, during a period of 25 trading days ending on the second trading day prior to mailing of the Merger Prospectus to the SPAC’s shareholders in connection with the special meeting to approve the Merger.

● SPAC entered into backstop agreement with two non-affiliated investor who agreed to invest $10 million with a view to purchase shares that otherwise might have sought to have their common shares redeemed.

In the event that the Merger is not consummated, it is likely that the Company will have to write off the principal amount of its loans to the SPAC and the Sponsor, which totaled $2,026,960 at December 31, 2021.

Reverse Stock Split

On July 15, 2022, we effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split we reduced our authorized common stock to 297,225,000 shares. All share and per share information in this prospectus retroactively reflects the reverse stock split.

F-50

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements of the Company include the consolidated operations of its wholly-owned and controlled subsidiaries within and outside the United States.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant accounting estimates reflected in the Company’s consolidated financial statements include the cost-based inputs to estimate revenues on long-term construction contracts, the collectability of accounts receivable and loans receivable, the useful lives and impairment of property and equipment, goodwill and intangible assets, the fair value of stock options granted and stock-based compensation expense, the fair value of assets acquired and liabilities assumed in a business combination, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes. Actual results could differ materially from those estimates.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net loss.

Principles of Consolidation

The consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.

The Company is the lessee under an operating lease of its Riverside, CA headquarters facility with SMXP (see Note 16 - Other Related Party Transactions). SMXP is a private entity owned by the Company’s founders, one of whom is the chief executive officer and a director of the Company, another who is a director of the Company, and another who is a former officer and director of the Company. The lease term was initially for four years expiring on December 31, 2016, and was extended in September 2016 for a ten-year term, with one five-year renewal option. The Company does not have any ownership interest in SMXP. Other than the common ownership and the operating lease, the Company does not have any economic arrangements with SMXP such that the Company will have an obligation to support the operations of SMXP. Further, the Company does not have the power to direct and control the activities of SMXP as such power to direct and control resides with SMXP’s principals. Accordingly, the Company is not considered to be the primary beneficiary of SMXP and has not consolidated SMXP.

As of May 1, 2020, the Company no longer consolidated the following two PRC solar project companies that were previously consolidated, as a result of the Company’s completion of the sale and transfer of 70% of the controlling interest in these project companies in April 2020 to a third party customer, State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd (“SPIC”), pursuant to the M&A (Cooperative Development) Agreements entered into in August 2019 for these projects:

F-51

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

● Southwest Guizhou Autonomous Prefecture Yilong Zhonghong Green Energy Co., Ltd. which owns the photovoltaic project commonly referred to as Yilong #2 solar project (“Yilong #2”).

● Xingren Almaden New Energy Co., Ltd. which owns the photovoltaic project commonly referred to as Xingren solar project (“Xingren”).

The Company’s 30% non-controlling interest in these two project companies is presented under the equity method of accounting effective on May 1, 2020. Under the respective equity transfer agreements, the Company’s interest in each project company including the allocation of profit and losses is proportionate to its ownership interest. At September 30, 2021, the Company’s maximum exposure to a potential loss includes the Company’s carrying value of the 30% non-controlling interest of $5.9 million and the unpaid net contractual receivables under the EPC agreements and equity transfer agreements for the two projects of RMB 47.6 million (approximately $7.3 million).

The accompanying condensed consolidated financial statements include the accounts of SolarMax and its wholly-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 31, 2021, the Company purchased the 6.25% non-controlling interest in the subsidiary, SMX Capital, Inc., and it is mutually agreed that the Company would own 100% of SMX Capital, Inc. effective as of September 10, 2021.

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company’s recurring net losses, increased accumulated deficit and stockholders’ deficit, raise substantial doubt about its ability to continue as a going concern. During the years ended December 31, 2021, the Company incurred a net loss of approximately $3.3 million and reported net cash used in operations of approximately $5.4 million. At December 31, 2021, the accumulated deficit was approximately $62.2 million, the working capital deficiency was $6.2 million and the stockholders’ deficiency was approximately $8.4 million. In connection with these consolidated financial statements, management evaluated whether there were conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, and negative cash flows from operating activities, and significant current debt.

As of December 31, 2021, the Company’s principal sources of liquidity consisted of approximately $9.9 million, of cash and cash equivalents, and estimated cash flow from operations.  The Company believes its current cash balances coupled with anticipated cash flow from operating activities may not be sufficient to meet its working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, including approximately $20.5 million of debt that is due in the next twelve months. Management is focused on expanding the Company’s existing business, as well as its customer base, including its continuing efforts to generate revenue from non-related parties for its China operations and to continue to increase its revenues. The Company is looking to continue to negotiate an exchange of a large portion of the approximately $12.5 million of the current portion of long term related party loans for convertible notes that mature in periods beyond one year. The Company cannot predict whether it will be successful in these efforts. The Company is also looking to raise funds through a financing in connection with the Merger Agreement. See Note 1. However, the Company cannot give assurance with the merger with SPAC will be consummated.

As a result of the above, there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption, complete the planned merger with the SPAC (see Note 1) or alternative offering or financing or obtain the exchange of any of its current debt and thus maintain sufficient cash balances for its planned operations or complete. Future business demands may lead to cash utilization at levels greater than recently experienced. Revenue and cash flow from the Company’s China segment is irregular because of the timing of solar projects and the payment schedules, and the Company requires significant funds for its operations, particularly during periods when there is little or no revenue or cash flow from the projects. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all.

F-52

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Revenue Recognition

Effective on January 1, 2019, the Company adopted 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 it 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 Engineering, Procurement and Construction (“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, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3% to 5%, depending on the contract. The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period.

In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred relative to the total estimated costs (including solar module costs) to determine the progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of the Company’s efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying the Company’s performance obligations (“inefficient costs”) are excluded from the Company’s input methods of revenue recognition as the amounts are not reflective of the Company’s transferring control of the solar energy system to the customer. Costs incurred towards contract completion may include costs associated with solar modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance. The Company recognizes solar module and direct material costs as incurred when such items have been installed in a system.

F-53

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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 favorably pricing or other provisions, if applicable, that can either increase or decrease the transaction price. The Company has historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606. Variable considerations that increase the transaction price (e.g., performance bonuses) were historically recognized under Topic 605 on a cash basis as such amounts were not fixed and determinable and collectability was not reasonably assured until paid.  However, under Topic 606, the Company needs to estimate and apply a constraint on such variable considerations and include that amount in the transaction price. 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.

Sale of Controlling Interests in Project Companies

SolarMax accounts for the sale of a controlling interest in a solar project company that is not yet in operation under ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets, (“ASC 610-20”). ASC 610-20 provides guidance for recognizing gains and losses from the transfer of nonfinancial assets, which includes the sale of real estate. ASU 2017-05 issued in February 2017, amends the guidance on nonfinancial assets in ASC 610-20. The amendments clarify that (i) a financial asset is within the scope of ASC 610-20 if it meets the definition of an in-substance nonfinancial asset and may include nonfinancial assets transferred within a legal entity to a counter-party, (ii) an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counter-party and de-recognize each asset when a counter-party obtains control of it, and (iii) an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. Further, ASU 2017-05 provides guidance on accounting for partial sales of nonfinancial assets. The Company applies the provisions of ASC 610-20, for gains or losses on sale of real estate, and recognizes any gains or losses at the time control of a property is transferred and when it is probable that substantially all of the related consideration will be collected. 

The Company accounts for a sale of an operating solar project company under ASC 810 because such an operating solar project company is deemed to be a business.

F-54

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

During the year ended December 31, 2020, SolarMax sold controlling interests in two project companies for the Ancha and Hehua projects in the PRC segment that met the requirements for recognition under ASC 610-20. During the year ended December 31, 2020, SolarMax also sold controlling interests in two other project companies for the Yilong #2 and Xingren projects in the PRC segment that met the requirements for recognition under ASC 810 because the project companies for the Yilong #2 and Xingren projects met the definition of a business at the time of the sale and therefore the revenue recognition under ASC 810 was therefore applied for the sale of the project companies for the Yilong #2 and Xingren projects.

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

The Company has analyzed the impact of Topic 606 on the sales of solar energy systems, battery storage systems, and other products and has concluded that the revenue recognition associated with these sales should be 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 fulfill contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.

For solar energy and battery storage system sales, the Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract. In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost of the solar energy and battery storage system, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost-based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance.

In the United States, the Company sells solar energy and battery storage systems to residential and commercial customers and recognizes revenue net of sales taxes. Customers may pay for these sales in cash or by financing with the Company. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through Sunrun, Inc. (“Sunrun”).

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

F-55

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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 Sunrun, direct payments are made by Sunrun to the Company based on an agreement between Sunrun and the Company, which is generally 80% upon the completion of installation and 20% upon the permission to operate is granted.

For customers financing with the Company, the customer receivable, less any down payments, becomes a loan receivable following the grant of the permission to operate the solar system by a utility company, at which time the loan is recorded and the loan interest begins to accrue.  Financing terms for sales with financing by the Company are generally made for terms up to 60 months. 

LED Product Sales and Service Sales

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 of products is generally made upon delivery or with a 30 day term. Extended payment terms are provided on a limited basis not to exceed twelve months. Payment of services is due when the services are completed and accepted by the customer. For certain LED product sales, the Company provides the customers with a right of return subject to restocking fees. The Company assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration the Company expects to receive after returns are made. Based on the Company’s historical experience, the Company has determined the likelihood and magnitude of a future returns to be immaterial and currently has not provided for a liability for such returns on the LED product sales.

For contracts where the Company agreed to provide the customer with rooftop solar energy systems (including design, materials, and installation of the system) in addition to providing LED products and LED installation, these agreements may contain multiple performance obligations: 1) the combined performance obligation to design and install rooftop solar energy system; 2) the performance obligation to deliver the LED products; and, 3) the performance obligation to install the LED products.  Topic 606 permits goods and services that are deemed to be immaterial in the context of a contract to be disregarded when considering performance obligations within an agreement. The Company will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they would represent a separate performance obligation.

F-56

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Operating Leases and Power Purchase Agreements (PPAs) in United States

From 2010 to 2014, the Company constructed and offered built-to-suit commercial-grade photovoltaic systems for certain commercial and not-for-profit customers in California, Hawaii, Colorado and New Jersey; under long-term leases and PPAs, with terms of up to 20 years. Under these arrangements, the Company owns the systems and receives the 30% upfront federal grant or investment tax credits, as well as any applicable state and utility company rebates on the systems it owns. Upfront grants, rebates and incentives were applied to reduce the cost of the systems. All other annual rebates and performance-based incentive rebates constitute variable consideration and are recognized in revenue when received because, at that point, it becomes probable that a significant reversal in the cumulative amount of revenue recognized will not occur. In connection with the Company’s ownership of solar systems primarily in New Jersey, the Company owns a number of Solar Renewable Energy Certificates (“SREC”). There is currently no assigned monetary value to an SREC and the prices are ultimately determined by market forces within the parameters set forth by the state. The Company recognizes the revenue of the SREC when it is sold.

The Company sells energy generated by PV solar power systems under PPAs. 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 is the lessor of solar energy systems, which are accounted for as operating leases in accordance with ASC 840, Leases, since the lease does not provide for the ownership transfer to the lessee at the end of lease, the lease does not contain a bargain purchase option, the lease term does not exceed 75% of the economic life of the underlying solar system which is typically 35-40 years, and the net present value of the lease payments does not exceed 90% of the original investment.

Revenue from all of the Company’s operating leases is currently recognized on a straight-line basis over the contractual term.

Minimum revenues under the outstanding operating leases and power purchase agreements as of December 31, 2021 are as follows:

To Be Received In	Amount
2022		109,846
2023		104,825
2024		99,152
2025		90,673
2026		90,673
2027 and thereafter		531,802
	$	1,026,971

Loan Interest Income

In the United States, the Company provides installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services. Customer loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and are reduced by an allowance for estimated credit losses as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the interest method. The interest method is applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Interest on loans generally continues to accrue until the loans are charged off. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Loans are transferred from held-for-investment to held-for-sale when management’s intent is not to hold the loans for the foreseeable future. Loans held-for-sale are recorded at the lower of cost or fair value. There were no loans held-for-sale at December 31, 2021 and 2020.

F-57

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Disaggregation of Revenues

The following table summarizes the Company’s revenue by business line by segment for the years ended December 31, 2021 and 2020:

	Year Ended December 31,
	2021		2020
Solar energy and battery storage systems
Sales on installment basis	$	116,226	$	1,660,993
Sales on non-installment basis		26,699,187		26,211,022
Third-party leasing arrangements		412,731		848,295
Operating lease revenues		84,485		89,890
Power purchase agreement revenues		184,715		107,901
Total solar energy and battery storage systems		27,497,343		28,918,101
LED projects		1,281,699		4,756,808
Financing related		1,175,522		1,775,782
Total revenue of US Segment		29,954,565		35,450,691
Solar farm projects		7,786,316		93,892,127
Power purchase agreements and other				2,238,884
Total revenue of PRC Segment		7,786,316		96,131,011
Total revenues	$	37,740,881	$	131,581,702

The revenue earned on the power purchase agreements in the PRC for the year ended December 31, 2020 relates to revenues earned by Yilong #2 and Xingren from the power purchase agreements with the PRC utility companies from January 1, 2020 to April 30, 2020. As a result of the deconsolidation of Yilong #2 and Xingren project companies on May 1, 2020, the revenue from such power purchase agreements would no longer be recorded by the Company beginning May 1, 2020.

Contract Balances

The contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date, primarily for the solar energy system sales in the United States. The contract assets are transferred to receivables when the rights become unconditional (i.e., when the permission to operate is issued). The contract liabilities primarily relate to the advance consideration received from customers related to the same above solar energy system sales in the United States, for which the transfer of ownership has not occurred.

Applying the practical expedient in Topic 606, paragraph 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts (i.e., commission fees) in cost of revenue when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in cost of revenues.

F-58

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Transaction Price Allocated to the Remaining Performance Obligations

The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. The remaining revenue on the remaining performance obligations expected to be recognized during the following year amounts to approximately $452,000 at December 31, 2021 which is substantially related to the US segment contracts with durations of one year or less. For the China segment, there is no revenue associated with the remaining performance obligations expected to be recognized in the following year because there were no uncompleted contracts at December 31, 2021.

Cash and Cash Equivalents

Cash and cash equivalents consist of deposit accounts and highly liquid investments purchased with an original maturity of three months or less. The standard insurance coverage for non-interest bearing transaction accounts in the United States is $250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation. The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $73,000) per depositor per bank under the applicable Chinese general deposit insurance rules. As of December 31, 2021 and 2020, insured and uninsured cash including the balance classified as restricted cash were as follows:

	December 31, 2021		December 31, 2020
US Segment
Insured cash	$	1,634,146	$	1,866,843
Uninsured cash		4,815,667		7,152,663
		6,449,813		9,019,506
China Segment
Insured cash		766,802		655,641
Uninsured cash		6,185,660		12,173,603
		6,952,462		12,829,244
Total cash and cash equivalents & restricted cash		13,402,275		21,848,750
Cash and cash equivalents		9,886,195		17,010,388
Restricted cash	$	3,516,080	$	4,838,362

Restricted Cash

Restricted cash at December 31, 2021 and 2020 consisted of:

	December 31, 2021			December 31, 2020
Deposit held by a China financial institution to secure bankers’ acceptance	$	3,195,731		$	4,728,154
Deposit held by a US financial institution as collateral for ACH transactions and business credit cards – US Segment		320,349			110,208
		3,516,080			4,838,362
Less: current portion		(3,195,731	)		(4,728,154	)
Noncurrent portion	$	320,349		$	110,208

F-59

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Bankers’ Acceptance Received and Issued

At December 31, 2021 and 2020, the Company held bankers’ acceptances, with original maturities of six months to one year, received from customers in RMB in the amount of $0 and $499,938, respectively. At December 31, 2021 and 2020, the Company also issued bankers’ acceptance to its suppliers and posted cash deposit as collateral for the same amount in RMB in the amount of $3.2 million and $3.9 million, respectively. A banker’s acceptance is a promised future payment which is accepted and guaranteed by a bank and drawn on a deposit at the bank. A banker’s acceptance is a negotiated financial instrument and can be exchanged for cash at a discount prior to its maturity date.

Accounts Receivable, net

Accounts receivable are reported at the outstanding principal balance due from customers. In the PRC segment, accounts receivable represents the amounts billed under the contracts but uncollected on completed construction contracts and construction contracts in process. Under certain arrangements with customers in the U.S. segment, the customers may assign the collection of incentive rebates due from government agencies or utility companies to the Company, however the customers would remain accountable for the ultimate payment if the amount of incentive rebates are not collectible from such government agencies or utility companies. Accounts receivable are recorded at net realizable value.

The Company maintains allowances for the applicable portion of receivables, including accounts receivable, government rebate receivables and other receivables, when collection becomes doubtful. The Company estimates anticipated losses from doubtful accounts based upon the expected collectability of all receivables, which takes into account the number of days past due, collection history, identification of specific customer exposure, and current economic trends. Once a receivable is deemed to be uncollectible, it is written off against the allowance. The bad debt expense related to rebates receivable are recorded as a reduction to revenues.

The activity of the allowance for bad debts for accounts receivable for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31,
	2021			2020
Balance – beginning of period	$	1,616,595		$	1,175,130
Provision for (recovery of) bad debts		200,397			366,847
Recoveries		-			1,520
Receivables charged off		(329,072	)		(4,179	)
Effect of exchange rate		36,062			77,277
Balance – end of period	$	1,523,982		$	1,616,595

At December 31, 2020, the allowance for bad debts includes a reserve of RMB 2.0 million (approximately $312,000), related to the Yilong #1 project that was completed in 2018, resulting from the ultimate collectability concerns. Such amount was charged off during the year ended December 31, 2021. See discussion in Commitments and Contingencies – Legal Matters related to the Yilong #1 matter.

Retainage Receivables

The Company has certain EPC contracts for solar farm projects that contain retainage provisions. Retainage refers to the portion of the contract price earned by the Company for work performed but held for payment by the customer until the Company meets certain milestones, typically for a duration of up to twelve months after the substantial completion of the project. The amount withheld is typically about 3% to 5% of the contractual amount. The Company considers whether collectability of such retainage is reasonably assured in connection with its overall assessment of the collectability of amounts due or that will become due under the EPC contracts. Retainage expected to be collected within 12 months is classified within “other current assets” on the consolidated balance sheets. Retainage expected to be collected after 12 months is classified within “other assets” on the consolidated balance sheets. The financing component associated with the retainage receivable is not material.

F-60

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Customer Loans Receivable

In the United States segment, the Company offers its customers who meet the Company’s credit eligibility standards the option to finance the purchase of solar energy systems through installment loans underwritten through SolarMax Financial. All loans are secured by the solar energy systems or other projects being financed. The outstanding customer loan receivable balance is presented net of an allowance for loan losses. In determining the allowance for loan losses, the Company identifies significant customers with known disputes or collection issues and considers its historical level of credit losses and current economic trends that might impact the level of future credit losses. Customer loans receivable that are individually impaired are charged off against the allowance for loan losses.

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

The activity in the allowance for loan losses for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31,
	2021			2020
Balance – beginning of period	$	693,718		$	885,238
Provision for (recovery of) loan losses		(441,730	)		(108,409	)
Recoveries		105,826			10,556
Chargeoffs and adjustments		-			(93,667	)
Balance – end of period	$	357,814		$	693,718

Inventories, net

Inventories consist of (a) work in progress on solar systems on housing developments and projects not yet sold; and (b) components principally consisting of photovoltaic modules, inverters, construction and other materials, and LED products, all of which are stated at the lower of cost or net realizable value under the first-in first-out method. The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary.

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

F-61

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The activity in the reserve for excess and obsolete inventories for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31,
	2021		2020
Balance – beginning of period	$	319,416	$	358,100
Provision for (recovery of) excess and obsolete inventories		95,724		(38,684	)
Balance – end of period	$	415,140	$	319,416

Property and Equipment

Property and equipment is initially stated at cost less accumulated depreciation and amortization. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements and solar systems leased to customers are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. The estimated useful lives of the major classification of property and equipment are as follows:

Automobiles	4-5 years
Furniture and equipment	3-10 years
Leasehold improvements	Shorter of the asset’s useful life or lease term
Solar systems leased to customers	Lease term, 10-20 years

Components of property and equipment, net are as follows:

	December 31, 2021			December 31, 2020
	(Unaudited)
Automobiles	$	1,178,692		$	1,207,938
Furniture and equipment		1,339,605			1,312,379
Solar systems leased to customers		1,663,468			1,821,576
Leasehold improvements		2,368,665			2,362,271
Total property and equipment		6,550,430			6,704,164
Less: accumulated depreciation and amortization		(5,899,820	)		(5,716,446	)
Property and equipment, net	$	650,610		$	987,718

For the years ended December 31, 2021 and 2020, depreciation expense (including amounts recorded in cost of revenue) was $359,860 and $1,482,271, respectively. The 2020 depreciation includes depreciation expense recognized by the project companies for Yilong #2 and Xingren, for the period from January 1, 2020 to April 30, 2020 of RMB 7,239,861 (approximately $1.0 million). These project companies were deconsolidated on May 1, 2020 after the sale of the controlling interests to SPIC.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of assets acquired and liabilities assumed. The Company’s goodwill was derived from the acquisitions of businesses in China in April 2015.

F-62

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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

The Company generally performs its annual impairment test of goodwill in the fourth quarter each year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company early adopted the new Financial Accounting Standards Board (“FASB”) guidance in ASU 2017-04, Intangibles - Goodwill and Other, for its annual testing in December 2017, which simplifies the accounting for goodwill impairment under FASB ASC Topic 350, Intangibles-Goodwill and Other.  In determining the reporting unit’s fair value, the Company considers the underlying enterprise value and if necessary, the reporting unit’s discounted cash flow, which involves assumptions and estimates, including the reporting unit’s future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the reporting unit’s financial results, a significant decline in the reporting unit’s enterprise value relative to its net book value, an unanticipated change in competition or market share and a significant change in the reporting unit’s strategic plans. For the Company’s goodwill annual testing, management determined that its reporting units are the same as its operating segments. Accordingly, the reporting unit for the goodwill annual testing is the PRC segment.

There was no impairment loss for the years ended December 31, 2021 and 2020.

Impairment of Long-Lived Assets

The Company’s long-lived assets include property and equipment which include solar energy systems leased to customers, and intangible assets acquired through business combinations.

In accordance with ASC 360, Property, Plant, and Equipment, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the excess of the carrying value over the fair value.

There was no impairment loss on such systems for the years ended December 31, 2021 and 2020.

Investments in Unconsolidated Joint Ventures and Solar Project Companies

The Company’s unconsolidated investments in the United States are held directly by the Company as well as through its subsidiary, SMX Capital, and consist of investments in United States-based solar limited liability companies: Alliance Solar Capital 1, LLC (“A#1”), Alliance Solar Capital 2, LLC (“A#2”), and Alliance Solar Capital 3, LLC (“A#3”). The Company’s United States segment also has an investment in a PRC-based panel manufacturer, Changzhou Holysolar Technology, Co., Ltd, which was renamed to “Changzhou Hongyi New Energy Technology Co., Ltd” on March 10, 2017 (“Changzhou”).

At December 31, 2021 and 2020, the Company has unconsolidated investments in the PRC related to its 30% non-controlling interests in the project companies for Yilong #2, Xingren and Ancha.

For these investments, the Company does not have the controlling interests but it has the ability to exercise significant influence over the operations and the financial decisions of the investees under the respective operating agreements. In each of the investments, the investee also maintains a separate capital account for each of its investors and accordingly, the Company has a separate capital account at each of the investees. Since the Company has the ability to exercise significant influence over the investees, the Company accounts for each of these investments using the equity method of accounting, under which the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage. Distributions received from equity method investees are accounted for as returns on investment and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the Company. When such an excess occurs, the current year distribution up to this excess would be considered a return of investment and classified as cash inflows from investing activities.

F-63

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Since the Company’s investments include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is above the fair value of an investment at the end of any reporting period, the investment is reviewed to determine if the impairment is other than temporary. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The Company monitors its investments in unconsolidated entities periodically for impairment. No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2021 and 2020.

Warranties

Workmanship Warranty

For the sale of solar and battery systems in the United States, the Company provides a workmanship warranty for 25 years to cover the quality of the Company’s installation. The warranty is designed to cover installation defects and damages to customer properties caused by the Company’s installation of the solar energy systems and battery storage systems which generally are uncovered within 2-3 years after the installation. The 25-year warranty is consistent with the term provided by competitors and is provided by the Company to remain market competitive. The workmanship warranty does not include the product warranties (panels and inverters) which are covered directly by the manufacturers, generally for 25 years on panels and inverters, and 10 years for energy storage systems. The Company determined that its 25-year workmanship warranty for solar energy systems constitutes an assurance-type warranty and should continue to be accounted for under ASC 460 - Guarantees, instead of a service-type warranty which should be accounted for under Topic 606.

Quality Warranty for EPC Services

For the PRC segment, the Company provides construction quality warranty on the EPC services generally for one year after completion.  The customer typically retains 3-5% of the contract price which will not be paid to the Company until the expiration of the warranty period which is accounted by the Company as retainage receivable. The Company currently provides a reserve for such potential liabilities based on a nominal percentage of project revenues for the PRC segment in the approximate amount of $272,000 and $250,000 as of December 31, 2021 and 2020, respectively, which is included in accrued expenses and other liabilities.  To date the Company has not incurred significant claims on the quality warranty. The liability is reversed when the warranty period expires.

Production Guaranty

For solar systems sold in the United States, the Company also warrants that modules installed in accordance with agreed-upon specifications will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5% every year thereafter throughout the approximate 10-year production guaranty period. In resolving claims under the production guaranty, the Company typically makes cash payments to customers who claim for the production shortfall in power output on an annual basis. The Company currently provides a reserve for the production guaranty at $15 per system that receives the permission to operate the system from the utility company.

F-64

 SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

LED Warranties

The Company’s warranty for LED products and services ranges from one year for labor and up to seven years for certain products sold to governmental municipalities. The Company currently provides a warranty reserve for LED sales based on 1.0% of LED revenue.

Other Warranties

In 2016, as a result of the bankruptcy of a Chinese panel supplier from whom the Company purchased solar modules, the Company has reclassified the liability related to unpaid retentions to warranty liability in the amount of $650,963. As of December 31, 2021, the Company has not incurred any claims associated with this obligation.

The activity of the warranty liability for all warranties discussed above recorded under accrued expenses and other payables and other liabilities for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31,
	2021			2020
Balance – beginning of period	$	2,193,652		$	2,017,926
Provision		365,837			597,856
Expenditures and adjustments		(319,946	)		(427,377	)
Effect of exchange rate		2,728			5,247
Balance – end of period		2,242,271			2,193,652
Current portion (accrued expenses and other payables)		272,106			249,912
Non-current portion (other liabilities)	$	1,970,165		$	1,943,740

Deferred Revenues

The Company records as deferred revenue any advance payments collected from customers, primarily related to lease prepayments, until the earnings process has been completed. As of December 31, 2021 and 2020, deferred revenue included in other liabilities related to two customer lease prepayments, amounted to $429,876 and $490,165, respectively. Such lease prepayments are recognized over the weighted average remaining lease terms of 7.2 years and 8.2 years, respectively.

Deferred Rent

For lease agreements that provide for escalating rent payments or free-rent occupancy periods, the Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. The lease term commences on the date that the Company takes possession of or controls the physical use of the property. Deferred rent is included in other liabilities on the consolidated balance sheets and was $1,184,633 and $1,059,288 at December 31, 2021 and December 31, 2020, respectively.

Retainage Payable

For subcontractors performing work on the Company’s construction of the solar farm projects in PRC, the Company typically retains a portion of the invoices, typically 5%, for 12-24 months to ensure the quality of their work during the qualifying warranty period.  At December 31, 2021, total retainage payable was $5,167,776 included in accrued expenses and other payables. On December 31, 2020, total retainage payable was $1,213,463, Included in accounts payable.

F-65

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Income Taxes

The Company accounts for income taxes pursuant to the FASB ASC Topic 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 United States operation will not be realizable and has recorded a full valuation allowance against its deferred tax assets. In the event the Company is able to realize such deferred income tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements in accordance with GAAP. The calculation of the Company’s tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company’s tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized.

The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the years ended December 31, 2021 and 2020, 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 United States. As of December 31, 2021 and 2020, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. In the event the Company is required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

On March 27, 2020, in response to COVID-19 the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on the utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enact Tax Cuts and Jobs Act. As the Company has not generated taxable income in the previous years, the CARES Act feature allowing federal net operating losses originating in 2018, 2019 or 2020 to be carried back five years has no impact on the Company. In addition, the California net operating losses utilization will be suspended for the year 2020-2022 which is not expected to have any impact as well due to the Company not having generated any California taxable income.

F-66

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The Consolidated Appropriations Act of 2021, enacted on December 27, 2020, extended and enhanced COVID relief provisions of the CARES Act. The Company has evaluated the impact of the Consolidated Appropriation ACT and determined that its impact is not material to the Company’s financial statements.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines a framework for determining fair value, establishes a hierarchy of information used in measuring fair value, and enhances the disclosure information about fair value measurements. ASC 820 provides that the “exit price” should be used to value an asset or liability, which is the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale at the measurement date. ASC 820 also provides that relevant market data, to the extent available and not internally generated or entity specific information, should be used to determine fair value.

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

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, deposits, taxes payable, warranty liability and accrued payroll and expenses approximates fair value because of the short maturity of these instruments. 

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2021:

	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Cash equivalents	$	2,866,576	$	-	$	-	$	2,866,576
Customer loans receivable		-		-		16,168,716		15,595,119
Liabilities
Bank and other loans		-		3,957,504		-		3,957,504
Secured loans from related parties		-		-		20,813,484		21,500,000
Secured convertible debt		-		-		23,142,703		23,072,389

F-67

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2020:

	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Cash equivalents	$	4,044,278	$	-	$	-	$	4,044,278
Customer loans receivable		-		-		26,263,964		25,313,509
Liabilities
Bank and other loans		-		4,021,863		-		4,021,863
Secured loans from related parties		-		-		33,416,776		34,500,000
Secured convertible debt		-		-		18,975,027		18,952,761

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.

Bank loan, auto loans and short term loan - 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.

Loans from related parties - The related party loans were issued at the fixed annual interest rates of 3.0% in the United States Segment, and the fair value of the loans has been estimated by applying the prevailing borrowing annual interest rates for a comparable loan term which the Company estimated to be 6.0% to the estimated cash flows through the maturities of the loans.

Secured convertible debt - The secured convertible debt was issued at the fixed annual interest rates of 4.0% in the United States Segment, and the fair value of the loans was determined based on the proximity to the issuance date.

Solar project financing – The solar project financing was issued at an annual interest rate of 6.2% in the PRC segment in October 2020, and the fair value of the loans was determined based on the proximity to the issuance date. For more information on solar project financing, see note 13.

Advertising Costs

The Company charges advertising and marketing costs related to radio, internet and print advertising to operations as incurred. Advertising and marketing costs for the years ended December 31, 2021 and 2020 were $1,210,790 and $1,255,230, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation-Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees and non-employees, net of estimated forfeitures, over the employee requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported. The Company also early adopted ASU 2017-09, Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting, with respect to changes on terms and conditions of a share-based payment award that occurred in 2019 and thereafter.

F-68

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Foreign Currency

Amounts reported in the consolidated financial statements are stated in United States dollars, unless stated otherwise. The Company’s subsidiaries in the PRC use the Chinese renminbi (RMB) as their functional currency and all other subsidiaries use the United States dollar as their functional currency. For subsidiaries that use the local currency as the functional currency, all assets and liabilities are translated to United States dollars using exchange rates in effect at the end of the respective periods and the results of operations have been translated into United States dollars at the weighted average rates during the periods the transactions were recognized. Resulting translation gains or losses are recognized as a component of other comprehensive income (loss).

In accordance with ASC 830, Foreign Currency Matters (ASC 830), the Company translates the assets and liabilities into United States 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 United States 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. Gains and losses on those foreign currency transactions are included in Other income (expense), net for the period in which exchange rates change.

Comprehensive Income (Loss)

The Company accounts for comprehensive income (loss) in accordance with ASC 220, Income Statement-Reporting Comprehensive Income (ASC 220). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of December 31, 2021 and 2020 is the currency translation adjustment.

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 (United States and PRC) as of December 31, 2021 and 2020.

Net Income (Loss) Per Share

The Company calculates net income (loss) per share by dividing earnings (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 dilutive earnings per share for the years ended December 31, 2021 and 2020 since the effect would be antidilutive.

F-69

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Recent Accounting Standards Not Yet Adopted

As an emerging growth company (“EGC”), 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 August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU simplifies the current accounting under ASC 470-20 for convertible debt with a cash conversion feature and convertible instrument with a beneficial conversion feature. As a result, after adopting the ASU, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. An entity can use either a full or modified retrospective approach to adopt the ASU. This ASU is effective for public entities that are not smaller reporting companies in fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The ASU may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company has not yet determined if the adoption will have any impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of this update is to provide users of financial statements with more useful information by changing the incurred loss methodology for recognizing credit losses to a more forward-looking methodology that reflects expected credit losses. Under this ASU, the Company’s accounts receivable, unbilled receivables, customer loan receivables and certain contract assets are considered financial assets measured at an amortized cost basis and will need to be presented at the net amount expected to be collected. This ASU will be effective for the Company beginning on January 1, 2023. The Company has not yet begun to evaluate the impact if any of adopting this update on its consolidated financial statements when it becomes effective.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2019-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2019-10, Codification Improvements to Topic 842, Leases; and ASU No. 2019-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

Topic 842 requires lessors to classify leases as a sales-type, direct financing, or operating leases. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases.

Because the Company is a private entity preparing for a merger with the SPAC, which is an emerging growth company (EGC) under the JOBS Act, the Company has elected to utilize the relief provided to EGCs, that would allow for the adoption date on the timeline afforded a private company which will be for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company expects to adopt the new standard for the year ended December 31, 2022 but does not plan to early adopt the new standard for the interim periods in the year ended December 31, 2022. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods.

F-70

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.

The Company expects this standard with respect to the Company as a lessee will have a material effect on its financial statements. While the Company continues to assess all of the effects of adoption, the Company currently believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on the balance sheet for its office and equipment operating leases; (2) the derecognition of existing deferred rent liabilities, and (3) providing significant new disclosure about the Company’s leasing activities. The Company does not expect a significant change in its leasing activities between now and adoption.

The new standard also provides practical expedients for an entity’s ongoing accounting as a lessee. The Company currently expects to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for all its leases.

For leases in which the Company is the lessor, the Company also expects to elect the ‘package of practical expedients’, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. While the Company continues to evaluate certain aspects of the new standard, including those still being revised by the FASB, the Company does not expect the new standard to have a material effect on its financial statements as a lessor and the Company does not expect a significant change in its leasing activities as a lessor between now and adoption. The Company believes all of its leases in which the Company is the lessor will continue to be classified as operating leases under the new standard.

F-71

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

3. Construction Contracts

As of December 31, 2021 and 2020, the Company’s construction and other operating activities in China for which the Company recognized revenue consisted of the following projects:

				Contract Value Excluding		% Complete as of						Revenue Recognized (USD in Million)
Project	Customer	Mega Watts (“MW”)		VAT (RMB in Million)		12/31/21			12/31/20			Year Ended 12/31/21		Year Ended 12/31/20			Completion Date
Long-term Construction Contracts
Yilong #2	SPIC		70.0		275.0	na				100.0	%	$	0.00	$	39.85		2020
Xingren	SPIC		35.0		134.4	na				100.0	%	$	0.00	$	19.47		2020
Ancha	SPIC		50.0		209.0	na				100.0	%	$	0.00	$	30.29		2020
Hehua	SPIC		25.0		79.7		100.0	%		37.0	%	$	7.79	$	4.27		2021
Ningxia Meili Cloud	Meili Cloud Energy		50.0		179.0	na			na			$	0.00	$	0.25		2018
Guizhou Qingshuihe #3	AMD		10.6		33.0	na				100.0	%	$	0.00	$	4.80		2019
Other
Shandong Zaozhuang (rooftop)	AMD	na			5.5	na			na			$	0.00	$	(0.03	)	na

The following is a summary of contracts in progress as of December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Costs and estimated earnings on uncompleted contracts	$	-	$	4,274,344
Less: costs paid by the customer on behalf of ZHPV		-		(795,338	)
Effect of exchange rate		-		198,688
Costs and estimated earnings in excess of billings and cash advances on uncompleted contracts	$	-	$	3,677,694

Agreements with SPIC

Yilong #2 and Xingren Projects

In August 2019, SolarMax, through its PRC subsidiaries, entered into MA Agreements with State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd. (“SPIC”), pursuant to which SolarMax agreed to construct and sell to SPIC the ownership and control of 70% of our project subsidiaries that own the 30MW solar farm project in Xingren (the “Xingren” project) and the 70MW project in Yilong (the “Yilong #2” project) when the projects are completed and accepted by SPIC and the completion of the equity transfer has occurred. Pursuant to the MA agreements, SPIC shall have the first right of refusal to purchase either or both of the remaining 30% ownership interests in each of the project subsidiaries one year after each of the projects is completed and operational. The construction on both projects were completed and connected to the grids as of December 31, 2019. On January 1, 2020, the projects began power production and earning revenue from selling power to the PRC utility company. In March 2020 the equity transfer agreement to sell 70% controlling interest to SPIC was executed and in April 2020, the government approval of the equity transfer was registered. SolarMax consolidated the project subsidiaries and reported the project subsidiaries’ results of operations through April 2020. Beginning in May 2020, SolarMax no longer consolidated the project subsidiaries because 70% of the controlling interest of the project subsidiaries was sold to SPIC in April 2020. Beginning in May 2020, SolarMax reports its 30% noncontrolling interest in the project subsidiaries under the equity method of accounting As a result of the completion of the sale of the 70% controlling interest of the project subsidiaries to SPIC in April 2020, SolarMax met all the conditions under the MA Agreements and recognized the EPC revenue for the Yilong #2 and Xingren projects.

F-72

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

In October 2019, the SolarMax project subsidiaries that owned the Yilong #2 and Xingren projects entered into lease finance agreements with Huaxia Financial Leasing Co., Ltd. (“Huaxia”). The financings were structured as lease finance transactions secured by the respective project companies’ revenue stream and accounts receivable. The principal amounts of the loans were RMB 217.0 million (approximately $31.0 million) for Yilong #2 and RMB 93.0 million (approximately $13.3 million) for Xingren. The interest rate was 130 basis point above certain benchmark RMB loan interest rate as announced by the People’s Bank of China on the lease commencement date. The respective project subsidiaries which are 70% owned by SPIC starting on April 30, 2020, are the obligors on the loan which is guaranteed by SPIC. The loans were no longer the obligations of SolarMax when SolarMax deconsolidated the project subsidiaries on May 1, 2020.

Ancha Project

In February 2020, the Company, through its PRC subsidiaries, entered into a M&A (Cooperative Development) Agreement (the “Ancha MA Agreement”) with State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd. (“SPIC”), pursuant to which the Company would sell the ownership and control of 70% of the Company’s project subsidiary that owns the 59 MW solar farm project in Guizhou (the “Ancha Project”) to SPIC when the project is completed and accepted by SPIC. Pursuant to the Ancha MA Agreement, SPIC shall have the first right of refusal to purchase the remaining 30% ownership interest in the project subsidiary one year after the project is completed and operational. The total value of the project including VAT with 100% ownership at completion is RMB 233.6 million (approximately $33.4 million). The construction began in March 2020 and the construction was completed in December 2020 with the project acceptance received on January 14, 2021. In December 2020, the equity transfer agreement between SolarMax and SPIC was signed to affect the transfer of 70% ownership interest of the project company to SPIC for an initial consideration of RMB 35.6 million ($5.1 million) based on the project company’s paid-in capital at September 30, 2020, such consideration will be adjusted when the final asset appraisal is completed in April 2021. The equity transfer agreement effectively transferred control of the project to SPIC. As a result, SolarMax deconsolidated the project subsidiary as of December 31, 2020 and reported the EPC revenue for the Ancha project for the year ended December 31, 2020. See Note 10.

In May 2020, the project subsidiary for the Ancha project entered into project lease financing agreement with CSPG Financial Lease Co., Ltd., an unrelated PRC lender, for RMB 163.5 million (approximately $23 million) to finance the construction of the Ancha project. The financing was structured as a lease finance transaction secured by the project companies’ revenue stream and accounts receivable. The interest rate was based on a stipulated benchmark of approximately 5.311% per year. The financing was secured by the Ancha solar farm project. The project subsidiary which is 70% owned by SPIC starting on December 31, 2020, is the obligor on the loan. The loans were no longer the obligations of SolarMax when SolarMax transferred a 70% interest in the project subsidiary and deconsolidated the project subsidiaries on December 31, 2020.

Hehua Project

In August 2020, SolarMax, through its subsidiaries, commenced the 25MW EPC work on the Hehua Project pursuant to an EPC contract between ZHPV and the then wholly-owned project subsidiary. The EPC contract value including VAT is RMB 89.1 million ($12.7 million). Pursuant to the negotiations with SPIC relating to the Hehua Project during 2020, SPIC has agreed to purchase a 100% interest in the project subsidiary. On December 29, 2020, SPIC executed an equity transfer agreement to purchase from SolarMax a 100% equity interest in the project company that owns the Hehua Project for a consideration of RMB 4.9 million ($706.000) which was determined based on the project company’s paid-in capital at November 30, 2020. Consequently, SolarMax deconsolidated the project company for the Hehua project as of December 31, 2020. In connection with the sale of the 100% equity interest of the project company to SPIC and the deconsolidation of the project company by SolarMax, our EPC contract with the project company became the obligation of SPIC. The EPC construction was 100% complete at December 31, 2021.

F-73

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

4. Third-party Leasing Arrangement and Concentrations

Third-party Leasing Arrangement

In January 2015, the Company entered into a three-year channel agreement with Sunrun, Inc. pursuant to which Sunrun appointed the Company as its sales representative to solicit orders for Sunrun’s products in portions of southern California. Pursuant to this agreement, the Company introduces potential leasing customers to Sunrun and Sunrun pays the Company for its services in connection with the projects. Upon a customer signing a Sunrun lease, the Company purchases equipment from a list of preapproved equipment vendors provided by Sunrun, one of which, the supplier of meters, is a subsidiary of Sunrun. The Company then performs the design and EPC services until the system receives the permit to operate. Sunrun pays the Company 80% of the purchase price of the system after the system receives the city sign off and the final 20% after receiving the permit to operate. Consistent with revenue recognition on solar systems sold directly to residential and commercial customers, the Company recognizes the revenue on the solar systems sold to Sunrun over time. Sunrun owns the equipment, leases the system and also services the lease. The Company’s relationship with the residential customer is only during the sales and installation process. The Company provides its standard warranty for its EPC services to Sunrun. Sunrun may terminate the agreement if the Company fails to meet specified minimum volume requirements. Sunrun also has the right to terminate certain incentives contained in the agreement at any time.

Upon the completion of the system, Sunrun performs the inspection to ensure the system meets Sunrun’s quality standards, and the Company is responsible to fix any issues as identified by Sunrun if they are caused by the Company. Sunrun covers all manufacturer component warranty issues with the system and may also contract with the Company to perform the work to fix any potential future issues with the system.

The channel agreement had an initial term through January 2018. Pursuant to the terms of the agreement, upon expiration of the initial term, the agreement continues for an additional 36 months unless either party gives notice of non-renewal at least 30 days before the initial expiration date. As a result, the agreement has been automatically renewed for a 36 month term which ends in January 2021 and has been further extended to May 24, 2021. The agreement was automatically renewed for an additional 36 month term after May 24, 2021. In the United States segment, Sunrun was the Company’ second largest customer during the year ended December 31, 2021 and the fourth largest customer during the year ended December 31, 2020.

The summary of revenue and cost of revenue related to Sunrun for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31,
	2021		2020
	(Unaudited)
Revenue	$	412,731	$	848,295
Cost of revenue		214,884		453,209

F-74

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

With respect to the systems sold to Sunrun, the Company is required to install Sunrun meters which are only available for purchase through a subsidiary of Sunrun. For the years ended December 31, 2021 and 2020, purchases of Sunrun meters were $65,766 and $55,016, respectively. The accounts payable balance owed to this supplier as of December 31, 2021 and 2020 was $0 and $43,146, respectively.

Concentration Risks

Major Customers

The following table provides information as to sales greater than 10% of revenues for the year ended December 31, 2021:

	Revenue		Percentage of Total Revenue			Accounts Receivable (including unbilled)		Percentage of Total Accounts Receivable
Customer H (1)	$	7,786,316		21	%	$	7,397,054		89	%

(1) Customer of PRC segment

The following table provides information as to sales greater than 10% of revenues for the year ended December 31, 2020:

	Revenue		Percentage of Total Revenue			Accounts Receivable (including unbilled)		Percentage of Total Accounts Receivable
Customer H (1)	$	93,892,127		71	%	$	12,809,134		92	%

(1) Customer of PRC segment

Major Suppliers

The following table provides information as to purchases over 10% for the year ended December 31, 2021:

	Purchase		Percentage of Total Purchase			Accounts Payable		Percentage of Total Accounts Payable
Supplier M (1)	$	6,371,762		15	%	$	-		0	%
Supplier C (2)		5,376,309		13	%		1,009,176		10	%

(1) Vendor is an unaffiliated supplier for PRC segment

(2) Material supplier for US segment.

F-75

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The following table provides information as to purchases over 10% for the year ended December 31, 2020:

	Purchase		Percentage of Total Purchase			Accounts Payable		Percentage of Total Accounts Payable
Supplier L (1)	$	14,237,662		24	%	$	-		0	%
Supplier K (1)		6,963,826		12	%		2,862,392		13	%
Supplier C (2)		6,669,498		11	%		735,840		3	%

(1) Vendor is an unaffiliated supplier for PRC segment

(2) Material supplier for US segment.

5. Acquisition Contingencies and Other Payable to Uonone Group

Effective on May 12, 2016, in conjunction with the execution of the amendment to the April 2015 share exchange agreement to acquire ZHPV, ZHPV entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of ZHPV, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which ZHPV and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015, pursuant to which Uonone Group agreed to pay ZHPV a total amount of RMB 8,009,716 on or before November 30, 2016. An additional contingent liability related to estimated costs of a project known as Ningxia project completed prior to the Company’s acquisition of ZHPV of approximately RMB 3.0 million ($459,580 as of December 31, 2020) was also included as a receivable from Uonone Group (Note 8) with the corresponding liability recognized by the Company on the date of acquisition.

As of December 31, 2021, Uonone Group has 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, 2021, the Company has no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to the Company with respect to the contingent receivable.

Under the debt settlement agreement, any legal settlement proceeds, less fees and expenses, received by ZHPV related to the projects completed prior to the April 2015 business combination would be repaid to the Uonone Group. During the year ended December 31, 2021, the Company received additional legal settlement proceeds of RMB 20.9 million ($3.2 million) and paid Uonone RMB 14.6 million (approximately $2.2 million).

At December 31, 2021 and 2020, the amount payable to Uonone was RMB 22.3 million ($3.5 million) and RMB 19.7 million ($3.0 million), respectively.

6. Customer Loans Receivable

The Company provides financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offers in the United States. Depending on the credit rating of customers, the interest rate generally ranges from 0.00% to 10.99% per annum with financing terms ranging from three to fifteen years. At December 31, 2021 and 2020, the percentage of the Company’s loan portfolio with a 0% interest rate is 26% and 27%, respectively.

F-76

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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

Customer loans receivable consist of the following as of December 31, 2021 and 2020:

	December 31, 2021			December 31, 2020
Customer loans receivable, gross	$	16,156,223		$	26,485,378
Less: unamortized loan discounts		(203,291	)		(478,151	)
Less: allowance for loan losses		(357,814	)		(693,718	)
Customer loans receivable, net		15,595,118			25,313,509
Current portion		4,935,920			6,983,646
Non-current portion	$	10,659,198		$	18,329,863

Principal maturities of the customer loans receivable at December 31, 2021 are summarized as follows:

Period ending December 31,	Amount
2022	$	4,935,920
2023		4,346,964
2024		2,123,406
2025		1,059,391
2026		996,784
2027		973,510
Thereafter		1,720,249
Total loans receivable	$	16,156,223

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.

Total interest income on the customer loans receivable included in revenues was $1,168,897and $1,762,837 for the years ended December 31, 2021 and 2020, respectively.

7. Inventories, net

Inventories consisted of the following as of December 31, 2021 and 2020:

	December 31, 2021			December 31, 2020
Construction in progress	$	58,200		$	147,442
Solar panels, inverters and components		2,597,013			1,205,161
Battery storage systems		471,644			543,466
LED lights		644,165			521,443
Reserve for excess and obsolete inventories		(415,140	)		(319,416	)
Total inventories, net	$	3,355,882		$	2,098,096

F-77

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

8. Other Receivables and Current Assets, Net

Other receivables and current assets, net consisted of the following at December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Receivable from Seller (Uonone Group) (See Note 5)	$	471,789	$	459,580
Deferred project costs		1,240,159		707,743
Prepaid expenses and other current assets		802,869		868,137
Accrued interest on customer loans receivable		36,138		55,695
VAT tax receivable		614,946		1,429,959
Capitalized merger costs		886,787		140,454
Total other receivables and current assets		4,052,688		3,661,568
Other receivables and current assets, related party		4,375		75,242
Total	$	4,057,063	$	3,736,810

9. Goodwill

The activity of goodwill is as follows:

	Year Ended December 31,
	2021		2020
Balance – beginning of period	$	8,214,665	$	7,695,590
Effect of exchange rate		218,236		(109,094	)
Balance – end of period	$	8,432,901	$	7,586,496

10. Sale and Transfer of Controlling Interest in PRC Solar Project Companies

Sale of Yilong #2 and Xingren Project Companies

In March 2020, the equity transfer agreement to sell 70% controlling interest to SPIC was executed and in April 2020, the government approval of the equity transfer was registered. The consideration for the sale of the 70% interest was RMB 50.9 million (approximately $7.3 million) for Yilong #2 which was fully paid as of December 31, 2020, and RMB 27.5 million (approximately $3.9 million) for Xingren, which was fully paid as of December 31, 2021.

Sale of Ancha Project Company

In December 2020, the equity transfer agreement to sell 70% controlling interest to SPIC was entered into for an initial consideration of RMB 35.6 million ($5.1 million) based on the project company’s paid-in capital at September 30, 2020, such consideration will be adjusted when the final asset appraisal is completed in 2021 pursuant to a commitment agreement with SPIC dated December 26, 2020. To the extent the appraised value exceeds the initial consideration, the excess amount will be paid by SPIC to SolarMax. As of December 31, 2021, an unpaid balance due to the Company was RMB 14.3 million (approximately $2.2 million) and is included in the receivable from SPIC and project companies on the accompanying balance sheet.

F-78

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Sale of Hehua Project Company

In December, 2020, SPIC executed an equity transfer agreement to purchase from SolarMax 100% equity interest in the project company that owns the Hehua Project for a consideration of RMB 4.9 million ($706,000) which was determined based on the project company’s paid-in capital at November 30, 2020. A loss from sale of RMB 880,000 ($128,000) was recognized by SolarMax during the year ended December 31, 2020. See Note 3. At December 31, 2021, the unpaid balance due from SPIC was RMB 987,900 (approximately $155,000).

Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2021 consisted of the following:

Investee	Investment Balance at December 31, 2020		Share of Investee’s Net Income (loss)		Effect of Exchange Rate		Investment Balance at December 31, 2021
Yilong #2	$	3,821,479	$	203,233	$	105,060	$	4,129,772
Xingren		1,879,889		108,354		51,826		2,040,069
Ancha		2,819,629		232,513		77,291		3,129,433
Total	$	8,520,997	$	544,100	$	234,177	$	9,299,274

Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2020 consisted of the following:

Investee	Investment Balance at January 1, 2020		Share of Investee’s Net Income (loss)		Effect of Exchange Rate		Investment Balance at December 31, 2020
Yilong #2	$	-	$	350,594	$	283,907	$	3,821,479
Xingren		-		117,366		140,970		1,879,889
Ancha		-		-		-		2,819,629
Total	$	-	$	467,960	$	424,877	$	8,520,997

F-79

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The following tables present the summary of the unaudited condensed combined financial statements for the Company’s 30% non-controlling investments in solar project companies as of and for the years ended December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Balance Sheets
Current assets	$	28,985,692	$	16,303,326
Non-current assets		89,828,592		93,484,402
Total assets		118,814,284		109,787,728
Current liabilities		13,074,765		9,881,464
Non-current liabilities		75,084,168		71,315,914
Members’ capital		30,655,351		28,590,350
Liabilities and members’ capital	$	118,814,284	$	109,787,728

	Year Ended December 31,
	2021		2020
Income Statements
Revenue	$	11,170,848	$	4,777,308
Gross profit		5,664,814		3,010,249
Net income		1,808,221		1,559,867

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

11. Investments in Unconsolidated Joint Ventures in the United States

At December 31, 2021 and 2020, the Company has the following unconsolidated joint ventures accounted under the equity method of accounting in the United States:

Investee	Equity Investment Ownership			Profit rate of distribution
A#1		30.0	%		40.0	%
A#2		30.0	%		30.0	%
A#3		30.0	%		30.0	%
Changzhou		22.5	%		22.5	%

F-80

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Activity in investments on unconsolidated joint ventures for the year ended December 31, 2021 consisted of the following:

Investee	Investment Balance at December 31, 2020		Distribution / Decrease in Investment			Share of Investee’s Net Income (loss)			Investment Balance at December 31, 2021
A#1	$	14,426	$	-			(14,426	)	$	-
A#2		107,108		(446,539	)		339,431			-
A#3		-		-			-			-
Changzhou		-		-			-			-
Total	$	121,534	$	(446,539	)	$	325,005		$	-

Activity in investments on unconsolidated joint ventures for the year ended December 31, 2020 consisted of the following:

Investee	Investment Balance at December 31, 2019		Distribution / Decrease in Investment			Share of Investee’s Net Income (loss)			Investment Balance at December 31, 2020
A#1	$	33,718	$	-		$	(19,292	)	$	14,426
A#2		367,621		(270,000	)		9,487			107,108
A#3		67,696		(90,000	)		22,304			-
Changzhou		-		-			-			-
Total	$	469,035	$	(360,000	)	$	12,499		$	121,534

The following tables present the summary of the condensed combined financial statements for the Company’s unconsolidated joint ventures as of and for the years ended December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Balance Sheets
Current assets	$	804,549	$	1,505,703
Non-current assets		907,068		2,255,246
Total assets		1,711,617		3,760,949
Current liabilities		1,308,575		1,356,653
Members’ capital		403,042		2,404,296
Liabilities and members’ capital	$	1,711,617	$	3,760,949

	Year Ended December 31,
	2021			2020
Income Statements
Revenue	$	870,375		$	969,085
Gross (loss) profit		870,375			969,085
Net (loss) income		(1,018,614	)		(212,306	)

F-81

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

12. Other Assets

Other assets consisted of the following as of December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Other deposits and receivables	$	156,619	$	233,614

13. Financing Arrangements

As of December 31, 2021 and 2020, the Company had the following borrowings:

	December 31, 2021			December 31, 2020
Loan from an unrelated individual, at 6.0% fixed interest, due March 31, 2022	$	2,000,000		$	2,000,000
PPP loans payable, at 1.0% fixed interest, due April 15, 2022		-			1,855,816
PPP loans payable, at 1.0% fixed interest, due January 20, 2026		1,855,813			-
Secured convertible notes payable at 4.0% per annum, due various dates through December 2024, net of debt discount of $527,611 at December 31, 2021 and $447,239 at December 31, 2020		23,600,000			19,400,000
EB5 Loans (see detail below)		21,500,000			34,500,000
Various auto loans payable, interest accrues at 4.19%-4.92% per annum with maturities through 2023.		101,691			166,047
Total		49,057,504			57,921,863
Less: debt discount		(527,611	)		(447,239	)
Less: current portion		(20,433,711	)		(29,164,284	)
Noncurrent portion	$	28,096,181		$	28,310,340

SBA Loans

On April 15 and April 16, 2020, the Company received loans pursuant to the Paycheck Protection Program (PPP) totaling $1,855,816. The loans were issued to three subsidiaries in the United States and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents and utilities, over the subsequent 24 weeks from the loan origination date, and the Company maintains the required number of full time employee equivalents. For the non-forgivable portion, the loan would be due in two years at a fixed interest rate of one percent. In September 2021, the Company received loan forgiveness in the amount of $1,798,539 related to this tranche of the PPP loan, and repaid $58,066 which included $789 of accrued interest, and recognized a gain on debt extinguishment of $1,820,917 related to the forgiven balance of the PPP loan plus accrued interest of $22,377.

F-82

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

On February 1, 2021, the Company received loans pursuant to the Paycheck Protection Program Second Draw totaling $1,855,813. The loans were issued to three subsidiaries in the United States and may be entirely or partially forgivable if the loan proceeds are used for eligible expenses which include employee payroll, mortgage interest, rents, utilities and other eligible costs allowed by the Small Business Administration, during the 24-week period beginning on the date of the first disbursement of the loans. For the non-forgivable portion, the loans would be due in five years at a fixed interest rate of 1% per annum.

Other Loans

Other loans include a loan of $2,000,000 from a PRC individual at an interest rate of 6%, interest payable quarterly in arrears, with the original due date of April 30, 2021 and has been extended to March 31, 2022.

Related party EB5 financings

The Company’s borrowings from related parties consisted of the following as of December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
$45.0 million loan from Clean Energy Funding, LP	$	11,500,000	$	24,000,000
$13.0 million loan from Clean Energy Funding II, LP	$	10,000,000		10,500,000
		21,500,000		34,500,000
Current portion		12,500,000		23,000,000
Noncurrent portion	$	9,000,000	$	11,500,000

On January 3, 2012, Clean Energy Fund, LP (“CEF”) entered into a secured loan agreement with SREP, a wholly-owned subsidiary of the Company. Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $45,000,000, to be used to finance the installment purchases for customers of the solar energy systems. The proceeds of the loans are advanced in increments of $2,500,000 and CEF may determine in its sole and absolute discretion to advance a lesser amount. The loan accrues interest at a fixed interest rate of 3% per annum, payable quarterly in arrears. Each advanced principal amount is due and payable 48 months from the advance date or the U.S. Immigration Form I-829 approval date if longer. The I-829 petition includes evidence that the immigrant investors successfully met all United States Citizenship and Immigration Services requirements of the EB-5 program. A UCC amendment was filed in November 2019 on behalf of CEF, the secured party, to pledge all present and future accounts, accounts receivable and other rights of SREP to payment as the collateral for the loan.  Such assets include, but are not limited to, all present and future personal property of SREP which includes receivables, goods, inventory, equipment fixtures, intangibles, deposit accounts and collateral control accounts. As of December 31, 2021 and 2020, the principal loan balance was $11,500,000 and $24,000,000, respectively. During year ended December 31, 2021, the Company exchanged $11,000,000 of the CEF loans into the same amount of the 4% convertible notes, reached a settlement agreement on $1,500,000 of the CEF loans which resulted in a settlement gain of $210,000 (see further discussion in legal matters).

On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $13,000,000. The proceeds of the loan would be used by LED for its operations. The loan accrues interest at a fixed interest rate of 3.0% per annum, payable quarterly in arrears. Principal is due and payable in 48 months or the U.S. Immigration Form I-829 approval date if longer. In 2016, LED borrowed an additional $4,500,000 under the loan, the proceeds of which were used to fulfill the purchases required related to the new $4.3 million LED contract. During the year ended December 31, 2017, the Company drew down an additional $6,000,000 under the loan. As of each of December 31, 2021 and 2020, the remaining undrawn amount under the loan was $2.5 million. During the year ended December 31, 2021, the Company repaid $500,000 to CEF II.

F-83

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

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 and one of its directors.

Convertible Notes

The Company has issued 4% secured subordinated convertible notes to former limited partners of CEF, pursuant to exchange agreements with the limited partners. The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s notes to CEF in the same amount, reducing the outstanding EB5 loan balance. Payment of the notes is secured by a security interest in SREP’s accounts receivable and inventory. The convertible notes are payable in five equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance. The convertible notes are convertible into common stock at a conversion price equal to 80% of the public stock price of the Company’s common stock as defined in the convertible note. The convertible notes may be converted into common stock at the first, second, third, fourth and fifth anniversaries of the date of issuance, but not earlier than six months from the date of the Company’s initial public offering.

All convertible notes 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 until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and accrued interest payable by (y) the conversion price defined as a fixed 80% discounted percentage per share price of a public stock price. The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC 815, Derivatives and Hedging, and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding. Further, because the conversion price is a fixed discounted percentage per share price of a contingent future public stock event that has not been realized as of both the issuance date and December 31, 2020, the Company shall record the intrinsic value of the beneficial conversion feature calculated as of the issuance date of the convertible notes upon the realization of the contingent IPO event.

All convertible notes issued contained redemption put features that allow the holders of the convertible notes the right to receive, for each conversion share that would have been issuable upon conversion immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which these convertible notes are convertible immediately prior to such fundamental transaction.  The Company evaluated the redemption put feature contained in the convertible notes under the guidance of ASC 815, Derivatives and Hedging, 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 bi-furcated and accounted for as freestanding derivative instruments.

During the year ended December 31, 2021, the Company exchanged $11,000,000 of CEF loans into $11,000,000 of convertible notes with the limited partners of CEF loans.

During the year ended December 31, 2021, the Company entered into agreements with convertible noteholders to redeem $2,000,000 principal amount of convertible notes for cash payments totaling $1,440,000.

F-84

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

During the year ended December 31, 2021, the Company recognized a gain on debt extinguishment in the amount of $748,348 in connection with the early settlements as well as from the exchange of EB-5 loans to convertible notes.

Interest Expense

For the years ended December 31, 2021 and 2020, interest expense incurred on the above long-term EB5 related party loans was $825,822 and $1,130,178, respectively.

Total interest expense incurred (including interest on long-term related party loans) was $1,996,500 and $3,211,475 for the years ended December 31, 2021 and 2020, respectively. Interest expense included $136,877 and $103,037 of debt discount amortization related to convertible notes for the years ended December 31, 2021 and 2020, respectively. The weighted average interest rates on loans outstanding were 3.7 % and 4.2% as of December 31, 2021 and December 31, 2020, respectively.

For the year ended December 31, 2020, interest cost of $388,093 from solar project financing loans for the construction of the solar farms, Yilong #2 and Xingren, was capitalized to solar project construction in progress within inventories.

Principal maturities for the financing arrangements as of December 31, 2021 are as follows:

Period ending December 31,	Auto Loans		Bank and Other Unsecured Loans		EB5 Related Party Loans		Convertible Notes		Total
2022	$	67,422	$	2,000,000	$	12,500,000	$	5,900,000	$	20,467,422
2023		34,269		-		9,000,000		5,900,000		14,934,269
2024		-		-		-		5,900,000		5,900,000
2025		-		-		-		4,600,000		4,600,000
2026		-		1,855,813		-		1,300,000		3,155,813
Thereafter		-		-		-		-		-
Total	$	101,691	$	3,855,813	$	21,500,000	$	23,600,000	$	49,057,504

14. Other Related Party Transactions

Transactions with AMD and Its Subsidiaries

At December 31, 2021 and 2020, payables to AMD or its subsidiaries are RMB 9,881,058 for both periods (approximately $1.5 million for both periods) and relate to the solar panels the Company purchased from AMD or its subsidiaries to be used on certain solar projects. The payable will be repaid upon the resolution of the legal matter related to the Yilong #1 receivable (see Legal Matters). AMD is a related party because its chairman and chief executive officer is a director of the Company.

Transaction with Other Related Parties

Prior to August 31, 2020, the Company provided asset management and accounting services to the three unconsolidated Alliance joint ventures under the management contract and business services agreement dated January 20, 2011 between Alliance Solar Capital I, LLC and the Company, pursuant to which the Company received 3% of revenues collected from SREC and payments from public utilities received by the Alliance entities. The provisions of this agreement also extended to services rendered for Alliance Solar Capital II, LLC and Alliance Solar Capital III, LLC, however, there was no formal agreement executed for the two entities. Effective August 31, 2020, the management service agreement was terminated for all three Alliance entities and during the year ended December 31, 2021, the Company incurred expense associated with unreimbursed fees and expense totaling $25,736. Total fees earned by the Company from the Alliance entities included in other income were $29,073 for the year ended December 31, 2020.  

F-85

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The Company’s PRC subsidiary provided a loan of RMB 5.1 million ($784,000 at December 31, 2021) to Changzhou Yifu Co., Ltd, a PRC company owned by Jason Mo who is a stockholder of the Company. An agreement was signed in March 2018 stipulating the terms for the payment; however, no payment has ever been made. The Company has provided a full reserve for the unpaid receivable since December 31, 2018. 

From time to time, the Company made advances for expenses on behalf of the three Alliance entities and SMXP’s tenant.  At December 31, 2020, the Company had a receivable for management fees and the expenses paid on behalf of these entities in the amount of $75,242.

Related Party Profit Sharing Arrangement

During the year ended December 31, 2020, the Company’s LED subsidiary paid $110,000 to a company owned by the Company’s former executive vice president and a current 5% stockholder. The payment represented 80% of the gross profit (computed prior to making the payment) on an LED government project which had been introduced to the Company by the former executive. As a result of this payment, the Company incurred and accrued approximately $110,000 of additional cost of revenue related to the project as of December 31, 2020 and was fully paid in February 2021.

Lease Agreements with Related Parties

In September 2016, the Company executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease its headquarters in Riverside, California. The lease is for ten years and has a five-year renewal option. The annual base rent under the lease is $978,672 at December 31, 2020, plus the Company’s share of the utilities. The base rent is subject to an annual escalation of 2.99%. 

In September 2016, the Company amended two lease agreements for its Diamond Bar, California office with Fallow Field, LLC. Fallow Field, LLC, a related party. The amended lease commenced on November 1, 2016 and has a ten year term with one five-year renewal option. The initial annual base rent is $229,272 plus the Company’s share of utilities.  

For the years ended December 31, 2021 and 2020, total related party rental expenses included in general and administrative expenses for the Riverside, California corporate headquarters and the Diamond Bar, California office, were $1,497,067 and $1,553,693, respectively.  

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

15. Accrued Expenses and Other Payables

Accrued expenses and other payables consisted of the following as of December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Accrued compensation expenses	$	4,326,050	$	4,443,825
Accrued operating and project payables		2,601,804		1,850,991
Customer deposits		3,481,542		1,407,233
Refundable vendor bid deposits		918,970		283,408
VAT tax payable		-		763,223
Income taxes payable		172,863		396,583
Accrued warranty expense		276,296		249,912
Preacquisition liability		1,687,340		1,503,550
Retainage payable		5,167,776		-
Payable to Uonone (See Note 5)		2,639,621		3,018,558
Total accrued expenses and other payables		21,272,262		13,917,283
Accrued expenses and other payables, related party		1,553,926		1,624,257
Total	$	22,826,188	$	15,541,540

Accrued Compensation

Accrued compensation includes $1,275,000 of restricted stock units that were cancelled and exchanged for cash in March 2019 by the Company for the Company’s chief executive officer, former executive vice president and one other former employee, $1,513,859 of accrued but unpaid salaries and wages for the Company’s chief executive officer and former executive vice president, and $197,731 of accrued but unpaid executive cash bonuses for 2017 and 2018 for the Company’s chief executive officer and former executive vice president pursuant to their employment agreements. The employment agreement for the former executive vice president was cancelled upon her resignation effective February 24, 2020. The remaining balance relates to accrued unpaid commissions and accrued paid time offs.

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.

Refundable Vendor Bid Deposits

Vendor bid deposits represent cash deposits received by ZHPV and ZHTH on sealed bids from trade contractors who are proposing to work on the EPC construction projects.  Vendor bid deposits are 100% refundable when the bid process is concluded if the bid is not accepted.

VAT Taxes 

The Company recognizes its revenue in the PRC net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the procurement cost for materials purchased and collected at the invoiced value of sales provided to customers. The Company accounts for VAT on a net basis at the entity level. The contractual amount related to the designing and construction and installation services is subject to 3% sales and other taxes for the amount invoiced before May 1, 2016 which is included as part of cost of revenue. VAT tax receivable generally is available to offset future VAT tax liabilities.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Preacquisition Liability

As part of the April 2015 acquisition of ZHPV, the Company assumed a contingent liability associated with the Ningxia project consisting of reimbursement of project expenses to an unrelated third party including reimbursement of certain land rental expenses and land use taxes estimated at a total of RMB 9.8 million ($1.5 million at December 31, 2021). The Company will be negotiating to offset the entire liability with the unpaid contract receivables and reimbursements from the third party. All the receivables and reimbursements were previously fully reserved by the Company. See Note 5.

Related Party Profit Sharing Arrangement

At December 31, 2020, the Company’s LED subsidiary agreed to pay $110,000 to a company owned by the Company’s former executive vice president and a current 5% stockholder, representing 80% of the gross profit (computed prior to making the payment) on an LED government project which had been introduced to the Company by the former executive. Such amount was fully paid in February 2021.  

16. Commitments and Contingencies

Operating Leases

The Company has operating leases for office facilities and office equipment both in the United States and in the PRC. The lease payments are fixed for the initial term of the leases. Future minimum lease commitments for office facilities and equipment as of December 31, 2021, are as follows:

Period ending December  31,	Related Parties		Others		Total
2022	$	1,211,992	$	180,059	$	1,392,051
2023		1,248,224		27,907		1,276,131
2024		1,285,538		11,628		1,297,166
2025		1,323,974		-		1,323,974
2026		1,312,260		-		1,312,260
Thereafter		-		-		-
Total	$	6,381,988	$	219,594	$	6,601,582

For the years ended December 31, 2021 and 2020, rent expense for office facilities and equipment (including rental expense for related party leases - see Note 14) was $1,600,798 and $1,712,051, respectively.

Panel Purchase Agreement

In June 2016, the Company entered into a supply agreement with Sunspark Technology, Inc. (“Sunspark”), a United States-based panel supplier and a subsidiary of a PRC-based public company, which was terminated as of March 3, 2020 in connection with a new purchase agreement.

On March 3, 2020, the Company and Sunspark entered into a new purchase agreement that stipulates that the Company has the right but not the obligation to purchase panels from Sunspark at certain pricings as stipulated in the agreement. This new agreement supersedes all prior agreement between the Company and Sunspark.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Energy Storage System Distribution Agreement

On July 29, 2016, the Company entered into a distribution agreement with Li-Max Technology, Inc. (“Li-Max”) which was subsequently amended to provide Li-Max the additional time to redesign their system to qualify for the California home battery rebate before recommencing the purchase requirements under the agreement. The agreement required the Company to make specified amount of purchases of the battery storage systems from Li-Max for a specified time period. As of December 31, 2019, Li-Max had not redesigned the unit and on December 3, 2020, an agreement was entered into between the Company and Li-Max whereby Li-Max agreed to release the Company from all obligations under the original distribution agreement and all related amendments.

Pre-development Agreements in PRC

In connection with the pre development phase of each solar farm project by the Company’s China segment, the applicable project subsidiary typically secures one or more land rental agreement with the holder of the land use rights, a development permit, and a power purchase agreement with the local utility company whereby the local utility company agrees to pay the project owner an agreed-upon rate for the electricity produced by the solar farm upon its completion (collectively, “Pre-development Agreements”).  Upon transfer of the equity in the project subsidiary to the buyer, the Company no longer has any rights or obligations under the Pre-development Agreements.  Any costs incurred by the Company pursuant to the Pre-development Agreements are capitalized and amortized to cost of revenue when the construction of the project begins. 

Employment Agreements

On October 7, 2016, the Company entered into employment agreements with its chief executive officer and its then executive vice president (collectively, the “Executives”), each for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the Executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. The agreements provide for an initial annual salary of $600,000 and $560,000, respectively, with an increase of not less than 3% on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year. The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million. The agreements provide for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the Executive has been employed by the Company. The employment of both Executives commenced in February 2008. As of December 31, 2020 and 2019, the amount accrued by the Company was $256,597 and $534,685, respectively, related to the annual bonuses pursuant to the agreements. During the year ended December 31, 2019, the Company issued to the Executives a total of 125,594 shares of common stock with a value of $628,795, as part of their bonuses for 2018 pursuant to their employment agreements. Effective January 1, 2019, all bonus programs were suspended by management and accordingly, no additional bonuses were accrued under the agreement since January 1, 2019. In November 2019, the Executives irrevocably waived their cash and equity bonuses due under their employment agreement for the 2019.

On February 24, 2020, the then executive vice president resigned. Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Pursuant the release and separation agreement, the Company paid the former executive officer $25,497, and agreed to pay to her $803,095, representing the outstanding balance due to her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. This amount is payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020, until the completion by the Company of its initial public offering, and any unpaid balance then outstanding shall be paid within three business days after the Company receives the proceeds of its initial public offering. As of December 31, 2020, no payment has been made under the agreement. 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 March 31, 2021 and continuing thereafter on a month-to-month basis for monthly compensation of $3,000. The release and separation agreement provides that since the long-term incentive plan pursuant to which the options granted to the former executive vice president were granted provides that options may be held by and exercised by a consultant to the Company, the Company agreed that the option shall continue in full force and effect as long as she, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company. As of December 31, 2021, the former executive officer was a consultant to the Company.

Legal Matters

On July 1, 2020, a legal action was filed in the Los Angeles Superior Court by Haijing Lin (the “Plaintiff”) and various defendants which include SolarMax Technology, Inc., SolarMax Renewable Energy Provider, Inc., Clean Energy Funding, L.P., Inland Empire Renewable Energy Regional Center, LLC, David Hsu, Ching Liu and Simon Yuan. At the time of the filing, the Plaintiff is a limited partner in Clean Energy Funding, L.P. and seeks to have his $500,000 investment returned.

On or about February 4, 2021, an amended complaint was filed in the action initially commenced by Haijing Lin and Mian Cai and Xing Zhang were added to Haijing Lin as plaintiffs. The total capital contribution by the three plaintiffs was $1.5 million, including the $500,000 contributed by Mr. Lin. The plaintiffs are seeking return of their capital contributions and other relief, including costs, punitive and exemplary damages and a declaration that the $45.0 million loan by CEF to SREP is due.

On September 23, 2021, the complaints filed by Haijing Lin, Mian Cai and Xing Zhang were settled for $1.29 million and consequently, $1.5 million of the related CEF debt was extinguished. Pursuant to the settlement, the Company paid $300,000 at the time of the settlement and the remaining $990,000 will be repaid in six months. In connection with the settlement, a gain on debt extinguishment of $210,000 was recognized by the Company.

On November 10, 2020, a legal action was filed in the Los Angeles Superior Court by Carmelia Chiang against various defendants which include SolarMax, SREP, CEF, Inland Empire Renewable Energy Regional Center, LLC, the Company’s chief executive officer and a former officer/director who are managers of CEF’s general partner. At the time of the filing, the plaintiff is a limited partner in CEF and sought to have her $500,000 investment returned. On February 23, 2022, the court granted and sustained a demurrer by the Company without leave to amend and the case was dismissed. The plaintiff has a right to file an appeal to the court’s granting of the demurrer. The plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.

On June 1, 2021, a legal action was filed in the Los Angeles Superior Court by Pu Dong, a stockholder, against various defendants which include SolarMax, David Hsu and one other SolarMax stockholder. At the time of the filing, the plaintiff was a SolarMax stockholder and seeks to have shares that are issued in the name of the other SolarMax stockholder defendant reissued in the name of the plaintiff. SolarMax believes that this is a dispute between two stockholders and will comply with any final court order as to the ownership of the shares.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

On November 19, 2021, a first amended complaint to a legal action was filed in the Los Angeles Superior Court by Qian Liu and Qingfeng He against various defendants which include SolarMax, SREP, Inland Empire Renewable Energy Regional Center, LLC (“IERERC”), the Company’s chief executive officer, one of the Company’s directors and a former officer/director who are members of IERERC, the general partner of CEF. The original complaint was filed on September 7, 2021, but never served on the Company. At the time of the filing, the plaintiffs were limited partners in CEF and seek to have her $500,000 investments returned. Currently there is not enough information for the Company to determine an outcome; however, the plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.

