SMXT filing — read by section

Item 9A. Controls and Procedures

Item 9A. Controls and Procedures 
 
 Evaluation of Disclosure Controls and Procedures 
 
 We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. At December 31, 2023, we were a privately-owned company, not subject to disclosure controls and internal controls over financial reporting required by the Exchange Act for public companies.
 
 This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. 
 
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 Item 9B. Other Information 
 
 We have adopted an insider trading policy. Our insider trading policy is available on our website and is filed as an exhibit to this annual report.
 
 During the fourth quarter of 2023, we were a privately owned company and disclosure required by Item 9B was not applicable.
 
 Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. 
 
 Not applicable
 
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 Part III 
 
 Item 10. Directors, Executive Officers and Corporate Governance 
 
 Executive Officers and Directors 
 
 Set forth below is certain information with respect to our directors and executive officers:
 
 Name 
 
 Age 
 
 Title 
 
 David Hsu
 
 60
 
 Chief executive officer and director
 
 Stephen Brown
 
 64
 
 Chief financial officer
 
 Simon Yuan
 
 69
 
 Director
 
 Wei Yuan Chen
 
 65
 
 Director
 
 Jinxi Lin
 
 64
 
 Director
 
 Wen-Ching (Stephen) Yang, Ph.D.
 
 61
 
 Director
 
 Lei Zhang, Ph.D.
 
 41
 
 Director
 
 David Hsu, together with Simon Yuan and Ching Liu, who was formerly an executive officer and director and is a 5% stockholder, are our founders. Mr. Hsu has served as our chief executive officer and a director since our organization in February 2008. Mr. Hsu has more than 20 years of experience in sales, international business development and management in the automotive and energy industries. Before starting SolarMax in 2008, Mr. Hsu served as a consultant to China Sunergy a leading photovoltaic panel manufacturer and solar energy company. Mr. Hsu received a bachelor’s degree in electrical engineering from Shanghai Jiao Tong University School of Engineering. Mr. Hsu’s solar energy industry experience and his relationships with industry experts qualify him to serve as a director.
 
 Stephen Brown has served as our chief financial officer since May 2017. From 2013 until April 2017, he was chief financial officer of STAAR Surgical Company. Mr. Brown was vice president, global finance of Bausch & Lomb from 2008 until 2013 and chief financial officer of Hoya Surgical Optics from 2007 to 2008. He served in various capacities over a 13-year period with Johnson & Johnson including chief financial officer of the Advanced Sterilization Products division. His 35-year business career also includes the founding of Degree Baby Products, a privately held company that was sold after six years of operations to Johnson & Johnson. Mr. Brown holds an M.B.A. degree from University of California, Los Angeles Anderson School of Management and earned a B.A. degree in Business Administration from California State University, Fullerton.
 
 Simon Yuan, one of our founders, served as a director since February 2008 and chief financial officer from February 2008 until May 2017. In 1989, Mr. Yuan founded Simon& Edward, LLP, a PCAOB registered public accounting firm of which he has been managing partner since its founding. Prior to founding Simon& Edward, Mr. Yuan was employed by Wells Fargo Bank as a senior internal auditor and by the State of California as a tax auditor. Mr. Yuan was also a supervising senior auditor with the international accounting firm of Moore Stephens. Mr. Yuan’s professional experience encompasses more than 30 years of public accounting, with expertise in a broad range of business accounting and auditing, and international taxation, estate planning, business merger and acquisition, and general business consulting. Mr. Yuan is an active leader, officer and participant of many professional and charitable organizations. He is a director of the Sino-American Certified Public Accountants Association and also served as its president in 1998. Mr. Yuan received a Master of Accountancy from Ohio State University. Mr. Yuan’s accounting background, as well as his service as our chief financing officer, qualify him to serve as a director.
 
 Wei Yuan Chen has served as a director since April 2010. Mr. Chen, who is semi-retired, was the chief designer and director for Xing Rong Project Management Company, Shanghai, China, a position he held from 1990 to 2010. In 2002, Mr. Chen received the “Design and Build” of the year award for designing the headquarters of Applied Material, Shanghai, China. Mr. Chen earned his bachelor’s degree from Tsinghua University. Mr. Chen brings to us his project management knowledge and 20 years of experience of implementation and integration of renewable sources into his architectural designs. Mr. Chen’s experience in project management and familiarity with the Chinese market qualify him to serve as a director.
 
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 Jinxi Lin has served as a director since 2014. Mr. Lin serves as the chairman of AMD, a publicly traded solar panel manufacturer in Asia and the Middle East and one of our major stockholders. Mr. Lin founded AMD in 2006 and has served as its chairman since its formation. Mr. Lin received his undergraduate degree in business administration from Northwest Polytechnic University. Mr. Lin’s knowledge of the solar industry and the Chinese market qualify him to serve as a director.
 
 Dr. Wen-Ching (Stephen) Yang has been a director since December 2020. Dr. Yang is the founder of Grand Trust International Law Offices and has been the partner-in-charge since 2008. He has also been the chief executive officer of Taoyuan Enterprise Chamber since 2016. Dr. Yang received his bachelor’s and master’s degrees from National Taiwan University and his PhD in economics in law from the law school at Peking University. Dr. Yang was also a research fellow at the John F. Kennedy School of Government at Harvard University. Dr. Yang’s background in economics qualify him as a director.
 
 Dr. Lei Zhang has been a director since November 2020. She has been associate professor, which is a tenured position, in the Department of Mechanical Engineering at the University of Alaska, Fairbanks since July 2018, having been an assistant professor in that department from August 2013 to June 2018. She is co-author of a number of annual books on energy technology and is co-author of a number of articles in her field in peer reviewed journals. Dr. Zhang received her B.Eng. and M.S. in Material Science and Engineering from China University of Mining & Technology, Beijing, and her Ph.D. from Michigan Technological University. Dr. Zhang’s knowledge of the energy industry qualifies her to serve as a director.
 
 All of our executive officers and directors are located in the United States except that two directors (Wei Yuan Chen and Jinxi Lin) are located in China and one director (Wen-Ching (Stephen) Yang) is located in Taiwan. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon those directors located outside the United States, to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors under United States securities laws. In particular, the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries and regions. Therefore, recognition and enforcement in the PRC of judgement of United States courts in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
 
 Key Employee 
 
 Bin Lu, age 54, is the head of our China segment. Mr. Lu has been employed in our China segment since we acquired ZHPV in 2015. Mr. Lu was employed with ZHPV prior to our acquisition of ZHPV. Mr. Lu received a bachelor’s degree from Shanxi University.
 
 Information about the Board of Directors 
 
 Our board of directors oversees our business and affairs and monitors the performance of management. In accordance with corporate governance principles, the board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with our chief executive officer and other key executives, by reading the reports and other materials that we send them, and by participating in board and committee meetings. Directors hold office for a term of one year and until their successors have been elected and qualified unless the director resigns or by reasons of death or other cause is unable to serve in the capacity of director.
 
 Terms of Directors 
 
 Our directors are elected for a term of one year, until the next annual meeting of stockholders and until their successors are elected and qualified. Pursuant to our bylaws, our officers serve at the pleasure of the board of directors subject to any rights they may have pursuant to employment agreements and applicable law.
 
 Committees of the Board of Directors 
 
 Effective upon the effectiveness of the registration statement of which this prospectus is a part, we established an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below. Pursuant to the Nasdaq regulations, we are electing to use the phase-in provisions which permit us, during the one-year period following the date of this prospectus, (i) to have a board of directors that is not comprised of a majority of independent directors and (ii) to have one non-independent director on each of our committees.
 
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 Audit Committee. Our audit committee consists of Dr. Wen-Ching Yang as chair, Wei Yuan Chen and Simon Yuan. We have determined that Dr. Yang and Mr. Chen satisfy the “independence” requirements of the Nasdaq Listing Rules and meet the independence standards under Rule 10A-3 under the Exchange Act. We have determined that each of Dr. Yang and Mr. Yuan qualify as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. The audit committee is responsible for, among other things:
 
 · 
 selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; 
 
 · 
 reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; 
 
 · 
 reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; 
 
 · 
 discussing the annual audited financial statements with management and the independent registered public accounting firm; 
 
 · 
 reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any special steps taken to monitor and control major financial risk exposures; 
 
 · 
 annually reviewing and reassessing the adequacy of our audit committee charter; 
 
 · 
 meeting separately and periodically with management and the independent registered public accounting firm; 
 
 · 
 monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; 
 
 · 
 establishing procedures for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and 
 
 · 
 reporting regularly to the board. 
 
 Our audit committee reviews all proposed related party transactions on an ongoing basis and any such transactions must be approved by the audit committee. 
 
 The audit committee has the authority, with the assistance of management, to advise the board and any other board committee if the clawback provisions of the our clawback policy are triggered based upon a financial statement restatement or other financial statement change. 
 
 The audit committee also has the responsibility to implement and oversee our cybersecurity and information security policies and periodically review the policies and manage potential cybersecurity incidents.
 
 Compensation Committee . Our compensation committee consists of Wei Yuan Chen, as chair, Lei Zhang, Ph.D. and Jinxi Lin. We have determined that each of Mr. Chen and Dr. Zhang satisfies the “independence” requirements of the Nasdaq Listing Rules. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee is responsible for, among other things:
 
 · 
 reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; 
 
 · 
 reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; 
 
 · 
 reviewing periodically and approving any incentive compensation or equity plans, programs or other similar arrangements; and 
 
 · 
 selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. 
 
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 The compensation committee shall, with the assistance of management, have the authority and responsibility to, either by itself or in coordination with the audit committee, make any determinations and take or authorize the taking of any action contemplated by our clawback policy.
 
 Nominating and Corporate Governance Committee . Our nominating and corporate governance committee consists of Dr. Wen-Ching Yang, as chair, Wei Yuan Chen and David Hsu. We have determined that Dr. Yang and Mr. Chen satisfy the “independence” requirements of the Nasdaq Listing Rules. Mr. Hsu is our chief executive officer. The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
 
 · 
 recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; 
 
 · 
 reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience, expertise, diversity and availability of service to us; 
 
 · 
 selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; 
 
 · 
 developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and 
 
 · 
 evaluating the performance and effectiveness of the board as a whole 
 
 Item 11. Executive Compensation 
 
 The following table sets forth information regarding the compensation awarded to, earned by, or paid during the years ended December 31, 2023 and 2022 to our chief executive officer and the most highly paid executive officer other than the chief executive officer. These two officers, who are our only executive officers, are referred to as our “Named Executive Officers.”
 
 Summary Compensation Table 
 
 Salary 
 
 Cash 
 Bonus 
 
 Stock 
 Bonus 
 
 Option 
 Awards 
 
 Non-Equity 
 Incentive Plan 
 Compensation 
 
 Non-qualified 
 Deferred 
 Compensation 
 Earnings 
 
 All Other 
 Compensation 2 
 
 Total 
 
 Name and principal position 
 
 Year 
 
 ($) 
 
 ($) 
 
 ($) 
 
 ($) 
 
 ($) 
 
 ($) 
 
 ($) 
 
 ($) 
 
 David Hsu,
 
 2023
 
 $ 716,431 
 
 $ - 
 
 $ - 
 
 $ - 
 
 $ - 
 
 $ - 
 
 $ 55,055 
 
 $ 771,486 
 
 Chief executive officer 1 
 
 2022
 
 695,564 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 53,452 
 
 749,016 
 
 Stephen Brown,
 
 2023
 
 350,000 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 26,896 
 
 376,896 
 
 Chief financial officer
 
 2022
 
 350,000 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 26,896 
 
 376,896 
 
 1 
 Pursuant to his employment agreement, Mr. Hsu is eligible for an annual bonus in which 70% is payable in stock and 30% is payable in cash. Mr. Hsu waived his bonus for 2023 and 2022 in connection with the suspension of incentive programs for our key employees.
 
 2 
 All other compensation represents the value of paid time off accrued during 2022.
 
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 Employment Agreements 
 
 On October 7, 2016, we entered into an employment agreement with David Hsu-pursuant to which it agreed to employ Mr. Hsu as our chief executive officer for a five-year term commencing January 1, 2017 and continuing on a year-to-year basis unless terminated by us or Mr. Hsu on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension. We agreed to include Mr. Hsu as a nominee of the board of directors for election as a director during the term of his agreement, and, upon his election as a director, Mr. Hsu is to serve as chairman of the board. Mr. Hsu’s initial salary was $600,000, with an annual increase of not less than 3%. Mr. Hsu’s employment agreement provides for a salary increases of at least 3% annually and a bonus based on our revenues. Mr. Hsu’s compensation was at the annual rate of $695,564 for 2022 and $716,431 for 2023. His compensation for 2024 is at the annual rate of $737,924. Mr. Hsu is entitled to an annual bonus based on consolidated revenues for the year in accordance with the following table:
 
 Revenue 
 
 Bonus in 
 Dollars or 
 Percentage of 
 Revenues 
 
 Less than $30 million
 
 $ 0 
 
 More than $30 million but less than $50 million
 
 $ 250,000 
 
 More than $50 million but less than $100 million
 
 0.55 % 
 More than $100 million but less than $200 million
 
 0.60 % 
 More than $200 million but less than $300 million
 
 0.75 % 
 More than $300 million
 
 1.00 % 
 
 70% of the bonus payable for any calendar year shall be paid in restricted stock and 30% shall be paid in cash and shall be paid no later than the earlier of (i) 30 days following the issuance of our audited financial statements for the calendar year in which the bonus is earned or (ii) the last business day of December of such next following calendar year. Our audited financial statements shall be deemed to be issued on the date we file our annual report on Form 10-K. The equity component of the bonus shall be based on the average closing market price of the common stock on the principal exchange or market on which the common stock is traded for the period beginning on the first day of the quarter in which the bonus is payable and ending on the third trading day prior to the date payment is made; except that, if the common stock is not publicly traded, the common stock shall be valued at the most recent price at which the common stock was sold in a private placement to non-affiliated investors. The restricted stock will vest immediately on issuance. Mr. Hsu waived his bonus for 2023 and 2022 in connection with the suspension of incentive programs for our key employees. Mr. Hsu is eligible for restricted stock grants or stock options, which shall not exceed 1.5% of our outstanding common stock prior to the grant. The agreement also provides Mr. Hsu with $2.0 million of life insurance, medical and dental insurance and long-term disability insurance providing monthly benefits of not less than $25,000. In the event of Mr. Hsu’s termination in the event of his disability or death, we will pay Mr. Hsu or his beneficiary severance payments or death benefits equal to his highest compensation, which is his salary plus bonus, during the three calendar years prior to the year in which the termination of employment for disability or death occurs, multiplied by the number of full years Mr. Hsu has been employed by us. Mr. Hsu’s employment commenced in February 2008. These termination payments shall be made in annual installments, each equal to one year’s total compensation. In the event of a termination not for cause, by Mr. Hsu for good cause or termination of employment within 18 months of a change of control, we shall pay Mr. Hsu, a lump sum termination payment equal to two times his highest annual compensation for the three years preceding the year in which the termination of employment occurs multiplied by the number of full years that Mr. Hsu was employed by us. In connection with Mr. Hsu’s exchange of 674,107 restricted shares for options to purchase 1,428,432 shares of common stock at $5.01 per share and 674,107 restricted shares for a cash payment of $675,000, which was initially payable by December 15, 2019 and was paid from the proceeds of our initial public offering. In addition, at December 31, 2023, we owed Mr. Hsu $1,712,770, representing deferred salary from 2019, 2020, 2021, 2022 and 2023 and cash bonuses deferred from 2017 and 2018. Mr. Hsu agreed that this deferred salary and bonus be paid in twelve equal monthly installments, the first payment becoming due on the February 27, 2025.
 
 We have an employment agreement dated March 23, 2017 with Stephen Brown pursuant to which we pay Mr. Brown an annual salary of $350,000 and, on May 1, 2017, we granted him an option to purchase 199,736 shares at $5.01 per share. Mr. Brown’s agreement provides that his employment is at will.
 
 Clawback Policy 
 
 Our board of directors adopted a clawback policy covering our executive officers. An executive officer is our chief executive officer, president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president in charge of a significant principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for us. As of the date of this annual report, our only executive officers are our chief executive officer and our chief financial officer. The clawback policy relates to incentive-based compensation, which is any compensation that is granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure. The clawback policy covers the recovery of incentive-based compensation from an executive officer only in the event that we are required to prepare an accounting restatement due to the material noncompliance of our financial reporting requirement under the United States securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Questions as to “materiality” will be made by the Compensation Committee in coordination with the Audit Committee.
 
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 The incentive-based compensation subject to recovery is the incentive-based compensation received during the three completed fiscal years immediately preceding the date that we are required to prepare an accounting restatement as described above, provided that the person served as an executive officer at any time during the performance period applicable to the incentive-based compensation in question provided that the clawback policy shall only apply if the incentive-based compensation is received while we have a class of securities listed on Nasdaq and on or after October 2, 2023. David Hsu, our chief executive officer, has an employment which provides for incentive-based compensation during the year ended December 31. 2023; however, Mr. Hsu waived his bonus for 2023.in connection with the suspension of incentive programs for our key employees.
 
 Employee Benefit Plans 
 
 In October 2016, our board of directors adopted, and in November 2016, our stockholders approved, the 2016 Long-Term Incentive Plan (the “Plan”), pursuant to which a maximum of 3,810,949 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted. In March 2019, the board and stockholders approved an increase in the number of shares subject to the plan to 8,988,084.
 
 As of December 31, 2023, there were outstanding options to purchase a total of 6,295,858 shares of common stock at an average exercise price of $5.01, including options granted prior to the adoption of the Plan. The following table sets forth information as to options held by our officers, directors and 5% stockholders.
 
 Name 
 
 Shares 
 
 David Hsu
 
 1,428,432 
 
 Simon Yuan
 
 1,269,717 
 
 Ching Liu
 
 1,058,098 
 
 Stephen Brown
 
 199,736 
 
 Bin Lu
 
 110,854 
 
 Total
 
 4,066,837 
 
 The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur; provided, however, that prior to a forfeiture termination event, (i) the grantees shall have no rights to sell, encumber or otherwise transfer the shares, and (ii) any shares of any class or series of capital stock which are issued to the grantee as a holder of the shares as a result of a stock dividend, stock split, stock distribution, reverse split, recapitalization, or similar event, shall be subject to the same forfeiture provisions as the shares. A forfeiture termination event shall mean such date as is six months following a public stock event, which is the vesting date with respect to the shares. The definition of a public stock event includes the effectiveness of the offering. The shares are forfeited and are to be conveyed to us for no consideration if a public stock event has not occurred by April 30, 2024, although the board of directors has the right to extend that date. 
 
