As filed with the Securities and Exchange Commission on  January 16, 2020

Registration Statement No. 333-229005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 8   to 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:

Clayton E. Parker, Esq. Matthew Ogurick, Esq. K&L Gates LLP Southeast Financial Center, Suite 3900 200 South Biscayne Boulevard Miami, Florida 33131-2399 Tel: 305-539-3300 Fax: 305-358-7095

Asher S. Levitsky P.C. Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas, 11th Floor New York, New York 10105-0302 (646) 895-7152 Fax: (646) 895-7238

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	x	Smaller reporting company	x
Emerging growth company	x

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. ¨

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)		4,600,000 shares				$	4.00			$	18,400,000			$	2,230.08
Underwriter Warrants (3)			-				-				-				-
Common Stock issuable upon exercise of Underwriter Warrants(3)		320,000 shares					4.80				1,536,000				186.16
Total										$	19,936,000			$	2,416.24

_________ 

(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 600,000 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 an amount equal to 8% of the aggregate number of shares of common stock sold by us in this offering. 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 effective date of this Registration Statement.

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 this registration statement shall become effective on such date as the Commission, acting pursuant to said 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  January 16, 2020

4,000,000 Shares

SolarMax Technology, Inc.

Common Stock

This is the initial public offering of 4,000,000 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 will 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 30 days from the date of this prospectus, to purchase up to an additional 600,000 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. See “Risk Factors” and “Prospectus Summary - Emerging Growth Company Status.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

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.  

		Per Share				Total
Initial public offering price		$	4.00			$	16,000,000
Underwriting discounts and commissions(1)		$	0.24			$	960,000
Proceeds to us, before expenses		$	3.76			$	15,040,000

________

(1)	In addition, we have agreed to provide the underwriters additional compensation and reimburse the underwriters for certain expenses. See “Underwriting” on page 105 of this prospectus for additional information.

The underwriters expect to deliver the shares of common stock to purchasers in the offering against payment on Xxx x, 2019.

The date of this prospectus is Xxx x, 2020.

ViewTrade Securities, Inc. 

TABLE OF CONTENTS

		Page
Prospectus Summary		4
The Offering		10
Selected Consolidated Financial Data		11
Risk Factors		12
Cautionary Note Concerning Forward-Looking Statements		37
Use of Proceeds		39
Dividend Policy		39
Capitalization		40
Dilution		41
Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Business		66
Management		92
Executive Compensation		95
Certain Relationships and Related Party Transactions		98
Principal Stockholders		100
Description of Capital Stock		101
Shares Eligible for Future Sale		104
Underwriting		106
Legal Matters		109
Experts		109
Where You Can Find More Information		109
Index to Consolidated Financial Statements		F-1

2

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 Xxx xx, 2020 (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;
	·	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 battery backup solutions for residential and commercial customers in the United States.

We operate in two segments - our United States operations and our China operations. Our United States operations include (i) the sale and installation of photovoltaic and battery backup systems, (ii) financing the sale of our photovoltaic and battery backup systems, (iii) owning and leasing to third parties through operating leases and power purchase agreements, and (iv) sales of LED systems.

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Our China operations consist of identifying and procuring solar farm projects for resale to third parties and EPC services for solar farm projects; and, to a significantly lesser extent, maintenance and operation of solar farm projects once the projects are completed and sales and installation of residential and commercial photovoltaic systems.

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 ZHTH, through a share exchange agreement among us, one of our PRC subsidiaries, and the equity owners of ZHTH.

·

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.

Stock Distribution

On April 25, 2019, we effected a 1.68-for-one stock distribution pursuant to which we issued 0.68 share of common stock with respect to each share outstanding on April 25, 2019.  All share and per share information in this prospectus retroactively reflects the stock distribution.

Selected Risks Associated with Our Business

Our business is subject to a number of risks and uncertainties. These risks are discussed more fully in “Risk Factors” beginning on page 12. Before you make a decision to invest in our common stock, you should carefully consider all of those risks including the following: 

	·	We had a consolidated loss of $6.8 million for the nine months ended September 30, 2019, $14.7 million for the year ended December 31, 2018 and $12.1 million for the year ended December 31, 2017, and our financial statements for the nine months ended September 30, 2019 have a going concern footnote. We had negative cash flow from operations of $6.9 million for the nine months ended September 30, 2019, $14.9 million for 2018 and $5.5 million for 2017, and we cannot assure you that we can or will operate profitably or generate positive cash flow from operations.
	·	Our business in the United States and China is dependent on the continuation of government benefits and government policies that encourage the use of renewable energy such as solar power.
	·	Changes in utility regulations and pricing could impair the market for our products.
	·	Our failure to raise sufficient capital could impair our ability to expand our financing operations.
	·	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.
	·	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.
	·	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.

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·

To the extent that we continue to reduce prices to meet competition, which has affected our gross margin in 2018 and 2017, 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 not comply with our commitments under our supply contract with Sunspark Technologies, Inc. (“Sunspark”).
	·	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.
	·	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 articles of incorporation and bylaws and our employment agreements with our senior executive officers, 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.
	·	Because our directors and officers beneficially own 36.5% of our common stock and will beneficially own 34.5% of the common stock after giving effect to the sale of the 4,000,000 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.

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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.

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.

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Our Corporate Structure

We are a Nevada corporation formed in January 2008. We have three wholly-owned and one 93.75%-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”)

SMX Capital is a 93.75% owned subsidiary, and its financial statements are included in our consolidated financial statements. The 6.25% minority interest is held by a former executive of our PRC operations. The minority interest is reflected as non-controlling interests in the accompanying consolidated financial statements.

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

	·	Accumulate, a British Virgin Islands corporation 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. (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)

Chengdu Zhonghong Tianhao Technology Co. Ltd. (ZHTH)

Jiangsu Zhonghong Photovoltaic Electric Co. Ltd. (ZHPV)

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Corporate Information

Our principal executive offices are located at 3080 12th 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.

THE OFFERING

Common stock outstanding prior to this offering:		67,709,359 shares 1
Common stock offered hereby:		4,000,000 shares.
Common stock to be outstanding immediately after completion of this offering:		71,709,359 shares (72,309,359 shares if the underwriters’ over-allotment option is exercised in full).
Underwriters’ over-allotment option:		We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional 600,000 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 the Representative warrants entitling the Representative to purchase 8% of the aggregate number of shares of common stock sold in this offering. The warrants shall be exercisable for a period of five years from the effective date of the Registration Statement on Form S-1 of which this prospectus forms a part. For additional information, please refer to “Underwriting.”
Use of proceeds:		We intend to use the net proceeds of this offering, estimated at approximately $14,306,000 for working capital, including payment of short-term debt, 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 intend to apply 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 12 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 445,200 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 11,699,621 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 $2.95 per share.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following information as of December 31, 2018 and 2017 and for years then ended has been derived from our audited financial statements which appear elsewhere in this prospectus. The following information as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 has 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: 

		Nine Months Ended								Year Ended
		September 30,								December 31,
		2019				2018				2018				2017
Revenues:
Solar projects (China)		$	4,792			$	45,423			$	58,708			$	55,117
Solar systems (US)			27,739				20,182				28,515				27,346
LED			407				617				857				4,506
Financing related			1,488				1,325				1,748				1,961
Total revenue			34,426				67,547				89,828				88,930
Gross profit			7,837				7,306				9,251				10,582
Operating income (loss)			(4,775	)			(7,345	)			(11,499	)			(8,822	)
Net loss			(6,787	)			(10,523	)			(14,705	)			(12,074	)
Net loss attributable to SolarMax Technology, Inc.			(6,747	)			(10,443	)			(14,598	)			(11,934	)
Net loss per share (basic and diluted)		$	(0.10	)		$	(0.16	)		$	(0.22	)		$	(0.18	)
Weighted average shares of common stock outstanding			67,271,160				66,086,794				66,277,582				65,163,719

Consolidated Balance Sheet Information:  

		September 30,				December 31,
		2019				2018				2017
Assets		$	97,058			$	111,020			$	94,838
Current assets			50,910				70,601				54,823
Working capital (deficit)			(25,247	)			8,074				16,953
Accumulated deficit			(57,670	)			(50,341	)			(35,744	)
Stockholders’ equity (deficit) attributable to SolarMax Technology, Inc.			(4,999	)			1,726				11,093

 ___________

* The long-term debt is due to related parties.

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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, and we cannot assure you that we can or will operate profitably.

We incurred net losses of $6.8 million for the nine months ended September 30, 2019, $14.7 million for the year ended December 31, 2018 and $12.1 million for the year ended December 31, 2017, and our financial statements for the nine months ended September 30, 2019 have a going concern footnote. The losses in all periods resulted primarily from losses in our United States segment although we incurred a loss from our China segment for the nine months ended September 30, 2019. Our China segment generated a modest profit in 2018 and 2017. Revenues from our United States operations increased to $29.6 million for the nine months ended September 30, 2019 from $22.1 million for the nine months ended September 30, 2018, and decreased to $31.1 million for 2018 from $33.8 million for 2017. We incurred negative cash flows from operations of $6.9 million for the nine months ended September 30, 2019, $14.9 million for 2018 and $5.5 million in 2017. We will need to increase our revenue and reduce our costs for 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.