Yilong #1 Receivable

In early January 2020, the Company filed an application for arbitration of the dispute with the Shanghai Arbitration Commission against Yilong AMD New Energy Co., Ltd., the project owner of the Yilong #1 project, claiming the amount due to the Company under the construction contract on the Yilong #1 project of RMB 22,687,458 (approximately $3,241,000) plus overdue interest. Yilong #1 project was completed and accepted by the respondent and commenced operation in 2018. On January 13, 2020, the Guizhou People’s Court issued an order to freeze the deposits of the respondent of RMB 22,687,458 (approximately $3,241,000). On November 6, 2020, an arbitration decision was reached in the Company’s favor. After certain offset adjustments, the Company expects to receive the payment of the net amount owed of RMB 21.8 million (approximately $3.1 million) plus interest prior to December 31, 2020. In December 2020, the Company received a payment of RMB 19.8 million (approximately $2.8 million) including interest and the remaining unpaid balance of approximately RMB 2.9 million (approximately $414,000) was fully reserved at December 31, 2020 as the Company determined the collectability to be uncertain and was written off during the year ended December 31, 2021.

On February 19, 2020, the Company’s attorney sent a demand letter to China Nuclear Construction Finance Leasing Co., Ltd. (the “Finance Company”), claiming the unpaid amount due from the Finance Company to the Company of RMB 8.0 million (approximately $1.1 million) related to the Yilong #1 project, pursuant to the entrustment payment agreement signed by the Company, Respondent and the Finance Company. The Company has provided a full reserve for this portion of the receivable at December 31, 2021 and December 31, 2020. As a result of the dispute regarding the unpaid amount, in July 2021 the Company filed an application with the court to freeze an amount of RMB 5.3 million on the account of Southwest Guizhou Autonomous Prefecture Yilong Almaden New Energy Co., Ltd., the project owner of Yilong #1. As of December 31, 2021, the RMB 5.3 million has been frozen by the court and the Company is waiting to receive the formal judgment of the court which is expected sometime during 2022.

In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.

17. Stockholders’ Equity

Amendment of 2016 Long-Term Incentive Plan

In October 2016, the Company’s board of directors adopted and in November 2016 the stockholders approved the 2016 Long-Term Incentive Plan, pursuant to which a maximum of 10,920,000 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted. In March 2019, the Company’s board of directors and stockholders approved an increase in the maximum number of shares of common stock subject to the 2016 long-term incentive plan to 8,988,084 shares.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Amendment of the 2016 Restricted Stock Grants

Pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted 6,410,880 shares in October 2016, of which 3,045,963 shares were granted to officers and directors as restricted stock grants. On March 23, 2019, the Company’s board of directors approved the following modifications with respect to the 2016 Restricted Stock Grants:

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

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

The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur; 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 and a merger with a public company pursuant to which the Company’s stockholders received stock in the successor company. The board of directors has the right to defer the date of a forfeiture event to a later date. The shares are forfeited and are to be conveyed to the Company for no consideration if a public stock event shall not have occurred by December 31, 2022.

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 June 1, 2016 and has been extended to April 30, 2019 pursuant to amendments. As compensation for the service, the Company issued to the consultant 199,736 restricted shares valued at $5.01 per share based on the then current fair value of the common stock, subject to forfeiture if the public stock event has not occurred by December 31, 2022. The restricted stock was granted on October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan and is subject to restrictions and forfeiture provisions that are applicable to other restricted stock grants pursuant to the plan as described under the caption “2016 Restricted Stock Grants.”

None of the shares granted above pursuant to the 2016 Long-Term Incentive Plan have vested and not considered to have been issued under the requirement of U.S. GAAP since the shares are subject to vesting and forfeiture provisions of the agreement. However, these shares participate in the merger and are included in the same manner as outstanding shares of common stock in determining the conversion ratio pursuant to the Merger Agreement.

During the year ended December 31, 2019, 2,258,011 of the restricted shares were exchanged for options to purchase 4,784,723 shares of common stock at $5.01 per share and 1,273,313 of the restricted shares were cancelled for cash of $1,275,000 which was to be paid on or before December 31, 2019, and 14,981 of the restricted shares were cancelled for no compensation. In December 2019, this date was extended to December 31, 2020 and subsequently extended again to December 31, 2022.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

As of December 31, 2021 and December 31, 2020, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $1,325,000 for both periods, based on the estimate of the current stock price of $5.01 per share. Such cost would be recognized beginning when the public stock event, as defined, occurs.

The 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, 2020		264,500		5.01
Nonvested as of December 31, 2020		264,500		5.01
Granted		-		-
Vested		-		-
Forfeited		-		-
Cancelled		-		-
Outstanding at December 31, 2021		264,500		5.01
Nonvested as of December 31, 2021		264,500		5.01

Stock Options

From time to time, the Company grants non-qualified stock options to its employees and consultants for their services. Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant; those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven years. The vested options are exercisable for three 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.

October 7, 2016 Option Grants

On October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted to employees non-qualified stock options to purchase 1,947,419 shares and incentive stock options to purchase 324,570 shares, at an exercise price of $5.01 per share. The options are exercisable cumulatively as to (a) 50% of the shares of common stock initially subject to the option on the later to occur of (i) six months after a public stock event, or (ii) October 7, 2017 (the “Initial Exercise Date”), provided that the option holder is employed or engaged by the Company or an affiliate of the Company on the Initial Exercise Date, and (b) the remaining 50% of the shares of common stock initially subject to the option on the first anniversary of the Initial Exercise Date. Further, without the consent of the Company, the option cannot be exercised prior to the date that an S-8 registration statement covering the shares issuable pursuant to the 2016 long term incentive plan becomes effective.  In the event that a public stock event does not occur by the expiration date of the options, the options will expire.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

March 2019 Option Grants

On March 23, 2019, the Company’s board of directors (i) granted seven-year non-qualified stock options to purchase 362,520 shares of common stock at $5.01 per share which was determined by the board of directors to be the fair value of the common stock on the date of grant and (ii) granted ten-year non-qualified stock options to purchase 4,784,723 shares of common stock at $5.01 per share in exchange for 2,258,011 restricted shares as described under  “Amendment of the 2016 Restricted Stock Grants.” The options are subject to the same forfeiture provision as the restricted stock if the public stock event does not occur by June 30, 2021. The options are also subject to the lock-up and leak-out agreements. All of the options described above vest cumulatively, 50% six months after a public stock event and 50% eighteen months after a public stock event.

Valuation of Stock Options

The Company estimates the fair value of stock options using a Black-Scholes option pricing model. The model requires input of assumptions regarding the expected term, expected volatility, dividend yield, and a risk- free interest rate. Options were granted at the fair value of the Company’s common stock on grant dates and a simplified method was used to estimate the expected term of the options granted.

Expected Volatility. The expected volatility rate used to value stock option grants is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the solar industry in a similar stage of development to the Company.

Expected Term. The Company elected to utilize the “simplified” method for “plain vanilla” options to value stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

Risk-free Interest Rate. The risk-free interest rate assumption was based on zero-coupon U.S. Treasury instruments that had terms consistent with the expected term of the Company’s stock option grants.

Expected Dividend Yield. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future.

Forfeitures are accounted for as actual forfeitures occur.

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, 2020		6,432,690			5.01		7.2		-
Nonvested as of December 31, 2020		6,083,152			5.01		6.5		-
Exercisable as of December 31, 2020		349.538			4.15		5.1		300,000
Granted		9,987			5.01		-		-
Exchanged		-			-		-		-
Exercised		-			-		-		-
Cancelled or forfeited		(33,961	)		5.01		-		-
Outstanding at December 31, 2021		6,408,716			5.01		6.5		-
Nonvested as of December 31, 2021		6,059,178			5.01		6.6		-
Exercisable as of December 31, 2021		349,538			4.15		4.5		300,000

The aggregate intrinsic value represents the total pretax intrinsic value. The aggregate intrinsic values as of December 31, 2021 and 2020 are based upon the value per share of $5.01, which is the latest sale price of the Company’s common stock in May 2018.

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Non-vested Option Awards

The following table summarizes the Company’s nonvested option awards activity:

	Shares
Balance at December 31, 2020		6,083 ,152
Granted		9.987
Exchanged		-
Replaced		-
Vested		-
Forfeited		(33,961	)
Balance at December 31, 2021		6,059,178

For the years ended December 31, 2021 and 2020, the compensation cost that has been charged to general and administrative expenses related to stock options was $0 and $22,501, respectively. During the years ended December 31, 2021 and 2020, vested options to purchase zero shares and 19.974 shares, respectively, of common stock were cancelled. During the years ended December 31, 2021 and 2020, nonvested options to purchase 33,961 shares and 614,712 shares, respectively of common stock were cancelled.

As of December 31, 2021, total unrecognized compensation costs for outstanding unvested options awarded was $15.2 million, including $15.2 million relating to performance-based awards. The performance condition for such awards was not deemed probable at grant dates or at December 31, 2021 and the cost related to such awards will begin to be recognized once the performance condition is deemed probable. The fair value of options issued during the year ended December 31, 2020 was $50,000.

18. Income Taxes

The United States and PRC components of the Company’s income (loss) before income taxes for the years ended December 31, 2021 and 2020 are as follows:

	Year ended December 31,
	2021			2020
Domestic (U.S. Segment)	$	(2,600,400	)	$	(3,411,845	)
Foreign (PRC Segment)		(1,020,526	)		5,852,828
	$	(3,620,926	)	$	2,440,983

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SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The components of the Company’s provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 consist of:

Year ended December 31, 2021	Federal			State			Foreign			Total
Current	$	-		$	3,250		$	140,430		$	143,680
Deferred		(658,470	)		(179,859	)		(549,342	)		(1,387,671	)
Change in valuation allowance		658,470			179,859			105,001			943,329
Total	$	-		$	3,250		$	(303,911	)	$	(300,661	)

Year ended December 31, 2020	Federal			State			Foreign		Total
Current	$	-		$	6,000		$	401,655	$	407,655
Deferred		538,003			(450,286	)		1,078,063		1,165,780
Change in valuation allowance		(538,003	)		450,286			2,372		(85,345	)
Total	$	-		$	6,000		$	1,482,090	$	1,488,090

Significant components of the deferred tax assets and liabilities for federal income taxes as of December 31, 2021 and 2020 consisted of the following:

	December 31,
	2021			2020
Deferred tax assets
Investment credit	$	1,037,362		$	1,037,362
Net operating loss carry-forward		12,635,243			11,282,903
Stock compensation and accrued bonus		472,837			567,621
Depreciation		1,448			122,332
Other		2,649,006			2,837,958
Total		16,795,896			15,848,176
Valuation allowance		(16,759,822	)		(15,813,036	)
Deferred tax assets (liability)		36,074			35,140
Deferred tax liability
Contract accounting		(17,462	)		(456,417	)
Deferred tax, net	$	18,612		$	(421,277	)

A 100% valuation allowance was provided for the deferred tax assets related to the United States segment as of December 31, 2021 and 2020 due to the uncertainty surrounding the timing of realizing the benefits of the favorable tax attributes in future tax returns.

F-96

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The following table reconciles the United States statutory rates to the Company’s effective tax rate for the years ended December 31, 2021 and 2020:

	Year ended December 31,
	2021						2020
	Tax rate			Tax amount			Tax rate			Tax amount
US statutory rate		21.0	%	$	(760,395	)		21.0	%	$	512,607
State taxes		2.6	%		(95,420	)		-1.2	%		(28,570	)
Foreign rate differential		1.2	%		(42,935	)		9.6	%		234,113
Global intangible low-taxed income		0.0	%		-			47.9	%		1,170,067
Subpart F		-0.7	%		24,178			0.0	%		-
Non-deductible interest		-5.9	%		212,698			7.2	%		174,713
PPP Loan		10.6	%		(382,393	)		0.0	%		-
Other Permanent items		-0.2	%		6,521			0.6	%		13,472
Other Adjustment		3.4	%		(122,385	)		-12.1	%		(294,844	)
State Rate Change		-0.4	%		15,908			-2.0	%		(50,002	)
Return to provision true-up		2.8	%		(99,767	)		-6.5	%		(158,121	)
Prior year tax liability adjustment		0.0	%		-			0.0	%		-
Change in valuation allowance		-26.1	%		943,330			-3.5	%		(85,345	)
Effective tax		8.3	%		(300,661	)		61.0	%		1,488,090

As of December 31, 2021, the Company’s federal, state and China income tax net operating loss (“NOL”) carryforwards were $42.2 million, $52.0 million, and $1.0 million, respectively. As of December 31, 2020, federal and state income tax NOL carryforwards were $37.5 million and $48.2 million, respectively. These NOLs will expire at various dates from 2032 through 2041. The Company’s US federal NOL generated post 2017 of $15.7 million can be carried forward indefinitely. Additionally, the Company has investment tax credits of $1.0 million as of December 31, 2021 and 2020, for building qualifying energy properties and projects under IRC Section 48, which will expire at various dates from 2033 through 2034.

The above NOL carryforward and the investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions which limit the amount NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has performed an IRC Section 382 analysis as of December 31, 2020 which it was determined that no significant change in ownership had occurred. However, ownership changes occurring subsequent to December 31, 2020 may impact the utilization of net operating loss carry forwards and other tax attributes.

As of December 31, 2021 and 2020, the Company had unused net operating loss carryforwards from its PRC subsidiaries in the amount of approximately $0.7 and $0.3 million, respectively, which may be applied against future taxable income and which begin to expire after 2022.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on the utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax

F-97

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Cuts and Jobs Act. As the Company has not generated the taxable income in the previous years, the CARES Act feature allowing federal net operating losses originating in 2018, 2019 or 2020 to be carried back five years has no impact on the Company. In accordance with California AB 85, California net operating losses utilization will be suspended for the years 2020 through 2022 which may impact the Company’s ability to offset California taxable income in 2021 and 2022.

The Consolidation Appropriations Act of 2021, enacted on December 27, 2020, extended and enhanced COVID relief provisions of the CARES Act. The Company has evaluated the impact of the Consolidated Appropriation Act and determined that its impact is not material to the Company’s financial statements.

The Company is no longer subject to income tax examination by the U.S. federal and certain state tax authorities for years ended December 31, 2015 or prior, however, its tax attributes such as net operating loss (“NOL”) carryforwards and tax credits, are still subject to examination in the year they are used. Therefore, the tax attributes from 2011 and forward are still subject to examination by the U.S. tax authorities.

The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of Accounting Standards Codification 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods and transition. After applying the approach, the Company has identified there is no uncertain tax position as of December 31, 2021.

The Company’s PRC subsidiaries are subject to a 25% statutory income tax rate according to the income tax laws of the PRC. Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. The Company’s PRC subsidiaries’ tax filings are subject to the PRC tax bureau’s examination for a period up to five years. These subsidiaries are not currently under examination by the PRC tax bureau.

As of December 31, 2021 and 2020, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the United States. In the event the Company is required to repatriate funds from outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences.

F-98

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

19. Net Income (Loss) Per Share

The following table presents the calculation of the Company’s basic and diluted loss per share for the years ended December 31, 2021 and 2020:

	Year Ended December 31,
	2021			2020
Numerator
Net income (loss) attributable to stockholders of SolarMax Technology, Inc.	$	(3,320,265	)	$	974,054
Denominator
Weighted average shares used to compute net loss per share available to common stockholders, basic		39, 735,536			40,000,186
Weighted average shares used to compute net loss per share available to common stockholders, diluted		39,735,536			40,156,119
Basic net income (loss) per share	$	(0.08	)	$	0.02
Diluted net income (loss) per share	$	(0.08	)	$	0.02

For the year ended December 31, 2021, the outstanding options of 6,408,716 shares were excluded from the computation of diluted earnings per share as they represent performance-based awards for which the performance (i.e, consummation of a public stock event, as defined) is not yet achieved. The impact of the assumed conversion of the convertible notes was also excluded for the diluted earnings per share calculation for the year ended December 31, 2021 since the inclusion would be anti-dilutive.

For the year ended December 31, 2020, the outstanding options of 6,432,690 shares were excluded from the computation of diluted earnings per share as they represent performance-based awards for which the performance (i.e, consummation of a public stock event, as defined) is not yet achieved. The impact of the assumed conversion of the convertible notes was also excluded for the diluted earnings per share calculation for the year ended December 31, 2021 since the inclusion would be anti-dilutive.

20. Segment Reporting

The Company uses the management approach for segment reporting disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reporting segments. For the years ended December 31, 2021 and 2020, the Company operates under two operating segments on the basis of geographical areas: The United States 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.

F-99

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

The Company evaluates performance based on several factors, including revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company’s operating segments for the years ended December 31, 2021 and 2020:

	Year ended December 31, 2021									Year ended December 31, 2020
	US			PRC			Total			US			PRC			Total
Revenue from external customers
Solar farm projects	$	-		$	7,786,316		$	7,786,316		$	-		$	93,892,127		$	93,892,127
Solar energy systems		27,497,343			-			27,497,343			28,918,101			-			28,918,101
Finance revenue		1,175,522			-			1,175,522			1,775,782			-			1,775,782
LED and other		1,281,699			-			1,281,699			4,756,808			2,238,884			6,995,692
Total		29,954,564			7,786,316			37,740,880			35,450,691			96,131,011			131,581,702
Cost of revenue
Solar farm projects		-			7,783,132			7,783,132			-			86,005,849			86,005,849
Solar energy systems		23,535,389			-			23,535,389			23,807,254			-			23,807,254
Other		476,003			-			476,003			4,269,645			1,049,179			5,318,824
Total		24,011,392			7,783,132			31,794,524			28,076,899			87,055,028			115,131,927
Depreciation and amortization expense		343,302			16,558			359,860			341,701			1,140,570			1,482,271
Interest (expense) income, net		(1,980,500	)		169,579			(1,810,921	)		(2,150,188	)		(940,286	)		(3,090,474	)
Equity in (loss) of unconsolidated ventures		325,005			-			325,005			12,499			-			12,499
Equity in (loss) income of solar farm projects		-			544,100			544,100			-			467,960			467,960
(Benefit) provision for income taxes		3,250			(303,911	)		(300,661	)		6,000			1,482,090			1,488,090
Net income (loss)		(2,603,650	)		(716,617	)		(3,320,267	)		(3,417,845	)		4,370,738			952,893

	December 31, 2021						December 31, 2020
	US		PRC		Total		US			PRC		Total
Investments in unconsolidated ventures	$	-	$	-	$	-	$	121,534		$	-	$	121,534
Equity investments in solar farm projects		-		9,299,274		9,299,274		-			8,520,997		8,520,997
Capital expenditures		-		39,887		39,887		(107,103	)		-		(107,103	)
Long-lived assets		11,738,100		18,709,613		30,447,713		19,707,188			16,846,551		36,553,739
Total reportable assets		34,151,952		38,599,084		72,751,036		43,299,884			52,872,652		96,172,536

F-100

SolarMax Technology, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

21. Subsequent Events

The Company has evaluated subsequent events through March 25, 2022, the date the December 31, 2021 consolidated financial statements were available to be issued and except as disclosed below and in Note 1- Description of Business , no other events require adjustment of, or disclosure in, the condensed consolidated financial statements.

Agreement of Merger with SPAC

On January 14, 2022, the Company loaned SPAC $127,836 in connection with the amendment to the Merger Agreement dated October 4, 2021 among the SPAC, the Company and the Merger Sub with respect to extension payments and received a promissory note from the SPAC. The terms of the note are the same as the terms of the other notes for the Extension Payments. This note brought the total amount advanced to the SPAC to $1,387,780.

On March 7, 2022, the Company loaned SPAC $161,020 in connection with the amendment to the Merger Agreement with respect to expenses of the SPAC and received a promissory note from the SPAC. The terms of the note are the same as the terms of the notes for the Extension Payments. See Note 1.

Legal Action

On February 23, 2022, the Los Angeles Superior Court granted and sustained the demurrer by the Company without leave to amend in the legal action by Carmelia Chiang. As a result, subject to any appeal by Carmelia Chiang, the case will be dismissed upon the court’s entry of the orders and judgement.

Extension of Promissory Note

On January 10, 2022, the $2.0 million loan from an unrelated party at an interest rate of 6% per annum which initially matured on April 30, 2021 and which was extended to October 31, 2021 and then to December 31, 2021 and then to March 31, 2022 was further extended to May 31, 2022.

Subsequent Events Unaudited

Termination of Merger Agreement with SPAC

The Company has evaluated subsequent events through May 13, 2022.

On April 20, 2022, the Company notified Alberton that the Company was terminating the Merger Agreement.  On April 22, 2022, Alberton received a determination notice from the Nasdaq Hearings Panel to delist Alberton’s shares from Nasdaq and suspend trading in those shares effective at the open of trading of April 26, 2022 because Alberton was not expected to complete the initial business combination by April 26, 2022.   As of May 13, 2022, the Sponsor and Alberton owed loans to the Company totaling approximately $2.3 million.  Because the merger has been terminated, we will provide for a reserve for the loans to the Sponsor and to Alberton for approximately $2.3 million and we will expense approximately $1.0 million in capitalized costs related to the merger in the second quarter of 2022.

Convertible Notes Issued

In April 2022, the Company issued an additional convertible note in the principal amount of $500,000 to a limited partners of CEF, in exchange for a reduction of $500,000 in the principal amount of the related party notes to CEF. See Note 13.

SBA Loans

In February and April 2022, $1,852,291 of the loans from the Paycheck Protection Program Second Draw were forgiven and in May 2022 the remaining $3,522 of the loans were repaid. See Note 13.

Extension of Forfeiture Date for Restricted Stock

In May 2022, the date for forfeiture if a Public Stock Event has not occurred is extended to December 31, 2022 which date includes restricted shares and options outstanding.

F-101

Supplemental Schedules

Condensed Financial Information of Parent

F-102

Condensed Financial Information of Parent 

Condensed Balance Sheets

As of December 31, 2021 and 2020

	December 31,
	2021			2020
Assets
Cash and cash equivalents	$	41,323		$	9,670
Other current assets		1,516,910			879,836
Notes receivable fom SPAC and sponsor		2,026,960			389,814
Total current assets		3,585,193			1,279,320
Investments in and receivables from affiliates		17,695,694			19,861,047
Other long-term assets		300,324			378,323
Total assets		21,581,211			21,518,690
Liabilities and Stockholders’ Equity
Current liabilities		3,244,200			3,702,224
Long-term debt, current portion		2,000,000			6,100,000
Total current liabilities		5,244,200			9,802,224
Long-term debt, noncurrent portion		23,072,389			15,300,000
Other long-term liabilities		1,711,900			1,635,107
Total liabilities		30,028,489			26,737,331
Stockholders’ equity
Preferred stock		-			-
Common stock		68,944			68,944
Additional paid-in capital		55,758,674			55,977,617
Less: treasury stock at cost		(1,808,889	)		(1,808,889	)
Accumulated deficit		(62,185,477	)		(58,865,210	)
Accumulated other comprehensive loss		(280,530	)		(591,103	)
Total stockholders’ equity (deficit)		(8,447,278	)		(5,218,641	)
Total liabilities and stockholders’ equity	$	21,581,211		$	21,518,690

See accompanying notes to condensed financial information of parent.

F-103

Condensed Financial Information of Parent 

Condensed Statements of Operations

For the Years Ended December 31, 2021 and 2020

	Year ended December 31,
	2021			2020
Revenue	$	10,243,011		$	13,387,472
Management fee income		3,071,449			3,544,335
Total revenues		13,314,460			16,931,807
Cost of revenue		(10,409,230	)		(13,526,823	)
General and administrative expenses		(3,418,620	)		(4,405,788	)
Interest income		153			260
Interest expense		(1,135,444	)		(929,325	)
Other income (expense), net		1,338,817			759,320
Income (loss) before equity in earnings (losses) of affiliates		(309,864	)		(1,170,549	)
Equity in earnings (losses) of affiliates		(2,460,551	)		2,145,403
Income (loss) before income taxes		(2,770,415	)		974,854
Provision (benefit) for income taxes		(450	)		800
Net income (loss)	$	(2,769,965	)	$	974,054

See accompanying notes to condensed financial information of parent.

F-104

Condensed Financial Information of Parent 

Condensed Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

	Year Ended December 31,
	2021			2020
Net cash provided by (used in) operating activities	$	7,908,799		$	1,743,463
Net cash provided by (used in) investing activities		(1,637,146	)		(490,564	)
Cash flow from financing activities:
Long-term debt issued		-			-
Long-term debt repaid		(6,240,000	)		(1,250,000	)
Net cash provided by (used in) financing activities		(6,240,000	)		(1,250,000	)
Net increase (decrease) in cash and cash equivalents and restricted cash		31,653			2,899
Cash and cash equivalents and restricted cash, beginning of year		9,670			6,771
Cash and cash equivalents and restricted cash, end of year	$	41,323		$	9,670
Supplemental disclosures of cash flow information:
Interest paid	$	998,567		$	211,976
Income taxes paid		(800	)		(800	)
Non-cash activities for investing and financing activities:
Issuance of convertible notes in exchange for loan receivable in subsidiary	$	11,000,000		$	19,400,000

See accompanying notes to condensed financial information of parent.

F-105

Notes to Condensed Financial Information of Parent

For the Years Ended December 31, 2021 and 2020

Note 1. Basis of Presentation

The accompanying condensed financial statements of SolarMax Technology, Inc. (“Parent”) should be read in conjunction with the consolidated financial statements and notes thereto of SolarMax Technology, Inc. and Subsidiaries (the “Company”). Parent’s significant accounting policies are consistent with those of the Company.

Note 2. Related Party Transactions

Intercompany Sales

Parent’s revenues include sales of solar panels, LED components, as well as certain battery storage system components to its subsidiaries. Parent does not have any sales to external customers.

Management Fee Income

At a board of directors meeting in July 2016, the board discussed charging management fees from Parent to each United States subsidiary. Subsequently, executive directors implemented a management fee based on 10% of the subsidiary’s revenue to compensate for Parent’s management of each United States subsidiary.

Headquarter Rent Expense Allocation

During the years ended December 31, 2021 and 2020, the total rent expense of the headquarters was $1,497,067 and $1,553,693, respectively, of which $1,200,362 and $1,176,970, respectively, was allocated to United States subsidiaries, based on the estimated square feet occupied by employees and other personnel assigned to such subsidiaries.

Intercompany receivables and payables

Currently, Parent does not have any plans to settle the receivables from and payables to its various subsidiaries. Accordingly, Parent reports the balances in the receivables from and payables to subsidiaries in its investments in subsidiaries.

Intercompany Loan

During the year ended December 31, 2021, Parent issued $11.0 million of 4% secured subordinated convertible notes to settle the CEF related party loans issued by its subsidiary. The intercompany loan issued on behalf of its subsidiary is non-interest bearing and currently has no written agreement. 

F-106

[  ] Shares

SolarMax Technology, Inc.

Common Stock

PROSPECTUS

VIEWTRADE SECURITIES, INC. 

____________, 2020

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

The following table sets forth an itemized statement of the amounts of all expenses (excluding underwriting discounts and commissions and non-accountable expense allowance) payable by us in connection with the registration of the common stock offered hereby. With the exception of the SEC registration fee, the FINRA filing fee and the NASDAQ initial listing fee, the amounts set forth below are estimates.

SEC registration fee	$	3,465.12
FINRA filing fee		6,107.00
NASDAQ initial listing fee		75,000.00
Transfer agent fees		4,000.00
Accounting fees and expenses		270,000.00
Legal fees and expenses		150,000.00
Printing and engraving expenses		15,000.00
Other expenses		26,427.88
Total	$	550,000.00

Item 14. Indemnification of Directors and Officers

Our amended and restated articles of incorporation provides that we shall provide indemnification to our directors and officers to the maximum extent permitted by law. We shall pay advancements of expenses in advance of the final disposition of the action, suit, or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount even if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. Our by-laws also provides for indemnification of our directors and officers.

Under Nevada law, NRS 78.7502, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person (i) is not liable pursuant to Nevada law; or acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, the corporation shall indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense. Any amendment, repeal or modification of these provisions will be prospective only and would not affect any limitation on liability of a director for acts or omissions that occurred prior to any such amendment, repeal or modification.

Pursuant to NRS 78.751, any discretionary indemnification, unless ordered by a court or advanced by the Corporation in a matter as permitted by Nevada law, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made (i) by the stockholders; (ii) by the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (iii) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (iv) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.

II-1

We intend to enter into indemnification agreements with each of our current and future directors and officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Nevada law against liability that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities

The following is a summary of the issuances of unregistered securities during the past three years.

1. From November 2019 through July 13, 2022, the Company and its subsidiary, SolarMax Renewable Energy Provider, Inc., issued their 4% secured subordinated convertible notes in the aggregate principal amount of $34.0 million to limited partners of Clean Energy Funding, LP (“CEF”), a related party that had made loans to the subsidiary. The issuance of the notes was made to the limited partners in lieu of a cash payment pursuant to the partnership agreement of CEF. None of the limited partners is a related party. The issuance of the convertible notes was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.

2. In 2018 and 2019, the Company issued a total of 137,462 shares of common stock to David Hsu, chief executive officer, and 112,471 shares of common stock to Ching Liu, who was then executive vice president pursuant to their employment agreements. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.

II-2

16. Exhibits and Financial Statement Schedules

Exhibit number	Description
1.1	Form of underwriting agreement2
3.1	Amended and Restated Articles of Incorporation.1
3.2	Certificate of Change 1
3.3	Amended and Restated Bylaws.1
4.1	Form of common stock certificate1
4.2	Form of underwriter warrant2
5.1	Opinion of Ellenoff Grossman & Schole LLP as to the legality of the securities being registered2
5.2	Opinion of AllBright Law Office12
10.1	Channel agreement dated January 21, 2015 between Sunrun, Inc. and SolarMax Renewable Energy Provider, Inc.1
10.2	Employment agreement dated October 7, 2016 between the Company and David Hsu.1†
10.3	Employment agreement dated October 7, 2016 between the Company and Ching Liu.1†
10.4	Separation and Release Agreement dated October 1, 2020, by and between the Company Ching Liu
10.5	Form of restricted stock agreement.1†
10.6	2016 Long-term incentive plan. 1†
10.7	Loan agreement dated August 26, 2014, between Clean Energy Funding II, LP and SolarMax LED, Inc.1
10.8	Loan agreement dated January 3, 2012, between Clean Energy Funding, LP (“CEF”) and SolarMax Renewable Energy Provider, Inc. (“SREP”)1
10.9	Lease dated September 16, 2016 between SMX Property, LLC, and the Company.1
10.10	Lease dated September 1, 2016 between Fallow Field, LLC and the Company.1
10.11	Lease dated as of September 1, 2016 between Fallow Field, LLC and SolarMax LED, Inc. (U.S.A.).1

II-3

Table of Contents

10.12	Form of restricted stock exchange agreement for option1
10.13	Form of restricted stock exchange agreement for option and cash1
10.14	Form of extension agreement of payment due pursuant to exchange agreement1
10.15	Client Service Agreement dated October 14, 2019 between SolarMax Renewable Energy Provider, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions1
10.16	Client Service Agreement dated October 14, 2019 between SMX Capital, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions1
10.17	Client Service Agreement dated October 14, 2019 between SolarMax LED, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions1
10.18	Promissory note dated October 24, 2019 payable to SMX Property, LLC1
10.19	Form of exchange agreement among CEF, SREP, the issuer and the limited partners of CEF1
10.20	Form of 4% secured subordinated convertible note issued by the issuer and SREP to limited partners of CEF pursuant to the exchange agreement (Exhibit 10.71)1
10.21	Exchange agreement dated March 27, 2019 between and Company and David Hsu1
10.22	Exchange agreement dated March 27, 2019 between the Company and Ching Lui1
10.23	Letter agreement from David Hsu dated [         ] to extend the cash payment due on the exchange of shares of restricted stock2
10.24	Letter agreement from Ching Liu dated [          ] to extend the cash payment due on the exchange of shares of restricted stock2
21.1	List of Subsidiaries.1
23.1	Consent of Marcum LLP1
23.2	Consent of Ellenoff Grossman & Schole, LLP (included as part of Exhibit 5.1 hereto)2
23.3	Consent of AllBright Law Offices (included as part of Exhibit 5.2)2
23.4	Consent of LCS & Partners1
24.1	Power of Attorney4
107	Filing Fee Table

1	Filed herewith.
2	To be filed by amendment
3	Confidential information in this agreement has been omitted
4	On signature page.
†	Compensatory plan or arrangement.

(b) Financial Statement Schedules. Financial statement schedules are omitted because the required information is not applicable, not required or included in the financial statements or the notes thereto included in the prospectus that forms a part of this registration statement.

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Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Riverside, State of California, on July 18, 2022.

SOLARMAX TECHNOLOGY, INC.
By:	/s/ David Hsu
	David Hsu
	Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints David Hsu and Stephen Brown and each of them acting singly, his true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place, and stead, in any and all capacities, to sign (1) any and all amendments (including post-effective amendments) to this Registration Statement, and (2) any registration statement or post-effective amendment thereto to be filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority, granting unto each said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the date indicated: 

Signature	Title	Date
/s. David Hsu	Chief executive officer and director (principal executive officer)	July 18, 2022
David Hsu
/s/ Stephen Brown	Chief financial officer (principal financial officer)	July 18, 2022
Stephen Brown
/s/ Simon Yuan	Director	July 18, 2022
Simon Yuan
/s/ Jinxi Lin	Director	July 18, 2022
Jinxi Lin
/s/ Wei Yuan Chen	Director	July 18, 2022
Wei Yuan Chen
/s/ Wen-Change (Stephen) Yang	Director	July 18, 2022
Wen-Chang (Stephen) Yang
/s/ Lei Zhang	Director	July 18, 2022
Lei Zhang

II-6

EX-3.1

EXHIBIT 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

SOLARMAX TECHNOLOGY, INC.

Pursuant to NRS Chapter 78

1.The name of the corporation (the “Corporation”) is SolarMax Technology, Inc.

2.The registered agent for services of process is Corporate Creations Network Inc. The address of the registered agent is 8275 South Eastern Avenue, No. 200, Las Vegas, Nevada 89123.

3.(a) The total number of shares of capital stock which the Corporation shall have authority to issue is five hundred fifteen million (515,000,000) shares, of which (i) fifteen million (15,000,000) shares are designated as preferred stock, with a par value of $0.001 per share (“Preferred Stock”) and (ii) five hundred million (500,000,000) shares are designated as common stock, with a par value of $0.001 per share (“Common Stock”).

(b) The Preferred Stock of the Corporation may be issued by the Board of Directors of the Corporation in one or more series and each such series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors of the Corporation may determine, from time to time, including but not limited to:

(i) the designation of such class or series;

(ii) the dividend rate of such class or series, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, whether such dividends shall be cumulative or non-cumulative, and whether such dividends may be paid in shares of any class or series of capital stock or other securities of the Corporation;

(iii) whether the shares of such class or series shall be subject to redemption by the Corporation, and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption;

(iv) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such class or series;

(v) whether or not the shares of such class or series shall be convertible into or exchangeable for shares of any other class or classes or series of capital stock or other securities of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustment and other terms and conditions of such conversion or exchange;

(vi) the extent, if any, to which the holders of the shares of such class or series shall be entitled to vote, as a class or otherwise, with respect to the election of the directors or otherwise, and the number of votes to which the holder of each share of such class or series shall be entitled;

(vii) the restrictions, if any, on the issue or reissue of any additional shares or any class or series of Preferred Stock; and

(viii) the rights of the holders of the shares of such class or series upon the dissolution of, or upon the distribution of assets of, the Corporation.

(c) Holders of shares of Common Stock shall be entitled to cast one vote for each share held at all stockholders’ meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights.

(d) Subject to such rights as may be granted to the holders of any series of Preferred Stock, no holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.

4.The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized in Nevada.

5.Except as otherwise provided by law, a director or officer is not individually liable to the Corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (a) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer; and (b) the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

6.The Corporation shall provide indemnification to its directors and officers to the maximum extent permitted by law. The Corporation shall pay advancements of expenses in advance of the final disposition of the action, suit, or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount even if it is ultimately determined that he or she is not entitled to be indemnified by the corporation.

7.These Restated Articles of Incorporation were approved by the Board of Directors and the holders of a majority of the outstanding shares of common stock pursuant to NRS 78.390 and NRS 78.320, and this instrument correctly sets forth in full the articles of incorporation, as amended and restated.

IN WITNESS WHEREOF, the unsigned officer has signed these restated articles of incorporation this 15^th day of November, 2016.

/s/ David Hsu                        

David Hsu, Chief Executive Officer

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EX-3.2

 EXHIBIT 3.2

 

 

EX-3.3

EXHIBIT 3.3

AMENDED AND RESTATED BYLAWS OF

SOLARMAX TECHNOLOGY, INC.

(a Nevada Corporation)

(adopted effective as of July 11, 2022)

These Restated Bylaws of SolarMax Technology, Inc., a Nevada corporation (the “Corporation”) are adopted pursuant to Section 12.2 of the Corporation’s existing Bylaws (the “Original Bylaws”), and are intended to amend, restate and replace, in their entirety, the Original Bylaws effective as of the date first written above.

ARTICLE 1

OFFICES

SECTION 1.1. Principal Office. The principal offices of the Corporation shall be in such location as the Board of Directors of the Corporation (the “Board of Directors”) may determine.

SECTION 1.2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE 2

MEETINGS OF STOCKHOLDERS

SECTION 2.1. Place of Meeting; Chairman. All meetings of stockholders shall be held at such place, either within or without the State of Nevada, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Chairman of the Board of the Corporation (or the Executive Chairman of the Corporation, if such office is designated and filled in accordance with these Bylaws) (the “Chairman of the Board”) or any other person specifically designated by the Board of Directors shall act as the Chairman for any meeting of stockholders of the Corporation. The Chairman of the Board (or his or her designee) shall have full authority to control the process of any stockholder or Board of Directors meeting, including, without limitation, determining whether any proposals or nominations were properly brought before such meeting, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the Chairman of the Board (or his or her designee) shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, requiring ballots by written consent, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot.

SECTION 2.2. Annual Meetings. The annual meeting of stockholders of the Corporation shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, subject to any postponement in the Board of Directors’ sole discretion, upon notice of such postponement given in any manner deeded reasonable by the Board of Directors.

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SECTION 2.3. Special Meetings. Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed by the Nevada Revised Statutes (“NRS”) or by the Amended and Restated Articles of Incorporation of the Corporation, as the same shall be amended (the “Articles of Incorporation”), may be called exclusively by: (i) the Chairman of the Board or the Chief Executive Officer, President or other executive officer of the Corporation, (ii) a majority of the members of the Board of Directors or (iii) the request in writing of stockholders of record, and only of record, owning not less than sixty-six and two-thirds percent (66 2/3%) of the entire capital stock of the Corporation issued and outstanding and entitled to vote (the “Requisite Percent”). Such request shall state the purpose or purposes of the proposed meeting. The officers or directors shall fix the date, time and any place, either within or without the State of Nevada, as the place for holding such meeting; provided, however, that the date of any such special meeting shall be not more than ninety (90) days after the date on which a special meeting request properly brought pursuant to Sections 2.3 and 2.5 are delivered to the Secretary of the Corporation.

SECTION 2.4. Notice of Meeting. Written notice of the annual and each special meeting of stockholders of the Corporation, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, not less than ten (10) nor more than sixty (60) days before the meeting and shall be signed by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary of the Corporation (the “Secretary”) or such other officer as may be designated by the Board of Directors. The Board of Directors may postpone a special meeting in its sole discretion in any manner it deems reasonable. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described below.

SECTION 2.5. Business Conducted at Meetings.

Section 2.5.1 At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be: (a) specified in the notice of meeting (or any supplement thereto provided within the notice period specified in Section 2.4) given by or at the direction of the Chairman of the Board, the President or the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder or stockholders of record, and only of record, holding the Requisite Percent in accordance with applicable law, these Bylaws or otherwise. In addition to any other applicable requirements set forth in these Bylaws, the U.S. federal securities laws or otherwise, for business to be properly brought before a meeting called by stockholders representing the Requisite Percent, such stockholder(s) must have given timely notice thereof in writing to the Secretary. Any special meeting of the Corporation proposed to be called by a stockholder or stockholders in such capacity shall not be required to be held: (i) with respect to any matter, within 12 months after any annual or special meeting of stockholders at which the same matter was included on the agenda, or if the same matter will be included on the agenda at an annual meeting to be held within 90 days after the receipt by the Corporation of such request (the election or removal of directors to be deemed the same matter with respect to all matters involving the election or removal of directors) or (ii) if the purpose of the special meeting is not a lawful purpose or if such request violates applicable law. A stockholder may revoke a request for a special meeting at any time by written revocation delivered to the Secretary, and if, following such revocation, there are un-revoked requests from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders to request the calling of a special meeting, the Board of Directors, in its discretion, may cancel the special meeting. If none of the stockholders who submitted the request for a special meeting appears or sends a qualified representative to present the nominations proposed to be presented or other business proposed to be conducted at the special meeting, the Corporation need not present such nominations or other business for a vote at such meeting.

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Section 2.5.2 To be timely, a stockholder’s notice of a proposal to be included at an annual meeting must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or the date on which the Corporation mails its proxy materials for the current year if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the prior year) or such other date as may be set forth in a proxy statement with respect to the most recent annual or special meeting for which such information was provided.

Section 2.5.3 A record stockholders’ notice to the Secretary shall set forth in writing as to each matter the stockholder(s) propose to bring before the meeting: (a) a detailed description of the business desired to be brought before the meeting and the reasons for proposing such business, including the complete text of any resolutions, bylaws or Articles of Incorporation amendments proposed for consideration (b) the name and address, as they appear on the Corporation’s books, of the stockholders proposing such business, (c) the class and number of shares of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the stockholders and each of its affiliates (within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended, or any successor rule thereto (“Rule 144”)), including any shares of the Corporation owned or controlled via derivatives, synthetic securities, hedged positions and other economic and voting mechanisms, (d) any material interest of the stockholders in such proposed business and any agreements or understandings to which such stockholders are a party which relate in any way, directly or indirectly, to the proposed business to be conducted, including a description of all arrangements or understandings between such stockholder and any other person or persons (including their names), (e) a representation as to whether or not such stockholder intends to solicit proxies; (f) a representation as to whether or not such stockholder intends to appear in person or by proxy at the applicable meeting, and (g) such other information regarding the stockholder in his, her or its capacity as a proponent of a stockholder proposal that would be required to be disclosed in a proxy statement or other filing with the United States Securities and Exchange Commission (“SEC”) required to be made in connection with the contested solicitation of proxies pursuant to the SEC’s proxy rules.

Section 2.5.4 Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, in his or her sole discretion, determine and declare to the meeting whether or not any business was properly brought before the meeting. Any such business not properly brought before the meeting shall not be transacted. Nothing in this Section 2.5 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement to the extent that such right is provided by an applicable rule of the SEC. Notwithstanding the foregoing, the advance notice provisions of these Bylaws shall apply to all stockholder proposals regardless of whether such proposal is sought to be included in the Corporation’s proxy statement or in a separate proxy statement.

SECTION 2.6. Nomination of Directors. Nomination of candidates for election as directors of the Corporation at any meeting of stockholders called for the election of directors, in whole or in part (an “Election Meeting”), must be made by the Board of Directors or by any stockholder entitled to vote at such Election Meeting, in accordance with the following procedures.

Section 2.6.1. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors or by written consent of the directors in lieu of a meeting prior to the date of the Election Meeting. At the request of the Corporation, each proposed individual nominated by the Board of Directors shall provide the Corporation with such information concerning himself or herself as is required, under the rules of the SEC and any applicable securities exchange, to be included in the Corporation’s proxy statement soliciting proxies for his or her election as a director.

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Section 2.6.2. The exclusive means by which a stockholder may nominate a director shall be: (i) in the case of the nomination of a director for election at an annual meeting, by delivery of a notice to the Secretary, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or the date on which the Corporation mails its proxy materials for the current year if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the prior year) or the date set forth in such prior year’s statement for such purpose; or (ii) in the case of the nomination of a director for election at a special meeting (other than pursuant to a special meeting request in accordance with the requirements set forth in Sections 2.3 and 2.5), not less than ninety (90) days nor more than one hundred twenty (120) days prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (of the date of such special meeting was first made, setting forth: (a) the name, age, business address and the primary legal residence address of each nominee proposed in such notice, (b) the principal occupation or employment of such nominee, (c) the number of shares of capital stock of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the nominee and each of its affiliates (within the meaning of Rule 144), including any shares of the Corporation owned or controlled via derivatives, hedged positions and other economic and voting mechanisms, (d) any material agreements, understandings or relationships, including financial transactions and compensation, between the nominating stockholder and the proposed nominees, (e) such other information concerning each such nominee as would be required, under the rules of the SEC, in a proxy statement soliciting proxies in a contested election of such nominees, and (f) a representation that neither such nominee nor any of such nominee’s affiliates is subject to a “bad actor” disqualification pursuant to paragraph (d) of Rule 506 of the SEC. Such notice shall include a signed consent of each such nominee to serve as a director of the Corporation, if elected. In addition, any stockholder nominee, to be validly nominated, shall submit to the Secretary the questionnaire required pursuant to Section 2.6.3 of these Bylaws. A stockholder intending to nominate one or more candidates for election as directors must comply with the advance notice bylaw provisions specifically applicable to the nomination of candidates for election as directors for such nomination to be properly brought before the meeting. For purposes of these Bylaws, “public disclosure” shall mean shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the SEC pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

Section 2.6.3 To be eligible to be a director nominee nominated by a stockholder or stockholders for election or reelection as a director of the Corporation, such nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.6.2 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire (the “Questionnaire”) with respect to the background, qualification and experience of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be in the form approved by the Corporation and provided by the Secretary or such Secretary’s designee) and a written representation and agreement that such person: (a) will abide by the requirements of these Bylaws and the Articles of Incorporation as in effect at the time of their nomination and as validly amended, (b) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (c) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (d) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. If, prior to the Election Meeting, there is a change in any information set forth on the Questionnaire, then such director candidate shall promptly notify the Secretary by submitting a revised Questionnaire.

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Section 2.6.4. In the event that a person is validly designated by the Board of Directors as a nominee in accordance with this Section 2.6 and shall thereafter become unable or willing to stand for election to the Board of Directors, the Board of Directors may designate a substitute nominee who meets all applicable standards under these Bylaws.

Section 2.6.5. If the Chairman of the Election Meeting determines that a nomination was not made in accordance with the foregoing procedures, such nomination shall be void.

SECTION 2.7. Quorum; Adjournment.

Section 2.7.1 The holders of one-third of the shares of capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy (provided the proxy has authority to vote on atleast one matter at such meeting), shall constitute a quorum at any meeting of stockholders for the transaction of business, except when stockholders are required to vote by class, in which event a one-third of the issued and outstanding shares of the appropriate class shall be present in person or by proxy (provided the proxy has authority to vote on atleast one matter at such meeting)in order to constitute a quorum as to such class vote, and except as otherwise provided by the NRS or by the Articles of Incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 2.7.2 Notwithstanding any other provision of the Articles of Incorporation or these Bylaws, at any annual or special meeting of stockholders of the Corporation, whether or not a quorum is present, the Chairman of the Board or the person presiding as Chairman of the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, whether or not a quorum shall be present or represented. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with Section 2.4 of these Bylaws. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

SECTION 2.8. Voting; Proxies.

Section 2.8.1 Except as provided for below or by applicable law, rule or regulation, when a quorum is present at any meeting of the stockholders, any action by the stockholders on a matter except the election of directors shall be approved if approved by the majority of the votes cast. Each nominee for director shall be elected by the majority of the votes cast with respect to that nominee’s election at any meeting for the election of directors at which a quorum is present, provided, however, that, in the case of a director nominee in a Contested Election, the Board of Directors, in its sole discretion, may determine that directors shall be elected by a plurality of the votes cast in any Contested Election, such determination to be made no later than five (5) days prior to the date of the Election Meeting as initially announced. For purposes of these Bylaws, a “Contested Election” means an election of directors with respect to which the Board of Directors determines that the number of nominees exceeds the number of directors to be elected and the Board of Directors has not rescinded such determination by the date that is five (5) days prior to the date of the Election Meeting as initially announced. In determining the number of votes cast in a Contested Election, abstentions and broker non-votes, if any, will not be treated as votes cast. The provisions of this paragraph will govern with respect to all votes of stockholders except as otherwise provided for in the Articles of Incorporation or by a specific statutory provision superseding the provisions of these Bylaws.

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Section 2.8.2 Every stockholder having the right to vote shall be entitled to vote in person, or by proxy: (a) appointed by an instrument in writing subscribed by such stockholder or by his or her duly authorized attorney or (b) authorized by the transmission of an electronic record by the stockholder to the person who will be the holder of the proxy or to a firm which solicits proxies or like agent who is authorized by the person who will be the holder of the proxy to receive the transmission subject to any procedures the Board of Directors may adopt from time to time to determine that the electronic record is authorized by the stockholder; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. If such instrument or record shall designate two (2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1). Unless required by the NRS or determined by the Chairman of the meeting to be advisable, the vote on any matter need not be by written ballot. No stockholder shall have cumulative voting rights.

SECTION 2.9. Consent of Stockholders. Whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with if stockholders, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, consent in writing to such corporate action being taken; provided, that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by the NRS. Any action by consent of the stockholders pursuant to this Section 2.9 must follow the notice and timing procedures of Section 2.5 applicable to any business to be conducted at a stockholder meeting. Further, upon the request of a stockholder to conduct a consent solicitation, the Board of Directors shall adopt a resolution fixing a record date within ten (10) days of the date on which a request therefor is received, provided that such record date shall not be more than ten (10) days after the date of the adoption of such resolution.

SECTION 2.10. Voting of Stock of Certain Holders. Shares standing in the name of another entity, domestic or foreign, may be voted by such officer, agent or proxy as the governing documents of such entity may prescribe, or in the absence of such provision, as the Board of Directors or governing body of such entity may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares outstanding in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the Corporation, he or she has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his or her proxy, may represent the stock and vote thereon.

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SECTION 2.11. Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares.

SECTION 2.12. Fixing Record Date. The Board of Directors may fix in advance a date for any meeting of stockholders (which date shall not be more than sixty (60) nor less than ten (10) days preceding the date of any such meeting of stockholders), a date for payment of any dividend or distribution, a date for the allotment of rights, a date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining a consent of stockholders (which date shall not precede or be more than ten (10) days after the date the resolution setting such record date is adopted by the Board of Directors), in each case as a record date (the “Record Date”) for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, to receive payment of any such dividend or distribution, to receive any such allotment of rights, to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, as the case may be. In any such case such stockholders and only such stockholders as shall be stockholders of record on the Record Date shall be entitled to such notice of and to vote at any such meeting and any adjournment thereof, to receive payment of such dividend or distribution, to receive such allotment of rights, to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such Record Date.

ARTICLE 3

BOARD OF DIRECTORS

SECTION 3.1. Powers. The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Subject to compliance with the provisions of the NRS, the powers of the Board of Directors shall include the power to make a liquidating distribution of the assets, and wind up the affairs of, the Corporation.

SECTION 3.2. Number and Qualifications. The number of directors which shall constitute the whole Board of Directors shall be not less than one (1) and not more than nine (9). Within the limits above specified, the number of the directors of the Corporation shall be determined solely in the discretion of the Board of Directors from time to time. All directors shall be elected annually. Directors need not be residents of Nevada or stockholders of the Corporation.

SECTION 3.3. Vacancies, Additional Directors; Removal From Office; Resignation.

SECTION 3.3.1 If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created in accordance with Section 3.2 by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, but not the stockholders of the Corporation, may choose a successor or fill the newly created directorship. Any director so chosen shall hold office for the unexpired term of his or her predecessor in his or her office and until his or her successor shall be elected and qualified, unless sooner displaced.

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SECTION 3.3.2 No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

SECTION 3.3.3 The stockholders of the Corporation may remove a member of the Board of Directors by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the issued and outstanding stock entitled to vote.

SECTION 3.3.4 Any director may resign or voluntarily retire upon giving written notice to the Chairman of the Board or the Board of Directors. Such retirement or resignation shall be effective upon the giving of the notice, unless the notice specifies a later time for its effectiveness. If such retirement or resignation is effective at a future time, the Board of Directors may elect a successor to take office when the retirement or resignation becomes effective.

SECTION 3.4. Regular Meetings. A regular meeting of the Board of Directors shall be held each year, without notice other than this Bylaw provision, at the place of, and immediately prior to and/or following, the annual meeting of stockholders; and other regular meetings of the Board of Directors shall be held during each year, at such time and place as the Board of Directors may from time to time provide by resolution, either within or without the State of Nevada, without other notice than such resolution. The Board of Directors shall keep minutes of its regular meetings.

SECTION 3.5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of any two (2) directors (should there be such number then in office). The Chairman of the Board or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Nevada, as the place for holding such meeting. The Board of Directors shall keep minutes of its special meetings.

SECTION 3.6. Notice of Special Meeting. Written notice (including via e-mail) of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to the time of a special meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given with respect to any matter when notice is required by the NRS.

SECTION 3.7. Quorum. A majority of the Board of Directors then serving shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the NRS, by the Articles of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved of by at least a majority of the required quorum for that meeting.

SECTION 3.8. Action Without Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article 4 of these Bylaws, may be taken without a meeting, if a written consent thereto is signed by all of the members of the Board of Directors or of such committee, as the case may be. Evidence of any consent to action under this Section 3.9 may be provided in writing, including electronically via email or facsimile.

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SECTION 3.9. Meeting by Telephone. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken by means of a meeting by telephone conference or similar communications method so long as all persons participating in the meeting can hear each other. Any person participating in such meeting shall be deemed to be present in person at such meeting.

SECTION 3.10. Compensation. Directors, as such, may receive reasonable compensation for their services, which shall be set by the Board of Directors, and expenses of attendance at each regular or special meeting of the Board of Directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving additional compensation therefor. Members of special or standing committees may be allowed like compensation for their services on committees.

SECTION 3.11. Rights of Inspection. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts.

SECTION 3.12 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if: (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or their committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE 4

COMMITTEES OF DIRECTORS

SECTION 4.1. Generally. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more additional special or standing committees, each such additional committee to consist of one or more of the directors of the Corporation. Each such committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except as delegated by these Bylaws or by the Board of Directors to another standing or special committee or as may be prohibited by law.

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SECTION 4.2. Committee Operations. A majority of a committee shall constitute a quorum for the transaction of any committee business. Such committee or committees shall have such name or names and such limitations of authority as provided in these Bylaws or as may be determined from time to time by resolution adopted by the Board of Directors. The Corporation shall pay all expenses of committee operations. The Board of Directors may designate one or more appropriate directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any members of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another appropriate member of the Board of Directors to act at the meeting in the place of any absent or disqualified member.

SECTION 4.3. Minutes. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Corporation’s Secretary, or any other person designated by the applicable committee shall (a) serve as the Secretary of the special or standing committees of the Board of Directors of the Corporation, (b) keep regular minutes of standing or special committee proceedings, (c) make available to the Board of Directors, as required, copies of all resolutions adopted or minutes or reports of other actions recommended or taken by any such standing or special committee and (d) otherwise as requested keep the members of the Board of Directors apprised of the actions taken by such standing or special committees.

ARTICLE 5

NOTICE

SECTION 5.1. Methods of Giving Notice.

SECTION 5.1.1. Notice to Directors or Committee Members. Whenever under the provisions of the NRS, the Articles of Incorporation or these Bylaws, notice is required to be given to any director or member of any committee of the Board of Directors, personal notice is not required but such notice may be: (a) given in writing and mailed to such director or committee member, (b) sent by electronic transmission (including via e-mail) to such director or committee member, or (c) given orally or by telephone; provided, however, that any notice from a stockholder to any director or member of any committee of the Board of Directors must be given in writing and mailed to such director or member and shall be deemed to be given upon receipt by such director or member. If mailed, notice to a director or member of a committee of the Board of Directors shall be deemed to be given when deposited in the United States mail first class, or by overnight courier, in a sealed envelope, with postage thereon prepaid, addressed, to such person at his or her business address. If sent by electronic transmission, notice to a director or member of a committee of the Board of Directors shall be deemed to be given if by (i) facsimile transmission, when receipt of the fax is confirmed electronically, (ii) electronic mail, when delivered to an electronic mail address of the director or member, (iii) a posting on an electronic network together with a separate notice to the director or member of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when delivered to the director or member.

SECTION 5.1.2. Notices to Stockholders. Whenever under the provisions of the NRS, the Articles of Incorporation or these Bylaws, notice is required to be given to any stockholder, personal notice is not required but such notice may be given: (a) in writing and mailed to such stockholder, (b) by a form of electronic transmission consented to by the stockholder to whom the notice is given or (c) as otherwise permitted by the SEC. If mailed, notice to a stockholder shall be deemed to be given when deposited in the United States mail in a sealed envelope, with postage thereon prepaid, addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation. If sent by electronic transmission, notice to a stockholder shall be deemed to be given if by (i) facsimile transmission, when directed to a number at which the stockholder has consented to receive notice, (ii) electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (iii) a posting on an electronic network together with a separate notice to the stockholder of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when directed to the stockholder.

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SECTION 5.2. Written Waiver. Whenever any notice is required to be given by the NRS, the Articles of Incorporation or these Bylaws, a waiver thereof in a signed writing or sent by the transmission of an electronic record attributed to the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

SECTION 5.3. Consent. Whenever all parties entitled to vote at any meeting, whether of directors or stockholders, consent, either by a writing on the records of the meeting or filed with the Secretary, or by presence at such meeting and oral consent entered in the minutes of such meeting, or by taking part in the deliberations at such meeting without objection, the actions taken at such meeting shall be as valid as if had at a meeting regularly called and noticed. At such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for lack of notice is made at the time, and if any meeting be irregular for lack of notice or such consent, provided a quorum was present at such meeting, the proceedings of such meeting may be ratified and approved and rendered valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote thereat. Such consent or approval, if given by stockholders, may be by proxy or power of attorney, but all such proxies and powers of attorney must be in writing.

ARTICLE 6

OFFICERS

SECTION 6.1. Officers.

SECTION 6.1.1 The officers of the Corporation shall include the Chairman of the Board (or Executive Chairman, if the Board of Directors designates such office), the President, the Secretary and the Treasurer, each as approved and appointed by the Board of Directors.

SECTION 6.1.2 The officers of the Corporation may further include a Chief Executive Officer and a Chief Financial Officer, each as approved and appointed by the Board of Directors, and may further include, without limitation, such other executive or subordinate officers and agents, including, without limitation, one or more Vice Presidents (any one or more of which may be designated Senior Executive Vice President, Executive Vice President, Senior Vice President or such other title as may be determined by the Board of Directors), Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, in each case as the Board of Directors deems necessary and approve and appoint.

SECTION 6.1.3 The Board of Directors may in its discretion delegate to the President the power and authority to appoint subordinate officers of the Corporation and to prescribe their respective duties and powers, but in any instance the Chairman of the Board, the President, the Secretary, the Treasurer and, if designated, the Chief Executive Officer, Chief Financial Officer or any other officer responsible for a principal business unit, division or function of the Corporation (such as sales, administration or finance), or any other officer who performs a policy making function (collectively, the “Principal Officers”), shall be subject to the approval of and appointment by the Board of Directors.

SECTION 6.1.4 All officers of the Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as prescribed by these Bylaws, the Board of Directors or President, as applicable. Any two or more offices may be held by the same person. The Chairman of the Board shall be elected from among the directors. With the foregoing exception, none of the other officers need be a director, and none of the officers need be a stockholder of the Corporation.

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SECTION 6.2. Election and Term of Office. The Principal Officers shall each be elected only by, and shall serve only at the pleasure of, the Board of Directors. All other officers of the Corporation may be appointed as the Board of Directors or the President deem necessary and elect or appoint. The officers of the Corporation shall be elected or ratified annually by the Board of Directors at its first regular meeting held concurrently with or after the annual meeting of stockholders or as soon thereafter as conveniently possible (or, in the case of those officers elected or appointed other than by the Board of Directors, ratified at the Board of Directors’ first regular meeting held following their election or appointment or as soon thereafter as conveniently possible). Subject to the terms and conditions of any applicable contract between an officer and the Corporation, each officer shall hold office until his or her successor shall have been chosen and shall have qualified or until his or her death or the effective date of his or her resignation or removal, or until he or she shall cease to be a director in the case of the Chairman of the Board.

SECTION 6.3. Removal and Resignation. Any officer or agent may be removed, either with or without cause, by the affirmative vote of a majority of the Board of Directors and, other than the Principal Officers, may also be removed, either with or without cause, by action of the President whenever, in his, her judgment, the best interests of the Corporation shall be served thereby, but such right of removal and any purported removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any Principal Officer or other officer or agent may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 6.4. Vacancies. Any vacancy occurring in any Principal Officer office by death, resignation, removal or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. Any vacancy in any other office may be filled as the Board of Directors or President deem necessary.

SECTION 6.5. Compensation. The compensation of the Principal Officers shall be determined by the Board of Directors or a designated committee thereof. Compensation of all other officers and employees of the Corporation shall be determined by the President in consultation with the Board of Directors or a designated committee thereof and in accordance with any charter of any such committee as has been approved by the Board of Directors or any policies as have been approved by the Board of Directors. No officer who is also a director shall be prevented from receiving such compensation by reason of his or her also being a director.

SECTION 6.6. Chairman of the Board. The Chairman of the Board (who may also be designated as Executive Chairman), shall preside at all meetings of the Board of Directors and of the stockholders of the Corporation. In the Chairman of the Board’s absence, such duties shall be attended to by any vice chairman of the Board of Directors, or if there is no vice chairman, or such vice chairman is absent, then by the President. The Chairman of the Board shall act as liaison between the Board of Directors and the executive officers of the Corporation and shall be responsible for general oversight of such executive officers. The Chairman of the Board may also hold the position of Chief Executive Officer or President, if so approved or appointed by the Board of Directors. The Chairman of the Board shall formulate and submit to the Board of Directors matters of general policy for the Corporation and shall perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors. He or she may sign with the President or any other officer of the Corporation thereunto authorized by the Board of Directors certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds or bonds, which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated or reserved by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed.

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SECTION 6.7. Chief Executive Officer. The Chief Executive Officer shall, subject to the oversight by and control of the Board of Directors, have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall keep the Board of Directors fully informed and shall consult them concerning the business of the Corporation. Subject to the supervisory powers of the Board of Directors, the Chief Executive Officer may sign with any other officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of capital stock of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed. In general, the Chairman of the Board shall perform all other duties normally incident to the office of the Chairman of the Board, except any duties expressly delegated to other persons by these Bylaws, the Board of Directors and such other duties as may be prescribed by the Board of Directors from time to time.

SECTION 6.8. President. The President shall, in general, perform such duties as usually pertain to the position of president and such duties as may be prescribed by the Board of Directors. The President may also, but shall not be required to, hold the position of Chief Executive Officer of the Corporation, if so approved or appointed by the Board of Directors.

SECTION 6.9. Chief Financial Officer. The Chief Financial Officer, if any, shall, in general, perform such duties as usually pertain to the position of chief financial officer and such duties as may be prescribed by the Board of Directors. The Chief Financial Officer (or the Treasurer, if the office of Chief Financial Officer is unoccupied) shall prepare annually (by the thirtieth (30th) day following the end of each fiscal year) a customary and appropriate financial and operational budget of income, expense and cash flows of the Company for the upcoming fiscal year, which budget shall be reviewed and approved by the Board of Directors. Such budget shall be updated quarterly (including a reconciliation of the Company’s actual performance versus the approved budget) and presented to the Board of Directors for review and revision as determined by the Board of Directors.

SECTION 6.10. Secretary. The Secretary shall: (a) keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors; (b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (c) be custodian of the corporate records and of the seal of the Corporation, and see that the seal of the Corporation or a facsimile thereof is affixed to all certificates for shares prior to the issuance thereof and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be furnished by such stockholder; (e) have general charge of other stock transfer books of the Corporation; and (f) in general, perform all duties normally incident to the office of the Secretary and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President or the Board of Directors.

SECTION 6.11. Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 7.3 of these Bylaws; and (b) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board of Directors or the President. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine.

SECTION 6.12. Interim Officer Status. Any office of the Corporation may be designated by the Board of Directors as interim, and such interim status shall be on such terms and for such duration as may be designated by the Board of Directors.

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ARTICLE 7

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

SECTION 7.1. Contracts. Subject to the provisions of Section 6.1, the Board of Directors may authorize any officer, officers, agent or agents to enter into any contract or execute and deliver an instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

SECTION 7.2. Checks, etc. All checks, demands, drafts or other orders for the payment of money, and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as shall be determined by the Board of Directors.

SECTION 7.3. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the President, the Treasurer or the Chief Financial Officer may be empowered by the Board of Directors to select or as the Board of Directors may select.

SECTION 7.4. Voting of Securities Owned by Corporation. All stock and other securities of any other corporation owned or held by the Corporation for itself, or for other parties in any capacity, and all proxies with respect thereto shall be executed by the person authorized to do so by resolution of the Board of Directors or, in the absence of such authorization, by any Principal Officer.

ARTICLE 8

SHARES OF STOCK

SECTION 8.1. Issuance. Each stockholder of the Corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his or her name on the books of the Corporation. The certificates shall be in such form as may be determined by the Board of Directors, shall be issued in numerical order and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder’s name and the number of shares and shall be signed by the Chairman of the Board and the President or such other officers as may from time to time be authorized by resolution of the Board of Directors. Any or all the signatures on the certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such officer had not ceased to be such officer at the date of its issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designation, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of stock; provided that except as otherwise provided by the NRS, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish to each stockholder who so requests the designations, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new certificate (or uncertificated shares in lieu of a new certificate) may be issued therefor upon such terms and with such indemnity, if any, to the Corporation as the Board of Directors may prescribe. In addition to the above, all certificates (or uncertificated shares in lieu of a new certificate) evidencing shares of the Corporation’s stock or other securities issued by the Corporation shall contain such legend or legends as may from time to time be required by the NRS.

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SECTION 8.2. Lost Certificates. The Board of Directors may direct that a new certificate or certificates (or uncertificated shares in lieu of a new certificate) be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates (or uncertificated shares in lieu of a new certificate), the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both.

SECTION 8.3. Transfers. In the case of shares of stock represented by a certificate, upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney and filed with the Secretary and the Corporation’s transfer agent, if any.

SECTION 8.4. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Nevada.

SECTION 8.5. Uncertificated Shares. The Board of Directors may approve the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series of capital stock.

ARTICLE 9

DIVIDENDS

SECTION 9.1. Declaration. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Articles of Incorporation.

SECTION 9.2. Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

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ARTICLE 10

LIMITATION ON LIABIILTY AND INDEMNIFICATION

SECTION 10.1 No director or officer shall be personally liable to the Corporation or its shareholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law: (i) for acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for any transaction from which the director derived an improper personal benefit. If the NRS is hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by applicable law. No amendment to or repeal of this Section shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

SECTION 10.2 The Corporation shall, to the maximum extent permitted under the applicable law and except as set forth below, indemnify, old harmless and, upon request, advance expenses to each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan (any such person being referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Notwithstanding anything to the contrary in this Section, (a) the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with any action, suit, proceeding, claim or counterclaim, or part thereof initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors, and (b) the Corporation shall not indemnify any person for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, final beyond right of review, all appeals having been exhausted, to be liable to the Corporation or for amounts paid in settlement to the Corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines, upon application, that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

16

SECTION 10.3 Advance of Expenses. Notwithstanding any other provisions of the Articles of Incorporation, these Bylaws, or any agreement, vote of stockholder or disinterested directors, or arrangement to the contrary, the Corporation shall advance payment of expenses incurred by an Indemnitee in advance of the final disposition of any matter only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Section. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment.

SECTION 10.4 Subsequent Amendment. No amendment, termination or repeal of this Article 10 or of the relevant provisions of the Chapter 78 of the NRS or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

SECTION 10.5 Other Rights. The Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Section.

SECTION 10.6 Reliance. Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this Section in entering into or continuing such service. The rights to indemnification and to the advance of expenses conferred in this Section shall apply to claims made against an Indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof.

SECTION 10.7 Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Section with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation,

SECTION 10.8 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was, or has agreed to become, a director, officer, employee or agent of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, against all expenses (including attorney's fees) judgments, fines or amounts paid in settlement incurred by such person in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such expenses under the Chapter 78 of the NRS.

SECTION 10.9 Savings Clause. If this Article 10 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses, including attorneys' fees, judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article 10 that shall not have been invalidated and to the fullest extent permitted by applicable law.

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SECTION 10.10 Contested Director Indemnification. Notwithstanding anything to the contrary contained in these Bylaws, a director who was elected in any Contested Election who is not a continuing director shall not be entitled to any indemnification or advancement of expenses unless and until a majority of the continuing directors vote that the indemnification provisions set forth in this Article 10 shall apply to such newly elected director.

ARTICLE 11

MISCELLANEOUS

SECTION 11.1. Books. The books of the Corporation may be kept within or without the State of Nevada (subject to any provisions contained in the NRS) at such place or places as may be designated from time to time by the Board of Directors.

SECTION 11.2. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as may be designated by the Board of Directors.

SECTION 11.3 Forum Selection.  Except as otherwise provided by law, unless the Corporation consents in writing to the selection of an alternative forum, a state court located in the County of Clark in the State of  Nevada shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any actions asserting a claim arising pursuant to any provision of the NRS, the Articles of Incorporation or these Bylaws, in each case as amended, or (iv) any action asserting a claim governed by the internal affairs doctrine, in each such case subject to such court having personal jurisdiction over the indispensable parties named as defendants therein.  Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 11.3.  This Section 11.3 shall not relate to claims under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

ARTICLE 12

AMENDMENTS

SECTION 12.1 Amendment by Stockholders. The stockholders of the Corporation may alter, amend, repeal or the remove these Bylaws or any portion thereof only by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the stockholders entitled to vote at a meeting of the stockholders, duly called; provided, however, that no such change to any Bylaw shall alter, modify, waive, abrogate or diminish the Corporation’s obligation to provide the indemnity called for by Article 10 of these Bylaws, the Articles of Incorporation or applicable law.

SECTION 12.2 Amendment by the Board of Directors. Notwithstanding Section 12.1, the Board of Directors may, by majority vote of those present at any meeting at which a quorum is present, alter, amend or repeal these Bylaws or any portion thereof, or enact such other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation.

# # #

18

EX-4.1

EXHIBIT 4.1 

EX-5.2

EXHIBIT 5.2

Date: July 15, 2022

To:

David Hsu, Chief Executive Officer

SOLARMAX TECHNOLOGY, INC.

3080 12th Street                                                              

Riverside, California 92507

Re: SolarMax Technology, Inc

We are a law firm qualified to practice in the People’s Republic of China (the “PRC”). We have acted as PRC legal counsel to SolarMax Technology, Inc, a Nevada Corporation (the “Company”). We have been requested by the Company to render an opinion in connection with the proposed initial public offering (the “Offering”) by the Company in accordance with the Company’s registration statement on Form S-1, including all amendments or supplements thereto (the “Registration Statement”), filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) under the U.S. Securities Act of 1933, as amended.

A. Documents and Assumptions

For the purpose of giving this opinion, we have examined the Registration Statement, the originals or copies of documents provided to us by the Company and such other documents, corporate records, certificates, approvals and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion (the “Documents”).

Without prejudice to the foregoing, we have also made due enquiries as to other facts and questions of law as we have deemed necessary in order to render this opinion.

A company search conducted in the Companies Registry of the PRC (the "Companies Registry") is limited in respect to the information it produces. Further, a company search does not determine conclusively whether or not an order has been made or a resolution has been passed for the winding up of a company or for the appointment of a liquidator or other person to control the assets of a company, as notice of such matters might not be filed immediately and, once filed, might not appear immediately on a company’s public file.  Moreover, a company search carried out in the PRC is unlikely to reveal any information as to any such procedure initiated by the Company in any other jurisdiction.

1

For the purpose of this opinion we have assumed:

(a)	the genuineness of all signatures and seals, the conformity to originals of all documents purporting to be copies of originals and the authenticity of the originals of the Documents;
(b)	that such of the documents as contain resolutions of directors and members, respectively, or extracts of minutes of meetings of the directors and meetings of the members, respectively accurately and genuinely represent proceedings of meetings of the directors and of meetings of members, respectively, of which adequate notice was either given or waived, and any necessary quorum present throughout;
(c)	the accuracy and completeness of all factual representations (if any) made in the Documents;
(d)	that insofar as any obligation under the Documents is to be performed in any jurisdiction outside PRC, its performance will not be illegal or unenforceable by virtue of the law of that jurisdiction;
(e)	that the information disclosed by the company searches referred to above is accurate and complete as at the time of this opinion and conforms to records maintained by the Company and that, in the case of the company search, the search did not fail to disclose any information which had been filed with or delivered to the Companies Registry but had not been processed at the time when the search was conducted; and
(f)	that there has been no change in the information contained in the latest records of the Company under the Companies Registry made up to the issuance of this opinion.

 

We have made no investigation on and expressed no opinion in relation to the laws of any country or territory other than the PRC. This opinion is limited to and is given on the basis of the current PRC Laws, as defined below, and is to be construed in accordance with, and is governed by, the PRC Laws.

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B. Definitions

Capitalized terms used in this Opinion shall have the meanings ascribed to them as follows:

As used herein,

(a) “Company” means SolarMax Technology, Inc.;

(b) “Governmental Agency” means any national, provincial or local governmental, regulatory or administrative authority, agency or commission in the PRC, or any court, tribunal or any other judicial or arbitral body in the PRC, or any body exercising, or entitled to exercise, any administrative, judicial, legislative, police, regulatory, or taxing authority or power of similar nature in the PRC;

(c) “Governmental Authorization” means any license, approval, consent, waiver, order, sanction, certificate, authorization, filing, declaration, disclosure, registration, exemption, permission, endorsement, annual inspection, clearance, qualification, permit or license by, from or with any Governmental Agency pursuant to any PRC Laws;

 (d) “M&A Rule” means the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which was issued by the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission (the “CSRC”) and the State Administration of Foreign Exchange, on August 8, 2006 and became effective on September 8, 2006, as amended by the Ministry of Commerce on June 22, 2009;

(e) “PRC Laws” mean all applicable laws, regulations, rules, orders, decrees and the supreme court judicial interpretations of the PRC in effect on the date of this opinion;

(f) “SAFE” State Administration for Foreign Exchange;

(g) “WFOE” means Solarmax Technology (Shanghai) Co.., Ltd. (上海弘冠光能科技有限公司);

(h) “ZHPV” mean Jiangsu Zhonghong Photovoltaic Engineering Technology Limited Company (江苏中弘光伏工程技术有限公司).

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C. Opinion

Based upon and subject to the foregoing descriptions, assumptions and further subject to the qualifications set forth below, we are of the opinion that as at the date hereof:

(i)	Based on our understanding of the current PRC Laws, the ownership structure of WFOE and its PRC subsidiaries, as description in “Our Corporate Structure” of the Registration Statement, both currently and immediately after giving effect to the Offering, does not and will not violate applicable PRC Laws.
(ii)	Each of WFOE and ZHPV was duly incorporated and valid existing as foreign investment enterprise under the PRC laws and has completed necessary filing as foreign investment enterprise with SAFE according to PRC Laws.
(iii)	M&A Rules. We have advised the Company as to the content of the M&A Rules, in particular the relevant provisions thereof that purport to require offshore special purpose vehicles formed for the purpose of obtaining a stock exchange listing outside of PRC and controlled directly or indirectly by Chinese companies or natural persons, to obtain the approval of the CSRC prior to the listing and trading of their securities on any stock exchange located outside of the PRC. We have advised the Company based on our understanding of the PRC Laws that the CSRC’s approval is not required for the listing and trading of the Company’s stock on the New York Stock Exchange or NASDAQ in the context of this Offering, given that (i) the Company is currently not controlled by PRC citizens and (ii) WFOE was incorporated as a wholly-foreign owned enterprise and ZHPV was acquired by Accumulated Investment Co., Limited, a Hong Kong Company, which was established by Hong Kong resident.
(iv)	ZHPV obtained Construction Enterprise Qualification Certificate (“Qualifications”) for Level III of General Contractor for Power Engineering Constructor issued on December 28, 2021, which permit ZHPV to conduct business as a contractor in power engineering construction business according to PRC Laws based on such Qualification.
(v)	Cybersecurity Review Measures. On December 28, 2021, Cyberspace Administration of China (“CAC”), National Development and Reform Commission, Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration, State Cryptography Administration jointly promulgated Cybersecurity Review Measures, which took effective on February 15, 2022. Article 7 of Cybersecurity Review Measures provides that, an application for cybersecurity review shall be made by an issuer who is an internet platform operator holding personal information of more than one million users before such issuer applies to list its securities on a foreign stock exchange. To our knowledge, none of WFOE and ZHPV has received any notice from the CAC for cybersecurity review nor operated as an internet platform with one million users as of the date of issuance of this opinion. As of the date of issuance of this opinion, it is, therefore, unlikely for the Company to be applicable for above cybersecurity review under Article 7. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC Laws. Accordingly, a PRC Governmental Agency may take a view that is contrary to this opinion.