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 Outstanding Equity Awards 
 
 The following table sets forth information as to outstanding equity awards at December 31, 2023 for the Named Executive Officers: 
 
 Option awards 
 
 Stock awards 
 
 Shares 
 underlying 
 unexercised option # 
 exercisable 
 
 Shares 
 underlying 
 unexercised 
 option # 
 unexercisable 
 
 Equity 
 incentive 
 plan 
 awards: 
 number of 
 securities 
 underlying 
 unexercised 
 unearned 
 options 
 
 Option 
 exercise 
 price 
 
 Option 
 expiration 
 date 
 
 Number 
 of 
 shares 
 that 
 have 
 not 
 vested 
 
 Market 
 value 
 of 
 shares 
 that 
 have 
 not 
 vested 
 
 Equity 
 incentive 
 plan 
 awards: 
 number 
 of 
 unearned 
 shares or other 
 rights 
 that have 
 not 
 vested 
 
 David Hsu
 
 1,428,432 1 
 
 - 
 
 $ 5.01 
 
 02/12/34 
 
 - 
 
 - 
 
 - 
 
 Stephen Brown
 
 149,802 
 
 49,934 
 
 - 
 
 5.01 
 
 04/30/27
 
 - 
 
 - 
 
 - 
 
 1 
 These options will become exercisable in two installments, commencing August 12, 2024.
 
 Director Compensation 
 
 The following table sets forth information as to the compensation paid to our directors in 2023, other than those named in the Summary Compensation Table: 
 
 Name 
 
 Cash 
 Compensation 
 
 Stock 
 Awards 
 
 Total 
 
 Wei Yuan Chen
 
 - 
 
 - 
 
 - 
 
 Jinxi Lin
 
 - 
 
 - 
 
 - 
 
 Simon Yuan
 
 - 
 
 - 
 
 - 
 
 Dr. Wen-Ching (Stephen) Yang
 
 - 
 
 - 
 
 - 
 
 Lei Zhang, Ph.D.
 
 - 
 
 - 
 
 - 
 
 Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters 
 
 The following table sets forth information with respect to the beneficial ownership of our common stock as of April 11, 2024 by:
 
 · 
 each person known to us to beneficially own 5% or more of our common stock; 
 
 · 
 each director; 
 
 · 
 each of our Named Executive Officers; and 
 
 · 
 all officers and directors as a group. 
 
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 All information with respect to beneficial ownership has been furnished by the respective 5% or more stockholders, directors or executive officers, as the case may be. Each person is deemed to own beneficially shares of common stock that are issuable upon exercise of options, warrants or upon conversion of convertible securities if they are exercisable or convertible within 60 days of April 11, 2024. Unless otherwise noted, the mailing address of each listed beneficial owner is 3080 12th Street, Riverside, California 92507.
 
 Name of Beneficial Owner 
 
 Shares Beneficially Owned 
 
 Percentage 
 
 David Hsu
 
 4,032,298 
 
 8.9 % 
 Jinxi Lin 2 
 
 3,566,700 
 
 7.8 % 
 Changzhou Almaden Co. Ltd. 2 
 
 3,566,700 
 
 7.8 % 
 Ching Liu 3 
 
 2,509,292 
 
 5.5 % 
 Simon Yuan
 
 2,197,088 
 
 4.8 % 
 Wei Yuan Chen
 
 1,757,670 
 
 3.9 % 
 Dr. Wen-Ching (Stephen) Yang 4 
 
 1,098,544 
 
 2.4 % 
 Lei Zhang, Ph.D.
 
 - 
 
 0 % 
 Stephen Brown 5 
 
 199,736 
 
 *
 
 All officers and directors as a group 2,5,6 (seven individuals beneficially owning stock)
 
 12,852,036 
 
 28.3 % 
 
 *
 Less than 1%
 
 1 
 The percentages are based on 45,447,183 shares which includes common stock outstanding of 45,247,447 shares and Mr. Brown’s option to purchase 199,736 shares of common stock.
 
 2 
 The shares beneficially owned by Jinxi Lin represent the 3,566,700 shares owned by AMD, of which Mr. Lin is chairman and chief executive officer and has the right to vote and dispose of the shares. The address for Mr. Lin and AMD is No. 639, Qinglong East Road, Changzhou, Jiangsu, China.
 
 3 
 The address for Ching Liu is 2810 Steeplechase Lane, Diamond Bar, CA 91765
 
 4 
 Includes 349,537 shares of common stock owned by Dr. Yang’s wife, as to which he disclaims beneficial interest.
 
 5 
 Shares beneficially owned by Mr. Brown represents an option to purchase 199,736 shares of common stock.
 
 Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his or her name.
 
 Options held by Mr. Hsu, Ms. Liu and Mr. Yuan, which become exercisable August 12, 2024, are not reflected in the table since they are not exercisable within 60 days of April 11, 2024.
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence 
 
 Related Party Transactions 
 
 EB-5 Notes 
 
 On January 3, 2012, CEF entered into a loan agreement with SREP, one of our United States subsidiaries, pursuant to which CEF agreed to make loans to the subsidiary in an amount not to exceed $45 million. CEF advanced $45 million pursuant to the agreement. On August 26, 2014, CEF II entered into a loan agreement with LED, another United States subsidiary, for up to $13,000,000. CEF II advanced $10.5 million pursuant to the agreement. The proceeds of the loans were used by our subsidiaries for their operations. The loans from CEF and CEF II accrue interest at 3% per annum, payable quarterly in arrears. The loans are secured by a security interest in the accounts and inventory of the borrowing subsidiary. CEF and CEF II are limited partnerships, the general partner of which is Inland Empire Renewable Energy Regional Center, LLC (“Inland Empire”). Inland Empire is owned by David Hsu, our chief executive officer and a director, Ching Liu, our former executive vice president and director and a 5% stockholder, and Simon Yuan, a director. The limited partners of both CEF and CEF II are unaffiliated investors who made a capital contribution to CEF or CEF II pursuant to the United States EB-5 immigration program and are not related parties. The EB-5 immigrant investor visa is a federal program that grants green cards and a path to citizenship to foreign investors who invest at least $500,000 toward job-creating projects. Under this program, which is administered by the United States Customs and Immigration Service, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they make the necessary investment in a commercial enterprise in the United States and plan to create or preserve 10 permanent full-time jobs for qualified United States workers. We are a commercial enterprise that creates permanent full-time jobs in the United States.
 
 The loans from CEF and CEF II become due, as to the investment of each limited partner, four years from the date of the loan and may be extended as may be necessary to meet applicable USCIS immigrant investor visa requirements, which will be the date that the limited partner is eligible for a green card. Under the limited partnership agreements for CEF and CEF II, the limited partners may demand repayment of their capital account when the petition is approved, which demand may trigger a maturity of the loan from CEF or CEF II in the amount of the limited partner’s investment. The initial four-year term of notes in the principal amount of $55.5 million, which were issued to CEF and CEF II, and had expired prior to December 31, 2023 and are on extension until the limited partner meets applicable immigrant investor visa requirements. We cannot determine the period of the extensions. As of March 31, 2024, limited partners whose capital contributions funded loans of $41.5 million had received their green card approval and their extensions expired and one limited partner whose capital contribution funded $500,000 had withdrawn from CEF II and his capital contribution was returned. The petitions of limited partners of CEF whose capital contribution funded loans of $3.5 million are pending.
 
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 As the loans matured and the limited partners requested return of their capital contribution, we offered the limited partners, in lieu of the payment by the limited partnership, a convertible note with a term of five years, with 20% of the principal amount being due on each of the first, second, third, fourth and fifth anniversaries of the date of issuance. The notes are secured by the same assets that secured the notes issued to CEF. As of March 31, 2024, we had issued convertible notes in the principal amount of $36.5 million to former limited partners of CEF, of which principal payments of $19.75 million had been made on the anniversary of the respective dates of issuance, and convertible notes in the principal amount of $2.5 million had been purchased by us for $1.77 million, leaving convertible notes in the principal amount of $14.25 million outstanding. As of March 31, 2024, notes to CEF and CEF II in the aggregate principal amount of $15.0 million were outstanding.
 
 Six of the limited partners commenced an action against CEF, SolarMax and others, including Mr. Hsu and Mr. Yuan, seeking cash payment of their capital contribution to CEF totaling $3.0 million and other relief, including a declaration that the $45.0 million note to CEF is due and payable. All six of these limited partners settled their actions. One of these limited partners accepted a convertible note for $500,000, the amount of his claim.
 
 Interest expense on the loans from CEF and CEF II were approximately $0.5 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.
 
 Other Related Party Loan 
 
 On October 10, 2022, SMXP made unsecured loans to us for $944,077 and $414,581 at an interest rate of 8%, with interest payable quarterly at the end of each quarter. The principal amount plus accrued interest of both notes is due on October 10, 2024. The proceeds of the loans were used to pay the security deposit and lease obligations for one month owed to the new owner of our headquarters building under the new lease agreement and for rent on our headquarters building from June 1, 2022 to October 12, 2022. David Hsu, our chief executive officer and a director, Ching Liu, formerly our executive vice president and a director and currently a 5% stockholder, and Simon Yuan, a director, are the principal management group of SMXP.
 
 Prior to October 2022, we leased our headquarters from SMXP. The annual rate under the lease was approximately $1.5 million plus common area charges. In October 2022, SMXP sold its interest in the building to 3080 Landlord, an unrelated party, and we entered into a net lease agreement with 3080 Landlord to lease the property until December 31, 2026. Under our prior lease with SMXP, we leased that portion of the building that we used. Under the lease with 3080 Landlord, we lease the entire building and we have the right to sublease space in the property with the consent of the landlord, such consent not to be unreasonably withheld. Rent for the first lease year is at the annual rate of $1.6 million and increases 3% per year. Since the lease is a net lease for the entire building, we are responsible for all of the operating expenses of the building.
 
 On October 10, 2022, SMXP made unsecured loans to us for $944,077 and $414,581 at an interest rate of 8%, with interest payable quarterly at the end of each quarter. The principal amount plus accrued interest of both notes is due on October 10, 2024. The proceeds of the loans were used to pay the security deposit and lease obligations for one month owed to the new owner of our headquarters building under the new lease agreement and for rent on our headquarters building from June 1, 2022 to October 12, 2022. David Hsu, our chief executive officer and a director, Ching Liu, formerly our executive vice president and a director and currently a 5% stockholder, and Simon Yuan, a director, are the principal management group of SMXP.
 
 Contemporaneously with the sale by SMXP of the building to 3080 Landlord and the lease with 3080 Landlord, we issued two two-year 8% notes to SMXP. Both notes provide for quarterly payments of interest during the term with the principal being due at maturity. One note, in the principal amount of $414,581, was issued to pay rent due under our former lease with SMXP for the period, which terminated when SMXP sold the property to 3080 Landlord, at which time we entered into a new lease with 3080 Landlord. The second note, for $944,077 was issued in respect of a loan from SMXP to finance our security deposit ($809,209) and one month’s rent under our lease with 3080 Landlord. Payment of the notes is due in October 2024.
 
 Related Party Leases 
 
 We have a lease for our Diamond Bar, California office with Fallow Field, LLC. Fallow Field, LLC, a related party. The lease commenced on November 1, 2016 and has a ten year term with one five-year renewal option. The initial annual base rent is $229,272 plus the Company’s share of utilities. Fallow Field is owned by Mr. Hsu, Ms. Liu and a minority stockholder.
 
 95 
 
 Table of Contents 
 
 For the years ended December 31, 2023 and 2022, total related party rental expenses included in general and administrative expenses for the Riverside, California corporate headquarters and the Diamond Bar, California office, were approximately $0.1 million and $1.2 million, respectively.
 
 Equity Transactions with Officers and Directors 
 
 In October 2016, the board of directors granted 3,810,949 shares, of which 3,045,963 shares were granted to officers and directors. The following table set forth information relating to the restricted stock grants to officers and directors.
 
 Name 
 
 No. of 
 Restricted 
 Shares 
 
 David Hsu
 
 1,348,213 
 
 Ching Liu 1 
 
 998,676 
 
 Simon Yuan
 
 599,206 
 
 Chung Jen Tsai 2 
 
 99,868 
 
 ____________
 1 Ms. Liu resigned as an officer and director on February 24, 2020. 
 2 Mr. Tsai resigned as a director on July 6, 2020.
 
 On March 23, 2019, the board of directors:
 
 · 
 Granted to the holders of 1,184,434 restricted shares, including Mr. Yuan and Mr. Tsai, the right to exchange their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $5.01 per share for each share of restricted stock exchanged; and
 
 · 
 Granted to Mr. Hsu, Ms. Liu and one other employee, who held 1,348,213, 998,676 and 199,736 restricted shares, respectively, the right (a) to exchange 50% of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $5.01 per share for each share exchanged and (b) transfer to us 50% of their restricted shares for $1,275,000, or $1.01 per share. These payments were initially due in December 2019 and the payment date was extended and we made these payments from the proceeds of our initial public offering.
 
 Pursuant to their exchange agreements with us, we granted Mr. Yuan, a director, an option to purchase 1,269,717 shares and Mr. Tsai, who was a director, an option to purchase 211,620 shares in exchange for their restricted shares.
 
 Pursuant to their exchange agreements with us, Mr. Hsu converted 674,107 shares of common stock into options to purchase 1,428,432 shares of common stock and transferred 674,107 of his restricted shares stock to us for $675,000, and Ms. Liu converted 499,338 of common stock into options to purchase 1,058,098 shares of common stock and transferred 499,338 shares of common stock to us for $500,000. The payments to Mr. Hsu and Ms. Liu were initially to have been paid by December 15, 2019, which date has been extended several times and the payments were made from the proceeds of our initial public offering.
 
 Director Independence 
 
 We believe that three of our directors, Mr. Chen, Dr. Yang and Dr. Zhang, are independent directors using the Nasdaq definition of independence.
 
 Item 14. Principal Accounting Fees and Services 
 
 The following table sets forth the fees billed Marcum LLP, by our registered independent public accounting firm, for 2023 and 2022 for the categories of services indicated.
 
 Year Ended December 31, 
 
 2023 
 
 2022 
 
 Audit fees 
 
 645,810 
 
 642,685 
 
 Audit – related fees
 
 41,200 
 
 41,200 
 
 96 
 
 Table of Contents 
 
 Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements and our registration statement on Form S-1 relating to our initial public offering.
 
 Audit-related fees consist of fees related to the annual audit of the standalone financial statements of a subsidiary.
 
 Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Since we do not have an audit committee, the pre-approval is made by the board of directors. Our board approved all services that our independent accountants provided to us in the past two fiscal years. 
 
 97 
 
 Table of Contents 
 
 Part IV 
 
 Item 15. Exhibits, Financial Statement Schedules 
 
 Financial Statement 
 
 Report of Independent Registered Accounting Firm 
 
 F-1
 
 Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 
 
 F-2
 
 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 
 
 F-4
 
 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 
 
 F-5
 
 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022 
 
 F-6
 
 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 
 
 F-7
 
 Notes to consolidated Financial Statements 
 
 F-9
 
 Condensed Financial Information of Parent
 
 98 
 
 Table of Contents 
 
 Exhibits 
 
 Exhibit number 
 Description 
 
 3.1 
 Amended and Restated Articles of Incorporation, as amended. 1 
 
 3.2
 Amended and Restated Bylaws. 1 
 
 10.1 
 Employment agreement dated October 7, 2016 between the Company and David Hsu. 1† 
 
 10.2 
 Separation and Release Agreement dated October 1, 2020, by and between the Company and Ching Liu 1 
 
 10.3 
 Form of restricted stock agreement. 1† 
 
 10.4 
 2016 Long-term incentive plan. 1† 
 
 10.5 
 Loan agreement dated August 26, 2014, between Clean Energy Funding II, LP and SolarMax LED, Inc. 1 
 
 10.6 
 Loan agreement dated January 3, 2012, between Clean Energy Funding, LP (“CEF”) and SolarMax Renewable Energy Provider, Inc. (“SREP”) 1 
 
 10.7
 Lease agreement dated October 13, 2022 between the Company and 3080 12th Street, LLC. 1 
 
 10.8 
 Lease dated September 1, 2016 between Fallow Field, LLC and the Company. 1 
 
 10.9 
 Lease dated as of September 1, 2016 between Fallow Field, LLC and SolarMax LED, Inc. (U.S.A.). 1 
 
 10.10 
 
 Form of restricted stock exchange agreement for option 1 
 
 10.11 
 
 Form of restricted stock exchange agreement for option and cash 1 
 
 10.12 
 
 Client Service Agreement dated October 14, 2019 between SolarMax Renewable Energy Provider, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 
 
 10.13 
 
 Client Service Agreement dated October 14, 2019 between SMX Capital, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 
 
 10.14 
 
 Client Service Agreement dated October 14, 2019 between SolarMax LED, Inc. and Insperity PEO Services, L.P. and Client Service Agreement Terms & Conditions 1 
 
 10.15 
 
 Promissory note dated October 24, 2019 payable to SMX Property, LLC 1 
 
 10.16 
 
 Form of exchange agreement among CEF, SREP, the issuer and the limited partners of CEF 1 
 
 10.17 
 
 Form of 4% secured subordinated convertible note issued by the issuer and SREP to limited partners of CEF pursuant to the exchange agreement (Exhibit 10.71) 1 
 
 10.1 8
 
 Exchange agreement dated March 27, 2019 between and Company and David Hsu 1 
 
 10.19 
 
 Exchange agreement dated March 27, 2019 between the Company and Ching Lui 1 
 
 10.20 
 
 Promissory note dated October 10, 2022 issued by the Company to SMX Property, LLC. For $944,076.88. 1 
 
 10.21 
 
 Promissory note dated October 10, 2022 issued by the Company to SMX Property, LLC. For $414,580.65. 1 
 
 10.22 
 
 Letter agreement dated August 30, 2022 between the Company and Yue Lian Liang extending maturity date of note. 1 
 
 10.23 
 
 Letter agreement dated March 13, 2024 between the Company and David Hsu deferring payment of deferred compensation 2 . 
 
 14.1 
 
 Code of Ethics 2 
 
 19.1 
 
 Insider Trading Policy 2 
 
 21.1 
 
 List of Subsidiaries. 1 
 
 23.1 
 
 Consent of Marcum LLP 2 
 
 24.1 
 
 Power of Attorney 3 
 
 31.1 
 
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 2 . 
 
 31.2 
 
 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 2 
 
 32.1 
 
 Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer. 2 
 
 97.1 
 
 Clawback policy 2 
 
 101.INS
 
 Inline XBRL Instance Document. 2 
 
 101.SCH
 
 Inline XBRL Taxonomy Extension Schema Document. 2 
 
 101.CAL
 
 Inline XBRL Taxonomy Extension Calculation Linkbase Document. 2 .
 
 101.DEF
 
 Inline XBRL Taxonomy Extension Definition Linkbase Document. 2 
 
 101.LAB
 
 Inline XBRL Taxonomy Extension Label Linkbase Document. 2 
 
 101.PRE
 
 Inline XBRL Taxonomy Extension Presentation Linkbase Document. 2 .
 
 104
 
 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 2 
 
 1 
 Filed as an exhibit to the Company’s registration statement on Form S-1, File No. 333-266206 and incorporated herein by reference.
 
 2 
 Filed herewith.
 
 3 
 Included in the signature page
 
 † 
 Compensatory plan or arrangement.
 