Prior to our acquisition of ZHPV in April 2015, ZHPV incurred losses and a negative gross margin, and we cannot assure you that our China operations will not be subject to the same problems.

We acquired ZHPV in April 2015, and we first generated revenue from our China operations in 2016. During 2014, ZHPV incurred a negative gross margin of approximately $4.2 million and a loss before income tax of $6.3 million on revenues of approximately $38.3 million, and it had an accumulated deficit of approximately $6.5 million at December 31, 2015. Prior to our acquisition of ZHPV, ZHPV was engaged in the same business as our China operations. We cannot assure you that the factors that resulted in the negative gross margin and net loss will not affect our operations.

We may not comply with our commitments under a supply contract.

We have a supply agreement with Sunspark pursuant to which we agreed to purchase 150 megawatts (“MW”) of solar panels over a three-year period commencing June 1, 2016 at a price to be negotiated but not to exceed 110% of the three-month rolling average market price per watt for an estimated total commitment of approximately $73.5 million based on the most recent price paid on a purchase order from Sunspark. The agreement stipulates a 30MW minimum amount per year, which will cost approximately $14.7 million based on the most recent price paid on a purchase order from Sunspark, with the first year being the year ending May 31, 2017. Although we believe that we can satisfy our purchase obligations through the purchase of solar panels for our Chinese operations, the timing of our purchases is dependent upon the timing of our contracts for solar farms in China and may not be in line with our purchase obligations. Pursuant to a letter agreement dated March 13, 2019, between us and Sunspark, our purchase obligations through 2018 were suspended in their entirety (except to the extent that we made purchases pursuant to the agreement), and our purchase commitments for the year ended December 31, 2019, will be negotiated in good faith during 2019.  We cannot assure you that, if Sunspark requires us to meet our commitments for 2019, we will be able to do so. Further, since we do not control the operations of the supplier, we may not be able to monitor or control the quality or delivery schedules for the solar panels. Our failure to meet our obligations, to generate the necessary cash flow from operations or otherwise finance our obligations, or the failure of the supplier to meet our delivery and quality requirements could impair the results of our operations and our financial condition. 

United States trade policy affects our ability to purchase domestic solar panel, including from Sunspark.

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. Sunspark is a domestic manufacturer of solar panels and it has an affiliate that manufactures solar panels in China. Because of the increased demand for domestically manufactured solar panels, we cannot assure you that, if we seek to purchase solar panels from Sunspark, that Sunspark will have the capacity to fill our orders at a commercially reasonable price or that we will be able to purchase solar panels from other suppliers at a reasonable cost. Our inability to obtain domestically produced solar panels can impair our ability to generate revenue and maintain reasonable gross margins.

Because we are dependent upon related parties for almost all of our revenue in China, our inability to develop new business in China could impair our ability to operate profitably. 

Revenue from subsidiaries or affiliates of Changzhou Almaden Co., Ltd., which is a related party that we refer to in this prospectus as AMD, accounted for 100%, 53% and 100% of the revenue of our China segment for the nine months ended September 30, 2019 and the years ended December 31, 2018 and 2017, respectively. All of the revenue for the nine months ended September 30, 2019 was earned in the second and third quarters of 2019, and we did not generate any revenue from our China segment during the first quarter of 2019. Revenue from AMD and its subsidiaries and affiliates accounted for approximately 13%, 34% and 62% of our consolidated revenue for the nine months ended September 30, 2019 and the years ended December 31, 2018 and 2017, respectively. This revenue was related almost exclusively from EPC services, and we are not currently generating any revenue from operations and maintenance contracts in China. Our inability to generate significant revenue from non-related parties 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. Further, our only operations and maintenance revenue was generated from contracts with subsidiaries or affiliates of AMD, and, when the projects were sold, the purchasers terminated these contracts. We cannot assure you that we will be able to negotiate operations and maintenance contracts with non-related parties. If we are unable to continue to generate revenue from AMD and its affiliates on reasonable terms and if we fail to generate business in China from non-affiliated parties it may be necessary to discontinue our Chinese operations.

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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.

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 substantial funds in order to finance our customers’ purchases of solar energy systems in the United States and to finance solar farm projects in China and for working capital purposes. Because our revenue from our China segment can vary significantly from quarter to quarter, we may need funds to finance our China operations during periods when we do not have significant or any revenue. Our failure to obtain financing could materially impair our ability to expand our financing activities in the United States. We have recently obtained financing for our China projects on a short-term basis. The net proceeds from this offering available to develop our business may not be sufficient to enable us to expand our financing activities and meet our requirements to develop and expand our business in China. Furthermore, if subsequent to this offering we 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 significant funds to pay our current debt obligations.

Our China segment has substantial immediate funding requirements. In December 2018 and January 2019, we borrowed a total of $3,000,000 from an affiliate of a minority stockholder and a minority stockholder. These notes mature as to $1,000,000 on each of February 12, 2020, January 30, 2020 and February 1, 2020. On October 25, 2019, we borrowed $250,000 from a related party. The loan bears interest at 6% per annum and is due on February 24, 2020. A portion of the proceeds of this offering will be used to pay these loans. To the extent that we use a portion of the proceeds to pay our debt obligations, including the loans through the United States government’s EB-5 program described in the following 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. 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.

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. 

As of September 30, 2019 and December 31, 2018, we had loans payable to related parties in the amount of $55.5 million which were provided by related parties pursuant to the United States government’s EB-5 program, of which $33.5 million was a current liability at September 30, 2019. Each of the related parties is a limited partnership of which the general partner is a limited liability company owned and managed by three of our directors, two of whom are our chief executive officer and our executive vice president. 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. Our ability to obtain funding from the EB-5 program is dependent on both our ability to create the required full-time jobs, and finding lenders or investors who have the funds to make a meaningful investment in us or one of our United States subsidiaries and the continuation of the EB-5 program. We cannot assure you that we will continue to be eligible to obtain debt or equity funding through the EB-5 program or that the EB-5 program will be continued in its present form, if at all. The maturity date of the loans is based upon the date the limited partners of the lender have received approval of their permanent resident (green card) status. As of January 14 , 2020 , limited partners who made investments of $23.0 million can 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 part. Because the date on which the 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 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 may use a portion of the proceeds of this offering for such purpose. 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 $23.0 million, the net proceeds from this offering will 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. We propose to offer to refinance the loans by issuing to the limited partners a five-year 4% secured convertible notes to be jointly issued by us and the subsidiary that borrowed the funds, which would be secured by the accounts and inventory of the borrowing subsidiary, and would be convertible in whole or in part 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 this prospectus at a conversion price equal to $3.20 per share, which is 80% of the price at which the common stock is being offered pursuant to this prospectus. During the period from November 2019, through January 14 , 2020 , limited partners who made capital contributions of $5.5 million accepted our convertible notes, and our note payable to the related party limited partnership was reduced by $5.5 million. 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 cannot obtain the agreement of the limited partners to the proposed refinancing, a portion of the proceeds of this offering may be used to make the payment. To the extent that we use the proceeds of this offering to pay the loans, we will have less proceeds for the development and expansion of our business. Further, since we cannot predict when additional loans will become due or whether the limited partners will accept our proposed refinancing, it is possible that substantially all of the proceeds of this offering may be used to pay these loans. 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 proceeds of this 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.

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:

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	·	obtain required governmental approval and permits;
	·	complete any applications that may be necessary to enable us or the end user to take advantage of available government benefits;
	·	identify and obtain land use rights for significant contiguous parcels of land in areas where there is sufficient sunlight to justify a solar farm;
	·	resolve any problems with residents and businesses in the area where the solar farm is to be constructed;
	·	negotiate an interconnection agreement with the utility company or government Electricity Bureau;

 

	·	obtain substantial financing for each project, and the proceeds of this offering will not be sufficient to provide us with such financing;
	·	identify a buyer of the project and 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 will 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 in completing a project 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;
	·	difficulty in receiving timely payments from the customers;
	·	changes in regulatory requirements;
	·	failure to obtain financing, and additional conditions required by lenders;
	·	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, 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.

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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.

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, we 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. 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.