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(vi) Enforceability of Civil Procedures. There is uncertainty as to whether the PRC courts would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against a company or its directors and officers if they decide that the judgment violates the basic principles of PRC Laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or the Cayman Islands. 

D. Certain Limitations and Qualifications

The opinions expressed above are based on registrations of Governmental Agencies and our interpretations of the PRC Laws, which, in our experience, are applicable. We note, however, that the laws and the regulations in China have been subject to substantial and frequent revision in recent years. We cannot assure that any future interpretations or amendments of PRC laws and regulations by relevant authorities, administrative pronouncements, or court decisions, or future positions taken by these authorities would not adversely impact or affect the opinions set forth in this letter.

Our above opinions are also subject to the qualification that they are confined to and given on the basis of the published and publicly available PRC Laws (excluding the laws of Hong Kong for the purpose of this opinion) effective as of the date hereof.

We hereby consent to the filing of this opinion as Exhibit to the Registration Statement and to the use of our name under the caption “Experts” in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.

Sincerely yours,

AllBright Law Offices

/s/ AllBright Law Offices                                                               

5

EX-10.1

EXHIBIT 10.1 

 

CHANNEL AGREEMENT

between

Sunrun Inc.

and

Solarmax Renewable Energy Provider, Inc.

dated

January 21, 2015

TABLEOFCONTENTS

		Page
ARTICLE 1 – KEY DEFINITIONS			1
1.1	Definitions		1
ARTICLE 2 – RELATIONSHIP			4
2.1	Appointment		4
2.2	Exclusivity		4
2.3	Status of Contractor		5
2.4	Subcontractors		5
ARTICLE 3 – RESPONSIBILITIES			6
3.1	Sunrun Responsibilities		6
3.2	Contractor Responsibilities		6
3.3	Responsibilities of Both Parties		7
ARTICLE 4 – ORDERS			8
4.1	Order Submission		8
4.2	Order Acceptance		8
4.3	Collection of Payments		8
4.4	Solar Facility Pricing and Payment		9
ARTICLE 5 – SPECIAL PROGRAMS			9
5.1	Leads Program		9
5.2	Incentive Program		10
5.3	Promotional Programs		10
ARTICLE 6 – CONFIDENTIALITY; INTELLECTUAL PROPERTY			11
6.1	Non-Disclosure Agreement		11
6.2	Confidentiality		11
6.3	Sunrun Trademark License		11
6.4	Contractor Trademark License		13
ARTICLE 7 – FORCE MAJEURE			15
7.1	Force Majeure		15
ARTICLE 8 – INDEMNIFICATION			15
8.1	Sunrun Indemnity		15
8.2	Contractor Indemnity		15
8.3	Obligations of Indemnifying Party		15
ARTICLE 9 – LIMITATION OF LIABILITY			16
9.1	No Consequential Damages		16
9.2	Liability Cap		16

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ARTICLE 10 – DISPUTE RESOLUTION		16
10.1	Negotiation	16
10.2	Mediation	16
10.3	Arbitration	16
10.4	Prevailing Party	17
ARTICLE 11 – TERM; TERMINATION		17
11.1	Term	17
11.2	Termination	17
11.3	Effect of Termination	18
11.4	Survival	18
ARTICLE 12 – MISCELLANEOUS PROVISIONS		18
12.1	Assignment	18
12.2	Amendments	18
12.3	No Waiver	18
12.4	No Third-Party Beneficiaries in Host Customer	18
12.5	Applicable Law	18
12.6	Insurance	19
12.7	Entire Agreement	19
12.8	Notice	19
12.9	Severability	19
12.10	Further Assurances	20
12.11	Mutual Non-disparagement	20
12.12	Conflicts	20
12.13	Counterparts	20

ii

LISTOFEXHIBITS

Exhibit A-1	Sunrun Trademarks
Exhibit A-2	Contractor Trademarks
Exhibit B	Territory
Exhibit C	Online Proposal System
Exhibit D	Training Program
Exhibit E	Quarterly Review
Exhibit F	Minimum Volume Commitments
Exhibit G	Weekly Report
Exhibit H	Marketing and Brand Guidelines
Exhibit I	Leads Program
Exhibit J	Sales Guidelines
Exhibit K	Customer Promotion Guidelines
Exhibit L	Customer Origination Policy

iii

CHANNELAGREEMENT

This CHANNEL AGREEMENT (“Agreement”) is made as of January 21, 2015 and shall be effective as of January 25, 2015 (“Effective Date”), by and between Sunrun Inc., a Delaware corporation (“Sunrun”) and Solarmax Renewable Energy Provider, Inc., a California corporation (“Contractor”). Sunrun and Contractor may be referred to herein in the singular as “Party” or jointly as “Parties”.

RECITALS

WHEREAS, Sunrun and Contractor believe they can jointly leverage each other‘s strengths in their respective product offerings to develop a compelling solar solution;

WHEREAS, the Parties further believe that a cooperative sales and marketing effort will work to the parties’ mutual benefit and create new market opportunities for each party‘s respective products and services;

WHEREAS, the Parties intend to enter into a Master Solar Facility Turnkey Contract; and WHEREAS, Contractor desires to market and sell Sunrun Products, and Sunrun desires to support Contractor in that activity.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, it is agreed:

ARTICLE 1 – KEYDEFINITIONS

1.1 Definitions. The Parties hereby agree that capitalized terms used in this Agreement, unless otherwise defined herein or in a particular Addendum, shall have the meanings assigned below:

“AAA” has the meaning set forth in Section10.2.

“Agreement” has the meaning set forth in the preamble.

“Confidential Information” shall have the meaning set forth in Section6.2.

“Contractor” has the meaning set forth in the preamble.

“Contractor Activities” shall have the meaning set forth in Section2.1.

“Customer Origination Policy” means the customer origination policy set forth in Exhibit L, as

amended from time to time by Sunrun in its sole discretion with notice to Contractor.

“Customer Promotion Guidelines“ means the customer promotion guidelines set forth in Exhibit K, as amended from time to time by Sunrun in its sole discretion with notice to Contractor.

“Deposit” means the amount due from Host Customer at signing of the Solar Customer Agreement, such amount as specified in the documentation generated by the Online Proposal System.

-1-

“Effective Date” has the meaning set forth in the preamble.

“Force Majeure Event” includes acts of God such as storms, fires, floods, lightning and earthquakes, war, riot, acts of a public enemy or other civil disturbance, or a strike, walkout, lockout or other significant labor dispute, deterioration of the financing markets or other causes beyond the affected Party's reasonable control.

“Governmental Authority” means any governmental, administrative or municipal authority, including any ministry, department, municipality, instrumentality, agency or commission (including the California Energy Commission (“CEC”)) under direct or indirect control of any city, county, state or Federal government, or governmental entity with jurisdiction over the applicable Solar Facility or any part of the Work wherever such components of the Work may be located.

“Governmental Authorizations” means all permits, consents, decisions, licenses, approvals, certificates, confirmations or exemptions from, and all applications and notices filed with or required by, any Governmental Authority that are necessary for the performance of the Work or any other obligation of either Party pursuant to this Agreement.

“Host Customer” is the signatory of the Solar Customer Agreement.

“Host Customer Information” means a Host Customer’s contact details and related information.

“Incentive Program” has the meaning set forth in Section5.2.

“Initial Payment” means the amount due, if any, from Host Customer to Sunrun in addition to the Deposit on or before the first day of installation of the Solar Facility pursuant to a Solar Customer Agreement, such amount as specified in the documentation generated by the Online Proposal System.

“Law” means any applicable constitution charter, act, statute, law, ordinance, code (including, without limitation national, state and local building, installation, and construction codes and standards), rule, case law, regulation, order, treaty, decree, announcement, Governmental Authorization, or published practice or any interpretation thereof, or other legislative or administrative action of any Governmental Authority, or specified standards or objective criteria contained in any applicable Governmental Authorization, or a final decree, judgment, or order of a court, or any applicable engineering, construction, or safety regulation or code.

“Leads Program” has the meaning set forth in Section5.1.

“Lien” means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, right of retention, charge or other encumbrance of any kind, or any conditional sale contract, title retention contract or other agreement to give any of the foregoing.

“Marketing and Brand Guidelines“ means the marketing and brand usage guidelines set forth in Exhibit H, as amended from time to time by Sunrun in its sole discretion with notice to Contractor.

-2-

“Master Solar Facility Turnkey Contract” means a design, engineering, procurement,

installation and construction contract already entered into or to be entered into between the Parties.

“Minimum Volume Commitments” means the volume commitments set forth in Exhibit F.

“Non-Warranty Services” means any services performed pursuant to a Service Request that are

not covered under the Contractor’s warranty provided under the Master Solar Facility Turnkey Contract.

“Online Proposal System” means the website managed by Sunrun used by the Contractor to create proposals, sales documents and manage certain operations functions, as described more fully in Exhibit C.

“Order” has the meaning set forth in Section4.1

“Party” or “Parties” has the meaning set forth in the preamble.

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated

organization, association or Governmental Authority.

“Proposed Territory Notice” has the meaning set forth in Section2.2(b).

“Proposed Territory Sales Right” has the meaning set forth in Section2.2(b).

“Prudent Practices” shall mean those practices, methods, specifications and standards of safety and performance, which are commonly used by professional engineering and construction firms which in the exercise of reasonable judgment and in the light of the facts known at the time the decision was made are considered good, safe and prudent practice in connection with the design, engineering, procurement and installation of solar facilities and equipment. Prudent Practices are not intended to be limited to the optimum practice or method to the exclusion of all others, but rather to be a spectrum of reasonable and prudent practices and methods.

“Qualified Customer” means a customer who meets all of the following minimum criteria: (i) has demonstrated ability to pay as determined by the Sunrun credit approval process; (ii) resides within the Territory and (iii) has signed a Solar Customer Agreement to purchase a Solar Facility with a size of at least 2.00 kW DC.

“Quarterly Review” means the quarterly business meeting attended by senior management

personnel of Sunrun and Contractor, as more fully described in Exhibit E.

“Sales Guidelines” means the sales guidelines set forth in Exhibit J, as amended from time to

time by Sunrun in its sole discretion with notice to Contractor

“Sales Incentive Program” has the meaning set forth in Section5.2(a).

“Solar Customer Agreement” means the customer agreement entered into by and between Sunrun and a particular Host Customer whereby (i) Sunrun agrees to sell and Host Customer agrees to purchase solar electric energy produced by the Solar Facility or (ii) Sunrun agrees to lease to Host Customer the Solar Facility.

-3-

“Solar Facility” means a complete photovoltaic system designed, engineered, procured, constructed, installed, tested, commissioned, and started-up in accordance with a Master Solar Facility Turnkey Contract.

“Solar Facility Price” has the meaning set forth in Section4.4(a).

“Solar Financing Product” means a product offering to a customer in which a single photovoltaic system is both (i) installed on the property of such customer and (ii) owned by a Person other than such customer, including but not limited to contractual arrangements pursuant to which such photovoltaic systems are leased to such customer or pursuant to which electricity from such photovoltaic systems is sold to such customer under a power purchase agreement. For the avoidance of doubt, photovoltaic systems financed through home equity lines of credit, home equity loans, same-as-cash financing, and municipal financing programs are not Solar Financing Products.

“Subcontractor” shall mean a person or entity of any tier directly or indirectly engaged by Contractor regarding the performance or provision of the Contractor Activities or the fulfillment, in whole or in part, of any obligation undertaken by Contractor in connection with this Agreement.

“Sunrun” shall have the meaning set forth in the preamble.

“Sunrun Products” means the Solar Facility financing and installation packages offered by Sunrun, as may be adjusted by Sunrun in its sole discretion from time to time, including but not limited to the products sold through the Solar Customer Agreement.

“Territory” shall means the geographies set forth in Exhibit B, providing that such Exhibit may

amended anytime by Sunrun to include additional geographies upon notice by Sunrun to Contractor.

“Training Program” means the training program offered by Sunrun as more fully described in Exhibit D.

“Weekly Report” means the sales report delivered by Contractor to Sunrun, containing the

information set forth in Exhibit G.

ARTICLE 2 – RELATIONSHIP

2.1 Appointment. Subject to the terms and conditions of this Agreement, Sunrun hereby appoints Contractor as Sunrun’s sales representative, and Contractor accepts such appointment, for the sole purpose of soliciting orders for the Sunrun Products in the Territory during the Term (such solicitation, the “Contractor Activities”).

2.2 Exclusivity.

(a) [intentionally left blank]

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(b) Contractor’s Obligations. For the duration of the Term, Contractor shall not market, sell or construct Solar Financing Products to residential customers that are not Sunrun Products, whether such Solar Financing Products are developed by Contractor or any other third party. In the event Contractor intends to market and sell Solar Financing Products to residential customers outside the Territory, Contractor shall provide Sunrun at least forty-five (45) days written notice describing with particularity the expected market and proposed geography, such geography not to exceed the service area of a single electric utility (the “Proposed Territory Notice”). Contractor may market and sell Solar Financing Products that are not Sunrun Products described in the Proposed Territory Notice forty-five (45) days after Sunrun’s receipt of the Proposed Territory Notice (“Proposed Territory Sales Right”), provided, however, Contractor shall not have the Proposed Territory Sales Right if Sunrun notifies Contractor within forty-five (45) days of receipt of the Proposed Territory Notice that Sunrun has elected to expand the Territory to include the proposed geography. Notwithstanding the foregoing, Contractor’s Proposed Territory Sales Right shall expire in the event that ninety (90) days pass during which period Contractor does not sell any Solar Financing Products in the locations described in the Proposed Territory Notice.

(c) Specific Performance. Each of the Parties acknowledges and agrees that the other Party hereto may be damaged irreparably in the event Section 2.2(b)is not performed in accordance with its specific terms or otherwise is breached. Accordingly, each of the Parties hereto agrees that the other Party hereto shall be entitled to injunctive relief (notwithstanding any pending or ongoing arbitration or litigation proceedings) to prevent breaches of Section 2.2(b)and if appropriate and entitled to do so under applicable law, to enforce specifically Section 2.2(b), in addition to any other remedy to which they may be entitled at law or in equity.

2.3 Status of Contractor. Contractor shall perform and execute the provisions of this Agreement as an independent contractor to Sunrun and shall not be an agent, employee, joint venturer or partner of Sunrun. Contractor shall be solely responsible for the employment, control and conduct of all persons in its employ, and Contractor shall make all withholdings and payments of all payroll taxes and similar obligations, including income tax, social security tax, unemployment tax and worker’s compensation taxes, for each of its employees and salespersons.

2.4 Subcontractors. No contractual relationship shall exist between Sunrun and any Subcontractor with respect to the Contractor Activities performed hereunder. No Subcontractor is intended to be or shall be deemed a third Party beneficiary of this Agreement. Contractor shall be fully responsible for the works, services, and materials and the acts, defaults and neglects of any Subcontractor, its agents or employees as fully as if they were Contractor's own or those of Contractor's agents or employees. Contractor shall not use any Subcontractor that offers a Solar Financing Product. On a quarterly basis, within 10 days of the end of such quarter, Contractor shall provide to Sunrun a list of all Subcontractors used by Contractor during such quarter. Sunrun shall have the right to review such Subcontractor list and to reject any Subcontractor in Sunrun’s sole discretion, and Contractor shall no longer subcontract with any such rejected Subcontractor to perform Contractor Activities. Further, if any Subcontractor is deemed by Sunrun, in Sunrun’s reasonable discretion, to have violated any of the Contractor’s Responsibilities in Article 3 or to be offering a Solar Financing Product, then Sunrun shall have the right to reject such Subcontractor, upon 10 days’ notice to Contractor and Contractor shall no longer be permitted to use such rejected Subcontractor to perform Contractor Activities.

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2.5 Sales Representatives. Periodically, as requested by Sunrun, Contractor shall provide Sunrun a list identifying each of its individual sales representatives who are performing Contractor Activities on behalf of Contractor or any Subcontractor. Without limiting any other rights Sunrun has under this Agreement or the law, in the event that an individual sales representative violates or there is a claim that an individual sales representative has violated any provision of this Agreement including but not limited to, Contractor’s Responsibilities set forth in Section 3.2 herein, such individual sales representative, upon Sunrun’s request, shall immediately stop performing Contractor Activities under this Agreement. Contractor shall ensure and provide confirmation that such individual sales representative has stopped performing Contractor Activities under this Agreement.

ARTICLE 3 – RESPONSIBILITIES

3.1 Sunrun Responsibilities. Sunrun agrees, at its own expense, to:

(a) offer the Training Program to appropriate Contractor personnel;

(b) provide Contractor with access and use of the Online Proposal System on a nonexclusive, nontransferable basis and subject to the terms of this Agreement; and

(c) make reasonable efforts to notify Contractor in advance of new Sunrun marketing programs and changes to the Sunrun Products and pricing; and honor historic pricing and marketing programs for fourteen (14) days following any change in pricing, provided, however, that Sunrun shall be under no obligation to honor pricing generated by the Online Proposal System for a particular Solar Facility in the event that any rebates applicable to that Solar Facility are reduced or become unavailable during such fourteen (14) day period;

(d) make payments to Contractor for its performance of certain Service Requests and for reaching goals under the Incentive Program;

(e) act in a manner consistent with all applicable Laws in performing under this Agreement; and

3.2 Contractor Responsibilities. Contractor agrees, at its own expense, to:

(a) make best commercial efforts to promote, market and sell the Sunrun Products in the Territory so as to meet or exceed the Minimum Volume Commitments;

(b) adhere to the Marketing and Brand Guidelines;

(c) adhere to Sales Guidelines;

(d) adhere to Customer Promotion Guidelines; week;

(e) deliver the Weekly Report to Sunrun by the close of business on Friday of every 

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(f) send senior management, salespersons and other appropriate personnel to participate in the Training Program;

(g) encourage Sunrun’s attendance at its sales meetings, customer site visits, marketing events and business development opportunities, in Contractor’s sole discretion;

(h) obtain additional information or documentation from the Host Customer (i.e., additional personal guarantees or credit information) in the event Sunrun has rejected an Order for lack of such additional information or documentation, to be used by Sunrun when Sunrun reconsiders such Order for acceptance;

(i) make available at no cost to Sunrun photos taken during the installation of the Solar Facility of Host Customers for use by Sunrun on its website and in its promotional efforts; furthermore, Contractor represents and warrants that all intellectual property rights in such photos are owned by Contractor or permission for Sunrun to use such photos on its website and in its promotional efforts has been granted to Contractor by all third-party holders of intellectual property rights in such photos, and Contractor covenants that such photos shall not be given to any third party that will use such photos for marketing, promotional, or similar purposes (including, without limitation, any Person who offers a Solar Financing Product);

(j) avoid deceptive, misleading or unethical representations or practices in marketing the Sunrun Products;

(k) fulfill Service Requests pursuant to the terms of this Agreement;

(l) offer commission rates to its sales representatives on photovoltaic systems sold as Sunrun Products that are equal to or higher than the commission rates paid on sales of customer- owned photovoltaic systems or other same-as-cash transactions;

(m) act in a manner consistent with all applicable Laws; and

(n) utilize the resources and support provided by Sunrun under this Agreement solely for Contractor Activities.

(o) adhere to On-Line Proposal System and On-line Proposal Guidelines; (p) adhere to the Customer Origination Policy.

3.3 Responsibilities of Both Parties. Sunrun and Contractor both agree, at their own expense, to:

(a) prepare for and participate in the Quarterly Review;

(b) place on their respective websites keyword rich links directed to the other Parties’ website; data systems;

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(c) make commercially reasonable efforts to synchronize and integrate proposal

(d) in the event the Minimum Volume Commitment are not met for three (3) consecutive months, conduct a detailed review of the Contractor’s activities for the purpose improving sales performance of the Contractor; and

(e) perform their respective obligations under the terms of the Leads Program, if Contractor has not opted out of the Leads Program pursuant to Section 5.1.

(f) If Contractor achieves greater than 49 approved Orders by April 30, 2015 (greater than 75% of the cumulative Minimum Volume Commitment committed by April 30, 2015), the Parties agree to meet in good faith and amend the Agreement to increase the Minimum Volume Commitment for the months following April 2015.

ARTICLE 4 – ORDERS

4.1 Order Submission. In connection with its performance of the Contractor Activities, Contractor shall diligently seek to obtain practicable orders for the Sunrun Products (each, an “Order”) on such forms generated by the Online Proposal System and in accordance with such procedures as the parties may establish from time to time. Orders shall be submitted to Sunrun as soon as reasonably practical, but in no event later than Friday by 5pm for Orders collected during the prior week (Monday- Sunday). To be considered for acceptance pursuant to Section 4.2, upon receipt by Sunrun each Order must include (i) a completed Solar Customer Agreement with the signature of the Host Customer and (ii) a Deposit, if a Deposit is called for by the Contract. No Customer Contract will be binding until accepted in writing by Sunrun.

4.2 Order Acceptance. Sunrun has the right to reject any Order based on (i) the Solar Customer Agreement not having been generated by the Online Proposal System, (ii) the Solar Customer Agreement having been expired pursuant to the date set forth on such agreement, (iii) the Host Customer not passing Sunrun’s credit approval process, (iv) Host Customer is not a Qualified Customer, (v) insufficiency of Deposit or Customer signature or (vi) its sole discretion irrespective of the satisfaction of any other criteria, provided in each case that Sunrun shall do so in writing within three (3) business days of Sunrun’s receipt of the Order. Delays in Order acceptance by Sunrun shall constitute an equitable adjustment to the Guaranteed Substantial Completion Date in the Master Solar Facility Turnkey Contract between Sunrun and Contractor then in effect.

4.3 Collection of Payments.

(a) If a Deposit is due upon Solar Customer Agreement signing, Contractor shall be responsible for collecting such Deposit from the Host Customer and delivering it to Sunrun along with the Solar Customer Agreement signed by such Host Customer.

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(b) If the Host Customer pays Sunrun the Initial Payment in advance of commencement of the Solar Facility installation, then Sunrun will make reasonable efforts to notify Contractor in advance of the scheduled start of work on the Solar Facility. If Contractor has not received such notice, Contractor shall use reasonable efforts to collect the Initial Payment on Sunrun’s behalf, during installation, such payment to be made by Host Customer by check payable to Sunrun and mailed by Contractor to Sunrun within five (5) business days of collection. Contractor expressly disclaims any responsibility for acting as Sunrun’s agent in this regard. If Contractor arrives on the job site to commence work on the Solar Facility and the Host Customer does not provide the required Initial Payment, Contractor shall use reasonable efforts to notify Sunrun and shall proceed with installation of the Solar Facility, provided that if Sunrun wants Contractor to stop work and reschedule the Solar Facility installation to coincide with the Host Customer’s Initial Payment to Sunrun, Sunrun will notify Contractor immediately. Such delay shall pro-rata extend the timelines in the Master Solar Facility Turnkey Contract between the Parties. Contractor will also be entitled to payment from Sunrun for all work performed and materials used through the date of work stoppage.

(c) Sunrun shall solely be responsible for any refunds or other payments made to Host Customer for any reason pursuant Solar Customer Agreement or in association with any Sunrun Product, including but not limited to a cancellation by the Host Customer of the Solar Customer Agreement or an inability of the Contractor to perform under the Master Solar Facility Turnkey Contract.

4.4 Solar Facility Pricing and Payment.

(a) Price. Sunrun agrees to purchase Solar Facilities from Contractor for the price Contractor enters into the Online Proposal System during the process of generating the Solar Customer Agreement (“Solar Facility Price”). Notwithstanding the foregoing, if at any time Contractor offers to sell a Solar Facility to a potential Host Customer (i) at a price lower than the Sunrun Total Solar Price, (ii) with a guarantee of state or local rebate amounts or (iii) with any other promotion that affects the economics of the proposed Solar Facility with respect to a Host Customer (collectively, a “PartnerDiscount”), the Solar Facility Price shall be the amount set forth in the first sentence of this Section

4.4 (a) less the Partner Discount.

(b) Payment Terms. Payment of the Solar Facility Price by Sunrun to Contractor shall be pursuant the terms of the Master Solar Facility Turnkey Contract between Sunrun and Contractor then in effect.

(c) Price Changes. Contractor and Sunrun shall evaluate the Solar Facility Price at the Quarterly Review. The Parties may adjust the Solar Facility Price by mutual agreement at any time during the term of this Agreement.

ARTICLE 5 – SPECIALPROGRAMS

5.1 Leads Program.

(a) General. Sunrun may provide, and Contractor agrees to accept, sales leads pursuant to the terms set forth in Exhibit I (the “Leads Program”). Sunrun reserves the right to cancel or modify any of the terms of the Leads Program in its sole discretion at any time, by providing fifteen (15) days written notice to Contractor before such amendments shall become effective.

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(b) Participation. Contractor shall be enrolled in the Leads Program, unless it provides written notice to Sunrun that it elects not to participate in the Leads Program, such notice to be delivered at least five (5) business days prior to the beginning of the quarter. Upon timely receipt of such notice, Sunrun will not provide Contractor with any leads pursuant to the Leads Program beginning at the start of the next quarter. Contractor may return to the Leads Program by providing written notice at least five (5) business days prior to the beginning of any subsequent quarter or upon mutual agreement of the Parties. During each Quarterly Review Sunrun and Contractor will discuss the Leads Program and determine whether the guidelines and performance standards were met by the Contractor for the quarter. If Contractor fails to meet guidelines and performance standards in two consecutive quarters Sunrun may in its sole discretion discontinue the Leads Program for Contractor.

5.2 Incentive Program.

(a) General. To incentivize the sale of Sunrun Products, from time to time Sunrun may provide in writing to Contractor based on the individual sales activity and other performance metrics of each of Contractor’s salespersons (the “Sales Incentive Program”), such requirements and benefits as more fully described in such writing provided by Sunrun to Contractor. For the purposes of the Sales Incentive Program, a sale of a Sunrun Product is credited to a salesperson upon Sunrun’s acceptance of any Order by Sunrun pursuant to Section 4.2; provided, however, in the event an accepted Order is cancelled, then such Order shall not be credited to the salesperson responsible for such Order, and if a payment has already been made to Contractor under the Sales Incentive Program for the cancelled Order then any future payments made to Contractor with respect to such salesperson’s performance shall be reduced to reflect the cancellation; provided, further, in the event a salesperson terminates employment with Contractor, Contractor shall promptly notify Sunrun, and Sunrun shall have no obligation to make any future payments to Contractor for benefits earned by such terminated salesperson pursuant to Sales Incentive Program.

(b) Payment. Sunrun may make any payments earned under the Sales Incentive Program on a monthly basis directly to Contractor, and such payment is made in consideration for Contractor’s performance under this Agreement. Contractor agrees to distribute any payments received to the salespersons who earned the payments, after making deductions for employer taxes, workers compensation premiums and any other deductions required by law. Payments under the Sales Incentive Program are subject to the Contractor performing its obligations under this Agreement.

(c) No Employment Relationship. Sunrun and Contractor agree that the salespersons are solely under the employment of Contractor and that the Sale Incentive Program does not establish any employment, contractual or beneficial relationship between any employees of Contractor and Sunrun.

(d) Amendment and Termination. Sunrun reserves the right to terminate, suspend or amend any of the terms of the Sales Incentive Program in its sole discretion by providing fifteen (15) days written notice to Contractor before such termination, suspension or amendment becomes effective.

5.3 Promotional Programs. Sunrun may from time to time offer promotional programs for Sunrun Products to Contractors, such programs Contractors may in turn offer to potential Host Customers. Contractor agrees not to run any promotional programs for Sunrun Products that are not approved in writing (email acceptable) in advance by Sunrun.

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ARTICLE 6 – CONFIDENTIALITY; INTELLECTUALPROPERTY

6.1 Non-Disclosure Agreement. The Parties signed a Mutual Non-Disclosure Agreement (“NDA”) on November 3, 2014, which shall remain in full force and effect with respect to this Agreement, and nothing contained in this Agreement shall supersede or replace the terms and conditions therein. The NDA shall apply to this Agreement, including the terms and conditions hereof and the Parties’ discussions in furtherance of the transactions contemplated hereby.

6.2 Confidentiality. Notwithstanding Section 6.1, and by way of supporting and not superseding the NDA, from the date of this Agreement through the second anniversary of the termination hereof, each Party agrees, and shall cause its respective directors, officers, employees, consultants, advisors and affiliates, to each to treat and hold as confidential (and not disclose or provide access to any person) all business, technical, financial or other information of the other disclosing Party (“Confidential Information”) including, without limitation, information relating to trade secrets, patent applications, product development, customer lists, pricing and marketing plans, policies and strategies, details of client and consultant contracts, business acquisition plans and new personnel acquisition plans. Each Party further agrees to use (and not reverse engineer) the Confidential Information of the other disclosing Party solely for the purpose of advancing the business relationship contemplated under this Agreement as expressly permitted or directed by the disclosing Party.

6.3 Sunrun Trademark License.

(a) Contractor shall use the names and the graphic symbol solely as they appear in Exhibit A-1 (the “Sunrun Trademarks”). Contractor shall use the Sunrun Trademarks on all printed and electronic materials (including the internet) used in association with Contractor Activities. Unless Contractor obtains Sunrun’s prior written approval, Contractor shall not combine any of the Sunrun Trademarks with any other trademark, word, symbol, letter, design or mark.

(b) Subject to the terms and conditions of this Agreement, Sunrun grants to Contractor, and Contractor accepts, a non-exclusive, non-transferable, non-sublicensable, license during the term of this Agreement to use the Sunrun Trademarks, solely in connection with the Contractor Activities. Uses by Contractor pursuant to this section’s license grant shall be referred to as “ContractorLicensed Uses”.

(c) Contractor shall not use the Sunrun Trademarks in connection with any activities other than the Contractor Licensed Uses without prior written approval of Sunrun.

(d) Upon Sunrun’s reasonable request, Contractor shall make available to Sunrun, for its approval, samples of all uses of the Sunrun Trademarks. Sunrun shall have the right to monitor the quality of the Contractor Licensed Uses and to make reasonable objections to any such sample on the grounds that Sunrun believes that the use of such materials by Contractor will be damaging to or dilutive of the value of, or reputation associated with, the Sunrun Trademarks, or damaging to or dilutive of the reputation of Sunrun or its products and services. Contractor shall undertake such other steps as Sunrun may reasonably request to assist Sunrun in monitoring the quality of the Contractor Licensed Uses provided by Contractor under the Sunrun Trademarks. Sunrun has the right to take all action that it deems necessary to ensure that Contractor’s activities under, and uses of, the Sunrun Trademarks are consistent with the reputation for quality and prestige of products and services associated with the Sunrun Trademarks.

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(e) Contractor shall comply with all applicable laws and regulations pertaining to its use of the Sunrun Trademarks and any other Sunrun intellectual property, and its sale, distribution and advertising of the goods and services under the Sunrun Trademarks.

(f) Contractor shall not use any of the Sunrun Trademarks in connection with any activity that disparages Sunrun or its products or services, dilutes the value of the Sunrun Trademarks, or damages the reputation for quality inherent in the Sunrun Trademarks.

(g) Contractor acknowledges and agrees that it has no interest in the Sunrun Trademarks other than the licenses granted under this Agreement, and that Sunrun will remain the sole and exclusive owner of all right, title and interest in the Sunrun Trademarks. Contractor acknowledges and agrees that Contractor’s use of the Sunrun Trademarks and any good will in the Sunrun Trademarks resulting from Contractor’s use will inure solely to the benefit of Sunrun and will not create any right, title or interest for Contractor in the Sunrun Trademarks. Contractor shall not contest, oppose or challenge Sunrun’s ownership of the Sunrun Trademarks. Contractor agrees that it will do nothing to impair Sunrun’s ownership or rights in the Sunrun Trademarks. This license for use of Sunrun Trademarks shall terminate immediately upon termination of this Agreement.

(h) Contractor shall promptly notify Sunrun should Contractor learn of use by a third party of any trademark that is confusingly similar to any of the Sunrun Trademarks. Contractor shall take no action with respect thereto except with the prior written authorization of Sunrun. Sunrun may take such action as it in its sole discretion deems advisable for the protection of its rights in the Sunrun Trademarks. Contractor shall cooperate to assist Sunrun as reasonably necessary with any legal or equitable action taken by Sunrun to protect Sunrun’s rights in the Sunrun Trademarks.

(i) Subject to the Limitation of Liability in Article 9.2, Sunrun agrees to defend Contractor in any action for infringement of any third party trademark arising out of Contractor’s use of the Sunrun Trademarks in accordance with this Agreement, and to pay any liabilities, damages and costs awarded against Contractor to such third party in any such action by a court of competent jurisdiction or agreed by Sunrun in settlement of any such action; provided, that Contractor notifies Sunrun promptly in writing of any such suit or proceeding, does not make any prejudicial admission or statement, gives Sunrun all reasonable assistance at Sunrun’s expense and gives Sunrun sole control of the defense and all negotiations for the settlement or compromise thereof. This indemnity shall not apply if normally non-infringing Sunrun Trademarks are rendered infringing by reason of Contractor’s particular use of such Sunrun Trademarks, combination of the Sunrun Trademarks with other marks or the modification of the Sunrun Trademarks. If, at any time, any Sunrun Trademark becomes, or in the opinion of Sunrun may become, the subject of a claim of infringement, Sunrun may, at its option (i) procure for Contractor the right to continue using such Sunrun Trademark; (ii) replace or modify such Sunrun Trademark, in which case Contractor shall immediately cease distribution of the Contractor Licensed Uses bearing the alleged infringing Sunrun Trademark; or (iii) terminate this Agreement with respect to such Sunrun Trademark.

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(j) Sunrun shall have no liability for any infringement claim based on Contractor’s use of the Sunrun Trademarks after Sunrun’s notice that, due to such a claim, Contractor should cease use of one of the Sunrun Trademarks or begin use of a substitute mark. For all claims described in this Section 6.3(j), Contractor agrees to defend, indemnify and hold Sunrun harmless from and against all liabilities, losses, claims, damages, costs, expenses and settlement amounts (including without limitation reasonable attorneys’ fees).

6.4 Contractor Trademark License.

(a) To the extent used, Sunrun shall use the names and the graphic symbol solely as they appear in Exhibit A-2 (the “Contractor Trademarks”). Sunrun may use the Trademarks on any printed and electronic materials (including the internet) used on the Sunrun website, on the Online Proposal System and associated documentation, and in association with any other sales and marketing activities that relate to Contractor (“Sunrun Licensed Activities”). Unless Sunrun obtains Contractor’s prior written approval, Sunrun shall not combine any of the Contractor Trademarks with any other trademark, word, symbol, letter, design or mark.

(b) Subject to the terms and conditions of this Agreement, Contractor grants to Sunrun, and Sunrun accepts, a non-exclusive, non-transferable, non-sublicensable, license during the term of this Agreement to use the Trademarks, solely in connection with the Sunrun Licensed Activities. Uses by Sunrun pursuant to this section’s license grant shall be referred to as “SunrunLicensed Uses”.

(c) Sunrun shall not use the Contractor Trademarks in connection with any activities other than the Sunrun Licensed Uses without prior written approval of Contractor.

(d) Upon Contractor’s reasonable request, Sunrun shall make available to Contractor, for its approval, samples of all uses of the Contractor Trademarks. Contractor shall have the right to monitor the quality of the Sunrun Licensed Uses and to make reasonable objections to any such sample on the grounds that Contractor believes that the use of such materials by Sunrun will be damaging to or dilutive of the value of, or reputation associated with, the Contractor Trademarks, or damaging to or dilutive of the reputation of Contractor or its products and services. Sunrun shall undertake such other steps as Contractor may reasonably request to assist Contractor in monitoring the quality of the Sunrun Licensed Uses provided by Sunrun under the Contractor Trademarks. Contractor has the right to take all action that it deems necessary to ensure that Sunrun’s activities under, and uses of, the Contractor Trademarks are consistent with the reputation for quality and prestige of products and services associated with the Contractor Trademarks.

(e) Sunrun shall comply with all applicable laws and regulations pertaining to its use of the Contractor Trademarks and any other Contractor intellectual property, and its sale, distribution and advertising of the goods and services under the Contractor Trademarks. activity that disparages Contractor or its products or services, dilutes the value of the Contractor Trademarks, or damages the reputation for quality inherent in the Contractor Trademarks.

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(f) Sunrun shall not use any of the Contractor Trademarks in connection with any activity that disparages Contractor or its products or services, dilutes the value of the Contractor Trademarks, or damages the reputation for quality inherent in the Contractor Trademarks.

(g) Sunrun acknowledges and agrees that it has no interest in the Contractor Trademarks other than the licenses granted under this Agreement, and that Contractor will remain the sole and exclusive owner of all right, title and interest in the Contractor Trademarks. Sunrun acknowledges and agrees that Sunrun’s use of the Contractor Trademarks and any good will in the Contractor Trademarks resulting from Sunrun’s use will inure solely to the benefit of Contractor and will not create any right, title or interest for Sunrun in the Contractor Trademarks. Sunrun shall not contest, oppose or challenge Contractor’s ownership of the Contractor Trademarks. Sunrun agrees that it will do nothing to impair Contractor’s ownership or rights in the Contractor Trademarks.

(h) Sunrun shall promptly notify Contractor should Sunrun learn of use by a third party of any trademark that is confusingly similar to any of the Contractor Trademarks. Sunrun shall take no action with respect thereto except with the prior written authorization of Contractor. Contractor may take such action as it in its sole discretion deems advisable for the protection of its rights in the Contractor Trademarks. Sunrun shall cooperate to assist Contractor as reasonably necessary with any legal or equitable action taken by Contractor to protect Contractor’s rights in the Contractor Trademarks.

(i) Subject to the Limitation of Liability in Article 9.2, Contractor agrees to defend Sunrun in any action for infringement of any third party trademark arising out of Sunrun’s use of the Contractor Trademarks in accordance with this Agreement, and to pay any liabilities, damages and costs awarded against Sunrun to such third party in any such action by a court of competent jurisdiction or agreed by Contractor in settlement of any such action; provided, that Sunrun notifies Contractor promptly in writing of any such suit or proceeding, does not make any prejudicial admission or statement, gives Contractor all reasonable assistance at Contractor’s expense and gives Contractor sole control of the defense and all negotiations for the settlement or compromise thereof. This indemnity shall not apply if normally non-infringing Contractor Trademarks are rendered infringing by reason of Sunrun’s particular use of such Contractor Trademarks, combination of the Contractor Trademarks with other marks or the modification of the Contractor Trademarks. If, at any time, any Contractor Trademark becomes, or in the opinion of Contractor may become, the subject of a claim of infringement, Contractor may, at its option (i) procure for Sunrun the right to continue using such Contractor Trademark; (ii) replace or modify such Contractor Trademark, in which case Sunrun shall immediately cease distribution of the Sunrun Licensed Uses bearing the alleged infringing Contractor Trademark; or (iii) terminate this Agreement with respect to such Contractor Trademark.

(j) Contractor shall have no liability for any infringement claim based on Sunrun’s use of the Contractor Trademarks after Contractor’s notice that, due to such a claim, Sunrun should cease use of one of the Contractor Trademarks or begin use of a substitute mark. For all claims described in this Section 6.4(j), Sunrun agrees to defend, indemnify and hold Contractor harmless from and against all liabilities, losses, claims, damages, costs, expenses and settlement amounts (including without limitation reasonable attorneys’ fees).

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ARTICLE 7 – FORCEMAJEURE

7.1 Force Majeure. Each Party shall be excused from performance and shall not be considered to be in default with respect to any obligation hereunder, except for Sunrun's obligation to pay money in a timely manner for services actually performed by Contractor or other liabilities actually incurred by Sunrun, if and to the extent that its failure of, or delay in, performance is due to a Force Majeure Event; provided that: (a) such Party gives the other Party written notice describing the particulars of the Force Majeure Event as soon as is reasonably practicable; (b) the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event; (c) no obligations of the Party that arose before the occurrence causing the suspension of performance shall be excused as a result of the occurrence of the Force Majeure Event unless the performance of such obligations is impaired by the Force Majeure Event; (d) the Party uses commercially reasonable efforts to overcome or mitigate the effects of the Force Majeure Event; and (e) when the Party is able to resume performance of its obligations under this Agreement, such Party shall give the other Party written notice to that effect and shall promptly resume performance hereunder.

ARTICLE 8 – INDEMNIFICATION

8.1 Sunrun Indemnity. Contractor will hold harmless, indemnify and defend Sunrun and its affiliates and their directors, officers and employees against all claims and will pay all costs, damages and reasonable attorneys’ fees, arising directly or indirectly out of or resulting from: (i) any negligent, reckless, or intentionally wrongful acts or omissions on the part of Contractor; (ii) any acts, statements, claims, representations or warranties made by Contractor about the Sunrun Products that are false or are in violation of this Agreement; (iii) any failure of Contractor to perform its obligations under this Agreement or failure to perform its obligation under this Agreement in accordance with all applicable laws, rules and regulations; and (iv) a determination by a court or agency that the Contractor or any of Contractor’s assistants, employees or agents is not an independent contractor with respect to Sunrun. This indemnification obligation shall apply regardless of the amount of insurance coverage held by Sunrun.

8.2 Contractor Indemnity. Sunrun will hold harmless, indemnify and defend Contractor and its affiliates and their directors, officers and employees against all third party claims and will pay all costs, damages and reasonable attorneys’ fees, arising directly or indirectly out of or resulting from: (i) any negligent, reckless, or intentionally wrongful acts or omissions on the part of Sunrun; (ii) Sunrun’s failure to comply with the obligations set forth in any Solar Customer Agreements entered into by Sunrun; and (iii) any failure of Sunrun to perform its obligations under this Agreement in accordance with all applicable laws, rules and regulations. This indemnification obligation shall apply regardless of the amount of insurance coverage held by Contractor.

8.3 Obligations of Indemnifying Party. If Contractor determines that it is entitled to indemnification under this ARTICLE 8, Contractor shall promptly notify Sunrun in writing of the loss, and provide all reasonably necessary or useful information, assistance and authority to settle and/or defend any loss. In the event of a loss claimed by a third party, the selection of counsel, the conduct of the defense of any lawsuit, arbitration, or other proceeding, and any settlement shall solely be within Sunrun’s control, provided that the Contractor shall have the right to participate in the defense of such loss using counsel of its choice, at its expense. If Sunrun determines that it is entitled to indemnification under this ARTICLE 9, Sunrun shall promptly notify the Contractor in writing of the loss or claim. In the event of a loss or claim by a third party, the selection of counsel, the conduct of the defense of any lawsuit, arbitration, or other proceeding, and any settlement shall solely be within the Sunrun’s control, provided that the Contractor shall have the right to participate in the defense of such claim or loss using counsel of its choice, at its expense. Prior to the finalization of any settlement or claim, Sunrun shall use reasonable efforts to confer with Contractor regarding such settlement.

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ARTICLE 9 – LIMITATIONOFLIABILITY

9.1 No Consequential Damages. EXCEPT FOR THE INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT, AND EXCEPT FOR A PARTY’S BREACH OF ITS OBLIGATIONS UNDER SECTION 2.2 AND BREACH OF THE CONFIDENTIALITY PROVISIONS OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY LOST PROFITS OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, ARISING OUT OF OR RELATING TO THIS AGREEMENT, REGARDLESS OF THE CAUSE OF ACTION (INCLUDING NEGLIGENCE), EVEN IF THE OTHER PARTY HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.

9.2 Liability Cap. EXCEPT FOR THE INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT, AND EXCEPT FOR A PARTY’S BREACH OF ITS OBLIGATIONS UNDER SECTION 2.2 AND EXCEPT FOR A PARTY’S BREACH OF THE CONFIDENTIALITY PROVISIONS OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY’S LIABILITY ARISING OUT OF OR RELATING TO THIS AGREEMENT EXCEED THE SUM OF FEES PAID AND PAYABLE TO EITHER PARTY UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO FEES PAID AND PAYABLE UNDER SECTION 4.4.

ARTICLE 10 – DISPUTERESOLUTION

10.1 Negotiation. The Parties shall negotiate in good faith and attempt to resolve any good faith dispute within thirty (30) days after the date that a Party gives written notice of such dispute to the other Party. In the event that the Parties are unable to reach an agreement within such thirty (30) day period (or such longer period as the Parties may agree) then either Party may initiate mediation in accordance with Section 10.2.

10.2 Mediation. If, after such negotiation, the dispute remains unresolved, either Party may require that a non-binding mediation take place. If neither Party initiates mediation within thirty (30) days of failing to reach agreement pursuant to the procedures set forth in Section 10.1, then the Parties shall resolve the dispute in accordance with Section 10.3. In such mediation, representatives of the Parties with authority to resolve the dispute shall meet for at least three (3) hours with a mediator whom they choose together. If the Parties are unable to agree on a mediator, then either Party is hereby empowered to request the American Arbitration Association (“AAA”) to appoint a mediator. The mediator's fee and expenses shall be paid one-half by each Party. If the Parties fail to reach a resolution with thirty (30) days of initiating mediation, then the Parties shall resolve the dispute in accordance with Section 10.3.

10.3 Arbitration. The laws of the State of California shall control in the event of any dispute concerning interpretation or enforcement of this Agreement. Any dispute over the dollar limit of the Small Claims Court arising out of this Agreement shall be submitted to an arbitrator in a mutually agreeable location in California, or failing the ability of the parties to mutually agree on such a location, in the County of San Francisco, California, who shall be mutually selected by the parties to conduct a binding arbitration in accordance with Chapter 3, Title 9 of the California Code of Civil Procedure (CCP section 1282), including, but not limited to the right of discovery. If the parties cannot mutually agree on arbitrator within sixty (60) days of written demand for arbitration, then either of the parties may submit the dispute to the AAA for arbitration according to the Commercial Arbitration Rules of the AAA, and the AAA shall administer the binding arbitration. Judgment upon the award may be entered in any court having jurisdiction thereof. The arbitrator's award shall be detailed and set forth both the legal and factual basis of the award. This agreement to arbitrate will be specifically enforceable by any court with jurisdiction thereof.

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10.4 Prevailing Party. The prevailing party in any arbitration or other legal proceeding related to this Agreement may receive as an award it's reasonable attorney's fees, reasonable expert fees, costs, and expenses, subject to the arbitrator's right to exercise his or her reasonable discretion in making such an award.

ARTICLE 11 – TERM; TERMINATION

11.1 Term. The initial term of this Agreement commences as of the Effective Date and expires thirty-six (36) months after the Effective Date, at which time the Agreement shall automatically renew for an additional thirty-six (36) month term (collectively with the initial term, the “Term”), provided, however, no such renewal shall occur if either Party delivers the other Party a non-renewal notice at least thirty (30) days before the expiration of the current term.

11.2 Termination. This Agreement may be terminated:

(i) at any time by either Party for cause in the event of any material breach or default by the other Party following written notice and failure by the breaching or defaulting party to cure such breach or default within thirty (30) days of such written notice;

(ii) at any time by either Party in the event of bankruptcy by the other Party;

(iii) at any time by either Party in the event of its termination of the Master Solar Facility Turnkey Contract in accordance with terms of the Master Solar Facility Turnkey Contract; for

(iv) by Sunrun in the event that Contractor does not meet the Minimum Volume Commitments

(A) four (4) consecutive months during the first six (6) full calendar months following the Effective Date, or

(B) if at any time after the sixth (6th) full calendar month following the Effective Date, Contractor’s total sales are less than 80% of the aggregate total of all Minimum Volume Commitments from the Effective Date through the last full calendar month immediately preceding the month in which the notice of termination is issued. For illustration purposes only: if the Effective Date of the Agreement is in January, and the aggregate total of all Minimum Volume Commitments from the Effective Date through October of that calendar year is 100 but Contractor has only sold 79 Sunrun Products in the Territory, then Sunrun may terminate immediately by written notice to Contractor; or

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(v) at any time upon mutual written agreement of both Parties.

11.3 Effect of Termination. Subject to Section 11.4, upon expiration or termination for any reason, the Agreement will cease to be in effect and none of the parties will have any further obligation or liability to the other. In addition, each party shall remove all of the other party‘s trade names, trademarks, and logos, from its marketing collateral, web site, and any other materials used in furtherance of Agreement.

11.4 Survival. The parties’ rights and obligations under Sections 2.3, 2.4, 6.1, 6.2, 6.3(i), 6.4(i), 6.4 and 11.3, and Articles 8, 9, 10 and 12, will survive any termination or expiration of this Agreement.

ARTICLE 12 – MISCELLANEOUSPROVISIONS

12.1 Assignment. Contractor may not assign or transfer this Agreement or its rights or obligations hereunder, in whole or in part, without the prior written consent of Sunrun, which consent shall not be unreasonably withheld, conditioned, or delayed. A change in control of Contractor, as defined by the California State Board of Equalization, shall be considered an assignment under this provision. Subject to the foregoing sentence, this Agreement shall be binding upon and inure to the benefit of the Parties hereto, their successor and assigns. Any purported assignment in violation of this Section is void ab initio.

12.2 Amendments. Except as otherwise set forth herein, no change, amendment or modification of this Agreement shall be valid or binding upon the parties hereto unless such change, amendment, or modification shall be in writing and duly executed by both Parties. If any subsequent amendment or modification of law, rules or regulations materially alters a Party's obligations hereunder to its detriment, the Parties will negotiate in good faith a mutually-acceptable amendment of the affected obligations.

12.3 No Waiver. Any failure of Sunrun or Contractor to enforce any of the provisions of this Agreement or to require at any time performance by Contractor or Sunrun of any of the provisions hereof during the pendency of this Agreement shall in no way affect the validity of this Agreement, or any part hereof, and shall not be deemed a waiver of the right of Sunrun or Contractor thereafter to enforce any and each such provision.

12.4 No Third-Party Beneficiaries in Host Customer. The Host Customer who may benefit hereby is an incidental beneficiary and shall not have the rights of a third party beneficiary of this Agreement.

12.5 Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California.

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12.6 Insurance. Contractor agrees to maintain insurance in the types and amounts as specified in the Master Solar Facility Turnkey Contract covering occurrences during the Term.

12.7 Entire Agreement. This Agreement along with the attached exhibits (which are incorporated into this Agreement by this reference and deemed to be an integral part of this Agreement), the Master Solar Facility Turnkey Contract, and the NDA contain the entire understanding of the Parties with respect to the subject matter hereof and supersedes any and all prior negotiations, contracts, agreements, commitments, and writings with respect thereto. There are no oral understandings, terms or conditions and neither Party has relied upon any representation, express or implied, not contained in this Agreement, the Master Solar Facility Turnkey Contract, or the NDA.

12.8 Notice. All written documentation or notices may be transmitted via US Post, private express mail service, electronic mail, or facsimile. Digital photographs may be transmitted via email or text message from a hand-held mobile device, to the following addresses:

If to Sunrun:

Sunrun Inc.

Attn: Director, Operations

595 Market Street, 29th Floor

San Francisco, CA 94105 Fax: (415) 982-9021

Email: operations@Sunrunhome.com

With a Copy to:

Attn: General Counsel

595 Market Street, 29th Floor

San Francisco, CA 94105

Email: legalnotices@sunrun.com

If to the Contractor:

Solarmax Renewable Energy Provider, Inc.

3080 12th Street

Riverside,, CA 92507

Attn: Guillermo Santomauro and David Hsu

Local Phone: (951) 300-0788

Email: GuillermoS@solarmaxtech.com and DavidH@solarmaxtech.com

Parties may reasonably update the contact information via written notification (email acceptable). All notices shall be effective upon receipt.

12.9 Severability. If any term or provision of this Agreement is determined to be invalid, in conflict with any Law, void, or otherwise unenforceable, and provided the terms and provisions of the Agreement that are essential to the interests of Sunrun and the Contractor remain substantially in effect, then the remaining terms and provisions will continue in full force and effect and the offending term or provision will be given the fullest meaning and effect allowed by Law.

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12.10 Further Assurances. Contractor and Sunrun agree to provide such information, execute and deliver any instruments and documents and to take such other actions as may be necessary or reasonably requested by the other Party which are not inconsistent with the provisions of this Agreement and which do not involve the assumptions of obligations other than those provided for in this Agreement, in order to give full effect to this Agreement and to carry out the intent of this Agreement.

12.11 Mutual Non-disparagement. The Parties agree that its officers and directors will not make any disparaging remarks about or otherwise take any action that could be reasonably be expected to adversely affect the personal or professional reputation or prospects of the other Party. The Parties may disclose truthful and accurate facts and opinions about the other Party where required to do so by legal process (such as subpoena, court order, or similar process); provided however, that the commenting Party shall notify the other Party in writing if such disclosure is sought within sufficient time to allow for a full and fair opportunity to object to such legal process.

12.12 Conflicts. Each party represents and warrants that it has no agreements, relationships, or commitments to any other person or entity that conflict with the provisions of this Agreement and/or its obligations to the other party under this Agreement. Each party agrees not to enter into any such conflicting agreement during the term of this Agreement.

12.13 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which taken together will constitute but one and the same instrument.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have hereto executed as of the Effective Date.

Sunrun Inc.		Solarmax Renewable Energy Provider, Inc.
By:		By:	/s/ David Hsu
Name:	Anne Brennan	Name:	David Hsu
Title:	CFO	Title:	CEO
Date:		Date:

Signature page to Channel Agreement

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EXHIBIT A-1

SUNRUNTRADEMARKS

Sunrun

Sunrun Total Solar

Logo: 

EXHIBIT A-2

CONTRACTORTRADEMARKS

Save to the MAX with SolarMax

EXHIBIT B

TERRITORY

The “Territory” includes the service areas of the following utilities:

· California

o Southern California Edison (SCE)

o Pacific Gas & Electric (PG&E)

o San Diego Gas & Electric (SDG&E)

EXHIBIT C

ONLINEPROPOSALSYSTEM

The following description of the Online Proposal System is as of the Effective Date and is provided for descriptive purposes only. Sunrun reserves the right to modify any of the terms below in its sole discretion, at any time and without notice.

The Online Proposal System, currently hosted at http://proposal.Sunrunhome.com/login, allows personnel of designated Contractors to create proposals, sales documents and manage certain operations functions. The Online Proposal System’s hours of operation are approximately 24 hours a day, seven days a week, subject to maintenance downtime. Sunrun provides technical support for the Online Proposal System via email, at solarmax@sunrunhome.com, and by phone at 415.982.9000. Support hours are presently Monday through Friday (excluding holidays) from 9:00 am to 6:00 pm (PT). Urgent, or after hours support issues may be directed to the designated Sunrun Contractor representative.

1.	Upgrades/Changes. Sunrun will periodically perform maintenance on and upgrades to Online Proposal System. This maintenance/release schedule and associated procedures shall be determined by Sunrun at its sole discretion. In some instances, Sunrun may at its sole discretion define a specific service change as “significant”. In the event of a “significant" service change, Sunrun will make commercially reasonable efforts to notify Contractor prior to change.
2.	Training. Sunrun will provide initial training at the Contractor’s site on the Online Proposal System to appropriate Contractor personnel.
3.	Sunrunoriginatedproposal. Contractor will use solely the materials generated by the Online Proposal System to market and sell Sunrun Products to potential customers. Any customized materials or materials not generated by the Online Proposal System representing Sunrun Products must not be used to market and sell Sunrun Products unless such materials have been approved in advance in writing by appropriate Sunrun personnel.
4.	Proposaldatasynchronization. Sunrun expects that the Parties will make reasonable commercial efforts to synchronize proposal data common to both the Online Proposal System and Contractor’s direct purchase proposal. Data points to be considered for synchronization include solar production estimates, utility cost estimates and savings estimates.
5.	Proposaldataintegration. By default, the Online Proposal System fields are filled out via manual data entry. Sunrun expects that the Contractor will make commercially reasonable efforts to implement technical interoperability to ensure the most efficient input methods are being utilized.
6.	Administrator. Contractor may designate an Online Proposal System administrator to assist appropriate Contractor personnel with proposal creation, proposal manipulation and the management of Contractor users. It is expected that this administrator will keep Contractor users current and up to date.

Contractor designated Online Proposal System administrator(s):

Guillermo Santomauro	Sales Director	guillermos@solarmaxtech.com
Name	Title	Email

ON-LINEPROPOSALGUIDELINES

The On-Line Proposal Guidelines may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

1.	Contractor must accurately represent and reflect the Homeowner’s kWh usage so as to not under represent or inflate kWh usage (even at homeowner requests )
2.	If Host Customer has lived at the residence for a period of 1 year or longer, the previous 12 months of kWh usage must accurately be entered into the proposal tool system
3.	If Host Customer has not lived at residence for at least a period of 1 year, then a minimum of 4 months kWh usage must be accurately entered into the proposal tool system and the remaining 8 months must be equal to or less than the average of the 4 actual months
4.	Proposals may not be created for Host Customers on discounted rate structures, including but not limited low income rate structures.
5.	Contractor shall adhere to the minimum and maximum project sizes for each Order submitted to Sunrun as set forth in the Online Proposal System
6.	Contractor shall not attempt to avoid limits on the minimum or maximum system size as set forth in the Online Proposal System by any method, including but not limited to, providing inaccurate information about the Host Customer’s electricity usage or designing multiple systems on one site.
7.	For non-standard rate structures, proposals showing the pre-solar and post-solar utility bills must be calculated without using the online proposal system.

EXHIBIT D

TRAINING PROGRAM

The following description of the Training Program is as of the Effective Date. Sunrun reserves the right to modify any of the terms below in its sole discretion, at any time and with reasonable notice.

Management Training (1day)

What: Introduce Solar and Sunrun to management team

Who: Executive Management, Sales Management, Operational Management

Introduction to Sunrun

Partnership

Managing solar business

Total Solar

SystemDesigner Training (2days)

What:Designingsolarsystems—maximizingsystemsandfinetuningpricing

Who:SystemDesigners

DAY 1 (same as Day 2 of Sales Rep Training)

Total Solar

Pricing and Pricing Levers

Competition Proposal Tool Contract

DAY 2

Designing Solar Systems

Practice

Sales RepTraining (2days)

What: Selling Sunrun

Who: Sales Manager, Sales Reps

DAY 1

Solar Overview

Introduction to Sunrun

Partnership

Market Overview

Utility Territory

System Design

Customer Profile

DAY 2

Total Solar

Pricing

Pricing Levers

Competition

Proposal Tool

Contract

DAY 3

Generic Sales

Objection Handling

Power Play

Sunrun Sales Process

DAY 4

Practice and live sales

Wrap Up

ONE MONTH LATER (In-person or webinar, based on needs)

Review Total Solar

Update on Sunrun business model

Review Competitors

Review Power Play

TWO MONTHS LATER (In-person or webinar, based on needs)

TBD, based on needs of partner

Lead Generator Training (1 day total—mix of Day 1 and Day 2 Sales Rep Training)

What:GeneratingqualifiedleadsforSalesteam

Who:Leadgenerationmanagement,leadgenerators

DAY 1

Solar Overview

Introduction to Sunrun

Partnership

Market Overview

Customer Profile

Total Solar

Pricing Competition

Processes

Sunrun will offer to Contractor other training on an ongoing basis, as mutually agreed to by the Parties from time to time.

EXHIBIT E

QUARTERLYREVIEW

The parties will hold a strategic working session at least quarterly where senior management from both organizations will review performance and strategize for the upcoming quarter. The Quarterly Review will take place at a location mutually agreed upon by the parties or via teleconference or webinar. Attendance is required by the senior management personnel from both parties who are responsible for sales, marketing and operations. The topics of discussion will be determined by the parties in advance the Quarterly Review, but will generally cover the following topics:

1. Concealed rankings. Sunrun will provide feedback to Contractor consisting of its performance on key performance indicators, with the goal of assisting Contractor in gauging its relative strengths and weaknesses as compared to Sunrun’s other Contractors, without disclosure of the identity of any other Contractor. Key performance indicators may include, but are not limited to:

· Sales close rates on Sunrun originated leads

· Number of Sunrun proposals created by Contractor

· Number of Sunrun site visits performed

2. Sales review. For the sales portion of the review, the Parties will evaluate for the prior quarter, and update for the next quarter the following:

· Unit Sales Targets

· Sales Metrics, to include proposal creation

· Sunrun Lead performance

· Solar Facility Pricing

· Sales Commission Program

3. Marketing review. For the marketing portion of the review, the Parties will:

· Evaluate applicable marketing campaigns, promotions and processes;

· Evaluate metrics for Sunrun’s lead generation program, notably the number of leads

· passed and the close rates on the aforementioned leads;

· Share specific feedback received during the quarter from customers on each other’s services, including the names of joint customers who are happy and able to be used as references for other customers; and

· Discuss and review any updates to the Marketing and Brand Guidelines.

4. Operations review. For the operations portion of the review, the Parties will:

· Evaluate the prior quarter’s pipeline metrics, notably targeted vs. actual time to project completion;

· Review installed system performance metrics and customer service issues;

· Discuss equipment selection, supply issues, and potential new technologies, if applicable; and

· Discuss and review build timelines for the coming quarter.

Sunrun Reserves the right to call and hold a strategic review session if at any time any the Unit Minimum Volume Commitments are not being met.

EXHIBIT F

MINIMUMVOLUMECOMMITMENTS

1.

Contractor shall be obligated to deliver a minimum number of “net Orders” (“Minimum Volume Commitment”). The Parties may mutually agree in writing to an updated Minimum Volume Commitment from time to time without requiring an amendment to this Agreement. The first Minimum Volume Commitment includes a forecast of the four quarters immediately following the Effective Date. Annually, until the end of the Term, the Parties shall mutually agree on a Minimum Volume Commitment for the upcoming year.

2.

The Volume Forecast shall include the following details and structure:

a.	Number of “net Orders” (where “net Orders” means those Orders that are not expected to be cancelled by the Host Customer and that are not ultimately rejected by Sunrun pursuant to Section 4.2 (i)-(v) of the Agreement.)
b.	Total DC kW of net Orders

For avoidance of doubt, items (a) and (b) above are for guidance only. Minimum Volume Commitment shall be based on the number of “net Orders” as set forth in the table below.

Month	Number of net Orders*	Total DC kW of net Orders*
Jan 2015	5	25
Feb 2015	20	100
Mar 2015	20	100
Apr 2015	20	100
May 2015	25	125
Jun 2015	25	125
Jul 2015	30	150
Aug 2015	30	150
Sept 2015	35	175
Oct 2015	30	150
Nov 2015	25	150
Dec 2015	25	125

* Orders must consist of a minimum system size of 2.00 kW DC

EXHIBIT G

WEEKLYREPORT

Weekly Reports shall contain at least the following information, and Sunrun and Contractor may modify the requirements from time to time by mutual agreement.

From Contractor to Sunrun

Sales reporting. Actual sales, including:

· Customer signed date

· Sales representative

· Solar Facility pricing

Lead status reporting.

· Site visit dates that occurred and are scheduled

· Stage of completion for open Sunrun leads

· Qualitative descriptions on lead failure

Operations reporting.

· Actual time to project completion

· Update on all deals in pipeline, including progress on installation with in relation to Milestone Payments under the Master Solar Facility Turnkey Contract

From Sunrun to Contractor

Sales metrics reporting.

· Proposals created

· Deals that were “Marked as Sold”

EXHIBIT H

MARKETINGANDBRANDGUIDELINES

The Marketing and Brand Guidelines will be provided by Sunrun to Contractor and attached hereto and may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

EXHIBIT I

LEADSPROGRAM

The Leads Program will be provided by Sunrun to Contractor and attached hereto and may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

EXHIBIT J

SALESGUIDELINES

The Sales Guidelines will be provided by Sunrun to Contractor and attached hereto and may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

Sunrun is committed to an outstanding customer experience and to partnering with companies that take the utmost care in helping homeowners make an educated choice about Sunrun’s solar power service.

Sunrun requires its partners to:

· Always treat Host Customer’s and potential Host Customers with courtesy and respect;

· Understand the potential Host Customer and Host Customer’s situation, including their

· suitability for solar;

· Create proposals that accurately represent pre-solar energy consumption and the home’s

· physical properties;

· Explain accurately the benefits of the Sunrun Products and the Solar Customer Agreement;

· Take care to explain the key terms of the Solar Customer Agreement, including but not limited to, the duration of the contract (20 years), and if applicable, the presence of an annual increase and the PPA or lease rate;

· Make accurate representations regarding savings from solar and potential increases in the cost

· of electricity from the utility;

· Set accurate expectations with regard to installation process and timeline;

· Behave professionally and respectfully when encountering competitive proposals;

· Avoid high pressure sales tactics;

· Comply with all applicable Laws

EXHIBIT K
 

CUSTOMERPROMOTIONGUIDELINES

The Customer Promotion Guidelines will be provided by Sunrun to Contractor and attached hereto and may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

EXHIBITL

CUSTOMERORIGINATIONPOLICY

The Customer Origination Policy will be provided by Sunrun to Contractor and attached hereto and may be amended from time to time by Sunrun upon notice to Contractor without requiring any amendment to the Agreement.

ORIGINATIONPOLICYDOCUMENT

Location and proximity to landmarks

1. Contractor shall not sell Sunrun Products in a utility territory where Sunrun does not operate.

2. Contractor shall not sell Sunrun Products for a property located less than 500 feet from a golf course.

3. Contractor shall provide correct site and customer information in the Sunrun Online Proposal Tool and during Sunrun deal review.

Compliance with laws and building codes

1. Contractor shall not sell Sunrun Products to a potential Host Customer if, at the Host Customer Site, Host Customer is knowingly engaged in activities that violate local, state, or Federal laws.

2. Contractor shall sell Sunrun Products associated only with a system design that meets all local code requirements for structural, electrical, zoning, planning, etc., as well as the National Electric Code. Sunrun will not buy the project if its design and construction will violate local code, the National Electric Code, or the International Building Code.

System design and cost

1. Contractor shall not sell Sunrun Products that require installation on a mobile home or a mobile home property. Contractor will only submit a system to Sunrun for approval on a manufactured or pre-fabricated home if accompanied by stamped plans from a licensed Civil or Structural Engineer with full calculations. See section II.C in the Residential Technical Sales and Site Survey Section.

2. Trellis and carports

a. Contractor will only submit for Sunrun approval a system design on an existing trellis or carport structure if accompanied by stamped approval and full calculations from a licensed Civil or Structural Engineer. See section II.D in the Residential Technical Sales and Site Survey Section.

b. Contractor shall not sell a Sunrun Product that includes a system designed for the purpose of shade, cover, or any other non-PV-related purpose. Sunrun ground-mounted systems must be designed and erected exclusively to hold solar panels. . See section II.D in the Residential Technical Sales and Site Survey Section.

3. Contractor shall not sell Sunrun Products that include a system designed to serve as a battery back-up or storage system. All Sunrun systems must be directly connected to the grid, and all energy produced must be fully back-fed into the grid. Sunrun will not purchase AC coupled systems, and Sunrun power cannot be connected to critical load centers powered by charge controllers and/or batteries.

4. Contractor must charge the customer for the cost of the fence surrounding the ground mounted solar facility separately from the Sunrun Product. This is the same policy as with a main panel upgrade.

5. Contractor must charge the customer for the cost of a main panel upgrade separately from the Sunrun Product.

6. Contractor shall not sell a Sunrun Product on a property for which the design would require reverse racks or compound tilts. If the property will require a system with a reverse rack or compound tilt, that system is not eligible for Sunrun ownership.

7. Contractor shall not sell Sunrun Products that require interconnection with 3-phase electrical services.

Customer and property type

1. Contractor shall not sell Sunrun Products for a commercial property or to a non-profit or corporate entity.

2. Contractor shall sell Sunrun Products only when the Property owner is an individual resident or resident holding property in a Trust. The Property Owner must also be the Sunrun Customer.

3. Contractor shall not sell a Sunrun Product with a monthly payment to a customer without explicit Sunrun approval of the customer’s current utility rate schedule.

4. Contractor shall not sell Sunrun Products to a property zoned only for commercial or industrial use.

5. Contractor shall not sell Sunrun Products for properties with multiple units.

6. If a property is owned by multiple parties, Sunrun strongly recommends Contractor review contract with and get signature from all property owners listed on the deed.

7. For properties owned by a trust, the following requirements apply to projects and customers:

a. Revocable trust. The grantor/trustor/settlor must sign the Sunrun agreement. In order to validate the nature of the trust and the customer as the grantor/trustor/settlor, customer must send Sunrun the first 5 pages of the Trust document for review.

b. Irrevocable trust. Contractor shall not sell and Sunrun shall not purchase deals in which the Host Customer Site is owned by an irrevocable trust.

8. Contractor shall not sell Sunrun Products to an LLC, unless the LLC is single person with single associated tax ID. The requirements for acceptance of contracts with single-person LLCs are as follows

a. Customer must submit the LLC incorporation documents to Sunrun for review.

b. Customer must fully prepay all costs associated with the Sunrun Customer Contract.

c. Sunrun will not make any milestone payments until the customer pays the full  Prepayment amount owed.

d. Sunrun signoff/project approval requires the LLC’s officer certification that the customer can sign the Sunrun Customer Contract for the LLC.

Sunrun system count per site, and required meters

1. There must be only 1 utility meter associated with each Sunrun Customer Contract.

2. Contractor shall not sell a Sunrun Product that shares a Sunrun meter with any other system. All Sunrun systems must have at least one Sunrun meter. The Sunrun meter(s) must be on the plan set in both the site plan and the line drawing. Each Sunrun system and its associated contract and production estimate shall have its own Sunrun meter. Multiple contracts or systems at a site, or add-ons to an existing site, shall be designed with their own Sunrun meter.

3. If a property and customer require multiple Sunrun systems, Contractor shall adhere to the following requirements

a. The reason for multiple systems must be contained to unique property requirements such as multiple distant buildings on single property, multiple utility meters.

b. Each Sunrun system is electrically independent and each Sunrun system is metered and billed separately in a separate contract.

c. The aggregate size and production of the Sunrun facilities on the property must comply with the maximum size and offset rules for a single Sunrun system.

d. The aggregate pricing of the contracts comply with Sunrun pricing rules for the total offset and system size.

Sunrun system size, electricity offset, and pricing model account for design characteristics

1. Contractor shall adhere to the system size limits per Customer Site set forth and enforced in the Online Proposal Tool.

2. Contractor shall not sell Sunrun Products where the expected solar electricity will exceed more

than 100% of the customer’s previous 12 months of utility electricity usage, where utility electricity usage is always net of any pre-existing solar electricity generation or other electricity generation onsite.

Local, utility, state subsidy programs

1. Sunrun customers should not participate in net energy metering (NEM) programs or rate schedules that allow them to share electricity with another utility meter and a customer’s value proposition should never be described to include such a program. As such, Contractor shall not sell Sunrun Products that offset more than 100% of the last 12 months of customer utility electricity usage in order to share electricity with a separate utility meter. This policy holds for a customer with multiple utility meters associated with their utility account and their property.

2. Contractor shall not price in to a Sunrun Customer Contract an incentive that Sunrun must apply for and receive and has not previously approved. Contractor may apply for and receive an incentive from a program not yet approved by Sunrun and apply the incentive value in a way that reduces the Contract Price charged to Sunrun.

EX-10.2

EXHIBIT 10.2

EXECUTIVE EMPLOYMENT AGREEMENT

AGREEMENT dated as the 7^th day of October, 2016, by and between SolarMax Technology, Inc., a Nevada corporation with its principal office at 3080 12th Street, Riverside, California 92507 (the “Company”), and David Hsu, (the “Executive”), whose address is .

W I T N E S S E T H:

WHEREAS, the Company has engaged Executive as its chief executive officer and desires to continue to obtain the benefits of Executive’s knowledge, skill and ability in connection with managing the operations of the Company and to continue to employ Executive as its chief executive officer on the terms and conditions hereinafter set forth; and

WHEREAS, Executive desires to provide his services to the Company and to accept employment by the Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:

1. Employment and Duties.

(a) Subject to the terms and conditions hereinafter set forth, the Company hereby employs the Executive as its Chief Executive Officer, and he shall have the duties and responsibilities associated with the chief executive officer of a public corporation. The Executive shall report to the Company’s board of directors (the “Board”). Executive shall also perform such other duties and responsibilities as may be determined by the Board, as long as such duties and responsibilities are consistent with those of the Chief Executive Officer. Additionally, during the Term, as hereinafter defined, the Company shall include the Executive as one of the Board’s nominees for election as a director of the Company, and, if elected, the Executive shall serve as chairman of the board.

(b) The Executive shall serve as a director of the Company or any of its subsidiaries, if elected, and in such executive capacity or capacities with respect to any affiliate of the Company to which he may be elected or appointed, provided that such duties are consistent with those of the Company’s chief executive officer. The Executive shall receive no additional compensation for services rendered pursuant to this Section 1(b).

(c) Unless terminated earlier as provided for in Section 5 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) of five years, commencing on January 1, 2017 and expiring on December 31, 2021, and shall continue on a year-to-year basis unless terminated by either party on not less than 90 days’ written notice prior to the expiration of the Initial Term or any one-year extension. The Initial Term and the one-year extensions are collectively referred to as the “Term.”

2. Executive’s Performance. Executive hereby accepts the employment contemplated by this Agreement. During the Term, Executive shall devote substantially all of his business time to the performance of his duties under this Agreement, and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.

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3. Compensation and Other Benefits.

(a) For his services to the Company during the Term, the Company shall pay the Executive an annual salary (“Salary”) at the rate of $600,000 per year, which Salary shall be increased by not less than 3% on January 1^st of each year, commencing January 1, 2018. The Executive’s Salary shall be reviewed at least annually by the Company’s compensation committee and may be increased (but not decreased) in the sole discretion of the compensation committee or the Board. All Salary payments shall be payable in such installments as the Company regularly pays its executive officers, but not less frequently than semi monthly. In the event that the Company does not have a compensation committee, all references in this Agreement to the compensation committee shall be deemed to refer to the Board without the participation or attendance by the Executive unless such participation is required in order that there be a quorum.

(b) The Executive shall be entitled to an annual bonus (the “Bonus”) for each year of the Term, commencing with the year ending December 31, 2017, equal to a percentage of consolidated gross revenue (“Revenue”), determined in accordance with generally accepted accounting principles consistently applied as reflected on the Company’s consolidated financial statements, based on the level of Revenue as set forth in the following table:

Revenue in Millions	Bonus as a Percentage of Revenues
Less than $30 million		0	%
More than $30 million but less than $50 million	$	250,000
More than $50 million but less than $100 million		0.55	%
More than $100 million but less than $200 million		0.60	%
More than $200 million but less than $300 million		0.75	%
More than $300 million		1.00	%

(c) The Bonus payable for any calendar year shall be paid 70% in restricted stock and 30% in cash, and shall be paid not later than the earlier of (i) 30 days following the issuance of the Company’s audited financial statements for the calendar year in which the Bonus is earned or (ii) the last business day of December of such next following calendar year. The audited financial statement of the Company shall be deemed to be issued (x) on the date the Annual Report on Form 10-K is filed with the Securities and Exchange Commission if the Company is a reporting company under the Exchange Act and (y) if the Company is not a reporting company, on the date of the auditors’ report. The equity component of the bonus shall be based on the average closing market price of the common stock on the principal exchange or market on which the Company’s common stock is traded for the period beginning on the first day of the quarter in which the bonus is payable pursuant to this Section 3(c) and ending on the third trading day prior to the date payment is made; except that, if the Company’s common stock is not publicly traded, the common stock shall be valued at the most recent price at which the common stock was sold in a private placement to non-affiliated investors. The restricted stock will vest immediately on issuance.

(d) The Executive shall be eligible for restricted stock grants and stock options as determined by the compensation committee; provided, however, that in no event shall the equity incentives granted for any year exceed 1.5% of the Company’s outstanding common stock prior to the grant.

(e) During the Term, the Executive shall receive, at the Company’s full cost and expense:

(i) Medical and dental insurance selected by the Executive from those coverage options that the Company offers to its executive employees from time to time.

(ii) Long-term disability insurance that provides a disability income benefit of not less than $25,000 per month, commencing no later than six (6) months following the occurrence of a Disability.

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(iii) $2,000,000 of life insurance coverage, of which $1,000,000 shall be whole life and $1,000,000 shall be term life insurance.