 Item 16. Form 10-K Summary 
 
 Not Applicable 
 
 99 
 
 Table of Contents 
 
 SIGNATURES 
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 * 
 Date: April 16, 2023
 SOLARMAX TECHNOLOGY, INC.
 
 By:
 /s/ David Hsu
 
 Name:
 David Hsu
 
 Title:
 Chief Executive Officer
 
 (Principal Executive Officer) 
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 Signature 
 
 Title 
 Date 
 
 /s/ David Hsu
 Chief executive officer and director (principal executive officer)
 April 16, 2024
 
 David Hsu
 
 /s/ Stephen Brown
 Chief financial officer (principal financial officer)
 April 16, 2024
 
 Stephen Brown
 
 /s/ Simon Yuan
 
 Director
 April 16, 2024
 
 Simon Yuan
 
 /s/ Jinxi Lin
 Director
 April 16, 2024
 
 Jinxi Lin
 
 /s/ Wei Yuan Chen
 Director
 April 16, 2024
 
 Wei Yuan Chen
 
 /s/ Wen-Chang (Stephen) Yang
 Director
 April 16, 2024
 
 Wen-Chang (Stephen) Yang
 
 /s/ Lei Zhang
 Director
 April 16, 2024
 
 Lei Zhang
 
 100 
 
 Table of Contents 
 
 SolarMax Technology, Inc . 
 Index to Consolidated Financial Statements 
 
 Page 
 
 Report of Independent Registered Public Accounting Firm (PCAOB ID 688 )
 
 F-1
 
 Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 
 
 F-2
 
 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 
 
 F-4
 
 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 
 
 F-5
 
 Consolidated Statements of Changes in Stockholders’ Equity Deficit for the years ended December 31, 2023 and 2022 
 
 F-6
 
 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 
 
 F-7
 
 Notes to consolidated Financial Statements 
 
 F-9
 
 Condensed Financial Information of Parent
 
 101 
 
 Table of Contents 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 
 To the Shareholders and Board of Directors of 
 SolarMax Technology, Inc. and Subsidiaries
 
 Opinion on the Financial Statements 
 
 We have audited the accompanying consolidated balance sheets of SolarMax Technology, Inc. (the “Company”) as of December 31, 2023 and 2022 the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2023, and the related notes and schedule of condensed financial information of parent as of December 31, 2023 and 2022 and for each of the two years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
 
 Going Concern 
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency and will need to expand its existing business and customer base, and exchange of long-term debt for convertible notes to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 Basis for Opinion 
 
 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
 We conducted our audit s in accordance with the standards of the PCAOB . Those standards require that we plan and perform the audit s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit s we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 
 
 Our audit s included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
 /s/ Marcum LLP
 
 Marcum LLP 
 
 We have served as the Company’s auditor since 2015.
 
 Costa Mesa, California 
 
 April 16, 2024
 
 F-1 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Balance Sheets 
 As of December 31, 2023 and December 31, 2022 
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Assets 
 
 Current assets:
 
 Cash and cash equivalents
 
 $ 2,539,312 
 
 $ 3,821,952 
 
 Accounts receivable, net
 
 4,176,322 
 
 5,933,477 
 
 Contract assets
 
 549,118 
 
 4,701,498 
 
 Receivable from SPIC and project companies (Note 2)
 
 3,728,865 
 
 3,822,123 
 
 Customer loans receivable, current, net
 
 2,212,574 
 
 3,437,634 
 
 Inventories, net
 
 1,341,397 
 
 3,404,902 
 
 Other receivables and current assets, net
 
 5,373,997 
 
 3,964,259 
 
 Total current assets
 
 19,921,585 
 
 29,085,845 
 
 Property and equipment, net
 
 291,416 
 
 444,173 
 
 Operating lease right-of-use assets
 
 5,411,820 
 
 6,884,362 
 
 Goodwill
 
 7,584,779 
 
 7,774,472 
 
 Investments in unconsolidated solar project companies
 
 9,698,308 
 
 9,054,759 
 
 Customer loans receivable, noncurrent, net
 
 4,322,942 
 
 6,842,805 
 
 Deferred tax assets
 
 189,226 
 
 107,628 
 
 Restricted cash, noncurrent
 
 354,504 
 
 346,999 
 
 Other assets
 
 880,621 
 
 937,185 
 
 Total assets 
 
 $ 48,655,201 
 
 $ 61,478,228 
 
 F-2 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Balance Sheets 
 As of December 31, 2023 and December 31, 2022 (Continued) 
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Liabilities and stockholders' deficit 
 
 Current liabilities:
 
 Notes and accounts payable
 
 $ 3,384,195 
 
 $ 2,231,432 
 
 Operating lease liabilities, current
 
 1,497,555 
 
 1,523,106 
 
 Bank and other unsecured loans, current
 
 2,000,000 
 
 2,033,451 
 
 Secured loans from related parties, current
 
 11,358,658 
 
 10,500,000 
 
 Secured convertible notes, current
 
 8,680,000 
 
 6,300,000 
 
 Contract liabilities
 
 - 
 
 4,036,348 
 
 Accrued expenses and other payables
 
 16,480,896 
 
 19,888,329 
 
 Total current liabilities 
 
 42,042,646 
 
 46,512,666 
 
 Operating lease liabilities, noncurrent
 
 4,078,569 
 
 5,469,703 
 
 Secured loans from related parties, noncurrent, net of debt discount and issuance costs
 
 7,000,000 
 
 8,858,658 
 
 Secured convertible notes, noncurrent, net of debt discount and issuance costs
 
 7,269,768 
 
 13,295,829 
 
 Other liabilities
 
 2,793,388 
 
 3,548,921 
 
 Total liabilities 
 
 64,543,029 
 
 77,685,777 
 
 Commitments and contingencies (Note 16) 
 
 Stockholders’ deficit: 
 
 Preferred stock, par value $ 0.001 per share; 15,000,000 shares authorized, none issued and outstanding as of December 31, 2023 and December 31, 2022
 
 - 
 
 - 
 
 Common stock, par value $ 0.001 per share; 297,225,000 shares authorized, 40,983,881 shares issued, and 39,735,536 shares outstanding as of December 31, 2023 and December 31, 2022
 
 40,984 
 
 40,984 
 
 Additional paid-in capital
 
 55,786,634 
 
 55,786,634 
 
 Treasury stock, at cost, 1,248,345 shares at December 31, 2023 and December 31, 2022
 
 ( 1,808,889 ) 
 
 ( 1,808,889 ) 
 Accumulated deficit
 
 ( 68,623,969 ) 
 
 ( 69,058,755 ) 
 Accumulated other comprehensive loss
 
 ( 1,282,588 ) 
 
 ( 1,167,523 ) 
 Total stockholders’ deficit 
 
 ( 15,887,828 ) 
 
 ( 16,207,549 ) 
 Total liabilities and stockholders’ deficit 
 
 $ 48,655,201 
 
 $ 61,478,228 
 
 See accompanying notes to consolidated financial statements. 
 
 F-3 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Statements of Operations 
 For the Years Ended December 31, 2023 and 2022 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Revenues
 
 $ 54,139,330 
 
 $ 44,718,030 
 
 Cost of revenues
 
 42,990,393 
 
 37,236,493 
 
 Gross profit
 
 11,148,937 
 
 7,481,537 
 
 Operating expenses:
 
 General and administrative
 
 9,507,293 
 
 14,370,085 
 
 Selling and marketing
 
 1,157,793 
 
 1,081,264 
 
 Total operating expense
 
 10,665,086 
 
 15,451,349 
 
 Operating income (loss)
 
 483,851 
 
 ( 7,969,812 ) 
 Other income (expense):
 
 Interest income
 
 68,853 
 
 61,617 
 
 Interest expense
 
 ( 1,576,749 ) 
 
 ( 1,826,934 ) 
 Equity in income of solar project companies
 
 864,132 
 
 493,648 
 
 Gain on debt extinguishment
 
 26,821 
 
 1,946,635 
 
 Gain on early termination of lease
 
 4,212 
 
 1,079,117 
 
 Other income (loss), net
 
 499,472 
 
 ( 616,117 ) 
 Total other income (expense)
 
 ( 113,259 ) 
 
 1,137,966 
 
 Income (loss) before income taxes
 
 370,592 
 
 ( 6,831,846 ) 
 Income tax provision (benefit)
 
 ( 64,194 ) 
 
 41,432 
 
 Net income (loss)
 
 $ 434,786 
 
 $ ( 6,873,278 ) 
 Net income (loss) per share
 
 Basic
 
 $ 0.01 
 
 $ ( 0.17 ) 
 Diluted
 
 $ 0.01 
 
 $ ( 0.17 ) 
 Weighted average shares used to compute net income (loss) per share 
 
 Basic
 
 39,735,536 
 
 39,735,536 
 
 Diluted
 
 40,025,153 
 
 39,735,536 
 
 See accompanying notes to consolidated financial statements. 
 
 F-4 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Statements of Comprehensive Income (Loss) 
 For the Years Ended December 31, 2023 and 2022 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Net income (loss)
 
 $ 434,786 
 
 $ ( 6,873,278 ) 
 Other comprehensive loss
 
 Foreign currency translation adjustments
 
 ( 115,065 ) 
 
 ( 886,993 ) 
 Total comprehensive income (loss)
 
 $ 319,721 
 
 $ ( 7,760,271 ) 
 
 See accompanying notes to consolidated financial statements. 
 
 F-5 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Statements of Changes in Stockholders’ Deficit 
 For the Years Ended December 31, 2023 and 2022 
 
 Preferred Stock 
 
 Common Stock 
 
 Additional 
 Paid-In 
 
 Treasury Stock 
 
 Accumulated 
 
 Accumulated Other Comprehensive 
 
 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 Capital 
 
 Shares 
 
 Amount 
 
 Deficit 
 
 Loss 
 
 Total 
 
 Balance at December 31, 2022
 
 - 
 
 $ - 
 
 40,983,881 
 
 $ 40,984 
 
 $ 55,786,634 
 
 ( 1,248,345 ) 
 $ ( 1,808,889 ) 
 $ ( 69,058,755 ) 
 $ ( 1,167,523 ) 
 $ ( 16,207,549 ) 
 Net income
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 434,786 
 
 - 
 
 434,786 
 
 Currency translation adjustments
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 115,065 ) 
 
 ( 115,065 ) 
 Balance at December 31, 2023
 
 - 
 
 $ - 
 
 40,983,881 
 
 $ 40,984 
 
 $ 55,786,634 
 
 ( 1,248,345 ) 
 $ ( 1,808,889 ) 
 $ ( 68,623,969 ) 
 $ ( 1,282,588 ) 
 $ ( 15,887,828 ) 
 
 Preferred Stock 
 
 Common Stock 
 
 Additional Paid-In 
 
 Treasury Stock 
 
 Accumulated 
 
 Accumulated Other Comprehensive 
 
 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 Capital 
 
 Shares 
 
 Amount 
 
 Deficit 
 
 Loss 
 
 Total 
 
 Balance at December 31, 2021
 
 - 
 
 $ - 
 
 40,983,881 
 
 $ 40,984 
 
 $ 55,786,634 
 
 ( 1,248,345 ) 
 $ ( 1,808,889 ) 
 $ ( 62,185,477 ) 
 $ ( 280,530 ) 
 $ ( 8,447,278 ) 
 Net loss
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 6,873,278 ) 
 
 - 
 
 ( 6,873,278 ) 
 Currency translation adjustments
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 886,993 ) 
 
 ( 886,993 ) 
 Balance at December 31, 2022 
 
 - 
 
 $ - 
 
 40,983,881 
 
 $ 40,984 
 
 $ 55,786,634 
 
 ( 1,248,345 ) 
 $ ( 1,808,889 ) 
 $ ( 69,058,755 ) 
 $ ( 1,167,523 ) 
 $ ( 16,207,549 ) 
 
 See accompanying notes to consolidated financial statements. 
 
 F-6 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Statements of Cash Flows 
 For the Years Ended December 31, 2023 and 2022 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Operating activities 
 
 Net income (loss)
 
 $ 434,786 
 
 $ ( 6,873,278 ) 
 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 Depreciation and amortization expense
 
 180,670 
 
 277,932 
 
 Amortization of loan discounts on customer loan receivables
 
 ( 53,909 ) 
 
 ( 147,050 ) 
 Amortization of debt discount and debt issuance costs
 
 180,760 
 
 171,775 
 
 Amortization of operating lease right-of-use assets
 
 1,432,343 
 
 1,094,234 
 
 Provision for (recovery of) credit losses and loan losses
 
 56,751 
 
 61,744 
 
 Provision for excess and obsolete inventories
 
 110,863 
 
 70,364 
 
 Provision for warranty, customer care and production guaranty
 
 639,279 
 
 536,494 
 
 Equity in income of investment in excess of distribution received
 
 ( 864,132 ) 
 
 ( 493,648 ) 
 Deferred income tax provision
 
 ( 84,194 )
 
 ( 92,740 ) 
 Gain on disposal of property and equipment
 
 ( 21,449 ) 
 
 ( 80,290 ) 
 Gain on debt extinguishment
 
 ( 26,821 ) 
 
 ( 1,946,635 ) 
 Gain on early termination of lease
 
 ( 4,212 ) 
 
 ( 1,079,117 ) 
 Write off of capitalized merger costs
 
 - 
 
 3,377,526 
 
 Other
 
 295,348 
 
 - 
 
 Changes in operating assets and liabilities:
 
 Accounts receivable
 
 1,536,755 
 
 ( 3,095,068 ) 
 Contract assets
 
 4,152,380 
 
 ( 2,140,577 ) 
 Unbilled receivables
 
 - 
 
 4,814,095 
 
 Receivables from SPIC and project companies
 
 372,247 
 
 8,078 
 
 Customer loans receivable
 
 3,849,570 
 
 5,531,086 
 
 Inventories
 
 1,952,642 
 
 ( 119,384 ) 
 Other receivables and current assets
 
 ( 1,404,001 ) 
 
 ( 1,098,423 ) 
 Other assets
 
 27,283 
 
 25,644 
 
 Notes and accounts payable
 
 1,152,763 
 
 ( 2,580,829 ) 
 Operating lease liabilities
 
 ( 1,372,274 ) 
 
 ( 1,091,303 ) 
 Contract Liabilities
 
 ( 4,036,348 ) 
 
 2,649,370 
 
 Accrued expenses and other payables
 
 ( 2,940,629 ) 
 
 ( 236,644 ) 
 Other liabilities
 
 ( 1,379,324 ) 
 
 485,073 
 
 Net cash provided by (used in) operating activities
 
 $ 3,814,900 
 
 $ ( 1,971,571 ) 
 
 F-7 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Consolidated Statements of Cash Flows 
 For the Years Ended December 31, 2023 and 2022 (Continued) 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Investing activities 
 
 Issuance of note receivable to SPAC and Sponsor
 
 $ - 
 
 $ ( 288,856 ) 
 Purchase of property and equipment
 
 ( 27,999 ) 
 
 ( 83,466 ) 
 Proceeds from disposal of property and equipment
 
 21,449 
 
 91,798 
 
 Net cash used in investing activities
 
 ( 6,550 ) 
 
 ( 280,524 ) 
 Financing activities 
 
 Principal repayment on convertible notes
 
 ( 4,800,000 ) 
 
 ( 7,050,000 ) 
 Principal repayment on borrowings
 
 ( 33,451 ) 
 
 ( 68,240 ) 
 Repayment on equipment capital lease
 
 ( 15,488 ) 
 
 ( 25,396 ) 
 Payments related to Uonone acquisition contingency (Note 14)
 
 ( 6,841,501 ) 
 
 ( 356,329 ) 
 Proceeds from Uonone acquisition contingency (Note 14)
 
 6,644,817 
 
 - 
 
 Net cash used in financing activities
 
 ( 5,045,623 ) 
 
 ( 7,499,965 ) 
 Effect of exchange rate
 
 ( 37,862 )
 
 518,737 
 
 Net decrease in cash, cash equivalents, and restricted cash
 
 ( 1,275,135 ) 
 
 ( 9,233,323 ) 
 Cash, cash equivalents, and restricted cash, beginning of year
 
 4,168,951 
 
 13,402,274 
 
 Cash, cash equivalents, and restricted cash, end of year
 
 $ 2,893,816 
 
 $ 4,168,951 
 
 Supplemental disclosures of cash flow information: 
 
 Interest paid (received) in cash
 
 $ 1,086,314 
 
 $ 1,628,570 
 
 Income taxes paid in cash
 
 $ 177,377 
 
 $ 4,520 
 
 Non-cash activities for investing and financing activities: 
 
 Right-of-use assets acquired through operating leases
 
 $ - 
 
 $ 6,274,652 
 
 Right-of-use assets acquired through operating leases, related party
 
 $ 912,983 
 
 $ 5,165,503 
 
 Promissory note issued in lieu of a payable for rent and security deposit
 
 $ - 
 
 $ 1,358,658 
 
 Convertible notes issued to related parties in lieu of EB-5 loans
 
 $ 1,000,000 
 
 $ 2,141,342 
 
 As of December 31, 
 
 2023 
 
 2022 
 
 Cash balance at the beginning of the year: 
 
 Cash and cash equivalents
 
 $ 3,821,952 
 
 $ 9,886,195 
 
 Restricted cash, current
 
 - 
 
 3,195,731 
 
 Restricted cash, noncurrent
 
 346,999 
 
 320,348 
 
 $ 4,168,951 
 
 $ 13,402,274 
 
 Cash balance at the end of the year: 
 
 Cash and cash equivalents
 
 $ 2,539,312 
 
 $ 3,821,952 
 
 Restricted cash, current
 
 - 
 
 - 
 
 Restricted cash, noncurrent
 
 354,504 
 
 346,999 
 
 $ 2,893,816 
 
 $ 4,168,951 
 
 See accompanying notes to consolidated financial statements. 
 
 F-8 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 1. Description of Business 
 
 SolarMax Technology, Inc. and subsidiary companies (the “Company”) is an integrated solar and renewable energy company. A solar energy system retains the direct current (DC) electricity from the sun and converts it to alternating current (AC) electricity that can be used to power residential homes and commercial businesses. The solar business is based on the ability of the users of solar energy systems to save on energy costs and reduce their carbon imprint as compared with power purchased from the local electricity utility company. The Company was founded in 2008 to engage in the solar business in the United States of America (the “U.S.”) and, following the acquisition in 2015 of Chengdu Zhonghong Tianhao Technology Co., Ltd. (“Chengdu ZHTH”), which is a subsidiary of SolarMax Technology (Shanghai) Co. Ltd. (together with its subsidiaries thereunder, “ZHTH”), and Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. (“ZHPV”), commenced operations in the People’s Republic of China (the “PRC” or “China”). The Company’s business in the PRC is primarily conducted through ZHTH and ZHPV, and their subsidiaries.
 