Because a small number of customers in China represents a significant percentage of our revenue, we need to continue 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 and, unless the customer has additional projects requiring EPC services, once we complete the construction and installation of a solar farm, there is no ongoing revenue stream from the customer unless the customer engaged us to perform ongoing maintenance services for the solar farm. The revenue stream from the maintenance services is significantly less than the revenue from the EPC services. Accordingly, it is necessarily for us, on an ongoing basis, to continue to develop new EPC business, and our failure to develop the EPC business and to enter into maintenance contracts with the customers will impair our ability to operate profitably and the ability of our China segment to continue operations. Further, because we are dependent upon a small number of customers that are primarily related parties, 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 our 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 have 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. Sunrun was the largest customer of our United States segment and the second largest customer overall for the nine months ended September 30, 2019. Sunrun was our third largest customer overall and the largest customer for our United States segment for the year ended December 31, 2018 and our second largest customer overall and the largest customer for our United States segment in 2017. Sales to Sunrun were $3.1 million, or approximately 9% of total revenue and approximately 11% of United States revenue, respectively, for the nine months ended September 30, 2019. Sales to Sunrun were $4.6 million, or approximately 5% of revenue and approximately 15% of United States revenue for the year ended December 31, 2018, and $7.0 million, or approximately 8% of revenue and approximately 21% of United States revenue for the year ended December 31, 2017. 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 nine months ended September 30, 2019 and the years ended December 31, 2018 and 2017, Sunrun meters purchased from a subsidiary of Sunrun amounted to $39,794, $68,453 and $74,686, respectively. There was no accounts payable balance owed to this supplier as of September 30, 2019, December 31, 2018 and 2017. Other than Sunrun meters, we do not make any purchases from Sunrun or from any of Sunrun’s subsidiaries or affiliates for the systems sold to Sunrun or to other customers.

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Our business in both the United States and China is dependent on the continuation of government benefits.

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.

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 our 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. These changes 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 be reflected 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.

Although we are not regulated as a utility company, changes in regulations may subject us to regulation as a utility.

We are presently exempt from regulation as a utility as we have “qualifying facility” status with the Federal Energy Regulatory Commission for all of our qualifying solar energy projects. Any local, state, federal or foreign regulations which classify us as a utility could place significant restrictions on our ability to operate our business by prohibiting or otherwise restricting our sale of electricity. If we were subject to the same state, federal or foreign regulatory authorities as utility companies in the United States or if new regulatory bodies were established to oversee our business in the United States or in foreign markets such as China, then our operating costs would materially increase, which would impair our ability to generate a profit from our business.

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.

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We may be subject to liability if private information that we receive 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 we 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.

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 we are 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.

The number of laws affecting both aspects of our business continues to grow. We can give no assurances that we will properly and timely comply with all laws and regulations that may affect us. If we fail to comply with these laws and regulations, we 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 us 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 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 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.

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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.

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 developing market of solar energy system providers, which exposes us 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 and in 2017 as compared with 2016. 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 firms 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 our China segment has generated minimal revenue in China from unrelated parties. If we are not able to develop our business with unrelated parties or if our business with our 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.

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. 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, we may 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 need to obtain new customers for our projects.

Because of the nature of our business in China, we construct large projects for a small number of customers, who may not require additional services from us after we have completed their projects. As a result, we need to continually market our services to new customers who have the financial resources to purchase a solar farm. Thus, each year a small number of customers will be responsible for a large percentage of our revenue from our 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, we 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, which could be in the range of 800 to 3,500 acres. 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 determines to be 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.

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 investment agreements, we may not be able to find and secure the land use rights to suitable project sites for the relevant projects. We generally obtain land use rights for our ground-mounted projects through land use right grants or assignment by the government or leasing from the land use right owners, and obtain the access and use rights for our solar power projects through leasing from the roof top 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 our 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, our solar power projects may be forced to cease operation and our results of operation, financial condition will be materially adversely affected.

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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. In the event of such changes, we may suffer a delay in the recognition of revenue from the projects and may increase our costs. In 2017, the project owner was unable to obtain sufficient land use rights for one of our EPC projects. As a result, changes were made to the project’s original specifications, and we incurred costs that we were not able to pass on to the customer, which affected our gross margin for the year ended December 31, 2018. 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, we 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 we 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. We do not plan to use any of the proceeds from this offering to construct solar farms for our own account. 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 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.

 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, 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. Because we account for revenue on our EPC contracts over time based on costs incurred, we will not generate revenue from a project during months in which we are unable to work because of adverse weather. 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.

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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 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 on projects for which we have contracts. Revenue from our China operations is generated from a small number of contracts and a significant percentage of our China revenue has been derived from related parties. For the nine months ended September 30, 2019, our China operations generated revenue of $4.8 million and we began EPC work on the Qingshuihe #3 project for a 10MW solar farm which was increased to a 10.5MW project. All of the revenue from the China segment for the nine months ended September 30, 2019, was generated during the second and third quarters of 2019, as no revenue was generated in the first quarter. 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.

Because we are dependent on our senior executive officers, 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 two of our founders, our chief executive officer, David Hsu, and our executive vice president, chief strategy officer and treasurer, Ching Liu. Our operations in China are dependent upon Mr. Hsu and Bin Lu, who is the head of our China operations. Although we have employment agreements with Mr. Hsu and Ms. Liu and ZHTH has an employment agreement with Mr. Lu, the agreements with Mr. Hsu, Ms. Liu and Mr. Lu do not guarantee that they will continue to work for us. The loss of Mr. Hsu or Ms. Liu 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 our 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 our China operations, which could impair our overall operations and financial condition.

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In order to develop our business, we need to identify, hire and retain qualified sales, installation and other personnel.

To develop our business, we need 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 our 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 labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our 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 we also face 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 our 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 we anticipate, 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 its 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 our 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.

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, we are the general contractor, construction manager and installer. For our commercial projects, we are the general contractor and construction manager, and we typically rely on some licensed subcontractors to support some of our solar panel installs. In either case we are responsible for the completion of the project and must take steps to make sure that we 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 our 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 $37.8 million at September 30, 2019, $35.6 million at December 31, 2018 and $33.6 million at December 31, 2017. For the nine months ended September 30, 2019 and the year ended December 31, 2018, approximately 31% and 34% of our United States revenues and approximately 26% and 12% of our total revenues was generated from sales of solar energy systems subject to in-house financing. For the year ended December 31, 2017, approximately 18% of our United States revenues and approximately 7% of our total 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 us. 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.

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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.

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 our 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 are dependent 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, pursuant to which we agreed to purchase 150MW of solar panels for our operations over a three-year period at a price to be negotiated but not to exceed 110% of the three-month rolling average market price per watt for an estimated total commitment of approximately $73.5 million based on the most recent price paid on a purchase order from Sunspark. The agreement stipulates a 30MW minimum amount per year, which will cost approximately $14.7 million based on the most recent price paid on a purchase order from Sunspark, with the first year being the year ended May 31, 2017 and the second year being the period ending December 31, 2018. Our purchase obligations through 2018 were suspended in their entirety (except to the extent that we made purchases pursuant to the agreement), and our purchase commitments for the year ended December 31, 2019, will be negotiated in good faith during 2019. In the event we have any quality, delivery or other problems with Sunspark or in the event that we are not otherwise able to purchase solar panels from Sunspark, it may be more difficult for us to find alternative suppliers, particularly those with whom we terminated relationships or significantly reduced purchases in order to meet our purchase requirements from Sunspark. 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 base. 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 requirement. The failure to find alternate suppliers could materially affect our ability to conduct our business. Further, since 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 or solar panels, we cannot assure you that we will be able to negotiate reasonable terms for the purchase of solar panels if Sunspark is 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.

We have a distribution agreement with Li-Max Technology, Inc. pursuant to which Li-Max will be our sole supplier for the Flex Energy Storage System. Thus, our success with this product line will be dependent upon market acceptance of the Flex Energy Storage System, including Li-Max’ ability to redesign the product to qualify for energy storage incentives under the California Self-Generation Incentive Program, our ability to market and sell the system and the ability of Li-Max to deliver products meeting the necessary quality standards in a timely manner and at prices that enable us to market the product at an acceptable gross margin. Although we had modest sales of this product in 2018, we have ceased marketing this system until Li-Max has redesigned the equipment. We cannot assure you that Li-Max will successfully redesign this product, and, if Li-Max is not able to redesign this product, we cannot assure you that we will be able to obtain marketing rights to an energy storage system.We currently purchase battery back-up systems from other suppliers.

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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 our production costs. Due to the volatile market prices, we cannot assure you that the price of polysilicon will remain at its current levels, 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 our average selling prices and revenues.

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 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, 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 September 30, 2019, 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. In 2017, certain of the systems that we installed for a leasing company failed to meet our production guarantees. As a result, we incurred unanticipated warranty costs of $354,000. 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 have effective internal controls over financial accounting and reporting which could constitute a material weakness, and, even if we establish controls, 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.

Prior to the date of this prospectus, we were a privately-owned company and 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. 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, 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.

Our need to restate our audited financial statements reflects a material weakness in our internal controls over financial reporting.

During the preparation of our financial statements for the six months ended June 30, 2018, we reassessed our original probability assessment on the performance condition related to equity awards with vesting contingent upon an initial public offering. Based on our reassessment, the performance condition related to an initial public offering is determined to be outside our control and therefore the probability would be assessed as zero until an initial public offering event occurs. As a result, we reversed the previously recognized stock compensation expense related to equity awards with vesting contingent on an initial public offering event for the periods impacted. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the issuing company’s annual or interim financial statements will not be prevented or detected on a timely basis.

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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 to the purchasers of our solar systems for ten years 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. In 2017, we incurred unanticipated increased warranty costs for $354,000 for systems we installed for a leasing company with which we no longer conduct business. 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, we acquired three companies, LED in the United States and ZHPV and ZHTH in China. In 2015, we 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 its 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.
	·	To the extent that the acquired company is dependent upon its 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.