(iv) Vacation in accordance with company policy; provided that any unused vacation shall be accrued without limitation or restriction.

(f) The Executive shall also receive such other benefits as the Board may grant to its executive officers.

4. Reimbursement of Expenses. The Company shall reimburse the Executive, upon presentation of proper expense statements, for all authorized, ordinary and necessary out of pocket expenses reasonably incurred by Executive during the Term in connection with the performance of his services pursuant to this Agreement in accordance with the Company’s expense reimbursement policy. Executive shall be entitled to travel business class for international travel and first class for domestic travel.

5. Termination of Employment.

(a) This Agreement and Executive’s employment shall terminate immediately upon the death of the Executive.

(b) This Agreement and Executive’s employment, may be terminated by the Executive or by the Company on not less than thirty (30) days’ written notice in the event of Executive’s Disability. The term “Disability” shall mean any medically determinable physical or mental impairment of the Executive which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as a result of which either (i) the Executive is unable to perform his duties as Chief Executive Officer or (ii) the Executive receives income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. In the event of termination of Executive’s employment as a result of a Disability pursuant to this Section 5(b) or as a result of Executive’s death, the Company shall pay Executive or his beneficiary severance compensation or death benefits equal to one year’s compensation (based on the highest compensation paid or payable to the Executive during the three full years prior to the year in which such termination takes place) multiplied by the number of full years that Executive has been employed by the Company, including any predecessor or successor corporation to the Company. Such payment shall be made in annual installments, with each installment equal to one year’s total compensation and with the first annual installment paid within thirty (30) days of the Executive’s termination date due to death or Disability and subsequent installments paid on successive anniversaries of such termination date until the full amount has been paid.

(c) The Company may terminate this Agreement and the Executive’s employment for cause, in which event no further Salary or other benefits shall be payable to Executive subsequent to the date of termination. The term “Cause” shall mean:

(i) a material breach of Sections 6, 7 or 8 of this Agreement;

(ii) fraud, dishonesty, gross misconduct or other breach of trust whereby the Executive obtains personal gain or benefit at the expense of or to the detriment of the Company;

(iii) a conviction of or plea of nolo contendere or similar plea by the Executive of any felony;

(iv) a conviction of or plea of nolo contendere or similar plea by of any other crime involving theft or misappropriation of property;

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(d) The Executive may terminate this Agreement on 30 days’ written notice for Good Reason. The Executive shall deliver to the Company, within ninety (90) days following the event constituting Good Reason, a written notice of termination for Good Reason setting forth in reasonable detail the facts and circumstances claimed by the Executive to provide a basis for the termination for Good Reason, and the Company shall have a period of thirty (30) days following receipt of such notice to cure such grounds for Good Reason prior to such termination by the Executive for Good Reason becoming effective. The Executive’s purported termination for Good Reason shall not take effect if the Company effects such cure within the thirty (30)-day period. As used in this Agreement, the term “Good Reason” shall mean:

(i) Without the consent of the Executive, a material diminution in the Executive’s authority, duties or responsibilities as set forth in said Section 1 or which are materially inconsistent with the duties set forth in Section 1.

(ii) Without the consent of the Executive, the Executive is no longer the Company’s chief executive officer reporting directly to the Board.

(iii) Any material breach by the Company of the terms of this Agreement.

(e) The Executive or the Company may terminate this Agreement for any reason within 18 months following a Change of Control of the Company. A “Change of Control” shall occur or be deemed to have occurred if (A) any “person” (as such term is used in section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than 50% percent of the combined voting power of the Company’s then outstanding securities, or (B) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election of each new director was nominated, ratified or approved by at least a majority of the directors then still in office who were either directors at the beginning of such period or who were elected or appointed with the approval or ratification of at least a majority of the directors who were directors at the beginning of such period, or (C) a sale by the Company of all or substantially all of its business and assets to an entity which is not affiliated with the Company. Notwithstanding the foregoing, (x) an acquisition of Common Stock or securities convertible into or exchangeable for Common Stock if such acquisition was acquired directly from the Company shall not be deemed to be a Change of Control, and (y) a merger or consolidation of the Company with or into another corporation or entity or similar transaction shall not be deemed a Change of Control if the stockholders of the Company prior to the merger, consolidation or other transaction own not less than 50% of the voting equity securities of the surviving entity immediately after the consummation of the merger, consolidation or other transaction. Each event comprising a Change of Control is intended to constitute a “change in ownership or effective control,” or a “change in the ownership of a substantial portion of the assets,” of the Company, as such terms are defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and “Change of Control” as used herein shall be interpreted consistently therewith.

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(f) In the event that either (x) the Company terminates Executive’s employment other than as provided in Sections 5(a), 5(b) and 5(c) of this Agreement or (y) the Executive terminates this agreement for Good Reason or pursuant to Section 5(e), the prohibitions of Section 7 of this Agreement shall terminate, all unvested equity rights shall vest, and the Company shall:

(i) Pay Executive accrued Salary, Bonus, if any, and vacation pay through the date of termination.

(ii) Pay severance pay equal to two times the highest compensation paid or payable to the Executive during the three full years prior to the year in which such termination takes place) multiplied by the number of full years of service with the Company (including any predecessor or successor corporation). Payment of such amount shall be made by the Company within thirty (30) days following the termination of the Executive’s employment.

(iii) Pay or reimburse the Executive for the cost of COBRA continuation medical and dental insurance coverage for the Executive and the Executive’s family members for the balance of the current Term (without regard to any termination pursuant to this Section 5). If for any reason COBRA continuation coverage cannot be provided to the Executive for the balance of such Term or the Company cannot reimburse such cost, the Company shall pay or continue to pay the Executive an amount equal to the cost of such COBRA coverage for the balance of such Term.

(iv) Transfer to Executive all life insurance policies on his life.

6. Trade Secrets and Proprietary Information.

(a) Executive recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will continue to develop in the future information concerning customers, clients, marketing, patents, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to engage in, its operations, financial condition or prospects and that the same are confidential and proprietary and considered “Confidential Information” of the Company for the purposes of this Agreement. In consideration of his employment, the Executive agrees that he will not, during or after the Term, without the consent of the Board make any disclosure of Confidential Information now or hereafter possessed by the Company, to any person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit Executive from using or disclosing such information (a) if such disclosure is necessary in the normal course of the Company’s business in accordance with Company policies or instructions or authorization from the Board, (b) such information shall become public knowledge other than by or as a result of disclosure by a person not having a right to make such disclosure, (c) complying with legal process as provided in Section 6(b) of this Agreement, or (d) subsequent to the Term, if such information shall have either (i) been developed by Executive independent of any of the Company’s confidential or proprietary information or (ii) been disclosed to Executive by a person not subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 6, 7 and 8 of this Agreement, the term “Company” shall include the Company, its parent, its subsidiaries and affiliates.

 

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(b) In the event that any Confidential Information is required to be produced by Executive pursuant to legal process, the Executive shall give the Company notice of such legal process within a reasonable time, but not later than ten business days prior to the date such disclosure is to be made, unless Executive has received less notice, in which event the Executive shall immediately notify the Company. The Company shall have the right to object to any such disclosure, and if the Company objects (at the Company’s cost and expense) in a timely manner, the Executive shall not make any disclosure until there has been a court determination on the Company’s objections. If disclosure is required by a court order, final beyond right of review, or if the Company does not object to the disclosure, the Executive shall make disclosure only to the extent that disclosure is required by the court order, and the Executive will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

(c) The Executive shall, upon expiration or termination of the Term, or earlier at the request of the Company, turn over to the Company all documents, papers, computer disks or other material in the Executive’s possession or under the Executive’s control which may contain or be derived from Confidential Information. To the extent that any Confidential Information is on Executive’s hard drive or other storage media, he shall, upon the request of the Company, cause such information to be erased from his computer disks and all other storage media.

7. Covenant Regarding Improper Use of Confidential Information.

(a) During the period from the date of this Agreement until one (1) year following the date on which Executive’s employment is terminated, subject to Section 5(e) of this Agreement, Executive will not, directly or indirectly:

(i) Utilize the Company’s Confidential Information to persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, orto reduce the amount of business it does with the Company (the terms “customer” and “client” as used in this Section 7 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s employment or during the twelve (12) months preceding the termination of his employment;

(ii) Utilize the Company’s Confidential Information to solicit for himself or any other person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one (1) year prior to the termination of his employment; or

(iii) Persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the one (1) year period prior to the termination of this Agreement, to leave the Company’s employ, or to become employed by any person or entity other than the Company

(b) The Executive acknowledges that the restrictive covenants (the “Restrictive Covenants”) contained in Sections 6 and 7 of this Agreement are a condition of his employment and are reasonable and valid in geographical and temporal scope and in all other respects. If any court or arbitrator determines that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected and shall remain in full force and effect, without regard to the invalid portion. If any court or arbitrator determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court or arbitrator shall have the power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.

 

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8. Ownership of Intellectual Property.

(a) “Inventions” means all inventions, ideas, discoveries, developments, methods, data, information, improvements, original works, know-how, including, but not limited to, algorithms, technology, trade secrets, processes, codes and hardware (whether or not reduced to practice and whether or not protectable under the patent, copyright, trade secrecy or similar laws of the United States, the Peoples’ Republic of China or any applicable foreign country which:

(i) relate to the Company’s business at the time of conception or reduction to practice or actual or demonstrably anticipated research or development of Company that were conceived, created or developed by the Executive (whether alone or with others, whether or not during working hours or on the Company’s premises or whether or not using material or property provided by the Company) during the Term or having conceived, created or developed prior to the Term while Executive was employed by the Company; and/or

(ii) were conceived, created or developed by the Executive (whether alone or with others) during the Term, even if having possibly been conceived, created or developed prior to the Term but completed while in the employ of the Company, or which result from any work performed by the Executive for Company.

(b) All Inventions are, will be, and shall constitute “works-for-hire” and the exclusive property of the Company, and the Company may use and exploit them without restriction or additional compensation to the Executive. The Executive shall promptly and fully disclose to the Company any and all Inventions. The Executive shall maintain complete written records of all Inventions and of all work or investigations done or carried out by the Executive at all stages thereof, which records shall be the exclusive property of the Company and will be treated as Confidential Information for all purposes of this Agreement.

(c) The Executive hereby irrevocably assigns and transfers to the Company, its successors, assigns or Affiliates, as the case may be, all of Executive’s right, title and interest in and to any Inventions without additional consideration therefor from the moment of their creation or inception, to be held and enjoyed by the Company, its successors, assigns or Affiliates, as the case may be, to the full extent of the term for which any intellectual property protection may be granted and as fully as the same would have been held by Executive had this Agreement, or such assignment or transfer not been made. In addition to the foregoing assignments of Inventions to the Company, Executive hereby irrevocably assigns and transfers to the Company: (i) all worldwide patents, trademarks, copyrights, mask works, trade secrets, applications for the foregoing and other intellectual property rights in any Inventions; and (ii) any and all “Moral Rights” (as defined below) that Executive may have in or with respect to any Inventions. Executive hereby forever waives and agrees never to assert any and all Moral Rights Executive may have in or with respect to any such Inventions, even after the termination of Executive’s employment.

(d) “Moral Rights” means any right to claim authorship of any Inventions, or to withdraw from circulation or control the publication or distribution of any Inventions, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a moral right.

(e) Executive agrees to cooperate fully in obtaining patent, copyright or other proprietary protection for such Inventions, all in the name of the Company, its successors, assigns or Affiliates, as the case may be, and at the Company’s cost and expense, and shall execute and deliver all requested applications, assignments and other documents and take such other actions as the Company, its successors, assigns or Affiliates, as the case may be, shall request in order to perfect, enforce and exploit the Company’s, its successors,’ assigns’ or Affiliates,’ as the case may be, right in the Inventions (including transfer of possession to the Company, its successors, assigns or Affiliates, as the case may be, of all Inventions embodied in tangible materials), including granting Company a non-revocable, royalty-free license in any pre-existing works. Executive irrevocably designates and appoints the Company and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any and all applications and other necessary documents and to do all other lawfully permitted acts to further perfect and enforce the Company’s, its successors,’ assigns’ or Affiliates’ (as the case may be) right in the Inventions and to further the prosecution, issuance or enforcement of patents, copyrights, trade secrets and similar protections related to the Inventions with the same legal force and effect as he had executed them himself. The Executive shall receive no additional compensation for complying with Executive’s obligations under this Section 8. The Executive agrees that, to the extent this Agreement shall be construed in accordance with any laws that limit the assignability to the Company, its successors, assigns or Affiliates (as the case may be) of the Inventions, this Agreement shall be interpreted not to apply to any Invention which a court rules or the Company agrees is subject to such state limitation.

 

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(f) California Labor Code § 2870 provides as follows:

a. Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer.

(2) Result from any work performed by the employee for his employer.

b. To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

The assignment of Inventions under this Agreement, accordingly, shall not extend to those items set forth in Labor Code § 2870.

(g) Any copyrightable work created by the Executive in connection with or during the performance of his employment duties, whether published or unpublished, shall be the property of the Company as author and owner of copyright in such work.

(h) The Executive warrants and represents that there are no Inventions (whether patentable or not), patents, trade secrets, trademarks, trade names, copyrights, or other intellectual property owned by him prior to entering into employment with the Company hereunder, and that he has not executed and will not execute any document or instrument in conflict herewith.

(i) An “Affiliate” of the Company shall mean any person or entity which controls, is controlled by or is under common control with the Company.

9. Injunctive Relief. The Executive agrees that his violation or threatened violation of any of the provisions of Sections 6, 7 or 8 of this Agreement shall cause immediate and irreparable harm to the Company. In the event of any breach or threatened breach of any of said provisions, the Executive consents to the entry of preliminary and permanent injunctions by a court of competent jurisdiction prohibiting the Executive from any violation or threatened violation of such provisions and compelling the Executive to comply with such provisions. This Section 9 shall not affect or limit, and the injunctive relief provided in this Section 9 shall be in addition to, any other remedies available to the Company at law or in equity or in arbitration for any such violation by the Executive. Subject to Section 7(b) of this Agreement, the provisions of Sections 6, 7, 8 and 9 of this Agreement shall survive any termination of this Agreement and the Executive’s employment.

 

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10. Indemnification. The Company shall provide Executive with payment of legal fees and indemnification to the maximum extent permitted by the Company’s Certificate of Incorporation, By Laws, and Nevada law. The Company shall also provide officers and directors liability insurance of not less than $5,000,000, and the Company shall be responsible for any deductibles under such policy. The Company shall also provide so-called tail coverage in not less than $5,000,000 following such date as Executive ceases to be an officer or director.

11. Key Man Insurance. Executive will cooperate with the Company in connection with any application by the Company to obtain key-man life insurance on his life, on which the Company will be the beneficiary. Such cooperation shall include the execution of any applications or other documents requiring his signature and submission of insurance applications and submission to a physical examination.

12. Code Section 409A Compliance.

(a) This Agreement is intended to comply with the provisions of Section 409A of the Code, and, to the extent practicable, this Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder. Terms used in this Agreement shall have the meanings given such terms under Section 409A of the Code if, and to the extent required, in order to comply with Section 409A of the Code.

(b) The payment schedules provided hereunder are intended to be exempt from or to comply with the requirements of Section 409A of the Code and shall be interpreted consistently therewith.

(c) Any payments under Section 5 shall be made or shall commence only after the Executive has a “separation from service” with the Company, as defined under Section 409A of the Code and the guidance issued thereunder.

(d) Notwithstanding anything to the contrary in this Agreement, to the extent required to avoid additional taxes and interest charged under Section 409A of the Code, if any of the Company’s stock is publicly traded and the Executive is deemed to be a “specified employee” as determined by the Company for purposes of Section 409A(a)(2)(B) of the Code, the Executive agrees that any non-qualified deferred compensation payments due to him under this Agreement in connection with a termination of employment that would otherwise have been payable at any time during the six (6)-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum on the first day of the seventh (7^th) month following the Executive’s separation from service (or, if the Executive dies during such period, within 30 days after the Executive’s death).

(e) Each payment of termination benefits under Section 5 of this Agreement, including, without limitation, each installment payment, shall be considered a separate payment, as described in Treasury Regulations Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.

 

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(f) Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any payment under this Agreement that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code, except to the extent specifically permitted or required by Section 409A of the Code.

(g) If the Executive is entitled to be paid or reimbursed for any expenses under this Agreement, and such payments or reimbursements are includible in the Executive’s federal gross taxable income, the amount of such expenses reimbursable in any one calendar year shall not affect the amount reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. No right of the Executive to reimbursement of expenses under Section 4 or any other Section of this Agreement shall be subject to liquidation or exchange for another benefit.

(h) Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(i) Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code be subject to offset, counterclaim or recoupment by any other amount payable to the Executive unless otherwise permitted by Section 409A of the Code.

13. Representations and Warranties of the Parties.

(a) The Executive represents, warrants, covenants and agrees that he has a right to enter into this Agreement, that he is not a party to any agreement or understanding, oral or written, which would prohibit performance of his obligations under this Agreement, and that he will not use in the performance of his obligations hereunder any proprietary information of any other party which he is legally prohibited from using.

(b) The Company represents, warrants and agrees that it has full power and authority to execute and deliver this Agreement and perform its obligations hereunder.

14. Miscellaneous.

(a) Any notice, consent or communication required under the provisions of this Agreement shall be given in writing and sent or delivered by hand, overnight courier or messenger service, against a signed receipt or acknowledgment of receipt, or by registered or certified mail, return receipt requested, or telecopier, email or similar means of communication (collectively “electronic communications”) if receipt is acknowledged or if transmission is confirmed by mail as provided in this Section 13(a), to the parties at their respective addresses set forth at the beginning of this Agreement or by electronic delivery to the telecopier or email set forth on the signature page of this Agreement, with notice to the Company being sent to the attention of the individual who executed this Agreement on behalf of the Company. Either party may, by like notice, change the person, address or electronic communications number or address to which notice is to be sent. If no telecopier number is provided for either party, notice to such party shall not be sent by telecopier.

 

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(b) This Agreement shall in all respects be construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the State of California applicable to agreements executed and to be performed wholly in such state without regard to principles of conflicts of laws, except as provided in the first sentence of Section 10.

(c) If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be determined to be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law, and any court or arbitrator having jurisdiction may reduce the scope of any provision of this Agreement, including the geographic and temporal restrictions set forth in Section 8 of this Agreement, so that it complies with applicable law.

(d) This Agreement constitutes the entire agreement of the Company and the Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, with respect to the subject matter covered in this Agreement. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

(e) Neither party hereto shall have the right to assign or transfer any of its or his rights hereunder except in connection with a merger of consolidation of the Company or a sale by the Company of all or substantially all of its business and assets.

(f) Except for actions, suits, or proceedings taken pursuant to or under Section 6, 7, 8 or 9 of this Agreement, any dispute concerning this Agreement or the rights of the parties hereunder shall be submitted to binding arbitration in Riverside County, California before a single arbitrator under the rules of the American Arbitration Association. The award of the arbitrator shall be final, binding and conclusive on all parties, and judgment on such award may be entered in any court having jurisdiction. The arbitrator shall have the power, in his discretion, to award counsel fees and costs to the prevailing party. The arbitrator shall have no power to modify or amend any specific provision of this Agreement except as expressly provided in Section 13(c) of this Agreement.

(g) Notwithstanding the provisions of Section 13(f) of this Agreement, with respect to any claim for injunctive relief or other equitable remedy pursuant to Section 9 of this Agreement or any claim to enforce an arbitration award or to compel arbitration, the parties hereby (i) consents to the exclusive jurisdiction of the federal and state courts sitting in Riverside County, California, (ii) agree that any process in any action commenced in such court under this Agreement may be served upon him personally, either (A) by certified or registered mail, return receipt requested, or by an overnight courier service which obtains evidence of delivery, with the same full force and effect as if personally served upon him in Riverside County, California, or (B) by any other method of service permitted by law, and (iii) waives any claim that the jurisdiction of any such court is not a convenient forum for any such action and any defense of lack of in personam jurisdiction with respect thereof.

(h) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.

 

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(i) The headings in this Agreement are for convenience of reference only and shall not affect in any way the construction or interpretation of this Agreement.

(j) No delay or omission to exercise any right, power or remedy accruing to either party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach hereof shall be deemed to be a waiver of any other breach hereof theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in an applicable writing. All remedies afforded to either party under this Agreement, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by such party of any other rights or the seeking of any other rights or remedies against any other party.

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

Telecopier and Email	Signature
	SOLARMAX TECHNOLOGY, INC.
	By:	/s/ Ching Liu
		Ching Liu, Executive Vice President
		/s/ David Hsu
		David Hsu

[Signature page of Employment Agreement between SolarMax Technology, Inc. and David Hsu]

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EX-10.3

EXHIBIT 10.3

EXECUTIVE EMPLOYMENT AGREEMENT

AGREEMENT dated as the 7^th day of October, 2016, by and between SolarMax Technology, Inc., a Nevada corporation with its principal office at 3080 12th Street, Riverside, California 92507 (the “Company”), and Ching Liu, (the “Executive”), whose address is .

W I T N E S S E T H:

WHEREAS, the Company has engaged Executive as its executive vice president and desires to continue to obtain the benefits of Executive’s knowledge, skill and ability in connection with managing the operations of the Company and to employ Executive as its executive vice president, chief strategy officer and treasurer on the terms and conditions hereinafter set forth; and

WHEREAS, Executive desires to provide her services to the Company and to accept employment by the Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows:

1. Employment and Duties.

(a) Subject to the terms and conditions hereinafter set forth, the Company hereby employs the Executive as its Executive Vice President, Chief Strategy Officer and Treasurer, and she shall have the duties and responsibilities associated with the executive vice president, chief strategy officer and treasurer of a public corporation. The Executive shall report to the Company’s chief executive officer. Executive shall also perform such other duties and responsibilities as may be determined by the Company’s board of directors (the “Board”) or the Company’s chief executive officer, as long as such duties and responsibilities are consistent with those of the Executive Vice President, Chief Strategy Officer and Treasurer. Additionally, during the Term, as hereinafter defined, the Company shall include the Executive as one of the Board’s nominees for election as a director of the Company, and, if elected, the Executive shall serve as vice chair of the board.

(b) The Executive shall serve as a director of the Company or any of its subsidiaries, if elected, and in such executive capacity or capacities with respect to any affiliate of the Company to which she may be elected or appointed, provided that such duties are consistent with those of the Company’s executive vice president, chief strategy officer and treasurer. The Executive shall receive no additional compensation for services rendered pursuant to this Section 1(b).

(c) Unless terminated earlier as provided for in Section 5 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) of five years, commencing on January 1, 2017 and expiring on December 31, 2021, and shall continue on a year-to-year basis unless terminated by either party on not less than 90 days’ written notice prior to the expiration of the Initial Term or any one-year extension. The Initial Term and the one-year extensions are collectively referred to as the “Term.”

2. Executive’s Performance. Executive hereby accepts the employment contemplated by this Agreement. During the Term, Executive shall devote substantially all of her business time to the performance of her duties under this Agreement, and shall perform such duties diligently, in good faith and in a manner consistent with the best interests of the Company.

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3. Compensation and Other Benefits.

(a) For her services to the Company during the Term, the Company shall pay the Executive an annual salary (“Salary”) at the rate of $560,000 per year, which Salary shall be increased by not less than 3% on January 1^st of each year, commencing January 1, 2018. The Executive’s Salary shall be reviewed at least annually by the Company’s compensation committee and may be increased (but not decreased) in the sole discretion of the compensation committee or the Board. All Salary payments shall be payable in such installments as the Company regularly pays its executive officers, but not less frequently than semi monthly. In the event that the Company does not have a compensation committee, all references in this Agreement to the compensation committee shall be deemed to refer to the Board without the participation or attendance by the Executive unless such participation is required in order that there be a quorum.

(b) The Executive shall be entitled to an annual bonus (the “Bonus”) for each year of the Term, commencing with the year ending December 31, 2017, equal to a percentage of consolidated gross revenue (“Revenue”), determined in accordance with generally accepted accounting principles consistently applied as reflected on the Company’s consolidated financial statements, based on the level of Revenue as set forth in the following table:

Revenue in Millions	Bonus as a Percentage of Revenues
Less than $30 million	0%
More than $30 million but less than $50 million	$200,000
More than $50 million but less than $100 million	0.45%
More than $100 million but less than $200 million	0.50%
More than $200 million but less than $300 million	0.65%
More than $300 million	0.90%

(c) The Bonus payable for any calendar year shall be paid 70% in restricted stock and 30% in cash, and shall be paid not later than the earlier of (i) 30 days following the issuance of the Company’s audited financial statements for the calendar year in which the Bonus is earned or (ii) the last business day of December of such next following calendar year. The audited financial statement of the Company shall be deemed to be issued (x) on the date the Annual Report on Form 10-K is filed with the Securities and Exchange Commission if the Company is a reporting company under the Exchange Act and (y) if the Company is not a reporting company, on the date of the auditors’ report. The equity component of the bonus shall be based on the average closing market price of the common stock on the principal exchange or market on which the Company’s common stock is traded for the period beginning on the first day of the quarter in which the bonus is payable pursuant to this Section 3(c) and ending on the third trading day prior to the date payment is made; except that, if the Company’s common stock is not publicly traded, the common stock shall be valued at the most recent price at which the common stock was sold in a private placement to non-affiliated investors. The restricted stock will vest immediately on issuance.

(d) The Executive shall be eligible for restricted stock grants and stock options as determined by the compensation committee; provided, however, that in no event shall the equity incentives granted for any year exceed 1.0% of the Company’s outstanding common stock prior to the grant.

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(e) During the Term, the Executive shall receive, at the Company’s full cost and expense:

(i) Medical and dental insurance selected by the Executive from those coverage options that the Company offers to its executive employees from time to time.

(ii) Long-term disability insurance that provides a disability income benefit of not less than $25,000 per month, commencing no later than six (6) months following the occurrence of a Disability.

(iii) $2,000,000 of life insurance coverage, of which $1,000,000 shall be whole life and $1,000,000 shall be term life insurance.

(iv) Vacation in accordance with company policy; provided that any unused vacation shall be accrued without limitation or restriction.

(f) The Executive shall also receive such other benefits as the Board may grant to its executive officers.

4. Reimbursement of Expenses. The Company shall reimburse the Executive, upon presentation of proper expense statements, for all authorized, ordinary and necessary out of pocket expenses reasonably incurred by Executive during the Term in connection with the performance of her services pursuant to this Agreement in accordance with the Company’s expense reimbursement policy. Executive shall be entitled to travel business class for international travel and first class for domestic travel.

5. Termination of Employment.

(a) This Agreement and Executive’s employment shall terminate immediately upon the death of the Executive.

(b) This Agreement and Executive’s employment, may be terminated by the Executive or by the Company on not less than thirty (30) days’ written notice in the event of Executive’s Disability. The term “Disability” shall mean any medically determinable physical or mental impairment of the Executive which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as a result of which either (i) the Executive is unable to perform her duties as Executive Vice President, Chief Strategy Officer and Treasurer or (ii) the Executive receives income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. In the event of termination of Executive’s employment as a result of a Disability pursuant to this Section 5(b) or as a result of Executive’s death, the Company shall pay Executive or her beneficiary severance compensation or death benefits equal to one year’s compensation (based on the highest compensation paid or payable to the Executive during the three full years prior to the year in which such termination takes place) multiplied by the number of full years that Executive has been employed by the Company, including any predecessor or successor corporation to the Company. Such payment shall be made in annual installments, with each installment equal to one year’s total compensation and with the first annual installment paid within thirty (30) days of the Executive’s termination date due to death or Disability and subsequent installments paid on successive anniversaries of such termination date until the full amount has been paid.

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(c) The Company may terminate this Agreement and the Executive’s employment for cause, in which event no further Salary or other benefits shall be payable to Executive subsequent to the date of termination. The term “Cause” shall mean:

(i) a material breach of Sections 6, 7 or 8 of this Agreement;

(ii) fraud, dishonesty, gross misconduct or other breach of trust whereby the Executive obtains personal gain or benefit at the expense of or to the detriment of the Company;

(iii) a conviction of or plea of nolo contendere or similar plea by the Executive of any felony;

(iv) a conviction of or plea of nolo contendere or similar plea by of any other crime involving theft or misappropriation of property;

(d) The Executive may terminate this Agreement on 30 days’ written notice for Good Reason. The Executive shall deliver to the Company, within ninety (90) days following the event constituting Good Reason, a written notice of termination for Good Reason setting forth in reasonable detail the facts and circumstances claimed by the Executive to provide a basis for the termination for Good Reason, and the Company shall have a period of thirty (30) days following receipt of such notice to cure such grounds for Good Reason prior to such termination by the Executive for Good Reason becoming effective. The Executive’s purported termination for Good Reason shall not take effect if the Company effects such cure within the thirty (30)-day period. As used in this Agreement, the term “Good Reason” shall mean:

(i) Without the consent of the Executive, a material diminution in the Executive’s authority, duties or responsibilities as set forth in said Section 1 or which are materially inconsistent with the duties set forth in Section 1.

(ii) Without the consent of the Executive, the Executive is no longer the Company’s chief executive vice president, strategy officer and treasurer reporting to the chief executive officer.

(iii) Any material breach by the Company of the terms of this Agreement.

(e) The Executive or the Company may terminate this Agreement for any reason within 18 months following a Change of Control of the Company. A “Change of Control” shall occur or be deemed to have occurred if (A) any “person” (as such term is used in section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing more than 50% percent of the combined voting power of the Company’s then outstanding securities, or (B) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election of each new director was nominated, ratified or approved by at least a majority of the directors then still in office who were either directors at the beginning of such period or who were elected or appointed with the approval or ratification of at least a majority of the directors who were directors at the beginning of such period, or (C) a sale by the Company of all or substantially all of its business and assets to an entity which is not affiliated with the Company. Notwithstanding the foregoing, (x) an acquisition of Common Stock or securities convertible into or exchangeable for Common Stock if such acquisition was acquired directly from the Company shall not be deemed to be a Change of Control, and (y) a merger or consolidation of the Company with or into another corporation or entity or similar transaction shall not be deemed a Change of Control if the stockholders of the Company prior to the merger, consolidation or other transaction own not less than 50% of the voting equity securities of the surviving entity immediately after the consummation of the merger, consolidation or other transaction. Each event comprising a Change of Control is intended to constitute a “change in ownership or effective control,” or a “change in the ownership of a substantial portion of the assets,” of the Company, as such terms are defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and “Change of Control” as used herein shall be interpreted consistently therewith.

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(f) In the event that either (x) the Company terminates Executive’s employment other than as provided in Sections 5(a), 5(b) and 5(c) of this Agreement or (y) the Executive terminates this agreement for Good Reason or pursuant to Section 5(e), the prohibitions of Section 7 of this Agreement shall terminate, all unvested equity rights shall vest, and the Company shall:

(i) Pay Executive accrued Salary, Bonus, if any, and vacation pay through the date of termination.

(ii) Pay severance pay equal to two times the highest compensation paid or payable to the Executive during the three full years prior to the year in which such termination takes place) multiplied by the number of full years of service with the Company (including any predecessor or successor corporation). Payment of such amount shall be made by the Company within thirty (30) days following the termination of the Executive’s employment.

(iii) Pay or reimburse the Executive for the cost of COBRA continuation medical and dental insurance coverage for the Executive and the Executive’s family members for the balance of the current Term (without regard to any termination pursuant to this Section 5). If for any reason COBRA continuation coverage cannot be provided to the Executive for the balance of such Term or the Company cannot reimburse such cost, the Company shall pay or continue to pay the Executive an amount equal to the cost of such COBRA coverage for the balance of such Term.

(iv) Transfer to Executive all life insurance policies on her life.

6. Trade Secrets and Proprietary Information.

(a) Executive recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will continue to develop in the future information concerning customers, clients, marketing, patents, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to engage in, its operations, financial condition or prospects and that the same are confidential and proprietary and considered “Confidential Information” of the Company for the purposes of this Agreement. In consideration of her employment, the Executive agrees that she will not, during or after the Term, without the consent of the Board make any disclosure of Confidential Information now or hereafter possessed by the Company, to any person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit Executive from using or disclosing such information (a) if such disclosure is necessary in the normal course of the Company’s business in accordance with Company policies or instructions or authorization from the Board, (b) such information shall become public knowledge other than by or as a result of disclosure by a person not having a right to make such disclosure, (c) complying with legal process as provided in Section 6(b) of this Agreement, or (d) subsequent to the Term, if such information shall have either (i) been developed by Executive independent of any of the Company’s confidential or proprietary information or (ii) been disclosed to Executive by a person not subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 6, 7 and 8 of this Agreement, the term “Company” shall include the Company, its parent, its subsidiaries and affiliates.

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(b) In the event that any Confidential Information is required to be produced by Executive pursuant to legal process, the Executive shall give the Company notice of such legal process within a reasonable time, but not later than ten business days prior to the date such disclosure is to be made, unless Executive has received less notice, in which event the Executive shall immediately notify the Company. The Company shall have the right to object to any such disclosure, and if the Company objects (at the Company’s cost and expense) in a timely manner, the Executive shall not make any disclosure until there has been a court determination on the Company’s objections. If disclosure is required by a court order, final beyond right of review, or if the Company does not object to the disclosure, the Executive shall make disclosure only to the extent that disclosure is required by the court order, and the Executive will exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.

(c) The Executive shall, upon expiration or termination of the Term, or earlier at the request of the Company, turn over to the Company all documents, papers, computer disks or other material in the Executive’s possession or under the Executive’s control which may contain or be derived from Confidential Information. To the extent that any Confidential Information is on Executive’s hard drive or other storage media, she shall, upon the request of the Company, cause such information to be erased from her computer disks and all other storage media.

7. Covenant Regarding Improper Use of Confidential Information.

(a) During the period from the date of this Agreement until one (1) year following the date on which Executive’s employment is terminated, subject to Section 5(e) of this Agreement, Executive will not, directly or indirectly:

(i) Utilize the Company’s Confidential Information to persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, orto reduce the amount of business it does with the Company (the terms “customer” and “client” as used in this Section 7 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s employment or during the twelve (12) months preceding the termination of her employment;

(ii) Utilize the Company’s Confidential Information to solicit for herself or any other person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one (1) year prior to the termination of her employment; or

(iii) Persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the one (1) year period prior to the termination of this Agreement, to leave the Company’s employ, or to become employed by any person or entity other than the Company

(b) The Executive acknowledges that the restrictive covenants (the “Restrictive Covenants”) contained in Sections 6 and 7 of this Agreement are a condition of her employment and are reasonable and valid in geographical and temporal scope and in all other respects. If any court or arbitrator determines that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected and shall remain in full force and effect, without regard to the invalid portion. If any court or arbitrator determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court or arbitrator shall have the power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.

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8. Ownership of Intellectual Property.

(a) “Inventions” means all inventions, ideas, discoveries, developments, methods, data, information, improvements, original works, know-how, including, but not limited to, algorithms, technology, trade secrets, processes, codes and hardware (whether or not reduced to practice and whether or not protectable under the patent, copyright, trade secrecy or similar laws of the United States, the Peoples’ Republic of China or any applicable foreign country which:

(i) relate to the Company’s business at the time of conception or reduction to practice or actual or demonstrably anticipated research or development of Company that were conceived, created or developed by the Executive (whether alone or with others, whether or not during working hours or on the Company’s premises or whether or not using material or property provided by the Company) during the Term or having conceived, created or developed prior to the Term while Executive was employed by the Company; and/or

(ii) were conceived, created or developed by the Executive (whether alone or with others) during the Term, even if having possibly been conceived, created or developed prior to the Term but completed while in the employ of the Company, or which result from any work performed by the Executive for Company.

(b) All Inventions are, will be, and shall constitute “works-for-hire” and the exclusive property of the Company, and the Company may use and exploit them without restriction or additional compensation to the Executive. The Executive shall promptly and fully disclose to the Company any and all Inventions. The Executive shall maintain complete written records of all Inventions and of all work or investigations done or carried out by the Executive at all stages thereof, which records shall be the exclusive property of the Company and will be treated as Confidential Information for all purposes of this Agreement.

(c) The Executive hereby irrevocably assigns and transfers to the Company, its successors, assigns or Affiliates, as the case may be, all of Executive’s right, title and interest in and to any Inventions without additional consideration therefor from the moment of their creation or inception, to be held and enjoyed by the Company, its successors, assigns or Affiliates, as the case may be, to the full extent of the term for which any intellectual property protection may be granted and as fully as the same would have been held by Executive had this Agreement, or such assignment or transfer not been made. In addition to the foregoing assignments of Inventions to the Company, Executive hereby irrevocably assigns and transfers to the Company: (i) all worldwide patents, trademarks, copyrights, mask works, trade secrets, applications for the foregoing and other intellectual property rights in any Inventions; and (ii) any and all “Moral Rights” (as defined below) that Executive may have in or with respect to any Inventions. Executive hereby forever waives and agrees never to assert any and all Moral Rights Executive may have in or with respect to any such Inventions, even after the termination of Executive’s employment.

(d) “Moral Rights” means any right to claim authorship of any Inventions, or to withdraw from circulation or control the publication or distribution of any Inventions, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a moral right.

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(e) Executive agrees to cooperate fully in obtaining patent, copyright or other proprietary protection for such Inventions, all in the name of the Company, its successors, assigns or Affiliates, as the case may be, and at the Company’s cost and expense, and shall execute and deliver all requested applications, assignments and other documents and take such other actions as the Company, its successors, assigns or Affiliates, as the case may be, shall request in order to perfect, enforce and exploit the Company’s, its successors,’ assigns’ or Affiliates,’ as the case may be, right in the Inventions (including transfer of possession to the Company, its successors, assigns or Affiliates, as the case may be, of all Inventions embodied in tangible materials), including granting Company a non-revocable, royalty-free license in any pre-existing works. Executive irrevocably designates and appoints the Company and its duly authorized officers and agents as her agents and attorneys-in-fact to execute and file any and all applications and other necessary documents and to do all other lawfully permitted acts to further perfect and enforce the Company’s, its successors,’ assigns’ or Affiliates’ (as the case may be) right in the Inventions and to further the prosecution, issuance or enforcement of patents, copyrights, trade secrets and similar protections related to the Inventions with the same legal force and effect as she had executed them herself. The Executive shall receive no additional compensation for complying with Executive’s obligations under this Section 8. The Executive agrees that, to the extent this Agreement shall be construed in accordance with any laws that limit the assignability to the Company, its successors, assigns or Affiliates (as the case may be) of the Inventions, this Agreement shall be interpreted not to apply to any Invention which a court rules or the Company agrees is subject to such state limitation.

(f) California Labor Code § 2870 provides as follows:

a. Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer.

(2) Result from any work performed by the employee for his or her employer.

b. To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

The assignment of Inventions under this Agreement, accordingly, shall not extend to those items set forth in Labor Code § 2870.

(g) Any copyrightable work created by the Executive in connection with or during the performance of her employment duties, whether published or unpublished, shall be the property of the Company as author and owner of copyright in such work.

(h) The Executive warrants and represents that there are no Inventions (whether patentable or not), patents, trade secrets, trademarks, trade names, copyrights, or other intellectual property owned by her prior to entering into employment with the Company hereunder, and that she has not executed and will not execute any document or instrument in conflict herewith.

(i) An “Affiliate” of the Company shall mean any person or entity which controls, is controlled by or is under common control with the Company.

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9. Injunctive Relief. The Executive agrees that her violation or threatened violation of any of the provisions of Sections 6, 7 or 8 of this Agreement shall cause immediate and irreparable harm to the Company. In the event of any breach or threatened breach of any of said provisions, the Executive consents to the entry of preliminary and permanent injunctions by a court of competent jurisdiction prohibiting the Executive from any violation or threatened violation of such provisions and compelling the Executive to comply with such provisions. This Section 9 shall not affect or limit, and the injunctive relief provided in this Section 9 shall be in addition to, any other remedies available to the Company at law or in equity or in arbitration for any such violation by the Executive. Subject to Section 7(b) of this Agreement, the provisions of Sections 6, 7, 8 and 9 of this Agreement shall survive any termination of this Agreement and the Executive’s employment.

10. Indemnification. The Company shall provide Executive with payment of legal fees and indemnification to the maximum extent permitted by the Company’s Articles of Incorporation, By Laws, and Nevada law. The Company shall also provide officers and directors liability insurance of not less than $5,000,000, and the Company shall be responsible for any deductibles under such policy. The Company shall also provide so-called tail coverage in not less than $5,000,000 following such date as Executive ceases to be an officer or director.

11. Key Man Insurance. Executive will cooperate with the Company in connection with any application by the Company to obtain key-man life insurance on her life, on which the Company will be the beneficiary. Such cooperation shall include the execution of any applications or other documents requiring her signature and submission of insurance applications and submission to a physical examination.

12. Code Section 409A Compliance.

(a) This Agreement is intended to comply with the provisions of Section 409A of the Code, and, to the extent practicable, this Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder. Terms used in this Agreement shall have the meanings given such terms under Section 409A of the Code if, and to the extent required, in order to comply with Section 409A of the Code.

(b) The payment schedules provided hereunder are intended to be exempt from or to comply with the requirements of Section 409A of the Code and shall be interpreted consistently therewith.

(c) Any payments under Section 5 shall be made or shall commence only after the Executive has a “separation from service” with the Company, as defined under Section 409A of the Code and the guidance issued thereunder.

(d) Notwithstanding anything to the contrary in this Agreement, to the extent required to avoid additional taxes and interest charged under Section 409A of the Code, if any of the Company’s stock is publicly traded and the Executive is deemed to be a “specified employee” as determined by the Company for purposes of Section 409A(a)(2)(B) of the Code, the Executive agrees that any non-qualified deferred compensation payments due to her under this Agreement in connection with a termination of employment that would otherwise have been payable at any time during the six (6)-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum on the first day of the seventh (7^th) month following the Executive’s separation from service (or, if the Executive dies during such period, within 30 days after the Executive’s death).

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(e) Each payment of termination benefits under Section 5 of this Agreement, including, without limitation, each installment payment, shall be considered a separate payment, as described in Treasury Regulations Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.

(f) Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any payment under this Agreement that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code, except to the extent specifically permitted or required by Section 409A of the Code.

(g) If the Executive is entitled to be paid or reimbursed for any expenses under this Agreement, and such payments or reimbursements are includible in the Executive’s federal gross taxable income, the amount of such expenses reimbursable in any one calendar year shall not affect the amount reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. No right of the Executive to reimbursement of expenses under Section 4 or any other Section of this Agreement shall be subject to liquidation or exchange for another benefit.

(h) Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(i) Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” subject to Section 409A of the Code be subject to offset, counterclaim or recoupment by any other amount payable to the Executive unless otherwise permitted by Section 409A of the Code.

13. Representations and Warranties of the Parties.

(a) The Executive represents, warrants, covenants and agrees that she has a right to enter into this Agreement, that she is not a party to any agreement or understanding, oral or written, which would prohibit performance of her obligations under this Agreement, and that she will not use in the performance of her obligations hereunder any proprietary information of any other party which she is legally prohibited from using.

(b) The Company represents, warrants and agrees that it has full power and authority to execute and deliver this Agreement and perform its obligations hereunder.

14. Miscellaneous.

(a) Any notice, consent or communication required under the provisions of this Agreement shall be given in writing and sent or delivered by hand, overnight courier or messenger service, against a signed receipt or acknowledgment of receipt, or by registered or certified mail, return receipt requested, or telecopier, email or similar means of communication (collectively “electronic communications”) if receipt is acknowledged or if transmission is confirmed by mail as provided in this Section 13(a), to the parties at their respective addresses set forth at the beginning of this Agreement or by electronic delivery to the telecopier or email set forth on the signature page of this Agreement, with notice to the Company being sent to the attention of the individual who executed this Agreement on behalf of the Company. Either party may, by like notice, change the person, address or electronic communications number or address to which notice is to be sent. If no telecopier number is provided for either party, notice to such party shall not be sent by telecopier.

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(b) This Agreement shall in all respects be construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the State of California applicable to agreements executed and to be performed wholly in such state without regard to principles of conflicts of laws, except as provided in the first sentence of Section 10.

(c) If any term, covenant or condition of this Agreement or the application thereof to any party or circumstance shall, to any extent, be determined to be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law, and any court or arbitrator having jurisdiction may reduce the scope of any provision of this Agreement, including the geographic and temporal restrictions set forth in Section 8 of this Agreement, so that it complies with applicable law.

(d) This Agreement constitutes the entire agreement of the Company and the Executive as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, with respect to the subject matter covered in this Agreement. This Agreement may not be modified or amended, nor may any right be waived, except by a writing which expressly refers to this Agreement, states that it is intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

(e) Neither party hereto shall have the right to assign or transfer any of its or her rights hereunder except in connection with a merger of consolidation of the Company or a sale by the Company of all or substantially all of its business and assets.

(f) Except for actions, suits, or proceedings taken pursuant to or under Section 6, 7, 8 or 9 of this Agreement, any dispute concerning this Agreement or the rights of the parties hereunder shall be submitted to binding arbitration in Riverside County, California before a single arbitrator under the rules of the American Arbitration Association. The award of the arbitrator shall be final, binding and conclusive on all parties, and judgment on such award may be entered in any court having jurisdiction. The arbitrator shall have the power, in his discretion, to award counsel fees and costs to the prevailing party. The arbitrator shall have no power to modify or amend any specific provision of this Agreement except as expressly provided in Section 13(c) of this Agreement.

(g) Notwithstanding the provisions of Section 13(f) of this Agreement, with respect to any claim for injunctive relief or other equitable remedy pursuant to Section 9 of this Agreement or any claim to enforce an arbitration award or to compel arbitration, the parties hereby (i) consents to the exclusive jurisdiction of the federal and state courts sitting in Riverside County, California, (ii) agree that any process in any action commenced in such court under this Agreement may be served upon her personally, either (A) by certified or registered mail, return receipt requested, or by an overnight courier service which obtains evidence of delivery, with the same full force and effect as if personally served upon her in Riverside County, California, or (B) by any other method of service permitted by law, and (iii) waives any claim that the jurisdiction of any such court is not a convenient forum for any such action and any defense of lack of in personam jurisdiction with respect thereof.

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(h) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.

(i) The headings in this Agreement are for convenience of reference only and shall not affect in any way the construction or interpretation of this Agreement.

(j) No delay or omission to exercise any right, power or remedy accruing to either party hereto shall impair any such right, power or remedy or shall be construed to be a waiver of or an acquiescence to any breach hereof. No waiver of any breach hereof shall be deemed to be a waiver of any other breach hereof theretofore or thereafter occurring. Any waiver of any provision hereof shall be effective only to the extent specifically set forth in an applicable writing. All remedies afforded to either party under this Agreement, by law or otherwise, shall be cumulative and not alternative and shall not preclude assertion by such party of any other rights or the seeking of any other rights or remedies against any other party.

[Signatures on following page]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 

Telecopier and Email	Signature
	SOLARMAX TECHNOLOGY, INC.
	By:	/s/ David Hsu
		David Hsu, Chief Executive Officer
		/s/ Ching Liu
		Ching Liu

[Signature page of Employment Agreement between SolarMax Technology, Inc. and Ching Liu]

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EX-10.4

  EXHIBIT 10.4

SEPARATION AND RELEASE AGREEMENT

THIS SEPARATION AND RELEASE AGREEMENT (this “Agreement”) dated October 1, 2020, by and between SolarMax Technology, Inc., a Nevada corporation (the “Company”), and Ching Liu (“Liu,” and, together with the Company, the “Parties” and each, a “Party”).

WHEREAS, prior to February 24, 2020, Liu served as a director and executive vice president, chief strategy officer, treasurer and secretary of the Company; and

WHEREAS, on February 24, 2020, Liu resigned as a director and officer of the Company and its subsidiaries; and

WHEREAS, on October 7, 2016, the Company and Liu entered into an employment agreement (the “Employment Agreement”) pursuant to which the Company retained the services of Liu as an executive officer; and

WHEREAS, on October 7, 2016, the Company issued to Liu a restricted stock grant for 1,680,000 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), and on March 27, 2019, Liu exchanged the 1,680,000 restricted shares of Common Stock for an option (the “Option”) to purchase 1,779,960 shares of Common Stock and a cash payment of $500,000 (the “Exchange Payment”),  to be have been paid by December 15, 2019, which date was extended on December 18, 2019 to March 31, 2020; and

WHEREAS, all references to shares of Common Stock reflect a 1.68-for-1 stock distribution; and

WHEREAS, Liu is willing to release the Company from any obligations it has or may have to her, including obligations under the Employment Agreement, except to the extent expressly provided in this Agreement; and

WHEREAS, the Company is willing release Liu from any obligations she has or may have to the Company, with certain limited exceptions;

WHEREAS, the Option was issued pursuant to the Company’s 2016 Equity Incentive Plan (the “Plan”), and the Plan permits options granted pursuant to the Plan to be held by employees and consultants; and

WHEREAS, to facilitate an amicable and professional separation and transition for Liu the Company wishes to offer Liu a voluntary severance payment, and the Company and Liu have agreed that, as consideration for said voluntary severance, Liu will provide the Company a general release to assure that there is no future disputes between them;

WHEREFORE, the parties do hereby agree as follows:

1. Provided that Liu signs this Agreement, the Company promises, within eight (8) days of the effective date of this Agreement, to pay Liu: a one-time lump sum separation payment (the “Separation Payment”) in the gross amount of $25,496.96, less all applicable deductions and withholdings.

2. The Company and Liu agree that the Company owes Liu a total of $803,094.86 (the “Outstanding Balance”), representing deferred salary from 2019 and 2020 of $561,363.36, cash bonus deferred from 2017 and 2018, and accrued medical, dental and vision benefits from 2020 of $409.50. The Outstanding Balance will be paid at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020, until the completion by the Company of its initial public offering, and any unpaid balance of the Outstanding Balance then outstanding shall be paid within three business days after the Company receives the proceeds of its initial public offering. Liu acknowledges and agrees that the Company does not owe Liu any compensation in any form and for any purpose except for the Outstanding Balance and the Separation Payment. Liu agrees that any compensation or other payment to be paid pursuant to this Agreement is due solely by the Company and that Insperity PEO Services, L.P. (“Insperity”) has no obligation to pay any compensation or other payments due pursuant to this Agreement, regardless of whether the Company’s payments are processed through Insperity.

3. The Employment Agreement is hereby terminated with neither Party having any obligation to the other Party thereunder, except that (a) the provisions of Sections 6, 7, 8 and 9 of the Employment Agreement shall remain in full force and effect and (b) the indemnification provisions of Section 10 of the Employment Agreement (and any indemnification and expense reimbursement provisions of the Company’s articles of incorporation and bylaws) shall not relate to, and Liu waives any claim or right to indemnification or expense reimbursement relating to, conduct of Liu which was adverse to the interest of the Company.

4. Liu, for herself and her heirs, legal representatives, beneficiaries, assigns and successors in interest, hereby knowingly and voluntarily releases, waives and forever discharges the Company and Insperity and each of their respective corporate affiliates, employees, officers, directors, former and current stockholders, benefit plans, benefit plan administrators and fiduciaries, agents, predecessors and successors in interest, parents, subsidiaries, attorneys, and assigns (“Company Affiliates”), from any and all claims, demands, complaints, debts, controversies, damages, claims for attorneys’ fees, costs, obligations and/or liabilities which arise out of or relate to any action by the Company or the Company-Affiliates or omission to act by the Company or the Company-Affiliates occurring on or before the date this Agreement is signed by Liu (the “Release”); except as expressly provided in this Agreement.

5. The Company hereby knowingly and voluntarily releases, waives and forever discharges Liu from any and all claims, demands, complaints, debts, controversies, damages, claims for attorneys’ fees, costs, obligations and/or liabilities which arise out of or relate to any action by Liu or omission to act by Liu occurring on or before the date this Agreement is signed by Liu (the “Employer’s Release”).

6. There are certain claims which, under state or federal statutes or regulations, may not be released or may not be released except with the participation and approval of a state or federal agency. For example, claims for earned but unpaid wages and claims for indemnification under the California Labor Code cannot be waived or released and claims related to Workers’ Compensation benefits may not be waived without the express approval of the agency that oversee administration of those laws. The Release is not intended to cover and does not extend to such claims or other claims that, by law, cannot be released in an agreement between an employer and an employee.

7. To the extent permitted by law, the Release includes, but is not limited to, release of any and all claims arising out of Liu's employment with the Company and the termination of that employment. This includes a release of any rights or claims Liu may have under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§2000, et seq., which prohibits discrimination in employment based on race, color, national origin, religion, or sex, the Equal Pay Act, which prohibits paying men and women unequal pay for equal work, the Americans with Disabilities Act (42 U.S.C. §§12101, et seq.), which prohibits discrimination against the disabled, Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§1001, et seq,, the California Fair Employment and Housing Act (“FEHA”), Government Code §§12940, et seq.. the Fair Labor Standards Act, 29 U.S.C. §§201 et seq. (as amended), the California Labor Code, or any other federal, state or local laws or regulations relating to terms and conditions of employment. The Release also includes any claims for breach of contract, wrongful discharge against public policy, breach of an implied contract, violation of any tort concerning the employment relationship, wrongful discharge, fraud, misrepresentation, intentional and negligent infliction of emotional distress, harassment, and any claims that the Company or any Company Affiliate has dealt with Liu unfairly or in bad faith.

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8. To the maximum extent permitted by law and except as expressly provided in this Agreement, the Release extends to all claims of every nature and kind whatsoever, whether known or unknown, suspected or unsuspected. Each of the Company and Liu understands and acknowledges that such Party has read and understands and has been advised by counsel, to the extent that such Party deems necessary or advisable, that Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

9. Liu acknowledges and agrees that the Company has paid all accrued PTO pay and reimbursements, as of the date of separation. Liu acknowledges that she has received, except for the Outstanding Balance, final wages from the Company and is due no other wages or monies, except as otherwise expressly provided by this Agreement. Liu acknowledges that she is not otherwise legally entitled to receive the monies being provided to her as severance, but that the Company has voluntarily agreed to offer this severance in exchange for execution of the Release as set forth in this Agreement.

10. Liu promises and represents that Liu has not given or sold any claim discussed in this Agreement to anyone and that Liu has not filed a lawsuit, claim, or charge with any court or government agency asserting any claims that are released by the Release.

11. The Company acknowledges that, pursuant to the Plan, the Option may be held by and exercised by, a consultant to the Company. The Company agrees that the Option shall continue in full force and effect as long as Liu, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company.

12. Each Party agrees to execute and deliver such other documents, and do such other acts and things, as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement.

13. This Agreement constitutes the entire agreement among the parties relating to the subject matter hereof, superseding any and all prior or contemporaneous oral and prior written agreements, understandings, term sheets and letters of intent. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver. No course of conduct or dealing or trade usage or custom and no course of performance shall be relied on or referred to by any party to contradict, explain or supplement any provision of this Agreement, it being acknowledged by the parties to this Agreement that this Agreement is intended to be, and is, the complete and exclusive statement of the agreement with respect to its subject matter. Any waiver shall be limited to the express terms thereof and shall not be construed as a waiver of any other provisions or the same provisions at any other time or under any other circumstances.

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14. This Agreement constitutes the entire agreement among the parties relating to the subject matter hereof, superseding any and all prior or contemporaneous oral and prior written agreements, understandings, term sheets and letters of intent. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver. No course of conduct or dealing or trade usage or custom and no course of performance shall be relied on or referred to by any party to contradict, explain or supplement any provision of this Agreement, it being acknowledged by the parties to this Agreement that this Agreement is intended to be, and is, the complete and exclusive statement of the agreement with respect to its subject matter. Any waiver shall be limited to the express terms thereof and shall not be construed as a waiver of any other provisions or the same provisions at any other time or under any other circumstances.

15. All matters relating to or arising out of this Agreement will be governed by and construed and interpreted under the laws of the State of Nevada, without regard to conflicts of laws principles that would require the application of any other law.

16. Liu represents and warrants that she is authorized to execute this Agreement on behalf of her family members and affiliates.

17. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

[Signatures on following page]

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IN WITNESS WHEREOF, each of the Parties has executed and delivered this Agreement as of the date first written above.

Address	Signature
SolarMax Technology, Inc. 3080 12th Street Riverside, California 92507	SOLARMAX TECHNOLOGY, INC.
Email: DavidH@solarmaxtech.com	By:	/s/ David Hsu
		David Hsu, Chief Executive Officer
2810 Steeplechase Lane Diamond Bar, California 91765
Email: chingl@lcesinc.com		/s/ Ching Liu
		Ching Liu

[Signature page of separation and release agreement dated April  , 2020, between SolarMax Technology, Inc. and Ching Liu.]

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EX-10.5

EXHIBIT 10.5

SOLARMAX TECHNOLOGY, INC.

2016 LONG-TERM INCENTIVE PLAN

Restricted Stock Agreement

This Restricted Stock Award Agreement evidences a grant of Restricted Stock pursuant to the provisions of the 2016 Long-Term Incentive Plan (the “Plan”) of SolarMax Technology, Inc., a Nevada corporation (the “Company”) to the individual whose name appears below (the “Participant”), pursuant to the provisions of the Plan and on the following terms and conditions (capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Plan):

1. Name of Participant:

2. Number of Shares of Restricted Stock (the “Shares”):

3. Date of Grant: October 7, 2016

4. Issuance of the Shares: Until a Forfeiture Termination Event occurs, the Shares shall be reflected as book entry, rather than physical certificates; and the Participant shall have the rights of ownership with respect to the Shares as and to the extent set forth in Section 5. The Company’s stock record books shall include a notation that the Shares are subject to this Agreement. Upon the occurrence of a Forfeiture Termination Event, the Company shall remove the restriction notation on its stock record books and, if requested by the Participant, shall issue a certificate for the Shares to the Participant in the name of the Participant. If a Forfeiture Event shall occur, the Recipient shall transfer the Shares to the Company for cancelation.

5. Risk of Forfeiture:

(a) The Participant shall 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 Participant shall have no rights to sell, encumber or otherwise transfer the Shares, and (ii) any shares of any class or series of capital stock of the Company which are issued to the Participant 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.

(b) A Forfeiture Termination Event shall mean such date as is six months following a Public Stock Event, which shall be the vesting date. A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (v) a Change in Control, as defined in the Plan, or (vi) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is an Public Stock Event.

(c) A Successor Corporation shall mean the successor of the Company by merger, reverse acquisition, sale of assets or other transaction provided that a majority of the shares of the resulting corporation is owned by those persons who were the stockholders of the Company immediately prior to the transaction.

(d) A Forfeiture Event shall occur on December 31, 2017 if, and only if, a Public Stock Event shall not have occurred by such date; provided, however, that the board of directors shall have the right, in its sole discretion, to defer the Forfeiture Event. If a Forfeiture Event shall occur, there shall be no vesting and the Company shall cause the Shares to be transferred to the Company for cancellation, and the Participant consents to such cancellation.

6. Stock Power: The Participant shall execute a stock power transferring the Shares to the Company and shall have his or her signature medallion guaranteed and the Company shall hold the stock power subject to the terms of this Agreement. The stock power shall only be used to transfer the Shares to the Company for cancellation if a Forfeiture Event shall occur. Following the occurrence of a Forfeiture Termination Event, the Company shall return the stock power to the Participant.

7. Withholding Tax: If and at the time required by law, the Participant shall pay or make arrangements for payment of any withholding tax required to be paid or withheld with respect to the Shares.

8. Section 83(b) Election: By signing this Agreement, the Participant acknowledges that he or she has been advised by his or her tax advisors with respect to the filing of an election pursuant to Section 83(b) of the Internal Revenue Code and the tax consequences of such election. It shall be in the Participant’s sole discretion as to whether to make such an election.

9. Governing Law: This Agreement shall be governed by the laws of the State of Nevada applicable to agreements executed and to be performed wholly within such state without regard to principles of conflict of laws.

The Participant hereby acknowledges receipt of a copy of the Plan as presently in effect. The text and all of the terms and provisions of the Plan are incorporated herein by reference, and the grant of the Shares is subject to these terms and provisions in all respects.

SOLARMAX TECHNOLOGY, INC.

By: ________________________________
David Hsu, Chief Executive Officer

Agreed to and Accepted as of October 7, 2016:

[Name of Participant]

EX-10.6

EXHIBIT 10.6

SOLARMAX TECHNOLOGY, INC.

2016 EQUITY INCENTIVE PLAN

1. Purpose. The purpose of the SolarMax Technology, Inc. 2016 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, managers, employees, consultants and advisors of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders.

2. Definitions. The following definitions shall be applicable throughout this Plan:

(a) “Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest as determined by the Committee in its discretion. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise.

(b) “Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Bonus Award or Performance Compensation Award granted under this Plan.

(c) “Award Agreement” means an agreement made and delivered in accordance with Section 15(a) of this Plan evidencing the grant of an Award hereunder.

(d) “Board” means the Board of Directors of the Company.

(e) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City are authorized or obligated by federal law or executive order to be closed for all or part of a normal business day.

(f) “Cause”means, in the case of a particular Award, unless the applicable Award Agreement otherwise provides (i) the Company or an Affiliate having “cause” to terminate a Participant’s employment or service, as defined in any employment or consulting agreement or similar document or policy between the Participant and the Company or an Affiliate in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement, document or policy (or the absence of any definition of “Cause” contained therein), (A) a continuing material breach or material default (including, without limitation, any material dereliction of duty) by Participant of any agreement between the Participant and the Company, except for any such breach or default which is caused by the Disability of the Participant, or a continuing failure by the Participant to follow the direction of a duly authorized representative of the Company; (B) gross negligence, willful misfeasance or breach of fiduciary duty by the Participant; (C) the commission by the Participant of an act of fraud, embezzlement or any felony or other crime of dishonesty in connection with the Participant’s duties; or (D) conviction of the Participant of a felony or any other crime that would materially and adversely affect: (i) the business or reputation of the Company or (ii) theperformance of the Participant’s duties to the Company. Any determination of whether Cause exists shall be made by the Committee in its sole discretion.

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(g) “Change in Control” shall, in the case of a particular Award, unless the applicable Award Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:

(i) A tender offer (or series of related offers) shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company (which percentage shall include any voting securities owned by the tendering party prior to the commencement of the tender offer) unless as a result of such tender offer more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to the commencement of such offer excluding shares held by the Person making the tender offer), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;

(ii) The Company shall be merged or consolidated with another corporation, unless as a result of such merger or consolidation more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to such transaction); provided, that a merger or consolidation of the Company with another corporation which is controlled by Persons owning more than 50% of the outstanding voting securities of the Company shall not constitute a Change in Control unless the Committee, in its discretion, determines otherwise, or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;

(iii) The Company shall sell substantially all of its assets to another entity that is not wholly owned by the Company, unless as a result of such sale more than 50% of such assets shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to such transaction), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates;

(iv) A Person shall acquire 50% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record), unless as a result of such acquisition more than 50% of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by (A) the stockholders of the Company (as of the time immediately prior to the first acquisition of such securities by such Person), or (B) any employee benefit plan of the Company or its Subsidiaries, and their Affiliates; or

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(v) Either (i) the individuals who, as of the date hereof, constitute the members of the Board (the “Current Board Members”) cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least a majority of the members of the Board unless such change is approved by the Current Board Members or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute a least a majority thereof unless the election of each new director was nominated, ratified or approved by at least two thirds (2/3) of the directors then still in office who were either directors at the beginning of such period or who were elected or appointed with the approval or ratification of at least two thirds (2/3) of the directors who were directors at the beginning of such period.

For purposes of this Section 2(g), ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(I)(i) under the Exchange Act (as in effect on the date hereof). In addition, for such purposes, “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (A) the Company or any of its Subsidiaries; (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries; (C) an underwriter temporarily holding securities pursuant to an offering of such securities; or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company.

(h) “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. References in this Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance issued by any governmental authority under such section, and any amendments or successor provisions to such section, regulations or guidance.

(i) “Committee” means a committee of at least two people as the Board may appoint to administer this Plan or, if no such committee has been appointed by the Board, the Board. Unless altered by an action of the Board, the Committee shall be the Compensation Committee of the Board; provided, however, that in the event that the Board shall not have appointed a Committee, references to the Committee shall relate to the Company.

(j) “Common Stock” means the common stock, par value $0.001 per share, of the Company (and any stock or other securities into which such common stock may be converted or into which they may be exchanged).

(k) “Company” means SolarMax Technology, Inc., a Nevada corporation, together with its successors and assigns.

(l) “Current Board Members” has the meaning given such term in the definition of “Change in Control.”

(m) “Date of Grant” means the date on which the granting of an Award is authorized, or such other date, not earlier than the date the grant is approved by the Committee, as may be specified in such authorization.

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(a) “Disability” means any physical or mental illness, disability or incapacity of the Participant which prevents him from substantially performing his regular duties for a period of three (3) consecutive months or four (4) months, even though not consecutive, in any twelve (12) month period; provided, however, that if the Participant is a party to an employment, consulting or other service agreement with the Company, “Disability” shall have the meaning set forth in such agreement. The determination of whether a Participant has incurred a Disability shall be made by the Committee, which may rely on advice from a physician designated by the Committee, whose determination shall be final and binding. Notwithstanding the foregoing, for purposes of Section 409A of the Code and for any Award which constitutes an award subject to said Section 409A, Disability shall have the meaning set forth in Section 409A(a)(2)(C) of the Code or any subsequent provision.

(n) “Effective Date” means the date as of which this Plan is adopted by the Board, subject to Section 3 of this Plan.

(o) “Eligible Director” means a person who is (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and (ii) an “outside director” within the meaning of Section 162(m) of the Code.

(p) “Eligible Person” means any (i) individual employed by the Company or an Affiliate; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or an Affiliate; or (iii) consultant or advisor to the Company or an Affiliate.

(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended, including any rules, regulations or other interpretative guidance issued by any governmental authority under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.

(r) “Exercise Price” has the meaning given such term in Section 7(b) of this Plan.

(s) “Fair Market Value,” unless otherwise provided by the Committee in accordance with all applicable laws, rules regulations and standards, means, on a given date, (i) if the Common Stock is listed on a securities exchange, the closing sales price on the principal such exchange on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date; provided, that if there are no reported sales on either of such dates, the average of the closing bid and asked prices on such shall be used, or (ii) if the Common Stock is not listed on a securities exchange, the mean between the bid and asked prices as quoted on such date by any nationally recognized interdealer quotation system or other service that provides such service which is selected by the Committee, or (iii) if the Common Stock is not quoted on an interdealer quotation system or it is determined that the fair market value is not properly reflected by such quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A.

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(t) “Immediate Family Members” shall have the meaning set forth in Section 15(b)(ii) of this Plan.

(u) “Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in this Plan.

(v) “Indemnifiable Person” shall have the meaning set forth in Section 4(e) of this Plan.

(w) “Negative Discretion” shall mean the discretion authorized by this Plan to be applied by the Committee to eliminate or reduce the size of a Performance Compensation Award consistent with Section 162(m) of the Code.

(x) “Nonqualified Stock Option” means an Option that is not designated by the Committee as an Incentive Stock Option.

(y) “Option” means an Award granted under Section 7 of this Plan.

(z) “Option Period” has the meaning given such term in Section 7(c) of this Plan.

(aa) “Participant” means an Eligible Person who has been selected by the Committee to participate in this Plan and to receive an Award pursuant to Section 6 of this Plan.

(bb) “Performance Compensation Award” shall mean any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of this Plan.

(cc) “Performance Criteria” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under this Plan.

(dd) “Performance Formula” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period.

(ee) “Performance Goals” shall mean, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.

(ff) “Performance Period” shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation Award.

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(gg) “Permitted Transferee” shall have the meaning set forth in Section 15(b) of this Plan.

(hh) “Person” has the meaning given such term in the definition of “Change in Control.”

(ii) “Plan” means this SolarMax Technology, Inc. 2016 Equity Incentive Plan, as amended from time to time.

(jj) “Retirement” means, unless otherwise provided in the Award or pursuant to an agreement between the Company or an Affiliate and the Participant, the fulfillment of each of the following conditions: (i) the Participant is good standing with the Company as determined by the Committee; (ii) the voluntary termination by a Participant of such Participant’s employment or service to the Company and (iii) that at the time of such voluntary termination, the sum of: (A) the Participant’s age (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) and (B) the Participant’s years of employment or service with the Company (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) equals at least 62 (provided that, in any case, the foregoing shall only be applicable if, at the time of such Retirement, the Participant shall be at least 55 years of age and shall have been employed by or served with the Company for no less than five years).

(kk) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.

(ll) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver Common Stock, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.

(mm) “Restricted Stock” means Common Stock, subject to certain specified restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.

(nn) “SAR Period” has the meaning given such term in Section 8(c) of this Plan.

(oo) “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto, and includes any rules, regulations or other official interpretative guidance issued by any governmental authority under such section, and any amendments or successor provisions to such section, rules, regulations or guidance.

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(pp) “Stock Appreciation Right” or “SAR” means an Award granted under Section 8 of this Plan which, if granted to a resident of the United States, meets all of the requirements of Section 1.409A-1(b)(5)(i)(B) of the Treasury Regulations.

(qq) “Stock Bonus Award” means an Award granted under Section 10 of this Plan.

(rr) “Strike Price” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value of Common Stock on the Date of Grant.

(ss) “Subsidiary” means, with respect to any specified Person:

(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

(ii) any partnership or limited liability company (or any comparable foreign entity) (a) the sole general partner or managing member (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (b) the only general partners or managing members (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

(tt) “Substitute Award” has the meaning given such term in Section 5(e).

(uu) “Treasury Regulations” means any regulations, whether proposed, temporary or final, promulgated by the U.S. Department of Treasury under the Code, and any successor provisions.

3. Effective Date; Duration. This Plan shall be effective on the date on which it is approved by the Board; provided, however, that with respect to Incentive Stock Options and any other Awards for which the Code requires stockholder approval within twelve months after approval by the Board, no such Awards shall be granted until and unless stockholder approval is obtained within the required time period. The expiration date of this Plan, on and after which date no Awards may be granted hereunder, shall be October 7, 2026; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of this Plan shall continue to apply to such Awards.

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4. Administration.

(a) The Committee shall administer this Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under this Plan) or necessary to obtain the exception for performance-based compensation under Section 162(m) of the Code, as applicable, it is intended that each member of the Committee shall, at the time he takes any action with respect to an Award under this Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under this Plan. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee. Whether a quorum is present shall be determined based on the Committee’s charter as approved by the Board.

(b) Subject to the provisions of this Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by this Plan and its charter, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be made; (vii) interpret, administer, reconcile any inconsistency in, settle any controversy regarding, correct any defect in and/or complete any omission in this Plan and any instrument or agreement relating to, or Award granted under, this Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of this Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of this Plan.

(c) The Committee may, by resolution, expressly delegate to a special committee, consisting of one or more directors who may but need not be officers of the Company, the authority, within specified parameters as to the number and types of Awards, to (i) designate officers and/or employees of the Company or any of its Affiliates to be recipients of Awards under this Plan, and (ii) to determine the number of such Awards to be received by any such Participants; provided, however, that such delegation of duties and responsibilities may not be made with respect to grants of Awards to persons (i) subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code. The acts of such delegates shall be treated as acts of the Board, and such delegates shall report regularly to the Board and the Committee regarding the delegated duties and responsibilities and any Awards granted.

(d) Unless otherwise expressly provided in this Plan, all designations, determinations, interpretations, and other decisions under or with respect to this Plan or any Award or any documents evidencing Awards granted pursuant to this Plan shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.

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(e) No member of the Board, the Committee, delegate of the Committee or any employee, advisor or agent of the Company or the Board or the Committee (each such person, an “Indemnifiable Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to this Plan or any Award hereunder. Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from (and the Company shall pay or reimburse on demand for) any loss, cost, liability, or expense (including court costs and attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken under this Plan or any Award Agreement and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, provided, that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts or omissions of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which any such Indemnifiable Person may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold them harmless.

(f) Notwithstanding anything to the contrary contained in this Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer this Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under this Plan.

5. Grant of Awards; Shares Subject to this Plan; Limitations.

(a) The Committee may, from time to time, grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonus Awards and/or Performance Compensation Awards to one or more Eligible Persons.

(b) Subject to Section 12 of this Plan, the Committee is authorized to deliver under this Plan an aggregate of 6,500,000 shares of Common Stock (the “Available Shares”).

(c) Common Stock underlying Awards under this Plan that are forfeited, cancelled, expire unexercised, or are settled in cash shall be available again for Awards under this Plan at the same ratio at which they were previously granted, except that the following shares of Common Stock shall not be available again for Awards under this Plan: (i) shares tendered or held back upon the exercise of an Option or settlement of an Award to cover the Exercise Price of an Award; (ii) shares that are used or withheld to satisfy tax withholding obligations of the Participant; (iii) shares for which the Company paid cash equal to the Fair Market Value of the shares of Common Stock in lieu of issuing the Common Stock, and (iv) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the SAR upon exercise thereof.

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(d) Common Stock delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or any combination of the foregoing.

(e) Subject to compliance with Section 1.409A-3(f) of the Treasury Regulations, Awards may, in the sole discretion of the Committee, be granted under this Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). The number of shares of Common Stock underlying any Substitute Awards shall be counted against the aggregate number of shares of Common Stock available for Awards under this Plan.

(f) Notwithstanding any provision in this Plan to the contrary (but subject to adjustment as provided in Section 12), the Committee shall not grant to any one Eligible Person in any one calendar year Awards (i) for more than 1,500,000 shares, or (ii) payable in cash in an amount exceeding $1,000,000 in the aggregate.

6. Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award Agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in this Plan.

7. Options.

(a) Generally. Each Option granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. All Options granted under this Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Notwithstanding any designation of an Option, to the extent that the aggregate Fair Market Value of Common Stock with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company or any Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless this Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such failure to qualify, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under this Plan.

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(b) Exercise Price. The exercise price (“Exercise Price”) per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and, provided further, that notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per share of Common Stock.

(c) Vesting and Expiration. Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and as set forth in the applicable Award Agreement, and shall expire after such period, not to exceed ten (10) years from the Date of Grant, as may be determined by the Committee (the “Option Period”); provided, however, that the Option Period shall not exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate; and, provided, further, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability. Unless otherwise provided by the Committee in an Award Agreement:

(i) an Option shall vest and become exercisable with respect to 1/3 of the Common Stock subject to such Option on each anniversary of the Date of Grant;

(ii) the unvested portion of an Option shall expire upon termination of employment or service of the Participant granted the Option, and the vested portion of such Option shall remain exercisable for:

(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the Option Period;

(B) for directors, officers and employees of the Company only, for ninety (90) days following termination of employment or service by reason of such Participant’s Retirement, but not later than the expiration of the Option Period;

(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the Option Period; and

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(iii) both the unvested and the vested portion of an Option shall immediately expire upon the termination of the Participant’s employment or service by the Company for Cause.

(iv) Notwithstanding the foregoing provisions of Section 7(c) and consistent with the requirements of applicable law, the Committee, in its sole discretion, may extend the post-termination of employment period during which a Participant may exercise vested options.

(d) Method of Exercise and Form of Payment. No Common Stock shall be delivered pursuant to the exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company or otherwise provided for payment of an amount equal to any federal, state, local and/or foreign income and employment taxes required to be withheld. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award Agreement accompanied by payment of the Exercise Price. Unless otherwise provided by the Committee in an Award Agreement, the Exercise Price shall be payable (i) in cash, check (subject to collection), cash equivalent and/or vested Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual delivery of such shares to the Company); provided, however, that such Common Stock are not subject to any pledge or other security interest and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Committee in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Stock at such time and the Common Stock may be issued pursuant to a registration statement on Form S-8 or subsequent similar for, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Stock otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Stock for which the Option was exercised that number of shares of Common Stock having a Fair Market Value equal to the aggregate Exercise Price for the Common Stock for which the Option was exercised. Any fractional shares of Common Stock shall be settled in cash.

(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under this Plan shall notify the Company in writing immediately after the date he makes a disqualifying disposition of any Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Stock before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.

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(f) Compliance with Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.

8. Stock Appreciation Rights.

(a) Generally. Each SAR granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. Any Option granted under this Plan may include tandem SARs (i.e., SARs granted in conjunction with an Award of Options under this Plan). The Committee also may award SARs to Eligible Persons independent of any Option.

(b) Exercise Price. The Exercise Price per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant.