 The Company operates in two segments – the U.S. operations and the China operations. The Company’s U.S. operations primarily consist of (i) the sale and installation of photovoltaic and battery backup systems for residential and commercial customers, and (ii) sales of LED systems and services to government and commercial users. In the U.S., the Company has four wholly-owned subsidiaries at December 31, 2023 as follows:
 
 · 
 SolarMax Renewable Energy Provider, Inc., a California corporation (“SREP”) 
 
 · 
 SolarMax Financial, Inc., a California corporation (“SolarMax Financial”) 
 
 · 
 SolarMax LED, Inc., a California corporation (“LED”) 
 
 · 
 SMX Capital, Inc., a New Jersey corporation (“SMX Capital”) 
 
 The Company’s China operations consist of identifying and procuring solar farm projects for resale to third parties and performing engineering, procurement, and construction (“EPC”) services primarily for solar farm projects. The Company’s operations in China are conducted through its principal Chinese subsidiaries. The Company’s wholly‑owned subsidiaries outside the U.S. are as follows: 
 
 · 
 Accumulate Investment Co. Ltd (“Accumulate”), a British Virgin Islands corporation. The Company acquired Accumulate as part of its acquisition of Jiangsu Zhonghong Photovoltaic Electric Co., Ltd. (“ZHPV”) in April 2015. 
 
 · 
 SolarMax Technology Holdings (Hong Kong) Limited (“SolarMax Hong Kong”), which was established under the laws of Hong Kong on October 27, 2014. 
 
 · 
 Golden SolarMax Finance Co., Ltd., (“Golden SolarMax”), which was organized under the laws of the PRC on June 1, 2015. 
 
 · 
 Solarmax Technology Holdings (Cayman) Limited (“Solarmax Cayman”), a Cayman Islands limited company formed on May 8, 2017. 
 
 Accumulate has one wholly-owned subsidiary, Accumulate Investment Co., Limited (HK), an entity organized under the laws of Hong Kong (“Accumulate Hong Kong”). Accumulate Hong Kong has one wholly-owned subsidiary, ZHPV. 
 
 F-9 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 SolarMax Hong Kong has one wholly-owned subsidiary, SolarMax Technology (Shanghai) Co., Ltd. (“SolarMax Shanghai”), organized under the laws of the PRC and formed on February 3, 2015. SolarMax Shanghai is a wholly foreign-owned entity, referred to as a WFOE. SolarMax Shanghai currently has subsidiaries that are not significant, but forms subsidiaries which acquire permits for solar farms with a view to selling the project subsidiaries pursuant to the terms of agreements with the ultimate buyer, which during 2022 and 2021 was State Power Investment Corporation Guizhou Jinyuan Weining Energy Co., Ltd (“SPIC”), a third party customer. We refer to SolarMax Shanghai and its subsidiaries collectively as ZHTH.
 
 On May 8, 2017, Solarmax Technology Holdings (Cayman) Limited (“Solarmax Cayman”) a Cayman Islands limited company, was formed with 1,000,000,000 shares at a par value of U.S. dollars of $0.01 for an authorized capital of U.S. dollars of $10.0 million. Solarmax Cayman is a 100% owned direct subsidiary of the Company and was created to potentially serve as an intermediate holding company for the Company’s PRC operations for possible future transactions. Though Solarmax Cayman is an active company, it does not currently have any operations.
 
 ZHTH is engaged in project development and its business can provide engineering, procurement and construction (“EPC”) services. Generally, when a buyer of a project is identified, the subsidiary that owns the subsidiary holding the permit (a “project subsidiary”) sells to the buyer the equity in the project subsidiary for that specific solar farm project, and the buyer of the project engages ZHPV for the EPC services. The purchase price for the project subsidiary is an amount generally approximating the subsidiary’s net assets. Accordingly, the Company does not generally generate any material gain or loss from the sale of the project subsidiaries. The sale of the equity in the project subsidiaries is part of the normal course of the Company’s operations in China. Because government regulations prohibit the sale of the permit related to a solar farm, it is necessary for the Company to sell the equity in the project subsidiary to effectuate the transfer of the ownership of a solar farm permit to buyer.
 
 On April 28, 2015, the Company acquired the ownership of Chengdu Zhonghong Tianhao Technology Co., Ltd., through a share exchange agreement among the Company, SolarMax Shanghai and the equity owners of Chengdu Zhonghong Tianhao Technology Co., Ltd. Chengdu Zhonghong Tianhao Technology Co., Ltd. Was formed on March 21, 2014 and Chengdu Zhonghong Tianhao Technology Co., Ltd. Became a wholly-owned subsidiary of SolarMax Shanghai as a result of the acquisition.
 
 Also on April 28, 2015, the Company acquired the ownership of ZHPV through a share exchange agreement between the Company and the holders of the stock of Accumulate. After the acquisition, the Company owns all of the stock of Accumulate, which, in turn, through Accumulate Hong Kong, owns all of the stock of ZHPV. ZHPV was formed on December 31, 2009.
 
 At December 31, 2023 and 2022, the Company’s major subsidiaries and the related core business consist of the following:
 
 · 
 SREP was established on July 19, 2011 and is engaged in the business of developing, selling and installing integrated photovoltaic systems and energy storage systems for residential and commercial customers in the U.S.
 
 · 
 SolarMax Financial was established on September 9, 2009 and was engaged in the business of providing secured installment financing to purchasers of residential and commercial photovoltaic systems, and servicing installment sales for SREP and LED customers in the U.S. The Company has not provided financing to purchasers since 2020.
 
 · 
 SMX Capital was acquired by the Company in June 2011. SMX Capital is engaged in the business of owning and funding renewable energy projects in the U.S. and operates its business through operating leases and power purchase agreements primarily in the commercial markets. Its business is conducted directly and indirectly through a 30% equity interest in three companies. SMX Capital has not been engaged in leasing new systems since 2014 and its primary business is the ownership and maintenance of systems under existing leases.
 
 · 
 LED was established on July 15, 2013 in connection with the 2013 acquisition of Act One and is engaged in the business of commercial LED light integration projects, customized governmental special projects, commercial consulting projects, as well as battery storage system projects in the U.S.
 
 · 
 ZHTH is engaged in the business of identifying, procuring and marketing solar energy projects and other roof top solar energy projects in the PRC.
 
 · 
 ZHPV is engaged in the EPC business for solar energy projects and other roof top solar energy projects in the PRC.
 
 Jiangsu Honghao was organized on September 21, 2015 and is engaged in the business of operating and maintaining solar farms in the PRC. 
 
 F-10 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Termination of Agreement of Merger with SPAC 
 
 On October 27, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company; Alberton Acquisition Corporation (“SPAC”), as the Purchaser; and Alberton Merger Subsidiary, Inc., a wholly-owned subsidiary of the SPAC, as Merger Sub. Under the Merger Agreement, Merger Sub was to be merged with and into the Company, following which the Company would continue as the surviving corporation and as a wholly-owned subsidiary of SPAC. As consideration for the merger, the Company’s stockholders were to receive from the SPAC shares of SPAC’s common stock having a value of $ 300,000,000 .
 
 The Merger Agreement also provided that the Company would lend SPAC $60,000 per month for up to six months in connection with the SPAC’s obligation to make payments in connection with the postponement of the date by which the SPAC must complete a business combination, failing which it is to be dissolved. The Merger Agreement was amended several times, and the amendments increased the loans to be made by the Company. The Company also made additional loans to the SPAC’s sponsor. The total loans made by the Company to the SPAC and the SPAC’s sponsor were $ 1,664,447 and $ 651,369 , respectively. On April 20, 2022, the Company terminated the Merger Agreement pursuant to the termination clause provided in the Merger Agreement.
 
 As of December 31, 2022, as a result of the termination of the Merger Agreement, the Company wrote off the notes receivable from the SPAC in the amount of $ 1,664,447 and notes receivable from the SPAC’s sponsor in the amount of a $ 651,369 . 
 
 Reverse Stock Split 
 
 On July 15, 2022, the Company effected a 0.59445-for-one reverse stock split and, in connection with the reverse stock split the Company reduced its authorized common stock to 297,225,000 shares. All share and per share information in these financial statements retroactively reflects the reverse stock split.
 
 2. Basis of Presentation and Summary of Significant Accounting Policies 
 
 Basis of Accounting 
 
 The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 
 
 Principles of Consolidation 
 
 Amounts reported in the consolidated financial statements are stated in U.S. dollars, unless stated otherwise. The functional currency of the Company’s foreign subsidiaries is the Chinese renminbi (“RMB”). These transactions are translated from the local currency into U.S. dollars at exchange rates during or at the end of the reporting period. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
 The accompanying consolidated financial statements reflect the accounts and operations of the Company. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation , the Company consolidates any variable interest entity (“VIE”) of which it is the primary beneficiary. The Company uses a qualitative approach in assessing the consolidation requirement for VIEs. This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. All of these determinations involve significant management judgments and estimates. The Company has determined that it is not the primary beneficiary in the operational VIE, SMX Property LLC (“SMXP”), and therefore, does not consolidate the financial information of SMXP.
 
 F-11 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 The Company was the lessee under an operating lease of its Riverside, CA headquarters facility with SMXP (see Note 15 – Related Party Transactions ) through October 2022. SMXP is a private entity owned by the Company’s founders, one of whom is the Chief Executive Officer and a Director of the Company, another who is a Director of the Company, and another who is a former officer and director of the Company. The lease term was initially for four years expiring on December 31, 2016, and was extended in September 2016 for a ten-year term, with one five-year renewal option, and was terminated in October 2022 in connection with the sale of the property by SMXP to an unrelated purchaser with whom the Company executed a new master lease. The Company does not have any ownership interest in SMXP. Other than the common ownership and the unsecured loans, the Company does not have any economic arrangements with SMXP such that the Company will have an obligation to support the operations of SMXP. Further, the Company does not have the power to direct and control the activities of SMXP as such power to direct and control resides with SMXP’s principals. Accordingly, the Company is not considered to be the primary beneficiary of SMXP and has not consolidated SMXP.
 
 Reclassification 
 
 Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. See note 16 below regarding the reclassification of sublease income to net against operating leases. These reclassifications had no effect on the previously reported net loss.
 
 Use of Estimates 
 
 The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the cost-based inputs to estimate revenues on long-term construction contracts, the collectability of accounts receivable and loans receivable, the useful lives and impairment of property and equipment, goodwill, the fair value of stock options granted and stock-based compensation expense, the fair value of assets acquired and liabilities assumed in a business combination, warranty and customer care reserve, the valuation of deferred tax assets, inventories and provisions for income taxes. Actual results could differ materially from those estimates.
 
 Liquidity and Going Concern 
 
 The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company’s history of net losses and negative cash flow from operating activities, along with its increased accumulated deficit and stockholders’ deficit raise substantial doubt about its ability to continue as a going concern.
 
 At December 31, 2023, the Company reported a working capital deficit of $ 23.5 million. In addition, the accumulated deficit was approximately $ 68.6 million and the stockholders’ deficiency was approximately $ 15.9 million. In connection with these consolidated financial statements, management evaluated whether there were conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to meet its obligations as they become due within one year from the date of issuance of these financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, a history of negative cash flows from operating activities, and significant current debt.
 
 As of December 31, 2023, the Company’s principal sources of liquidity consisted of approximately $ 2.5 million, of cash and cash equivalents, and estimated cash flow from operations. The Company believes its current cash balances coupled with anticipated cash flow from operating activities and the net proceeds of its February 2024 initial public offering (See Note 21) are sufficient to meet the Company’s working capital requirements for at least one year from the date of the issuance of the accompanying consolidated financial statements, excluding approximately $ 20.7 million of debt that is due in the next twelve months. Management is focused on expanding the Company’s existing business, as well as its customer base, including its continuing efforts to generate revenue from non-related parties for its China operations and to continue to increase its United States revenues. The Company is looking to continue to negotiate an exchange of a large portion of the approximately $ 10.0 million of the current portion of long-term related party loans for convertible notes that mature in periods beyond one year. The Company cannot predict whether it will be successful in these efforts.
 
 F-12 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 As a result of the above, there is substantial doubt regarding the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption, or obtain the exchange of any of its current debt and thus maintain sufficient cash balances for its planned operations. Future business demands may lead to cash utilization at levels greater than recently experienced. Revenue and cash flow from the Company’s China segment is irregular because of the timing of solar projects and the Company requires significant funds for its operations, particularly during periods when there is little or no revenue or cash flow from projects. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all.
 
 Cash and Cash Equivalents 
 
 Cash and cash equivalents consist of deposit accounts and highly liquid investments purchased with an original maturity of six months or less. The standard insurance coverage for non-interest bearing transaction accounts in the U.S. is $ 250,000 per depositor under the general deposit insurance rules of the Federal Deposit Insurance Corporation.The standard insurance coverage for non-interest bearing transaction accounts in the PRC is RMB 500,000 (approximately $ 73,000 ) per depositor per bank under the applicable Chinese general deposit insurance rules.
 
 Restricted Cash 
 
 Restricted cash includes cash held to collateralize ACH transactions and outstanding credit card borrowing facilities. In the prior year, restricted cash also collateralized bankers’ acceptances in the PRC, which are promised future payments accepted and guaranteed by a bank and drawn on a deposit at the bank.
 
 Restricted cash at December 31, 2023 and December 31, 2022 consisted of:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Deposit held by a China financial institution to secure bankers acceptance
 
 $ - 
 
 $ - 
 
 Deposit held by a US financial institution as collateral for ACH transactions and business credit cards – US Segment
 
 354,504 
 
 346,999 
 
 354,504 
 
 346,999 
 
 Less: current portion
 
 - 
 
 - 
 
 Noncurrent portion
 
 $ 354,504 
 
 $ 346,999 
 
 Accounts Receivable 
 
 Accounts receivable are reported at the outstanding principal balance due from customers. In the U.S., accounts receivable substantially include customer billings for the sales of LED products and services. In the PRC segment, accounts receivable represents the amounts billed under the contracts but uncollected on completed construction contracts and construction contracts in process. Accounts receivable are recorded at net realizable value.
 
 The Company maintains allowances for the applicable portion of receivables, including accounts receivable, government rebate receivables and other receivables, represents the Company’s estimate of the current expected loss inherent in accounts receivable as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of assumptions about matters that are uncertain. Once a receivable is deemed to be uncollectible, it is written off against the allowance. The expense related to rebates receivable is recorded as a reduction to revenues.
 
 Contract Assets 
 
 The contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date, primarily for the solar energy system sales in the U.S.. The contract assets are transferred to receivables when the rights become unconditional (i.e., when the permission to operate is issued). The contract liabilities primarily relate to the advance consideration received from customers related to the same above solar energy system sales in the U.S., for which the transfer of ownership has not occurred.
 
 F-13 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Applying the practical expedient in ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), paragraph 340‑40-25-4, the Company recognizes the incremental costs of obtaining contracts (i.e., commission fees) in cost of revenue when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in cost of revenues.
 
 Customer Loans Receivable 
 
 In the U.S. segment, the Company offers its customers who meet the Company’s credit eligibility standards the option to finance the purchase of solar energy systems through installment loans underwritten through SolarMax Financial. All loans are secured by the solar energy systems or other projects being financed. The outstanding customer loan receivable balance is presented net of an allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover expected credit losses on the customer loans. In determining expected credit losses, the Company considers its historical level of credit losses, current economic trends, and reasonable and supportable forecasts that affect the collectability of the future cash flows. Loans offered at the promotional interest rate below the market interest rate are accounted for as loan discounts and are amortized on an effective interest method to interest income over the terms of the loans.
 
 Inventories 
 
 Inventories consist of (a) work in progress on solar systems on housing developments and projects not yet sold; and (b) components principally consisting of photovoltaic modules, inverters, construction and other materials, and LED products, all of which are stated at the lower of cost or net realizable value under the first-in first-out method. The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary.
 
 The estimate for excess and obsolete inventories is based on historical sales and usage experience together with a review of the current status of existing inventories.
 
 Property and Equipment 
 
 Property and equipment are initially stated at cost less accumulated depreciation and amortization. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Leasehold improvements and solar systems leased to customers are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
 
 The estimated useful lives of the major classification of property and equipment are as follows:
 
 Automobiles
 4 - 5 years
 
 Furniture and equipment
 3 - 10 years
 
 Leasehold improvements
 Shorter of the asset’s useful life or lease term 
 
 Solar systems leased to customers
 Lease term, 10 - 20 years
 
 Goodwill 
 
 Goodwill represents the excess of the purchase price in a business combination over the fair value of assets acquired and liabilities assumed. The Company’s goodwill was derived from the acquisitions of businesses in China in April 2015.
 
 F-14 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 The Company reviews goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. The Company generally performs its annual impairment test of goodwill in the fourth quarter each year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company early adopted FASB’s guidance in Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other , for its annual testing in December 2017, which simplifies the accounting for goodwill impairment under ASC Topic 350, Intangibles-Goodwill and Other . In determining the reporting unit’s fair value, the Company considers the underlying enterprise value and if necessary, the reporting unit’s discounted cash flow, which involves assumptions and estimates, including the reporting unit’s future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the reporting unit’s financial results, a significant decline in the reporting unit’s enterprise value relative to its net book value, an unanticipated change in competition or market share and a significant change in the reporting unit’s strategic plans. For the Company’s goodwill annual testing, management determined that its reporting units are the same as its operating segments. Accordingly, the reporting unit for the goodwill annual testing is the PRC segment.
 
 There was no impairment loss for the years ended December 31, 2023 and 2022.
 
 Impairment of Long-Lived Assets 
 
 The Company’s long-lived assets include property and equipment which include solar energy systems leased to customers.
 
 In accordance with ASC Topic 360, Property, Plant, and Equipment , the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset, or group of assets, as appropriate, may not be recoverable. If the aggregate undiscounted future net cash flows expected to result from the use and the eventual disposition of a long-lived asset is less than its carrying value, then the Company would recognize an impairment loss based on the excess of the carrying value over the fair value.
 
 There was no impairment loss on such systems for the years ended December 31, 2023 and 2022.
 
 Investments in Unconsolidated Joint Ventures and Solar Project Companies 
 
 The Company’s unconsolidated investments in the U.S. are held directly by the Company as well as through its subsidiary, SMX Capital, and consist of investments in U.S.-based solar limited liability companies: Alliance Solar Capital 1, LLC (“A#1”), Alliance Solar Capital 2, LLC (“A#2”), and Alliance Solar Capital 3, LLC (“A#3”). The Company’s U.S. segment also has an investment in a PRC-based panel manufacturer, Changzhou Holysolar Technology, Co., Ltd, which was renamed to “Changzhou Hongyi New Energy Technology Co., Ltd” on March 10, 2017 (“Changzhou”).
 
 At December 31, 2023 and December 31, 2022, the Company has unconsolidated investments in the PRC related to its 30 % non-controlling interests in the project companies for Yilong #2, Xingren and Ancha.
 