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

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Risks Associated with Doing Business in China

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 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. 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. 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. 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. 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 us.

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 most 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 sell 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.

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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.

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 public offering of our common stock 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.

Our revenue from our China operations is denominated in RMB. Our China operations currently account for most of our revenue. Accordingly, restrictions on currency exchange may limit our ability to use earnings generated in China to fund any business activities we may have outside China in the future or to make dividend payments to our shareholders in U.S. dollar. 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 us.

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 statutory reserves were RMB 2,196,372 (approximately $314,000) at September 30, 2019, and RMB 1,286,649 (approximately $187,078) at December 31, 2018. We had no statutory reserves at December 31, 2017. These reserves are not distributable as cash dividends.

In addition, if our PRC subsidiary or our affiliated entity in China incurs debt on its 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 our 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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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 business 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.

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 subsidiary and affiliated entity, which could harm our liquidity and our ability to fund and expand our business.

As an offshore holding company of our PRC subsidiaries, we may (i) make loans to our PRC subsidiaries although we have no plans to do so, (ii) make additional capital contributions to our PRC subsidiaries, (iii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, and (iv) acquire offshore entities with business operations in China in an offshore transaction. However, most of these uses are subject to PRC regulations and approvals. For example:

	·	loans by us to our wholly-owned subsidiary in China, which is a foreign-invested enterprise, cannot exceed statutory limits and must be registered with SAFE, or its local counterparts;
	·	loans by us to our affiliated PRC entities over a certain threshold must be approved by the relevant government authorities and must also be registered with SAFE or its local counterparts; and
	·	capital contributions to our wholly-owned subsidiary must be approved by the Ministry of Commerce, known as MOFCOM, or its local counterparts.

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.

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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 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 subsidiary 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 subsidiary’s ability to distribute dividends to, or obtain loans denominated in foreign currencies from, our company, or prevent us 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.

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 we 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 our business operations in the PRC, delay or restrict the conversion and remittance of our funds in foreign currencies into the PRC or take other actions that could have material and adverse effect on our business, financial condition and results of operations.

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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 our 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 subsidiary and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our 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 our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our 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. We currently hold 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 our ability to retain our license which could preclude us from performing EPC services in China. 

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 we do not source any significant amount of our polysilicon from the United States or South Korea, if we import polysilicon from these countries our 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.

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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. Failure to secure such permits may lead to monetary damages, fines or even criminal penalties.

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, that, based on their review of our operations materials, including our 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 this 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 this 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. Our PRC subsidiary has 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 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.

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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.

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.

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 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 was negotiated between 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.

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

·

our operating and financial performance;

	·	our working capital and working capital requirements;
	·	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 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 articles of incorporation and bylaws and our employment agreements with our senior executive officers, 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 articles of incorporation authorizes 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, or Ching Liu, our executive vice president, chief strategy officer and treasurer, following a change of control, we are to pay them, 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 they have been employed by us. Their employment commenced in February 2008. In addition, some provisions of our 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 $3.98 per share.

Based on an 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 $3.98 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 September 30, 2019 after giving effect to this offering would be $0.02 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 $57.7 million at September 30, 2019. 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.

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 Riverside County, California, which is where our executive offices are located, 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.

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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 67,709,359 shares of common stock that are outstanding prior to this offering, which number includes the 445,200 shares of common stock issued as restricted stock grants, constituting approximately 94.4% 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 85% 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 January 14, 2020 , we have issued convertible notes in the principal amount of $5.5 million which are convertible at $3.20 per share, which would result in the issuance of 1,718,750 shares when the notes become convertible commencing in November 2020. 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 price of 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 an acquisition), 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.

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 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 some number of our 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.

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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 36.5% 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 36.5% of our outstanding common stock and, upon sale of the 4,000,000 shares offered hereby, will beneficially own approximately 34.5%. 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.

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, including the refinancing of existing debt obligations, including notes issued in connection with the EB-5 program, to enable us to finance our customer’s purchase of solar systems and to finance any solar projects in China;
	·	Our ability to enter into agreements for the construction and maintenance of solar farms in China;
	·	Our dependence on a related party for revenue in our China segment and our ability to attract new clients solar projects in China;
	·	The availability of tax incentives and other benefits sufficient to justify a customer’s purchase of a solar system;
	·	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;
	·	The development of a market for residential and commercial photovoltaic systems, which are rooftop systems, in China and our ability to obtain contracts for these systems;
	·	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 who meet our credit criteria;

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	·	Our ability to pay or finance our existing debt to related parties which matures commencing in 2019, of which $17.5 million is currently due, and the potential market impact of our proposed refinancing through the issuance of secured convertible notes and the issuance of common stock upon conversion of the $5.5 million principal amount of outstanding convertible notes as well as any convertible notes which may be issued in the future;
	·	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;
	·	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;
	·	Risks associated with this offering;
	·	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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USE OF PROCEEDS

We expect the net proceeds from this offering to be approximately $14.3 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 $1,144,000 and other offering expenses estimated at approximately $550,000.

We intend to use the proceeds of this offering for working capital and other corporate purposes, including the payment of short-term debt. 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 and current loan obligations, including those to related parties. To the extent that we do not generate the funds from operations to pay short-term debt and to pay the $1,275,000 we owe to our two senior executive officers and one other employee resulting from the transfer of a portion of their restricted shares to us, which is to be paid by March 31, 2020, we may use the proceeds of this offering for such purposes. We incurred our obligation to pay $1,275,000 to our two senior executive officers and one employee pursuant to March 2019 agreements whereby they exchanged 2,142,000 restricted shares of common stock for options to purchase 4,538,898 shares of common stock and they transferred 2,142,000 shares to us for cash payments of $1,275,000, which are payable by March 31, 2020. These obligations are non-interest bearing. See “Executive Compensation – Employee Benefit Plans.”

We have loans totaling $3,000,000 which become due during the next three months. A loan of $1,000,000 from a company affiliated with a minority stockholder bears interest at 6% per annum and is due on February 12, 2020. Loans of $2,000,000 from a minority stockholder bear interest at 10% per annum, and are due with respect to $1,000,000 on each of January 30, 2020 and February 1, 2020. These loans have been extended on a month-to-month basis since the original maturity dates. We will pay these loans from the proceeds of this offering.

At September 30, 2019, there were $55.5 million loans made by related party partnerships to our subsidiaries, which have a term of four years and may be extended until the petitions for permanent residency filed by the limited partners of the partnerships that made the loan to us have been granted. The initial four-year term of notes in the principal amount of $45.0 million had expired prior to September 30, 2019. Since the loans can be extended as may be necessary to meet applicable immigrant investor visa requirements, we cannot determine the expiration of the extensions. As of January 14, 2020, limited partners whose capital contributions funded loans of $23.0 million had received their green card approval and their extensions expired. The petitions for limited partners whose capital contribution funded loans of $22.0 million are pending and we cannot estimate whether or when they will be granted. The four-year terms of the remaining $10.5 million mature in the fourth quarter of 2020 as to $1.0 million, the fourth quarter of 2021 as to $4.0 million and the fourth quarter of 2020 as to the remaining $5.5 million.

The limited partners are not related parties. The loans bear interest at 3% per annum and have a term of four years and may be extended as necessary to meet the applicable federal immigration visa requirements. As of January 14, 2020, limited partners who account for loans of $23.0 million have had their petitions approved, which may trigger the maturity of the loans made from their capital contributions. We propose to refinance the debt by issuing to the limited partners our 4% secured convertible notes due five years from the date of issuance with the principal payable in five equal annual installments, with the notes convertible at $3.20 per share, which is 80% of the initial public offering price of this offering. B eginning in November 2019, limited partners whose capital contributions funded $5.5 million of CEF’s loans to us accepted convertible notes in the principal amount of $5.5 million, thereby reducing our debt to CEF by $5.5 million. If all of the loans funded by the other limited partners in CEF whose capital contributions to CEF were used to fund CEF’s loans to us, are declared due and the limited partners do not accept our proposal to refinance these notes, the net proceeds from this offering will not be sufficient to pay the loans or any additional loans which may become due as a result of the limited partners obtaining approval of their green card status, and we will need to obtain funding from other sources, with no assurance that such funding will be available on reasonable terms, if at all. Further, we cannot predict when or whether the petitions of other limited partners will be granted. We cannot assure you that the remaining limited partners will accept our refinancing proposal or that the loans made from the capital contributions of other limited partners will not become due during the six months from the date of this prospectus if their petitions for permanent residency are granted. If our refinancing proposal is not accepted by the remaining limited partners and if a significant principal amount of loans becomes due, all or a significant portion of the proceeds may be used to pay these loans.

On October 25, 2019, we borrowed $250,000 from SMX Property, LLC, a related party. The loan bears interest at 6% per annum and is due on January 24, 2020. A portion of the proceeds of this offering will be used to pay this loan.

We have granted the underwriters a 30-day option to purchase up to 600,000 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.