(c) Vesting and Expiration. A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “SAR Period”); provided, however, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability. Unless otherwise provided by the Committee in an Award Agreement:

(i) an SAR shall vest and become exercisable with respect to 100% of the Common Stock subject to such SAR on the third anniversary of the Date of Grant;

(ii) the unvested portion of a SAR shall expire upon termination of employment or service of the Participant granted the SAR, and the vested portion of such SAR shall remain exercisable for:

(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the SAR Period;

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(B) for directors, officers and employees of the Company only, for the remainder of the SAR Period following termination of employment or service by reason of such Participant’s Retirement;

(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the SAR Period; and

(iii) both the unvested and the vested portion of a SAR shall expire immediately upon the termination of the Participant’s employment or service by the Company for Cause.

(d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded. Notwithstanding the foregoing, if on the last day of the Option Period (or in the case of a SAR independent of an option, the SAR Period), the Fair Market Value exceeds the Strike Price, the Participant has not exercised the SAR or the corresponding Option (if applicable), and neither the SAR nor the corresponding Option (if applicable) has expired, such SAR shall be deemed to have been exercised by the Participant on such last day and the Company shall make the appropriate payment therefor.

(e) Payment. Upon the exercise of a SAR, the Company shall pay to the Participant the number of shares subject to the SAR that are being exercised multiplied by a fraction, the numerator of which is the amount by which the Fair Market Value of one share of Common Stock on the exercise date exceeds Strike Price and the denominator of which is the Fair Market Value on such date, and subtracting therefrom an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld which the Participant has not otherwise provided for. Unless the SAR Agreement otherwise provides, the Company shall issue the number of shares of Common Stock computed as provided in the previous sentence or pay the Fair Market Value of such shares in cash, or any combination thereof, as determined by the Committee. Any fractional share of Common Stock shall be settled in cash.

9. Restricted Stock and Restricted Stock Units.

(a) Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each such grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. Restricted Stock and Restricted Stock Units shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, for example, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of Performance Goals or otherwise, as the Committee determines at the time of the grant of an Award or thereafter. Except as otherwise provided in an Award Agreement, a Participant shall have none of the rights of a stockholder with respect to Restricted Stock Units until such time as Common Stock are paid in settlement of such Awards.

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(b) Restricted Accounts; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant’s name at the Company’s transfer agent and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate stock power (endorsed in blank) with signature medallion guaranteed with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void ab initio. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation the right to vote such Restricted Stock and the right to receive dividends, if applicable. To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.

(c) Vesting; Acceleration of Lapse of Restrictions. The Restricted Period shall lapse with respect to Restricted Stock and Restricted Stock Units at such times and under such conditions as are determined by the Committee.

(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share).Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award Agreement).

(ii) Unless otherwise provided by the Committee in an Award Agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his beneficiary, without charge, one share of Common Stock for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion and subject to the requirements of Section 409A of the Code, elect to (i) pay cash or part cash and part Common Stock in lieu of delivering only Common Stock in respect of such Restricted Stock Units or (ii) defer the delivery of Common Stock (or cash or part Common Stock and part cash, as the case may be) beyond the expiration of the Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Stock, the amount of such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld the payment of which is not otherwise provided for by the Participant.

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10. Stock Bonus Awards. The Committee may issue unrestricted Common Stock, or other Awards denominated in Common Stock, under this Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine, provided that the shares of Common Stock shall only be unrestricted if such shares may be issued to the Participant pursuant a registration statement on Form S-8 or subsequent similar form. Each Stock Bonus Award granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement.

11. Performance Compensation Awards.

(a) Generally. The provisions of this Plan are intended to enable Options and Stock Appreciation Rights granted hereunder to certain Eligible Persons to qualify for an exemption under Section 162(m) of the Code. The Committee shall have the authority, at the time of grant of any Award described in Sections 7 through 10 of this Plan, to designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code. The Committee shall have the authority to make an award of a cash bonus to any Participant and designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

(b) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply and the Performance Formula. Within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing.

(c) Performance Criteria. The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company and/or one or more Affiliates, divisions or operational units, or any combination of the foregoing, as determined by the Committee, which criteria will be based on one or more of the following business criteria: (i) revenue; (ii) sales; (iii) profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures); (iv) earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures); (v) net income (before or after taxes, operating income or other income measures); (vi) cash (cash flow, cash generation or other cash measures); (vii) stock price or performance; (viii) total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price); (ix) economic value added; (x) return measures (including, but not limited to, return on assets, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales); (xi) market share; (xii) improvements in capital structure; (xiii) expenses (expense management, expense ratio, expense efficiency ratios or other expense measures); (xiv) business expansion or consolidation (acquisitions and divestitures); (xv) internal rate of return or increase in net present value; (xvi) working capital targets relating to inventory and/or accounts receivable; (xvii) inventory management; (xviii) service or product delivery or quality; (xix) customer satisfaction; (xx) employee retention; (xxi) safety standards; (xxii) productivity measures; (xxiii) cost reduction measures; and/or (xxiv) strategic plan development and implementation. Any one or more of the Performance Criteria adopted by the Committee may be used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any business unit(s) of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the Committee shall, within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period and thereafter promptly communicate such Performance Criteria to the Participant.

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(d) Modification of Performance Goal(s). In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. The Committee is authorized at any time during the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), or at any time thereafter to the extent the exercise of such authority at such time would not cause the Performance Compensation Awards granted to any Participant for such Performance Period to fail to qualify as “performance-based compensation” under Section 162(m) of the Code, in its sole discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses; and (ix) a change in the Company’s fiscal year.

(e) Payment of Performance Compensation Awards.

(i) Condition to Receipt of Payment. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.

(ii) Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals.

(iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion.

(iv) Use of Negative Discretion. In determining the actual amount of an individual Participant’s Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion, except as is otherwise provided in this Plan, to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (B) increase a Performance Compensation Award above the applicable limitations set forth in Section 5 of this Plan.

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(f) Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11, but in no event later than two-and-one-half months following the end of the fiscal year during which the Performance Period is completed in order to comply with the short-term deferral rules under Section 1.409A-1(b)(4) of the Treasury Regulations. Notwithstanding the foregoing, payment of a Performance Compensation Award may be delayed, as permitted by Section 1.409A-2(b)(7)(i) of the Treasury Regulations, to the extent that the Company reasonably anticipates that if such payment were made as scheduled, the Company’s tax deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code.

12. Changes in Capital Structure and Similar Events. In the event of (a) any dividend or other distribution (whether in the form of cash, Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire Common Stock or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Stock, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate in order to prevent dilution or enlargement of rights, then the Committee shall make any such adjustments that are equitable, including without limitation any or all of the following:

(i) adjusting any or all of (A) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under this Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of this Plan) and (B) the terms of any outstanding Award, including, without limitation, (1) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals);

(ii) subject to the requirements of Section 409A of the Code, providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and

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(iii) subject to the requirements of Section 409A of the Code, canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Stock, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor); provided, however, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) or ASC Topic 718, or any successor thereto), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

13. Effect of Change in Control. Except to the extent otherwise provided in an Award Agreement, in the event of a Change in Control, notwithstanding any provision of this Plan to the contrary, with respect to all or any portion of a particular outstanding Award or Awards:

(a) all of the then outstanding Options and SARs shall immediately vest and become immediately exercisable as of a time prior to the Change in Control;

(b) the Restricted Period shall expire as of a time prior to the Change in Control (including without limitation a waiver of any applicable Performance Goals);

(c) Performance Periods in effect on the date the Change in Control occurs shall end on such date, and the Committee shall (i) determine the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited financial information or other information then available as it deems relevant and (ii) cause the Participant to receive partial or full payment of Awards for each such Performance Period based upon the Committee’s determination of the degree of attainment of the Performance Goals, or assuming that the applicable “target” levels of performance have been attained or on such other basis determined by the Committee.

To the extent practicable, any actions taken by the Committee under the immediately preceding clauses (a) through (c) shall occur in a manner and at a time which allows affected Participants the ability to participate in the Change in Control transactions with respect to the Common Stock subject to their Awards.

14. Amendments and Termination.

(a) Amendment and Termination of this Plan. The Board may amend, alter, suspend, discontinue, or terminate this Plan or any portion thereof at any time; provided, that (i) no amendment to the definition of Eligible Person in Section 2(q) or to Section 5(b), Section 11(c) or Section 14(b) (to the extent required by the proviso in such Section 14(b)) shall be made without stockholder approval, and (ii) no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to this Plan (including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on which the Common Stock may be listed or quoted or to prevent the Company from being denied a tax deduction under Section 162(m) of the Code); and,provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the prior written consent of the affected Participant, holder or beneficiary.

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(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively; provided, however that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; and, provided, further, that without stockholder approval, except as otherwise permitted under Section 12 of this Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR, (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR, another Award or cash or take any action that would have the effect of treating such Award as a new Award for tax or accounting purposes and (iii) the Committee may not take any other action that is considered a “repricing” for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Common Stock are listed or quoted if the Common Stock is listed on an exchange or included in an inter-dealer quotation system that requires stockholder approval.

15. General.

(a) Award Agreements. Each Award under this Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)) and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the death, Disability or termination of employment or service of a Participant, or of such other events as may be determined by the Committee. The Company’s failure to specify any term of any Award in any particular Award Agreement shall not invalidate such term, provided such terms was duly adopted by the Board or the Committee.

(b) Nontransferability; Trading Restrictions.

(i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

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(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, with or without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of this Plan, to: (A) any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act (collectively, the “Immediate Family Members”); (B) a trust solely for the benefit of the Participant and his or her Immediate Family Members; or (C) a partnership or limited liability company whose only partners or stockholders are the Participant and his or her Immediate Family Members; or (D) any other transferee as may be approved either (I) by the Board or the Committee in its sole discretion, or (II) as provided in the applicable Award Agreement (each transferee described in clauses (A), (B), (C) and (D) above is hereinafter referred to as a “Permitted Transferee”); provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of this Plan.

(iii) The terms of any Award transferred in accordance with subparagraph (ii) above shall apply to the Permitted Transferee and any reference in this Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Common Stock to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under this Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services to, the Company or an Affiliate under the terms of this Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in this Plan and the applicable Award Agreement.

(iv) The Committee shall have the right, either on an Award-by-Award basis or as a matter of policy for all Awards or one or more classes of Awards, to condition the delivery of vested Common Stock received in connection with such Award on the Participant’s agreement to such restrictions as the Committee may determine.

(c) Tax Withholding.

(i) A Participant shall be required to pay to the Company or any Affiliate, or the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Stock, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Stock, other securities or other property) of any required withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under this Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes. In addition, the Committee, in its discretion, may make arrangements mutually agreeable with a Participant who is not an employee of the Company or an Affiliate to facilitate the payment of applicable income and self-employment taxes.

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(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) owned by the Participant having a Fair Market Value equal to such withholding liability or (B) having the Company withhold from the number of shares of Common Stock otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares of Common Stock with a Fair Market Value equal to such withholding liability.

(d) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under this Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under this Plan, unless otherwise expressly provided in this Plan or any Award Agreement. By accepting an Award under this Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under this Plan or any Award Agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.

(e) International Participants. With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expected to be) “covered employees” within the meaning of Section 162(m) of the Code, the Committee may in its sole discretion amend the terms of this Plan or outstanding Awards (or establish a sub-plan) with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for such Participants, the Company or its Affiliates.

(f) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under this Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation filed with the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. Upon the occurrence of a Participant’s divorce (as evidenced by a final order or decree of divorce), any spousal designation previously given by such Participant shall automatically terminate.

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(g) Termination of Employment/Service. Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of employment or service with the Company or an Affiliate; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but such Participant continues to provide services to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a termination of employment with the Company or an Affiliate for purposes of this Plan unless the Committee, in its discretion, determines otherwise.

(h) No Rights as a Stockholder. Except as otherwise specifically provided in this Plan or any Award Agreement, no person shall be entitled to the privileges of ownership in respect of shares of Common Stock that are subject to Awards hereunder until such shares have been issued or delivered to that person.

(i) Government and Other Regulations.

(i) The obligation of the Company to settle Awards in Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the Common Stock to be offered or sold under this Plan. The Committee shall have the authority to provide that all certificates for Common Stock or other securities of the Company or any Affiliate delivered under this Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under this Plan, the applicable Award Agreement, the federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable federal, state, local or non-U.S. laws, and, without limiting the generality of Section 9 of this Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in this Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under this Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.

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(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Common Stock from the public markets, the Company’s issuance of Common Stock to the Participant, the Participant’s acquisition of Common Stock from the Company and/or the Participant’s sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, unless doing so would violate Section 409A of the Code, the Company shall pay to the Participant an amount equal to the excess of (A) the aggregate Fair Market Value of the Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or delivered, as applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of delivery of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof. The Committee shall have the discretion to consider and take action to mitigate the tax consequence to the Participant in cancelling an Award in accordance with this clause.

(j) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.

(k) Nonexclusivity of this Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.

(l) No Trust or Fund Created. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of this Plan or any Award shall require the Company, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under this Plan other than as general unsecured creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under applicable law.

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(m) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with this Plan by any agent of the Company or the Committee or the Board, other than himself.

(n) Relationship to Other Benefits. No payment under this Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.

(o) Governing Law. This Plan shall be governed by and construed in accordance with the internal laws of the State of Nevada, without giving effect to the conflict of laws provisions.

(p) Severability. If any provision of this Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws in the manner that most closely reflects the original intent of the Award or this Plan, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of this Plan and any such Award shall remain in full force and effect.

(q) Obligations Binding on Successors. The obligations of the Company under this Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.

(r) Code Section 162(m) Approval. If so determined by the Committee, the provisions of this Plan regarding Performance Compensation Awards shall be disclosed and reapproved by stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders previously approved such provisions, in each case in order for certain Awards granted after such time to be exempt from the deduction limitations of Section 162(m) of the Code. Nothing in this clause, however, shall affect the validity of Awards granted after such time if such stockholder approval has not been obtained.

(s) Expenses; Gender; Titles and Headings. The expenses of administering this Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings shall control.

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(t) Other Agreements. Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Stock under an Award, that the Participant execute lock-up, stockholder or other agreements, as it may determine in its sole and absolute discretion.

(u) Section 409A. This Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Code. This Plan and all Awards granted under this Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A of the Code to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B) of the Code. Notwithstanding anything in this Plan to the contrary, in no event shall the Committee exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred compensation within the meaning of Section 409A of the Code unless, and solely to the extent that, such accelerated payment or settlement is permissible under Section 1.409A-3(j)(4) of the Treasury Regulations. If a Participant is a “specified employee” (within the meaning of Section 1.409A-1(i) of the Treasury Regulations) at any time during the twelve (12)-month period ending on the date of his termination of employment, and any Award hereunder subject to the requirements of Section 409A of the Code is to be satisfied on account of the Participant’s termination of employment, satisfaction of such Award shall be suspended until the date that is six (6) months after the date of such termination of employment.

(v) Payments. Participants shall be required to pay, to the extent required by applicable law, any amounts required in order to receive Common Stock under any Award made under this Plan.

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EX-10.7

EXHIBIT 10.7

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Agreement”) is entered into as of the 26^th day of August, 2014, by and between Solarmax LED, Inc., a California corporation, (“Borrower”) and Clean Energy Funding II, LP, a limited partnership organized in California, (“Lender”), with reference to the following facts:

Borrower is a provider of LED system for commercial and residential customers. Lender is to provide a loan up to $13 million to Borrower. The loan proceeds will be used by Borrower to finance the purchase of LED equipment, engineering and installation costs, as well as marketing, advertising and other expenses related to residential and commercial LED system.

NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1
AMOUNTS AND TERMS OF THE LOAN

Section 1.1. The Loan. Lender agrees, on the terms and conditions hereinafter set forth, to make a loan (“Loan”) to the Borrower in an amount not to exceed Thirteen Million Dollars ($13,000,000.00) (“Maximum Loan Amount”).

Section 1.2. Advances. From and after the date hereof, Lender shall advance proceeds of the Loan in increments of (each an “Advance”), at such times as Lender shall determine in its sole and absolute discretion. At such time as Lender desires to make an Advance, Lender shall give Borrower 3 business days prior written notice of the making of an Advance (an “Advance Notice”), which Advance Notice shall include the amount of the Advance and the date upon which the Advance will be made (“Advance Date”). A business day means any day other than Saturday, Sunday or a public or bank holiday in Los Angeles, California.

Section 1.3. Interest and Repayment. Interest on the aggregate disbursed, but unpaid, principal amount of the Loan shall accrue at the rate of 3% per annum from each Advance Date, and shall be paid on a quarterly basis beginning the end of the quarter following the quarter in which the first Advance is made . Principal shall be due and payable 48 months from the last Advance Date. The Lender agrees and reserves the right to extend the term of the Loan as may be necessary to meet applicable USCIS immigrant investor visa requirements.

Section 1.4. Mandatory Uses of Proceeds. Borrower agrees that the proceeds of the Loan shall only be used by Borrower to finance the purchase of LED equipment, engineering and installation costs, as well as marketing, advertising and other expenses related to residential and commercial LED system.

Section 1.5. Loan Payments Unconditional. Borrower’s obligations to make all payments hereunder and to perform and observe all of the covenants and agreements contained herein shall be absolute and unconditional in all events, without abatement, diminution, deduction, setoff or defense for any reason. Notwithstanding any dispute between Borrower and Lender, or any other person, Borrower shall make all payments when due and shall not withhold any payments pending final resolution of such dispute, nor shall Borrower assert any right of setoff or counterclaim against its obligation to make such payments required under this Agreement.

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ARTICLE 2
SECURITY INTEREST

Section 2.1. Grant of Security. As a security for the payment and performance of all debts, liabilities and obligations of Borrower due to Lender pursuant to or in connection with this Agreement, Borrower hereby grants to Lender a security interest (the “Security Interest”) in all of their right, title and interest in and to the following, in each case whether now owned or existing or hereafter acquired or arising and however and wherever arising or located (collectively, “Collateral”):

(a) ACCOUNTS: All present and future accounts, accounts receivable and other rights of Borrower to payment for the sale and installation of LED systems or the rendition of services, including without limitation all Borrower’s sales and installation contracts with its commercial and residential customers for of LED systems provided by Borrower (collectively, “LED Contracts”) whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by performance, including, without limitation, accounts arising under any contracts (collectively, “Accounts”);

(b) INVENTORY: All of Borrower’s present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or finance, and all goods consigned by such Borrower and all other items which have previously constituted Equipment but are then currently being held for sale or finance in the ordinary course of Borrower’s business, (iii) raw materials, work-in-process and finished goods, (iv) materials, components and supplies of any kind, nature or description used or consumed in Borrower’s business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in clauses (i) through (iii) above (collectively, “Inventory”);

Section 2.2. Enforcement. In the Event of Default, Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of California or any other relevant jurisdiction at that time (the “Uniform Commercial Code”) (whether or not the Uniform Commercial Code applies to the affected Collateral).

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

Section 3.1. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:

(a) Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California,

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(b) The execution, delivery and performance of this Agreement do not contravene any law or any contractual restriction binding on or affecting Borrower.

(c) This Agreement is, when delivered hereunder will be, legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms.

(d) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Borrower’s knowledge, threatened against or affecting Borrower.

(e) Borrower will (a) comply with the requirements of applicable laws and regulations, the noncompliance with which could reasonably be expected to cause a material adverse effect on its financial condition, operations, business or prospects and (b) use and keep the Collateral, and will require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. Borrower shall secure all permits and licenses, if any, necessary for the installation and operation of the Collateral.

ARTICLE 4
AFFIRMATIVE COVENANTS OF BORROWER

So long as the Loan shall remain unpaid, Borrower will comply with the following requirements:

Section 4.1. Sale of Assets. Borrower will not, without Lender’s consent, sell, lease (except in the ordinary course of business), assign, transfer or otherwise dispose of all or a substantial part of its assets or of any of the Collateral or any interest therein (whether in one transaction or in a series of transactions).

Section 4.2. Consolidation and Merger. Borrower will not without Lender’s consent consolidate with or merge into any person, or permit any other person to merge into it or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other person.

ARTICLE 5
EVENTS OF DEFAULT

Section 5.1. Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

(a) Borrower shall fail to pay any principal, or interest, or any other sums due; or

(b) Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement on the Borrower’s part to be performed or observed (other than the payment of principal, interest or other monies), if such failure shall remain unremedied for ten (10) days after written notice thereof shall have been given to Borrower by Lender then, and in any such event, Lender may, by notice to Borrower, declare all interest and all other amounts payable under this Agreement to be due and payable.

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ARTICLE 6
MISCELLANEOUS

Section 6.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 6.2. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and mailed or delivered as follows:

If to Borrower:	Solarmax LED, Inc. 3080 12th Street Riverside, CA 92507
If to the Lender:	Clean Energy Funding II, LP c/o Inland Empire Renewable Energy Regional Center, LLC 3230 Fallow Field Drive Diamond Bar, CA 91765

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying with the terms of this section. All such notices and communications shall, when mailed, be effective when deposited in the mails addressed as aforesaid.

Section 6.3. No Waiver; Remedies. No failure on the part of Lender to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.

Section 6.4. Costs, Expenses. Borrower agrees to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement, and any other documents to be delivered under this Agreement (or in connection herewith), whether or not suit is filed in connection therewith.

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Section 6.5. Acknowledgment of Waivers. BORROWER ACKNOWLEDGES THAT THIS AGREEMENT WAIVERS OF CERTAIN RIGHTS AND DEFENSES THAT BORROWER WOULD OTHERWISE HAVE UNDER APPLICABLE LAW. BORROWER WARRANTS AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN AND THEREIN ARE MADE AFTER CONSULTATION WITH LEGAL COUNSEL AND WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES, WITH THE UNDERSTANDING THAT EVENTS GIVING RISE TO ANY DEFENSE OR RIGHT WAIVED MAY DIMINISH, DESTROY OR OTHERWISE ADVERSELY AFFECT RIGHTS WHICH BORROWER OTHERWISE MAY HAVE AGAINST LENDER OR OTHERS, OR AGAINST ANY PROPERTY, AND THAT, UNDER THE CIRCUMSTANCES, THE WAIVERS AND CONSENTS HEREIN AND THEREIN GIVEN ARE REASONABLE AND NOT CONTRARY TO PUBLIC POLICY OR LAW. IF ANY OF THE WAIVERS OR CONSENTS HEREIN OR THEREIN ARE DETERMINED TO BE UNENFORCEABLE UNDER APPLICABLE LAW, SUCH WAIVERS AND CONSENTS SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.

______________________

(initialed)

Section 6.6. Binding Effect: Governing Law. This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender. Lender and Borrower agree that this Agreement shall be governed by, and construed in accordance with, laws of the State of California.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

“LENDER”		“BORROWER”
CLEAN ENERGY FUNDING II, LP		SOLARMAX LED, INC.
By:	/s/ David Hsu	By:	/s/ Ching Liu
Name:	David Hsu	Name:	Ching Liu
Title:	CEO	Title:	President

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EX-10.8

EXHIBIT 10.8

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Agreement”) is entered into as of the 3rd day of January, 2012, by and between Solarmax Renewable Energy Provider, Inc., a California corporation, (“Borrower”) and Clean Energy Funding, LP, a limited partnership organized in California, (“Lender”), with reference to the following facts:

Borrower is a provider of solar energy system for commercial and residential customers. Lender is to provide a loan up to $45 million to Borrower. The loan proceeds will be used by Borrower to finance the purchase of solar energy equipment, engineering and installation costs, as well as marketing, advertising and other expenses related to residential and commercial solar energy system.

NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE 1
AMOUNTS AND TERMS OF THE LOAN

Section 1.1. The Loan. Lender agrees, on the terms and conditions hereinafter set forth, to make a loan (“Loan”) to the Borrower in an amount not to exceed Forty-Five Million Dollars ($45,000,000.00) (“Maximum Loan Amount”).

Section 1.2. Advances. From and after the date hereof, Lender shall advance proceeds of the Loan in increments of Two Million Five Hundred Thousand Dollars ($2,500,000) (each an “Advance”), subject to Lender’s right to make Advances in lesser amounts in its discretion, at such times as Lender shall determine in its sole and absolute discretion. At such time as Lender desires to make an Advance, Lender shall give Borrower 3 business days prior written notice of the making of an Advance (an “Advance Notice”), which Advance Notice shall include the amount of the Advance and the date upon which the Advance will be made (“Advance Date”). A business day means any day other than Saturday, Sunday or a public or bank holiday in Los Angeles, California.

Section 1.3. Interest and Repayment. Interest on the aggregate disbursed, but unpaid, principal amount of the Loan shall accrue at the rate of 3% per annum from each Advance Date, and shall be paid on a quarterly basis beginning the end of the quarter following the quarter in which the first Advance is made . With respect to each Advance, principal shall be due and payable 48 months from the Advance Date. The Lender agrees and reserves the right to extend the term of the Loan as may be necessary to meet applicable USCIS immigrant investor visa requirements.

Section 1.4. Mandatory Uses of Proceeds. Borrower agrees that the proceeds of the Loan shall only be used by Borrower to finance the purchase of solar energy equipment, engineering and installation costs, as well as marketing, advertising and other expenses related to residential and commercial solar energy system.

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Section 1.5. Loan Payments Unconditional. Borrower’s obligations to make all payments hereunder and to perform and observe all of the covenants and agreements contained herein shall be absolute and unconditional in all events, without abatement, diminution, deduction, setoff or defense for any reason. Notwithstanding any dispute between Borrower and Lender, or any other person, Borrower shall make all payments when due and shall not withhold any payments pending final resolution of such dispute, nor shall Borrower assert any right of setoff or counterclaim against its obligation to make such payments required under this Agreement.

ARTICLE 2
SECURITY INTEREST

Section 2.1. Grant of Security. As a security for the payment and performance of all debts, liabilities and obligations of Borrower due to Lender pursuant to or in connection with this Agreement or the Note, Borrower hereby grants to Lender a security interest (the “Security Interest”) in all of their right, title and interest in and to the following, in each case whether now owned or existing or hereafter acquired or arising and however and wherever arising or located (collectively, “Collateral”):

(a) ACCOUNTS: All present and future accounts, accounts receivable and other rights of Borrower to payment for the sale or lease of goods or the rendition of services, including without limitation all Borrower’s installment sales contracts with its commercial and residential customers for the sale or lease of solar energy systems provided by Borrower (collectively, “Solar Energy Contracts”) whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by performance, including, without limitation, accounts arising under any contracts (collectively, “Accounts”);

(b) INVENTORY: All of Borrower’s present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or lease, and all goods consigned by such Borrower and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of Borrower’s business, (iii) raw materials, work-in-process and finished goods, (iv) materials, components and supplies of any kind, nature or description used or consumed in Borrower’s business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in clauses (i) through (iii) above (collectively, “Inventory”);

Section 2.2. Enforcement. In the Event of Default, Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of California or any other relevant jurisdiction at that time (the “Uniform Commercial Code”) (whether or not the Uniform Commercial Code applies to the affected Collateral).

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ARTICLE 3
REPRESENTATIONS AND WARRANTIES

Section 3.1. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:

(a) Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California,

(b) The execution, delivery and performance of this Agreement do not contravene any law or any contractual restriction binding on or affecting Borrower.

(c) This Agreement is, when delivered hereunder will be, legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms.

(d) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Borrower’s knowledge, threatened against or affecting Borrower.

(e) Borrower will (a) comply with the requirements of applicable laws and regulations, the noncompliance with which could reasonably be expected to cause a material adverse effect on its financial condition, operations, business or prospects and (b) use and keep the Collateral, and will require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. Borrower shall secure all permits and licenses, if any, necessary for the installation and operation of the Collateral.

ARTICLE 4
AFFIRMATIVE COVENANTS OF BORROWER

So long as the Loan shall remain unpaid, Borrower will comply with the following requirements:

Section 4.1. Sale of Assets. Borrower will not, without Lender’s consent, sell, lease (except in the ordinary course of business), assign, transfer or otherwise dispose of all or a substantial part of its assets or of any of the Collateral or any interest therein (whether in one transaction or in a series of transactions).

Section 4.2. Consolidation and Merger. Borrower will not without Lender’s consent consolidate with or merge into any person, or permit any other person to merge into it or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other person.

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ARTICLE 5
EVENTS OF DEFAULT

Section 5.1. Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

(a) Borrower shall fail to pay any principal, or interest, or any other sums due; or

(b) Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement on the Borrower’s part to be performed or observed (other than the payment of principal, interest or other monies), if such failure shall remain unremedied for ten (10) days after written notice thereof shall have been given to Borrower by Lender

then, and in any such event, Lender may, by notice to Borrower, declare all interest and all other amounts payable under this Agreement to be due and payable.

ARTICLE 6
MISCELLANEOUS

Section 6.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 6.2. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and mailed or delivered as follows:

If to Borrower:	Solarmax Renewable Energy Provider, Inc. 17011 Green Drive City of Industry, CA 91745
If to the Lender:	Clean Energy Funding, LP c/o Inland Empire Renewable Energy Regional Center LLC 17700 Castleton Street # 488 City of Industry, CA 91748

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying with the terms of this section. All such notices and communications shall, when mailed, be effective when deposited in the mails addressed as aforesaid.

Section 6.3. No Waiver; Remedies. No failure on the part of Lender to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.

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Section 6.4. Costs, Expenses. Borrower agrees to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement, and any other documents to be delivered under this Agreement (or in connection herewith), whether or not suit is filed in connection therewith.

Section 6.5. Acknowledgment of Waivers. BORROWER ACKNOWLEDGES THAT THIS AGREEMENT AND THE NOTE CONTAIN WAIVERS OF CERTAIN RIGHTS AND DEFENSES THAT BORROWER WOULD OTHERWISE HAVE UNDER APPLICABLE LAW. BORROWER WARRANTS AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN AND THEREIN ARE MADE AFTER CONSULTATION WITH LEGAL COUNSEL AND WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES, WITH THE UNDERSTANDING THAT EVENTS GIVING RISE TO ANY DEFENSE OR RIGHT WAIVED MAY DIMINISH, DESTROY OR OTHERWISE ADVERSELY AFFECT RIGHTS WHICH BORROWER OTHERWISE MAY HAVE AGAINST LENDER OR OTHERS, OR AGAINST ANY PROPERTY, AND THAT, UNDER THE CIRCUMSTANCES, THE WAIVERS AND CONSENTS HEREIN AND THEREIN GIVEN ARE REASONABLE AND NOT CONTRARY TO PUBLIC POLICY OR LAW. IF ANY OF THE WAIVERS OR CONSENTS HEREIN OR THEREIN ARE DETERMINED TO BE UNENFORCEABLE UNDER APPLICABLE LAW, SUCH WAIVERS AND CONSENTS SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.

________________________

(initialed)

Section 6.6. Binding Effect: Governing Law. This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender. Lender and Borrower agree that this Agreement shall be governed by, and construed in accordance with, laws of the State of California.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

“LENDER”	“BORROWER”
CLEAN ENERGY FUNDING, LP	SOLARMAX RENEWABLE ENERGY PROVIDER, INC.
By: /s/ Ching Liu Name: Ching Liu Title: EVP	By: /s/ David Hsu Name: David Hsu Title: CEO

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EX-10.9

EXHIBIT 10.9

OFFICE LEASE

TABLE OF CONTENTS

Section 1.	Definitions	2
Section 2.	Premises	4
Section 3.	Term; Condition of Premises	4
Section 4.	Rental	4
Section 5.	Escalation Rent	5
Section 6.	Use	5
Section 7.	Services	5
Section 8.	Impositions	6
Section 9.	Alterations	7
Section 10.	Liens	7
Section 11.	Repairs	8
Section 12.	Damage or Destruction	8
Section 13.	Subrogation	8
Section 14.	Indemnification	9
Section 15.	Compliance with Legal Requirements	9
Section 16.	Assignment and Subletting	9
Section 17.	Rules	11
Section 18.	Entry by Landlord	11
Section 19.	Events of Default	11
Section 20.	Termination upon Default	12
Section 21.	Continuation after Default	12
Section 22.	Other Relief	12
Section 23.	Right of Landlord to Cure Defaults	12
Section 24.	Attorney Fees	12
Section 25.	Eminent Domain	13
Section 26.	Subordination	13
Section 27.	No Merger	13
Section 28.	Sale	13
Section 29.	Estoppel Certificate	13
Section 30.	Light, Air, or View Rights	14
Section 31.	Holding Over	14
Section 32.	Security Deposit	14
Section 33.	Waiver	14
Section 34.	Notices and Consents	14
Section 35.	Entire Agreement	14
Section 36.	Authority	15
Section 37.	Plural and Singular	15
Section 38.	Joint and Several Obligations	15
Section 39.	Time of the Essence	15
Section 40.	Examination of Lease	15
Section 41.	Heirs, Successors, and Assigns	15
Section 42.	Name of Building	15
Section 43.	Illegality or Unenforceability of Portion of Lease	15
Section 44.	Governing Law	15
Section 45.	Exhibits	15

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OFFICE LEASE

THIS OFFICE LEASE (this “Lease”) dated as of January 1 2017 is entered into between SMX Property, LLC (“Landlord”), and SolarMax Technology, Inc. (U.S.A.) (“Tenant”).

RECITALS

A. Landlord is the owner of real property (“Real Property”) located at 3080 12th Street, Riverside, CA 92507 described in Exhibit A 50,000 Sq Ft of Distribution, 35,731 Sq Ft Office/Admin, and 15,825 Sq Ft of Lobby and Education Space, attached to this Lease and incorporated by reference, and the Building (as later defined) located on it. The Real Property and the Building are collectively the “Property.”

B. Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord the Premises (as later defined) for the term and subject to the terms, covenants, agreements, and conditions in this Lease.

AGREEMENT

NOW THEREFORE, for good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

Section 1. Definitions

As used in this Lease, the following capitalized terms are defined as follows.

“Alterations” is defined in Section 9(a) hereof.

“Base Operating Expenses” means the Operating Expenses paid or incurred by Landlord in the Base Year.

“Base Property Taxes” means the amount of Property Taxes for the tax year ending2016 of the Base Year.

“Base Rent” means the Base Rent as set forth in the Basic Lease Information.

“Base Year” means the calendar year specified in the Basic Lease Information as the Base Year.

“Basic Lease Information” is attached to and incorporated in this Lease as Exhibit B hereto.

“Building” means the building constructed on the Real Property known as 3080 12th Street, Riverside, CA 92507 , any property interest in the area of 3080 12th Street, Riverside, CA 92507 and all other improvements on or appurtenances to the Real Property or the streets abutting the Real Property. The Building includes, but is not limited to, an office building with 1 floors of office space and a parking space located on the same property.

“Commencement Date” means the Commencement Date as set forth in the Basic Lease Information.

“Common Area” means the total area on a floor consisting of rest rooms, janitor, telephone and electrical closets, mechanical areas, public corridors providing access to tenant space, public stairs, elevator shafts and pipe shafts, together with their enclosing walls.

“Deposit” is defined in Section 32 hereof.

“Escalation Rent” is defined in Section 4(a) hereof.

“Event of Default” is defined in Section 19 hereof.

“Impositions” is defined in Section 8 hereof.

“Landlord” is defined in the preamble hereof.

“Legal Requirements” is defined in Section 15 hereof.

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“Lease” is defined in the preamble hereof.

“Operating Expenses” means (a) all costs of management, operation, and maintenance of the Building, including without limitation: wages, salaries, and payroll burden of employees; property management fees and other related compensation; janitorial, maintenance, security, and other services; Building office rent or rental value; power, water, waste disposal, and other utilities; materials and supplies; maintenance and repairs; license costs; insurance premiums and the deductible portion of any insured loss under Landlord’s insurance; and depreciation on personal property; and (b) the cost of any capital improvements made to the Building by Landlord after the Base Year that (i) are made in the reasonable expectation of reducing other Operating Expenses during the term of this Lease, (ii) are required for the health and safety of tenants, or (iii) are required under any governmental law or regulation that was not applicable to the Building at the time it was constructed, this cost to be amortized over a reasonable period determined by Landlord, together with interest on the unamortized balance at the rate of ten percent (10%) per annum, or a higher rate equal to that paid by Landlord on funds borrowed for the purpose of constructing or installing those capital improvements. Operating Expenses shall not include: Property Taxes; depreciation on the Building other than depreciation on exterior window draperies, if any, provided by Landlord, and carpeting in multi-tenant floor public corridors and common areas; costs of tenants’ improvements; real estate brokers’ commissions; interest; costs incurred in connection with the repair of damage to the Building, to the extent Landlord is reimbursed by insurance proceeds; and capital items other than those referred to in clause (b). Actual Operating Expenses for both the Base Year and each subsequent calendar year will be adjusted to equal Landlord’s reasonable estimate of Operating Expenses had the total rentable area of the Building been occupied.

“Premises” means the portion of the Building located on the floor or floors specified in the Basic Lease Information which is outlined in red on the floor plan or plans attached to this Lease as Exhibit A hereto.

“Property” is defined in Recital A hereof.

“Property Taxes” means all real property taxes (and any tax levied wholly or partly in lieu of real property taxes) levied against the Building, and all real estate tax consultant expenses and attorney’s fees incurred for the purpose of maintaining an equitable assessed valuation of the Building.

“Real Property” is defined in Recital A hereof.

“Rentable Area” means the rentable area of the Premises specified on the Basic Lease Information. If any office space is added to or deleted from the Premises, the rentable area of the space added or deleted shall mean: (a) as to an entire floor added to or deleted from the Premises, all areas within outside permanent Building walls, measured to the inside glass surface of outside permanent Building walls, including rest rooms; janitor, telephone, and electrical closets; allocated mechanical areas and columns and projections necessary to the Building, but excluding public stairs, elevator shafts, and pipe shafts, together with their enclosing walls; (b) as to a portion of a floor added to or deleted from the Premises, the aggregate of the usable area of the portion of the floor added to or deleted from the Premises, plus the result obtained by multiplying the area of the Common Area on this floor by a fraction, whose numerator is the usable area of added or deleted portion of the floor and whose denominator is the usable area of all tenant space on the floor.

“Tenant” is defined in the preamble hereof.

“Tenant’s Percentage Share” means the percentage figure specified as “Tenant’s Percentage Share” in the Basic Lease Information. Tenant’s Percentage Share has been obtained by dividing the net rentable area of the Premises, as specified in the Basic Lease Information, by the total net rentable area of the Building, which is111872 square feet of office space, and multiplying that quotient by one hundred (100). In the event the rentable area of the Premises is increased or decreased by the addition to or deletion from the Premises of any office space, Tenant’s percentage share shall be appropriately adjusted. For the purposes of Section 4, Tenant’s Percentage Share shall be based on the number of days during the calendar year in which this change occurs.

“Term” is defined in Section 3 hereof.

“Termination Date” means the Termination Date in the Basic Lease Information.

“Usable Area” means all floor area in a tenant space, measured to the inside glass surface of outer Building walls, to the office side of corridors and other permanent partitions, and to the center of partitions that separate the tenant space from adjoining tenant spaces, without deduction for columns and projections necessary to the Building.

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Section 2. Premises

Landlord leases to Tenant, and Tenant leases from Landlord the Premises for the term and subject to the terms, covenants, agreements, and conditions later set forth, to each of which Landlord and Tenant mutually agree.

Section 3. Term; Condition of Premises

The term (“Term”) of this Lease shall commence on the Commencement Date and, unless sooner terminated as later provided, shall end on the Termination Date. Unless otherwise agreed by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to Tenant on the Commencement Date in their then existing condition with no alterations being made by Landlord. If Landlord has undertaken in this Lease to make any alterations to the Premises before the Commencement Date and the alterations are completed before that date, and if Tenant desires to take occupancy in advance of that date, Landlord shall deliver the Premises to Tenant at that time in advance of a date that will be mutually approved by Landlord and Tenant and, notwithstanding anything to the contrary contained in this Lease, the Term of the Lease shall commence on delivery. If Landlord, for any reason, cannot deliver the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting from nondelivery, but in that event rental shall be waived for the period between the Commencement Date and the time when Landlord delivers the Premises to Tenant. No delay in delivery of the Premises shall extend the Term of this Lease.

Section 4. Rental

(a) Tenant shall pay to Landlord throughout the Term as rental for the Premises the Base Rent, provided that the rental payable during each calendar year subsequent to the Base Year shall be the Base Rent, increased by Tenant’s Percentage Share of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord in that year over the Base Operating Expenses, and also increased by Tenant’s Percentage Share of the total dollar increase, if any, in Property Taxes paid by Landlord in that year over the Base Property Taxes. The increased rental due pursuant to this Section 4(a) is the “Escalation Rent.”

(b) Rental shall be paid to Landlord, in advance, on or before the first day of the Term of this Lease and on or before the first day of each successive calendar month during the Term of this Lease. In the event the Term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, the monthly rental for the first and last fractional months of the Term of this Lease shall be appropriately prorated.

(c) All sums of money due to Landlord under this Lease, not specifically characterized as rental, shall constitute additional rent and shall be due within thirty (30) days after receipt by Tenant of a billing. If any sum is not paid when due, it shall be collectible as additional rent with the next installment of rental falling due. Nothing contained in this Lease shall be deemed to suspend or delay the payment of any sum of money at the time it becomes due and payable under this Lease, or to limit any other remedy of Landlord.

(d) Tenant acknowledges that late payment of rent and other sums due under this Lease after the expiration of any applicable cure period under Section 19(a) will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be difficult to ascertain. These costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any trust deed covering the Premises. Accordingly, if any installment of rent or any other sums due from Tenant are not received when due, or if a cure period is applicable under Section 19(a), prior to the expiration of the cure period, Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount. The parties agree that the late charge represents a fair and reasonable estimate of the costs Landlord will incur because of late payment. Acceptance of the late charge by Landlord shall not constitute a waiver of Tenant’s default for the overdue amount, nor prevent Landlord from exercising the other rights and remedies granted under this Lease.

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Landlord’s Initials                                                                                            Tenant’s Initials

(e) Any amount due to Landlord, if not paid within five (5) days following the due date, will bear interest from the due date until paid at the rate of ten percent (10%) per year or, if a higher rate is legally permissible, at the highest rate legally permitted. However, interest shall not be payable on late charges incurred by Tenant nor on any amounts on which late charges are paid by Tenant to the extent this interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default by Tenant.

(f) All payments due shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America at Landlord’s address for notices under this Lease or to another person or at another place as Landlord may designate by notice to Tenant.

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Section 5. Escalation Rent

Escalation Rent shall be paid monthly on an estimated basis, with subsequent annual reconciliation, in accordance with the following procedures: Annual increases of 2.99% of the prior year rent.

30 days prior to the end of the Base Year and no later than 30 days prior to the end of each subsequent calendar year, or as soon after that time as practicable, Landlord shall give Tenant notice of Landlord’s estimate of any Escalation Rent due under Section 4(a) for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Escalation Rent. If Landlord fails to give notice as required in this Section, Tenant shall continue to pay on the basis of the prior year’s estimate until the month after that notice is given. If at any time it appears to Landlord that the Escalation Rent for the current calendar year will vary from the estimate by more than five percent (2.99%), Landlord shall, by notice to Tenant, revise the estimate for that year, and subsequent payments by Tenant for that year shall be based on the revised estimate.

(b) Within ninety (90) days after the close of each calendar year, or as soon after the ninety (90) day period as practicable, Landlord shall deliver to Tenant a statement of the actual Escalation Rent for that calendar year, accompanied by a statement from certified public accountants for the Building showing Operating Expenses and Property Taxes on the basis of which the actual Escalation Rent was determined. At Tenant’s request, Landlord shall provide Tenant reasonable supporting detail underlying the calculations of Operating Expenses and Property Taxes. If Landlord’s statement discloses that Tenant owes an amount that is less than the estimated payments for the calendar year previously made by Tenant, Landlord shall credit the excess first against any sums then owed by Tenant, and then against the next payments of rental due. If Landlord’s statement discloses that Tenant owes an amount that is more than the estimated payments for the calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement.

(c) The amount of Escalation Rent for any fractional year in the Term shall be appropriately prorated. The pro-ration of Operating Expenses for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Operating Expenses for that entire calendar year; the pro-ration of Property Taxes for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Property Taxes for that entire calendar year, but shall exclude any Property Taxes attributable to any increase in the assessed valuation of the Building occurring after termination. The termination of this Lease shall not affect the obligations of the parties pursuant to Section 5(b) to be performed after the termination.

Section 6. Use

The Premises shall be used for general office purposes and no other. Tenant shall not do or permit to be done on the Premises, nor bring or keep or permit to be brought or kept in the Premises, anything (a) which is prohibited by or in conflict with any law, ordinance, or governmental rule or, (b) which is prohibited by the standard form of fire insurance policy or, (c) which will increase the existing rate of or affect fire or other insurance on the Building or its contents or cause a cancellation of any insurance policy covering the Building or any part of it or its contents. Tenant shall not use or store in the Premises any hazardous or toxic substances, with the sole exception of reasonably necessary substances that are kept in reasonably necessary quantities for normal office operations, provided that their use and storage are in accordance with applicable laws. Tenant shall not do or permit anything to be done on the Premises that will obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any unlawful purposes, nor shall Tenant cause, maintain, or permit any nuisance or waste on or about the Premises.

Section 7. Services

(a) Landlord shall maintain the public and Common Areas of the Building, including lobbies, stairs, elevators, corridors, restrooms, all exterior landscaping, windows, the mechanical, plumbing, and electrical equipment serving the Building, and the structure itself, in reasonably good order and condition so as to meet the reasonable needs of Tenant, except for damage, excluding normal wear and tear, caused by the Tenant. Damage by Tenant shall be repaired by Landlord at Tenant’s expense. The standard of maintenance shall be equal to that of other office buildings of a similar class in _____.

(b) Landlord shall furnish utilities that includes water, power and gas (water heaters.) Utility payments will be paid previously agreed upon. Landlord will bill tenant all extra utilities usage based on previous average utlity invoice. based on the total rental square feel relative to the whole property (ie prorated to only your square feet / total square feet).Comfortable occupancy by Tenant in Tenant’s use of the Premises during the period from 7:00 a.m. to 6:00 p.m. on weekdays. Landlord is not responsible for internet or telephone services. Tenant will bear all costs associated with internet and telephone services. Tenant has the option to contract with our third party janitorial services.

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Landlord may establish reasonable measures to conserve energy and water, including but not limited to, automatic light shut off after hours and efficient lighting forms, so long as these measures do not unreasonably interfere with Tenant’s use of the Premises.

(c) Landlord shall not be in default under this Lease, nor be liable for any damages resulting from, nor shall the required rental be abated because of: (i) the installation, use, or interruption of use of any equipment in connection with furnishing the previously listed services, (ii) failure to furnish or delay in furnishing these services, when failure or delay is caused by accident or conditions beyond the reasonable control of Landlord or by necessary repairs or improvements to the Premises or to the Building, or (iii) the limitation, curtailment, rationing, or restrictions on use of water, electricity, gas, or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts to diligently remedy interruptions in the furnishing of these services.

(d) If heat-generating equipment or lighting, other than building standard lights, are installed or used in the Premises, and this equipment or lighting affects the temperature otherwise maintained by the air conditioning system, or if equipment is installed in the Premises that requires a separate temperature controlled room, on Tenant’s request or at Landlord’s election after notice to Tenant, Landlord shall install supplementary air conditioning facilities in the Premises or shall modify the ventilating and air conditioning system serving the Premises. The capital and maintenance costs of these facilities and modifications shall be borne by Tenant. However, if Tenant objects to the proposed installation of supplementary air conditioning facilities or the modification of the ventilating and air conditioning system, Landlord shall not make the installation or modification, but Landlord shall be relieved of obligations under Section 7(b)(ii) hereof to the extent that comfortable occupancy of the Premises cannot be provided without the installation or modification.

(e) On receipt of a bill, Tenant shall reimburse Landlord for the cost of (i) all heat or air conditioning provided to the Premises during hours requested by Tenant when those services are not otherwise furnished by Landlord, and (ii) all power and cooling energy provided for supplementary air conditioning facilities in the Premises. Tenant shall also pay the cost of any transformers, additional risers, panel boards, and other facilities, if reasonably required to furnish power for supplementary air conditioning facilities in the Premises. The cost of item (i) shall be a per hour charge reflecting the electrical energy, labor, and fixed plant costs (excluding depreciation) of running the heating and air conditioning system.

(f) In the event that Landlord, at Tenant’s request, provides services to Tenant that are not otherwise provided for in this Lease, Tenant shall pay Landlord’s reasonable charges for these services on billing of Landlord.

Section 8. Impositions

In addition to the monthly rental and other charges to be paid by Tenant under this Lease, Tenant shall pay Landlord for all of the following items (collectively, “Impositions”): (i) taxes, other than local, state, and federal personal or corporate income taxes measured by the net income of Landlord; (ii) assessments, including without limitation, all assessments for public improvements, services, or benefits, irrespective of when commenced or completed; (iii) excises; (iv) levies; (v) business taxes; (vi) license, permit, inspection, and other authorization fees; (vii) transit development fees; (viii) assessments or charges for housing funds; (ix) service payments in lieu of taxes and; (x) any other fees or charges that are levied, assessed, confirmed, or imposed by a public authority; provided, however, that Impositions shall not include amounts otherwise included in Operating Expenses or Property Taxes. Tenant is obligated to pay only to the extent that the Impositions are: (a) on, measured by, or reasonably attributable to, the cost or value of Tenant’s equipment, furniture, fixtures, and other personal property located in the Premises, or the cost or value of any leasehold improvements made to the Premises by or for Tenant, regardless of whether title to the improvements shall be in Tenant or Landlord; (b) based on or measured by the monthly rental or other charges payable under this Lease, including without limitation, any gross receipts tax levied by a municipality, the State of California, the Federal Government, or any other governmental body with respect to the receipt of the rental; (c) based on the development, possession, leasing, operation, management, maintenance, alteration, repair, use, or occupancy by Tenant of the Premises or any portion of the Premises; or (d) on this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it is unlawful for Tenant to reimburse Landlord for the Impositions, but lawful to increase the monthly rental to take into account Landlord’s payment of the Impositions, the monthly rental payable to Landlord shall be revised to net Landlord the same net return without reimbursement of the Impositions as would have been received by Landlord with reimbursement of the Impositions.

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Section 9. Alterations.

(a) Tenant shall not make or allow any alterations, additions, or improvements to the Premises or any part of the Premises (collectively, “Alterations”), without Landlord’s prior consent, which shall not be unreasonably withheld. The installation of furnishings, fixtures, equipment, or decorative improvements, none of which shall affect Building systems or the structure of the Building, and the repainting or recarpeting of the Premises, shall not constitute Alterations. All Alterations shall be made by Landlord for Tenant’s account, including increased costs, if any, in accordance with the procedures set forth in this Section, subject to any tenant improvement allowance provided in the Basic Lease Information. All Alterations shall immediately become Landlord’s property and, at the end of the Term, shall remain on the Premises without compensation to Tenant, unless Landlord elects by notice to Tenant to have Tenant remove any Alterations that are peculiar to Tenant’s use of the Premises and are not normally required or used by other tenants. In this event, Tenant shall bear the cost of restoring the Premises to their condition prior to the installment of the Alterations. When plans and specifications for any Alterations are approved by Landlord pursuant to Section 9(b), Landlord shall advise Tenant on request whether proposed Alterations would entitle Landlord to require their removal and restoration of the Premises at the end of the Term. The tenant is approved for a sign outside the tenant’s entrance on the outside of the building. Tenant is responsible for all fees and associated payments in regards to the sign along with permit and construction costs.

(b) Plans and specifications for Alterations shall be prepared at Tenant’s expense by Tenant’s architect or by Landlord’s architect if Tenant so elects, and by engineers approved by Landlord, where the nature of the Alterations requires mechanical or electrical engineering services. Any architect retained by Tenant shall be instructed to follow standard construction administration procedures and use standard specifications and details reasonably promulgated by Landlord for the Building. The plans and specifications shall be subject to approval by Landlord and Tenant, and shall not be unreasonably withheld or delayed by either party. Plans and specifications that have neither been approved nor disapproved by Landlord within thirty (30) days after submittal by Tenant shall be deemed to have been approved. Following approval, Landlord shall obtain cost quotations for the Alterations from one or more general contractors approved by Landlord, including any general contractors requested by Tenant that Landlord has approved. Tenant may specify subcontractors in the finish trades to be included in the general contractors’ bids. Landlord shall submit the quotations to Tenant, accept the quotation approved by Tenant, and then contract for the construction or installation of the Alterations with the contractor approved by Tenant. Landlord does not warrant the cost of the Alterations, the timeliness of performance, or the quality of the contractor’s work, but Landlord shall use reasonable best efforts to secure performance of the construction contract for Tenant’s benefit.

(c) In the event Tenant instructs Landlord or the contractor to proceed with any changes to the Alterations without a prior determination of increased costs resulting from those changes and without approval of the increases by Tenant, or in the event Tenant is responsible for increased costs attributable to a delay or acceleration in the time for construction, the amount of any increased costs shall be reasonably determined by Landlord on completion of the Alterations, subject only to Landlord’s reasonable efforts in causing the contractor to furnish Tenant appropriate back-up information concerning increased costs, if any.

(d) The cost of the Alterations to be paid by Tenant shall include a reasonable charge for the administration, by Landlord or an agent, of the construction or installation of the Alterations, the amount of which shall bear a reasonable relationship to the scope of the Alterations and the costs of performing the administration.

(e) Tenant shall pay to Landlord all amounts payable by Tenant pursuant to this Section after billing by Landlord. Billing may be in advance of or during the progress of the Alterations to enable Landlord to pay the contractor, architect, or engineer without advancing Landlord’s own funds. At Tenant’s request, Landlord shall furnish a copy of each bill to Tenant for Tenant’s approval at least ten (10) days prior to the due date of the bill. Tenant may contest any payment to a contractor for Alterations and Landlord shall withhold this payment, provided that the provisions of Section 10 are satisfied and Tenant indemnifies and defends Landlord against all claims and liability arising out of the contested payment. At Landlord’s option and prior to commencement of Alterations, Tenant shall deposit with Landlord the estimated cost of Alterations, or a lesser portion as specified by Landlord for the cost as incurred. Any surplus funds shall be returned to Tenant when the Alterations have been paid for in full.

(f) Landlord may delegate some or all authority and responsibilities under this Section to a manager.

Section 10. Liens

Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. Landlord may have posted on the Premises any notices that may be provided by law or that Landlord may deem proper for the protection of Landlord, the Premises, and the Building from those liens. Tenant may contest any lien for which Tenant is responsible under this Section, provided that Tenant shall have caused the lien to be bonded against.

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Section 11. Repairs

Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises, subject to the tenant improvements, if any, that Landlord has agreed to make. At all times during the term of this Lease and at Tenant’s sole cost, Tenant shall keep the Premises in good condition and repair; ordinary wear and tear and damage to the Premises by fire, earthquake, or act of God or the elements are excepted. Tenant waives all rights to make repairs at the expense of Landlord or instead to vacate the Premises, and Tenant further waives the provisions of Civ. Code §§ 1941 and 1942 with respect to Landlord’s obligations under this Lease. At the end of the term of this Lease, Tenant shall surrender to Landlord the Premises and all Alterations that are to remain in the Premises in the same condition as when received; ordinary wear and tear and damage by fire, earthquake, or act of God or the elements are excepted. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate, or paint the Premises or any part of them, except as specifically set forth in this Lease. Landlord has made no representations respecting the condition of the Premises or the Building, except as specifically set forth in this Lease.

Section 12. Damage or Destruction

(a) In the event the Premises or any portion of the Building necessary for Tenant’s occupancy are damaged by fire, earthquake, act of God, the elements, or other casualty, within thirty (30) days after that event, Landlord shall notify Tenant of the estimated time, in Landlord’s reasonable judgment, required for repair or restoration. If the estimated time is one hundred and eighty (180) days or less after the commencement of the physical work and one (1) year or less after the casualty event, Landlord shall proceed promptly and diligently to adjust the loss with applicable insurers, to secure all required governmental permits and approvals, and to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. This Lease shall remain in full force, except that for the time unusable, Tenant shall receive a rental abatement for that part of the Premises rendered unusable in the conduct of Tenant’s business.

(b) If the estimated time for repair or restoration is in excess of one hundred and eighty (180) days after the commencement of the physical work or one (1) year after the casualty event, Tenant may elect to terminate this Lease as of the date of the casualty event by giving notice to Landlord within fifteen (15) days following receipt of Landlord’s notice of the estimated time for repair. If the estimated time is more than one hundred and eighty (180) days after commencement of the physical work or one (1) year after the casualty event, but Tenant has not elected to terminate this Lease, Landlord may elect, on notice to Tenant within twenty (20) days after the period for Tenant’s election to terminate has expired, to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. In that event, this Lease shall continue in full force, but the rent shall be abated. If Landlord does not elect to repair or restore, this Lease shall terminate as of the date of the casualty event. However, if Landlord has not commenced the physical repair or restoration of the Premises or the portion of the Building necessary for Tenant’s occupancy within one (1) year from the casualty event, Tenant may elect to terminate this Lease by notice to Landlord given at any time following the expiration of one (1) year from the casualty event, but prior to the commencement of the physical repair or restoration work.

(c) If the Premises or the Building are to be repaired or restored under this Section, Landlord shall repair or restore at Landlord’s cost the Building itself and all improvements in the Premises, including but not limited to, any tenant improvements constructed pursuant to this Lease, but excluding Alterations made by or for Tenant subsequent to completion of those tenant improvements. Tenant shall pay the cost of repairing or restoring any Alterations made by or for Tenant subsequent to completion of the tenant improvements made pursuant to this Lease and shall be responsible for carrying casualty insurance as Tenant deems appropriate for those Alterations.

(d) In the event of any damage to or destruction of the Premises or the Building, Landlord and Tenant acknowledge that their respective rights and obligations are to be governed exclusively by this Lease.

(e) In the event the Premises are to be repaired or restored and Tenant requires temporary offices as a result of a casualty event affecting the Premises, Landlord shall use best efforts to locate offices for Tenant within the Building. Tenant acknowledges that Landlord makes no commitment as to the availability of any offices or as to their cost.

Section 13. Subrogation

Landlord and Tenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, worker’s compensation, and other insurance maintained during the term of this Lease covering the Building, or any portion of it, or operations in it, a waiver of all rights of subrogation that the insurer of one party might have against the other party. Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorney’s fees, resulting from the failure to obtain this waiver. Tenant must have adequate insurance at all times throughout the life of the lease.

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Section 14. Indemnification

Tenant waives all claims against Landlord for damage to any property or injury or death of any person on the Premises arising at any time and from any cause other than the gross negligence or willful misconduct of Landlord or Landlord’s employees, agents, or contractors. Tenant shall hold Landlord harmless from and defend Landlord against all claims, liability, damage, or loss arising out of any injury or death of any person or damage to or destruction of property attributable to the use of the Premises by Tenant, except that caused by the gross negligence or willful misconduct of Landlord or Landlord’s agents, contractors, or employees. Tenant shall also hold Landlord harmless from any liability, cost, or expense arising from Tenant’s use or storage in the Premises of any hazardous or toxic substance. These indemnity obligations shall include reasonable attorney’s fees, investigation costs, and all other reasonable costs incurred by Landlord from the first notice that any claim or demand is to be made or may be made. Landlord shall promptly give notice to Tenant of any claim or demand. The provisions of this Section shall survive the termination of this Lease for any event occurring prior to the termination. The provisions of this Section to indemnify and hold Landlord harmless are limited to the amount of loss that is not paid to Landlord out of insurance proceeds, if any.

Section 15. Compliance with Legal Requirements

At Tenant’s sole cost, Tenant shall promptly comply with all laws and governmental rules now or later in force; with the requirements of any board of fire underwriters or other similar body now or in the future constituted; with any direction or occupancy certificate issued by public officers (“Legal Requirements”), insofar as they relate to the condition, use, or occupancy of the Premises. Excluded are: (a) structural changes or changes to the electrical, mechanical, or plumbing systems of the Building, all to the extent not necessitated by Tenant’s acts or by improvements made for Tenant, other than the tenant improvements to be made pursuant to this Lease by Landlord, if any; (b) alterations or improvements to the Building as a whole or the Premises of tenants generally that are not by law the tenants’ responsibility with which to comply; and (c) work necessitated by defects in the construction of the Building. Landlord shall comply in a timely manner with all Legal Requirements that are not Tenant’s responsibility under this Section to the extent noncompliance would adversely affect Tenant’s use or occupancy of the Premises. Furthermore due to the landlord’s requirements a financial report will be needed from each Tenant as requested. The tenant agrees to provide the financial report to the landlord within 30 days of written request. A format will be provided for review.

Section 16. Assignment and Subletting

(a) Except as otherwise expressly permitted by this Lease, Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld or delayed, assign or hypothecate this Lease or any interest in this Lease, sublet the Premises or any part of them, or license the use of the Premises by any party other than Tenant. Neither this Lease nor any interest in this Lease shall be assignable without the consent of Landlord, which shall not be unreasonably withheld or delayed. Any of the previous acts without consent shall be void and shall, at the option of Landlord, constitute a noncurable default under this Lease. In connection with each consent requested by Tenant, Tenant shall submit to Landlord the terms of the proposed transaction, the identity of the parties to the transaction, the proposed documentation for the transaction, and all other information reasonably requested by Landlord concerning the proposed transaction and the parties involved. However, Tenant may, without resulting in a default under this Lease and without notice to Landlord, license to or otherwise permit the use of the Premises by: (i) any entity of which Tenant, any of Tenant’s subsidiaries, or Tenant’s parent is a limited partner, general partner, joint venturer, or shareholder; (ii) any other limited partner, general partner, joint venturer or shareholder in that entity; (iii) any consultant, contractor, accountant, or counsel of Tenant; or (iv) any of the directors, officers, employees, contractors, accountants, or counsel of any of the foregoing. The license or other permitted use does not in any way create in the licensee or any other party rights to possess or remain in the Premises beyond the termination of the Lease.

(b) Without limiting other instances in which Landlord may reasonably withhold consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold consent in the following instances:

(i) if at the time consent is requested or at any time prior to the granting of consent, an Event of Default has occurred under this Lease or if Tenant is in monetary default under this Lease or would be in monetary default under this Lease but for the pendency of any grace or cure period under Section 19;

(ii) if the proposed assignee or subtenant is a governmental agency;

(iii) if, in Landlord’s reasonable judgment, use of the Premises by the proposed assignee or subtenant would not be comparable to the office use by other tenants in the Building, would entail alterations that would materially lessen the value of the leasehold improvements in the Premises (unless Tenant provides adequate security to ensure that the Premises will be restored to their prior condition pursuant to Section 9(a)), would result in more than a reasonable number of occupants per floor, or would require substantially increased services by Landlord;

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(iv) if Landlord reasonably determines that circumstances warrant a consideration of the financial worth of a proposed assignee or subtenant, and the financial worth, in Landlord’s reasonable judgment, does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms;

(v) if, in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is not consistent with the quality of the other tenancies in the Building; and

(vi) if subletting less than the entire Premises and the parcel to be sublet and all other parcels then sublet in the Premises exceed a total of 2 parcels.

(c) If at any time during the Term, Tenant desires to sublet all or any part of the Premises, Tenant shall notify Landlord of the terms of the proposed subletting and the space proposed to be sublet. Landlord shall have the option, exercisable by notice given to Tenant within thirty (30) days after Tenant’s notice is given, or within five (5) days after Tenant’s notice is given if Tenant submits terms that have already been negotiated with a specific proposed subtenant, to sublet from Tenant this space at the rental and other terms in Tenant’s notice, or, if the proposed subletting is for the entire Premises for a sublet term ending within the last year of the Term, to terminate this Lease. If Landlord does not exercise this option, Tenant shall be free to sublet the space to any third party or to the specific proposed subtenant, at the same rental and on substantially the same terms in the notice given to Landlord, subject to obtaining Landlord’s prior consent as provided previously.

(d) Notwithstanding the provisions of paragraphs (a) and (b), Tenant may assign this Lease or sublet the Premises or any portion of the Premises, with notice to Landlord but without the necessity of Landlord’s consent and without extending any option to Landlord pursuant to paragraph (c), to any corporation which controls, is controlled by, or is under common control with Tenant, to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity that acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises or the assets of any corporation that controls, is controlled by, or is under common control with Tenant.

(e) No subtenant shall have a right to further sublet without Landlord’s prior consent, which Tenant acknowledges may be withheld in Landlord’s absolute discretion, and any assignment by a subtenant of the sublease shall be subject to Landlord’s prior consent in the same manner as if Tenant were entering into a new sublease. No sublease, once consented to by Landlord, shall be modified or terminated by Tenant without Landlord’s prior consent, which shall not be unreasonably withheld.

(f) In the case of an assignment, one-half (1/2) of any sums or other economic consideration received by Tenant as a result of the assignment (excluding any consideration reasonably attributed to assets other than this Lease) shall be paid to Landlord after first deducting the unamortized cost of leasehold improvements paid for by Tenant, and the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the assignment.

(g) In the case of a subletting, one-half (1/2) of any sums or economic consideration received by Tenant as a result of the subletting shall be paid to Landlord after first deducting: (i) the rental due under this Lease, prorated to reflect only rental allocable to the sublet portion of the Premises, (ii) the cost of leasehold improvements made to the sublet portion of the Premises at Tenant’s cost, amortized over the term of this Lease, except for leasehold improvements made for the specific benefit of the subtenant, which shall be amortized over the term of the sublease, and (iii) the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the subletting.

(h) Regardless of Landlord’s consent, no subletting or assignment shall release or alter Tenant’s obligation or primary liability to pay the rental and perform all other obligations under this Lease. The acceptance of rental by Landlord from any other person shall not be deemed a waiver by Landlord of any provision of this Lease. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee or successor of Tenant in the performance of any of the terms of this Lease, after notice of default to Tenant pursuant to Section 19 and the expiration of any applicable cure period, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against the assignee or successor. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining consent. This action shall not relieve Tenant of liability under this Lease provided, however, that Tenant shall not be liable for any increase in Tenant’s obligations under this Lease because of any amendment or modification to this Lease, unless Tenant has consented to it in writing.

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(i) If Tenant assigns this Lease, sublets the Premises, or requests the consent of Landlord to any assignment, subletting, hypothecation, or other action requiring Landlord’s consent under this Lease, Tenant shall pay Landlord’s reasonable attorney’s fees incurred in connection with the action.

Section 17. Rules

Tenant shall comply with the rules attached to and incorporated in this Lease as Exhibit C, and after notice, with all reasonable modifications and additions to these rules, from time to time promulgated in writing by Landlord. Landlord shall not be responsible to Tenant for the nonperformance of any of these rules by any other tenant or occupant of the Building, but Landlord shall take reasonable steps to enforce any rules, the nonperformance of which by other tenants materially and adversely affects Tenant in the use of the Premises. However, if any rule conflicts with any term, covenant, or condition of this Lease, this Lease shall prevail. In addition, no rule, or any subsequent amendment to it adopted by Landlord shall alter, reduce, or adversely affect any of Tenant’s rights or enlarge Tenant’s obligations under this Lease.

Section 18. Entry by Landlord

Landlord may enter the Premises at reasonable hours and, except in the event of an emergency, on reasonable prior notice, to: (a) inspect the Premises; (b) exhibit the Premises to prospective purchasers, lenders, or tenants; (c) determine whether Tenant is complying with all obligations under this Lease; (d) supply janitorial service and any other services to be provided by Landlord under this Lease; (e) post notices of nonresponsibility; and (f) make repairs or perform maintenance required of Landlord by this Lease, make repairs to any adjoining space or utility services, or make repairs, alterations, or improvements to any other portion of the Building. However, all this work shall be done as promptly as reasonably possible and cause as little interference to Tenant as reasonably possible. Subject to Landlord’s undertakings in the previous sentence, Tenant waives any damage claims for inconvenience to or interference with Tenant’s business or loss of occupancy or quiet enjoyment of the Premises caused by Landlord’s entry. At all times Landlord shall have a key with which to unlock the doors on the Premises, excluding Tenant’s vaults, safes, and similar areas designated as secure areas in writing by Tenant in advance. In an emergency, Landlord shall have the right to use any means that Landlord deems proper to open Tenant’s doors and enter the Premises. Entry to the Premises by Landlord in an emergency shall not be construed as a forcible or unlawful entry, a detainer, or an actual or constructive eviction of Tenant.

Section 19. Events of Default

The following events shall constitute events of default under this Lease (each an Event of Default):

(a) a default by Tenant in the payment when due of any rent or other sum payable under this Lease and the continuation of this default for ten (10) or more days after notice of the default from Landlord, provided that if Tenant has failed two (2) or more times in any twelve (12) months to pay any rent or other sum when due and notice of this default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months in which all rental and other sums payable under this Lease have been paid on or before the date due;

(b) a default by Tenant in the performance of any of the terms, covenants, agreements, or conditions in this Lease, other than a default by Tenant in the payment when due of any rent or other sum payable under this Lease, and the continuation of the default beyond thirty (30) days after notice by Landlord or, if the default is curable and would require more than thirty (30) days to remedy, beyond the time reasonably necessary for cure; provided, however, that if Tenant has defaulted in the performance of the same obligation two (2) or more times in twelve (12) months and notice of the default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months without any default by Tenant;

(c) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud of creditors, an assignment by Tenant for the benefit of creditors, or the commencement of proceedings of any kind by or against Tenant under the Federal Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act, unless Tenant is discharged from voluntary proceedings within ninety (90) days;

(d) the appointment of a receiver for a substantial part of Tenant’s assets;

(e) the abandonment of the Premises; and

(f) the levy upon this Lease or any estate of Tenant under this Lease by attachment or execution and the failure to have the attachment or execution vacated within thirty (30) days.

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Section 20. Termination upon Default

On occurrence of any Event of Default by Tenant, Landlord may, in addition to any other rights and remedies given here or by law, terminate this Lease and exercise remedies relating to it without further notice or demand in accordance with the following provisions:

(a) So long as the Event of Default remains uncured, Landlord shall have the right to give notice of termination to Tenant, and on the date specified in this notice, this Lease shall terminate.

(b) If this Lease is terminated, Landlord may, by judicial process, reenter the Premises, remove all persons and property, and repossess and enjoy the Premises, all without prejudice to other remedies that Landlord may have because of Tenant’s default or the termination.

(c) If this Lease is terminated, Landlord shall have all of the rights and remedies of a landlord provided by Civ. Code § 1951.2, in addition to any other rights and remedies Landlord may have. The damages which Landlord may recover shall include, without limitation: (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of the rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%) of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; (iv) all reasonable legal expenses and other related costs incurred by Landlord following Tenant’s default; (v) all reasonable costs incurred by Landlord in restoring the Premises to good order and condition to relet the Premises; and (vi) all reasonable costs, including without limitation, any brokerage commissions incurred by Landlord in reletting the Premises.

Section 21. Continuation after Default

Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant’s right to possession, and Landlord may enforce all rights and remedies under this Lease, including the right to recover the rental as it becomes due under this Lease. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon initiative of Landlord to protect Landlord’s interest under this Lease shall not constitute a termination of Tenant’s right to possession.

Section 22. Other Relief

The remedies provided in this Lease are in addition to any other remedies available to Landlord at law, in equity, by statute, or otherwise.

Section 23. Right of Landlord to Cure Defaults

Agreements and provisions to be performed by Tenant under this Lease shall be at Tenant’s sole cost and without abatement of rental, except as specifically provided in this Lease. If Tenant (a) fails to pay any sum of money, other than rental, required under this Lease, or (b) fails to perform any other act under this Lease, and this failure continues for thirty (30) days after notice of the failure by Landlord, or a longer period as may be allowed under this Lease, Landlord may, without waiving or releasing Tenant from any obligations of Tenant, make payment or perform other acts required by this Lease on Tenant’s behalf. All sums paid by Landlord and all necessary incidental costs shall be payable to Landlord on demand and shall constitute additional rental under this Lease.

Section 24. Attorney Fees

If, as a result of a breach or default under this Lease, Landlord uses an attorney to secure compliance with Lease provisions, to recover damages, to terminate this Lease, or to evict Tenant, Tenant shall reimburse Landlord, on demand, for all reasonable attorney’s fees and expenses incurred by Landlord; provided that, if Tenant becomes the prevailing party in any legal action brought by Landlord, Tenant shall be entitled to recover reasonable attorney’s fees and expenses incurred by Tenant and need not reimburse Landlord for any attorney’s fees and expenses incurred by Landlord.

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Section 25. Eminent Domain

If all or any part of the Premises are taken through eminent domain, this Lease shall terminate for the part taken as of the date of taking. For a partial taking, either Landlord or Tenant shall have the right to terminate this Lease for the balance of the Premises by notice to the other within thirty (30) days after the taking. However, Tenant’s right to terminate arises only if the portion of the Premises taken substantially handicaps, impedes, or impairs Tenant’s use of the balance of the Premises. In the event of any taking, Landlord shall be entitled to all compensation, damages, income, rent, awards, or any interest that may be paid in connection with the taking, except for any portion specifically awarded to Tenant for moving expenses, trade fixtures, equipment, and any leasehold improvements in the Premises to the extent of the then unamortized value of these improvements for the remaining term of the Lease as determined in the award. However, Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise, other than for prepaid rent. In the event of a partial taking of the Premises that does not result in a termination of this Lease, the subsequent monthly rental shall be equitably reduced.

Section 26. Subordination

(a) This Lease shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or later placed upon the Building and to any advances made on the security of it or Landlord’s interest in it, and to all renewals, modifications, consolidations, replacements, and extensions of it. However, if any mortgagee, trustee, or ground landlord elects to have this Lease prior to the lien of its mortgage or deed of trust or prior to its ground lease, and gives notice of that to Tenant, this Lease shall be deemed prior to the mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of the mortgage, deed of trust, or ground lease, or the date of recording of it. In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee under the deed in lieu of foreclosure. In the event of termination of any ground lease to which this Lease is subordinate, Tenant shall attorn to the ground landlord. Tenant agrees to execute any documents, in form and substance reasonably acceptable to Tenant, required to effectuate the subordination, to make this Lease prior to the lien of any mortgage or deed of trust or ground lease, or to evidence the attornment.

(b) In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, or in the event any ground lease to which this Lease is subordinate is terminated, this Lease shall not be barred, terminated, cut off, or foreclosed. Neither shall the rights and possession of Tenant under this Lease be disturbed, if Tenant is not then in default in the payment of rental and other sums due under this Lease or otherwise in default under the terms of this Lease, and if Tenant attorns to the purchaser, grantee, or ground landlord as provided in Section 26(a) or, if requested, enters into a new lease for the balance of the term of this Lease on the same terms and provisions contained in this Lease. Tenant’s covenant under Section 26(a) to subordinate this Lease to any ground lease, mortgage, deed of trust, or other hypothecation later executed is conditioned on each senior instrument containing the commitments specified in this subsection.

(c) Tenant agrees that Tenant shall not discriminate against or segregate any person or group of persons on account of race, sex, creed, color, marital status, sexual preference, national origin, or ancestry, in the occupancy, use, sublease, tenure, or enjoyment of the Premises.

Section 27. No Merger

In the event that Landlord or any successor owner of the Building sells or conveys the Building, all liabilities and obligations of Landlord or the successor owner under this Lease accruing after the sale or conveyance terminates, shall be binding on the new owner, and Tenant shall release Landlord from all liability under this Lease. Tenant agrees to attorn to the new owner.

Section 28. Sale

The surrender of this Lease by Tenant, or a mutual cancellation of it, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or operate as an assignment to Landlord of all subleases or subtenancies.

Section 29. Estoppel Certificate

At any time with at least fifteen (15) days’ prior notice by Landlord, Tenant shall execute, acknowledge, and deliver to Landlord a certificate in the form substantially the same as attached Exhibit D certifying: (a) that this Lease is unmodified and in full force or, if there have been modifications, that this Lease is in full force, as modified, together with the date and nature of each modification, (b) the amount of the Base Rent, most recent Escalation Rent, if any, and the date to which the rent has been paid, (c) that no notice has been received by Tenant of any default that has not been cured, except defaults specified in the certificate, (d) that no default of Landlord is claimed by Tenant, except defaults specified in the certificate, and (e) other matters as may be reasonably requested by Landlord. Any certificate may be relied on by prospective purchasers, mortgagees, or beneficiaries under any deed of trust on the Building or any part of it.

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Section 30. Light, Air, or View Rights

Any diminution or shutting off of light, air, or view by any structure that may be erected on lands adjacent to the Building shall not affect this Lease or impose any liability on Landlord.