 For these investments, the Company does not have the controlling interests but it has the ability to exercise significant influence over the operations and the financial decisions of the investees under the respective operating agreements. In each of the investments, the investee also maintains a separate capital account for each of its investors and accordingly, the Company has a separate capital account at each of the investees. Since the Company has the ability to exercise significant influence over the investees, the Company accounts for each of these investments using the equity method of accounting, under which the Company records its proportionate share of the investee’s profit or loss based on the specified profit and loss percentage. Distributions received from equity method investees are accounted for as returns on investment and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investment exceed cumulative equity in earnings recognized by the Company. When such an excess occurs, the current year distribution up to this excess would be considered a return of investment and classified as cash inflows from investing activities.
 
 Since the Company’s investments include privately-held companies where quoted market prices are not available and as a result, the cost method, combined with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is above the fair value of an investment at the end of any reporting period, the investment is reviewed to determine if the impairment is other than temporary. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The Company monitors its investments in unconsolidated entities periodically for impairment. No impairment indicators were identified and no impairment losses were recorded during the years ended December 31, 2023 and 2022.
 
 F-15 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Warranties 
 
 Workmanship Warranty 
 
 For the sale of solar and battery systems in the U.S., the Company provides a workmanship warranty for 25 years to cover the quality of the Company’s installation. The warranty is designed to cover installation defects and damages to customer properties caused by the Company’s installation of the solar energy systems and battery storage systems which generally are uncovered within 2-3 years after the installation. The 25-year warranty is consistent with the term provided by competitors and is provided by the Company to remain market competitive. The workmanship warranty does not include the product warranties (panels and inverters) which are covered directly by the manufacturers, generally for 25 years on panels and inverters, and 10 years for energy storage systems. The Company determined that its 25-year workmanship warranty for solar energy systems constitutes an assurance-type warranty and should continue to be accounted for under ASC Topic 460, Guarantees , instead of a service-type warranty which should be accounted for under Topic 606.
 
 Quality Warranty for EPC Services 
 
 For the PRC segment, the Company provides construction quality warranty on Engineering, Procurement and Construction (“EPC”) services generally for one year after completion. The customer typically retains 3-5% of the contract price which will not be paid to the Company until the expiration of the warranty period which is accounted by the Company as retainage receivable. The Company currently provides a reserve for such potential liabilities based on a nominal percentage of project revenues for the PRC segment in the approximate amount of $ 249,000 and $ 255,000 as of December 31, 2023 and December 31, 2022, respectively, which is included in accrued expenses and other liabilities. To date the Company has not incurred significant claims on the quality warranty. The liability is reversed when the warranty period expires.
 
 Production Guaranty 
 
 For solar systems sold in the U.S., the Company also warrants that modules installed in accordance with agreed-upon specifications will produce at least 98 % of their labeled power output rating during the first year, with the warranty coverage reducing by 0.5 % every year thereafter throughout the approximate 10 -year production guaranty period. In resolving claims under the production guaranty, the Company typically makes cash payments to customers who claim for the production shortfall in power output on an annual basis. The Company currently provides a reserve for the production guaranty at 0.2% of the total solar revenue .
 
 LED Warranties 
 
 The Company’s warranty for LED products and services ranges from one year for labor and up to seven years for certain products sold to governmental municipalities. The Company currently provides a warranty reserve for LED sales based on 1.0 % of LED revenue. 
 
 Other Warranties 
 
 In 2016, as a result of the bankruptcy of a Chinese panel supplier from whom the Company purchased solar modules, the Company has reclassified the liability related to unpaid retentions to warranty liability in the amount of $ 651,000 . Since 2016, the Company has not received any claims against the liability and accordingly, the Company reversed the liability against cost of revenue during the third quarter of 2023. 
 
 Fair Value Measurements 
 
 ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines a framework for determining fair value, establishes a hierarchy of information used in measuring fair value, and enhances the disclosure information about fair value measurements. ASC 820 provides that the “exit price” should be used to value an asset or liability, which is the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale at the measurement date. ASC 820 also provides that relevant market data, to the extent available and not internally generated or entity specific information, should be used to determine fair value. 
 
 F-16 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 ASC 820 requires the Company to estimate and disclose fair values on the following three-level hierarchy that prioritizes market inputs.
 
 Level 1 : Quoted prices in active markets for identical assets or liabilities.
 Level 2 : Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
 The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets, accounts payable, deposits, taxes payable, warranty liability and accrued payroll and expenses approximates fair value because of the short maturity of these instruments.
 
 The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2023:
 
 Fair Value 
 
 Carrying 
 
 Level 1 
 
 Level 2 
 
 Level 3 
 
 Value 
 
 Assets 
 
 Cash equivalents
 
 $ 358,290 
 
 $ - 
 
 $ - 
 
 $ 358,290 
 
 Customer loans receivable
 
 - 
 
 - 
 
 6,847,185 
 
 6,535,516 
 
 Liabilities 
 
 Bank and other loans
 
 - 
 
 2,000,000 
 
 - 
 
 2,000,000 
 
 Secured loans from related parties
 
 - 
 
 - 
 
 16,200,860 
 
 17,000,000 
 
 Secured convertible debt
 
 - 
 
 - 
 
 13,324,921 
 
 15,949,768 
 
 The following table presents the fair value and carrying value of the Company’s cash equivalents, loans receivable and borrowings as of December 31, 2022:
 
 Fair Value 
 
 Carrying 
 
 Level 1 
 
 Level 2 
 
 Level 3 
 
 Value 
 
 Assets 
 
 Cash equivalents
 
 $ 901,726 
 
 $ - 
 
 $ - 
 
 $ 901,726 
 
 Customer loans receivable
 
 - 
 
 - 
 
 10,953,437 
 
 10,280,439 
 
 Liabilities 
 
 Bank and other loans
 
 - 
 
 2,033,451 
 
 - 
 
 2,033,451 
 
 Secured loans from related parties
 
 - 
 
 - 
 
 16,206,780 
 
 18,000,000 
 
 Secured convertible debt
 
 - 
 
 - 
 
 17,697,481 
 
 19,595,829 
 
 Cash equivalents – Cash equivalents consist of money market accounts and are carried at their fair value.
 
 Customer loans receivable – The fair value of customer loans receivable is calculated based on the carrying value and unobservable inputs which include the credit risks of the customers, the market interest rates and the contractual terms. The Company’s underwriting policies for the customer loans receivable have not changed significantly since the origination of these loans. The overall credit risk of the portfolio also has not significantly fluctuated as evidenced by the minimal historical write-offs, and lastly the market interest rates have remained relatively consistent since the origination of the loans.
 
 Bank and other loans – The fair value of such loans payable had been determined based on the variable nature of the interest rates and the proximity to the issuance date.
 
 F-17 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Secured loans from related parties – The related party loans were issued at the fixed annual interest rates of 3.0 % in the U.S. Segment, and the fair value of the loans has been estimated by applying the prevailing borrowing annual interest rates for a comparable loan term which the Company estimated to be 9.0% to the estimated cash flows through the maturities of the loans.
 
 Secured convertible debt – The secured convertible debt was issued at the fixed annual interest rates of 4.0 % in the U.S. Segment, and the fair value of the loans was determined based on the proximity to the issuance date.
 
 Revenue Recognition 
 
 The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and its various updates (“Topic 606”). Revenue is measured based on the considerations specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when the Company satisfies a performance obligation by transferring control over a product or service to a customer.
 
 Taxes assessed by government authorities that are imposed on, or concurrent with, a specific revenue-producing transaction are collected by the Company from the customer and excluded from revenue.
 
 The Company’s principal activities from which the Company generates its revenue are described below.
 
 Revenue from EPC Services 
 
 For energy generation assets owned and controlled by the customer, the Company recognizes revenue for sales of EPC services over time as the Company’s performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of EPC services represents a single performance obligation for the development and construction of a single generation asset, which is a complete solar energy project. For such sale arrangements, the Company recognizes revenue using cost-based input methods, which recognize revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated costs of the contract after consideration of the customer’s commitment to perform its obligations under the contract, which is typically measured through the receipt of cash deposits or other forms of financial security issued by creditworthy financial institutions or parent entities.
 
 Payment for EPC services is made by the customer pursuant to the billing schedule stipulated in the EPC contract which is generally based on the progress of the construction. Once the bills are issued to the customer, the customer generally has 30 days to make the payment on the amount billed less a retainage provision which is approximately 3% to 5%, depending on the contract. The retainage amount is withheld by the customer and is paid at the conclusion of the 12-month warranty period .
 
 In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred relative to the total estimated costs (including solar module costs) to determine the progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost based input methods of revenue recognition are considered a faithful depiction of the Company’s efforts to satisfy long-term construction contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred that do not contribute to satisfying the Company’s performance obligations (“inefficient costs”) are excluded from the Company’s input methods of revenue recognition as the amounts are not reflective of the Company’s transferring control of the solar energy system to the customer. Costs incurred towards contract completion may include costs associated with solar modules, direct materials, labor, subcontractors, and other indirect costs related to contract performance. The Company recognizes solar module and direct material costs as incurred when such items have been installed in a system.
 
 Cost-based input methods of revenue recognition require the Company to make estimates of net contract revenues and costs to complete its projects. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives, liquidated damages, and other payments to customers. Significant judgment is also required to evaluate assumptions related to the costs to complete its projects, including materials, labor, contingencies, and other system costs. If the estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known. The cumulative effect of revisions to estimates related to net contract revenues or costs to complete contracts are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts or the changes in estimates.
 
 F-18 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 The Company’s arrangements may contain clauses such as contingent repurchase options, delay liquidated damages, rebates, penalties or early performance bonus, most favorable pricing or other provisions, if applicable, that can either increase or decrease the transaction price. The Company has historically estimated variable considerations that decrease the transaction price (e.g., penalties) and recorded such amounts as an offset to revenue, consistent with requirements under Topic 606. Variable considerations that increase the transaction price (e.g., performance bonuses) were historically recognized under Topic 605 on a cash basis as such amounts were not fixed and determinable and collectability was not reasonably assured until paid. However, under Topic 606, the Company needs to estimate and apply a constraint on such variable considerations and include that amount in the transaction price. Because the Company’s historical policies on estimating variable considerations that would decrease the transaction price have largely mirrored the requirements under Topic 606, and because variable considerations that would increase the transaction price have historically been immaterial or would likely be constrained under Topic 606, there is no cumulative effect adjustment. The Company estimates variable
 considerations for amounts to which the Company expects to be entitled and for which it is not probable that a significant reversal of cumulative revenue recognized will occur.
 
 For energy generation assets not owned and controlled by the customer during the construction, as well as contracts with customers that do not require progress payments during construction and whereby the contracts include restrictive acceptance provisions before any progress payments are made by the customers, the Company recognizes revenues at a point in time when the Company determines it has transferred control to the customer.
 
 PRC Power Purchase Agreements Revenue 
 
 Revenues under certain power purchase agreements are recognized based on the output delivered at an agreed upon rate over the contract term. The Company records the revenue under such power purchase agreements during the period under which it has controlling interest in the project subsidiary. Revenue recognition ceases upon the sale and transfer of controlling interest in the project subsidiary to a third party.
 
 Solar Energy and Battery Storage Systems and Components Sales 
 
 Revenue recognition associated with sales of solar energy systems, battery storage systems, and other products is recognized over time as the Company’s performance creates or enhances the property controlled by the customer (the asset is being constructed on a customer’s premises that the customer controls).
 
 The Company’s principal performance obligation is to design and install a solar energy system that is interconnected to the local power grid and for which permission to operate has been granted by a utility company to the customer. The Company recognizes revenue over time as control of the solar energy system transfers to the customer which begins at installation and concludes when the utility company has granted the permission to operate.
 
 All costs to obtain and fulfil contracts associated with system sales and other product sales are expensed to cost of revenue when the corresponding revenue is recognized.
 
 For solar energy and battery storage system sales, the Company recognizes revenue using a cost-based input method that recognizes revenue and gross profit as work is performed based on the relationship between actual costs incurred compared to the total estimated cost of the contract. In applying cost-based input methods of revenue recognition, the Company uses the actual costs incurred for installation and obtaining the permission to operate, each relative to the total estimated cost of the solar energy and battery storage system, to determine the Company’s progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. Cost‑based input methods of revenue recognition are considered a faithful depiction of our efforts to satisfy solar energy and battery system contracts and therefore reflect the transfer of goods to a customer under such contracts. Costs incurred towards contract completion may include costs associated with solar modules, battery components, direct materials, labor, subcontractors, and other indirect costs related to contract performance. 
 
 In the U.S., the Company sells solar energy and battery storage systems to residential and commercial customers and recognizes revenue net of sales taxes. Customers may pay for these sales in cash or by financing with the Company. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through a third party partner.
 
 F-19 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Direct payments are made by the customer as stipulated in the underlying home improvement or commercial contract which generally includes an upfront down payment at contract signing, payments at delivery of materials and installation ranging from 70% to 85% of the contract price , and the payment of the final balance at the time of the city signoff or when the permission to operate the solar system is granted by a utility company.
 
 For third-party financing arranged by the Company for the customer, direct payments are made by the financing company to the Company based on an agreement between the financing company and the Company, with the majority of the payments made by the time of completion of installation but not later than the date on which the permission to operate the solar system is granted by the utility company.
 
 For a lease through the third party leasing partner, direct payments are made by the leasing partner to the Company based on an agreement between the leasing partner and the Company, which is generally 80% upon the completion of installation and 20% upon the permission to operate is granted.
 
 For customers financing with the Company, the customer receivable, less any down payments, becomes a loan receivable following the grant of the permission to operate the solar system by a utility company, at which time the loan is recorded and the loan interest begins to accrue. Financing terms for sales with financing by the Company are generally made for terms up to 60 months.
 
 LED Product Sales and Service Sales 
 
 For product sales, the Company recognizes revenue at a point in time following the transfer of control of the products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For contracts involving both products and services (i.e., multiple performance obligations), the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenue from services is recognized when services are completed which is upon acceptance by the customer. The standalone selling price of the warranty is not material and, therefore, the Company has not allocated any portion of the transaction price to any performance obligation associated with the warranty.
 
 Payment of products is generally made upon delivery or with a 30 day term. Extended payment terms are provided on a limited basis not to exceed twelve months. Payment of services is due when the services are completed and accepted by the customer. For certain LED product sales, the Company provides the customers with a right of return subject to restocking fees. The Company assessed such rights of return as variable consideration and recognizes revenue based on the amount of consideration the Company expects to receive after returns are made. Based on the Company’s historical experience, the Company has determined the likelihood and magnitude of a future returns to be immaterial and currently has not provided for a liability for such returns on the LED product sales.
 
 For contracts where the Company agreed to provide the customer with rooftop solar energy systems (including design, materials, and installation of the system) in addition to providing LED products and LED installation, these agreements may contain multiple performance obligations: 1) the combined performance obligation to design and install rooftop solar energy system; 2) the performance obligation to deliver the LED products; and, 3) the performance obligation to install the LED products. Topic 606 permits goods and services that are deemed to be immaterial in the context of a contract to be disregarded when considering performance obligations within an agreement. The Company will compare the standalone selling price of the installations and products to the total contract value to determine whether the value of these installations and products is quantitatively immaterial within the context of the contract. Similarly, these services may be qualitatively immaterial in the eyes of the customer. While the customer ordered these products and has received a separate quote for them, they may not be a material driving factor within the agreement for a solar energy system. Further, a reasonable person may not consider providing and installing LED products to be a material part of the arrangement to design and construct a large solar facility. If these products and services are determined to be immaterial within the context of the contract, they will be combined with the performance obligation to design and install the rooftop solar energy system. If management determines that the products and services are determined to be material to the overall project, they would represent a separate performance obligation.
 
 F-20 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Operating Leases and Power Purchase Agreements (PPAs) in U.S. 
 
 From 2010 to 2014, the Company constructed and offered built-to-suit commercial-grade photovoltaic systems for certain commercial and not-for-profit customers in California, Hawaii, Colorado and New Jersey; under long-term leases and PPAs, with terms of up to 20 years. Under these arrangements, the Company owns the systems and receives the 30% upfront federal grant or investment tax credits, as well as any applicable state and utility company rebates on the systems it owns. Upfront grants, rebates and incentives were applied to reduce the cost of the systems. All other annual rebates and performance-based incentive rebates constitute variable consideration and are recognized in revenue when received because, at that point, it becomes probable that a significant reversal in the cumulative amount of revenue recognized will not occur. In connection with the Company’s ownership of solar systems primarily in New Jersey, the Company owns a number of Solar Renewable Energy Certificates (“SREC”). There is currently no assigned monetary value to an SREC and the prices are ultimately determined by market forces within the parameters set forth by the state. The Company recognizes the revenue of the SREC when it is sold.
 
 The Company sells energy generated by PV solar power systems under PPAs. For energy sold under PPAs, which may qualify as a lease, the Company recognizes revenue each period based on the volume of energy delivered to the customer and the price stated in the PPA.
 
 For leases, the Company was considered the lessor of solar energy systems under ASC Topic 840, Leases (“ASC 840”); however, upon the Company’s adoption of ASC Topic 842, Leases (“ASC 842”), the Company is no longer considered the lessor because the Company owns the SRECs related to these solar energy systems, and the counterparty does not receive substantially all of the economic benefits for the use of these energy solar systems. Therefore, these arrangements are not considered leases in accordance with ASC 842.
 
 Loan Interest Income 
 
 In the U.S., the Company provides installment financing to qualified customers to purchase residential or commercial photovoltaic systems, energy storage systems, as well as LED products and services. Customer loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and are reduced by an allowance for estimated credit losses as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the interest method. The interest method is applied on a loan-by-loan basis when collectability of the future payments is reasonably assured. Interest on loans generally continues to accrue until the loans are charged off. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Loans are transferred from held-for-investment to held-for-sale when management’s intent is not to hold the loans for the foreseeable future. Loans held-for-sale are recorded at the lower of cost or fair value. There were no loans held-for-sale at December 31, 2023 and December 31, 2022.
 
 The following table summarizes the Company’s revenue by business line for the years ended December 31, 2023 and 2022:
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Solar energy and battery storage systems
 
 Sales on non-installment basis
 
 $ 50,399,417 
 
 $ 40,348,753 
 
 Third-party leasing arrangements
 
 - 
 
 100,796 
 
 Operating lease revenues
 
 81,774 
 
 81,158 
 
 Power purchase agreement revenues
 
 41,558 
 
 68,348 
 
 Total solar energy and battery storage systems
 
 50,522,749 
 
 40,599,055 
 
 LED projects
 
 3,054,526 
 
 3,304,910 
 
 Financing related
 
 562,055 
 
 814,065 
 
 Total revenues
 
 $ 54,139,330 
 
 $ 44,718,030 
 
 F-21 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Advertising Costs 
 
 The Company charges advertising and marketing costs related to radio, internet and print advertising to operations as incurred. Advertising and marketing costs for the years ended December 31, 2023 and 2022 were $ 1,157,793 and $ 1,081,264 , respectively.
 