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 our project subsidiaries have covenants in their financing agreements that restrict the payment of dividends.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2019: 

	·	on an actual basis; and
	·	as adjusted for the 445,200 shares of common stock issued as restricted stock which are not considered outstanding at September 30, 2019 and the sale of 4,000,000 shares of common stock in this offering at an assumed initial offering price of $4.00 per share and our receipt of the estimated $14,306,000 net proceeds of this offering , the use of proceeds to pay short-term debt of $3,000,000 , and the use of a deposit held as security to repay the principal on a loan of $6,100,000 and accrued interest.

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. The table assumes that none of the proceeds will be used to pay the EB-5 loans. See “Use of Proceeds.”

		September 30, 2019
						As
		Actual				Adjusted
		(Dollars in thousands)
Cash and cash equivalents		$	5,750			$	17,056
Long-term debt, related parties*			55,500				55,500
Long-term debt, other*			10,060				960
Total long-term debt			65,560				56,460
Stockholders’ equity:
Common stock			69				73
Additional paid-in capital			55,925				71,551
Less, treasury stock, at cost			(1,800	)			(1,800	)
Accumulated deficit			(57,670	)			(58,995	)
Accumulated other comprehensive loss			(1,523	)			(1,523	)
Stockholders’ equity attributable to SolarMax Technology, Inc.			(4,999	)			9,306
Non-controlling interest			(181	)			(181	)
Total stockholders’ equity (deficit)			(5,180	)			9,125
Total capitalization		$	60,380			$	65,585

 _________

*

Includes at September 30, 2019, short-term maturities of long-term debt amounting to $33,500 for long-term debt, related parties, and $9,863 with respect to long-term debt, other. The $5,500 convertible notes issued to limited partners of CEF in exchange for $5,500 debt to related parties will be reflected as long-term debt, other .

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 September 30, 2019. 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.

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 has been subsequently extended to March 31, 2020 by the board of directors with respect to 445,200 shares held by current employees and consultants, with 25,200 shares held by former employees having been forfeited and cancelled;
	·	Granted to the holders of 1,992,480 restricted shares the right to exchange their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $2.98 per share for each share of restricted stock exchanged;
	·	Granted to Mr. Hsu, Ms. Liu and one other employee, who held 2,268,000, 1,680,000 and 336,000 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 $2.98 per share for each share so exchanged and (b) transfer to us 50% of their restricted shares for $0.60 per share;
	·	Granted seven-year options to purchase 609,840 shares of common stock at $2.98 per share to employees;

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.

The holders of 1,656,480 restricted shares exchanged their restricted shares for options to purchase 3,510,083 shares of common stock; Mr. Hsu, Ms. Liu and one other employee exchanged 2,142,000 of their restricted shares for options to purchase 4,538,898 shares of common stock and transferred 2,142,000 shares to us for cash payments of $1,275,000 which we plan to pay by March 31, 2020, and 445,200 restricted shares remain outstanding.

As a result of the completion of this offering, the forfeiture condition relating to the 445,200 shares of common stock held by key employees and consultants will terminate.

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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 September 30, 2019, we had a negative net tangible book value of $12.7 million, or $(0.19) 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 September 30, 2019. After giving effect to the sale of the shares in this offering (after deducting estimated underwriting discounts and commissions and estimated offering expenses) and the vesting of 445,200 shares granted in October 2016 as restricted stock grants, our pro forma net tangible book value as of September 30, 2019 was approximately $1.6 million, or $0.02 per share. This represents an immediate increase in the net tangible book value of $0.21 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 $3.98 per share:

Assumed initial public offering price per share						$	4.00
Net tangible book value per share as of September 30, 2019		$	(0.19	)
Increase per share attributable to new investors in the offering and the vesting of restricted stock grants			0.21
Pro forma net tangible book value per share							0.02
Dilution to new investors in this offering (1)							3.98

The following table summarizes the total number of shares of common stock (i) owned by existing stockholders, representing 67,264,159 outstanding shares as of the date of this prospectus plus 445,200 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			67,289,359				94.4	%		$	50,782,660				76.0	%		$	0.75
New investors			4,000,000				5.6	%		$	16,000,000				24.0	%		$	4.00
Total			71,289,359				100.0	%		$	66,782,660				100.0	%		$	0.94

________  

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 11,699,621 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 4,600,000 shares, or approximately 6.4% of the total number of shares of common stock 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.

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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.

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 China;
	·	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, residential and commercial photovoltaic systems, which are rooftop systems, in China;
	·	Operating and maintaining solar farm projects in China following the completion of our EPC work on the projects, although we do not presently have any operation and maintenance contracts;
	·	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 battery backup solutions for residential and commercial customers in the United States.

We operate in two segments - our United States operations and our China operations. Our United States operations include (i) the sale and installation of photovoltaic and battery backup systems, (ii) financing the sale of our photovoltaic and battery backup systems, (iii) owning and leasing to third parties through existing operating leases and power purchase agreements, and (iv) sales of LED systems.

Our China operations consist of identifying and procuring solar farm projects for resale to third parties and performing EPC services for solar farm projects and, to a significantly lesser extent, the operation and maintenance of solar farm projects and sales and installation of residential and commercial photovoltaic systems. Our business in China is conducted through our subsidiaries, ZHTH and ZHPV, which we acquired in April 2015, and their subsidiaries. Through September 30, 2019, the principal activities of our China operations consisted primarily of:

·

identifying, procuring and selling solar farm projects primarily to subsidiaries of a related party that hold permits to solar farm projects;

·

performing EPC services pursuant to solar farm project EPC contracts; and

During 2018 we generated modest revenue from these services pursuant to two contracts with subsidiaries of a related party. The contracts were terminated in 2018, when the related party sold the projects to a third party. We did not generate any revenue from these services during the nine months ended September 30, 2019.

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On April 28, 2015, we acquired the ownership of ZHTH, through a share exchange agreement among us, SolarMax Shanghai, and the equity owners of ZHTH. Also, on April 28, 2015, we acquired the ownership of ZHPV through a share exchange agreement among us and the holders of the stock of Accumulate, which, through Accumulate Hong Kong, owned ZHPV. We own all of the stock of Accumulate, which, in turn, through its wholly-owned subsidiary, Accumulate Hong Kong, owns all of the stock of ZHPV. The share exchange agreement for ZHPV was amended on May 12, 2016 to revise certain terms including reducing the total consideration retroactively to the original acquisition date of April 28, 2015.

In 2014, prior to our acquisition of ZHTH and ZHPV, ZHTH developed one project in the Ningxia province of the PRC (30MW) and two projects in the Shandong province of the PRC (15MW and 25MW). ZHPV obtained the EPC contract for both the Ningxia and Shandong project and completed the projects in 2014. Neither ZHTH nor ZHPV generated any significant revenue during 2015 prior to our acquisition. When we acquired ZHTH in April 2015, ZHTH had a permit backlog, which we valued at approximately $1.3 million and which represented a total of 130MW of contract backlog. The permit backlog is an intangible asset that we amortized proportionately with our cash flows generated from this permit backlog through December 31, 2017. At December 31, 2017, the permit backlog was fully amortized.

Our business in China is conducted through two principal subsidiaries, ZHTH and ZHPV, 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 we acquire the permits for a solar project through a project subsidiary 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. The project owner then engages ZHPV to perform the EPC services for the solar farm. We seek to obtain a further contract to operate and maintain the system after the solar farm project is completed. The operation and maintenance services are performed by ZHPV and its subsidiaries. Unlike systems in the United States, which are installations for residential and small business users, the projects in China are solar farms, which are large land areas where multiple ground-mount solar tracking towers are installed. We have commenced the installation of residential and commercial systems in China, although revenue from such business has not been significant.

ZHPV also performs EPC services on a contract basis for solar farm owners who obtained their permits independently of us.

During the nine months ended September 30, 2019 and 2018, our revenue in the United States was derived primarily from the sale of solar systems, principally residential sales, which accounted for $27.7 million, or 80.6% of revenue, for the nine months ended September 30, 2019 and $20.2 million, or 29.9% of revenue, for the nine months ended September 30, 2018. Financing revenue, which includes principally interest revenue from loans to purchasers of our solar systems, accounted for $1.5 million, or 4.3%, of revenue for the nine months ended September 30, 2019 and $1.3 million, or 2.0%, of revenue for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we began EPC work on the Qingshuihe #3 project for a 10MW solar farm for a subsidiary of AMD, which was increased to a 10.5MW project. We also began EPC work on two new solar farm projects, a 70MW solar farm project in Guizhou Yilong Xinqiao (“Yilong #2”) and 35MW solar farm project in Guizhou Xingren (“Xingren”), for which we did not recognize revenue during the nine months ended September 30, 2019 since customer acceptance had not been obtained and customer acceptance of the project upon completion is a significant element of revenue recognition. At December 31, 2019, t he construction of Yilong #2 and Xingren solar farm projects was completed.