Section 31. Holding Over

(a) If, without objection by Landlord, Tenant holds possession of the Premises after expiration of the term of this Lease, Tenant shall become a tenant with an option to renew for 5 years on the monthly terms specified in this Lease, payable in advance on or before the first day of each month. Each party shall give the other notice of intention to terminate the tenancy at least one (3) month prior to the date of termination of the tenancy

(b) If, over Landlord’s objection, Tenant holds possession of the Premises after expiration of the term of this Lease or expiration of the holdover tenancy, Tenant shall be deemed to be a tenant-at-sufferance and, without limiting the liability of Tenant for unauthorized occupancy of the Premises, Tenant shall indemnify Landlord and any replacement tenant for the Premises for any damages or loss suffered by either Landlord or the replacement tenant resulting from Tenant’s failure to vacate the Premises in a timely manner.

Section 32. Security Deposit

Tenant has deposited with Landlord the sum specified in the Basic Lease Information (“Deposit”). The Deposit shall be held by Landlord as security for the faithful performance by Tenant of all provisions of this Lease. If Tenant fails to pay rent or other sums due under this Lease or defaults with respect to any provision of this Lease, Landlord may use, apply, or retain all or any portion of the Deposit for the payment of rent or other sums in default, for the payment of any other sums to which Landlord may become obligated because of Tenant’s default, or to compensate Landlord for any loss or damage that Landlord may suffer because of the Tenant’s actions. If Landlord uses or applies the Deposit, Tenant shall, within ten (10) days after demand, deposit cash with Landlord in an amount sufficient to restore the Deposit to the full amount, and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Deposit separate from Landlord’s general accounts. If Tenant performs all of Tenant’s obligations under this Lease, the Deposit or the amount not applied by Landlord shall be returned, without interest, to Tenant or at Landlord’s option, to the last assignee, if any, of Tenant’s interest under this Lease at the expiration of the Term and after Tenant has vacated the Premises. No trust relationship is created between Landlord and Tenant with respect to the Deposit.

Section 33. Waiver

The waiver by Landlord of any agreement, condition, or provision contained in this Lease shall not be deemed to be a waiver of any subsequent breach of the agreement, condition, or provision or any other agreement, condition, or provision contained in the Lease, nor shall any custom or practice that may arise between the parties in the administration of the terms of this Lease be construed to waive or to lessen the right of Landlord to the performance by Tenant in strict accordance with these terms. The subsequent acceptance of rental under this Lease by Landlord shall not be deemed to be a waiver of any preceding breach by the other party of any agreement, condition, or provision of this Lease, other than the failure of Tenant to pay the particular accepted rental, regardless of knowledge of the preceding breach at the time of the rental acceptance.

Section 34. Notices and Consents

All notices, consents, demands, and other communications from one party to the other that are given pursuant to the terms of this Lease shall be in writing and shall be deemed to have been fully given when delivered, including delivery by commercial delivery services or facsimile transmission, or if deposited in the United States mail, certified or registered, postage prepaid, when received or refused. All notices, consents, demands, and other communications shall be addressed as follows: to Tenant at the address specified in the Basic Lease Information, or to another place or person as Tenant may designate in a notice to Landlord, or delivered to Tenant at the Premises; to Landlord at the address specified in the Basic Lease Information, or to another place as Landlord may designate in a notice to Tenant.

Section 35. Entire Agreement

There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels all previous negotiations, arrangements, brochures, agreements, and understandings between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. There are no representations between Landlord and Tenant other than those contained in this Lease. All implied warranties, including implied warranties of merchantability and fitness, are excluded.

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Section 36. Authority

If either of the parties signs this Lease as a corporation, each person executing this Lease on behalf of the party warrants that the party is an authorized and existing corporation, that it is qualified to do business in California, that it has the right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. If either of the parties signs this Lease as a partnership, each person executing this Lease on behalf of the party warrants that the party is a partnership, that the partnership has the right and authority to enter into this Lease, and that each person signing on behalf of the partnership is authorized to sign.

Section 37. Plural and Singular

The words “Landlord” and “Tenant” as used in this Lease shall include the plural as well as the singular.

Section 38. Joint and Several Obligations

If there is more than one Tenant, the obligations imposed on Tenant shall be joint and several.

Section 39. Time of the Essence

Time is of the essence in this Lease and all of its provisions.

Section 40. Examination of Lease

Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

Section 41. Heirs, Successors, and Assigns

The agreements, conditions, and provisions contained in this Lease shall, subject to the provisions for assignment, apply to and bind the heirs, executors, administrators, successors, and assigns of the parties to it.

Section 42. Name of Building

Tenant shall not, without the consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises.

Section 43. Illegality or Unenforceability of Portion of Lease

If any provision of this Lease is determined to be illegal or unenforceable, this determination shall not affect any other provision of this Lease, and all other provisions shall remain in full force and effect.

Section 44. Governing Law

This Lease shall be governed by and construed pursuant to law of the State of California.

Section 45. Exhibits

The exhibits A to D and addendum, if any, specified in the Basic Lease Information are attached to this Lease and by this reference made a part of it.

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IN WITNESS WHEREOF, the parties have executed this Lease as of the date first set forth above.

	LANDLORD:
Date: 9/16/2016	/s/ Ching Liu
	Signature
	Ching Liu
	Name
	General Partner of SMX Property LLC
	Title
	TENANT:
Date: 9/16/2016	/s/ Simon Yuan
	Signature
	Simon Yuan
	Name
	CFO
	Title

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EXHIBIT A

Floor Plan 

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EXHIBIT B

Basic Lease Information

Date: January 1, 2017___________________________________________________________________________

Landlord: SMX Property LLC. ____________________________________________________________________

Tenant: SolarMax Technology Inc._________________________________________________________________

Premises: Please see Appendix A 165000 Sq Ft Total

Base Year: 2017________________________________________________________________________________

Rentable Area of Premises: 50,000 Sq Ft of Distribution, 35,731 Sq Ft Office/Admin, and 15,825 Sq Ft of Lobby and Education Space

Total Lease= 50,000 Sq Ft of Distribution, 35,731 Sq Ft Office/Admin, and 15,825 Sq Ft of Lobby and Education Space ___________

Tenant’s Percentage Share : All utilities (power, water, internet), trash and waste are paid by Tenant

Term Commencement: 1/1/2017_________________________________________________________________

Term Expiration: 10 Years from Commencement date with 5 year renewal option ____________________________

Base Rent: $1.00for office space and $0.60 for warehouse space

$81,556.00 per month for the first year of the lease

Security Deposit: $100,000 (Already received)____________________________________________________

Tenant’s Address for Notice: 3080 12th Street, Riverside, CA 92507 ____________________________________

Landlord’s Address for Notice: 3080 12th Street, Riverside, CA 92507 ___________________________________

Exhibits and Addendum: Floor Plan, Rules and Rent payment plan_____________________________________

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EXHIBIT C

Rules

1. The sidewalks, halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways of the Building shall not be obstructed by any of the tenants or used for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access to them by all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation, and interests of the Building and its tenants. However, nothing here shall be construed to prevent access to persons with whom any tenant normally deals in the ordinary course of business, unless these persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go on the roof of the Building.

2. A sign, placard, picture, name, advertisement, or notice visible from the exterior of any tenant’s Premises shall not be inscribed, painted, affixed, or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building on the office floors. Each tenant shall conform to these guidelines, but may request approval of Landlord for modifications, which will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed, or inscribed at the expense of the tenant by a person approved by Landlord, which will not be unreasonably withheld. Material visible from outside the Building will not be permitted.

3. The Premises of each tenant shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any tenant on the Premises, except that (a) each tenant may establish and operate a lunchroom facility for use by tenant’s employees, and (b) each tenant may use and install food and beverage vending machines and Underwriters’ Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate, and similar beverages, provided that adequate provisions are made for venting and control of odors and all facilities and equipment are in accordance with all applicable federal, state, and city laws, codes, ordinances, rules, and regulations.

4. No tenant shall employ any person other than Landlord’s janitorial service for cleaning the Premises, unless otherwise approved by Landlord. No person other than those approved by Landlord shall be permitted to enter the Building to clean it. No tenant shall cause any unnecessary labor because of carelessness or indifference in the preservation of good order and cleanliness. Janitor service will not be furnished on nights when rooms are occupied after 9:30 p.m. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms.

5. Landlord will furnish each tenant, free of charge, two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. No tenant shall have any keys made. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of the premises without the prior consent of Landlord. The tenant shall in each case furnish Landlord with a key for any lock. Each tenant, upon the termination of the tenancy, shall deliver to Landlord all keys to doors in the Building that have been furnished to the tenant.

6. The freight elevator shall be available for use by all tenants in the Building, subject to reasonable scheduling as Landlord deems appropriate. The persons employed to move equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to prescribe the weight, size, and position of all equipment, materials, furniture, or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of a thickness necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any property from any cause, and all damage done to the Building by moving or maintaining property shall be repaired at the expense of the tenant.

7. No tenant shall use or keep in the Premises or the Building any kerosene, gasoline, or inflammable or combustible fluid or material other than limited quantities reasonably necessary for the operation or maintenance of office equipment, and may not, without Landlord’s prior approval, use any method of heating or air conditioning other than that supplied by Landlord. No tenant shall use or keep any foul, noxious, or hazardous gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building because of noise, odors, or vibrations, or interfere in any way with other tenants or those having business in the Building. No pets shall be kept in the Premises.

8. Landlord shall have the right, exercisable without notice and without liability to any Tenant, to change the name and street address of the Building.

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9. Landlord reserves the right to exclude from the Building between the hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and legal holidays any person who does not present a proper access card or other identification as a tenant or an employee of a tenant, or who does not otherwise present proper authorization by a tenant for access to the premises. Each tenant shall be responsible for all persons for whom it authorizes access and shall be liable to Landlord for all acts of these persons. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In the case of invasion, mob, riot, public excitement, or other circumstances rendering an action advisable in Landlord’s opinion, Landlord reserves the right to prevent access to the Building during the continuance of the circumstance by any action Landlord deems appropriate.

10. A directory of the Building will be provided to display the name and location of tenants, their subtenants, and a reasonable number of the principal officers and employees of tenants, and Landlord reserves the right to exclude any other names. Any additional name that a tenant desires to have added to the directory shall be subject to Landlord’s approval and may be subject to a charge.

11. No curtains, draperies, blinds, shutters, shades, screens, or other coverings, hangings, or decorations shall be attached to, hung, or placed in, or used in connection with any exterior window in the Building without the prior consent of Landlord. If Landlord consents, these items shall be installed on the office side of the standard window covering and shall in no way be visible from the exterior of the Building.

12. Messenger services and suppliers of bottled water, food, beverages, and other products or services shall be subject to reasonable regulations as may be adopted by Landlord. Landlord may establish a central receiving station in the Building for delivery and pick up by all messenger services, and may limit delivery and pick up at tenant Premises to Building personnel.

13. Each tenant shall see that the doors of the premises are closed and locked and that all water faucets or apparatus, cooking facilities, and office equipment, excluding office equipment required to be operative at all times, are shut off before the tenant or employees leave the Premises at night, so as to prevent waste or damage. For any default or carelessness in this regard the tenant shall be responsible for any damage sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, tenants shall keep the doors to the Building corridors closed at all times except for ingress and egress.

14. The toilets, urinals, wash bowls, and other restroom facilities shall not be used for any purpose other than that for which they were constructed. No foreign substance of any kind shall be thrown in them, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, have caused it.

15. Except with the prior consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets, or any other goods or merchandise to the general public in the Premises, nor shall any tenant carry on, permit, or allow any employee or other person to carry on the business of stenography, typewriting, or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in the tenant’s lease.

16. No tenant shall install any antenna, loudspeaker, or other device on the roof or exterior walls of the Building.

17. No motorcycles or motor scooters shall be parked or stored anywhere in the Building other than the garage of the Building, and no bicycles may be parked or stored anywhere in the Building other than in facilities provided in the garage or the Common Area of the Building.

18. Hand trucks or other material handling equipment, except those equipped with rubber tires and side guards, may not be used in any portion of the Building unless approved by Landlord.

19. Each tenant shall store refuse within that tenant’s premises. No material of a nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of refuse in the city of Riverside without being in violation of any law or ordinance governing this disposal shall be placed in the refuse boxes or receptacles. All refuse disposal shall be made only through entryways and elevators provided for these purposes and at the times Landlord shall designate.

20. Canvassing, peddling, soliciting, and distributing handbills or any other written materials in the Building is prohibited, and each tenant shall cooperate to prevent this type of occurrence.

21. The requirements of the tenants will be attended to only on application by telephone or in person at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.

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22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, so long as Tenant’s use of the Premises is not adversely affected by the waiver, and no waiver by Landlord shall be construed as a waiver of the Rules in favor of any other tenant, nor prevent Landlord from later enforcing any of the Rules against any of the tenants of the Building.

23. These Rules are in addition to, and shall not be construed to modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of any lease of Premises in the Building.

24. Landlord reserves the right to make other reasonable rules as Landlord judges may be needed for the safety, care, and cleanliness of the Building, and for the preservation of good order, provided that Tenant’s use and occupancy of the Premises shall not be adversely affected by other rules.

EXHIBIT D

Lease schedule.

Year 1 starts the beginning of the lease on January 1, 2017.

	Year 1		Year 2		Year 3		Year 4		Year 5
Monthly Rent	$	81,556	$	83,995	$	86,506	$	89,092	$	91,756
Annual Rent	$	978,672	$	1,007,934	$	1,038,072	$	1,069,110	$	1,101,076

	Year 6		Year 7		Year 8		Year 9		Year 10
Monthly Rent	$	94,500	$	97,325	$	100,235	$	103,232	$	106,319
Annual Rent	$	1,133,998	$	1,167,905	$	1,202,825	$	1,238,790	$	1,275,830

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EX-10.10

EXHIBIT 10.10

OFFICE LEASE

TABLE OF CONTENTS
 

Section 1.	Definitions	2
Section 2.	Premises	4
Section 3.	Term; Condition of Premises	4
Section 4.	Rental	4
Section 5.	Escalation Rent	5
Section 6.	Use	5
Section 7.	Services	5
Section 8.	Impositions	6
Section 9.	Alterations	7
Section 10.	Liens	8
Section 11.	Repairs	8
Section 12.	Damage or Destruction	8
Section 13.	Subrogation	9
Section 14.	Indemnification	9
Section 15.	Compliance with Legal Requirements	9
Section 16.	Assignment and Subletting	9
Section 17.	Rules	11
Section 18.	Entry by Landlord	12
Section 19.	Events of Default	12
Section 20.	Termination upon Default	13
Section 21.	Continuation after Default	13
Section 22.	Other Relief	13
Section 23.	Right of Landlord to Cure Defaults	13
Section 24.	Attorney Fees	14
Section 25.	Eminent Domain	14
Section 26.	Subordination	14
Section 27.	No Merger	15
Section 28.	Sale	15
Section 29.	Estoppel Certificate	15
Section 30.	Light, Air, or View Rights	15
Section 31.	Holding Over	15
Section 32.	Security Deposit	16
Section 33.	Waiver	16
Section 34.	Notices and Consents	16
Section 35.	Entire Agreement	16
Section 36.	Authority	16
Section 37.	Plural and Singular	17
Section 38.	Joint and Several Obligations	17
Section 39.	Time of the Essence	17
Section 40.	Examination of Lease	17
Section 41.	Heirs, Successors, and Assigns	17
Section 42.	Name of Building	17
Section 43.	Illegality or Unenforceability of Portion of Lease	17
Section 44.	Governing Law	17
Section 45.	Exhibits	17

1

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”) dated as of September 1 2016 is entered into between Fallow Field, LLC (“Landlord”), and SolarMax LED, Inc. (U.S.A.) (“Tenant”).

RECITALS

A. Landlord is the owner of real property (“Real Property”) located at 3230 Fallow Field Dr, Diamond Bar, CA 91765, attached to this Lease and incorporated by reference, and the Building (as later defined) located on it. The Real Property and the Building are collectively the “Property.”

B. Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord the Premises (as later defined) for the term and subject to the terms, covenants, agreements, and conditions in this Lease.

AGREEMENT

NOW THEREFORE, for good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

Section 1. Definitions

As used in this Lease, the following capitalized terms are defined as follows.

“Alterations” is defined in Section 9(a) hereof.

“Base Operating Expenses” means the Operating Expenses paid or incurred by Landlord in the Base Year.

“Base Property Taxes” means the amount of Property Taxes for the tax year ending2016 of the Base Year.

“Base Rent” means the Base Rent as set forth in the Basic Lease Information.

“Base Year” means the calendar year specified in the Basic Lease Information as the Base Year.

“Basic Lease Information” is attached to and incorporated in this Lease as Exhibit B hereto.

“Building” means the building constructed on the Real Property known as 3230 Fallow Field Dr, Diamond Bar, CA 91765 , any property interest in the area of 3230 Fallow Field Dr, Diamond Bar, CA 91765 and all other improvements on or appurtenances to the Real Property or the streets abutting the Real Property. The Building includes, but is not limited to, an office building with 2 floors of office space and a parking space located on the same property.

“Commencement Date” means the Commencement Date as set forth in the Basic Lease Information.

“Common Area” means the total area on a floor consisting of rest rooms, janitor, telephone and electrical closets, mechanical areas, public corridors providing access to tenant space, public stairs, elevator shafts and pipe shafts, together with their enclosing walls.

“Deposit” is defined in Section 32 hereof.

“Escalation Rent” is defined in Section 4(a) hereof.

“Event of Default” is defined in Section 19 hereof.

“Impositions” is defined in Section 8 hereof.

“Landlord” is defined in the preamble hereof.

“Legal Requirements” is defined in Section 15 hereof.

“Lease” is defined in the preamble hereof.

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“Operating Expenses” means (a) all costs of management, operation, and maintenance of the Building, including without limitation: wages, salaries, and payroll burden of employees; property management fees and other related compensation; janitorial, maintenance, security, and other services; Building office rent or rental value; power, water, waste disposal, and other utilities; materials and supplies; maintenance and repairs; license costs; insurance premiums and the deductible portion of any insured loss under Landlord’s insurance; and depreciation on personal property; and (b) the cost of any capital improvements made to the Building by Landlord after the Base Year that (i) are made in the reasonable expectation of reducing other Operating Expenses during the term of this Lease, (ii) are required for the health and safety of tenants, or (iii) are required under any governmental law or regulation that was not applicable to the Building at the time it was constructed, this cost to be amortized over a reasonable period determined by Landlord, together with interest on the unamortized balance at the rate of ten percent (10%) per annum, or a higher rate equal to that paid by Landlord on funds borrowed for the purpose of constructing or installing those capital improvements. Operating Expenses shall not include: Property Taxes; depreciation on the Building other than depreciation on exterior window draperies, if any, provided by Landlord, and carpeting in multi-tenant floor public corridors and common areas; costs of tenants’ improvements; real estate brokers’ commissions; interest; costs incurred in connection with the repair of damage to the Building, to the extent Landlord is reimbursed by insurance proceeds; and capital items other than those referred to in clause (b). Actual Operating Expenses for both the Base Year and each subsequent calendar year will be adjusted to equal Landlord’s reasonable estimate of Operating Expenses had the total rentable area of the Building been occupied.

“Premises” means the portion of the Building located on the floor or floors specified in the Basic Lease Information which is outlined in red on the floor plan or plans attached to this Lease as Exhibit A hereto.

“Property” is defined in Recital A hereof.

“Property Taxes” means all real property taxes (and any tax levied wholly or partly in lieu of real property taxes) levied against the Building, and all real estate tax consultant expenses and attorney’s fees incurred for the purpose of maintaining an equitable assessed valuation of the Building.

“Real Property” is defined in Recital A hereof.

“Rentable Area” means the rentable area of the Premises specified on the Basic Lease Information. If any office space is added to or deleted from the Premises, the rentable area of the space added or deleted shall mean: (a) as to an entire floor added to or deleted from the Premises, all areas within outside permanent Building walls, measured to the inside glass surface of outside permanent Building walls, including rest rooms; janitor, telephone, and electrical closets; allocated mechanical areas and columns and projections necessary to the Building, but excluding public stairs, elevator shafts, and pipe shafts, together with their enclosing walls; (b) as to a portion of a floor added to or deleted from the Premises, the aggregate of the usable area of the portion of the floor added to or deleted from the Premises, plus the result obtained by multiplying the area of the Common Area on this floor by a fraction, whose numerator is the usable area of added or deleted portion of the floor and whose denominator is the usable area of all tenant space on the floor.

“Tenant” is defined in the preamble hereof.

“Tenant’s Percentage Share” means the percentage figure specified as “Tenant’s Percentage Share” in the Basic Lease Information. Tenant’s Percentage Share has been obtained by dividing the net rentable area of the Premises, as specified in the Basic Lease Information, by the total net rentable area of the Building, which is111872 square feet of office space, and multiplying that quotient by one hundred (100). In the event the rentable area of the Premises is increased or decreased by the addition to or deletion from the Premises of any office space, Tenant’s percentage share shall be appropriately adjusted. For the purposes of Section 4, Tenant’s Percentage Share shall be based on the number of days during the calendar year in which this change occurs.

“Term” is defined in Section 3 hereof.

“Termination Date” means the Termination Date in the Basic Lease Information.

“Usable Area” means all floor area in a tenant space, measured to the inside glass surface of outer Building walls, to the office side of corridors and other permanent partitions, and to the center of partitions that separate the tenant space from adjoining tenant spaces, without deduction for columns and projections necessary to the Building.

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Section 2. Premises

Landlord leases to Tenant, and Tenant leases from Landlord the Premises for the term and subject to the terms, covenants, agreements, and conditions later set forth, to each of which Landlord and Tenant mutually agree.

Section 3. Term; Condition of Premises

The term (“Term”) of this Lease shall commence on the Commencement Date and, unless sooner terminated as later provided, shall end on the Termination Date. Unless otherwise agreed by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to Tenant on the Commencement Date in their then existing condition with no alterations being made by Landlord. If Landlord has undertaken in this Lease to make any alterations to the Premises before the Commencement Date and the alterations are completed before that date, and if Tenant desires to take occupancy in advance of that date, Landlord shall deliver the Premises to Tenant at that time in advance of a date that will be mutually approved by Landlord and Tenant and, notwithstanding anything to the contrary contained in this Lease, the Term of the Lease shall commence on delivery. If Landlord, for any reason, cannot deliver the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting from nondelivery, but in that event rental shall be waived for the period between the Commencement Date and the time when Landlord delivers the Premises to Tenant. No delay in delivery of the Premises shall extend the Term of this Lease.

Section 4. Rental

(a) Tenant shall pay to Landlord throughout the Term as rental for the Premises the Base Rent, provided that the rental payable during each calendar year subsequent to the Base Year shall be the Base Rent, increased by Tenant’s Percentage Share of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord in that year over the Base Operating Expenses, and also increased by Tenant’s Percentage Share of the total dollar increase, if any, in Property Taxes paid by Landlord in that year over the Base Property Taxes. The increased rental due pursuant to this Section 4(a) is the “Escalation Rent.”

(b) Rental shall be paid to Landlord, in advance, on or before the first day of the Term of this Lease and on or before the first day of each successive calendar month during the Term of this Lease. In the event the Term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, the monthly rental for the first and last fractional months of the Term of this Lease shall be appropriately prorated.

(c) All sums of money due to Landlord under this Lease, not specifically characterized as rental, shall constitute additional rent and shall be due within thirty (30) days after receipt by Tenant of a billing. If any sum is not paid when due, it shall be collectible as additional rent with the next installment of rental falling due. Nothing contained in this Lease shall be deemed to suspend or delay the payment of any sum of money at the time it becomes due and payable under this Lease, or to limit any other remedy of Landlord.

(d) Tenant acknowledges that late payment of rent and other sums due under this Lease after the expiration of any applicable cure period under Section 19(a) will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be difficult to ascertain. These costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any trust deed covering the Premises. Accordingly, if any installment of rent or any other sums due from Tenant are not received when due, or if a cure period is applicable under Section 19(a), prior to the expiration of the cure period, Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount. The parties agree that the late charge represents a fair and reasonable estimate of the costs Landlord will incur because of late payment. Acceptance of the late charge by Landlord shall not constitute a waiver of Tenant’s default for the overdue amount, nor prevent Landlord from exercising the other rights and remedies granted under this Lease.

/s/ CL	/s/ SY
Landlord’s Initials	Tenant’s Initials

(e) Any amount due to Landlord, if not paid within five (5) days following the due date, will bear interest from the due date until paid at the rate of ten percent (10%) per year or, if a higher rate is legally permissible, at the highest rate legally permitted. However, interest shall not be payable on late charges incurred by Tenant nor on any amounts on which late charges are paid by Tenant to the extent this interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default by Tenant.

(f) All payments due shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America at Landlord’s address for notices under this Lease or to another person or at another place as Landlord may designate by notice to Tenant.

4

Section 5. Escalation Rent

Escalation Rent shall be paid monthly on an estimated basis, with subsequent annual reconciliation, in accordance with the following procedures: Annual increases of 2.99% of the prior year rent.

30 days prior to the end of the Base Year and no later than 30 days prior to the end of each subsequent calendar year, or as soon after that time as practicable, Landlord shall give Tenant notice of Landlord’s estimate of any Escalation Rent due under Section 4(a) for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Escalation Rent. If Landlord fails to give notice as required in this Section, Tenant shall continue to pay on the basis of the prior year’s estimate until the month after that notice is given. If at any time it appears to Landlord that the Escalation Rent for the current calendar year will vary from the estimate by more than five percent (2.99%), Landlord shall, by notice to Tenant, revise the estimate for that year, and subsequent payments by Tenant for that year shall be based on the revised estimate.

(b) Within ninety (90) days after the close of each calendar year, or as soon after the ninety (90) day period as practicable, Landlord shall deliver to Tenant a statement of the actual Escalation Rent for that calendar year, accompanied by a statement from certified public accountants for the Building showing Operating Expenses and Property Taxes on the basis of which the actual Escalation Rent was determined. At Tenant’s request, Landlord shall provide Tenant reasonable supporting detail underlying the calculations of Operating Expenses and Property Taxes. If Landlord’s statement discloses that Tenant owes an amount that is less than the estimated payments for the calendar year previously made by Tenant, Landlord shall credit the excess first against any sums then owed by Tenant, and then against the next payments of rental due. If Landlord’s statement discloses that Tenant owes an amount that is more than the estimated payments for the calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement.

(c) The amount of Escalation Rent for any fractional year in the Term shall be appropriately prorated. The pro-ration of Operating Expenses for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Operating Expenses for that entire calendar year; the pro-ration of Property Taxes for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Property Taxes for that entire calendar year, but shall exclude any Property Taxes attributable to any increase in the assessed valuation of the Building occurring after termination. The termination of this Lease shall not affect the obligations of the parties pursuant to Section 5(b) to be performed after the termination.

Section 6. Use

The Premises shall be used for general office purposes and no other. Tenant shall not do or permit to be done on the Premises, nor bring or keep or permit to be brought or kept in the Premises, anything (a) which is prohibited by or in conflict with any law, ordinance, or governmental rule or, (b) which is prohibited by the standard form of fire insurance policy or, (c) which will increase the existing rate of or affect fire or other insurance on the Building or its contents or cause a cancellation of any insurance policy covering the Building or any part of it or its contents. Tenant shall not use or store in the Premises any hazardous or toxic substances, with the sole exception of reasonably necessary substances that are kept in reasonably necessary quantities for normal office operations, provided that their use and storage are in accordance with applicable laws. Tenant shall not do or permit anything to be done on the Premises that will obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any unlawful purposes, nor shall Tenant cause, maintain, or permit any nuisance or waste on or about the Premises.

Section 7. Services

(a) Landlord shall maintain the public and Common Areas of the Building, including lobbies, stairs, elevators, corridors, restrooms, all exterior landscaping, windows, the mechanical, plumbing, and electrical equipment serving the Building, and the structure itself, in reasonably good order and condition so as to meet the reasonable needs of Tenant, except for damage, excluding normal wear and tear, caused by the Tenant. Damage by Tenant shall be repaired by Landlord at Tenant’s expense. The standard of maintenance shall be equal to that of other office buildings of a similar class in _____.

(b) Landlord shall furnish utilities that includes water, power and gas (water heaters.) Utility payments will be paid previously agreed upon. Landlord will bill tenant all extra utilities usage based on previous average utlity invoice. based on the total rental square feel relative to the whole property (ie prorated to only your square feet / total square feet).Comfortable occupancy by Tenant in Tenant’s use of the Premises during the period from 7:00 a.m. to 6:00 p.m. on weekdays. Landlord is not responsible for internet or telephone services. Tenant will bear all costs associated with internet and telephone services. Tenant has the option to contract with our third party janitorial services.

5

Landlord may establish reasonable measures to conserve energy and water, including but not limited to, automatic light shut off after hours and efficient lighting forms, so long as these measures do not unreasonably interfere with Tenant’s use of the Premises.

(c) Landlord shall not be in default under this Lease, nor be liable for any damages resulting from, nor shall the required rental be abated because of: (i) the installation, use, or interruption of use of any equipment in connection with furnishing the previously listed services, (ii) failure to furnish or delay in furnishing these services, when failure or delay is caused by accident or conditions beyond the reasonable control of Landlord or by necessary repairs or improvements to the Premises or to the Building, or (iii) the limitation, curtailment, rationing, or restrictions on use of water, electricity, gas, or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts to diligently remedy interruptions in the furnishing of these services.

(d) If heat-generating equipment or lighting, other than building standard lights, are installed or used in the Premises, and this equipment or lighting affects the temperature otherwise maintained by the air conditioning system, or if equipment is installed in the Premises that requires a separate temperature controlled room, on Tenant’s request or at Landlord’s election after notice to Tenant, Landlord shall install supplementary air conditioning facilities in the Premises or shall modify the ventilating and air conditioning system serving the Premises. The capital and maintenance costs of these facilities and modifications shall be borne by Tenant. However, if Tenant objects to the proposed installation of supplementary air conditioning facilities or the modification of the ventilating and air conditioning system, Landlord shall not make the installation or modification, but Landlord shall be relieved of obligations under Section 7(b)(ii) hereof to the extent that comfortable occupancy of the Premises cannot be provided without the installation or modification.

(e) On receipt of a bill, Tenant shall reimburse Landlord for the cost of (i) all heat or air conditioning provided to the Premises during hours requested by Tenant when those services are not otherwise furnished by Landlord, and (ii) all power and cooling energy provided for supplementary air conditioning facilities in the Premises. Tenant shall also pay the cost of any transformers, additional risers, panel boards, and other facilities, if reasonably required to furnish power for supplementary air conditioning facilities in the Premises. The cost of item (i) shall be a per hour charge reflecting the electrical energy, labor, and fixed plant costs (excluding depreciation) of running the heating and air conditioning system.

(f) In the event that Landlord, at Tenant’s request, provides services to Tenant that are not otherwise provided for in this Lease, Tenant shall pay Landlord’s reasonable charges for these services on billing of Landlord.

Section 8. Impositions

In addition to the monthly rental and other charges to be paid by Tenant under this Lease, Tenant shall pay Landlord for all of the following items (collectively, “Impositions”): (i) taxes, other than local, state, and federal personal or corporate income taxes measured by the net income of Landlord; (ii) assessments, including without limitation, all assessments for public improvements, services, or benefits, irrespective of when commenced or completed; (iii) excises; (iv) levies; (v) business taxes; (vi) license, permit, inspection, and other authorization fees; (vii) transit development fees; (viii) assessments or charges for housing funds; (ix) service payments in lieu of taxes and; (x) any other fees or charges that are levied, assessed, confirmed, or imposed by a public authority; provided, however, that Impositions shall not include amounts otherwise included in Operating Expenses or Property Taxes. Tenant is obligated to pay only to the extent that the Impositions are: (a) on, measured by, or reasonably attributable to, the cost or value of Tenant’s equipment, furniture, fixtures, and other personal property located in the Premises, or the cost or value of any leasehold improvements made to the Premises by or for Tenant, regardless of whether title to the improvements shall be in Tenant or Landlord; (b) based on or measured by the monthly rental or other charges payable under this Lease, including without limitation, any gross receipts tax levied by a municipality, the State of California, the Federal Government, or any other governmental body with respect to the receipt of the rental; (c) based on the development, possession, leasing, operation, management, maintenance, alteration, repair, use, or occupancy by Tenant of the Premises or any portion of the Premises; or (d) on this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it is unlawful for Tenant to reimburse Landlord for the Impositions, but lawful to increase the monthly rental to take into account Landlord’s payment of the Impositions, the monthly rental payable to Landlord shall be revised to net Landlord the same net return without reimbursement of the Impositions as would have been received by Landlord with reimbursement of the Impositions.

6

Section 9. Alterations.

(a) Tenant shall not make or allow any alterations, additions, or improvements to the Premises or any part of the Premises (collectively, “Alterations”), without Landlord’s prior consent, which shall not be unreasonably withheld. The installation of furnishings, fixtures, equipment, or decorative improvements, none of which shall affect Building systems or the structure of the Building, and the repainting or recarpeting of the Premises, shall not constitute Alterations. All Alterations shall be made by Landlord for Tenant’s account, including increased costs, if any, in accordance with the procedures set forth in this Section, subject to any tenant improvement allowance provided in the Basic Lease Information. All Alterations shall immediately become Landlord’s property and, at the end of the Term, shall remain on the Premises without compensation to Tenant, unless Landlord elects by notice to Tenant to have Tenant remove any Alterations that are peculiar to Tenant’s use of the Premises and are not normally required or used by other tenants. In this event, Tenant shall bear the cost of restoring the Premises to their condition prior to the installment of the Alterations. When plans and specifications for any Alterations are approved by Landlord pursuant to Section 9(b), Landlord shall advise Tenant on request whether proposed Alterations would entitle Landlord to require their removal and restoration of the Premises at the end of the Term. The tenant is approved for a sign outside the tenant’s entrance on the outside of the building. Tenant is responsible for all fees and associated payments in regards to the sign along with permit and construction costs.

(b) Plans and specifications for Alterations shall be prepared at Tenant’s expense by Tenant’s architect or by Landlord’s architect if Tenant so elects, and by engineers approved by Landlord, where the nature of the Alterations requires mechanical or electrical engineering services. Any architect retained by Tenant shall be instructed to follow standard construction administration procedures and use standard specifications and details reasonably promulgated by Landlord for the Building. The plans and specifications shall be subject to approval by Landlord and Tenant, and shall not be unreasonably withheld or delayed by either party. Plans and specifications that have neither been approved nor disapproved by Landlord within thirty (30) days after submittal by Tenant shall be deemed to have been approved. Following approval, Landlord shall obtain cost quotations for the Alterations from one or more general contractors approved by Landlord, including any general contractors requested by Tenant that Landlord has approved. Tenant may specify subcontractors in the finish trades to be included in the general contractors’ bids. Landlord shall submit the quotations to Tenant, accept the quotation approved by Tenant, and then contract for the construction or installation of the Alterations with the contractor approved by Tenant. Landlord does not warrant the cost of the Alterations, the timeliness of performance, or the quality of the contractor’s work, but Landlord shall use reasonable best efforts to secure performance of the construction contract for Tenant’s benefit.

(c) In the event Tenant instructs Landlord or the contractor to proceed with any changes to the Alterations without a prior determination of increased costs resulting from those changes and without approval of the increases by Tenant, or in the event Tenant is responsible for increased costs attributable to a delay or acceleration in the time for construction, the amount of any increased costs shall be reasonably determined by Landlord on completion of the Alterations, subject only to Landlord’s reasonable efforts in causing the contractor to furnish Tenant appropriate back-up information concerning increased costs, if any.

(d) The cost of the Alterations to be paid by Tenant shall include a reasonable charge for the administration, by Landlord or an agent, of the construction or installation of the Alterations, the amount of which shall bear a reasonable relationship to the scope of the Alterations and the costs of performing the administration.

(e) Tenant shall pay to Landlord all amounts payable by Tenant pursuant to this Section after billing by Landlord. Billing may be in advance of or during the progress of the Alterations to enable Landlord to pay the contractor, architect, or engineer without advancing Landlord’s own funds. At Tenant’s request, Landlord shall furnish a copy of each bill to Tenant for Tenant’s approval at least ten (10) days prior to the due date of the bill. Tenant may contest any payment to a contractor for Alterations and Landlord shall withhold this payment, provided that the provisions of Section 10 are satisfied and Tenant indemnifies and defends Landlord against all claims and liability arising out of the contested payment. At Landlord’s option and prior to commencement of Alterations, Tenant shall deposit with Landlord the estimated cost of Alterations, or a lesser portion as specified by Landlord for the cost as incurred. Any surplus funds shall be returned to Tenant when the Alterations have been paid for in full.

(f) Landlord may delegate some or all authority and responsibilities under this Section to a manager.

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Section 10. Liens

Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. Landlord may have posted on the Premises any notices that may be provided by law or that Landlord may deem proper for the protection of Landlord, the Premises, and the Building from those liens. Tenant may contest any lien for which Tenant is responsible under this Section, provided that Tenant shall have caused the lien to be bonded against.

Section 11. Repairs

Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises, subject to the tenant improvements, if any, that Landlord has agreed to make. At all times during the term of this Lease and at Tenant’s sole cost, Tenant shall keep the Premises in good condition and repair; ordinary wear and tear and damage to the Premises by fire, earthquake, or act of God or the elements are excepted. Tenant waives all rights to make repairs at the expense of Landlord or instead to vacate the Premises, and Tenant further waives the provisions of Civ. Code §§ 1941 and 1942 with respect to Landlord’s obligations under this Lease. At the end of the term of this Lease, Tenant shall surrender to Landlord the Premises and all Alterations that are to remain in the Premises in the same condition as when received; ordinary wear and tear and damage by fire, earthquake, or act of God or the elements are excepted. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate, or paint the Premises or any part of them, except as specifically set forth in this Lease. Landlord has made no representations respecting the condition of the Premises or the Building, except as specifically set forth in this Lease.

Section 12. Damage or Destruction

(a) In the event the Premises or any portion of the Building necessary for Tenant’s occupancy are damaged by fire, earthquake, act of God, the elements, or other casualty, within thirty (30) days after that event, Landlord shall notify Tenant of the estimated time, in Landlord’s reasonable judgment, required for repair or restoration. If the estimated time is one hundred and eighty (180) days or less after the commencement of the physical work and one (1) year or less after the casualty event, Landlord shall proceed promptly and diligently to adjust the loss with applicable insurers, to secure all required governmental permits and approvals, and to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. This Lease shall remain in full force, except that for the time unusable, Tenant shall receive a rental abatement for that part of the Premises rendered unusable in the conduct of Tenant’s business.

(b) If the estimated time for repair or restoration is in excess of one hundred and eighty (180) days after the commencement of the physical work or one (1) year after the casualty event, Tenant may elect to terminate this Lease as of the date of the casualty event by giving notice to Landlord within fifteen (15) days following receipt of Landlord’s notice of the estimated time for repair. If the estimated time is more than one hundred and eighty (180) days after commencement of the physical work or one (1) year after the casualty event, but Tenant has not elected to terminate this Lease, Landlord may elect, on notice to Tenant within twenty (20) days after the period for Tenant’s election to terminate has expired, to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. In that event, this Lease shall continue in full force, but the rent shall be abated. If Landlord does not elect to repair or restore, this Lease shall terminate as of the date of the casualty event. However, if Landlord has not commenced the physical repair or restoration of the Premises or the portion of the Building necessary for Tenant’s occupancy within one (1) year from the casualty event, Tenant may elect to terminate this Lease by notice to Landlord given at any time following the expiration of one (1) year from the casualty event, but prior to the commencement of the physical repair or restoration work.

(c) If the Premises or the Building are to be repaired or restored under this Section, Landlord shall repair or restore at Landlord’s cost the Building itself and all improvements in the Premises, including but not limited to, any tenant improvements constructed pursuant to this Lease, but excluding Alterations made by or for Tenant subsequent to completion of those tenant improvements. Tenant shall pay the cost of repairing or restoring any Alterations made by or for Tenant subsequent to completion of the tenant improvements made pursuant to this Lease and shall be responsible for carrying casualty insurance as Tenant deems appropriate for those Alterations.

(d) In the event of any damage to or destruction of the Premises or the Building, Landlord and Tenant acknowledge that their respective rights and obligations are to be governed exclusively by this Lease.

(e) In the event the Premises are to be repaired or restored and Tenant requires temporary offices as a result of a casualty event affecting the Premises, Landlord shall use best efforts to locate offices for Tenant within the Building. Tenant acknowledges that Landlord makes no commitment as to the availability of any offices or as to their cost.

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Section 13. Subrogation

Landlord and Tenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, worker’s compensation, and other insurance maintained during the term of this Lease covering the Building, or any portion of it, or operations in it, a waiver of all rights of subrogation that the insurer of one party might have against the other party. Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorney’s fees, resulting from the failure to obtain this waiver. Tenant must have adequate insurance at all times throughout the life of the lease.

Section 14. Indemnification

Tenant waives all claims against Landlord for damage to any property or injury or death of any person on the Premises arising at any time and from any cause other than the gross negligence or willful misconduct of Landlord or Landlord’s employees, agents, or contractors. Tenant shall hold Landlord harmless from and defend Landlord against all claims, liability, damage, or loss arising out of any injury or death of any person or damage to or destruction of property attributable to the use of the Premises by Tenant, except that caused by the gross negligence or willful misconduct of Landlord or Landlord’s agents, contractors, or employees. Tenant shall also hold Landlord harmless from any liability, cost, or expense arising from Tenant’s use or storage in the Premises of any hazardous or toxic substance. These indemnity obligations shall include reasonable attorney’s fees, investigation costs, and all other reasonable costs incurred by Landlord from the first notice that any claim or demand is to be made or may be made. Landlord shall promptly give notice to Tenant of any claim or demand. The provisions of this Section shall survive the termination of this Lease for any event occurring prior to the termination. The provisions of this Section to indemnify and hold Landlord harmless are limited to the amount of loss that is not paid to Landlord out of insurance proceeds, if any.

Section 15. Compliance with Legal Requirements

At Tenant’s sole cost, Tenant shall promptly comply with all laws and governmental rules now or later in force; with the requirements of any board of fire underwriters or other similar body now or in the future constituted; with any direction or occupancy certificate issued by public officers (“Legal Requirements”), insofar as they relate to the condition, use, or occupancy of the Premises. Excluded are: (a) structural changes or changes to the electrical, mechanical, or plumbing systems of the Building, all to the extent not necessitated by Tenant’s acts or by improvements made for Tenant, other than the tenant improvements to be made pursuant to this Lease by Landlord, if any; (b) alterations or improvements to the Building as a whole or the Premises of tenants generally that are not by law the tenants’ responsibility with which to comply; and (c) work necessitated by defects in the construction of the Building. Landlord shall comply in a timely manner with all Legal Requirements that are not Tenant’s responsibility under this Section to the extent noncompliance would adversely affect Tenant’s use or occupancy of the Premises. Furthermore due to the landlord’s requirements a financial report will be needed from each Tenant as requested. The tenant agrees to provide the financial report to the landlord within 30 days of written request. A format will be provided for review.

Section 16. Assignment and Subletting

(a) Except as otherwise expressly permitted by this Lease, Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld or delayed, assign or hypothecate this Lease or any interest in this Lease, sublet the Premises or any part of them, or license the use of the Premises by any party other than Tenant. Neither this Lease nor any interest in this Lease shall be assignable without the consent of Landlord, which shall not be unreasonably withheld or delayed. Any of the previous acts without consent shall be void and shall, at the option of Landlord, constitute a noncurable default under this Lease. In connection with each consent requested by Tenant, Tenant shall submit to Landlord the terms of the proposed transaction, the identity of the parties to the transaction, the proposed documentation for the transaction, and all other information reasonably requested by Landlord concerning the proposed transaction and the parties involved. However, Tenant may, without resulting in a default under this Lease and without notice to Landlord, license to or otherwise permit the use of the Premises by: (i) any entity of which Tenant, any of Tenant’s subsidiaries, or Tenant’s parent is a limited partner, general partner, joint venturer, or shareholder; (ii) any other limited partner, general partner, joint venturer or shareholder in that entity; (iii) any consultant, contractor, accountant, or counsel of Tenant; or (iv) any of the directors, officers, employees, contractors, accountants, or counsel of any of the foregoing. The license or other permitted use does not in any way create in the licensee or any other party rights to possess or remain in the Premises beyond the termination of the Lease.

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(b) Without limiting other instances in which Landlord may reasonably withhold consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold consent in the following instances:

(i) if at the time consent is requested or at any time prior to the granting of consent, an Event of Default has occurred under this Lease or if Tenant is in monetary default under this Lease or would be in monetary default under this Lease but for the pendency of any grace or cure period under Section 19;

(ii) if the proposed assignee or subtenant is a governmental agency;

(iii) if, in Landlord’s reasonable judgment, use of the Premises by the proposed assignee or subtenant would not be comparable to the office use by other tenants in the Building, would entail alterations that would materially lessen the value of the leasehold improvements in the Premises (unless Tenant provides adequate security to ensure that the Premises will be restored to their prior condition pursuant to Section 9(a)), would result in more than a reasonable number of occupants per floor, or would require substantially increased services by Landlord;

(iv) if Landlord reasonably determines that circumstances warrant a consideration of the financial worth of a proposed assignee or subtenant, and the financial worth, in Landlord’s reasonable judgment, does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms;

(v) if, in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is not consistent with the quality of the other tenancies in the Building; and

(vi) if subletting less than the entire Premises and the parcel to be sublet and all other parcels then sublet in the Premises exceed a total of 2 parcels.

(c) If at any time during the Term, Tenant desires to sublet all or any part of the Premises, Tenant shall notify Landlord of the terms of the proposed subletting and the space proposed to be sublet. Landlord shall have the option, exercisable by notice given to Tenant within thirty (30) days after Tenant’s notice is given, or within five (5) days after Tenant’s notice is given if Tenant submits terms that have already been negotiated with a specific proposed subtenant, to sublet from Tenant this space at the rental and other terms in Tenant’s notice, or, if the proposed subletting is for the entire Premises for a sublet term ending within the last year of the Term, to terminate this Lease. If Landlord does not exercise this option, Tenant shall be free to sublet the space to any third party or to the specific proposed subtenant, at the same rental and on substantially the same terms in the notice given to Landlord, subject to obtaining Landlord’s prior consent as provided previously.

(d) Notwithstanding the provisions of paragraphs (a) and (b), Tenant may assign this Lease or sublet the Premises or any portion of the Premises, with notice to Landlord but without the necessity of Landlord’s consent and without extending any option to Landlord pursuant to paragraph (c), to any corporation which controls, is controlled by, or is under common control with Tenant, to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity that acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises or the assets of any corporation that controls, is controlled by, or is under common control with Tenant.

(e) No subtenant shall have a right to further sublet without Landlord’s prior consent, which Tenant acknowledges may be withheld in Landlord’s absolute discretion, and any assignment by a subtenant of the sublease shall be subject to Landlord’s prior consent in the same manner as if Tenant were entering into a new sublease. No sublease, once consented to by Landlord, shall be modified or terminated by Tenant without Landlord’s prior consent, which shall not be unreasonably withheld.

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(f) In the case of an assignment, one-half (1/2) of any sums or other economic consideration received by Tenant as a result of the assignment (excluding any consideration reasonably attributed to assets other than this Lease) shall be paid to Landlord after first deducting the unamortized cost of leasehold improvements paid for by Tenant, and the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the assignment.

(g) In the case of a subletting, one-half (1/2) of any sums or economic consideration received by Tenant as a result of the subletting shall be paid to Landlord after first deducting: (i) the rental due under this Lease, prorated to reflect only rental allocable to the sublet portion of the Premises, (ii) the cost of leasehold improvements made to the sublet portion of the Premises at Tenant’s cost, amortized over the term of this Lease, except for leasehold improvements made for the specific benefit of the subtenant, which shall be amortized over the term of the sublease, and (iii) the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the subletting.

(h) Regardless of Landlord’s consent, no subletting or assignment shall release or alter Tenant’s obligation or primary liability to pay the rental and perform all other obligations under this Lease. The acceptance of rental by Landlord from any other person shall not be deemed a waiver by Landlord of any provision of this Lease. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee or successor of Tenant in the performance of any of the terms of this Lease, after notice of default to Tenant pursuant to Section 19 and the expiration of any applicable cure period, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against the assignee or successor. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining consent. This action shall not relieve Tenant of liability under this Lease provided, however, that Tenant shall not be liable for any increase in Tenant’s obligations under this Lease because of any amendment or modification to this Lease, unless Tenant has consented to it in writing.

(i) If Tenant assigns this Lease, sublets the Premises, or requests the consent of Landlord to any assignment, subletting, hypothecation, or other action requiring Landlord’s consent under this Lease, Tenant shall pay Landlord’s reasonable attorney’s fees incurred in connection with the action.

Section 17. Rules

Tenant shall comply with the rules attached to and incorporated in this Lease as Exhibit C, and after notice, with all reasonable modifications and additions to these rules, from time to time promulgated in writing by Landlord. Landlord shall not be responsible to Tenant for the nonperformance of any of these rules by any other tenant or occupant of the Building, but Landlord shall take reasonable steps to enforce any rules, the nonperformance of which by other tenants materially and adversely affects Tenant in the use of the Premises. However, if any rule conflicts with any term, covenant, or condition of this Lease, this Lease shall prevail. In addition, no rule, or any subsequent amendment to it adopted by Landlord shall alter, reduce, or adversely affect any of Tenant’s rights or enlarge Tenant’s obligations under this Lease.

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Section 18. Entry by Landlord

Landlord may enter the Premises at reasonable hours and, except in the event of an emergency, on reasonable prior notice, to: (a) inspect the Premises; (b) exhibit the Premises to prospective purchasers, lenders, or tenants; (c) determine whether Tenant is complying with all obligations under this Lease; (d) supply janitorial service and any other services to be provided by Landlord under this Lease; (e) post notices of nonresponsibility; and (f) make repairs or perform maintenance required of Landlord by this Lease, make repairs to any adjoining space or utility services, or make repairs, alterations, or improvements to any other portion of the Building. However, all this work shall be done as promptly as reasonably possible and cause as little interference to Tenant as reasonably possible. Subject to Landlord’s undertakings in the previous sentence, Tenant waives any damage claims for inconvenience to or interference with Tenant’s business or loss of occupancy or quiet enjoyment of the Premises caused by Landlord’s entry. At all times Landlord shall have a key with which to unlock the doors on the Premises, excluding Tenant’s vaults, safes, and similar areas designated as secure areas in writing by Tenant in advance. In an emergency, Landlord shall have the right to use any means that Landlord deems proper to open Tenant’s doors and enter the Premises. Entry to the Premises by Landlord in an emergency shall not be construed as a forcible or unlawful entry, a detainer, or an actual or constructive eviction of Tenant.

Section 19. Events of Default

The following events shall constitute events of default under this Lease (each an Event of Default):

(a) a default by Tenant in the payment when due of any rent or other sum payable under this Lease and the continuation of this default for ten (10) or more days after notice of the default from Landlord, provided that if Tenant has failed two (2) or more times in any twelve (12) months to pay any rent or other sum when due and notice of this default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months in which all rental and other sums payable under this Lease have been paid on or before the date due;

(b) a default by Tenant in the performance of any of the terms, covenants, agreements, or conditions in this Lease, other than a default by Tenant in the payment when due of any rent or other sum payable under this Lease, and the continuation of the default beyond thirty (30) days after notice by Landlord or, if the default is curable and would require more than thirty (30) days to remedy, beyond the time reasonably necessary for cure; provided, however, that if Tenant has defaulted in the performance of the same obligation two (2) or more times in twelve (12) months and notice of the default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months without any default by Tenant;

(c) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud of creditors, an assignment by Tenant for the benefit of creditors, or the commencement of proceedings of any kind by or against Tenant under the Federal Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act, unless Tenant is discharged from voluntary proceedings within ninety (90) days;

(d) the appointment of a receiver for a substantial part of Tenant’s assets;

(e) the abandonment of the Premises; and

(f) the levy upon this Lease or any estate of Tenant under this Lease by attachment or execution and the failure to have the attachment or execution vacated within thirty (30) days.

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Section 20. Termination upon Default

On occurrence of any Event of Default by Tenant, Landlord may, in addition to any other rights and remedies given here or by law, terminate this Lease and exercise remedies relating to it without further notice or demand in accordance with the following provisions:

(a) So long as the Event of Default remains uncured, Landlord shall have the right to give notice of termination to Tenant, and on the date specified in this notice, this Lease shall terminate.

(b) If this Lease is terminated, Landlord may, by judicial process, reenter the Premises, remove all persons and property, and repossess and enjoy the Premises, all without prejudice to other remedies that Landlord may have because of Tenant’s default or the termination.

(c) If this Lease is terminated, Landlord shall have all of the rights and remedies of a landlord provided by Civ. Code § 1951.2, in addition to any other rights and remedies Landlord may have. The damages which Landlord may recover shall include, without limitation: (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of the rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%) of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; (iv) all reasonable legal expenses and other related costs incurred by Landlord following Tenant’s default; (v) all reasonable costs incurred by Landlord in restoring the Premises to good order and condition to relet the Premises; and (vi) all reasonable costs, including without limitation, any brokerage commissions incurred by Landlord in reletting the Premises.

Section 21. Continuation after Default

Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant’s right to possession, and Landlord may enforce all rights and remedies under this Lease, including the right to recover the rental as it becomes due under this Lease. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon initiative of Landlord to protect Landlord’s interest under this Lease shall not constitute a termination of Tenant’s right to possession.

Section 22. Other Relief

The remedies provided in this Lease are in addition to any other remedies available to Landlord at law, in equity, by statute, or otherwise.

Section 23. Right of Landlord to Cure Defaults

Agreements and provisions to be performed by Tenant under this Lease shall be at Tenant’s sole cost and without abatement of rental, except as specifically provided in this Lease. If Tenant (a) fails to pay any sum of money, other than rental, required under this Lease, or (b) fails to perform any other act under this Lease, and this failure continues for thirty (30) days after notice of the failure by Landlord, or a longer period as may be allowed under this Lease, Landlord may, without waiving or releasing Tenant from any obligations of Tenant, make payment or perform other acts required by this Lease on Tenant’s behalf. All sums paid by Landlord and all necessary incidental costs shall be payable to Landlord on demand and shall constitute additional rental under this Lease.

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Section 24. Attorney Fees

If, as a result of a breach or default under this Lease, Landlord uses an attorney to secure compliance with Lease provisions, to recover damages, to terminate this Lease, or to evict Tenant, Tenant shall reimburse Landlord, on demand, for all reasonable attorney’s fees and expenses incurred by Landlord; provided that, if Tenant becomes the prevailing party in any legal action brought by Landlord, Tenant shall be entitled to recover reasonable attorney’s fees and expenses incurred by Tenant and need not reimburse Landlord for any attorney’s fees and expenses incurred by Landlord.

Section 25. Eminent Domain

If all or any part of the Premises are taken through eminent domain, this Lease shall terminate for the part taken as of the date of taking. For a partial taking, either Landlord or Tenant shall have the right to terminate this Lease for the balance of the Premises by notice to the other within thirty (30) days after the taking. However, Tenant’s right to terminate arises only if the portion of the Premises taken substantially handicaps, impedes, or impairs Tenant’s use of the balance of the Premises. In the event of any taking, Landlord shall be entitled to all compensation, damages, income, rent, awards, or any interest that may be paid in connection with the taking, except for any portion specifically awarded to Tenant for moving expenses, trade fixtures, equipment, and any leasehold improvements in the Premises to the extent of the then unamortized value of these improvements for the remaining term of the Lease as determined in the award. However, Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise, other than for prepaid rent. In the event of a partial taking of the Premises that does not result in a termination of this Lease, the subsequent monthly rental shall be equitably reduced.

Section 26. Subordination

(a) This Lease shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or later placed upon the Building and to any advances made on the security of it or Landlord’s interest in it, and to all renewals, modifications, consolidations, replacements, and extensions of it. However, if any mortgagee, trustee, or ground landlord elects to have this Lease prior to the lien of its mortgage or deed of trust or prior to its ground lease, and gives notice of that to Tenant, this Lease shall be deemed prior to the mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of the mortgage, deed of trust, or ground lease, or the date of recording of it. In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee under the deed in lieu of foreclosure. In the event of termination of any ground lease to which this Lease is subordinate, Tenant shall attorn to the ground landlord. Tenant agrees to execute any documents, in form and substance reasonably acceptable to Tenant, required to effectuate the subordination, to make this Lease prior to the lien of any mortgage or deed of trust or ground lease, or to evidence the attornment.

(b) In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, or in the event any ground lease to which this Lease is subordinate is terminated, this Lease shall not be barred, terminated, cut off, or foreclosed. Neither shall the rights and possession of Tenant under this Lease be disturbed, if Tenant is not then in default in the payment of rental and other sums due under this Lease or otherwise in default under the terms of this Lease, and if Tenant attorns to the purchaser, grantee, or ground landlord as provided in Section 26(a) or, if requested, enters into a new lease for the balance of the term of this Lease on the same terms and provisions contained in this Lease. Tenant’s covenant under Section 26(a) to subordinate this Lease to any ground lease, mortgage, deed of trust, or other hypothecation later executed is conditioned on each senior instrument containing the commitments specified in this subsection.

(c) Tenant agrees that Tenant shall not discriminate against or segregate any person or group of persons on account of race, sex, creed, color, marital status, sexual preference, national origin, or ancestry, in the occupancy, use, sublease, tenure, or enjoyment of the Premises.

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Section 27. No Merger

In the event that Landlord or any successor owner of the Building sells or conveys the Building, all liabilities and obligations of Landlord or the successor owner under this Lease accruing after the sale or conveyance terminates, shall be binding on the new owner, and Tenant shall release Landlord from all liability under this Lease. Tenant agrees to attorn to the new owner.

Section 28. Sale

The surrender of this Lease by Tenant, or a mutual cancellation of it, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or operate as an assignment to Landlord of all subleases or subtenancies.

Section 29. Estoppel Certificate

At any time with at least fifteen (15) days’ prior notice by Landlord, Tenant shall execute, acknowledge, and deliver to Landlord a certificate in the form substantially the same as attached Exhibit D certifying: (a) that this Lease is unmodified and in full force or, if there have been modifications, that this Lease is in full force, as modified, together with the date and nature of each modification, (b) the amount of the Base Rent, most recent Escalation Rent, if any, and the date to which the rent has been paid, (c) that no notice has been received by Tenant of any default that has not been cured, except defaults specified in the certificate, (d) that no default of Landlord is claimed by Tenant, except defaults specified in the certificate, and (e) other matters as may be reasonably requested by Landlord. Any certificate may be relied on by prospective purchasers, mortgagees, or beneficiaries under any deed of trust on the Building or any part of it.

Section 30. Light, Air, or View Rights

Any diminution or shutting off of light, air, or view by any structure that may be erected on lands adjacent to the Building shall not affect this Lease or impose any liability on Landlord.

Section 31. Holding Over

(a) If, without objection by Landlord, Tenant holds possession of the Premises after expiration of the term of this Lease, Tenant shall become a tenant with an option to renew for 5 years on the monthly terms specified in this Lease, payable in advance on or before the first day of each month. Each party shall give the other notice of intention to terminate the tenancy at least one (3) month prior to the date of termination of the tenancy

(b) If, over Landlord’s objection, Tenant holds possession of the Premises after expiration of the term of this Lease or expiration of the holdover tenancy, Tenant shall be deemed to be a tenant-at-sufferance and, without limiting the liability of Tenant for unauthorized occupancy of the Premises, Tenant shall indemnify Landlord and any replacement tenant for the Premises for any damages or loss suffered by either Landlord or the replacement tenant resulting from Tenant’s failure to vacate the Premises in a timely manner.

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Section 32. Security Deposit

Tenant has deposited with Landlord the sum specified in the Basic Lease Information (“Deposit”). The Deposit shall be held by Landlord as security for the faithful performance by Tenant of all provisions of this Lease. If Tenant fails to pay rent or other sums due under this Lease or defaults with respect to any provision of this Lease, Landlord may use, apply, or retain all or any portion of the Deposit for the payment of rent or other sums in default, for the payment of any other sums to which Landlord may become obligated because of Tenant’s default, or to compensate Landlord for any loss or damage that Landlord may suffer because of the Tenant’s actions. If Landlord uses or applies the Deposit, Tenant shall, within ten (10) days after demand, deposit cash with Landlord in an amount sufficient to restore the Deposit to the full amount, and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Deposit separate from Landlord’s general accounts. If Tenant performs all of Tenant’s obligations under this Lease, the Deposit or the amount not applied by Landlord shall be returned, without interest, to Tenant or at Landlord’s option, to the last assignee, if any, of Tenant’s interest under this Lease at the expiration of the Term and after Tenant has vacated the Premises. No trust relationship is created between Landlord and Tenant with respect to the Deposit.

Section 33. Waiver

The waiver by Landlord of any agreement, condition, or provision contained in this Lease shall not be deemed to be a waiver of any subsequent breach of the agreement, condition, or provision or any other agreement, condition, or provision contained in the Lease, nor shall any custom or practice that may arise between the parties in the administration of the terms of this Lease be construed to waive or to lessen the right of Landlord to the performance by Tenant in strict accordance with these terms. The subsequent acceptance of rental under this Lease by Landlord shall not be deemed to be a waiver of any preceding breach by the other party of any agreement, condition, or provision of this Lease, other than the failure of Tenant to pay the particular accepted rental, regardless of knowledge of the preceding breach at the time of the rental acceptance.

Section 34. Notices and Consents

All notices, consents, demands, and other communications from one party to the other that are given pursuant to the terms of this Lease shall be in writing and shall be deemed to have been fully given when delivered, including delivery by commercial delivery services or facsimile transmission, or if deposited in the United States mail, certified or registered, postage prepaid, when received or refused. All notices, consents, demands, and other communications shall be addressed as follows: to Tenant at the address specified in the Basic Lease Information, or to another place or person as Tenant may designate in a notice to Landlord, or delivered to Tenant at the Premises; to Landlord at the address specified in the Basic Lease Information, or to another place as Landlord may designate in a notice to Tenant.

Section 35. Entire Agreement

There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels all previous negotiations, arrangements, brochures, agreements, and understandings between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. There are no representations between Landlord and Tenant other than those contained in this Lease. All implied warranties, including implied warranties of merchantability and fitness, are excluded.

Section 36. Authority

If either of the parties signs this Lease as a corporation, each person executing this Lease on behalf of the party warrants that the party is an authorized and existing corporation, that it is qualified to do business in California, that it has the right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. If either of the parties signs this Lease as a partnership, each person executing this Lease on behalf of the party warrants that the party is a partnership, that the partnership has the right and authority to enter into this Lease, and that each person signing on behalf of the partnership is authorized to sign.

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Section 37. Plural and Singular

The words “Landlord” and “Tenant” as used in this Lease shall include the plural as well as the singular.

Section 38. Joint and Several Obligations

If there is more than one Tenant, the obligations imposed on Tenant shall be joint and several.

Section 39. Time of the Essence

Time is of the essence in this Lease and all of its provisions.

Section 40. Examination of Lease

Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

Section 41. Heirs, Successors, and Assigns

The agreements, conditions, and provisions contained in this Lease shall, subject to the provisions for assignment, apply to and bind the heirs, executors, administrators, successors, and assigns of the parties to it.

Section 42. Name of Building

Tenant shall not, without the consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises.

Section 43. Illegality or Unenforceability of Portion of Lease

If any provision of this Lease is determined to be illegal or unenforceable, this determination shall not affect any other provision of this Lease, and all other provisions shall remain in full force and effect.

Section 44. Governing Law

This Lease shall be governed by and construed pursuant to law of the State of California.

Section 45. Exhibits

The exhibits A to D and addendum, if any, specified in the Basic Lease Information are attached to this Lease and by this reference made a part of it.

17

IN WITNESS WHEREOF, the parties have executed this Lease as of the date first set forth above.

	LANDLORD:
Date: 9/16/16	/s/ Ching Liu
	Signature
	Ching Liu
	Name
	General Partner of Fallow Field, LLC
	Title
	TENANT:
Date: 9/16/16	/s/ Simon Yuan
	Signature
	/s/ Simon Yuan
	Name
	CFO
	Title

18

EXHIBIT A

Floor Plan

19

20

EXHIBIT B

Basic Lease Information

Date: September 1, 2016

Landlord: Fallow Field LLC

Tenant: SolarMax LED Inc.

Premises: 3230 Fallow Field Dr, Diamond Bar, CA 91765

Base Year: 2016

Rentable Area of Premises: 22500 Sq Feet

Total Lease= 4214 Sq Feet of Office Space

Tenant’s Percentage Share : Share of all utilities (power, water), trash and waste are paid by Tenant. Share calculated by percentage of total space leased

Term Commencement: 9/1/2016

Term Expiration: 10 Years from Commencement date with 5 year renewal option

Base Rent: $2.00for office space

$8428.00 per month for the first year of the lease

Security Deposit: $5,200 (Already received)

Tenant’s Address for Notice: 3080 12th Street, Riverside, CA 92507

Landlord’s Address for Notice: 3230 Fallow Field Dr, Diamond Bar, CA 91765

Exhibits and Addendum: Floor Plan, Rules and Rent payment plan _______________

This lease overrides the previous lease agreements signed January 2, 2015due to building remodel.

21

EXHIBIT C

Rules

1. The sidewalks, halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways of the Building shall not be obstructed by any of the tenants or used for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access to them by all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation, and interests of the Building and its tenants. However, nothing here shall be construed to prevent access to persons with whom any tenant normally deals in the ordinary course of business, unless these persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go on the roof of the Building.

2. A sign, placard, picture, name, advertisement, or notice visible from the exterior of any tenant’s Premises shall not be inscribed, painted, affixed, or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building on the office floors. Each tenant shall conform to these guidelines, but may request approval of Landlord for modifications, which will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed, or inscribed at the expense of the tenant by a person approved by Landlord, which will not be unreasonably withheld. Material visible from outside the Building will not be permitted.

3. The Premises of each tenant shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any tenant on the Premises, except that (a) each tenant may establish and operate a lunchroom facility for use by tenant’s employees, and (b) each tenant may use and install food and beverage vending machines and Underwriters’ Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate, and similar beverages, provided that adequate provisions are made for venting and control of odors and all facilities and equipment are in accordance with all applicable federal, state, and city laws, codes, ordinances, rules, and regulations.

4. No tenant shall employ any person other than Landlord’s janitorial service for cleaning the Premises, unless otherwise approved by Landlord. No person other than those approved by Landlord shall be permitted to enter the Building to clean it. No tenant shall cause any unnecessary labor because of carelessness or indifference in the preservation of good order and cleanliness. Janitor service will not be furnished on nights when rooms are occupied after 9:30 p.m. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms.

5. Landlord will furnish each tenant, free of charge, two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. No tenant shall have any keys made. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of the premises without the prior consent of Landlord. The tenant shall in each case furnish Landlord with a key for any lock. Each tenant, upon the termination of the tenancy, shall deliver to Landlord all keys to doors in the Building that have been furnished to the tenant.

6. The freight elevator shall be available for use by all tenants in the Building, subject to reasonable scheduling as Landlord deems appropriate. The persons employed to move equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to prescribe the weight, size, and position of all equipment, materials, furniture, or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of a thickness necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any property from any cause, and all damage done to the Building by moving or maintaining property shall be repaired at the expense of the tenant.

7. No tenant shall use or keep in the Premises or the Building any kerosene, gasoline, or inflammable or combustible fluid or material other than limited quantities reasonably necessary for the operation or maintenance of office equipment, and may not, without Landlord’s prior approval, use any method of heating or air conditioning other than that supplied by Landlord. No tenant shall use or keep any foul, noxious, or hazardous gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building because of noise, odors, or vibrations, or interfere in any way with other tenants or those having business in the Building. No pets shall be kept in the Premises.

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8. Landlord shall have the right, exercisable without notice and without liability to any Tenant, to change the name and street address of the Building.

9. Landlord reserves the right to exclude from the Building between the hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and legal holidays any person who does not present a proper access card or other identification as a tenant or an employee of a tenant, or who does not otherwise present proper authorization by a tenant for access to the premises. Each tenant shall be responsible for all persons for whom it authorizes access and shall be liable to Landlord for all acts of these persons. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In the case of invasion, mob, riot, public excitement, or other circumstances rendering an action advisable in Landlord’s opinion, Landlord reserves the right to prevent access to the Building during the continuance of the circumstance by any action Landlord deems appropriate.

10. A directory of the Building will be provided to display the name and location of tenants, their subtenants, and a reasonable number of the principal officers and employees of tenants, and Landlord reserves the right to exclude any other names. Any additional name that a tenant desires to have added to the directory shall be subject to Landlord’s approval and may be subject to a charge.

11. No curtains, draperies, blinds, shutters, shades, screens, or other coverings, hangings, or decorations shall be attached to, hung, or placed in, or used in connection with any exterior window in the Building without the prior consent of Landlord. If Landlord consents, these items shall be installed on the office side of the standard window covering and shall in no way be visible from the exterior of the Building.

12. Messenger services and suppliers of bottled water, food, beverages, and other products or services shall be subject to reasonable regulations as may be adopted by Landlord. Landlord may establish a central receiving station in the Building for delivery and pick up by all messenger services, and may limit delivery and pick up at tenant Premises to Building personnel.

13. Each tenant shall see that the doors of the premises are closed and locked and that all water faucets or apparatus, cooking facilities, and office equipment, excluding office equipment required to be operative at all times, are shut off before the tenant or employees leave the Premises at night, so as to prevent waste or damage. For any default or carelessness in this regard the tenant shall be responsible for any damage sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, tenants shall keep the doors to the Building corridors closed at all times except for ingress and egress.

14. The toilets, urinals, wash bowls, and other restroom facilities shall not be used for any purpose other than that for which they were constructed. No foreign substance of any kind shall be thrown in them, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, have caused it.

15. Except with the prior consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets, or any other goods or merchandise to the general public in the Premises, nor shall any tenant carry on, permit, or allow any employee or other person to carry on the business of stenography, typewriting, or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in the tenant’s lease.

16. No tenant shall install any antenna, loudspeaker, or other device on the roof or exterior walls of the Building.

17. No motorcycles or motor scooters shall be parked or stored anywhere in the Building other than the garage of the Building, and no bicycles may be parked or stored anywhere in the Building other than in facilities provided in the garage or the Common Area of the Building.

18. Hand trucks or other material handling equipment, except those equipped with rubber tires and side guards, may not be used in any portion of the Building unless approved by Landlord.

19. Each tenant shall store refuse within that tenant’s premises. No material of a nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of refuse in the city of Riverside without being in violation of any law or ordinance governing this disposal shall be placed in the refuse boxes or receptacles. All refuse disposal shall be made only through entryways and elevators provided for these purposes and at the times Landlord shall designate.

20. Canvassing, peddling, soliciting, and distributing handbills or any other written materials in the Building is prohibited, and each tenant shall cooperate to prevent this type of occurrence.

23

21. The requirements of the tenants will be attended to only on application by telephone or in person at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.

22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, so long as Tenant’s use of the Premises is not adversely affected by the waiver, and no waiver by Landlord shall be construed as a waiver of the Rules in favor of any other tenant, nor prevent Landlord from later enforcing any of the Rules against any of the tenants of the Building.

23. These Rules are in addition to, and shall not be construed to modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of any lease of Premises in the Building.

24. Landlord reserves the right to make other reasonable rules as Landlord judges may be needed for the safety, care, and cleanliness of the Building, and for the preservation of good order, provided that Tenant’s use and occupancy of the Premises shall not be adversely affected by other rules.

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EXHIBIT D

Lease schedule.

Year 1 starts the beginning of the lease on September 1, 20167.

	Year 1		Year 2		Year 3		Year 4		Year 5
Monthly Rent	$	8,428	$	8,680	$	8,940	$	9,207	$	9,482
Annual Rent	$	101,136	$	104,160	$	107,274	$	110,482	$	113,785
	Year 6		Year 7		Year 8		Year 9		Year 10
Monthly Rent	$	9,766	$	10,058	$	10,358	$	10,668	$	10,987
Annual Rent	$	117,187	$	120,691	$	124,300	$	128,017	$	131,844

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EX-10.11

EXHIBIT 10.11

OFFICE LEASE

TABLE OF CONTENTS

Section 1.	Definitions	2
Section 2.	Premises	4
Section 3.	Term; Condition of Premises	4
Section 4.	Rental	4
Section 5.	Escalation Rent	5
Section 6.	Use	5
Section 7.	Services	5
Section 8.	Impositions	6
Section 9.	Alterations	7
Section 10.	Liens	8
Section 11.	Repairs	8
Section 12.	Damage or Destruction	8
Section 13.	Subrogation	9
Section 14.	Indemnification	9
Section 15.	Compliance with Legal Requirements	9
Section 16.	Assignment and Subletting	9
Section 17.	Rules	11
Section 18.	Entry by Landlord	12
Section 19.	Events of Default	12
Section 20.	Termination upon Default	13
Section 21.	Continuation after Default	13
Section 22.	Other Relief	13
Section 23.	Right of Landlord to Cure Defaults	13
Section 24.	Attorney Fees	14
Section 25.	Eminent Domain	14
Section 26.	Subordination	14
Section 27.	No Merger	15
Section 28.	Sale	15
Section 29.	Estoppel Certificate	15
Section 30.	Light, Air, or View Rights	15
Section 31.	Holding Over	15
Section 32.	Security Deposit	16
Section 33.	Waiver	16
Section 34.	Notices and Consents	16
Section 35.	Entire Agreement	16
Section 36.	Authority	16
Section 37.	Plural and Singular	17
Section 38.	Joint and Several Obligations	17
Section 39.	Time of the Essence	17
Section 40.	Examination of Lease	17
Section 41.	Heirs, Successors, and Assigns	17
Section 42.	Name of Building	17
Section 43.	Illegality or Unenforceability of Portion of Lease	17
Section 44.	Governing Law	17
Section 45.	Exhibits	17

Page 1 of 18

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”) dated as of September 1 2016 is entered into between Fallow Field, LLC (“Landlord”), and SolarMax LED, Inc. (U.S.A.) (“Tenant”).

RECITALS

A. Landlord is the owner of real property (“Real Property”) located at 3230 Fallow Field Dr, Diamond Bar, CA 91765, attached to this Lease and incorporated by reference, and the Building (as later defined) located on it. The Real Property and the Building are collectively the “Property.”

B. Landlord desires to lease to Tenant, and Tenant desires to lease from Landlord the Premises (as later defined) for the term and subject to the terms, covenants, agreements, and conditions in this Lease.

AGREEMENT

NOW THEREFORE, for good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

Section 1. Definitions

As used in this Lease, the following capitalized terms are defined as follows.

“Alterations” is defined in Section 9(a) hereof.

“Base Operating Expenses” means the Operating Expenses paid or incurred by Landlord in the Base Year.

“Base Property Taxes” means the amount of Property Taxes for the tax year ending2016 of the Base Year.

“Base Rent” means the Base Rent as set forth in the Basic Lease Information.

“Base Year” means the calendar year specified in the Basic Lease Information as the Base Year.

“Basic Lease Information” is attached to and incorporated in this Lease as Exhibit B hereto.

“Building” means the building constructed on the Real Property known as 3230 Fallow Field Dr, Diamond Bar, CA 91765 , any property interest in the area of 3230 Fallow Field Dr, Diamond Bar, CA 91765 and all other improvements on or appurtenances to the Real Property or the streets abutting the Real Property. The Building includes, but is not limited to, an office building with 2 floors of office space and a parking space located on the same property.

“Commencement Date” means the Commencement Date as set forth in the Basic Lease Information.

“Common Area” means the total area on a floor consisting of rest rooms, janitor, telephone and electrical closets, mechanical areas, public corridors providing access to tenant space, public stairs, elevator shafts and pipe shafts, together with their enclosing walls.

“Deposit” is defined in Section 32 hereof.

“Escalation Rent” is defined in Section 4(a) hereof.

“Event of Default” is defined in Section 19 hereof.

“Impositions” is defined in Section 8 hereof.

“Landlord” is defined in the preamble hereof.

“Legal Requirements” is defined in Section 15 hereof.

“Lease” is defined in the preamble hereof.