 Income Taxes 
 
 The Company accounts for income taxes pursuant to the FASB ASC Topic 740, Income Taxes (“ASC 740”). The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. The Company accounts for the investment tax credits under the flow-through method which treats the credits as a reduction of federal income taxes of the year in which the credit arises or is utilized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
 The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. The Company has determined it is more likely than not that its deferred tax assets related to its U.S. operations will not be realizable and has recorded a full valuation allowance against its deferred tax assets. In the event the Company is able to realize such deferred income tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
 
 Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements in accordance with U.S. GAAP. The calculation of the Company’s tax provision involves the application of complex tax rules and regulations within multiple jurisdictions. The Company’s tax liabilities include estimates for all income-related taxes that the Company believes are probable and that can be reasonably estimated. To the extent that the Company’s estimates are understated, additional charges to the provision for income taxes would be recorded in the period in which the Company determines such understatement. If the Company’s income tax estimates are overstated, income tax benefits will be recognized when realized.
 
 The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the years ended December 31, 2023 and 2022, the Company did not incur any related interest and penalties.
 
 The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. As of December 31, 2023 and December 31, 2022, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes.
 
 Comprehensive Income (Loss) 
 
 The Company accounts for comprehensive income loss in accordance with ASC 220, Income Statement – Reporting Comprehensive Income (“ASC 220”). Under ASC 220, the Company is required to report comprehensive income (loss), which includes net income (loss) as well as other comprehensive income (loss). The only significant component of accumulated other comprehensive income (loss) as of December 31, 2023 and December 31, 2022 is the currency translation adjustment.
 
 Net Income (Loss) Per Share 
 
 The Company calculates net income (loss) per share by dividing income or losses allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted weighted average shares is computed using basic weighted average shares plus any potentially dilutive securities outstanding during the period using the treasury-stock-type method and the if-converted method, except when their effect is anti-dilutive. Potentially dilutive securities are excluded from the computation of diluted earnings per share for the year ended December 31, 2022 because the effect would be antidilutive.
 
 F-22 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Stock-Based Compensation 
 
 The Company accounts for stock-based compensation costs under the provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based payments granted to employees and non-employees, net of estimated forfeitures, over the employee requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. The Company also early adopted ASU 2017‑09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting , with respect to changes on terms and conditions of a share-based payment award that occurred in 2019 and thereafter.
 
 Foreign Currency 
 
 Amounts reported in the consolidated financial statements are stated in U.S. dollars, unless stated otherwise. The Company’s subsidiaries in the PRC use the Chinese RMB as their functional currency and all other subsidiaries use the U.S. dollar as their functional currency. For subsidiaries that use the local currency as the functional currency, all assets and liabilities are translated to U.S. dollars using exchange rates in effect at the end of the respective periods and the results of operations have been translated into U.S. dollars at the weighted average rates during the periods in which the transactions were recognized. Resulting translation gains or losses are recognized as a component of other comprehensive income (loss).
 
 In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. Further, foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Losses on those foreign currency transactions of approximately $ 271,000 and $ 938,000 for the years ended December 31, 2023 and 2022, respectively, are included in other income (expense), net for the period in which exchange rates change.
 
 Segment Information 
 
 Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the executive team, which is comprised of the chief executive officer and the chief financial officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined that it has two operating and reporting segments (U.S. and PRC) as of December 31, 2023 and December 31, 2022.
 
 Recently Issued Accounting Pronouncements 
 
 As an emerging growth company, the Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.
 
 F-23 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update) ,which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU simplifies the current accounting under ASC 470-20 for convertible debt with a cash conversion feature and convertible instrument with a beneficial conversion feature. As a result, after adopting the ASU, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. An entity can use either a full or modified retrospective approach to adopt the ASU. This ASU is effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The ASU may be early adopted for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company has determined the adoption has no impact on the Company’s consolidated financial statements.
 
 In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) . This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively and early adoption is also permitted, including adoption in an interim period. The Company does not plan to adopt this ASU earlier than the effective date but it is currently not expected to have a material impact on the Company’s consolidated financial statements.
 
 In November 2023, the FASB issued ASU 2023-07 that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (CODM) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.
 
 The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements.
 
 The Company does not expect that adoption of ASU 2023-07 will have a material impact on the Company’s consolidated financial statements.
 
 In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) . ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, though early adoption is permitted.
 
 The Company is currently evaluating the impact of ASU 2023-09 and does not expect that adoption of this standard will have a material impact on the Company’s income tax disclosures.
 
 The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s consolidated financial statements.
 
 F-24 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Recently Adopted Accounting Pronouncements 
 
 In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The objective of this update is to provide users of financial statements with more useful information by changing the incurred loss methodology for recognizing credit losses to a more forward-looking methodology that reflects expected credit losses. Under this ASU, the Company’s accounts receivable, customer loans receivable and certain contract assets are considered financial assets measured at an amortized cost basis and will need to be presented at the net amount expected to be collected.
 
 The Company adopted ASU 2016-13 on January 1, 2023, using a modified retrospective approach with cumulative effect adjustments to the opening balance of accumulated deficit. In adopting ASU 2016-13 for the financial assets listed above, the Company implemented an expected credit loss allowance methodology for accounts receivable, customer loans receivable, and certain contracts assets using historical collection experience, current and forecasted economic and business conditions, and a review of the status of each customer’s financial asset account. Specifically, the Company estimates loss reserve based on the aging of the financial asset balances and the financial condition of customers and provides for specific allowance amounts for those customers that have a higher probability of default. The Company regularly monitor collection status of these financial assets through account reconciliation, payment tracking, customer’s financial condition and macroeconomics conditions. We apply this expected credit loss allowance methodology to all our financial assets listed above.
 
 For accounts receivable, the Company deemed accounts receivable for the US segment to be immaterial with respect to total assets and any methodology change to the related allowance for credit losses to be immaterial in nature. With respect to its China segment, the Company utilized an expected loss model as it considers factors like current and future economic conditions and China’s political landscape, and how these factors may affect its receivable from SPIC, a state-owned entity. The Company determined that no change was required to the accounts receivable allowance for its China segment. In regard to customer loan receivables, the Company determined that no adjustment to the existing allowance for loan losses was necessary as the current allowance already approximates losses on the remaining term of customer loans and includes a process to identify specific accounts that are expected to result in a loss. Lastly, with respect to contract assets, the Company concluded that no reserve was required as, in majority of instances, contract assets are fully paid upon billing. This is because the Company’s solar system contracts require full payment of the contract before the system can obtain a permit to operate and be turned on. Customers are incentivized to pay in full to benefit from the solar system. Contract assets that are not fully paid are a minority exception, and the Company determined that an allowance would be immaterial to the consolidated financials.
 
 F-25 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Therefore, the adoption of ASU 2016-13 to implement an expected credit loss allowance methodology did not have a material impact on the Company’s consolidated financial statements and no adjustments were deemed required to the opening balances of accumulated deficit for any cumulative effect adjustments under the modified retrospective adoption approach nor to the related allowances for credit losses for accounts receivable, customer loan receivable, and certain contract assets.
 
 3. Cash, Cash Equivalents and Restricted Cash 
 
 As of December 31, 2023 and December 31, 2022, insured and uninsured cash including the balance classified as restricted cash were as follows:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 US Segment
 
 Insured cash
 
 $ 818,534 
 
 $ 1,458,055 
 
 Uninsured cash
 
 813,199 
 
 1,163,250 
 
 1,631,733 
 
 2,621,305 
 
 China Segment
 
 Insured cash
 
 295,503 
 
 390,651 
 
 Uninsured cash
 
 966,580 
 
 1,156,995 
 
 1,262,083 
 
 1,547,646 
 
 Total cash and cash equivalents & restricted cash
 
 2,893,816 
 
 4,168,951 
 
 Less: Cash and cash equivalents
 
 ( 2,539,312 ) 
 
 ( 3,821,952 ) 
 Restricted cash
 
 $ 354,504 
 
 $ 346,999 
 
 4. Accounts Receivable, net 
 
 The activity of the allowance for credit losses for accounts receivable for the years ended December 31, 2023 and 2022 is as follows:
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Balance – beginning of period
 
 $ 1,185,046 
 
 $ 1,523,982 
 
 Provision for the year
 
 107,489 
 
 131,101 
 
 Accounts written off, net of recoveries
 
 ( 1,266,474 ) 
 
 ( 373,060 ) 
 Receivables charged off
 
 - 
 
 - 
 
 Effect of exchange rate
 
 ( 21,463 ) 
 
 ( 96,977 ) 
 Balance – end of period
 
 $ 4,598 
 
 $ 1,185,046 
 
 At December 31, 2022, the reserve balance includes a reserve for unbilled receivable of RMB 7.9 million (approximately $ 1.1 million) related to the Yilong #1 project that was completed in 2018, of which RMB 7.6 million (approximately $ 1.1 million) was paid to the Company in February 2023 pursuant to a court judgment. See additional discussion in Note 16 Commitments and Contingencies – Legal Matters .
 
 F-26 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 5. Customer Loans Receivable 
 
 The Company provides financing to qualified customers to purchase residential or commercial photovoltaic systems, as well as other products the Company offers in the U.S. Depending on the credit rating of customers, the interest rate generally ranges from 0.00 % to 10.99 % per annum with financing terms ranging from one to fifteen years. At December 31, 2023 and December 31, 2022, the percentage of the Company’s loan portfolio with a 0% interest rate is 5 % and 14 %, respectively.
 
 The customer gives the Company a security interest in the photovoltaic systems and other products financed.
 
 The following tables summarize the Company’s customer loan receivables by credit rating, determined at origination, for each vintage of the customer loan receivable portfolio at December 31, 2023 and 2022:
 
 Year of Origination 
 
 December 31, 2023 
 
 2023 
 
 2022 
 
 2021 
 
 2020 
 
 2019 
 
 Prior 
 
 Total 
 
 % 
 
 Prime — FICO score 680 and greater
 
 $ - 
 
 $ - 
 
 $ - 
 
 $ 181,315 
 
 $ 438,676 
 
 $ 5,234,583 
 
 $ 5,854,574 
 
 87 % 
 Near-prime — FICO score 620 to 679
 
 - 
 
 19,117 
 
 - 
 
 18,107 
 
 42,175 
 
 622,398 
 
 701,797 
 
 10 % 
 Sub-prime — FICO score less than 620
 
 - 
 
 - 
 
 - 
 
 - 
 
 72,489 
 
 84,992 
 
 157,481 
 
 2 % 
 Business entity — FICO not available
 
 - 
 
 52,753 
 
 28,051 
 
 - 
 
 - 
 
 80,804 
 
 1 % 
 Total Customer Loan Receivables, gross
 
 $ - 
 
 $ 19,117 
 
 $ 52,753 
 
 $ 227,473 
 
 $ 553,340 
 
 $ 5,941,973 
 
 $ 6,794,656 
 
 100 % 
 
 Year of Origination 
 
 December 31, 2022 
 
 2022 
 
 2021 
 
 2020 
 
 2019 
 
 2018 
 
 Prior 
 
 Total 
 
 % 
 
 Prime — FICO score 680 and greater
 
 $ 23,561 
 
 $ - 
 
 $ 32,339 
 
 $ 103,260 
 
 $ 37,843 
 
 $ 730,813 
 
 $ 927,816 
 
 9 % 
 Near-prime — FICO score 620 to 679
 
 - 
 
 - 
 
 387,033 
 
 1,503,862 
 
 1,490,190 
 
 5,969,730 
 
 9,350,815 
 
 88 % 
 Sub-prime — FICO score less than 620
 
 - 
 
 - 
 
 - 
 
 104,749 
 
 2,032 
 
 100,303 
 
 207,084 
 
 2 % 
 Business entity — FICO not available
 
 - 
 
 71,864 
 
 47,873 
 
 - 
 
 18,064 
 
 1,621 
 
 139,422 
 
 1 % 
 Total Customer Loan Receivables, gross
 
 $ 23,561 
 
 $ 71,864 
 
 $ 467,245 
 
 $ 1,711,871 
 
 $ 1,548,129 
 
 $ 6,802,467 
 
 $ 10,625,137 
 
 100 % 
 
 Customer loans receivable consist of the following as of December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Customer loans receivable, gross
 
 $ 6,794,656 
 
 $ 10,625,137 
 
 Less: unamortized loan discounts
 
 ( 2,332 ) 
 
 ( 56,241 ) 
 Allowance for loan losses
 
 ( 256,808 ) 
 
 ( 288,457 ) 
 Customer loans receivable, net
 
 6,535,516 
 
 10,280,439 
 
 Less: Current portion
 
 ( 2,212,574 ) 
 
 ( 3,437,634 ) 
 Non-current portion
 
 $ 4,322,942 
 
 $ 6,842,805 
 
 Principal maturities of the customer loans receivable at December 31, 2023 are summarized as follows:
 
 For the year ending December 31, 
 
 Amount 
 
 2024
 
 $ 2,212,574 
 
 2025
 
 1,622,755 
 
 2026
 
 1,016,048 
 
 2027
 
 707,532 
 
 2028
 
 401,988 
 
 Thereafter
 
 833,759 
 
 Total customer loans receivable 
 
 $ 6,794,656 
 
 F-27 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 The Company is exposed to credit risk on the customer loans receivable. Credit risk is the risk of loss arising from the failure of customers to meet the terms of their contracts with the Company or otherwise fail to perform as agreed.
 
 The activity in the allowance for loan losses for customer loans receivable for the years ended December 31, 2023 and 2022 is as follows:
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Balance – beginning of period
 
 $ 288,457 
 
 $ 357,814 
 
 Recovery for loan losses
 
 ( 50,738 ) 
 
 ( 69,357 ) 
 Accounts written off, net of recoveries
 
 - 
 
 - 
 
 Chargeoffs and adjustments
 
 19,089 
 
 - 
 
 Balance – end of period
 
 $ 256,808 
 
 $ 288,457 
 
 Total interest income on the customer loans receivable included in revenues was $ 523,582 and $ 767,071 for the years ended December 31, 2023 and 2022, respectively.
 
 6. Inventories, net 
 
 The activity in the reserve for excess and obsolete inventories for the years ended December 31, 2023 and 2022 is as follows:
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Balance – beginning of period
 
 $ 485,504 
 
 $ 415,140 
 
 Provision for excess and obsolete inventories
 
 110,863 
 
 70,364 
 
 Balance – end of period
 
 $ 596,367 
 
 $ 485,504 
 
 Inventories consisted of the following as of December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Solar panels, inverters, battery storage and components
 
 $ 1,336,066 
 
 $ 2,820,078 
 
 LED lights
 
 601,698 
 
 594,779 
 
 Inventory in transit
 
 - 
 
 475,549 
 
 Total inventories, gross
 
 1,937,764 
 
 3,890,406 
 
 Less: reserve for excess and obsolete inventories
 
 ( 596,367 ) 
 
 ( 485,504 ) 
 Total inventories, net
 
 $ 1,341,397 
 
 $ 3,404,902 
 
 F-28 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 7. Other Receivables and Current Assets, Net 
 
 Other receivables and current assets, net consisted of the following at December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Receivable from Seller (Uonone Group – Note 14)
 
 $ 436,698 
 
 $ 434,953 
 
 Deferred project costs
 
 1,603,355 
 
 1,667,894 
 
 Prepaid expenses and other current assets
 
 852,534 
 
 1,379,493 
 
 Advances to suppliers
 
 1,300,009 
 
 - 
 
 Accrued interest on customer loans receivable
 
 522,837 
 
 29,122 
 
 VAT tax receivable
 
 - 
 
 62,268 
 
 Capitalized offering costs
 
 658,564 
 
 390,529 
 
 Total other receivables and current assets
 
 $ 5,373,997 
 
 $ 3,964,259 
 
 Deferred project costs consist of work in process and subcontractor costs incurred on the solar energy systems and LED projects that are not fully completed at December 31, 2023 and December 31, 2022.
 
 8. Property and Equipment 
 
 Components of property and equipment, net are as follows:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Automobiles
 
 $ 971,384 
 
 $ 1,063,686 
 
 Furniture and equipment
 
 1,396,936 
 
 1,400,459 
 
 Solar systems leased to customers
 
 1,663,468 
 
 1,663,468 
 
 Leasehold improvements
 
 2,343,815 
 
 2,349,373 
 
 Total property and equipment, gross
 
 6,375,603 
 
 6,476,986 
 
 Less: accumulated depreciation and amortization
 
 ( 6,084,187 ) 
 
 ( 6,032,813 ) 
 Total property and equipment, net
 
 $ 291,416 
 
 $ 444,173 
 
 For the years ended December 31, 2023 and 2022, depreciation expenses were $ 180,085 and $ 277,932 , respectively.
 
 9. Goodwill 
 
 The activity of goodwill is as follows:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Balance – beginning of period
 
 $ 7,774,472 
 
 $ 8,432,901 
 
 Effect of exchange rate
 
 ( 189,693 ) 
 
 ( 658,429 ) 
 Balance – end of period
 
 $ 7,584,779 
 
 $ 7,774,472 
 
 F-29 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 10. Investments in Unconsolidated Solar Project Companies 
 
 Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2023 consisted of the following:
 
 Investee 
 
 Investment Balance at December 31, 
 2022 
 
 Share of Investee’s 
 Net Income 
 
 Effect of Exchange 
 Rate 
 
 Investment 
 Balance at 
 December 31, 
 2023 
 
 Yilong #2
 
 $ 3,966,824 
 
 $ 343,240 
 
 $ ( 96,788 ) 
 $ 4,213,276 
 
 Xingren
 
 1,953,048 
 
 126,380 
 
 ( 47,654 ) 
 
 2,031,774 
 
 Ancha
 
 3,134,887 
 
 394,861 
 
 ( 76,490 ) 
 
 3,453,258 
 
 Total
 
 $ 9,054,759 
 
 $ 864,481 
 
 $ ( 220,932 ) 
 $ 9,698,308 
 
 Activity in the Company’s 30% non-controlling investments in solar project companies for the year ended December 31, 2022 consisted of the following:
 
 Investee 
 
 Investment Balance at December 31, 
 2021 
 
 Share of 
 Investee’s Net 
 Income (Loss) 
 
 Effect of 
 Exchange Rate 
 
 Investment 
 Balance at 
 December 31, 
 2022 
 
 Yilong #2
 
 $ 4,129,772 
 
 $ 163,503 
 
 $ ( 326,451 ) 
 $ 3,966,824 
 
 Xingren
 
 2,040,069 
 
 74,078 
 
 ( 161,099 ) 
 
 1,953,048 
 
 Ancha
 
 3,129,433 
 
 256,067 
 
 ( 250,613 ) 
 
 3,134,887 
 
 Total
 
 $ 9,299,274 
 
 $ 493,648 
 
 $ ( 738,163 ) 
 $ 9,054,759 
 
 The following tables present the summary of the combined financial statements for the Company’s 30% non‑controlling investments in solar project companies as of December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Current assets
 
 $ 24,984,444 
 
 $ 24,138,212 
 
 Non-current assets
 
 76,024,387 
 
 79,927,213 
 
 Total assets
 
 $ 101,008,831 
 
 $ 104,065,425 
 
 Current liabilities
 
 $ 9,775,803 
 
 $ 5,192,777 
 
 Noncurrent liabilities
 
 58,680,520 
 
 68,570,424 
 
 Members’ capital
 
 32,552,508 
 
 30,302,224 
 
 Total liabilities and members’ capital
 
 $ 101,008,831 
 
 $ 104,065,425 
 
 and for the years ended December 31, 2023 and 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Revenue
 
 $ 11,216,922 
 
 $ 10,949,049 
 
 Gross profit
 
 5,081,846 
 
 5,020,656 
 
 Net income
 
 $ 2,880,439 
 
 $ 1,642,520 
 
 Revenue of the project companies that hold Yilong #2, Xingren, and Ancha is generated from the power purchase agreements with the PRC utility companies as well as government subsidies.
 