During the years ended December 31, 2018 and 2017, our revenue in the United States was derived primarily from the sale of solar systems, principally residential sales, which accounted for $28.5 million, or 31.7% of revenue, for 2018 and $27.3 million, or 30.7% of revenue, for 2017. Financing revenue, which includes principally interest revenue from loans to purchasers of our solar systems, accounted for $1,748,000, or 1.9%, of revenue for the year ended December 31, 2018 and $1,961,000, or 2.2%, of revenue for the year ended December 31, 2017.

We acquired ZHPV and ZHTH in April 2015, and we first generated revenue from our China operations in 2016. To date, most of the revenue from our China segment was generated by EPC services for related parties. During the nine months ended September 30, 2019, our China segment generated revenue of $4.8 million, or 13.9% of total revenue, all of which was generated during the second and third quarters. In the nine months ended September 30, 2018, our China segment generated revenue of $45.4 million, or 67.2% of total revenue. In 2018 and 2017, our EPC operations generated revenues of $58.4 million, or 65.0% of revenue, and $54.5 million, or 61.3% of revenues, respectively. During 2018, $30.6 million, or 34.0% of our EPC revenue, was generated from solar farm projects with subsidiaries of AMD, a related party, compared to $53.9 million, or 60.6%, in 2017. AMD, a publicly-traded company in China, is one of our principal stockholders and its chairman and chief executive officer is one of our directors. We recognized our revenues in China on the EPC services using the percentage of completion method based on the percentage of actual costs incurred to total budgeted costs. Revenue from AMD and its subsidiaries accounted for 53.0% or the revenues from our China segment for the year ended December 31, 2018 and 99.7% of such revenues for the year ended December 31, 2017.

We had a consolidated net loss of $6.8 million in the nine months ended September 30, 2019 and $10.5 million in the nine months ended September 30, 2018 and used cash flows from operations of $6.9 million in the nine months ended September 30, 2019 and $13.4 million in operations in the nine months ended September 30, 2018.

Our net loss for the nine months ended September 30, 2019 reflected non-cash charges of $2.7 million, consisting primarily of stock compensation expense of $287,000, $1.0 million of provisions for bad debt, loan losses, inventories and warranty, $40,000 of depreciation and amortization expense, $(57,000) (loss) on disposal of property and equipment and $1.5 million of other non-cash charges consisting primarily of currency exchange adjustments for RMB-denominated intercompany receivables.

We had a consolidated net loss of $14.7 million in the year ended December 31, 2018 and $12.1 million in the year ended December 31, 2017 and used cash flows from operations of $14.9 million in the year ended December 31, 2018 and $5.5 million in the year ended December 31, 2017.

Our net loss for the year ended December 31, 2018 included the impact of non-cash charges of $6.1 million, consisting of stock compensation expense of $222,000 related to grants of stock options, $549,000 of asset impairment losses related to our long-lived solar assets, $2.1 million of provisions for bad debt, loan losses, inventories and warranty, $619,000 of depreciation expense and $2.0 million of exchange loss related to our original investments into our PRC operations.

We entered into a supply agreement with Sunspark pursuant to which we agreed to purchase 150MW of solar panels over a three-year period beginning June 2016 at a price to be negotiated, but not to exceed 110% of the three-month rolling average market price per watt for an estimated total commitment of approximately $73.5 million based on the most recent price paid on a purchase order from Sunspark. The agreement stipulates a 30MW minimum supply commitment per year, which will cost approximately $14.7 million based on the most recent price paid on a purchase order from Sunspark, with the first year being the year ended May 31, 2017. In April 2017, our China operations made purchases of 50MW under this commitment for RMB 160.125 million (approximately $23 million), which was used for our second solar farm project, Guizhou Pu’an, and which satisfied our first-year commitment. The period for our purchases in the second year was orally extended to December 31, 2018.  Pursuant to a letter agreement dated March 13, 2019 between us and Sunspark, our purchase obligations through 2018 were suspended in their entirety (except to the extent that we made purchases pursuant to the agreement), and our purchase commitments for the year ended December 31, 2019 were to be negotiated in good faith during 2019. We did not negotiate purchase requirements from Sunspark for 2019.

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ZHTH acquired, through project subsidiaries, the rights to construct solar farms in Guizhou, China which we refer to as Guizhou Qingshuihe and Guizhou Pu’an. Guizhou is one of the southern provinces in China. Because of Chinese regulations relating to permits for solar farms, we obtain a permit for a solar farm in the name of a project subsidiary and we transfer the equity in the subsidiary to the buyer of the solar farm project upon completion of the project. The sale of equity in the project subsidiaries is generally based on the net assets of the entity and does not produce significant gains or losses. The sales price for the project subsidiary is not included in our revenue because the sale is treated as a sale of an asset. We recognize any gain or loss as other income.

In February 2016, ZHPV signed an agreement with an AMD subsidiary pursuant to which this subsidiary engaged ZHPV to perform the EPC services for its Guizhou Qingshuihe solar farm. The solar farm was initially designed to generate 70MW of power and the contract price, inclusive of value added taxes, or VAT, was approximately RMB 518.0 million (approximately $80.0 million). Due to the lack of available land, the size of the project was reduced to 55MW, with a contract price of RMB 425 million (approximately $64 million). The Guizhou Qingshuihe solar farm project was completed during 2017. During 2018 and 2017, we recognized revenue on our EPC services on the percentage of completion basis. Our gross prices include VAT. Although we do not include VAT as either revenues or cost of revenues, the contract prices to our customers in the PRC include VAT.

In December 2018, ZHPV entered into a supplemental contract with an AMD subsidiary to construct a 10MW solar farm project in Guizhou, China. This contract is supplemental to the February 2016 EPC contract described in preceding paragraph and was increased to a 10.5MW project. The contract price for the 10.5MW supplemental contract including VAT is RMB 35.9 million (approximately $5.1 million). Construction work on this project began in May 2019.

In September 2016, ZHPV executed an EPC contract with another subsidiary of AMD for a second 50MW solar farm project in Guizhou, China, which is referred to as Guizhou Pu’an. The contract price was originally RMB 322.5 million (approximately $49.0 million) and was reduced in February 2017 to RMB 312.5 million (approximately $47.0 million). In September 2017, a change order was entered into to increase the size of the project by another 5MW for a total of 55MW. We commenced construction of this project in December 2016. The Guizhou Pu’an solar farm project was completed in 2017.

In November 2016, ZHPV executed an EPC contract with Xin Huang Duong Minority Poverty Relief Office, a PRC governmental entity, to construct photovoltaic power stations in 11 villages in Xin Huang Dong Minority autonomous county. The total system size for the 11 sites is 660 kilowatts with a contract value of RMB 5.1 million (approximately $750,000). The retainage for the five-year construction warranty is 10%, or RMB 0.5 million, with 20% to be released at the end of each the first five years. Because of its small size and short construction period, this contract is accounted for under the completed contract method and we completed the project in 2018.

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 value, excluding VAT, for the 35MW project was approximately RMB 202.3 million (approximately $30.6 million), or $0.87 per watt. Construction work on the project started in January 2018. The project was completed during 2018.

In August 2018, ZHPV entered into a contract 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 $27.0 million), or $0.63 per watt. Construction work on this project, which we refer to as the Ningxia Meili Cloud project, started in August 2018 and was completed during 2018.

On June 24, 2019, 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. As of the date of this prospectus, the contract has not been issued by the municipality.

In July 2019, we, through our PRC subsidiaries, be gan work under a M&A (Cooperative Development) Agreement (the “Yilong #2 MA Agreement”) with State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd. (“SPIC”) which was executed in August 2019 , pursuant to which we will sell the ownership and control of 70% of our project subsidiary that owns the completed 70MW Yilong #2 solar farm project in Guizhou Yilong Xinqiao to SPIC when the project is completed and accepted by SPIC. Pursuant to the Yilong #2 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 selling price of the project including VAT with 100% ownership at completion is expected to be RMB 287.0 million (approximately $41.0 million) , subsequ ently amended to RMB 307.3 million ( approximately $ 43.9 million) based on an estimated capacity increase . The construction was completed at December 31, 2019.

In July 2019, we, through our PRC subsidiaries, began work under a M&A (Cooperative Development) Agreement (the “Xingren MA Agreement”) with SPIC which was executed in August 2019 , pursuant to which we will sell the ownership and control of 70% of our project subsidiary that owns the completed 35MW Xingren solar farm project to SPIC when the project is completed and accepted by SPIC. Pursuant to the Xingren MA Agreement, SPIC has 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 selling price of the project including VAT with 100% ownership at completion is expected to RMB 143.5 million (approximately $20.5 million) , subsequently amended to RMB 149.9 million (approxi mately $21.4 million) based on an estimated capacity increase . The construction was completed at December 31, 2019.

On September 29, 2019, our PRC subsidiary, SolarMax Technology (Shanghai) Co., Ltd., entered into a loan agreement with an unrelated individual who lent the subsidiary RMB 5.0 million (approximately $700,000) for interim financing on the Yilong #2 Project and the Xingren project pending the completion of long-term financing for these projects which was completed in October, 2019 pursuant to the discussion above. The interest rate is 10% per year and the loan principal and all interest is due on December 31, 2019.