Page 2 of 18

“Operating Expenses” means (a) all costs of management, operation, and maintenance of the Building, including without limitation: wages, salaries, and payroll burden of employees; property management fees and other related compensation; janitorial, maintenance, security, and other services; Building office rent or rental value; power, water, waste disposal, and other utilities; materials and supplies; maintenance and repairs; license costs; insurance premiums and the deductible portion of any insured loss under Landlord’s insurance; and depreciation on personal property; and (b) the cost of any capital improvements made to the Building by Landlord after the Base Year that (i) are made in the reasonable expectation of reducing other Operating Expenses during the term of this Lease, (ii) are required for the health and safety of tenants, or (iii) are required under any governmental law or regulation that was not applicable to the Building at the time it was constructed, this cost to be amortized over a reasonable period determined by Landlord, together with interest on the unamortized balance at the rate of ten percent (10%) per annum, or a higher rate equal to that paid by Landlord on funds borrowed for the purpose of constructing or installing those capital improvements. Operating Expenses shall not include: Property Taxes; depreciation on the Building other than depreciation on exterior window draperies, if any, provided by Landlord, and carpeting in multi-tenant floor public corridors and common areas; costs of tenants’ improvements; real estate brokers’ commissions; interest; costs incurred in connection with the repair of damage to the Building, to the extent Landlord is reimbursed by insurance proceeds; and capital items other than those referred to in clause (b). Actual Operating Expenses for both the Base Year and each subsequent calendar year will be adjusted to equal Landlord’s reasonable estimate of Operating Expenses had the total rentable area of the Building been occupied.

“Premises” means the portion of the Building located on the floor or floors specified in the Basic Lease Information which is outlined in red on the floor plan or plans attached to this Lease as Exhibit A hereto.

“Property” is defined in Recital A hereof.

“Property Taxes” means all real property taxes (and any tax levied wholly or partly in lieu of real property taxes) levied against the Building, and all real estate tax consultant expenses and attorney’s fees incurred for the purpose of maintaining an equitable assessed valuation of the Building.

“Real Property” is defined in Recital A hereof.

“Rentable Area” means the rentable area of the Premises specified on the Basic Lease Information. If any office space is added to or deleted from the Premises, the rentable area of the space added or deleted shall mean: (a) as to an entire floor added to or deleted from the Premises, all areas within outside permanent Building walls, measured to the inside glass surface of outside permanent Building walls, including rest rooms; janitor, telephone, and electrical closets; allocated mechanical areas and columns and projections necessary to the Building, but excluding public stairs, elevator shafts, and pipe shafts, together with their enclosing walls; (b) as to a portion of a floor added to or deleted from the Premises, the aggregate of the usable area of the portion of the floor added to or deleted from the Premises, plus the result obtained by multiplying the area of the Common Area on this floor by a fraction, whose numerator is the usable area of added or deleted portion of the floor and whose denominator is the usable area of all tenant space on the floor.

“Tenant” is defined in the preamble hereof.

“Tenant’s Percentage Share” means the percentage figure specified as “Tenant’s Percentage Share” in the Basic Lease Information. Tenant’s Percentage Share has been obtained by dividing the net rentable area of the Premises, as specified in the Basic Lease Information, by the total net rentable area of the Building, which is111872 square feet of office space, and multiplying that quotient by one hundred (100). In the event the rentable area of the Premises is increased or decreased by the addition to or deletion from the Premises of any office space, Tenant’s percentage share shall be appropriately adjusted. For the purposes of Section 4, Tenant’s Percentage Share shall be based on the number of days during the calendar year in which this change occurs.

“Term” is defined in Section 3 hereof.

“Termination Date” means the Termination Date in the Basic Lease Information.

“Usable Area” means all floor area in a tenant space, measured to the inside glass surface of outer Building walls, to the office side of corridors and other permanent partitions, and to the center of partitions that separate the tenant space from adjoining tenant spaces, without deduction for columns and projections necessary to the Building.

Page 3 of 18

Section 2. Premises

Landlord leases to Tenant, and Tenant leases from Landlord the Premises for the term and subject to the terms, covenants, agreements, and conditions later set forth, to each of which Landlord and Tenant mutually agree.

Section 3. Term; Condition of Premises

The term (“Term”) of this Lease shall commence on the Commencement Date and, unless sooner terminated as later provided, shall end on the Termination Date. Unless otherwise agreed by Landlord and Tenant in this Lease, Landlord shall deliver the Premises to Tenant on the Commencement Date in their then existing condition with no alterations being made by Landlord. If Landlord has undertaken in this Lease to make any alterations to the Premises before the Commencement Date and the alterations are completed before that date, and if Tenant desires to take occupancy in advance of that date, Landlord shall deliver the Premises to Tenant at that time in advance of a date that will be mutually approved by Landlord and Tenant and, notwithstanding anything to the contrary contained in this Lease, the Term of the Lease shall commence on delivery. If Landlord, for any reason, cannot deliver the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting from nondelivery, but in that event rental shall be waived for the period between the Commencement Date and the time when Landlord delivers the Premises to Tenant. No delay in delivery of the Premises shall extend the Term of this Lease.

Section 4. Rental

(a) Tenant shall pay to Landlord throughout the Term as rental for the Premises the Base Rent, provided that the rental payable during each calendar year subsequent to the Base Year shall be the Base Rent, increased by Tenant’s Percentage Share of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord in that year over the Base Operating Expenses, and also increased by Tenant’s Percentage Share of the total dollar increase, if any, in Property Taxes paid by Landlord in that year over the Base Property Taxes. The increased rental due pursuant to this Section 4(a) is the “Escalation Rent.”

(b) Rental shall be paid to Landlord, in advance, on or before the first day of the Term of this Lease and on or before the first day of each successive calendar month during the Term of this Lease. In the event the Term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, the monthly rental for the first and last fractional months of the Term of this Lease shall be appropriately prorated.

(c) All sums of money due to Landlord under this Lease, not specifically characterized as rental, shall constitute additional rent and shall be due within thirty (30) days after receipt by Tenant of a billing. If any sum is not paid when due, it shall be collectible as additional rent with the next installment of rental falling due. Nothing contained in this Lease shall be deemed to suspend or delay the payment of any sum of money at the time it becomes due and payable under this Lease, or to limit any other remedy of Landlord.

(d) Tenant acknowledges that late payment of rent and other sums due under this Lease after the expiration of any applicable cure period under Section 19(a) will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be difficult to ascertain. These costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any trust deed covering the Premises. Accordingly, if any installment of rent or any other sums due from Tenant are not received when due, or if a cure period is applicable under Section 19(a), prior to the expiration of the cure period, Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount. The parties agree that the late charge represents a fair and reasonable estimate of the costs Landlord will incur because of late payment. Acceptance of the late charge by Landlord shall not constitute a waiver of Tenant’s default for the overdue amount, nor prevent Landlord from exercising the other rights and remedies granted under this Lease.

/s/ CL	/s/ SY
Landlord’s Initials	Tenant’s Initials

(e) Any amount due to Landlord, if not paid within five (5) days following the due date, will bear interest from the due date until paid at the rate of ten percent (10%) per year or, if a higher rate is legally permissible, at the highest rate legally permitted. However, interest shall not be payable on late charges incurred by Tenant nor on any amounts on which late charges are paid by Tenant to the extent this interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default by Tenant.

(f) All payments due shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America at Landlord’s address for notices under this Lease or to another person or at another place as Landlord may designate by notice to Tenant.

Page 4 of 18

Section 5. Escalation Rent

Escalation Rent shall be paid monthly on an estimated basis, with subsequent annual reconciliation, in accordance with the following procedures: Annual increases of 2.99% of the prior year rent.

30 days prior to the end of the Base Year and no later than 30 days prior to the end of each subsequent calendar year, or as soon after that time as practicable, Landlord shall give Tenant notice of Landlord’s estimate of any Escalation Rent due under Section 4(a) for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Escalation Rent. If Landlord fails to give notice as required in this Section, Tenant shall continue to pay on the basis of the prior year’s estimate until the month after that notice is given. If at any time it appears to Landlord that the Escalation Rent for the current calendar year will vary from the estimate by more than five percent (2.99%), Landlord shall, by notice to Tenant, revise the estimate for that year, and subsequent payments by Tenant for that year shall be based on the revised estimate.

(b) Within ninety (90) days after the close of each calendar year, or as soon after the ninety (90) day period as practicable, Landlord shall deliver to Tenant a statement of the actual Escalation Rent for that calendar year, accompanied by a statement from certified public accountants for the Building showing Operating Expenses and Property Taxes on the basis of which the actual Escalation Rent was determined. At Tenant’s request, Landlord shall provide Tenant reasonable supporting detail underlying the calculations of Operating Expenses and Property Taxes. If Landlord’s statement discloses that Tenant owes an amount that is less than the estimated payments for the calendar year previously made by Tenant, Landlord shall credit the excess first against any sums then owed by Tenant, and then against the next payments of rental due. If Landlord’s statement discloses that Tenant owes an amount that is more than the estimated payments for the calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement.

(c) The amount of Escalation Rent for any fractional year in the Term shall be appropriately prorated. The pro-ration of Operating Expenses for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Operating Expenses for that entire calendar year; the pro-ration of Property Taxes for the calendar year in which termination occurs shall be calculated on the basis of a fraction of the Property Taxes for that entire calendar year, but shall exclude any Property Taxes attributable to any increase in the assessed valuation of the Building occurring after termination. The termination of this Lease shall not affect the obligations of the parties pursuant to Section 5(b) to be performed after the termination.

Section 6. Use

The Premises shall be used for general office purposes and no other. Tenant shall not do or permit to be done on the Premises, nor bring or keep or permit to be brought or kept in the Premises, anything (a) which is prohibited by or in conflict with any law, ordinance, or governmental rule or, (b) which is prohibited by the standard form of fire insurance policy or, (c) which will increase the existing rate of or affect fire or other insurance on the Building or its contents or cause a cancellation of any insurance policy covering the Building or any part of it or its contents. Tenant shall not use or store in the Premises any hazardous or toxic substances, with the sole exception of reasonably necessary substances that are kept in reasonably necessary quantities for normal office operations, provided that their use and storage are in accordance with applicable laws. Tenant shall not do or permit anything to be done on the Premises that will obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any unlawful purposes, nor shall Tenant cause, maintain, or permit any nuisance or waste on or about the Premises.

Section 7. Services

(a) Landlord shall maintain the public and Common Areas of the Building, including lobbies, stairs, elevators, corridors, restrooms, all exterior landscaping, windows, the mechanical, plumbing, and electrical equipment serving the Building, and the structure itself, in reasonably good order and condition so as to meet the reasonable needs of Tenant, except for damage, excluding normal wear and tear, caused by the Tenant. Damage by Tenant shall be repaired by Landlord at Tenant’s expense. The standard of maintenance shall be equal to that of other office buildings of a similar class in _____.

(b) Landlord shall furnish utilities that includes water, power and gas (water heaters.) Utility payments will be paid previously agreed upon. Landlord will bill tenant all extra utilities usage based on previous average utlity invoice. based on the total rental square feel relative to the whole property (ie prorated to only your square feet / total square feet).Comfortable occupancy by Tenant in Tenant’s use of the Premises during the period from 7:00 a.m. to 6:00 p.m. on weekdays. Landlord is not responsible for internet or telephone services. Tenant will bear all costs associated with internet and telephone services. Tenant has the option to contract with our third party janitorial services.

Page 5 of 18

Landlord may establish reasonable measures to conserve energy and water, including but not limited to, automatic light shut off after hours and efficient lighting forms, so long as these measures do not unreasonably interfere with Tenant’s use of the Premises.

(c) Landlord shall not be in default under this Lease, nor be liable for any damages resulting from, nor shall the required rental be abated because of: (i) the installation, use, or interruption of use of any equipment in connection with furnishing the previously listed services, (ii) failure to furnish or delay in furnishing these services, when failure or delay is caused by accident or conditions beyond the reasonable control of Landlord or by necessary repairs or improvements to the Premises or to the Building, or (iii) the limitation, curtailment, rationing, or restrictions on use of water, electricity, gas, or any other form of energy serving the Premises or the Building. Landlord shall use reasonable efforts to diligently remedy interruptions in the furnishing of these services.

(d) If heat-generating equipment or lighting, other than building standard lights, are installed or used in the Premises, and this equipment or lighting affects the temperature otherwise maintained by the air conditioning system, or if equipment is installed in the Premises that requires a separate temperature controlled room, on Tenant’s request or at Landlord’s election after notice to Tenant, Landlord shall install supplementary air conditioning facilities in the Premises or shall modify the ventilating and air conditioning system serving the Premises. The capital and maintenance costs of these facilities and modifications shall be borne by Tenant. However, if Tenant objects to the proposed installation of supplementary air conditioning facilities or the modification of the ventilating and air conditioning system, Landlord shall not make the installation or modification, but Landlord shall be relieved of obligations under Section 7(b)(ii) hereof to the extent that comfortable occupancy of the Premises cannot be provided without the installation or modification.

(e) On receipt of a bill, Tenant shall reimburse Landlord for the cost of (i) all heat or air conditioning provided to the Premises during hours requested by Tenant when those services are not otherwise furnished by Landlord, and (ii) all power and cooling energy provided for supplementary air conditioning facilities in the Premises. Tenant shall also pay the cost of any transformers, additional risers, panel boards, and other facilities, if reasonably required to furnish power for supplementary air conditioning facilities in the Premises. The cost of item (i) shall be a per hour charge reflecting the electrical energy, labor, and fixed plant costs (excluding depreciation) of running the heating and air conditioning system.

(f) In the event that Landlord, at Tenant’s request, provides services to Tenant that are not otherwise provided for in this Lease, Tenant shall pay Landlord’s reasonable charges for these services on billing of Landlord.

Section 8. Impositions

In addition to the monthly rental and other charges to be paid by Tenant under this Lease, Tenant shall pay Landlord for all of the following items (collectively, “Impositions”): (i) taxes, other than local, state, and federal personal or corporate income taxes measured by the net income of Landlord; (ii) assessments, including without limitation, all assessments for public improvements, services, or benefits, irrespective of when commenced or completed; (iii) excises; (iv) levies; (v) business taxes; (vi) license, permit, inspection, and other authorization fees; (vii) transit development fees; (viii) assessments or charges for housing funds; (ix) service payments in lieu of taxes and; (x) any other fees or charges that are levied, assessed, confirmed, or imposed by a public authority; provided, however, that Impositions shall not include amounts otherwise included in Operating Expenses or Property Taxes. Tenant is obligated to pay only to the extent that the Impositions are: (a) on, measured by, or reasonably attributable to, the cost or value of Tenant’s equipment, furniture, fixtures, and other personal property located in the Premises, or the cost or value of any leasehold improvements made to the Premises by or for Tenant, regardless of whether title to the improvements shall be in Tenant or Landlord; (b) based on or measured by the monthly rental or other charges payable under this Lease, including without limitation, any gross receipts tax levied by a municipality, the State of California, the Federal Government, or any other governmental body with respect to the receipt of the rental; (c) based on the development, possession, leasing, operation, management, maintenance, alteration, repair, use, or occupancy by Tenant of the Premises or any portion of the Premises; or (d) on this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it is unlawful for Tenant to reimburse Landlord for the Impositions, but lawful to increase the monthly rental to take into account Landlord’s payment of the Impositions, the monthly rental payable to Landlord shall be revised to net Landlord the same net return without reimbursement of the Impositions as would have been received by Landlord with reimbursement of the Impositions.

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Section 9. Alterations.

(a) Tenant shall not make or allow any alterations, additions, or improvements to the Premises or any part of the Premises (collectively, “Alterations”), without Landlord’s prior consent, which shall not be unreasonably withheld. The installation of furnishings, fixtures, equipment, or decorative improvements, none of which shall affect Building systems or the structure of the Building, and the repainting or recarpeting of the Premises, shall not constitute Alterations. All Alterations shall be made by Landlord for Tenant’s account, including increased costs, if any, in accordance with the procedures set forth in this Section, subject to any tenant improvement allowance provided in the Basic Lease Information. All Alterations shall immediately become Landlord’s property and, at the end of the Term, shall remain on the Premises without compensation to Tenant, unless Landlord elects by notice to Tenant to have Tenant remove any Alterations that are peculiar to Tenant’s use of the Premises and are not normally required or used by other tenants. In this event, Tenant shall bear the cost of restoring the Premises to their condition prior to the installment of the Alterations. When plans and specifications for any Alterations are approved by Landlord pursuant to Section 9(b), Landlord shall advise Tenant on request whether proposed Alterations would entitle Landlord to require their removal and restoration of the Premises at the end of the Term. The tenant is approved for a sign outside the tenant’s entrance on the outside of the building. Tenant is responsible for all fees and associated payments in regards to the sign along with permit and construction costs.

(b) Plans and specifications for Alterations shall be prepared at Tenant’s expense by Tenant’s architect or by Landlord’s architect if Tenant so elects, and by engineers approved by Landlord, where the nature of the Alterations requires mechanical or electrical engineering services. Any architect retained by Tenant shall be instructed to follow standard construction administration procedures and use standard specifications and details reasonably promulgated by Landlord for the Building. The plans and specifications shall be subject to approval by Landlord and Tenant, and shall not be unreasonably withheld or delayed by either party. Plans and specifications that have neither been approved nor disapproved by Landlord within thirty (30) days after submittal by Tenant shall be deemed to have been approved. Following approval, Landlord shall obtain cost quotations for the Alterations from one or more general contractors approved by Landlord, including any general contractors requested by Tenant that Landlord has approved. Tenant may specify subcontractors in the finish trades to be included in the general contractors’ bids. Landlord shall submit the quotations to Tenant, accept the quotation approved by Tenant, and then contract for the construction or installation of the Alterations with the contractor approved by Tenant. Landlord does not warrant the cost of the Alterations, the timeliness of performance, or the quality of the contractor’s work, but Landlord shall use reasonable best efforts to secure performance of the construction contract for Tenant’s benefit.

(c) In the event Tenant instructs Landlord or the contractor to proceed with any changes to the Alterations without a prior determination of increased costs resulting from those changes and without approval of the increases by Tenant, or in the event Tenant is responsible for increased costs attributable to a delay or acceleration in the time for construction, the amount of any increased costs shall be reasonably determined by Landlord on completion of the Alterations, subject only to Landlord’s reasonable efforts in causing the contractor to furnish Tenant appropriate back-up information concerning increased costs, if any.

(d) The cost of the Alterations to be paid by Tenant shall include a reasonable charge for the administration, by Landlord or an agent, of the construction or installation of the Alterations, the amount of which shall bear a reasonable relationship to the scope of the Alterations and the costs of performing the administration.

(e) Tenant shall pay to Landlord all amounts payable by Tenant pursuant to this Section after billing by Landlord. Billing may be in advance of or during the progress of the Alterations to enable Landlord to pay the contractor, architect, or engineer without advancing Landlord’s own funds. At Tenant’s request, Landlord shall furnish a copy of each bill to Tenant for Tenant’s approval at least ten (10) days prior to the due date of the bill. Tenant may contest any payment to a contractor for Alterations and Landlord shall withhold this payment, provided that the provisions of Section 10 are satisfied and Tenant indemnifies and defends Landlord against all claims and liability arising out of the contested payment. At Landlord’s option and prior to commencement of Alterations, Tenant shall deposit with Landlord the estimated cost of Alterations, or a lesser portion as specified by Landlord for the cost as incurred. Any surplus funds shall be returned to Tenant when the Alterations have been paid for in full.

(f) Landlord may delegate some or all authority and responsibilities under this Section to a manager.

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Section 10. Liens

Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. Landlord may have posted on the Premises any notices that may be provided by law or that Landlord may deem proper for the protection of Landlord, the Premises, and the Building from those liens. Tenant may contest any lien for which Tenant is responsible under this Section, provided that Tenant shall have caused the lien to be bonded against.

Section 11. Repairs

Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises, subject to the tenant improvements, if any, that Landlord has agreed to make. At all times during the term of this Lease and at Tenant’s sole cost, Tenant shall keep the Premises in good condition and repair; ordinary wear and tear and damage to the Premises by fire, earthquake, or act of God or the elements are excepted. Tenant waives all rights to make repairs at the expense of Landlord or instead to vacate the Premises, and Tenant further waives the provisions of Civ. Code §§ 1941 and 1942 with respect to Landlord’s obligations under this Lease. At the end of the term of this Lease, Tenant shall surrender to Landlord the Premises and all Alterations that are to remain in the Premises in the same condition as when received; ordinary wear and tear and damage by fire, earthquake, or act of God or the elements are excepted. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate, or paint the Premises or any part of them, except as specifically set forth in this Lease. Landlord has made no representations respecting the condition of the Premises or the Building, except as specifically set forth in this Lease.

Section 12. Damage or Destruction

(a) In the event the Premises or any portion of the Building necessary for Tenant’s occupancy are damaged by fire, earthquake, act of God, the elements, or other casualty, within thirty (30) days after that event, Landlord shall notify Tenant of the estimated time, in Landlord’s reasonable judgment, required for repair or restoration. If the estimated time is one hundred and eighty (180) days or less after the commencement of the physical work and one (1) year or less after the casualty event, Landlord shall proceed promptly and diligently to adjust the loss with applicable insurers, to secure all required governmental permits and approvals, and to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. This Lease shall remain in full force, except that for the time unusable, Tenant shall receive a rental abatement for that part of the Premises rendered unusable in the conduct of Tenant’s business.

(b) If the estimated time for repair or restoration is in excess of one hundred and eighty (180) days after the commencement of the physical work or one (1) year after the casualty event, Tenant may elect to terminate this Lease as of the date of the casualty event by giving notice to Landlord within fifteen (15) days following receipt of Landlord’s notice of the estimated time for repair. If the estimated time is more than one hundred and eighty (180) days after commencement of the physical work or one (1) year after the casualty event, but Tenant has not elected to terminate this Lease, Landlord may elect, on notice to Tenant within twenty (20) days after the period for Tenant’s election to terminate has expired, to repair or restore the Premises or the portion of the Building necessary for Tenant’s occupancy. In that event, this Lease shall continue in full force, but the rent shall be abated. If Landlord does not elect to repair or restore, this Lease shall terminate as of the date of the casualty event. However, if Landlord has not commenced the physical repair or restoration of the Premises or the portion of the Building necessary for Tenant’s occupancy within one (1) year from the casualty event, Tenant may elect to terminate this Lease by notice to Landlord given at any time following the expiration of one (1) year from the casualty event, but prior to the commencement of the physical repair or restoration work.

(c) If the Premises or the Building are to be repaired or restored under this Section, Landlord shall repair or restore at Landlord’s cost the Building itself and all improvements in the Premises, including but not limited to, any tenant improvements constructed pursuant to this Lease, but excluding Alterations made by or for Tenant subsequent to completion of those tenant improvements. Tenant shall pay the cost of repairing or restoring any Alterations made by or for Tenant subsequent to completion of the tenant improvements made pursuant to this Lease and shall be responsible for carrying casualty insurance as Tenant deems appropriate for those Alterations.

(d) In the event of any damage to or destruction of the Premises or the Building, Landlord and Tenant acknowledge that their respective rights and obligations are to be governed exclusively by this Lease.

(e) In the event the Premises are to be repaired or restored and Tenant requires temporary offices as a result of a casualty event affecting the Premises, Landlord shall use best efforts to locate offices for Tenant within the Building. Tenant acknowledges that Landlord makes no commitment as to the availability of any offices or as to their cost.

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Section 13. Subrogation

Landlord and Tenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, worker’s compensation, and other insurance maintained during the term of this Lease covering the Building, or any portion of it, or operations in it, a waiver of all rights of subrogation that the insurer of one party might have against the other party. Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorney’s fees, resulting from the failure to obtain this waiver. Tenant must have adequate insurance at all times throughout the life of the lease.

Section 14. Indemnification

Tenant waives all claims against Landlord for damage to any property or injury or death of any person on the Premises arising at any time and from any cause other than the gross negligence or willful misconduct of Landlord or Landlord’s employees, agents, or contractors. Tenant shall hold Landlord harmless from and defend Landlord against all claims, liability, damage, or loss arising out of any injury or death of any person or damage to or destruction of property attributable to the use of the Premises by Tenant, except that caused by the gross negligence or willful misconduct of Landlord or Landlord’s agents, contractors, or employees. Tenant shall also hold Landlord harmless from any liability, cost, or expense arising from Tenant’s use or storage in the Premises of any hazardous or toxic substance. These indemnity obligations shall include reasonable attorney’s fees, investigation costs, and all other reasonable costs incurred by Landlord from the first notice that any claim or demand is to be made or may be made. Landlord shall promptly give notice to Tenant of any claim or demand. The provisions of this Section shall survive the termination of this Lease for any event occurring prior to the termination. The provisions of this Section to indemnify and hold Landlord harmless are limited to the amount of loss that is not paid to Landlord out of insurance proceeds, if any.

Section 15. Compliance with Legal Requirements

At Tenant’s sole cost, Tenant shall promptly comply with all laws and governmental rules now or later in force; with the requirements of any board of fire underwriters or other similar body now or in the future constituted; with any direction or occupancy certificate issued by public officers (“Legal Requirements”), insofar as they relate to the condition, use, or occupancy of the Premises. Excluded are: (a) structural changes or changes to the electrical, mechanical, or plumbing systems of the Building, all to the extent not necessitated by Tenant’s acts or by improvements made for Tenant, other than the tenant improvements to be made pursuant to this Lease by Landlord, if any; (b) alterations or improvements to the Building as a whole or the Premises of tenants generally that are not by law the tenants’ responsibility with which to comply; and (c) work necessitated by defects in the construction of the Building. Landlord shall comply in a timely manner with all Legal Requirements that are not Tenant’s responsibility under this Section to the extent noncompliance would adversely affect Tenant’s use or occupancy of the Premises. Furthermore due to the landlord’s requirements a financial report will be needed from each Tenant as requested. The tenant agrees to provide the financial report to the landlord within 30 days of written request. A format will be provided for review.

Section 16. Assignment and Subletting

(a) Except as otherwise expressly permitted by this Lease, Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld or delayed, assign or hypothecate this Lease or any interest in this Lease, sublet the Premises or any part of them, or license the use of the Premises by any party other than Tenant. Neither this Lease nor any interest in this Lease shall be assignable without the consent of Landlord, which shall not be unreasonably withheld or delayed. Any of the previous acts without consent shall be void and shall, at the option of Landlord, constitute a noncurable default under this Lease. In connection with each consent requested by Tenant, Tenant shall submit to Landlord the terms of the proposed transaction, the identity of the parties to the transaction, the proposed documentation for the transaction, and all other information reasonably requested by Landlord concerning the proposed transaction and the parties involved. However, Tenant may, without resulting in a default under this Lease and without notice to Landlord, license to or otherwise permit the use of the Premises by: (i) any entity of which Tenant, any of Tenant’s subsidiaries, or Tenant’s parent is a limited partner, general partner, joint venturer, or shareholder; (ii) any other limited partner, general partner, joint venturer or shareholder in that entity; (iii) any consultant, contractor, accountant, or counsel of Tenant; or (iv) any of the directors, officers, employees, contractors, accountants, or counsel of any of the foregoing. The license or other permitted use does not in any way create in the licensee or any other party rights to possess or remain in the Premises beyond the termination of the Lease.

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(b) Without limiting other instances in which Landlord may reasonably withhold consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold consent in the following instances:

(i) if at the time consent is requested or at any time prior to the granting of consent, an Event of Default has occurred under this Lease or if Tenant is in monetary default under this Lease or would be in monetary default under this Lease but for the pendency of any grace or cure period under Section 19;

(ii) if the proposed assignee or subtenant is a governmental agency;

(iii) if, in Landlord’s reasonable judgment, use of the Premises by the proposed assignee or subtenant would not be comparable to the office use by other tenants in the Building, would entail alterations that would materially lessen the value of the leasehold improvements in the Premises (unless Tenant provides adequate security to ensure that the Premises will be restored to their prior condition pursuant to Section 9(a)), would result in more than a reasonable number of occupants per floor, or would require substantially increased services by Landlord;

(iv) if Landlord reasonably determines that circumstances warrant a consideration of the financial worth of a proposed assignee or subtenant, and the financial worth, in Landlord’s reasonable judgment, does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms;

(v) if, in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is not consistent with the quality of the other tenancies in the Building; and

(vi) if subletting less than the entire Premises and the parcel to be sublet and all other parcels then sublet in the Premises exceed a total of 2 parcels.

(c) If at any time during the Term, Tenant desires to sublet all or any part of the Premises, Tenant shall notify Landlord of the terms of the proposed subletting and the space proposed to be sublet. Landlord shall have the option, exercisable by notice given to Tenant within thirty (30) days after Tenant’s notice is given, or within five (5) days after Tenant’s notice is given if Tenant submits terms that have already been negotiated with a specific proposed subtenant, to sublet from Tenant this space at the rental and other terms in Tenant’s notice, or, if the proposed subletting is for the entire Premises for a sublet term ending within the last year of the Term, to terminate this Lease. If Landlord does not exercise this option, Tenant shall be free to sublet the space to any third party or to the specific proposed subtenant, at the same rental and on substantially the same terms in the notice given to Landlord, subject to obtaining Landlord’s prior consent as provided previously.

(d) Notwithstanding the provisions of paragraphs (a) and (b), Tenant may assign this Lease or sublet the Premises or any portion of the Premises, with notice to Landlord but without the necessity of Landlord’s consent and without extending any option to Landlord pursuant to paragraph (c), to any corporation which controls, is controlled by, or is under common control with Tenant, to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity that acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises or the assets of any corporation that controls, is controlled by, or is under common control with Tenant.

(e) No subtenant shall have a right to further sublet without Landlord’s prior consent, which Tenant acknowledges may be withheld in Landlord’s absolute discretion, and any assignment by a subtenant of the sublease shall be subject to Landlord’s prior consent in the same manner as if Tenant were entering into a new sublease. No sublease, once consented to by Landlord, shall be modified or terminated by Tenant without Landlord’s prior consent, which shall not be unreasonably withheld.

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(f) In the case of an assignment, one-half (1/2) of any sums or other economic consideration received by Tenant as a result of the assignment (excluding any consideration reasonably attributed to assets other than this Lease) shall be paid to Landlord after first deducting the unamortized cost of leasehold improvements paid for by Tenant, and the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the assignment.

(g) In the case of a subletting, one-half (1/2) of any sums or economic consideration received by Tenant as a result of the subletting shall be paid to Landlord after first deducting: (i) the rental due under this Lease, prorated to reflect only rental allocable to the sublet portion of the Premises, (ii) the cost of leasehold improvements made to the sublet portion of the Premises at Tenant’s cost, amortized over the term of this Lease, except for leasehold improvements made for the specific benefit of the subtenant, which shall be amortized over the term of the sublease, and (iii) the cost of any real estate commissions, reasonable attorney’s fees, or other third-party professional services paid by Tenant in connection with the subletting.

(h) Regardless of Landlord’s consent, no subletting or assignment shall release or alter Tenant’s obligation or primary liability to pay the rental and perform all other obligations under this Lease. The acceptance of rental by Landlord from any other person shall not be deemed a waiver by Landlord of any provision of this Lease. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee or successor of Tenant in the performance of any of the terms of this Lease, after notice of default to Tenant pursuant to Section 19 and the expiration of any applicable cure period, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against the assignee or successor. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining consent. This action shall not relieve Tenant of liability under this Lease provided, however, that Tenant shall not be liable for any increase in Tenant’s obligations under this Lease because of any amendment or modification to this Lease, unless Tenant has consented to it in writing.

(i) If Tenant assigns this Lease, sublets the Premises, or requests the consent of Landlord to any assignment, subletting, hypothecation, or other action requiring Landlord’s consent under this Lease, Tenant shall pay Landlord’s reasonable attorney’s fees incurred in connection with the action.

Section 17. Rules

Tenant shall comply with the rules attached to and incorporated in this Lease as Exhibit C, and after notice, with all reasonable modifications and additions to these rules, from time to time promulgated in writing by Landlord. Landlord shall not be responsible to Tenant for the nonperformance of any of these rules by any other tenant or occupant of the Building, but Landlord shall take reasonable steps to enforce any rules, the nonperformance of which by other tenants materially and adversely affects Tenant in the use of the Premises. However, if any rule conflicts with any term, covenant, or condition of this Lease, this Lease shall prevail. In addition, no rule, or any subsequent amendment to it adopted by Landlord shall alter, reduce, or adversely affect any of Tenant’s rights or enlarge Tenant’s obligations under this Lease.

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Section 18. Entry by Landlord

Landlord may enter the Premises at reasonable hours and, except in the event of an emergency, on reasonable prior notice, to: (a) inspect the Premises; (b) exhibit the Premises to prospective purchasers, lenders, or tenants; (c) determine whether Tenant is complying with all obligations under this Lease; (d) supply janitorial service and any other services to be provided by Landlord under this Lease; (e) post notices of nonresponsibility; and (f) make repairs or perform maintenance required of Landlord by this Lease, make repairs to any adjoining space or utility services, or make repairs, alterations, or improvements to any other portion of the Building. However, all this work shall be done as promptly as reasonably possible and cause as little interference to Tenant as reasonably possible. Subject to Landlord’s undertakings in the previous sentence, Tenant waives any damage claims for inconvenience to or interference with Tenant’s business or loss of occupancy or quiet enjoyment of the Premises caused by Landlord’s entry. At all times Landlord shall have a key with which to unlock the doors on the Premises, excluding Tenant’s vaults, safes, and similar areas designated as secure areas in writing by Tenant in advance. In an emergency, Landlord shall have the right to use any means that Landlord deems proper to open Tenant’s doors and enter the Premises. Entry to the Premises by Landlord in an emergency shall not be construed as a forcible or unlawful entry, a detainer, or an actual or constructive eviction of Tenant.

Section 19. Events of Default

The following events shall constitute events of default under this Lease (each an Event of Default):

(a) a default by Tenant in the payment when due of any rent or other sum payable under this Lease and the continuation of this default for ten (10) or more days after notice of the default from Landlord, provided that if Tenant has failed two (2) or more times in any twelve (12) months to pay any rent or other sum when due and notice of this default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months in which all rental and other sums payable under this Lease have been paid on or before the date due;

(b) a default by Tenant in the performance of any of the terms, covenants, agreements, or conditions in this Lease, other than a default by Tenant in the payment when due of any rent or other sum payable under this Lease, and the continuation of the default beyond thirty (30) days after notice by Landlord or, if the default is curable and would require more than thirty (30) days to remedy, beyond the time reasonably necessary for cure; provided, however, that if Tenant has defaulted in the performance of the same obligation two (2) or more times in twelve (12) months and notice of the default has been given by Landlord in each instance, no notice shall be required after this until the expiration of twelve (12) months without any default by Tenant;

(c) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud of creditors, an assignment by Tenant for the benefit of creditors, or the commencement of proceedings of any kind by or against Tenant under the Federal Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act, unless Tenant is discharged from voluntary proceedings within ninety (90) days;

(d) the appointment of a receiver for a substantial part of Tenant’s assets;

(e) the abandonment of the Premises; and

(f) the levy upon this Lease or any estate of Tenant under this Lease by attachment or execution and the failure to have the attachment or execution vacated within thirty (30) days.

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Section 20. Termination upon Default

On occurrence of any Event of Default by Tenant, Landlord may, in addition to any other rights and remedies given here or by law, terminate this Lease and exercise remedies relating to it without further notice or demand in accordance with the following provisions:

(a) So long as the Event of Default remains uncured, Landlord shall have the right to give notice of termination to Tenant, and on the date specified in this notice, this Lease shall terminate.

(b) If this Lease is terminated, Landlord may, by judicial process, reenter the Premises, remove all persons and property, and repossess and enjoy the Premises, all without prejudice to other remedies that Landlord may have because of Tenant’s default or the termination.

(c) If this Lease is terminated, Landlord shall have all of the rights and remedies of a landlord provided by Civ. Code § 1951.2, in addition to any other rights and remedies Landlord may have. The damages which Landlord may recover shall include, without limitation: (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of the rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%) of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; (iv) all reasonable legal expenses and other related costs incurred by Landlord following Tenant’s default; (v) all reasonable costs incurred by Landlord in restoring the Premises to good order and condition to relet the Premises; and (vi) all reasonable costs, including without limitation, any brokerage commissions incurred by Landlord in reletting the Premises.

Section 21. Continuation after Default

Even though Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant’s right to possession, and Landlord may enforce all rights and remedies under this Lease, including the right to recover the rental as it becomes due under this Lease. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver upon initiative of Landlord to protect Landlord’s interest under this Lease shall not constitute a termination of Tenant’s right to possession.

Section 22. Other Relief

The remedies provided in this Lease are in addition to any other remedies available to Landlord at law, in equity, by statute, or otherwise.

Section 23. Right of Landlord to Cure Defaults

Agreements and provisions to be performed by Tenant under this Lease shall be at Tenant’s sole cost and without abatement of rental, except as specifically provided in this Lease. If Tenant (a) fails to pay any sum of money, other than rental, required under this Lease, or (b) fails to perform any other act under this Lease, and this failure continues for thirty (30) days after notice of the failure by Landlord, or a longer period as may be allowed under this Lease, Landlord may, without waiving or releasing Tenant from any obligations of Tenant, make payment or perform other acts required by this Lease on Tenant’s behalf. All sums paid by Landlord and all necessary incidental costs shall be payable to Landlord on demand and shall constitute additional rental under this Lease.

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Section 24. Attorney Fees

If, as a result of a breach or default under this Lease, Landlord uses an attorney to secure compliance with Lease provisions, to recover damages, to terminate this Lease, or to evict Tenant, Tenant shall reimburse Landlord, on demand, for all reasonable attorney’s fees and expenses incurred by Landlord; provided that, if Tenant becomes the prevailing party in any legal action brought by Landlord, Tenant shall be entitled to recover reasonable attorney’s fees and expenses incurred by Tenant and need not reimburse Landlord for any attorney’s fees and expenses incurred by Landlord.

Section 25. Eminent Domain

If all or any part of the Premises are taken through eminent domain, this Lease shall terminate for the part taken as of the date of taking. For a partial taking, either Landlord or Tenant shall have the right to terminate this Lease for the balance of the Premises by notice to the other within thirty (30) days after the taking. However, Tenant’s right to terminate arises only if the portion of the Premises taken substantially handicaps, impedes, or impairs Tenant’s use of the balance of the Premises. In the event of any taking, Landlord shall be entitled to all compensation, damages, income, rent, awards, or any interest that may be paid in connection with the taking, except for any portion specifically awarded to Tenant for moving expenses, trade fixtures, equipment, and any leasehold improvements in the Premises to the extent of the then unamortized value of these improvements for the remaining term of the Lease as determined in the award. However, Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise, other than for prepaid rent. In the event of a partial taking of the Premises that does not result in a termination of this Lease, the subsequent monthly rental shall be equitably reduced.

Section 26. Subordination

(a) This Lease shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or later placed upon the Building and to any advances made on the security of it or Landlord’s interest in it, and to all renewals, modifications, consolidations, replacements, and extensions of it. However, if any mortgagee, trustee, or ground landlord elects to have this Lease prior to the lien of its mortgage or deed of trust or prior to its ground lease, and gives notice of that to Tenant, this Lease shall be deemed prior to the mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of the mortgage, deed of trust, or ground lease, or the date of recording of it. In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to the grantee under the deed in lieu of foreclosure. In the event of termination of any ground lease to which this Lease is subordinate, Tenant shall attorn to the ground landlord. Tenant agrees to execute any documents, in form and substance reasonably acceptable to Tenant, required to effectuate the subordination, to make this Lease prior to the lien of any mortgage or deed of trust or ground lease, or to evidence the attornment.

(b) In the event any mortgage or deed of trust to which this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to the mortgagee or beneficiary, or in the event any ground lease to which this Lease is subordinate is terminated, this Lease shall not be barred, terminated, cut off, or foreclosed. Neither shall the rights and possession of Tenant under this Lease be disturbed, if Tenant is not then in default in the payment of rental and other sums due under this Lease or otherwise in default under the terms of this Lease, and if Tenant attorns to the purchaser, grantee, or ground landlord as provided in Section 26(a) or, if requested, enters into a new lease for the balance of the term of this Lease on the same terms and provisions contained in this Lease. Tenant’s covenant under Section 26(a) to subordinate this Lease to any ground lease, mortgage, deed of trust, or other hypothecation later executed is conditioned on each senior instrument containing the commitments specified in this subsection.

(c) Tenant agrees that Tenant shall not discriminate against or segregate any person or group of persons on account of race, sex, creed, color, marital status, sexual preference, national origin, or ancestry, in the occupancy, use, sublease, tenure, or enjoyment of the Premises.

Page 14 of 18

Section 27. No Merger

In the event that Landlord or any successor owner of the Building sells or conveys the Building, all liabilities and obligations of Landlord or the successor owner under this Lease accruing after the sale or conveyance terminates, shall be binding on the new owner, and Tenant shall release Landlord from all liability under this Lease. Tenant agrees to attorn to the new owner.

Section 28. Sale

The surrender of this Lease by Tenant, or a mutual cancellation of it, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or operate as an assignment to Landlord of all subleases or subtenancies.

Section 29. Estoppel Certificate

At any time with at least fifteen (15) days’ prior notice by Landlord, Tenant shall execute, acknowledge, and deliver to Landlord a certificate in the form substantially the same as attached Exhibit D certifying: (a) that this Lease is unmodified and in full force or, if there have been modifications, that this Lease is in full force, as modified, together with the date and nature of each modification, (b) the amount of the Base Rent, most recent Escalation Rent, if any, and the date to which the rent has been paid, (c) that no notice has been received by Tenant of any default that has not been cured, except defaults specified in the certificate, (d) that no default of Landlord is claimed by Tenant, except defaults specified in the certificate, and (e) other matters as may be reasonably requested by Landlord. Any certificate may be relied on by prospective purchasers, mortgagees, or beneficiaries under any deed of trust on the Building or any part of it.

Section 30. Light, Air, or View Rights

Any diminution or shutting off of light, air, or view by any structure that may be erected on lands adjacent to the Building shall not affect this Lease or impose any liability on Landlord.

Section 31. Holding Over

(a) If, without objection by Landlord, Tenant holds possession of the Premises after expiration of the term of this Lease, Tenant shall become a tenant with an option to renew for 5 years on the monthly terms specified in this Lease, payable in advance on or before the first day of each month. Each party shall give the other notice of intention to terminate the tenancy at least one (3) month prior to the date of termination of the tenancy

(b) If, over Landlord’s objection, Tenant holds possession of the Premises after expiration of the term of this Lease or expiration of the holdover tenancy, Tenant shall be deemed to be a tenant-at-sufferance and, without limiting the liability of Tenant for unauthorized occupancy of the Premises, Tenant shall indemnify Landlord and any replacement tenant for the Premises for any damages or loss suffered by either Landlord or the replacement tenant resulting from Tenant’s failure to vacate the Premises in a timely manner.

Page 15 of 18

Section 32. Security Deposit

Tenant has deposited with Landlord the sum specified in the Basic Lease Information (“Deposit”). The Deposit shall be held by Landlord as security for the faithful performance by Tenant of all provisions of this Lease. If Tenant fails to pay rent or other sums due under this Lease or defaults with respect to any provision of this Lease, Landlord may use, apply, or retain all or any portion of the Deposit for the payment of rent or other sums in default, for the payment of any other sums to which Landlord may become obligated because of Tenant’s default, or to compensate Landlord for any loss or damage that Landlord may suffer because of the Tenant’s actions. If Landlord uses or applies the Deposit, Tenant shall, within ten (10) days after demand, deposit cash with Landlord in an amount sufficient to restore the Deposit to the full amount, and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Deposit separate from Landlord’s general accounts. If Tenant performs all of Tenant’s obligations under this Lease, the Deposit or the amount not applied by Landlord shall be returned, without interest, to Tenant or at Landlord’s option, to the last assignee, if any, of Tenant’s interest under this Lease at the expiration of the Term and after Tenant has vacated the Premises. No trust relationship is created between Landlord and Tenant with respect to the Deposit.

Section 33. Waiver

The waiver by Landlord of any agreement, condition, or provision contained in this Lease shall not be deemed to be a waiver of any subsequent breach of the agreement, condition, or provision or any other agreement, condition, or provision contained in the Lease, nor shall any custom or practice that may arise between the parties in the administration of the terms of this Lease be construed to waive or to lessen the right of Landlord to the performance by Tenant in strict accordance with these terms. The subsequent acceptance of rental under this Lease by Landlord shall not be deemed to be a waiver of any preceding breach by the other party of any agreement, condition, or provision of this Lease, other than the failure of Tenant to pay the particular accepted rental, regardless of knowledge of the preceding breach at the time of the rental acceptance.

Section 34. Notices and Consents

All notices, consents, demands, and other communications from one party to the other that are given pursuant to the terms of this Lease shall be in writing and shall be deemed to have been fully given when delivered, including delivery by commercial delivery services or facsimile transmission, or if deposited in the United States mail, certified or registered, postage prepaid, when received or refused. All notices, consents, demands, and other communications shall be addressed as follows: to Tenant at the address specified in the Basic Lease Information, or to another place or person as Tenant may designate in a notice to Landlord, or delivered to Tenant at the Premises; to Landlord at the address specified in the Basic Lease Information, or to another place as Landlord may designate in a notice to Tenant.

Section 35. Entire Agreement

There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels all previous negotiations, arrangements, brochures, agreements, and understandings between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. There are no representations between Landlord and Tenant other than those contained in this Lease. All implied warranties, including implied warranties of merchantability and fitness, are excluded.

Section 36. Authority

If either of the parties signs this Lease as a corporation, each person executing this Lease on behalf of the party warrants that the party is an authorized and existing corporation, that it is qualified to do business in California, that it has the right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. If either of the parties signs this Lease as a partnership, each person executing this Lease on behalf of the party warrants that the party is a partnership, that the partnership has the right and authority to enter into this Lease, and that each person signing on behalf of the partnership is authorized to sign.

Page 16 of 18

Section 37. Plural and Singular

The words “Landlord” and “Tenant” as used in this Lease shall include the plural as well as the singular.

Section 38. Joint and Several Obligations

If there is more than one Tenant, the obligations imposed on Tenant shall be joint and several.

Section 39. Time of the Essence

Time is of the essence in this Lease and all of its provisions.

Section 40. Examination of Lease

Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

Section 41. Heirs, Successors, and Assigns

The agreements, conditions, and provisions contained in this Lease shall, subject to the provisions for assignment, apply to and bind the heirs, executors, administrators, successors, and assigns of the parties to it.

Section 42. Name of Building

Tenant shall not, without the consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises.

Section 43. Illegality or Unenforceability of Portion of Lease

If any provision of this Lease is determined to be illegal or unenforceable, this determination shall not affect any other provision of this Lease, and all other provisions shall remain in full force and effect.

Section 44. Governing Law

This Lease shall be governed by and construed pursuant to law of the State of California.

Section 45. Exhibits

The exhibits A to D and addendum, if any, specified in the Basic Lease Information are attached to this Lease and by this reference made a part of it.

Page 17 of 18

IN WITNESS WHEREOF, the parties have executed this Lease as of the date first set forth above.

	LANDLORD:
Date: 9/16/16	/s/ Ching Liu
	Signature
	Ching Liu
	Name
	General Partner of Fallow Field, LLC
	Title
	TENANT:
Date: 9/16/16	/s/ Simon Yuan
	Signature
	/s/ Simon Yuan
	Name
	CFO
	Title

Page 18 of 18

EXHIBIT A

Floor Plan

EXHIBIT B

Basic Lease Information

Date: September 1, 2016

Landlord: Fallow Field LLC

Tenant: SolarMax LED Inc.

Premises: 3230 Fallow Field Dr, Diamond Bar, CA 91765

Base Year: 2016

Rentable Area of Premises: 22500 Sq Feet

Total Lease= 4214 Sq Feet of Office Space

Tenant’s Percentage Share : Share of all utilities (power, water), trash and waste are paid by Tenant.Share calculated by percentage of total space leased

Term Commencement: 9/1/2016

Term Expiration: 10 Years from Commencement date with 5 year renewal option

Base Rent: $2.00for office space

$8428.00 per month for the first year of the lease

Security Deposit: $5,200 (Already received)

Tenant’s Address for Notice: 3080 12th Street, Riverside, CA 92507

Landlord’s Address for Notice: 3230 Fallow Field Dr, Diamond Bar, CA 91765

Exhibits and Addendum: Floor Plan, Rules and Rent payment plan

This lease overrides the previous lease agreements signed January 2, 2015due to building remodel.

EXHIBIT C

Rules

1. The sidewalks, halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways of the Building shall not be obstructed by any of the tenants or used for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, shopping malls, elevators, escalators, and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access to them by all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation, and interests of the Building and its tenants. However, nothing here shall be construed to prevent access to persons with whom any tenant normally deals in the ordinary course of business, unless these persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go on the roof of the Building.

2. A sign, placard, picture, name, advertisement, or notice visible from the exterior of any tenant’s Premises shall not be inscribed, painted, affixed, or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenants general guidelines relating to signs inside the Building on the office floors. Each tenant shall conform to these guidelines, but may request approval of Landlord for modifications, which will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed, or inscribed at the expense of the tenant by a person approved by Landlord, which will not be unreasonably withheld. Material visible from outside the Building will not be permitted.

3. The Premises of each tenant shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by any tenant on the Premises, except that (a) each tenant may establish and operate a lunchroom facility for use by tenant’s employees, and (b) each tenant may use and install food and beverage vending machines and Underwriters’ Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate, and similar beverages, provided that adequate provisions are made for venting and control of odors and all facilities and equipment are in accordance with all applicable federal, state, and city laws, codes, ordinances, rules, and regulations.

4. No tenant shall employ any person other than Landlord’s janitorial service for cleaning the Premises, unless otherwise approved by Landlord. No person other than those approved by Landlord shall be permitted to enter the Building to clean it. No tenant shall cause any unnecessary labor because of carelessness or indifference in the preservation of good order and cleanliness. Janitor service will not be furnished on nights when rooms are occupied after 9:30 p.m. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms.

5. Landlord will furnish each tenant, free of charge, two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. No tenant shall have any keys made. No tenant shall alter any lock or install a new or additional lock or any bolt on any door of the premises without the prior consent of Landlord. The tenant shall in each case furnish Landlord with a key for any lock. Each tenant, upon the termination of the tenancy, shall deliver to Landlord all keys to doors in the Building that have been furnished to the tenant.

6. The freight elevator shall be available for use by all tenants in the Building, subject to reasonable scheduling as Landlord deems appropriate. The persons employed to move equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to prescribe the weight, size, and position of all equipment, materials, furniture, or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of a thickness necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any property from any cause, and all damage done to the Building by moving or maintaining property shall be repaired at the expense of the tenant.

7. No tenant shall use or keep in the Premises or the Building any kerosene, gasoline, or inflammable or combustible fluid or material other than limited quantities reasonably necessary for the operation or maintenance of office equipment, and may not, without Landlord’s prior approval, use any method of heating or air conditioning other than that supplied by Landlord. No tenant shall use or keep any foul, noxious, or hazardous gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building because of noise, odors, or vibrations, or interfere in any way with other tenants or those having business in the Building. No pets shall be kept in the Premises.

8. Landlord shall have the right, exercisable without notice and without liability to any Tenant, to change the name and street address of the Building.

9. Landlord reserves the right to exclude from the Building between the hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and legal holidays any person who does not present a proper access card or other identification as a tenant or an employee of a tenant, or who does not otherwise present proper authorization by a tenant for access to the premises. Each tenant shall be responsible for all persons for whom it authorizes access and shall be liable to Landlord for all acts of these persons. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In the case of invasion, mob, riot, public excitement, or other circumstances rendering an action advisable in Landlord’s opinion, Landlord reserves the right to prevent access to the Building during the continuance of the circumstance by any action Landlord deems appropriate.

10. A directory of the Building will be provided to display the name and location of tenants, their subtenants, and a reasonable number of the principal officers and employees of tenants, and Landlord reserves the right to exclude any other names. Any additional name that a tenant desires to have added to the directory shall be subject to Landlord’s approval and may be subject to a charge.

11. No curtains, draperies, blinds, shutters, shades, screens, or other coverings, hangings, or decorations shall be attached to, hung, or placed in, or used in connection with any exterior window in the Building without the prior consent of Landlord. If Landlord consents, these items shall be installed on the office side of the standard window covering and shall in no way be visible from the exterior of the Building.

12. Messenger services and suppliers of bottled water, food, beverages, and other products or services shall be subject to reasonable regulations as may be adopted by Landlord. Landlord may establish a central receiving station in the Building for delivery and pick up by all messenger services, and may limit delivery and pick up at tenant Premises to Building personnel.

13. Each tenant shall see that the doors of the premises are closed and locked and that all water faucets or apparatus, cooking facilities, and office equipment, excluding office equipment required to be operative at all times, are shut off before the tenant or employees leave the Premises at night, so as to prevent waste or damage. For any default or carelessness in this regard the tenant shall be responsible for any damage sustained by other tenants or occupants of the Building or Landlord. On multiple-tenancy floors, tenants shall keep the doors to the Building corridors closed at all times except for ingress and egress.

14. The toilets, urinals, wash bowls, and other restroom facilities shall not be used for any purpose other than that for which they were constructed. No foreign substance of any kind shall be thrown in them, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, have caused it.

15. Except with the prior consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets, or any other goods or merchandise to the general public in the Premises, nor shall any tenant carry on, permit, or allow any employee or other person to carry on the business of stenography, typewriting, or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in the tenant’s lease.

16. No tenant shall install any antenna, loudspeaker, or other device on the roof or exterior walls of the Building.

17. No motorcycles or motor scooters shall be parked or stored anywhere in the Building other than the garage of the Building, and no bicycles may be parked or stored anywhere in the Building other than in facilities provided in the garage or the Common Area of the Building.

18. Hand trucks or other material handling equipment, except those equipped with rubber tires and side guards, may not be used in any portion of the Building unless approved by Landlord.

19. Each tenant shall store refuse within that tenant’s premises. No material of a nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of refuse in the city of Riverside without being in violation of any law or ordinance governing this disposal shall be placed in the refuse boxes or receptacles. All refuse disposal shall be made only through entryways and elevators provided for these purposes and at the times Landlord shall designate.

20. Canvassing, peddling, soliciting, and distributing handbills or any other written materials in the Building is prohibited, and each tenant shall cooperate to prevent this type of occurrence.

21. The requirements of the tenants will be attended to only on application by telephone or in person at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.

22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, so long as Tenant’s use of the Premises is not adversely affected by the waiver, and no waiver by Landlord shall be construed as a waiver of the Rules in favor of any other tenant, nor prevent Landlord from later enforcing any of the Rules against any of the tenants of the Building.

23. These Rules are in addition to, and shall not be construed to modify or amend, in whole or in part, the terms, covenants, agreements, and conditions of any lease of Premises in the Building.

24. Landlord reserves the right to make other reasonable rules as Landlord judges may be needed for the safety, care, and cleanliness of the Building, and for the preservation of good order, provided that Tenant’s use and occupancy of the Premises shall not be adversely affected by other rules.

EXHIBIT D

Lease schedule.

Year 1 starts the beginning of the lease on September 1, 20167.

	Year 1		Year 2		Year 3		Year 4		Year 5
Monthly Rent	$	8,428	$	8,680	$	8,940	$	9,207	$	9,482
Annual Rent	$	101,136	$	104,160	$	107,274	$	110,482	$	113,785
	Year 6		Year 7		Year 8		Year 9		Year 10
Monthly Rent	$	9,766	$	10,058	$	10,358	$	10,668	$	10,987
Annual Rent	$	117,187	$	120,691	$	124,300	$	128,017	$	131,844

EX-10.12

EXHIBIT 10.12

SolarMax Technology, Inc.

3080 12th Street

Riverside, California 92507

March   , 2019

[Name and Address]

Re: Restricted stock grant for [       ] shares of Common Stock of SolarMax Technology, Inc. (the “Stock Grant”)  -- Exchange Agreement A 

Dear [                ]:

Reference is made to the Stock Grant which was granted to you on October 7, 2016.  Pursuant to the agreement relating to the issuance of the Stock Grant, your right to the shares of common stock of SolarMax Technology, Inc. (the “Company”) represented by the Stock Grant will vest six months after a Public Stock Event.  As you may be aware, the Company filed a registration statement with respect to its initial public offering on December 24, 2018.  If the Company does not complete a public stock event by April 30, 2019, which date may be extended by the Company, the shares issued in the Stock Grant become forfeitable and are to be conveyed to the Company for no consideration.

The Company has given you the right to exchange the shares issued pursuant to the Stock Grant for an option to purchase a number of shares equal to 2.119 times the number of shares granted pursuant to your Stock Grant.  Thus, if you exercise this right, your Stock Grant of [            ] shares will be exchanged for an option to purchase [               ] shares.  The option will be in the form of Exhibit A to this letter.  Your execution of this letter will transfer all of your shares to the Company for cancelation without any further action on your behalf.  Your right to exchange the Stock Grant shares for the option will expire at 5:30 P.M. Pacific time on April 6, 2019.

The following is a summary of the terms of the option and does not purport to be complete and is qualified in its entirety by the terms of the option.

Exercise Price:	$5.00 per share
Adjustments to Exercise Price	In the event of any stock distribution, split or dividend or reverse stock split or combination of shares or similar recapitalization, the number of shares subject to the option and the exercise price will be adjusted in accordance with generally accepted accounting principles.
Condition to Exercise:	1. The option will become exercisable six months from a Public Stock Event provided that the public stock event occurs prior to April 30, 2019 or such later date as may be determined by the Company’s board of directors, in its sole discretion. If the Public Stock Event does not occur by such date, the option shall expire without any action on the part of the Company or you and you will have no rights under the option. 2. The option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8, which is a special form of registration statement for issuances such as issuances pursuant to an option.  The Company will not file a Form S-8 prior to six months from the date of the Public Stock Event. 3. If the managing underwriter request the Company’s stockholders to exercise a Lock up Agreement, as defined below, the option cannot be exercised until the earlier of (a) the date the option holder signs the Lock up Agreement or (b) the expiration of all periods during which the sale of shares of common stock is restricted pursuant to the Lock up Agreement.

Public Stock Event:	A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.
Exercise Period:	Subject to the conditions to exercise described above, the option may be exercised as to 50% of the shares initially subject to the option six months from the date of date of the Public Stock Event and as to all shares subject to the option 18 months from the Public Stock Event.  The option expires on the earlier of (i) ten years from the date of the Public Stock Event (the “Stated Expiration Date”) or (ii) the date the Option Holder ceases to be an employee of or consultant to the Company or an affiliate of the Company; provided; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Stated Expiration Date.
Nonqualified Option:	The option will be a non-qualified option.  For United States residents, upon exercise of a non-qualified stock option, the difference between the exercise price of the option and the fair market value of the stock on the date of exercise is treated as ordinary income.
Lock-up; Leak-out agreement	In connection with a proposed public offering, the managing underwriter requests that the Company’s stockholders execute an agreement pursuant to which the stockholders agree not to sell any shares of the Company’s common stock for a specified period and thereafter limit the number of shares which may be sold for a subsequent period, the option holder will agree to execute such an agreement (a “Lock up Agreement”).  The Company will not deliver the option to you until you have signed and delivered the Lock up Agreement to the Company.
Not Transferable:	The option is not transferrable except that, in the event of the option holder’s death or declaration of incompetency, the option may be exercised by the option holder’s legal representative or estate.

If you exercise your right to exchange your Stock Grant shares for the option, please sign below and return this letter and the enclosed Lock up Agreement to the Company.

Very truly yours,

_______________________ 

David Hsu

Chief Executive Officer

I hereby accept the Company’s offer to exchange my [                   ] Stock Grant shares for an option to purchase [             ] shares of Common Stock at $5.00 per share pursuant to the foregoing offer letter.  I represent to the Company that I understand the terms of the exchange and that I have consulted by tax and financial advisors to the extent that I deem necessary.  I understand that the Company is making no representation that a Public Stock Event will occur, that the option will become exercisable or, if a Public Stock Event occurs, as to the market price for the Company’s common stock.  I hereby irrevocably convey and transfer to the Company my [                 ] Stock Grant shares and authorize the Company and its executive officers to take any action necessary to transfer the shares to the Company and to subsequently cancel such shares.  I further agree to execute the Lock up Agreement.

__________________________

[Name*]

[*The name should be exactly as it is shown on the stock certificate]

EX-10.13

EXHIBIT 10.13

SolarMax Technology, Inc.

3080 12th Street

Riverside, California 92507

March   , 2019

[Name and Address] 

Re: Restricted stock grant for [               ] shares of Common Stock of SolarMax Technology, Inc. (the “Stock Grant”)  -- Exchange Agreement B 

Dear  :

Reference is made to the Stock Grant which was granted to you on October 7, 2016.  Pursuant to the agreement relating to the issuance of the Stock Grant, your right to the shares of common stock of SolarMax Technology, Inc. (the “Company”) represented by the Stock Grant will vest six months after a Public Stock Event.  As you may be aware, the Company filed a registration statement with respect to its initial public offering on December 24, 2018.  If the Company does not complete a public stock event by April 30, 2019, which date may be extended by the Company, the shares issued in the Stock Grant become forfeitable and are to be conveyed to the Company for no consideration.

The Company has given you the right to (i) exchange 50% the shares issued pursuant to the Stock Grant for an option to purchase a number of shares equal to 2.119 times the number of shares as equals 50% of the number of shares granted pursuant to your Stock Grant and (ii) transfer to the Company for cancellation 50% of the shares issued pursuant to the Stock Grant for a payment of $1.00 per share.  Thus, if you exercise this right, your Stock Grant of [           ] shares will be exchanged for an option to purchase [                ] shares and you will receive a payment of $[            ] not later than December 15, 2019.  The option will be in the form of Exhibit A to this letter.  Your execution of this letter will transfer all of your Stock Grant shares to the Company for cancelation without any further action on your behalf.  Your right to exchange the Stock Grant shares for the option and cash will expire at 5:30 P.M. Pacific time on April 6, 2019.

The following is a summary of the terms of the option and does not purport to be complete and is qualified in its entirety by the terms of the option.

Exercise Price:	$5.00 per share
Adjustments to Exercise Price	In the event of any stock distribution, split or dividend or reverse stock split or combination of shares or similar recapitalization, the number of shares subject to the option and the exercise price will be adjusted in accordance with generally accepted accounting principles.
Condition to Exercise:	1. The option will become exercisable six months from a Public Stock Event provided that the public stock event occurs prior to April 30, 2019 or such later date as may be determined by the Company’s board of directors, in its sole discretion. If the Public Stock Event does not occur by such date, the option shall expire without any action on the part of the Company or you and you will have no rights under the option. 2. The option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8, which is a special form of registration statement for issuances such as issuances pursuant to an option.  The Company will not file a Form S-8 prior to six months from the date of the Public Stock Event. 3. If the managing underwriter request the Company’s stockholders to exercise a Lock up Agreement, as defined below, the option cannot be exercised until the earlier of (a) the date the option holder signs the Lock up Agreement or (b) the expiration of all periods during which the sale of shares of common stock is restricted pursuant to the Lock up Agreement.

Public Stock Event:

A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.

Exercise Period:

Subject to the conditions to exercise described above, the option may be exercised as to 50% of the shares initially subject to the option six months from the date of date of the Public Stock Event and as to all shares subject to the option 18 months from the Public Stock Event.  The option expires on the earlier of (i) ten years from the date of the Public Stock Event (the “Stated Expiration Date”) or (ii) the date the Option Holder ceases to be an employee of or consultant to the Company or an affiliate of the Company; provided; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Stated Expiration Date.

Nonqualified Option:	The option will be a non-qualified option.  For United States residents, upon exercise of a non-qualified stock option, the difference between the exercise price of the option and the fair market value of the stock on the date of exercise is treated as ordinary income.
Lock-up; Leak-out agreement	In connection with a proposed public offering, the managing underwriter requests that the Company’s stockholders execute an agreement pursuant to which the stockholders agree not to sell any shares of the Company’s common stock for a specified period and thereafter limit the number of shares which may be sold for a subsequent period, the option holder will agree to execute such an agreement (a “Lock up Agreement”).  The Company will not deliver the option to you until you have signed and delivered the Lock up Agreement to the Company.
Not Transferable:	The option is not transferrable except that, in the event of the option holder’s death or declaration of incompetency, the option may be exercised by the option holder’s legal representative or estate.

If you exercise your right to exchange your Stock Grant shares for the option and cash, please sign below and return this letter and the enclosed Lock up Agreement to the Company.

Very truly yours,

David Hsu

Chief Executive Officer

I hereby accept the Company’s offer to exchange my [                  ] Stock Grant shares for an option to purchase [                        ] shares of Common Stock at $5.00 per share and a payment $[               ] pursuant to the foregoing offer letter.  I represent to the Company that I understand the terms of the exchange and that I have consulted by tax and financial advisors to the extent that I deem necessary.  I understand that the Company is making no representation that a Public Stock Event will occur, that the option will become exercisable or, if a Public Stock Event occurs, as to the market price for the Company’s common stock.  I hereby irrevocably convey and transfer to the Company my [                ] Stock Grant shares and authorize the Company and its executive officers to take any action necessary to transfer the shares to the Company and to subsequently cancel such shares.  I further agree to execute the Lock up Agreement.

__________________

[Name]

EX-10.15

EXHIBIT 10.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.16

EXHIBIT 10.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.17

EXHIBIT 10.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.18

EXHIBIT 10.18

PROMISSORY NOTE

(this “Note”)

Borrower:	SolarMax Technology, Inc.,
	3080 12th Street, Riverside, California 92507 (the “Borrower”)
Lender:	SMX Property, LLC
	3230 Fallow Field Dr., Diamond Bar, California 91765 (the “Lender”)

Principal Amount: $250,000.00 USD

1. FOR VALUE RECEIVED, the Borrower promises to pay to the Lender at such address as may be provided in writing to the Borrower, the principal sum of $250,000.00 USD (two hundred fifty thousand U.S. dollars and no cents), with interest payable on the unpaid principal at the rate of 6.00 percent (6.00%) per annum, calculated yearly not in advance, beginning on October 25, 2019.

2. This Note will be repaid in full on January 24, 2020 if not otherwise extended by mutual agreement.

3. The Borrower may, in whole or in part, prepay the Note without penalty before the maturity date hereof and without prior written notice to the Lender. Each payment shall first be credited against interest accrued and due at the time of receipt of payment, with the remainder credited against unpaid principal. Interest shall cease to accrue on any principal so credited.

4. In the event that the Borrower fails to pay the Note, in full, on the due date and if not otherwise extended, unpaid principal shall accrue interest at the rate of 6.00 percent (6.00%) per annum or the maximum rate allowed by law, whichever is less, until the Borrower is no longer in default.

5. This Note will inure to the benefit of and be binding upon the respective heirs, executors, administrators, successors and assigns of the Borrower and the Lender. The Borrower waives presentment for payment, notice of non-payment, protest and notice of protest.

6. In the event that any provision herein is determined to be void or unenforceable for any reason, such determination shall not affect the validity or enforceability of any other provision, all of which shall remain in full force and effect.

7. This Note has been entered into and shall be construed in accordance with the laws of the State of California and any applicable federal statutes or regulations of the United States.

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8. For the purpose of funding the loan, a wire transfer will be made to:

Company Name:	SolarMax Technology, Inc
Address:	3080 12th Street, Riverside, CA 92507
Bank Name:	Wells Fargo Bank, N.A.
Type of Acct.:	Checking
Bank Acct. #	xxxxxxxx
Routing#	121000248
SWIFT:	WFBIUS6S
Bank Address:	420 Montgomery, San Francisco, CA 94104

IN WITNESS WHEREOF the parties have duly affixed their signatures on the 25^th day of October, 2019.

SMX PROPERTY, LLC
By:	/s/ Ching Liu
	Ching Liu, Manager
SOLARMAX TECHNOLOGY, INC.
By:	/s/ Stephen P. Brown
	Stephen P. Brown, Chief Financial Officer

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EX-10.19

EXHIBIT 10.19

AGREEMENT

THIS AGREEMENT (the “Agreement”) is made as of _________, 20__ (the “Effective Date”) by and between __________, an individual residing at  (“Limited Partner”), Clean Energy Funding, LP, a California limited partnership having its principal place of business at 3080 12th Street, Riverside, CA 92507 (the “Partnership”), Solarmax Renewable Energy Provider, Inc., a California corporation having a principal place of business at 3080 12th Street, Riverside, California 92507 (“SREP”) and SolarMax Technology, Inc., a Nevada corporation having a principal place of business at 3080 12th Street, Riverside, California 92507 (“SolarMax” and, together with the Limited Partner, the Partnership, SREP and SolarMax, the “Parties” and each, individually, a “Party”).

R E C I T A L S

WHEREAS, the Partnership conducted a private offering (“Offering”) of limited partnership interests and raised capital from non-U.S. investors pursuant to Rule 506 of Regulation D and Regulation S of the Securities Act of 1933, as amended (“Securities Act”), and in accordance with EB-5 Immigration Investment Program (“EB-5 Program”) requirements; and

WHEREAS, the Partnership used the Offering proceeds to provide financing for the Project (as such term is defined in Section 1.7 of the Partnership’s limited partnership agreement dated December 24, 2013 (“Partnership Agreement”), by and through loans (“Loan”) to SREP in the aggregate principal amount of $45,000,000, as set forth in Loan Agreement dated January 3, 2012 (“Loan Agreement”) between the Partnership and SREP; and

WHEREAS, SREP is a wholly-owned subsidiary of SolarMax; and

WHEREAS, in connection with his or her investment of his capital contribution to the Partnership, the Limited Partner has filed Immigrant Petition by Alien Entrepreneur Form I-526 (“I-526 Petition”) with the United States Citizenship and Immigration Services (“USCIS”), which has since been approved by the USCIS; and

WHEREAS, the Limited Partner represents to the Partnership that the Limited Partner has submitted the Form I-829 Petition to Remove Conditions (“I-829 Petition”) with the USCIS, and the I-829 Petition has been approved by the USCIS; and

WHEREAS, pursuant to Section 2.5 of the Partnership Agreement, the Limited Partner may withdraw his capital contribution upon the removal of conditions of the Limited Partner’s permanent resident status, which occurred upon the approval of the Limited Partner’s I-829 Petition; and

WHEREAS, the Limited Partner has given the Partnership a notice of withdrawal from the Partnership; and

WHEREAS, the Partnership may, but is not required to, distribute to the Limited Partner any balance in the Limited Partner’s capital account, subject to certain conditions; and

WHEREAS, by this agreement, in full satisfaction of the Partnership’s payment of the Limited Partner’s capital contribution, the Partnership is transferring to the Limited Partner a portion of the note (the “SREP Note”) issued by SREP to the Partnership in the principal amount equal to the balance of the Limited Partner’s capital amount (the “Assigned Portion of the Loan”) and an interest in the security held by the Partnership in the SREP Note, and the Limited Partner is exchanging the Assigned Portion of the Loan for the 4% Secured Subordinated Convertible Promissory Note due five years from issuance jointly and severally issued by SolarMax and SREP (the “SolarMax Note”) in the principal amount equal to the Assigned Portion of the Loan; and

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WHEREAS, the SolarMax Note will be secured by a security interest in the Collateral, as hereinafter defined, which secures the SREP Note;

NOW, THEREFORE, in consideration of the mutual promises described herein, the Parties hereby agree to the terms and conditions set forth below.

1. Assignment of Assigned Portion of the Loan.

(a) The Partnership hereby assigns, transfers and conveys to the Limited Partner such portion of the Partnership’s right, title and interest in the SREP Note as equals the Assigned Portion of the Loan (the “LP Loan Amount”), together with an interest in the collateral held by the Partnership as security for the Loan. As a result of the transfer pursuant to this Section 1(a), without any further action on the part of the Partnership or SREP, the principal amount of the SREP Note is hereby reduced by the amount of the LP Loan Amount, and the Partnership has satisfied any obligation it has to the Limited Partner with respect to the Limited Partner’s capital contribution.

(b) As a result of the assignment of the Assigned Portion of the Note in the amount of the LP Loan Amount to the Limited Partner in respect of the balance of the Limited Partner’s capital account, the Limited Partner ceases to have any rights as a limited partner or otherwise under the Partnership Agreement and has no right or interest in the Partnership and has no rights or interests in or pursuant to the Partnership’s Partnership Agreement and no claims against Partnership or the general partner of the Partnership.

2. Exchange of LP Note Amount for SolarMax Note.

(a) Pursuant to this Agreement, the Limited Partner is exchanging the Assigned Portion of the Note in the amount of the LP Loan Amount for a SolarMax Note in the principal amount equal to the LP Note Amount, which shall be secured by a security interest in the Collateral, as provided in Sections 2(b) and 2(c) of this Agreement.

(b) The Limited Partner hereby assigns, transfers and conveys to SREP all of the Limited Partner’s right, title and interest in and to the Assigned Portion of the Note, without recourse to the Limited Partner. As a result of the assignment, the Limited Partner, upon the execution of this Agreement by the Limited Partner, has and shall have no further interest in the Assigned Portion of the Note.

(c) Contemporaneously with the execution of the Agreement, SolarMax and SREP are executing and delivering to the Limited Partner a SolarMax Note in the principal amount equal to the Assigned Portion of the Note. The Note shall be in substantially the form of Exhibit B to this Agreement. The Limited Partner, in his or her capacity as a holder of a SolarMax Note is referred to as the “Noteholder.”

(d) As a security for the payment and performance of all debts, liabilities and obligations of SREP and SolarMax pursuant to the SolarMax Note, SREP hereby grants to the Noteholder, as a holder of the SolarMax Note issued to the Noteholder, a security interest (the “Security Interest”) in all of its right, title and interest in and to the following, in each case whether now owned or existing or hereafter acquired or arising and however and wherever arising or located (collectively, “Collateral”):

(i) Accounts: All present and future accounts, accounts receivable and other rights of SREP to payment for the sale or lease of goods or the rendition of services, including without limitation all SREP’s installment sales contracts with its commercial and residential customers for the sale or lease of solar energy systems provided by SREP (collectively, “Solar Energy Contracts”) whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by performance, including, without limitation, accounts arising under any contracts (collectively, “Accounts”);

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(ii) Inventory: All of SREP’s present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or lease, and all goods consigned by such SREP and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of SREP’s business, (iii) raw materials, work-in-process and finished goods, (iv) materials, components and supplies of any kind, nature or description used or consumed in SREP’s business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in clauses (i) through (iii) above (collectively, “Inventory”).

(e) The Parties understand that the Collateral is the same as the collateral securing the SREP Note and the SolarMax Notes issued to other former limited partners of the Partnership.

3. Right with Respect to the Collateral.

(a) The Limited Partner shall have the right to file a UCC-1 with respect to the Limited Partner’s SolarMax Note without the signature of SREP. The Limited Partner hereby requests SREP to file the UCC-1 with the Secretary of State of the State of California and to provide the Limited Partner with evidence of filing within 45 days of the date of this Agreement, and SREP agreement to make the filing and provide the Limited Partner with evidence of filing.

(b) If an Event of Default, as defined in the SolarMax Note, shall occur and be continuing, the Noteholder may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of California or any other relevant jurisdiction at that time (the “Uniform Commercial Code”) (whether or not the Uniform Commercial Code applies to the affected Collateral).

(c) SREP shall not change its jurisdiction of organization or relocate its chief executive office, principal place of business or its records from its current address without at least seven (7) days prior notice to the Noteholder.

(d) If an Event of Default shall occur and be continuing under the Noteholder’s SolarMax Note, SREP hereby irrevocably constitutes and appoints such person (the “Noteholders’ Agent”)as may be designated by the holders of SolarMax Notes holding at least 50.1% of the then outstanding principal amount of SolarMax Notes, with full power of substitution, as its true and lawful attorney-in-fact with full, irrevocable power and authority in the place and stead of SREP and in the name of SREP or in its own name, from time to time at the Noteholders’ Agent’s discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Noteholders’ Agent the power and right, on behalf of SREP, subject to the rights of any creditor who holds a security interest in the Collateral senior to the rights of the Noteholder, without notice to or assent by SREP to do the following:

(i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due or to become due under any Collateral and, in the name of SREP, in its own name or otherwise to take possession of, endorse and collect any checks, drafts, notes, acceptances or other Instruments (as defined in the UCC) that may constitute Collateral for the payment of monies due under any Collateral and to file any claim or take or commence any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Noteholders’ Agent for the purpose of collecting any and all such monies due under any Collateral whenever payable;

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(ii) to pay or discharge any liens, including, without limitation, any tax lien, levied or placed on or threatened against the Collateral;

(iii) to (1) direct any person liable for any payment under or in respect of any of the Collateral to make payment of any and all monies due or to become due thereunder directly to the Noteholders’ Agent or as the Noteholders’ Agent shall direct, (2) receive payment of any and all monies, claims and other amounts due or to become due at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts constituting or relating to the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought against SREP with respect to any Collateral, (6) settle, compromise or adjust any suit, action or proceeding described above, and in connection therewith, give such discharges or releases as the Noteholders’ Agent may deem appropriate and (7) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Noteholders’ Agent were the absolute owner thereof for all purposes; and

(iv) to do, at the Noteholders’ Agent’s option and SREP’s expense, at any time, or from time to time, all acts and things which the Noteholders’ Agent may reasonably deem necessary to protect, preserve or realize upon the Collateral and the security interest therein in order to effect the intent of this Agreement, all as fully and effectively as SREP might do.