 F-30 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 11. Financing Arrangements 
 
 As of December 31, 2023 and December 31, 2022, the Company had the following borrowings:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Loan from unrelated party at 6.0% fixed interest due December 31, 2023
 
 $ 2,000,000 
 
 $ 2,000,000 
 
 Secured convertible notes payable at 4.0% per annum, due in instalments at various dates through June 2027
 
 16,250,000 
 
 20,050,000 
 
 EB-5 loans – see details below 
 
 17,000,000 
 
 18,000,000 
 
 Notes payable from SMX Property, a related party, at 8% per annum, due October 10, 2024
 
 1,358,658 
 
 1,358,658 
 
 Various auto loans payable, at 4.19%-4.92% per annum due with maturities through 2023
 
 - 
 
 33,451 
 
 Total
 
 36,608,658 
 
 41,442,109 
 
 Less: debt discount and debt issuance costs
 
 ( 300,232 ) 
 
 ( 454,171 ) 
 Current portion
 
 ( 20,680,000 ) 
 
 ( 18,833,451 ) 
 Noncurrent portion
 
 $ 15,628,426 
 
 $ 22,154,487 
 
 SBA Loans 
 
 On February 1, 2021, the Company received loans pursuant to the Paycheck Protection Program Second Draw totaling $ 1,855,813 . The loans were issued to three U.S. subsidiaries, and were substantially forgiven in accordance with the applicable loan terms and government regulations. As a result of the foregiveness, the Company recognized a gain on debt extinguishment of $ 1.9 million for the year ended December 31, 2022.
 
 Other Loans 
 
 Other loans include a loan of $ 2,000,000 from an unrelated PRC individual at an interest rate of 6 %, interest payable quarterly in arrears, with the original due date of April 30, 2021 and the maturity date of the note has been extended several times, most recently to June 30, 2024.
 
 Related party EB-5 financings 
 
 The Company’s borrowings under the EB-5 program from related parties consisted of the following as of December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 $45.0 million loan from Clean Energy Funding, LP
 
 $ 7,000,000 
 
 $ 8,000,000 
 
 $13.0 million loan from Clean Energy Funding II, LP
 
 10,000,000 
 
 10,000,000 
 
 Total
 
 17,000,000 
 
 18,000,000 
 
 Less: current portion
 
 ( 10,000,000 ) 
 
 ( 10,500,000 ) 
 Noncurrent portion
 
 $ 7,000,000 
 
 $ 7,500,000 
 
 On January 3, 2012, Clean Energy Fund, LP (“CEF”) entered into a secured loan agreement with SREP, a wholly owned subsidiary of the Company. Under the secured loan agreement, CEF agreed to make loans to SREP in an amount not to exceed $ 45.0 million, to be used to finance the installment purchases for customers of the solar energy systems. The proceeds of the loans are advanced in increments of $ 2.5 million and CEF may determine in its sole and absolute discretion to advance a lesser amount. The loan accrues interest at a fixed interest rate of 3% per annum, payable quarterly in arrears. Each advanced principal amount is due and payable 48 months from the advance date or the U.S. Immigration Form I-829 approval date if longer. The I-829 petition includes evidence that the immigrant investors successfully met all U.S. Citizenship and Immigration Services requirements of the EB‑5 program. A UCC filing was filed on behalf of CEF, the secured party, to pledge the collateral for the loan, which is inventory and accounts. As of December 31, 2023 and December 31, 2022, the principal loan balance was $ 7.0 million and $ 8.0 million, respectively.
 
 F-31 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 On August 26, 2014, Clean Energy Funding II, LP (“CEF II”) entered into a loan agreement with LED, a wholly-owned subsidiary of the Company, for up to $ 13.0 million. The proceeds of the loan would be used by LED for its operations. The loan accrues interest at a fixed interest rate of 3.0% per annum, payable quarterly in arrears. Principal is due and payable in 48 months or the U.S. Immigration Form I-829 approval date if longer. In 2016, LED borrowed an additional $ 4.5 million under the loan, the proceeds of which were used to fulfill the purchases required related to the new $ 4.3 million LED contract. During the year ended December 31, 2017, the Company drew down an additional $ 6.0 million under the loan. As of December 31, 2023 and December 31, 2022, the remaining undrawn amount under the loan was $ 3.0 million.
 
 The general partner of CEF and CEF II is Inland Empire Renewable Energy Regional Center (“IERE”). The principal owners and managers of IERE consist of the Company’s chief executive officer, its former executive vice president, who is a 5% stockholder, and one of its directors.
 
 Convertible Notes 
 
 The Company has issued 4 % secured subordinated convertible notes to former limited partners of CEF, pursuant to exchange agreements with the limited partners. The limited partners accepted the notes in lieu of cash payments of their capital contribution which resulted in a reduction of SREP’s notes to CEF in the same amount, reducing the outstanding EB-5 loan balance. Payment of the notes is secured by a security interest in SREP’s accounts receivable and inventory. The convertible notes are payable in five equal installments on the first, second, third, fourth and fifth anniversaries of the date of issuance. The convertible notes are convertible into common stock at a conversion price equal to 80% of the public stock price of the Company’s common stock as defined in the convertible note, which is $3.20 per share. The convertible notes may be converted into common stock at the first, second, third, fourth and fifth anniversaries of the date of issuance, but not earlier than six months from the date of the Company’s initial public offering, as defined in the note.
 
 All convertible notes have two separate and distinct embedded features. They are: (1) optional conversion upon a public stock event as defined in the convertible note; and (2) redemption put feature upon fundamental transaction.
 
 Commencing six months from the date the Company first receives proceeds from its public stock event until the convertible notes are no longer outstanding, the convertible notes and all unpaid accrued interest is convertible into shares of common stock, at the option of the holder, during five trading days commencing on the first, second, third, fourth, and fifth anniversaries of the original issuance date. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (x) the then entire amount of the convertible notes balance outstanding including all unpaid principal and accrued interest payable by (y) the conversion price defined as a fixed 80% discounted percentage per share price of a public stock price. The Company evaluated the embedded optional conversion feature in accordance with the guidance under ASC Topic No. 815, Derivatives and Hedging (“ASC 815”), and determined it is exempt from derivative accounting as the embedded feature is deemed to be indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding. Further, because the conversion price is a fixed discounted percentage per share price of a contingent future public stock event that has not been realized as of both the issuance date and December 31, 2023, the Company shall record the intrinsic value of the beneficial conversion feature calculated as of the issuance date of the convertible notes upon the realization of the contingent IPO event.
 
 All convertible notes issued contained redemption put features that allow the holders of the convertible notes the right to receive, for each conversion share that would have been issuable upon conversion immediately prior to the occurrence of an effective change in control event defined as a fundamental transaction, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock for which these convertible notes are convertible immediately prior to such fundamental transaction. The Company evaluated the redemption put feature contained in the convertible notes under the guidance of ASC 815 and concluded that the requirements for contingent exercise provisions as well as the settlement provision for scope exception in ASC 815-10-15-74 has been meet. Accordingly, the redemption put features contained in the convertible notes were not bifurcated and accounted for as freestanding derivative instruments.
 
 There were no redemptions for new convertible notes during the years ended December 31, 2023 and 2022. During the years ended December 31, 2023 and 2022, the Company recognized a gain on debt extinguishment related to limited partner interest in CEF who exchanged their limited partner interest for convertible notes in the amount of $ 26,821 and $ 77,781 , respectively.
 
 F-32 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Notes Payable to SMX Property, LLC 
 
 On October 10, 2022, SMXP made an unsecured loan to the Company for $ 944,077 under a promissory note at a fixed interest rate of 8 %, with interest payable quarterly at the end of each quarter. The principal amount plus accrued interest is due on October 10, 2024. The loan was used to pay the security deposit and lease obligations for one month owed to the new owner of the Company’s headquarters building under the new lease agreement.
 
 On October 10, 2022, SMXP made a second unsecured loan to the Company for $ 414,581 under a promissory note at a fixed interest rate of 8 %, with interest payable quarterly at the end of each quarter. The principal amount plus accrued interest is due on October 10, 2024. The note was issued in payment of lease obligations owing to SMXP by the Company for rent on the Company’s headquarters from June 1, 2022 to October 12, 2022.
 
 Interest Expense 
 
 For the years ended December 31, 2023 and 2022, interest expense incurred on the long-term EB‑5 related party loans was $ 530,057 and $ 604,931 , respectively.
 
 Total interest expense incurred (including interest on long-term related party loans) was $ 1,576,749 and $ 1,826,934 for the years ended December 31, 2023 and 2022, respectively. The weighted average interest rate on loans outstanding was 3.7 % and 3.9 % as of December 31, 2023 and December 31, 2022, respectively.
 
 Principal maturities for the financing arrangements as of December 31, 2023 are as follows:
 
 For the year ending December 31, 
 
 Bank and 
 Other Unsecured 
 Loans 
 
 EB-5 Loans – 
 Related Party 
 
 Notes Payable – 
 Related Party 
 
 Convertible 
 Notes 
 
 Total 
 
 2024 
 
 $ 2,000,000 
 
 $ 10,000,000 
 
 $ 1,358,658 
 
 $ 8,680,000 
 
 $ 22,038,658 
 
 2025
 
 - 
 
 7,000,000 
 
 - 
 
 4,990,000 
 
 11,990,000 
 
 2026
 
 - 
 
 - 
 
 - 
 
 1,890,000 
 
 1,890,000 
 
 2027
 
 - 
 
 - 
 
 - 
 
 500,000 
 
 500,000 
 
 2028
 
 - 
 
 - 
 
 - 
 
 190,000 
 
 190,000 
 
 Total 
 
 $ 2,000,000 
 
 $ 17,000,000 
 
 $ 1,358,658 
 
 $ 16,250,000 
 
 $ 36,608,658 
 
 Accrued Expenses and Other Payables 
 
 Accrued expenses and other payables consisted of the following as of December 31, 2023 and December 31, 2022:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Customer deposits
 
 $ 384,232 
 
 $ 5,374,004 
 
 Accrued operating and project payables
 
 7,460,887 
 
 4,843,428 
 
 Payable to Uonone (See Note 14)
 
 2,551,458 
 
 2,816,955 
 
 Accrued compensation expenses
 
 2,387,574 
 
 2,390,478 
 
 Retainage payable to vendors
 
 802,886 
 
 2,089,667 
 
 Preacquisition liability
 
 1,517,639 
 
 1,555,594 
 
 Accrued settlement
 
 276,428 
 
 276,429 
 
 Accrued warranty expense
 
 248,508 
 
 254,724 
 
 VAT taxes payable
 
 697,480 
 
 - 
 
 Income taxes payable
 
 139,659 
 
 171,063 
 
 Refundable vendor bid deposits
 
 14,145 
 
 115,987 
 
 Total accrued expenses and other payables
 
 $ 16,480,896 
 
 $ 19,888,329 
 
 F-33 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Accrued Compensation 
 
 Accrued compensation includes $ 1,275,000 of restricted stock units that were cancelled and exchanged for cash in March 2019 by the Company for the Company’s chief executive officer, former executive vice president and one other former employee, $ 2,092,769 of accrued but unpaid salaries and wages for the Company’s chief executive officer and former executive vice president pursuant to their employment agreements. The employment agreement for the former executive vice president was cancelled upon her resignation effective February 24, 2020. The remaining balance relates to accrued unpaid commissions and accrued paid time off.
 
 Customer Deposits 
 
 Customer deposits represent customer down payments and progress payments received prior to the completion of the Company’s earnings process. The amounts paid by customers are refundable during the period which, under applicable state and federal law, the customer’s order may be cancelled and the deposit refunded. Once the cancellation period has expired, the customer still may cancel the project but the Company is entitled to retain the deposit payments for work that was completed and materials that were delivered.
 
 Accrued Warranty 
 
 The activity of the warranty liability (included in other liabilities) for the years ended December 31, 2023 and 2022 is as follows:
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Balance – beginning of period
 
 $ 2,419,254 
 
 $ 2,242,271 
 
 Provision for warranty liability
 
 639,279 
 
 536,494 
 
 Expenditures and adjustments
 
 ( 225,868 ) 
 
 ( 342,129 ) 
 Reversal of UE Solar accrual
 
 ( 650,962 ) 
 
 - 
 
 Effect of exchange rate
 
 ( 6,216 
 )
 
 ( 17,382 ) 
 Balance – end of period
 
 2,175,487 
 
 2,419,254 
 
 Less: current portion (accrued expenses and other payables)
 
 ( 248,508 ) 
 
 ( 254,724 ) 
 Non-current portion (other liabilities)
 
 $ 1,926,979 
 
 $ 2,164,530 
 
 Preacquisition Liability 
 
 As part of the April 2015 acquisition of ZHPV, the Company assumed a liability associated with the Ningxia project consisting of reimbursement of project expenses to an unrelated third-party including reimbursement of certain land rental expenses and land use taxes estimated at a total of approximately RMB 10.7 million ($ 1.5 million at December 31, 2023). The Company expects to negotiate to offset the entire liability with the unpaid contract receivables and reimbursements from the third party. All the receivables and reimbursements were previously fully reserved by the Company.
 
 13. Third-party Leasing Arrangement and Concentrations 
 
 Third-party Leasing Arrangement with Sunrun 
 
 The Company sells solar energy and battery storage systems to residential and commercial customers in the U.S. and these customers may pay for these sales in cash or by financing with the Company. Cash sales include direct payments from the customer (including financing obtained directly by the customer), third-party financing arranged by the Company for the customer, and leasing arranged by the Company for the customer through Sunrun.
 
 F-34 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 The channel agreement with Sunrun had an initial term through January 2018. Pursuant to the terms of the agreement, the agreement was automatically renewed for a 36-month term which ended in January 2021 and further extended again to May 24, 2021. The Company did not extend the Sunrun channel agreement beyond May 24, 2021; however, the Company did continue to use Sunrun as the leasing partner from time to time beyond the contract expiration date until Sunrun terminated the agreement due to non-renewal. The Company did not recognize significant revenue from Sunrun-related sales during the years ended December 31, 2023 and 2022. Effective November 6, 2023, the Company entered into a channel partner agreement with another leasing partner for two years which may be extended by additional one-year periods.
 
 With respect to the systems sold to a leasing partner, the Company is required to install meters and panels which are only available for purchase through the leasing partner. For the years ended December 31, 2023 and 2022, meters purchased from a subsidiary of Sunrun amounted to $ 7,616 and $ 15,582 , respectively. No amount was owed to Sunrun as of December 31, 2023 and December 31, 2022.
 
 Concentration Risks 
 
 Major Customers 
 
 For the years ended December 31, 2023 and 2022, there were no customers that accounted for 10% or more of the Company’s revenues .
 
 Major Suppliers 
 
 The following table provides information for Supplier C from whom the Company purchased more than 10% of its total purchases for the years ended December 31, 2023 and 2022:
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Supplier C (material supplier for US segment) 
 
 Purchases
 
 $ 4,928,323 
 
 $ 6,750,127 
 
 % of total purchases
 
 12 % 
 
 17 % 
 Accounts payable
 
 $ 888,009 
 
 $ 302,413 
 
 % of accounts payable
 
 20 % 
 
 8 % 
 
 14. Acquisition Contingencies and Other Payable to Uonone Group 
 
 Effective on May 12, 2016, in conjunction with the execution of the amendment to the April 2015 share exchange agreement to acquire ZHPV, ZHPV entered into a debt settlement agreement (the “Debt Settlement Agreement”) with one of the former owners of ZHPV, Uonone Group Co., Ltd., (“Uonone Group”), pursuant to which ZHPV and Uonone Group agreed to settle a list of pending business transactions from December 31, 2012 to December 31, 2015, pursuant to which Uonone Group agreed and had paid ZHPV a total amount of RMB 8,009,716 . An additional contingent liability related to estimated costs of a project known as Ningxia project completed prior to the Company’s acquisition of ZHPV of approximately RMB 3.0 million (or approximately $ 437,000 ) was also included as a receivable from Uonone Group (see Note 7 – Other Receivables and Current Assets, Net ) with the corresponding liability recognized by the Company on the date of acquisition.
 
 As of December 31, 2021, Uonone Group repaid all the amounts agreed to under the debt settlement agreement except for the RMB 3.0 million contingent receivable from Uonone Group discussed above. Uonone Group’s obligation on the contingent receivable does not arise until and unless the Company becomes obligated under the contingent liability. At December 31, 2023, the Company had no payment obligations with respect to the assumed contingent liability and accordingly, Uonone Group had no obligation to the Company with respect to the contingent receivable.
 
 Under the debt settlement agreement, any legal settlement proceeds, less fees and expenses, received by ZHPV related to the projects completed prior to the April 2015 business combination would be repaid to the Uonone Group. During the year ended December 31, 2023 the Company received additional legal settlement proceeds of RMB 47.0 million (approximately $ 6.7 million) and paid Uonone RMB 20.66 million (approximately $ 2.9 million) and paid fees and taxes on behalf of Uonone of RMB 27.7 million (approximately $ 3.9 million).
 
 F-35 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 At December 31, 2023 and December 31, 2022, the amount payable to Uonone, which includes both the Weifang legal settlement as well as the bond payable related to the Zhonglianda project, was approximately RMB 18.0 million ($ 2.5 million) and approximately RMB 19.4 million ($ 2.8 million), respectively.
 
 15. Related Party Transactions 
 
 See Note 11 for related party lease transactions. 
 
 16. Commitments and Contingencies 
 
 Operating Leases 
 
 The Company has entered into various non-cancellable operating lease agreements for certain of its offices, warehouse facilities and office equipment, vehicles, and solar energy systems, both in the U.S. and in the PRC. The Company determines if an arrangement is a lease, or contains a lease, at inception and records the leases in the consolidated financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
 
 Related Party Lease Agreements 
 
 In September 2016, the Company executed a ten-year lease, commencing January 1, 2017 with SMXP, a related party, to lease its headquarters in Riverside, California. This lease effectively extends the prior lease with SMXP which ended on December 31, 2016 with an increase in the rental rate. The new lease is for ten years and has a five-year renewal option. The annual base rent under the lease is initially $ 978,672 plus the Company’s share of the utilities. The base rent is subject to an annual escalation of 2.99% . In October 2022, SMXP sold its interest in this building to an unrelated party known as 3080 12th Street, LLC and the Company signed a new 50 -month lease agreement with 3080 12th Street, LLC effective October 13, 2022. In relation to SMXP’s sale of the building, the Company recognized a gain of approximately $ 1.1 million for the early termination of the operating lease and de‑recognized an ROU asset of $ 5.2 million and a lease liability of $ 4.1 million on the consolidated balance sheet.
 