In October 2019, our PRC subsidiaries, Guizhou Autonomous Prefecture Yilong Zhonghong Green Energy Co., Ltd. (“Guizhou Yilong”) and ZHPV; and Huaxia Financial Leasing Co., Ltd. (the “Lender”), entered into an agreement on the transfer of rights and obligations, pursuant to which our subsidiaries assigned to the Lender the rights and obligations of Guizhou Yilong under the contract on procurement of equipment between Guizhou Yilong and ZHPV related to the Yilong #2 project. In October 2019, Guizhou Yilong entered into a financing leasing contract with the Lender, pursuant to which the Lender has agreed to provide financing for the construction of the Yilong #2 Project under the terms of the Yilong #2 MA Agreement. The financing is structured whereby the Lender has been assigned the rights and obligations of Guizhou Yilong through the agreement on the transfer of rights and obligations (discussed above) The financing lease contract transfers ownership of the project assets to the Lender and calls for the Lender to lease the Yilong #2 Project to Guizhou Yilong for 15 years. The lease loan principal amount is RMB 217.0 million ($31.0 million), the lease loan interest rate is 130 basis point above certain benchmark RMB loan interest rate as announced by the People’s Bank of China on the lease commencement date. In connection therewith, Guizhou Yilong entered into an electricity fee charging right and accounts receivable pledge agreement, to pledge its electricity fee charging right and its accounts receivable as collateral for the financing to the Lender. Our subsidiary, Nanjing Hongci New Energy Co., Ltd. (“Nanjing Hongci”), which is the sole stockholder of Guizhou Yilong, entered into an equity pledge contract to pledge 100% of its equity to the Lender as additional collateral for the financing. Additionally, SPIC, the Lender and Guizhou Yilong entered into a claims repurchase agreement, under which SPIC made an unconditional and irrevocable commitment to the Lender to bear the repurchase obligations with respect to the financing leasing contract between the Lender and Guizhou Yilong. The agreements also have restrictions on Guizhou Yilong borrowing or making loans or paying dividends, and the stockholder of Guizhou Yilong, which is Nanjing Hongei. is responsible for any shortfall in the Guizhou Yilong’s payment obligations.

On December 8, 2019, Guizhou Yilong and SPIC entered into an asset collateral contract, for Guizhou Yilong to provide a claim on the project assets for SPIC on the Yilong #2 Project, to support the claims repurchase agreement SPIC signed with the Lender in October 2019 as described above.

On December 13, 2019, following SPIC’s approval for the final funding of the remaining financing proceeds, an equity pledge contract was signed whereby ZHPV pledged to SPIC its 100% equity in Jiangsu Hongci New Energy Co., Ltd., which is the subsidiary that owns the project subsidiary, Southwest Guizhou Autonomous Prefecture Yilong Zhonghong Green Energy Co., Ltd. This equity pledge contract gives SPIC collateral for its agreement to provide the guarantee on the Yilong #2 project financing by its agreement to repurchase the loan from the finance company.

On December 28, 2019, a notification of Yilong #2 project MA initiation was issued by Southwest Guizhou Autonomous Prefecture Jinyuan New Energy Co., Ltd., a subsidiary of SPIC, stating that the project met the prerequisites for merger and acquisition as outlined in the Yilong #2 MA Agreement and that SPIC will initiate the merger and acquisition of the Yilong #2 project company pursuant to the Yilong #2 MA Agreement.  The parent company of SPIC has not approved the merger and acquisition.

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In October 2019, our PRC subsidiaries, Xingren County Almaden New Energy Co., Ltd. (“Xingren Almaden”) and ZHPV; and the Lender entered into an agreement on the transfer of rights and obligations, pursuant to which our subsidiaries assigned to the Lender the rights and obligations of Xingren Almaden under the contract on procurement of equipment between Xingren Almaden and ZHPV related to the Xingren Project. In October 2019, Xingren Almaden entered into a financing leasing contract with the Lender, pursuant to which the Lender agreed to provide financing for the construction of the Xingren Project under the terms of the Xingren MA Agreement. The financing is structured whereby the Lender has been assigned the rights and obligations of Xingren Almaden through the agreement on the transfer of rights and obligations (discussed above). The financing lease contract transfers ownership of the project assets to the Lender and calls for the Lender to lease the Xingren Project to Xingren Almaden for 15 years. The lease loan principal amount is RMB 93.0 million ($13.3 million), the lease loan interest rate is 130 basis point above certain benchmark RMB loan interest rate as announced by the People’s Bank of China on the lease commencement date. In connection therewith, Xingren Almaden entered into an electricity fee charging right and accounts receivable pledge agreement, to pledge its electricity fee charging right and its accounts receivable as collateral for the financing to the Lender. Our subsidiary, Nanjing Qingyang New Energy Co., Ltd. (“Nanjing Qingyang”), the sole stockholder of Xingren Almaden, entered into an equity pledge contract, to pledge 100% of its equity to the Lender as additional collateral for the financing. Additionally, SPIC, the Lender and Xingren Almaden entered into a claims repurchase agreement, under which SPIC made an unconditional and irrevocable commitment to the Lender to bear the repurchase obligations with respect to the financing leasing contract between the Lender and Xingren Almaden. The agreements also have restrictions on Xingren Almaden borrowing or making loans or paying dividends, and the stockholder of Xingren Almaden, which is Nanjing Qingyang, is responsible for any shortfall in Xingren Almaden’s payment obligations.

On December 8, 2019, Xingren Almaden and SPIC entered into an asset collateral contract, for Xingren Almaden to provide a claim on the project assets for SPIC on the Xingren Project, to support the claims repurchase agreement SPIC signed with the Lender in October 2019 as described above.

On December 13, 2019, following SPIC’s approval for the final funding of the remaining financing proceeds, an equity pledge contract was signed whereby ZHPV pledged to SPIC its 100% equity in Nanjing Qingchangyang New Energy Co., Ltd., which is the subsidiary that owns the project subsidiary, Xingren Almaden New Energy Co., Ltd. This equity pledge contract gives SPIC collateral for its agreement to provide the guarantee on the Xingren project financing by its agreement to repurchase the loan from the finance company.

On December 28, 2019, a notification of Xingren project MA initiation was issued by Southwest Guizhou Autonomous Prefecture Jinyuan New Energy Co., Ltd., a subsidiary of SPIC, stating that the Xingren project met the prerequisites for merger and acquisition as outlined in the Xingren MA Agreement and that SPIC shall initiate the merger and acquisition of the project company pursuant to the Xingren MA Agreement. The parent company of SPIC has not approved the merger and acquisition.

We purchased solar panels from AMD for certain of our solar farm projects.  The amount due to AMD was RMB 52.6 million (approximately $7.4 million) at September 30, 2019 and is included in accounts payable. The amount due to AMD was RMB 116.6 million at December 31, 2018 (approximately $16.9 million) and is included in accounts payable. Pursuant to offset agreements dated June 21, 2019 with AMD, we partially satisfied our obligations to AMD with respect to the balance due for the solar panels, including solar panels purchased during the second quarter of 2019, by offsetting the balance of the unpaid project receivables of RMB 25.4 million (approximately $3.7 million) due to us from the AMD subsidiary on the Qingshuihe #1 and #2, and Pu’an projects and RMB 8.55 million (approximately $1.2 million) of the partial balance of the unpaid project receivable due to us from the AMD subsidiary on the Qinghuihe #3 project.

On December 11, 2019, we entered into another offset agreement with AMD to offset our accounts receivables from AMD , excluding warranty retainage , on the Qingshuihe #3 project of RMB 20 . 6 million approximately $2.9 million) against our accounts payable due AMD for solar panels purchased from AMD.

On December 26, 2019, we executed an agreement to sell certain assets relating to a commercial grade photovoltaic system with a battery and energy storage system we constructed for a not-for-profit entity in California for a purchase price estimated at approximately $1.75 million.

On December 31, 2019, we executed an agreement to sell certain photovoltaic solar modules and inverters, for an aggregate sale price of $6,986,000, with a delivery date of on or before March 31, 2020. Half of the purchase price is to be paid on or before March 31, 2020 and the remaining half is to be paid before delivery of the products.

Although our business plan contemplates positive cash flows in our United States segment, we cannot assure you that we will generate positive cash flow from our United States segment or that any cash flow we may generate, together with our available credit facilities and the proceeds of this offering will be sufficient to enable us to meet either our debt service requirement, including debt due to related parties, or our agreement with Sunspark. 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, disposing of a portion of our loan portfolio to financial institutions based in the United States and obtaining additional funding through investors under federal EB-5 immigration programs. 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.