(e) After any Event of Default shall have occurred and while such Event of Default is continuing and subject to the rights of any creditor whose security interest in the Collateral is senior to the security interest of the Noteholder:

(i) The Noteholders’ Agent may exercise in addition to all other rights and remedies granted to it under this Agreement, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, SREP expressly agrees that in any such event Noteholders’ Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon SREP or any other person, may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral use any trademark, copyright, or process used or owned by SREP and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at the Noteholders’ Agent’s offices or elsewhere at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk. SREP further agrees, at the Noteholders’ Agent’s request, to assemble the Collateral and make it available to the Noteholders’ Agent at places which the Noteholders’ Agent shall reasonably select, whether at SREP’s premises or elsewhere; it being understood that, because of the size of the Collateral, the Collateral may be assembled at SREP’s premises. The Noteholders’ Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 3(e)(i), with the Company and SREP remaining jointly and severally liable for any deficiency remaining unpaid after such application. SREP agrees that the Noteholders’ Agent need not give more than twenty (20) days’ notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters.

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(ii) SREP also agrees to pay all reasonable fees, costs and expenses of the Noteholders’ Agent, including, without limitation, attorneys’ fees, incurred in connection with the enforcement of any of its rights and remedies hereunder.

(iii) SREP hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral.

(f) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Noteholders’ Agent, subject to the rights of creditors who have a security interest in the Collateral which is senior to the security interest of the Noteholder, in the following order of priorities:

(i) First, to the Noteholders’ Agent in an amount sufficient to pay in full the reasonable costs incurred in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Noteholders’ Agent in connection therewith, including, without limitation, attorneys’ fees; provided that SREP shall not pay the fees of more than one firm of attorneys representing all creditors with a security interest in the Collateral;

(ii) Second, to the holders of all debt secured by the Collateral in an amount equal to the then unpaid secured obligations of SREP to the such creditors with respect to their respective secured debt obligations such payments to be made in accordance with the applicable provisions of the UCC; and

(iii) Finally, upon payment in full of the obligations to such creditors, including the Noteholder, to SREP or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.

(g) Payment by the Company and SREP of the principal of and interest on the SolarMax Note and the right of the Noteholder and Noteholders’ Agent to exercise their rights under this Section 3 are subject and subordinated to the rights of the holders of present or future Senior Indebtedness (as defined in the SolarMax Note), all as set forth in Section 9 of the SolarMax Note.

4. Representations and Warranties of the Limited Partner. The Limited Partner represents and warrants to the Partnership, SREP and SolarMax as follows:

(a) The Limited Partner has the legal capacity and authority to execute, deliver and perform this Agreement. This Agreement is a legal, valid and binding obligation of the Limited Partner enforceable against the Limited Partner in accordance with its terms, except as enforceability may be limited by bankruptcy, reorganization, insolvency or similar laws and subject to general principles of equity. The Limited Partner is the sole lawful record and beneficial of the owner of all of the Interests, as defined in the Partnership Agreement, purported to be owned by the Limited Partner, and there are no voting trusts, voting agreements, proxies or other agreements or instruments or understandings with respect to voting of the Interests of the Limited Partner. No person has any right, option or interest in the Limited Partner’s Interest, and the Limited Partner’s Interest is not subject to any option, security interest, pledge, right of first refusal, spousal right or any other right or encumbrance of any kind and description, and the Limited Partner is not a party to any agreement or informal understanding with respect to any of the foregoing.

(b) The Limited Partner understands that SolarMax is a privately-owned corporation that has filed a registration statement on Form S-1 with respect to a proposed underwritten public offering of its securities. SolarMax can give no assurance that it will complete a public offering of its securities or, if it does complete a public offering of its securities, as to the offering price or any future price of SolarMax’s common stock. The Limited Partner understands that an investment in SolarMax involves a high degree of risk, including the possibility that neither SolarMax nor SREP will have the funds to pay the Limited Partner’s SolarMax Note when it becomes due. In accepting the SolarMax Note, the Limited Partner is not relying upon any projection as to future results of operations, cash flow or stockholders’ equity.

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(c) The Limited Partner is an accredited investor and the information set forth in the Accredited Investor Questionnaire, which is set forth as Exhibit A, is true and correct. The Limited Partner has such knowledge and experience in financial and business matters as to enable the Limited Partner to understand the nature and extent of the risks involved in making accepting the SolarMax Note. The Limited Partner is fully aware that such investments can and sometimes do result in the loss of the entire investment. The transaction contemplated by this Agreement represents a fair transaction and a fair payment in satisfaction of his/her limited partnership interest. The Limited Partner further represents and warrants that he or she has conducted such due diligence regarding the transactions contemplated hereunder and the SolarMax Note as he/she deems necessary and has reviewed this Agreement with his or her own counsel, accountants and investment advisors to the extent that the Limited Partner deems it necessary.

(d) The Limited Partner is acquiring the SolarMax Notes and, upon conversion of the SolarMax Note, the shares of SolarMax common stock, par value $0.001 per share, issuable upon conversion of the SolarMax Note (the “Conversion Shares”), for investment and not with a view to the sale or distribution thereof, for the Limited Partner’s own account and not on behalf of others; has not granted any other person any interest or participation in or right or option to purchase all or any portion of the SolarMax Note or Conversion Shares; is aware that the SolarMax Note and Conversion Shares are restricted securities within the meaning of Rule 144 of the SEC under the Securities Act, and may not be sold or otherwise transferred other than pursuant to an exemption from registration.

(e) The Limited Partner understands that he or she has no registration rights with respect to the Conversion Shares. The Limited Partner understands that he or she will only be able to sell the Conversion Shares pursuant to an exemption from the registration requirements of the Securities Act, including Rule 144. The Limited Partner covenants and agrees that the Conversion Shares may not be publicly sold or transferred prior to the later of (i) six months from the date of issuance of the Conversion Shares or (ii) six months from the date that SolarMax first receives the proceeds from its initial public offering. The certificate for the shares will include a legend with respect to the provisions of the preceding sentence as well as a standard investment legend, and SolarMax will issue stop transfer instructions to its transfer agent covering the covenant set forth in this Section 4(e). The Limited Partner will not transfer any SolarMax Notes or Conversion Shares or any interest therein except in compliance with all applicable federal and state securities laws and regulations, and, in such connection, the Company may request an opinion of counsel reasonably acceptable to it as to the availability of any exemption. The Limited Partner acknowledges and agrees that the Company will refuse to register any transfer of any SolarMax Note or Conversion Shares that is not made pursuant to an available exemption from the registration requirements of the Securities Act and in accordance with applicable state securities laws.

(f) There are no authorizations, consents, permits, licenses or approvals of, or declarations, registrations, or filings with, any governmental or regulatory authority required by the Limited Partner in connection with the execution, delivery or performance by the Limited Partner of this Agreement or the consummation by the Limited Partner of the transactions contemplated hereby.

(g) The execution, delivery and performance of this Agreement by the Limited Partner of the transactions contemplated hereby will not materially violate, breach, conflict with, constitute a default or result in the imposition of any lien, claim, or encumbrance on the Interests under (i) any provision of the Partnership Agreement; or (ii) any law, statute, rule or regulation or order, writ, judgment, injunction, award, or decree of any court, arbitrator or governmental or regulatory body to which the Limited Party or any of his/her properties are subject.

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(h) All of the information set forth in the Limited Partner’s Form I-526 and Form I-829 is true and correct in all material respects.

(i) The Limited Partner represents and warrants that no broker or finder was involved directly or indirectly in connection with the transactions contemplated by this Agreement. The Limited Partner shall indemnify the Partnership, SREP and SolarMax and their respective managers, officers, directors and affiliates and hold them harmless from and against any manner of loss, liability, damage or expense, including fees and expenses of counsel, resulting from a breach of the Limited Partner’s warranty contained in this Section 4(i).

(j) No person has made to the Limited Partner any written or oral representations:

(i) that any person will resell or repurchase any of the SolarMax Note or Conversion Shares;

(ii) as to the future price or value of the common stock of SolarMax.

(k) The funds used to purchase the Interest in the Partnership were not and are not directly or indirectly derived from activities that contravene (i) United States federal, state, or international laws and regulations, including anti-money laundering laws and regulations and (ii) if the Limited Partner is a citizen or resident of a country other than the United States, the anti-money laundering and similar laws of such country. United States federal regulations and Executive Orders administered by Office of Foreign Assets Control (“OFAC”) prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at http://www.treas.gov/ofac. In addition, the programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists.

(l) To the best of the Limited Partner’s knowledge, none of: (i) the Limited Partner; (ii) any person controlling or controlled by the Limited Partner; (iii) any person having a beneficial interest in the Limited Partner; or (iv) any person for whom the Limited Partner is acting as agent or nominee in connection with the purchase of the Units:

(i) is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited under the OFAC Programs. The Limited Partner agrees to promptly notify the Company should the Limited Partner become aware of any change in the information set forth in these representations; or

(ii) is a senior foreign political figure , or any immediate family member or close associate of a senior foreign political figure, as such terms are defined in the footnotes below.

(m) The Limited Partner is not affiliated with a non-U.S. banking corporation.

(n) The Limited Partner’s address set forth on the signature page is the Limited Partner’s true and correct address.

(o) The Limited Partner understands that the Company is relying upon the truth and accuracy of, and the Limited Partner’s compliance with, the representations, warranties and agreements of the Limited Partner set forth herein, and the Limited Partner acknowledges that he is not relying on any representation or warranty by the Company except as expressly set forth in this Agreement.

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(p) The Limited Partner agrees that the terms of this Agreement shall be kept confidential and not disclosed, except to the Limited Partner’s financial advisors, attorneys and accountants who agree to be bound by this Section 4(p) and except to the extent that disclosure is required by law. The Limited Partner’s obligation pursuant to this Section 4(p) shall terminate at such time as SolarMax discloses the terms of this Agreement in its filings with the Securities and Exchange Commission.

(q) The Limited Partner may not transfer the Note except to an accredited investor who makes the representations set forth in Sections 4(c), 4(d), 4(e) and 4(p) of this Agreement, with the references to the Limited Partner relating to the transferee and the reference to this Agreement in Section 4(p) relating to the agreement pursuant to which the transferee acquires the Note from the Limited Partner.

5. Representations and Warranties of the Partnership. The Partnership represents and warrants to the Limited Partner, SREP and SolarMax as follows:

(a) The Partnership is a limited partnership organized, validly existing and in good standing under the laws of the State of California, has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently and proposed to be conducted.

(b) This Agreement have been authorized by general partner of the Partnership and, when executed by the Limited Partner, SREP and SolarMax, will constitute the valid and binding agreements of the Partnership, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and other similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies and except that remedies that the grant equitable relief are in the discretion of the court.

(c) The execution, delivery and performance by the Partnership and the consummation of the transactions contemplated hereby will not, with or without the passage of time or giving of notice, result in any such material violation or default or result in the creation of any material lien, charge or encumbrance upon any assets of the Partnership or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Partnership, its business or operations, or any of its assets or properties.

(d) There is no action, suit, proceeding or investigation pending or, to the Partnership’s knowledge, currently threatened against the Partnership that questions the validity of this Agreement or the right of the Partnership to enter into this Agreement or to consummate the transactions contemplated hereby, or that could reasonably be expected to result, if determined adversely to the Partnership, in a Material Adverse Effect. The Partnership is not a party to, or to the Partnership’s knowledge named in, any order, writ, injunction, judgment or decree of any court, government agency or instrumentality. As used in this Agreement, a Material Adverse Effect affecting any Party means any adverse effect on the business, operations, properties or financial condition of such Party and its subsidiaries, if any, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of such Party to perform any of its material obligations under this Agreement or, with respect to SolarMax or SREP, the SolarMax Notes, or to perform its obligations under any other material agreement.

6. Representations and Warranties of SREP and SolarMax. SREP and SolarMax jointly and severally represent and warrant to the Limited Partner and the Partnership as follows.

(a) SolarMax is a corporation organized, validly existing and in good standing under the laws of the State of Nevada, has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently and proposed to be conducted. SREP is a corporation organized, validly existing and in good standing under the laws of the State of California, has all requisite power and authority to own and operate its properties and assets and to carry on its business as presently and proposed to be conducted. Neither SolarMax nor SREP has failed to qualify to transact business as a foreign corporation in any jurisdiction where the failure to be so qualified would have a Material Adverse Effect.

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(b) This Agreement and the SolarMax Notes have been authorized by boards of directors of SolarMax and SREP and, when executed by the Partnership and the Limited Partner, will constitute the valid and binding agreements of SolarMax and SREP, enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and other similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies and except that remedies that the grant equitable relief are in the discretion of the court.

(c) The issuance of the Conversion Shares has been authorized by the SolarMax’ board of directors and the Conversion Shares, when issued pursuant to the terms of the SolarMax Note, will be free of restrictions on transfer other than restrictions on transfer under the Securities Act and other applicable state and federal securities laws and restrictions incurred by the Limited Partner and the provisions of this Agreement.

(d) SolarMax and SREP have all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could have a Material Adverse Effect. Neither SolorMax nor SREP is in default in any material respect under any of such franchises, permits, licenses or other similar authority.

(e) The execution, delivery and performance by SolarMax and SREP of this Agreement and the consummation of the transactions contemplated hereby will not, with or without the passage of time or giving of notice, result in any such material violation or default or result in the creation of any material lien, charge or encumbrance upon any assets of SolarMax or SREP or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to SolarMax or SREP, their respective businesses or operations, or any of their respective assets or properties.

(f) There is no action, suit, proceeding or investigation pending or, to SolarMax’ or SREP’s knowledge, currently threatened against SolarMax or SREP that questions the validity of this Agreement or the SolarMax Notes or the right of SolarMax or SREP to enter into this Agreement, to issue the SolarMax Notes or to consummate the transactions contemplated hereby, or that could reasonably be expected to result, if determined adversely to the Company, in a Material Adverse Effect. Neither SolarMax nor SREP is a party to, or to SolarMax’ or SREP’s knowledge named in, any order, writ, injunction, judgment or decree of any court, government agency or instrumentality.

(g) Subject in part to the truth and accuracy of the Limited Partner’s representations set forth in this Agreement, the offer, sale and issuance of the SolarMax Notes as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and neither SolarMax nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption.

7. Right to Issue Additional SolarMax Notes. Nothing in this Agreement shall be construed to prohibit SolarMax and SREP from issuing to other limited partners of the Partnership SolarMax Notes which are secured by a security interest in the Collateral.

8. Release by Limited Partner.

(a) The Limited Partner, on his or her own behalf and on behalf of his or her family members, heirs, executors, administrators, successors and assigns, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, hereby unconditionally and irrevocably releases and discharges the Partnership, the general partner of the Partnership, SREP and SolarMax, and their respective members, general partners, offices, directors, counsel, predecessors, agents and employees and their respective heirs, executors, administrators, successors and assigns and from any and all actions, causes of action, suits, debts, sums of money, accounts, reckonings, notes, bonds, warrants, bills, specialties, covenants, contracts, controversies, agreements, liabilities, obligations, undertakings, promises, damages, claims and demands whatsoever, whether known or unknown, suspected or unsuspected, or in law, admiralty or equity, against them or any of them which the Limited Partner and his or her heirs, executors, administrators, successors and assigns ever had, now have or in the future can, shall or may have, for, upon or by reason of any matter, cause or thing arising from the beginning of the world to the date of this Agreement; provided, that nothing in this Section 8(a) shall be construed as a release by SREP or SolarMax of their obligations under the SolarMax Note or as a release of the Partnership, SREP and SolarMax of their obligations under this Agreement.

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(b) The Limited Partner understands and acknowledges that the Limited Partner has read and understands Section 1542 of the California Civil Code which reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

(c) The Limited Partner, having consulted legal counsel to the extent that the Limited Partner deems necessary, hereby expressly waives and relinquishes all rights and benefits under Section 1542 and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement. In furtherance of the foregoing release, to the maximum extent permitted by applicable law, neither the Partnership nor its general partner nor SREP nor SolarMax shall have any liability whatsoever in connection with, related to or arising from this Agreement, including (without limitation) special, consequential, exemplary, direct or indirect damages.

9. Miscellaneous.

(a) This Agreement (together with the any exhibits referred to herein or delivered pursuant to or in connection with this Agreement) constitutes the entire agreement among the Parties relating to the subject matter hereof, superseding any and all prior or contemporaneous oral and written agreements, understandings and letters of intent. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all Parties with respect to a modification or amendment or the Party granting the waiver with respect to a waiver. No course of conduct or dealing and no trade custom or usage shall modify any provisions of this Agreement. No failure or delay on the part of any Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

(b) Each of the Parties shall pay all of his or its costs and expenses (including attorney fees and other legal costs and expenses and accountants’ fees and other accounting costs and expenses) incurred by that Party in connection with this Agreement.

(c) All notices provided for in this Agreement shall be in writing signed by the Party giving such notice, and delivered personally or sent by overnight courier, mail or messenger against receipt thereof or sent by registered or certified mail, return receipt requested, or by facsimile transmission or similar means of communication if receipt is confirmed. Notices shall be deemed to have been received on the date of delivery or attempted personal delivery if sent by registered or certified mail, by messenger or by an overnight courier services which provides evidence of delivery or attempted delivery, of if sent by telecopier (if a telecopier number is provided) or e-mail, upon the date of delivery. Notices shall be sent to the Parties at their respective addresses set forth on the signature page of this Agreement. Any Party may, by like notice, change the address, person or telecopier number or email to which notice shall be sent.

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(d) This Agreement shall be governed and construed in accordance with the laws of the State of Nevada applicable to agreements executed and to be performed wholly within such State, without regard to any principles of conflicts of law. Each of the Parties hereby (i) irrevocably consents and agrees that any legal or equitable action or proceeding arising under or in connection with this Agreement may be brought in the federal or state courts located in the Clark County in the State of Nevada, (ii) by execution and delivery of this Agreement, irrevocably submits to and accepts the jurisdiction of said courts, (iii) waives any defense that such court is not a convenient forum, and (iv) consent that any service of process may be made (x) in the manner set forth in Section 9(c) of this Agreement (other than by telecopier or e-mail), or (y) by any other method of service permitted by law.

(e) THE PARTIES WAIVE THE RIGHT TO A TRIAL BY JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW. EACH PARTY REPRESENTS AND WARRANTS THAT SUCH PARTY HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

(f) Headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(g) If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any such term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

(h) This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective administrators, executors, legal representatives, heirs, successors and assignees.

(i) This Agreement shall not be construed more strongly against any Party regardless of who is responsible for its preparation. The Parties acknowledge each contributed and is equally responsible for its preparation. In resolving any dispute regarding, or construing any provision in, this Agreement, there shall be no presumption made or inference drawn because of the drafting history of the Agreement, or because of the inclusion of a provision not contained in a prior draft or the deletion or modification of a provision contained in a prior draft.

(j) In computing any period of time under this Agreement, the day of the act or event from which the specified period begins to run is not included. The last day of the period is included, unless it is a Saturday, Sunday or legal holiday, in which case the period will run until the end of the next day that is not a Saturday, Sunday or legal holiday. For purposes of this Section 8(j), a day shall be deemed to end at 5:00 p.m. in the time zone of the governing law of this Agreement.

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(k) Each Party shall, upon reasonable request by another Party, execute and deliver any additional documents necessary or desirable to complete the transactions herein pursuant to and in the manner contemplated by this Agreement.

(l) This Agreement is not intended to, nor does it, in any way confer any rights on any third parties. No third-party beneficiaries (whether express or implied or by operation of law or otherwise) are intended or created by this Agreement except as expressly provided in this Agreement.

(m) Counterparts or signature pages may be delivered via facsimile, electronic mail (including PDF) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes; provided, however, that manually signed copies of this Agreement shall be promptly delivered to the other Parties. If less than a complete copy of this Agreement is delivered to any Party, such Party is entitled to assume that the delivering Party accepts and agrees to all of the terms and conditions of the pages of this Agreement not delivered to the receiving Party unaltered.

(n) The representations, warranties, covenants and agreements made herein shall survive the Closing of the transaction contemplated hereby.

[Signatures on following page] 

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IN WITNESS WHEREOF, each of the Parties below hereby agrees to and accepts this agreement as of the date first set forth above:

Address, Email and Telecopier	Signature
	____________________________
	[Name of Limited Partner]
	____________________________
	CLEAN ENERGY FUNDING, LP By: INLAND EMPIRE RENEWABLE ENERGY REGIONAL CENTER, LLC, General Partner By: __________________________ Name: ________________________ Title: ________________________
	SOLARMAX RENEWABLE ENERGY PROVIDER, INC. By: __________________________ Name: ________________________ Title: ________________________
	SOLARMAX TECHNOLOGY, INC. By: __________________________ Name: ________________________ Title: ________________________

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Exhibit A

Accredited Investor Questionnaire for Individuals

The following are tests for an accredited investor who is an individual. Please initial which tests are applicable. Please initial all that apply.

_____A natural person whose individual net worth or joint net worth with Lender’s spouse, at the time of this purchase exceeds $1,000,000 (PLEASE NOTE: In calculating net worth, you include all of your assets (other than your primary residence), whether liquid or illiquid, such as cash, stock, securities, personal property and real estate based on the fair market value of such property MINUS all debts and liabilities (other than indebtedness secured by your primary residence, up to the estimated fair market value of the primary residence, unless the borrowing occurs in the 60 days preceding the purchase of the Units and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation.). In the event any incremental mortgage or other indebtedness secured by your primary residence occurs in the 60 days preceding the date of the purchase of the Units, the incremental borrowing must be treated as a liability and deducted from your net worth even though the value of your primary residence will not be included as an asset. Further, the amount of any mortgage or other indebtedness secured by your primary residence that exceeds the fair market value of the residence should also be deducted from your net worth);

_____ A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with Lender’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

_____ A director or executive officer of the Company.

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 Exhibit B

Form of SolarMax Note

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EX-10.20

EXHIBIT 10.20

NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

Original Issue Date: ________________________

Conversion Price (subject to adjustment): $[80% of the IPO price]

Initial Principal Amount:$_______________

4% SECURED SUBORDINATED CONVERTIBLE NOTE DUE ____________[five years from Original Issue Date]

FOR VALUE RECEIVED, SolarMax Technology, Inc., a Nevada corporation (the “Company”) and Solarmax Renewable Energy Provider, Inc., a California corporation and wholly-owned subsidiary of the Company (the “Subsidiary”) jointly and severally promise to pay to __or registered assigns (the “Holder”), the principal sum of $__ in five equal installments of $ __on the first, second, third, fourth and fifth anniversaries of the Original Issue Date, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 4% per annum in accordance with the provisions hereof. This Note was issued pursuant to the Exchange Agreement, as hereinafter defined. This Note is subject to the following additional provisions:

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Exchange Agreement and (b) the following terms shall have the following meanings:

“Accounts” shall have the meaning set forth in Section 8(a)(i).

“Alternate Consideration” shall have the meaning set forth in Section 5(b). 

“Bankruptcy Event” means any of the following events: (a) the Company or the Subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or the Subsidiary, (b) there is commenced against the Company or the Subsidiary any such case or proceeding that is not stayed or dismissed within 120 days after commencement, (c) the Company or the Subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or the Subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 120 calendar days after such appointment, (e) the Company or the Subsidiary makes a general assignment for the benefit of creditors, (f) the Company or the Subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or the Subsidiary admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or the Subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

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“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close for all or not less than half of a standard business day.

“Collateral” shall have the meaning set forth in Section 8(a).

“Conversion” shall have the meaning set ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof

“Event of Default” shall have the meaning set forth in Section 6(a).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exchange Agreement” means the Agreement among the Company, the Subsidiary, the Clean Energy Funding, LP, a California limited partnership (the “Partnership”), and the original Holder, as amended, modified or supplemented from time to time in accordance with its terms pursuant to which this Note was issued.

“Exchange Agreements” shall mean agreements with limited partners of the Partnership pursuant to which the Company and the Subsidiary issued Notes.

“Fundamental Transaction” shall have the meaning set forth in Section 5(b).

“Inventory” shall have the meaning set forth in Section 8(a)(ii).

“IPO Date” shall have the meaning set forth in Section 4(a).

“Nevada Courts” shall have the meaning set forth in Section 10(d). 

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“Note” means this 4% Secured Convertible Note.

“Note Register” shall have the meaning set forth in Section 2.

“Notes” means this Note together with the notes issued pursuant to Exchange Agreements with other former limited partners of the Partnership pursuant to which the Company and the Subsidiary issued Notes of like tenor to this Note.

“Noteholders’ Agent” shall have the meaning set forth in Section 8(e).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of this Note, regardless of any transfers of this Note and regardless of the number of instruments which may be issued to evidence this Note.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

“Security Interest” shall have the meaning set forth in Section 8(a).

“Senior Indebtedness” shall have the meaning set forth in Section 9(h).

“Solar Energy Contracts” shall have the meaning set forth in Section 8(a)(i).

“Successor Entity” shall have the meaning set forth in Section 5(b).

“Trading Day” means a day on which the principal trading market for the Common Stock is open for trading.

“Uniform Commercial Code” shall have the meaning set forth in Section 8(c).

Section 2. Interest. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note from the Original Issue Date at the rate of 4% per annum, payable quarterly in arrears, on the last day of each calendar quarter, with the first interest payment being due on the last day of the quarter in which the Note is issued. If any interest payment date is a day which is not a Business Day, the payment shall be made on the next day which is a Business Day. Interest shall be calculated on the basis of a 365-day year, based on the number of days elapsed. Interest will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).

Section 3. Investment Representation; Note Register.

(a) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Exchange Agreement and may be transferred or exchanged only in compliance with the Exchange Agreement and applicable federal and state securities laws and regulations.

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(b) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4. Conversion.

(a) Conversion. Commencing six months from the date the Company first receives proceeds from its initial public offering (the “IPO Date”) until this Note is no longer outstanding, the principal of and, with the consent of the Company, the accrued interest on this Note shall be convertible, in whole at any time or in part from time to time, into shares of Common Stock at the option of the Holder, during the five Trading Days commencing on the first, second, third, fourth and fifth anniversaries of the Original Issue Date of the Note at any time and from time to time; provided, that if any such anniversary shall occur prior to six months from the IPO Date, this Note can be first converted in whole or in part during the five Trading Days commencing on the Trading Day following six months from the IPO Date. The Holder shall effect conversion by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of and, with the consent of the Company, interest on this Note to be converted and the date which shall be no later than the second Business Day after the date the Notice of Conversion is received by the Company (the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Note as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

(b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $[ ] per share, subject to adjustment as provided in Section 5 (the “Conversion Price”).

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(c) Mechanics of Conversion.

(i) Conversion Shares Issuable Upon Conversion of Principal Amount and Accrued Interest. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted plus the amount of interest to be converted with the consent of the Company by (y) the Conversion Price. With the consent of the Company, unpaid interest accrued to the Conversion Date may be converted.

(ii) Delivery of Conversion Shares Upon Conversion. The Company shall deliver the Conversion Shares not later than the third Trading Day and after each Conversion Date (the “Share Delivery Date”).

(iii) Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Notes and interest on this Notes, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than such aggregate number of shares of the Common Stock as shall be issuable upon the conversion of the then outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.

(iv) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

(v) Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the principal or and interest on this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares if the Conversion Shares may be made by electronic delivery.

(vi) Conversion Schedule. The Conversion Schedule will be attached to this Note and the Company shall maintain a copy of the Conversion Schedule. Absent manifest error the Conversion Schedule maintained by the Company shall be determinative.

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(d) Restrictions on Public Sale. The Conversion Shares will not be publicly saleable for a period ending on the later to occur of six months from the Conversion Date or six months from the IPO Date. In converting this Note, the Holder will acknowledge that the Conversion Shares are subject to the restrictions on public sale set forth in this Section 4(d). It shall be a condition to any transfer which is not a public sale that the purchaser agree to the provisions of this Section 4(d). Until the restrictions set forth in this Section 4(d) expire, the certificate for the Conversion Shares shall bear a legend reflecting these restrictions. The restrictions contained in this Section 4(d) shall terminate upon the closing of a Fundamental Transaction.

Section 5. Certain Adjustments.

(a) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 5(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re‑classification.

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(b) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (iv) the Company, directly or indirectly, in one or more related transactions consummates a stock or share exchange or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share exchange agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such 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 (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Note in accordance with the provisions of this Section 5(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. Notwithstanding the foregoing, in connection with any Fundamental Transaction, the Company may provide in the agreement relating to the Fundamental Transaction, that the Notes shall be paid in full at the closing of the transaction. The Company shall give the Holder not less than seven (7) days’ notice that the Notes shall be paid at the closing of the Fundamental Transaction, in which event, notwithstanding any other provision of this Note, this Note shall be convertible in whole or in part from and after the date of such notice until the closing of the Fundamental Transaction and, to the extent that this Note is not converted by the closing date of the Fundamental Transaction, the Note shall be paid if payment is provided in the agreement relating to the Fundamental Transaction.

(c) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

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(d) Notice of Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

Section 6. Events of Default.

(a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i) any default by the Company or the Subsidiary in the payment of principal and interest on the Note when the same is due and such failure shall continue for a period of thirty (30) days; or

(ii) the Company or the Subsidiary shall be subject to a Bankruptcy Event;

(b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash, and the Holder shall have the rights set forth in Section 3 of the Exchange Agreement. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Company’s and the Subsidiary’s obligations under this Note, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 7. Prepayment. Subject to Section 9, the Company shall have the right to prepay the Notes at any time on not less than 15 days’ notice to the Holder, provided, that the date for prepayment shall not be earlier than six months from the IPO Date. The notice shall set forth the date of the prepayment. Any prepayment shall include accrued and unpaid interest, if any, to the date of prepayment. Notwithstanding any other provision of this Note, including Section 4(a), the Holder shall have the right to convert this Note, in whole or in party, commencing on the date of the notice of prepayment pursuant to this Section 7 and shall continue until 5:30 P.M., California time, on the date prior to the date set for prepayment, at which time the right to convert shall terminate.

Section 8. Security Interest.

(a) As a security for the payment and performance of all debts, liabilities and obligations of SREP and SolarMax pursuant to this Note, SREP has granted, pursuant to the Exchange Agreement, a security interest (the “Security Interest”) in all of its right, title and interest in and to the following, in each case whether now owned or existing or hereafter acquired or arising and however and wherever arising or located (collectively, “Collateral”):

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(i) Accounts: All present and future accounts, accounts receivable and other rights of SREP to payment for the sale or lease of goods or the rendition of services, including without limitation all SREP’s installment sales contracts with its commercial and residential customers for the sale or lease of solar energy systems provided by SREP (collectively, “Solar Energy Contracts”) whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by performance, including, without limitation, accounts arising under any contracts (collectively, “Accounts”);

(ii) Inventory: All of SREP’s present and future (i) inventory, (ii) goods, merchandise and other personal property furnished or to be furnished under any contract of service or intended for sale or lease, and all goods consigned by such SREP and all other items which have previously constituted Equipment but are then currently being held for sale or lease in the ordinary course of SREP’s business, (iii) raw materials, work-in-process and finished goods, (iv) materials, components and supplies of any kind, nature or description used or consumed in SREP’s business or in connection with the manufacture, production, packing, shipping, advertising, finishing or sale of any of the Property described in clauses (i) through (iii) above (collectively, “Inventory”).

(b) The Parties understand that the Collateral is the same as the collateral securing the SREP Note and the Notes issued to other former limited partners of the Partnership pursuant to Exchange Agreements.

(c) If an Event of Default shall occur and be continuing, subject to Section 9, the Holder may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in the State of California or any other relevant jurisdiction at that time (the “Uniform Commercial Code”) (whether or not the Uniform Commercial Code applies to the affected Collateral).

(d) SREP shall not change its jurisdiction of organization or relocate its chief executive office, principal place of business or its records from its current address without at least seven (7) days prior notice to the Noteholder.

(e) If an Event of Default shall occur and be continuing under this Note, SREP hereby irrevocably constitutes and appoints such person (the “Noteholders’ Agent”)as may be designated by the holders of SolarMax Notes holding at least 50.1% of the then outstanding principal amount of SolarMax Notes, with full power of substitution, as its true and lawful attorney-in-fact with full, irrevocable power and authority in the place and stead of SREP and in the name of SREP or in its own name, from time to time at the Noteholders’ Agent’s discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Noteholders’ Agent the power and right, on behalf of SREP, subject to the rights of the holders of Senior Indebtedness in the Collateral, without notice to or assent by SREP to do the following:

(i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due or to become due under any Collateral and, in the name of SREP, in its own name or otherwise to take possession of, endorse and collect any checks, drafts, notes, acceptances or other Instruments (as defined in the UCC) that may constitute Collateral for the payment of monies due under any Collateral and to file any claim or take or commence any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Noteholders’ Agent for the purpose of collecting any and all such monies due under any Collateral whenever payable;

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(ii) to pay or discharge any liens, including, without limitation, any tax lien, levied or placed on or threatened against the Collateral;

(iii) to (1) direct any person liable for any payment under or in respect of any of the Collateral to make payment of any and all monies due or to become due thereunder directly to the Noteholders’ Agent or as the Noteholders’ Agent shall direct, (2) receive payment of any and all monies, claims and other amounts due or to become due at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts constituting or relating to the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought against SREP with respect to any Collateral, (6) settle, compromise or adjust any suit, action or proceeding described above, and in connection therewith, give such discharges or releases as the Noteholders’ Agent may deem appropriate and (7) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Noteholders’ Agent were the absolute owner thereof for all purposes; and

(iv) to do, at the Noteholders’ Agent’s option and SREP’s expense, at any time, or from time to time, all acts and things which the Noteholders’ Agent may reasonably deem necessary to protect, preserve or realize upon the Collateral and the security interest therein in order to effect the intent of this Agreement, all as fully and effectively as SREP might do.

(f) After any Event of Default shall have occurred and while such Event of Default is continuing and subject to the rights of the holders of Senior Indebtedness,:

(i) The Noteholders’ Agent may exercise in addition to all other rights and remedies granted to it under this Agreement, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, SREP expressly agrees that in any such event Noteholders’ Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon SREP or any other person, may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral use any trademark, copyright, or process used or owned by SREP and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at the Noteholders’ Agent’s offices or elsewhere at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk. SREP further agrees, at the Noteholders’ Agent’s request, to assemble the Collateral and make it available to the Noteholders’ Agent at places which the Noteholders’ Agent shall reasonably select, whether at SREP’s premises or elsewhere; it being understood that, because of the size of the Collateral, the Collateral may be assembled at SREP’s premises. The Noteholders’ Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 3(e)(i), with the Company and SREP remaining jointly and severally liable for any deficiency remaining unpaid after such application. SREP agrees that the Noteholders’ Agent need not give more than twenty (20) days’ notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters.

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(ii) SREP also agrees to pay all reasonable fees, costs and expenses of the Noteholders’ Agent, including, without limitation, attorneys’ fees, incurred in connection with the enforcement of any of its rights and remedies hereunder.

(iii) SREP hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral.

(g) The Proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Noteholders’ Agent, subject to the rights of the holders of Senior Indebtedness, in the following order of priorities:

(i) First, to the Noteholders’ Agent in an amount sufficient to pay in full the reasonable costs incurred in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Noteholders’ Agent in connection therewith, including, without limitation, attorneys’ fees; provided that SREP shall not pay the fees of more than one firm of attorneys representing all creditors with a security interest in the Collateral;

(ii) Second, to the holders of all debt secured by the Collateral in an amount equal to the then unpaid secured obligations of SREP to the such creditors with respect to their respective secured debt obligations such payments to be made in accordance with the applicable provisions of the UCC; and

(iii) Finally, upon payment in full of the obligations to such creditors, including the Noteholder, to SREP or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.

Section 9. Subordination.

(a) Agreement of Subordination. The Company, for itself, its successors and assigns, covenants and agrees, and the Holder by the Holder’s acceptance of this Note likewise covenants and agrees, that the payment of the principal of and interest on this Note and the exercise by the Holder of the Holder’s rights under Section 8 of this Note, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Indebtedness, as hereinafter defined. The provisions of this Section 9 shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees hereunder the same as if their names were written herein as such, and they and/or each of them and their successors and assigns may proceed to enforce such provisions.

(b) -Company Not to Make Payments with Respect to Note in Certain Circumstances.

(i) Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, all principal thereof and premium, if any, and interest thereon and all obligations of the Company with respect to such Senior Indebtedness shall first be paid in full, or such payment duly provided for in cash or in a manner satisfactory to the holder or holders of such Senior Indebtedness, before any payment is made by the Company (A) on account of the principal of or interest on this Note or (B) to acquire this Note; provided, however, that nothing in this Section 9 shall impair or otherwise affect the right and ability of the Company to issue Conversion Shares upon conversion of the this Note pursuant to Section 4 of this Note.

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(ii) Upon the happening of an event of default with respect to any Senior Indebtedness, as such event of default is defined therein or in the instrument under which it is outstanding, permitting the holders to accelerate the maturity thereof, and, if the default is other than default in payment of the principal of or premium, if any, or interest on such Senior Indebtedness, upon written notice thereof given to the Company by the holder or holders of such Senior Indebtedness or their representative or representatives, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Company (A) on account of the principal of or interest on this Note or (B) to acquire this Note.

(iii) In the event that, notwithstanding the provision of this Section 9(b), the Company shall make any payment to the Holder on account of the principal of or interest on this Note after the happening of a default in payment of the principal of or premium, if any, or interest on, Senior Indebtedness or after receipt by the Company of written notice of an event of default with respect to any Senior Indebtedness and after written notice of such default or event of default is given by the Company to the holder, then unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, such payment shall be held by the Holder in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their representative or the trustee under the indenture or other agreement (if any) pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with the terms of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness.

(c) Note Subordinated to Prior Payment of all Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise):

(i) The holders of all Senior Indebtedness shall first be entitled to receive payment in full of the principal thereof, premium, if any, and interest due thereon and all obligations of the Company with respect to such Senior Indebtedness before the Registered Holder is entitled to receive any payment on account of the principal of or interest on this Note (other than payment of shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which stock and securities are subordinated to the payment of all Senior Indebtedness and securities received in lieu thereof which may at the time be outstanding); and

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(ii) Any payment or distribution of assets of the Company of any kind or character whether in cash, property or securities (other than Common Stock or equity of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which stock and securities are subordinated to the payment of all Senior Indebtedness and securities received in lieu thereof which may at the time be outstanding), to which the Holder would be entitled except for the provisions of Section 4 and this Section 9, shall be paid by the liquidating trustee or agent or other person making such payment of distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness.

(iii) In the event that notwithstanding the foregoing provision of this Section 9, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (other than Common Stock or equity of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which stock and securities are subordinated to the payment of all Senior Indebtedness and securities received in lieu thereof which may at the time be outstanding), shall be received by the Holder on account of principal of or interest on this Note before all Senior Indebtedness is paid in full or effective provision made for its payment or distribution, such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representative or representatives, or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, for application to the payment of such Senior Indebtedness until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness.

(d) Holder to be Subrogated to Right of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on this Note shall be paid in full, and, for the purpose of such subrogation, no payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the Holder by virtue of this Section 9 which otherwise would have been made to the holders of this Note shall, as between the Company and the Holder, be deemed to be payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Section 9 are, and are intended solely, for the purpose of defining the relative rights of the Holder of this Note, on the one hand, and the holders of the Senior Indebtedness, on the other hand.

(e) -Obligation of the Company Unconditional. Nothing contained in this Section 9 or elsewhere in this Note is intended to or shall impair as between the Company and the Holder, the obligation of the Company, which is absolute and unconditional, to pay to the Holder the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Holder and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 9 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Section 9, the holder of this Note shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the Holder for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 9.

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(f) -Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Note, regardless of any knowledge thereof which any such holder may have or be otherwise charged with.

(g) Limitation of Exercise of Rights under Section 8. At any time when Senior Indebtedness is outstanding, if any holder of Senior Indebtedness shall have a security interest in the Collateral, the Holder shall not exercise any rights under Section 8 of this Note with respect to the Collateral without the consent of the holder(s) of the Senior Indebtedness, it being understood that the holders of the Senior Indebtedness who have a security interest in the Collateral shall have the right to control the exercise or non-exercise of all rights granted to holders of security interests in the Collateral.

(h) -Definition of Senior Indebtedness. The term “Senior Indebtedness” is defined to mean the principal of and premium, if any, and interest on the following: (i) all indebtedness and obligations (other than the Notes) that are created, assumed or guaranteed by the Company, whether before or after the issuance of the Notes, that are (A) for money borrowed or (B) secured by purchase money mortgages or other similar security interests given by the Company or any subsidiary on real or personal property, (ii) all obligations of the Company, whether existing on or after the issuance of the Notes, as lessee under a lease of real or personal property, which in accordance with generally accepted accounting principles have been capitalized, unless, with respect to any indebtedness or obligations described in clause (i) or (ii) of this Section 9(h), the instrument creating or evidencing such indebtedness expressly provides that such indebtedness is not superior in right of payment of the Notes, (iii) all indebtedness or obligations of a kind not described in said clause (i) or (ii) which were incurred or guaranteed by the Company in connection with the acquisition of an existing business or assets, whether by means of a merger, consolidation, stock acquisition or acquisition of all or part of the assets of a corporation, partnership, limited lability company, business trust, sole proprietorship or other entity, or otherwise, and (iv) any deferrals, renewals, extensions or refundings of any of the foregoing, unless, in the case of any particular indebtedness or obligation or renewal, extension or refunding thereof, under the express provisions of the instrument creating or evidencing the same, or pursuant to which the same is outstanding, such indebtedness or other obligation or such renewal, extension or refunding thereof is not superior in right of payment to this Note. Senior Indebtedness shall not include (x) indebtedness incurred for compensation to employees, or (y) other indebtedness incurred in the ordinary course of business for goods, materials, or services or any obligations of the Company under, or in respect of, leases other than as hereinbefore described. There are no restrictions on the right of the Company to incur Senior Indebtedness. Senior Indebtedness shall not include any Notes issued pursuant to Exchange Agreements or any indebtedness by the Company to the Partnership.

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(i) Right of Holder to Hold Senior Indebtedness. The Holder shall be entitled to all of the rights set forth in this Section 9 in respect of any Senior Indebtedness at any time held by the Holder to the same extent as any other holder of Senior Indebtedness, and nothing in this Section 9 or elsewhere in this Note shall be construed to deprive the Registered Holder of any of its rights as such holder.

Section 10. Miscellaneous.

(a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 10(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Exchange Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email to the email address set forth in the Exchange Agreement prior to 5:30 p.m. (California time) on any date provided that transmission to the Company is acknowledged by the Company, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (California time) on any Trading Day, or (iii) upon actual receipt by the party to whom such notice is required to be given.

(b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company and the Subsidiary, which is absolute and unconditional, to pay the principal of and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct joint and several debt obligation of the Company and the Subsidiary. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.

(c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company and, in the case of a Note which is lost, stolen or destroyed, the Company may request indemnity and/or a bond as to the value of the Note and the Conversion Shares.

15

(d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the County of Clark in the State of Nevada (the “Nevada Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Nevada Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Nevada Courts, or such Nevada Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.

(e) Legal Action. If any party shall commence an action or proceeding to enforce any provisions of this Note and one party shall prevail on substantially all of the issues in dispute, the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

(f) Waiver. Any waiver by the Company, the Subsidiary or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by the Company or the Holder must be in writing.

(g) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

16

(h) Usury Savings Clause. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

(i) Remedies, Characterizations, Other Obligations, Breaches. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

(j) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

(k) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

(l) Secured Obligation. The obligations of the Company and the Subsidiary under this Note are secured by the Collateral, pursuant to and as defined in, the Exchange Agreement.

(m) Transferability. This Note may be transferred by the holder only in accordance with the provisions of the Exchange Agreement.

IN WITNESS WHEREOF, the Company and the Subsidiary have caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

SOLARMAX TECHNOLOGY, INC.

By:______________________________________

Name

Title:

SOLARMAX RENEWABLE ENERGY PROVIDER, INC.

By:______________________________________

Name

Title:

17

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 4% Secured Convertible Note of SolarMax Technology, Inc., a Nevada corporation (the “Company”), and Solarmax Renewable Energy Provider, Inc., a California corporation, into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned confirms that the shares of Common Stock issuable upon conversion are subject to the restrictions on public sale set forth in Section 4(d) of the Note.

Conversion calculations:

Date to Effect Conversion: ___________________________________

Principal Amount of Note to be Converted: ___________________________________

Interest to be Converted: ___________________________________

Conversion Price: $3.20 (subject to adjustment as provided in this Note)

Number of shares of Common Stock to be issued (The sum of the principal amount and interest to be converted divided by the Conversion Price): ___________________________________

Signature: ___________________________________

Name: ___________________________________

Address for Delivery of Common Stock Certificates:___________________________________

18

Schedule 1

CONVERSION SCHEDULE

The 4% Secured Convertible Note in the aggregate principal amount of $____________ is issued by SolarMax Technology, Inc., a Nevada corporation, and Solarmax Renewable Energy Provider, Inc., a California corporation This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.

Date of Conversion Amount of Conversion (principal/interest) Principal Amount Remaining Subsequent to Conversion Company Attest

19

EX-10.21

EXHIBIT 10.21

SolarMax Technology, Inc.

3080 12th Street

Riverside, California 92507

March 27, 2019

David Hsu

3080 12th Street

Riverside, CA 92507

Via Email: davidh@solarmaxtech.com

Re: Restricted stock grant for 1,350,000 shares of Common Stock of SolarMax Technology, Inc. (the “Stock Grant”) -- Exchange Agreement B

Dear David:

Reference is made to the Stock Grant which was granted to you on October 7, 2016. Pursuant to the agreement relating to the issuance of the Stock Grant, your right to the shares of common stock of SolarMax Technology, Inc. (the “Company”) represented by the Stock Grant will vest six months after a Public Stock Event. As you may be aware, the Company filed a registration statement with respect to its initial public offering on December 24, 2018. If the Company does not complete a public stock event by April 30, 2019, which date may be extended by the Company, the shares issued in the Stock Grant become forfeitable and are to be conveyed to the Company for no consideration.

The Company has given you the right to (i) exchange 50% the shares issued pursuant to the Stock Grant for an option to purchase a number of shares equal to 2.119 times the number of shares as equals 50% of the number of shares granted pursuant to your Stock Grant and (ii) transfer to the Company for cancellation 50% of the shares issued pursuant to the Stock Grant for a payment of $1.00 per share. Thus, if you exercise this right, your Stock Grant of 1,350,000 shares will be exchanged for an option to purchase 1,430,325 shares and you will receive a payment of $675,000 not later than December 15, 2019. The option will be in the form of Exhibit A to this letter. Your execution of this letter will transfer all of your Stock Grant shares to the Company for cancelation without any further action on your behalf. Your right to exchange the Stock Grant shares for the option and cash will expire at 5:30 P.M. Pacific time on April 6, 2019.

The following is a summary of the terms of the option and does not purport to be complete and is qualified in its entirety by the terms of the option.

Exercise Price:	$5.00 per share
Adjustments to Exercise Price	In the event of any stock distribution, split or dividend or reverse stock split or combination of shares or similar recapitalization, the number of shares subject to the option and the exercise price will be adjusted in accordance with generally accepted accounting principles.
Condition to Exercise:	1. The option will become exercisable six months from a Public Stock Event provided that the public stock event occurs prior to April 30, 2019 or such later date as may be determined by the Company’s board of directors, in its sole discretion. If the Public Stock Event does not occur by such date, the option shall expire without any action on the part of the Company or you and you will have no rights under the option. 2. The option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8, which is a special form of registration statement for issuances such as issuances pursuant to an option. The Company will not file a Form S-8 prior to six months from the date of the Public Stock Event. 3. If the managing underwriter request the Company’s stockholders to exercise a Lock up Agreement, as defined below, the option cannot be exercised until the earlier of (a) the date the option holder signs the Lock up Agreement or (b) the expiration of all periods during which the sale of shares of common stock is restricted pursuant to the Lock up Agreement.
Public Stock Event:	A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.
Exercise Period:	Subject to the conditions to exercise described above, the option may be exercised as to 50% of the shares initially subject to the option six months from the date of date of the Public Stock Event and as to all shares subject to the option 18 months from the Public Stock Event. The option expires on the earlier of (i) ten years from the date of the Public Stock Event (the “Stated Expiration Date”) or (ii) the date the Option Holder ceases to be an employee of or consultant to the Company or an affiliate of the Company; provided; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Stated Expiration Date.
Nonqualified Option:	The option will be a non-qualified option. For United States residents, upon exercise of a non-qualified stock option, the difference between the exercise price of the option and the fair market value of the stock on the date of exercise is treated as ordinary income.
Lock-up; Leak-out agreement	In connection with a proposed public offering, the managing underwriter requests that the Company’s stockholders execute an agreement pursuant to which the stockholders agree not to sell any shares of the Company’s common stock for a specified period and thereafter limit the number of shares which may be sold for a subsequent period, the option holder will agree to execute such an agreement (a “Lock up Agreement”). The Company will not deliver the option to you until you have signed and delivered the Lock up Agreement to the Company.
Not Transferable:	The option is not transferrable except that, in the event of the option holder’s death or declaration of incompetency, the option may be exercised by the option holder’s legal representative or estate.

If you exercise your right to exchange your Stock Grant shares for the option and cash, please sign below and return this letter and the enclosed Lock up Agreement to the Company.

Very truly yours,

/s/ David Hsu

David Hsu

Chief Executive Officer

I hereby accept the Company’s offer to exchange my 1,350,000 Stock Grant shares for an option to purchase 1,430,325 shares of Common Stock at $5.00 per share and a payment $675,000 pursuant to the foregoing offer letter. I represent to the Company that I understand the terms of the exchange and that I have consulted by tax and financial advisors to the extent that I deem necessary. I understand that the Company is making no representation that a Public Stock Event will occur, that the option will become exercisable or, if a Public Stock Event occurs, as to the market price for the Company’s common stock. I hereby irrevocably convey and transfer to the Company my 1,350,000 Stock Grant shares and authorize the Company and its executive officers to take any action necessary to transfer the shares to the Company and to subsequently cancel such shares. I further agree to execute the Lock up Agreement.

/s/ David Hsu

David Hsu

EXHIBIT A - INSTRUMENT OF NONQUALIFIED STOCK OPTION GRANT

[Exchange of Restricted Stock]

Instrument of Grant issued as of this ^th day of March, 2019, from SolarMax Technology, Inc., a Nevada corporation, with offices at 3080 12^th Street, Riverside, CA 92507 (the “Company”), to [name of Option Holder], whose address is set forth at the end of this Instrument of Grant (the “Option Holder”).

W I T N E S S E T H:

WHEREAS, the Company has, on the date of this Instrument of Grant, granted Option Holder a nonqualified stock option (the “Option”) to purchase from the Company shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), pursuant to the Company’s 2016 Long-Term Incentive Plan (the “Plan”) pursuant to a restricted stock exchange agreement whereby the Option Holder exchanged restricted shares of Common Stock for this Option;

WHEREFORE, the Company does hereby grant to the Option Holder the following Option:

Stock Option. Subject to the terms and conditions set forth in this Instrument of Grant, the Company hereby grants to the Option Holder a non-qualified stock option (the “Option”) to purchase from the Company [ • ] shares (the “Shares”) of Common Stock at an exercise price (the “Exercise Price”) of $5.00 per share, being the fair value per share of Common Stock on the date of grant.

Exercise Period.

The Option shall be exercisable will become exercisable cumulative as to (i) 50% of the shares of Common Stock initially subject to the Option six months from a Public Stock Event and (ii) the remaining 50% of the shares of Common Stock initially subject to the Option 18 months from the Public Stock Event. Unless otherwise terminated earlier as provided in this Instrument of Grant, the Option expires on the earlier of (i) 5:00 P.M. Pacific time ten years from the date of the Public Stock Event (the “Expiration Date”) or (ii), the date on which the Option Holder ceases to be an employee of the Company or an affiliate of the Company; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Expiration Date.

A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.

If a Public Stock Event shall not have occurred by April 30, 2019, or such later date as may be determined by the Board of Directors or the Compensation Committee, in its sole discretion, this Option shall terminate at 5:00 P.M. Pacific time on such date without any action on the party of the Company or the Option Holder..

Notwithstanding any other provisions of this Instrument of Grant, without the consent of the Compensation Committee of the Board of Directors, which may be granted in its sole discretion, the Option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8. The Company will not file a Form S-8 registration statement prior to six months from the date of the Public Stock Event.

Termination. The Option shall terminate, and Option Holder shall have no further rights under the Option, on the Expiration Date, subject to earlier termination to the extent provided in Section 2(a) of this Instrument of Grant and subject to the provisions of the Plan.

Manner of Exercise.

The Option shall be exercised by written notice of exercise in the form of Exhibit A to this Instrument of Grant addressed to the Company and signed by the Option Holder and delivered to the Company along with this Instrument of Grant and payment in full of the Exercise Price of the Optioned Shares as to which the Option is being exercised. If the Option is exercised in part only, the Company will either issue a new Instrument of Grant with respect to the unexercised portion of the Option or shall make a notation on this Instrument of Grant reflecting the partial exercise. The Exercise Price is payable by certified or official bank check or by personal check; provided, however, that no Optioned Shares shall be issued to Option Holder until the Company has been advised by its bank that the check has cleared.

The Option may also be exercised by the delivery to the Company of shares of Common Stock having a fair market value as of the date of exercise, equal to the Exercise Price of the Optioned Shares to the extent that the Option is being exercised by written notice of exercise in the form of Exhibit B to this Instrument of Grant addressed to the Company and signed by the Option Holder. The market value of the Common Stock shall be determined as follows:

If the Common Stock is listed on a national securities exchange or is quoted on the OTCQX, OTCQB, or OTC Pink or other service which provides information as to the last sale price, the current value shall be the reported last sale prices of one share of Common Stock on such exchange, market or system on the trading day prior to the date of exercise of the Option, or if, on any of such dates, no such sale is made on such day, the last reported sale on such exchange, market or system shall be used; or

If the Common Stock is not so listed or admitted to unlisted trading privileges or traded, the current value shall be the mean average of the reported last bid and asked prices of one share of Common Stock as reported by a reporting services selected by the Company, on the last trading day prior to the date of the exercise of the Option; or

If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value of one share of Common Stock shall be an amount, not less than net tangible book value per share determined in such reasonable manner as may be prescribed by the Compensation Committee of the Board of Directors of the Company.

The Option may also be exercised through a brokerage transaction in a manner approved by the Compensation Committee.

Adjustment Provisions. The number of shares of Common Stock subject to the Option and the Exercise Price shall be adjusted in accordance with generally accepted accounting principles in the event of a stock dividend, stock split, stock distribution, reverse split or other combination of shares, recapitalization or otherwise, which affects the Common Stock.

Not Transferable. The Option is not transferable by the Option Holder, and may be exercised only by the Option Holder except that, in the event of the Option Holder’s death or disability, the Option may be exercised by Option Holder’s legal representative or by the persons to whom the Option is transferred by will or the laws of descent and distribution..

No Rights as a Stockholder. The Option Holder shall have no interest in and shall not be entitled to any voting rights or any dividend or other rights or privileges of a stockholder of the Company with respect to any shares of Common Stock issuable upon exercise of this Option prior to the exercise of this Option and payment of the Exercise Price of the Optioned Shares.

No Rights to Continued Employment. Nothing in this Instrument of Grant shall be constructed as an employment agreement or to grant any rights to continue as an employee of or consultant to the Company.

Legality. Anything in this Option to the contrary notwithstanding, the Option Holder agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares of Common Stock pursuant to this Option, if the exercise of the Option or the issuance of such shares shall constitute a violation by the Option Holder or by the Company of any provisions of any law or of any regulation of any governmental authority. Any determination by the Board of Directors or the Compensation Committee of the Board of Directors, if appointed, shall be final, binding and conclusive. In the event that the Compensation Committee shall not have been appointed, references to the Compensation Committee shall relate to the Board of Directors. The Company shall not be obligated to take any affirmative action in order to cause the exercise of the Option or the issuance of shares pursuant thereto to comply with such law or regulation. In this connection, the Option Holder understands that the Optioned Shares, if and when issued, will be restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act unless issued pursuant to a registration statement on Form S-8. The Company shall not be required to issue any Shares if the Company is not satisfied that the issuance thereof is permitted pursuant to the Securities Act without registration under the Securities Act.

Action by Company. The existence of the Option shall not effect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapi-talization, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

Interpretation. As a condition of the granting of the Option, the Option Holder and each person who succeeds to the Option Holder’s rights hereunder, agrees that any dispute or disagreement which shall arise under or as a result of or pursuant to this Option shall be determined by the Committee in its sole discretion and that any interpretation by the Committee of the terms of this Agreement shall be final, binding and conclusive. If no Committee is acting, its functions shall be performed by the Board of Directors, and each reference in this Option to the Committee shall, in that event, be deemed to refer to the Board of Directors. The rights of the Option Holder with respect to the Option are subject to the Plan and the interpretations of the Plan by the Committee.

Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and any be delivered personally or by mail, postage prepaid, addressed as follows: to the Company, at 3080 12^th Street, Riverside, CA 92507, Attention: Chairman and Chief Executive Officer, or at such other address as the Company, by notice, may designate in writing from time to time; to the Option Holder, at the address shown on the records of the Company or at such other address as the Option Holder, by notice to the Company, may designate in writing from time to time.

IN WITNESS WHEREOF, the Company has executed this Instrument of Grant as of the date first above written.

	SOLARMAX TECHNOLOYG, INC.
	By:
		David Hsu, Chief Executive Officer
Address	OPTION HOLDER

Exhibit A

Date:

SolarMax Technology, Inc.

3080 12th Street

Riverside, CA 92507

Attention: Chairman and CEO

Re: Stock Option Exercise – Cash Exercise

Gentlemen:

I hereby exercise the option to the extent of _________ shares, and I am tendering with this Notice full payment of the Exercise Price with respect to the Optioned Shares as to which this Option is being exercised. I further represent and warrant to the Company that I am aware of the tax consequences of my exercise of the option.

Very truly yours,

Exhibit B

Date:

SolarMax Technology, Inc.

3080 12th Street

Riverside, CA 92507

Attention: Chairman and CEO

Re: Stock Option Exercise – Delivery of Stock

Gentlemen:

I hereby exercise the option to the extent of _________ shares, and I am tendering with this Notice full payment of the Exercise Price in the form of ___________ shares of Common Stock having a value, determined as provided in the Instrument of Grant, equal to $___________, as follows:

Total Exercise Price: _____________

Current Value of Common Stock: _____________

Number of shares of Common Stock being delivered: _____________

I further represent and warrant to the Company that I am aware of the tax consequences of my exercise of the option.

Very truly yours,

EX-10.22

EXHIBIT 10.22

SolarMax Technology, Inc.

3080 12th Street

Riverside, California 92507

March 27, 2019

Ching Liu

3080 12th Street

Riverside, CA 92507

Via Email: chingl@solarmaxtech.com

Re: Restricted stock grant for 1,000,000 shares of Common Stock of SolarMax Technology, Inc. (the “Stock Grant”) -- Exchange Agreement B

Dear Ching:

Reference is made to the Stock Grant which was granted to you on October 7, 2016. Pursuant to the agreement relating to the issuance of the Stock Grant, your right to the shares of common stock of SolarMax Technology, Inc. (the “Company”) represented by the Stock Grant will vest six months after a Public Stock Event. As you may be aware, the Company filed a registration statement with respect to its initial public offering on December 24, 2018. If the Company does not complete a public stock event by April 30, 2019, which date may be extended by the Company, the shares issued in the Stock Grant become forfeitable and are to be conveyed to the Company for no consideration.

The Company has given you the right to (i) exchange 50% the shares issued pursuant to the Stock Grant for an option to purchase a number of shares equal to 2.119 times the number of shares as equals 50% of the number of shares granted pursuant to your Stock Grant and (ii) transfer to the Company for cancellation 50% of the shares issued pursuant to the Stock Grant for a payment of $1.00 per share. Thus, if you exercise this right, your Stock Grant of 1,000,000 shares will be exchanged for an option to purchase 1,059,500 shares and you will receive a payment of $500,000 not later than December 15, 2019. The option will be in the form of Exhibit A to this letter. Your execution of this letter will transfer all of your Stock Grant shares to the Company for cancelation without any further action on your behalf. Your right to exchange the Stock Grant shares for the option and cash will expire at 5:30 P.M. Pacific time on April 6, 2019.

The following is a summary of the terms of the option and does not purport to be complete and is qualified in its entirety by the terms of the option.

Exercise Price:	$5.00 per share
Adjustments to Exercise Price	In the event of any stock distribution, split or dividend or reverse stock split or combination of shares or similar recapitalization, the number of shares subject to the option and the exercise price will be adjusted in accordance with generally accepted accounting principles.
Condition to Exercise:	1. The option will become exercisable six months from a Public Stock Event provided that the public stock event occurs prior to April 30, 2019 or such later date as may be determined by the Company’s board of directors, in its sole discretion. If the Public Stock Event does not occur by such date, the option shall expire without any action on the part of the Company or you and you will have no rights under the option. 2. The option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8, which is a special form of registration statement for issuances such as issuances pursuant to an option. The Company will not file a Form S-8 prior to six months from the date of the Public Stock Event. 3. If the managing underwriter request the Company’s stockholders to exercise a Lock up Agreement, as defined below, the option cannot be exercised until the earlier of (a) the date the option holder signs the Lock up Agreement or (b) the expiration of all periods during which the sale of shares of common stock is restricted pursuant to the Lock up Agreement.
Public Stock Event:	A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.
Exercise Period:	Subject to the conditions to exercise described above, the option may be exercised as to 50% of the shares initially subject to the option six months from the date of date of the Public Stock Event and as to all shares subject to the option 18 months from the Public Stock Event. The option expires on the earlier of (i) ten years from the date of the Public Stock Event (the “Stated Expiration Date”) or (ii) the date the Option Holder ceases to be an employee of or consultant to the Company or an affiliate of the Company; provided; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Stated Expiration Date.
Nonqualified Option:	The option will be a non-qualified option. For United States residents, upon exercise of a non-qualified stock option, the difference between the exercise price of the option and the fair market value of the stock on the date of exercise is treated as ordinary income.
Lock-up; Leak-out agreement	In connection with a proposed public offering, the managing underwriter requests that the Company’s stockholders execute an agreement pursuant to which the stockholders agree not to sell any shares of the Company’s common stock for a specified period and thereafter limit the number of shares which may be sold for a subsequent period, the option holder will agree to execute such an agreement (a “Lock up Agreement”). The Company will not deliver the option to you until you have signed and delivered the Lock up Agreement to the Company.
Not Transferable:	The option is not transferrable except that, in the event of the option holder’s death or declaration of incompetency, the option may be exercised by the option holder’s legal representative or estate.

If you exercise your right to exchange your Stock Grant shares for the option and cash, please sign below and return this letter and the enclosed Lock up Agreement to the Company.

Very truly yours,

/s/ David Hsu

David Hsu

Chief Executive Officer

I hereby accept the Company’s offer to exchange my 1,000,000 Stock Grant shares for an option to purchase 1,059,500 shares of Common Stock at $5.00 per share and a payment $500,000 pursuant to the foregoing offer letter. I represent to the Company that I understand the terms of the exchange and that I have consulted by tax and financial advisors to the extent that I deem necessary. I understand that the Company is making no representation that a Public Stock Event will occur, that the option will become exercisable or, if a Public Stock Event occurs, as to the market price for the Company’s common stock. I hereby irrevocably convey and transfer to the Company my 1,000,000 Stock Grant shares and authorize the Company and its executive officers to take any action necessary to transfer the shares to the Company and to subsequently cancel such shares. I further agree to execute the Lock up Agreement.

/s/ Ching Liu

Ching Liu

EXHIBIT A - INSTRUMENT OF NONQUALIFIED STOCK OPTION GRANT

[Exchange of Restricted Stock]

Instrument of Grant issued as of this ^th day of March, 2019, from SolarMax Technology, Inc., a Nevada corporation, with offices at 3080 12^th Street, Riverside, CA 92507 (the “Company”), to [name of Option Holder], whose address is set forth at the end of this Instrument of Grant (the “Option Holder”).

W I T N E S S E T H:

WHEREAS, the Company has, on the date of this Instrument of Grant, granted Option Holder a nonqualified stock option (the “Option”) to purchase from the Company shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), pursuant to the Company’s 2016 Long-Term Incentive Plan (the “Plan”) pursuant to a restricted stock exchange agreement whereby the Option Holder exchanged restricted shares of Common Stock for this Option;

WHEREFORE, the Company does hereby grant to the Option Holder the following Option:

Stock Option. Subject to the terms and conditions set forth in this Instrument of Grant, the Company hereby grants to the Option Holder a non-qualified stock option (the “Option”) to purchase from the Company [ • ] shares (the “Shares”) of Common Stock at an exercise price (the “Exercise Price”) of $5.00 per share, being the fair value per share of Common Stock on the date of grant.

Exercise Period.

The Option shall be exercisable will become exercisable cumulative as to (i) 50% of the shares of Common Stock initially subject to the Option six months from a Public Stock Event and (ii) the remaining 50% of the shares of Common Stock initially subject to the Option 18 months from the Public Stock Event. Unless otherwise terminated earlier as provided in this Instrument of Grant, the Option expires on the earlier of (i) 5:00 P.M. Pacific time ten years from the date of the Public Stock Event (the “Expiration Date”) or (ii), the date on which the Option Holder ceases to be an employee of the Company or an affiliate of the Company; provided, however, that in the event of the Option Holder’s death or a termination of the Option Holder’s employment or consultancy relationship as a result of a disability, the Option may be exercised, to the extent it is exercisable on the date of death or termination as a result of a disability, until the earlier of (x) six month from the date of death or the date or termination of employment as a result of a disability or (y) the Expiration Date.

A Public Stock Event shall mean the first to occur of (i) the effective date of a registration statement covering an underwritten public offering of the Company’s common stock on a firm commitment basis; (ii) the closing date with respect to a public offering of the Company’s common stock other than pursuant to a firm commitment underwritten offering; (iii) the date on which the Company’s common stock is first trading on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; (iv) the date on which the common equity of a Successor Corporation is publicly traded on a United States or Canadian stock exchange or stock market or in a United States or Canadian over-the-counter market; or (v) such other transaction or event which the Company’s board of directors determines, in its sole discretion, is a Public Stock Event.

If a Public Stock Event shall not have occurred by April 30, 2019, or such later date as may be determined by the Board of Directors or the Compensation Committee, in its sole discretion, this Option shall terminate at 5:00 P.M. Pacific time on such date without any action on the party of the Company or the Option Holder..

Notwithstanding any other provisions of this Instrument of Grant, without the consent of the Compensation Committee of the Board of Directors, which may be granted in its sole discretion, the Option may only be exercised if the stock issuable upon exercise of the option is registered pursuant to a registration statement on Form S-8. The Company will not file a Form S-8 registration statement prior to six months from the date of the Public Stock Event.

Termination. The Option shall terminate, and Option Holder shall have no further rights under the Option, on the Expiration Date, subject to earlier termination to the extent provided in Section 2(a) of this Instrument of Grant and subject to the provisions of the Plan.

Manner of Exercise.

The Option shall be exercised by written notice of exercise in the form of Exhibit A to this Instrument of Grant addressed to the Company and signed by the Option Holder and delivered to the Company along with this Instrument of Grant and payment in full of the Exercise Price of the Optioned Shares as to which the Option is being exercised. If the Option is exercised in part only, the Company will either issue a new Instrument of Grant with respect to the unexercised portion of the Option or shall make a notation on this Instrument of Grant reflecting the partial exercise. The Exercise Price is payable by certified or official bank check or by personal check; provided, however, that no Optioned Shares shall be issued to Option Holder until the Company has been advised by its bank that the check has cleared.

The Option may also be exercised by the delivery to the Company of shares of Common Stock having a fair market value as of the date of exercise, equal to the Exercise Price of the Optioned Shares to the extent that the Option is being exercised by written notice of exercise in the form of Exhibit B to this Instrument of Grant addressed to the Company and signed by the Option Holder. The market value of the Common Stock shall be determined as follows:

If the Common Stock is listed on a national securities exchange or is quoted on the OTCQX, OTCQB, or OTC Pink or other service which provides information as to the last sale price, the current value shall be the reported last sale prices of one share of Common Stock on such exchange, market or system on the trading day prior to the date of exercise of the Option, or if, on any of such dates, no such sale is made on such day, the last reported sale on such exchange, market or system shall be used; or

If the Common Stock is not so listed or admitted to unlisted trading privileges or traded, the current value shall be the mean average of the reported last bid and asked prices of one share of Common Stock as reported by a reporting services selected by the Company, on the last trading day prior to the date of the exercise of the Option; or

If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value of one share of Common Stock shall be an amount, not less than net tangible book value per share determined in such reasonable manner as may be prescribed by the Compensation Committee of the Board of Directors of the Company.

The Option may also be exercised through a brokerage transaction in a manner approved by the Compensation Committee.

Adjustment Provisions. The number of shares of Common Stock subject to the Option and the Exercise Price shall be adjusted in accordance with generally accepted accounting principles in the event of a stock dividend, stock split, stock distribution, reverse split or other combination of shares, recapitalization or otherwise, which affects the Common Stock.

Not Transferable. The Option is not transferable by the Option Holder, and may be exercised only by the Option Holder except that, in the event of the Option Holder’s death or disability, the Option may be exercised by Option Holder’s legal representative or by the persons to whom the Option is transferred by will or the laws of descent and distribution..

No Rights as a Stockholder. The Option Holder shall have no interest in and shall not be entitled to any voting rights or any dividend or other rights or privileges of a stockholder of the Company with respect to any shares of Common Stock issuable upon exercise of this Option prior to the exercise of this Option and payment of the Exercise Price of the Optioned Shares.

No Rights to Continued Employment. Nothing in this Instrument of Grant shall be constructed as an employment agreement or to grant any rights to continue as an employee of or consultant to the Company.

Legality. Anything in this Option to the contrary notwithstanding, the Option Holder agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares of Common Stock pursuant to this Option, if the exercise of the Option or the issuance of such shares shall constitute a violation by the Option Holder or by the Company of any provisions of any law or of any regulation of any governmental authority. Any determination by the Board of Directors or the Compensation Committee of the Board of Directors, if appointed, shall be final, binding and conclusive. In the event that the Compensation Committee shall not have been appointed, references to the Compensation Committee shall relate to the Board of Directors. The Company shall not be obligated to take any affirmative action in order to cause the exercise of the Option or the issuance of shares pursuant thereto to comply with such law or regulation. In this connection, the Option Holder understands that the Optioned Shares, if and when issued, will be restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act unless issued pursuant to a registration statement on Form S-8. The Company shall not be required to issue any Shares if the Company is not satisfied that the issuance thereof is permitted pursuant to the Securities Act without registration under the Securities Act.

Action by Company. The existence of the Option shall not effect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapi-talization, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

Interpretation. As a condition of the granting of the Option, the Option Holder and each person who succeeds to the Option Holder’s rights hereunder, agrees that any dispute or disagreement which shall arise under or as a result of or pursuant to this Option shall be determined by the Committee in its sole discretion and that any interpretation by the Committee of the terms of this Agreement shall be final, binding and conclusive. If no Committee is acting, its functions shall be performed by the Board of Directors, and each reference in this Option to the Committee shall, in that event, be deemed to refer to the Board of Directors. The rights of the Option Holder with respect to the Option are subject to the Plan and the interpretations of the Plan by the Committee.

Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and any be delivered personally or by mail, postage prepaid, addressed as follows: to the Company, at 3080 12^th Street, Riverside, CA 92507, Attention: Chairman and Chief Executive Officer, or at such other address as the Company, by notice, may designate in writing from time to time; to the Option Holder, at the address shown on the records of the Company or at such other address as the Option Holder, by notice to the Company, may designate in writing from time to time.

IN WITNESS WHEREOF, the Company has executed this Instrument of Grant as of the date first above written.

	SOLARMAX TECHNOLOYG, INC.
	By:
		David Hsu, Chief Executive Officer
Address	OPTION HOLDER

Exhibit A

Date:

SolarMax Technology, Inc.

3080 12th Street

Riverside, CA 92507

Attention: Chairman and CEO

Re: Stock Option Exercise – Cash Exercise

Gentlemen:

I hereby exercise the option to the extent of _________ shares, and I am tendering with this Notice full payment of the Exercise Price with respect to the Optioned Shares as to which this Option is being exercised. I further represent and warrant to the Company that I am aware of the tax consequences of my exercise of the option.

Very truly yours,

Exhibit B

Date:

SolarMax Technology, Inc.

3080 12th Street

Riverside, CA 92507

Attention: Chairman and CEO

Re: Stock Option Exercise – Delivery of Stock

Gentlemen:

I hereby exercise the option to the extent of _________ shares, and I am tendering with this Notice full payment of the Exercise Price in the form of ____________ shares of Common Stock having a value, determined as provided in the Instrument of Grant, equal to $____________, as follows:

Total Exercise Price: ____________

Current Value of Common Stock: ____________

Number of shares of Common Stock being delivered: ____________

I further represent and warrant to the Company that I am aware of the tax consequences of my exercise of the option.

Very truly yours,

EX-23.1

EXHIBIT 23.1

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the inclusion in this Registration Statement of SolarMax Technology, Inc. on Form S-1 of our report dated March 25, 2022, except for the Reverse Stock Split paragraph in Note 1, as to which the date is July 18, 2022, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audits of the consolidated financial statements of SolarMax Technology, Inc. as of December 31, 2021 and 2020 and for the years ended December 31, 2021 and 2020, which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.

/s/ Marcum LLP

Marcum LLP

Costa Mesa, California

July 18, 2022

EX-23.4

 EXHIBIT 23.4

Consent of LCS & Partners

July 15, 2022

SolarMax Technology, Inc.

3080 12th Street

Riverside, CA 92507

Re: SolarMax Technology, Inc. (the “Company”)

Ladies and Gentlemen:

We are lawyers qualified in the Republic of China (“Taiwan”) and are acting as Taiwan legal counsel to the Company solely in connection with (i) the initial public offering of 7,500,000 shares of common stock of the Company pursuant to the Company’s registration statement on Form S-1, including any amendments or supplements thereto (the “Registration Statement”), and (ii) the proposed listing of the Company’s shares on the NASDAQ Capital Market.

We hereby consent to the filing of this letter as an exhibit to the Registration Statement, and to the use of our name under the captions “Enforceability of Civil Liabilities” and “Experts” in the Registration Statement.

In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the rules or regulations promulgated thereunder.

Yours very truly,

LCS & PARTNERS

Page 1 of 1

LCS & Partners

5F., No.8, Sec. 5, Sinyi Rd. (Shinkong Manhattan Building), Taipei City 110, Taiwan (R.O.C)

Main: +886 2 2729 8000  Fax:  +886 2 2722 6677

EX-FILING FEES

EXHIBIT 107

Filing Fee Table

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered		Proposed Maximum Offering Price Per Security (1)		Proposed Maximum Aggregate Offering Price (1)		Amount of Registration Fee
Common Stock, par value $0.001 per share(2)	8,625,000 shares		$	4.00	$	34,500,000	$	3,198.15
Underwriter Warrants (3)		-		-		-		-
Common Stock issuable upon exercise of Underwriter Warrants(3)	600,000 shares			4.80		2,880,000		266.98
Total					$	37,380,000	$	3,465.13

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as amended. Pursuant to Rule 416 under the Securities Act, this registration statement also includes any additional shares of common stock that shall become issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
(2)	Includes 1,125,000 shares of common stock issuable upon exercise of the underwriters’ overallotment option.
(3)	We have agreed to issue, on the closing date of this offering, warrants to the representative of the underwriters, ViewTrade Securities, Inc., (the “Representative”), to purchase up to an amount equal to 8% of the aggregate number of shares of common stock sold by us in this offering, inclusive of the underwriters’ over-allotment option. The exercise price of the underwriter warrants is equal to 120% of the initial public offering price of our common stock offered hereby. The underwriter warrants are exercisable for a period of five years from the commencement of sales of this offering effective date of this Registration Statement.

CORRESP

solarmax_corresp.htm