On July 29, 2016, we entered into a distribution agreement with Li-Max with an effective date of June 9, 2016. The agreement has a five-year term during which we will act as the exclusive worldwide (except for Asia) distributor of Li-Max Energy Storage System. We believe this product will complement our existing solar systems and commercial LED lighting in the United States. The agreement contains an initial purchase commitment of 375 units, which is approximately $1.1 million, of Li-Max Energy System within the first six months of the term of the agreement. In the event that we fail to purchase 60% of this commitment within the six-month period, Li-Max can require us to purchase the shortfall within 60 days. If we do not meet this commitment Li-Max has the right to terminate the agreement. The agreement provides for a ten-year warranty from Li-Max on products we purchase from Li-Max. Subsequent to execution of the distribution agreement, Li-Max recognized the need to redesign its energy system in order for the system to qualify for the California home battery rebate. On October 8, 2018, we and Li-Max signed a letter agreement amending the distribution agreement to extend the commencement date of the 60-day period to the date Li-Max completes the redesign of the system to meet the additional requirements, as defined in the letter agreement. Accordingly, as of December 31, 2019, 2018 and 2017, we were not subject to any minimum purchase requirements under this distribution agreement.

On October 7, 2016, our board of directors adopted, and in November 2016, our stockholders approved, the 2016 Long-Term Incentive Plan pursuant to which a total of 10,920,000 shares may be issued pursuant to various equity-based incentives, including non-qualified stock options, incentive stock options and restricted stock grants. The board of directors granted restricted stock grants covering 6,410,880 shares of common stock, which will become non-forfeitable six months after the date of this prospectus. The board of directors also authorized the grant of options to purchase a total of 3,822,840 shares of common stock at an exercise price of $2.98 per share. The value of the restricted stock and the options is reflected as a non-cash compensation expense.

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 March 31, 2020 with respect to 445,200 shares held by current employees and consultants, with 25,200 shares held by former employees having been forfeited and cancelled;
	·	Granted to the holders of 1,992,480 restricted shares the right to exchange each of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $2.98 per share for each share of restricted stock exchanged;
	·	Granted to the chief executive officer, the executive vice president and one other employee, who held 2,268,000, 1,680,000 and 336,000 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 $2.98 per share and (b) transfer to us 50% of their restricted shares for $0.60 per share;
	·	Granted seven-year options to purchase 609,840 shares of common stock at $2.98 per share to employees;
	·	Increased the number of shares of common stock subject to the 2016 long-term incentive plan to 15,120,000 shares.

 

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As a result of employment agreements with our senior management and the grant of options and restricted stock grants pursuant to our 2016 Long-Term Incentive Plan, as well as the costs associated with our proposed initial public offering, our general and administrative expense increased in 2017 and will continue to increase. For 2017, our chief executive officer and our executive vice president, chief strategy officer and treasurer received base salaries of $1.16 million and cash and stock bonuses totaling $878,000. For 2018, they received salaries totaling $1.19 million and cash and stock bonuses of $898,279. In addition, in 2016, these two officers received a total of 3,948,000 shares of common stock as restricted stock grants pursuant to our 2016 Long-Term Incentive Plan. These shares, which were valued at $11,750,000, were subject to forfeiture provisions. In March 2019, the board of directors granted our chief executive officer and our executive vice president and our chief strategy officer and treasurer the right to exchange 1,974,000 of their restricted shares for options to purchase 4,182,906 shares of common stock and transfer the remaining 1,974,000 shares for $1,175,000, to be paid in cash prior to March 31, 2020. Pursuant to their employment agreements, we are paying our chief executive officer and our executive vice president, chief strategy officer and treasurer salaries in the total amount of $1.2 million , which is their compensation for 2019. These employment agreements provide for a salary increases of at least 3% annually. In addition, they are 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 our revenue is at least $300 million. Both of these officers waived their bonus compensation for 2019.

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 increase in corporate overhead incurred including executive compensation pursuant to the employment agreements with our two senior executive officers that is allocated to our United States segment.

Stock Distribution

On April 25, 2019, we effected a 1.68-for-one stock distribution pursuant to which we issued 0.68 share of common stock with respect to each share outstanding on April 25, 2019. All share and per share information in this prospectus retroactively reflects the stock distribution.

Results of Operations

The following tables set forth information relating to our operating results for the nine months ended September 30, 2019 and 2018 and the years ended December 31, 2018 and 2017 (dollars in thousands) and as a percentage of revenue:

		Nine Months Ended September 30
		2019								2018
		Dollars				%				Dollars				%
Revenue:
Solar energy sales (US)			27,739				80.6	%			20,183				29.9	%
LED sales (US)			407				1.2	%			617				0.9	%
Financing (US)			1,488				4.3	%			1,325				2.0	%
Solar farm EPC (China)			4,792				13.9	%			45,094				66.8	%
Solar farm O&M and other (China)			-				0.0	%			328				0.4	%
Total revenues			34,426				100.0	%			67,547				100.0	%
Cost of revenue:
Solar energy sales			22,408				65.0	%			17,308				25.7	%
LED sales			342				1.0	%			553				0.8	%
Financing			-				0.0	%			-				0.0	%
Solar farm EPC (China)			3,839				11.2	%			42,080				62.3	%
Solar farm O&M and other (China)			-				0.0	%			300				0.4	%
Total cost of revenues			26,589				77.2	%			60,241				89.2	%
Gross profit			7,837				22.8	%			7,306				10.8	%
Operating expenses:
Sales and marketing (US)			1,572				4.6	%			2,096				3.1	%
Sales and marketing (China)			140				0.4	%			594				0.9	%
General and administrative (US)			9,303				27.0	%			9,791				14.5	%
General and administrative (China)			1,597				4.6	%			1,621				2.4	%
Impairment			-				0.0	%			549				0.8	%
Total operating expenses			12,612				36.6	%			14,651				21.7	%
Income (loss) from operations (US)			(3,991	)			-11.5%				(8,172	)			-12.1%
Income (loss) from operations (China)			(784	)			-2.3%				827				1.2	%
Equity in income (loss) from unconsolidated ventures			2				0.0	%			(424	)			-0.6%
Interest (expenses), net			(1,429	)			-4.2%				(1,170	)			-1.7%
Other income (expenses), net			(597	)			-1.7%				(1,131	)			-1.7%
Income (loss) before income taxes			(6,799	)			-19.8%				(10,070	)			-14.9%
Income tax benefit (provision)			13				0.0	%			(452	)			-0.7%
Net loss			(6,786	)			-19.8%				(10,522	)			-15.6%
Net income (loss) attributable to non-controlling interests			(39	)			-0.1%				(79	)			-0.1%
Net income (loss) attributable to stockholders			(6,747	)			-19.7%				(10,443	)			-15.5%
Currency translation adjustment			(313	)			-0.9%				(660	)			-1.0%
Comprehensive income (loss) attributable to stockholders			(7,060	)			-20.6%				(11,103	)			-16.5%

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		Year Ended December 31,
		2018								2017
		Dollars				%				Dollars				%
Revenue:
Solar energy sales (US)			28,515				31.7	%			27,346				30.7	%
LED sales (US)			857				1.0	%			4,506				5.1	%
Financing (US)			1,748				1.9	%			1,961				2.2	%
Solar farm EPC (China)			58,369				65.0	%			54,517				61.3	%
Solar farm O&M and other (China)			339				0.4	%			600				0.7	%
Total revenues			89,828				100.0	%			88,930				100.0	%
Cost of revenue:
Solar energy sales			25,374				28.2	%			22,218				25.0	%
LED sales			725				0.8	%			5,024				5.6	%
Financing			-				0.0	%			-				0.0	%
Solar farm EPC (China)			53,701				59.8	%			50,843				57.2	%
Solar farm O&M and other (China)			777				0.9	%			263				0.3	%
Total cost of revenues			80,577				89.7	%			78,348				88.1	%
Gross profit			9,251				10.3	%			10,582				11.9	%
Operating expenses:
Sales and marketing (US)			2,684				3.0	%			2,303				2.6	%
Sales and marketing (China)			682				0.8	%			1,019				1.1	%
General and administrative (US)			13,309				14.8	%			12,865				14.5	%
General and administrative (China)			3,526				3.9	%			2,612				2.9	%
Impairment			549				0.6	%			605				0.7	%
Total operating expenses			20,750				23.1	%			19,404				21.8	%
(Loss) from operations (US)			(11,521	)			-12.8	%			(9,202	)			-10.3	%
Income from operations (China)			22				0.0	%			380				0.4	%
Equity in (loss) from unconsolidated ventures			(495	)			-0.6	%			(1,277	)			-1.4	%
Interest (expense), net			(1,512	)			-1.7	%			(1,403	)			-1.6	%
Other income (expense), net			(1,205	)			-1.3	%			503				0.6	%
(Loss) before income taxes			(14,711	)			-16.4	%			(10,999	)			-12.4	%
Income tax benefit (provision)			6				0.0	%			(1,075	)			-1.2	%
Net loss			(14,705	)			-16.4	%			(12,074	)			-13.6	%
Net (loss) attributable to non-controlling interests			(107	)			-0.1	%			(140	)			-0.2	%
Net (loss) attributable to stockholders			(14,598	)			-16.3	%			(11,934	)			-13.4	%
Currency translation adjustment			(627	)			-0.7	%			680				0.8	%
Comprehensive (loss) attributable to stockholders			(15,225	)			-17.0	%			(11,254	)			-12.6	%