 In September 2016, the Company amended two lease agreements for its Diamond Bar, California office with Fallow Field, LLC, a related party. The amended lease commenced on November 1, 2016 and has a ten-year term with one five-year renewal option. The initial annual base rent is $ 229,272 plus the Company’s share of utilities. In March 2023, the Company terminated its lease for certain office space used by one of its subsidiaries and amended the lease for another subsidiary in this building. The Company negotiated a reduction in office space by over half of the square footage that was previously occupied and the lease term was extended another five years with one five-year renewal option, which the Company anticipates on exercising. The annual base rent is $ 132,924 plus the Company’s share of utilities, and the rent will not increase over the entire term of the lease.
 
 The Company recognized a gain of approximately $ 4,200 for the early termination and amendment of the leases and de recognized an ROU asset of approximately $ 478,000 and a lease liability of approximately $ 520,000 on the consolidated balance sheet. Also for the amendment of one of the leases, the Company recognized an additional $ 221,000 for an ROU asset, in relation to the extended lease term, and a corresponding lease liability of approximately $ 254,000 on the consolidated balance sheet.
 
 Future minimum lease commitments for offices, warehouse facilities and equipment, payable to related parties and other, as of December 31, 2023, are as follows:
 
 For the year ending December 31, 
 
 Related Parties 
 
 Others 
 
 Total 
 
 2024
 
 $ 132,924 
 
 $ 1,684,294 
 
 $ 1,817,218 
 
 2025
 
 132,924 
 
 1,725,564 
 
 1,858,488 
 
 2026
 
 132,924 
 
 1,768,488 
 
 1,901,412 
 
 2027
 
 132,924 
 
 - 
 
 132,924 
 
 2028
 
 132,924 
 
 - 
 
 132,924 
 
 Thereafter
 
 553,850 
 
 - 
 
 553,850 
 
 Total
 
 $ 1,218,470 
 
 $ 5,178,346 
 
 $ 6,396,816 
 
 F-36 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 For the years ended December 31, 2023 and 2022, rent expense for offices, warehouse facilities and equipment, including rental expense for related party leases, was $ 1,988,730 and $ 1,712,721 , respectively. These amounts include short-term leases and variable lease costs, which are immaterial.
 
 Adoption of ASC 842 
 
 On January 1, 2022, the Company adopted ASC 842 using the optional transition method to apply the standard as of the effective date. Accordingly, previously reported financial statements, including footnote disclosures, have not been recast to reflect the application of the new standard to all comparative periods presented. Agreements for solar energy systems where the Company was previously defined as the lessor under legacy lease accounting (ASC 840) and were accounted for as operating leases no longer meet the definition of a lease upon the adoption of ASC 842 and will instead be accounted for in accordance with ASC 606. Under these arrangements, the customer has the right to direct the use of the asset but does not receive the right to obtain substantially all of the economic benefits from its use. There is no change to the amount and timing of revenue recognition for these arrangements.
 
 The new standard also provides practical expedients for an entity’s ongoing accounting as a lessee. The Company elected to utilize the practical expedient to not separate lease and non-lease components for all its existing leases. The Company has also elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used its incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.
 
 Adoption of the new lease standard on January 1, 2022 had a material impact on the Company’s consolidated financial statements. The most significant impacts related to the (i) recognition of ROU assets of $ 5.2 million and lease liabilities of $ 6.4 million for operating leases on the consolidated balance sheet, and (ii) de-recognition of the historical deferred rent balance in the amount of $ 1.2 million. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The standard did not materially impact the Company’s consolidated statement of operations and consolidated statement of cash flows.
 
 As of December 31, 2023, the maturities of the Company’s operating lease liabilities (excluding short-term leases) are as follows:
 
 For the year ending December 31, 
 
 Total 
 
 2024
 
 $ 1,808,229 
 
 2025
 
 1,858,488 
 
 2026
 
 1,901,412 
 
 2027
 
 132,924 
 
 2028
 
 132,924 
 
 Thereafter
 
 553,850 
 
 Total minimum lease payments
 
 6,387,827 
 
 Less: Interest
 
 ( 811,703 ) 
 Present value of lease obligations
 
 5,576,124 
 
 Less: current portion
 
 ( 1,497,555 ) 
 Noncurrent portion
 
 $ 4,078,569 
 
 F-37 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Other information related to leases is as follows:
 
 As of 
 
 December 31, 
 2023 
 
 Weighted average remaining lease term (in years)
 
 4.19 
 
 Weighted average discount rate
 
 7.62 % 
 
 Between September and October 2022, the Company entered into subleases with three unrelated companies for portions of office space through December 31, 2022 and one other unrelated company through March 31, 2024. Monthly sublease payments totaled approximately $ 68,700 and the related sublease income is recognized as other income in the Company’s consolidated statements of operations. This is consistent with the Company’s recognition of sublease income prior to the adoption of FASB ASC Topic 842. The tenants under the subleases provided security deposits of approximately $ 73,100 to the Company. The Company continues to be responsible for performance under the lease until it expires on December 31, 2026.
 
 The following table summarizes the Company’s operating lease cost for the years ended December 31, 2023 and 2022:
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Operating lease cost
 
 $ 1,825,715 
 
 $ 1,056,643 
 
 Short-term lease cost
 
 188,927 
 
 131,414 
 
 Less: Sublease income
 
 ( 1,136,516 ) 
 
 ( 255,043 ) 
 Operating lease cost, net
 
 $ 878,126 
 
 $ 933,014 
 
 Pre-development Agreements in PRC 
 
 In connection with the pre development phase of each solar farm project by the Company’s China segment, the applicable project subsidiary typically secures one or more land rental agreement with the holder of the land use rights, a development permit, and a power purchase agreement with the local utility company whereby the local utility company agrees to pay the project owner an agreed-upon rate for the electricity produced by the solar farm upon its completion (collectively, “Pre-development Agreements”). Upon transfer of the equity in the project subsidiary to the buyer, the Company no longer has any rights or obligations under the Pre-development Agreements. Any costs incurred by the Company pursuant to the Pre-development Agreements are capitalized and amortized to cost of revenue when the construction of the project begins. At December 31, 2023, the Company was not a party to any Pre-development Agreements.
 
 Employment Agreements 
 
 On October 7, 2016, the Company entered into employment agreements with its chief executive officer and its then executive vice president (collectively, the “Executives”), each for a five-year term commencing on January 1, 2017 and continuing on a year-to-year basis unless terminated by the Company or the Executive on not less than 90 days’ notice prior to the expiration of the initial term or any one-year extension . The agreements provide for an initial annual salary of $ 600,000 and $ 560,000 , respectively, with an increase of not less than 3 % on January 1st of each year, commencing January 1, 2018, and an annual bonus payable in restricted stock and cash, commencing with the year ending December 31, 2017, equal to a specified percentage of consolidated revenues for each year. The bonus is based on a percentage of consolidated revenue in excess of $30 million, ranging from $250,000 and $200,000, respectively, for revenue in excess of $30 million but less than $50 million, to 1.0% and 0.9%, respectively, of revenue in excess of $300 million . The agreements provide for severance payments equal to one or two times, depending on the nature of the termination, of the highest annual total compensation of the three years preceding the year of termination, multiplied by the number of whole years the Executive has been employed by the Company. The employment of both Executives commenced in February 2008. As of December 31, 2023 and December 31, 2022, the amount accrued by the Company was $ 0 and $ 4,322 , respectively, related to the annual bonuses pursuant to the agreements.
 
 F-38 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 On February 24, 2020, the then executive vice president resigned. Pursuant to a release and separation agreement dated October 1, 2020, her employment agreement was terminated and, with certain limited exceptions, the Company and the former executive vice president released each other from their obligations under the employment agreement. Pursuant the release and separation agreement, the Company paid the former executive officer $ 25,497 , and agreed to pay to her $ 803,095 , representing the outstanding balance due to her for her deferred salary from 2019 and 2020, cash bonus deferred from 2017 and 2018 and accrued medical and dental benefits. This amount is payable at the rate of $15,000 per month (less applicable deductions and withholding), commencing with the month of April 2020 , until the completion by the Company of its public offering, and any unpaid balance then outstanding shall be paid within three business days after the Company receives the proceeds of its public offering. For the years ended December 31, 2023 and 2022, the former vice president was paid $ 165,000 and $ 195,000 , respectively, under the release and separation agreement. See note 21 below for further discussion on the Company’s completion of its initial public offering.
 
 The Company entered into a consulting agreement dated October 1, 2020 with the former executive vice president pursuant to which the Company engaged her as a consultant for a term ending December 31, 2022, and continuing thereafter on a month-to-month basis for monthly compensation of $ 3,000 . The release and separation agreement provides that since the long-term incentive plan pursuant to which the options granted to the former executive vice president were granted provides that options may be held by and exercised by a consultant to the Company, the Company agreed that the option shall continue in full force and effect as long as she, at the request of the Company or pursuant to an agreement with the Company, serves as a consultant to the Company. As of December 31, 2023, the former executive officer was a consultant to the Company.
 
 Legal Matters 
 
 On November 10, 2020, a legal action was filed in the Los Angeles Superior Court by Carmelia Chiang against various defendants which include SolarMax, SREP, CEF, Inland Empire Renewable Energy Regional Center, LLC, the Company’s chief executive officer and a former officer/director who are managers of CEF’s general partner. At the time of the filing, the plaintiff was a limited partner in CEF and sought to have her $ 500,000 investment returned. On February 23, 2022, the court granted and sustained a demurrer by the Company without leave to amend and the case was dismissed. The plaintiff has a right to file an appeal to the court’s granting of the demurrer. The plaintiff’s capital contribution to CEF was used to fund part of CEF’s loan to SREP, which is reflected in the Company’s current liabilities.
 
 On September 1, 2021, a legal action was filed in the Los Angeles Superior Court by Pu Dong, a stockholder, against various defendants which include the Company, the Company’s chief executive officer and one other stockholder. At the time of the filing, the plaintiff was a stockholder of the Company and sought to have shares that are issued in the name of the other stockholder defendant reissued in the name of the plaintiff. The Company believed that this is a dispute between two stockholders and will comply with any final court order as to the ownership of the shares. In November 2023, the court dismissed the case without prejudice.
 
 Yilong #1 Receivable 
 
 On February 19, 2020, the Company’s attorney sent a demand letter to China Nuclear Construction Finance Leasing Co., Ltd. (the “Finance Company”), claiming the unpaid amount due from the Finance Company of RMB 8.0 million (approximately $ 1.1 million) related to the Yilong #1 project, pursuant to the entrustment payment agreement signed by the Company, respondent and the Finance Company. The Company has provided a full reserve for this portion of the receivable at December 31, 2023 and December 31, 2022. As a result of the dispute regarding the unpaid amount, in July 2021 the Company filed an application with the court to freeze an amount of RMB 5.3 million on the account of Southwest Guizhou Autonomous Prefecture Yilong Almaden New Energy Co., Ltd., the project owner of Yilong #1. As of December 31, 2021, the RMB 5.3 million has been frozen by the court. In February 2023, the court judgment in the Company’s favor was received and the Company received a payment in February 2023 of RMB 7.6 million (approximately $ 1.1 million).
 
 In the ordinary course of its business, the Company is involved in various legal proceedings involving contractual relationships, product liability claims, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations.
 
 Clean Energy Fund, LP Settlement 
 
 On November 12, 2022, the Company reached a settlement with two limited partners of CEF whereby the Company will pay to each limited partner a total of $533,749.98 with the first payment of $50,000 to each of them each being made on November 18, 2022 and quarterly payments of $34,533.57 each over the next 14 quarters beginning on January 1, 2023 . As a result, the Company extinguished $ 1.0 million of debt and recognized a loss of $ 67,500 .
 
 F-39 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 17. Stockholders’ Equity 
 
 Amendment of 2016 Long-Term Incentive Plan 
 
 In October 2016, the Company’s board of directors adopted and in November 2016 the stockholders approved the 2016 Long-Term Incentive Plan, pursuant to which a maximum of 6,491,394 shares of common stock may be issued pursuant to restricted stock grants, incentive stock options, non-qualified stock options and other equity-based incentives may be granted. In March 2019, the Company’s board of directors and stockholders approved an increase in the maximum number of shares of common stock subject to the 2016 long-term incentive plan to 15,120,000 shares. 
 Amendment of the 2016 Restricted Stock Grants 
 
 Pursuant to the 2016 Long-Term Incentive Plan, the board of directors granted 3,819,949 shares as restricted stock grants in October 2016, of which 3,045,963 shares were granted to officers and directors. On March 23, 2019, the Company’s board of directors approved the following modifications with respect to the 2016 Restricted Stock Grants:
 
 · 
 Granted to the holders of 1,184,434 restricted shares the right to exchange their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $ 5.01 per share for each share of restricted stock exchanged;
 
 · 
 Granted to the chief executive officer, the then current executive vice president and one other employee, who held 1,348,213, 998,676 and 199,736 restricted shares, respectively, the right (a) to exchange 50% of their restricted shares for a ten-year option to purchase 2.119 shares of common stock at $ 5.01 per share and (b) transfer to the Company 50% of their restricted shares for a total of $1,275,000, or $1.01 per share. 
 
 The grantees of the restricted stock grants have all rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends and distributions with respect to the shares until and unless a forfeiture event shall occur; provided, however, that prior to a forfeiture termination event, (i) the grantees shall have no rights to sell, encumber or otherwise transfer the shares, and (ii) any shares of any class or series of capital stock which are issued to the grantee as a holder of the shares as a result of a stock dividend, stock split, stock distribution, reverse split, recapitalization, or similar event, shall be subject to the same forfeiture provisions as the shares. A forfeiture termination event shall mean such date as is six months following a public stock event. The definition of a public stock event includes, among other events, the effectiveness of a registration statement relating to an underwritten public offering by the Company. The board of directors has the right to defer the date of a forfeiture event to a later date. The shares are forfeited and are to be conveyed to the Company for no consideration if a public stock event shall not have occurred by December 31, 2023.
 
 On October 7, 2016, the Company entered into an advisory services agreement with a consultant who has been providing services to the Company including, among other things, business planning, financial strategy and implementation and corporate structure related to the Company’s business development, financing and acquisition transactions. The term of the service commenced on September 1, 2016 and has been extended to April 30, 2019 pursuant to amendments. As compensation for the service, the Company issued to the consultant 336,000 shares of restricted stock valued at $5.01 per share based on the then current fair value of the common stock, subject to forfeiture if the public stock event has not occurred by December 31, 2023. The restricted stock was granted on October 7, 2016 pursuant to the 2016 Long-Term Incentive Plan and is subject to restrictions and forfeiture provisions that are applicable to other restricted stock grants pursuant to the plan as described under the caption “2016 Restricted Stock Grants.”
 
 None of the shares granted above pursuant to the 2016 Long-Term Incentive Plan had vested at December 31, 2023 and are not considered to have been issued under the requirement of U.S. GAAP since the shares are subject to vesting and forfeiture provisions of the agreement.
 
 During the year ended December 31, 2019, 3,798,480 of the restricted shares were exchanged for options to purchase 4,784,715 shares of common stock at $ 5.01 per share and 2,142,000 of the restricted shares were cancelled for cash of $ 1,275,000 which was to be paid on or before December 31, 2019, and 25,200 of the restricted shares were cancelled for no compensation. This date was extended to December 31, 2021 and subsequently extended to March 31, 2024.
 
 F-40 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 As of both December 31, 2023 and December 31, 2022, total unrecognized compensation costs for outstanding restricted stock awarded was estimated at $ 1.3 million, based on the estimate of the current stock price of $ 5.01 per share. Such cost would be recognized beginning when the public stock event, as defined, occurs.
 
 The following table below summarizes the activity of the restricted stock shares:
 
 Number of 
 Shares 
 
 Weighted Average Grant Date Fair Value per Share 
 
 Outstanding at December 31, 2022
 
 264,650 
 
 5.01 
 
 Nonvested as of December 31, 2022
 
 264,650 
 
 5.01 
 
 Outstanding at December 31, 2023
 
 264,650 
 
 5.01 
 
 Nonvested as of December 31, 2023
 
 264,650 
 
 5.01 
 
 Stock Options 
 
 From time to time, the Company grants non-qualified stock options to its employees and consultants for their services. Option awards are generally granted with an exercise price equal to the estimated fair value of the Company’s stock at the date of grant; those option awards generally vest between 18 months and 36 months of continuous service and have contractual terms of seven years. The vested options are exercisable for six months after the termination date unless (i) termination is due to optionee’s death or disability, in which case the option shall be exercisable for 12 months after the termination date, or (ii) the optionee is terminated for cause, in which case the option will immediately terminate. 
 
 A summary of option activity is as follows:
 
 Number of 
 Options 
 
 Weighted Average Exercise Price 
 
 Weighted Average Remaining 
 Contractual (years) 
 
 Aggregate 
 Intrinsic Value 
 
 Outstanding at December 31, 2022
 
 6,387,741 
 
 4.96 
 
 5.20 
 
 - 
 
 Nonvested as of December 31, 2022
 
 6,038,203 
 
 5.01 
 
 4.80 
 
 - 
 
 Exercisable as of December 31, 2022
 
 349,538 
 
 4.15 
 
 3.10 
 
 300,000 
 
 Granted
 
 - 
 
 - 
 
 - 
 
 - 
 
 Exchanged
 
 - 
 
 - 
 
 - 
 
 - 
 
 Exercised
 
 - 
 
 - 
 
 - 
 
 - 
 
 Cancelled or forfeited
 
 (91,883 ) 
 
 - 
 
 - 
 
 - 
 
 Outstanding at December 31, 2023 
 
 6,295,858 
 
 4.96 
 
 4.50 
 
 - 
 
 Nonvested as of December 31, 2023 
 
 5,946,320 
 
 5.01 
 
 4.70 
 
 - 
 
 Exercisable as of December 31, 2023 
 
 349,538 
 
 4.15 
 
 2.50 
 
 300,000 
 
 Forfeitures are accounted for as actual forfeitures occur.
 
 The aggregate intrinsic value represents the total pretax intrinsic value. The aggregate intrinsic values as of December 31, 2023 and December 31, 2022 are based upon the value per share of $ 5.01 , which was the latest sale price of the Company’s common stock in May 2018.
 
 F-41 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Non-vested Option Awards 
 
 The following table summarizes the Company’s nonvested option awards activity:
 
 Balance at December 31, 2022
 
 6,038,203 
 
 Granted
 
 - 
 
 Exchanged
 
 - 
 
 Vested
 
 - 
 
 Forfeited
 
 ( 91,883 ) 
 Balance at December 31, 2023 
 
 5,946,320 
 
 For the years ended December 31, 2023 and 2022, no compensation cost has been charged to general and administrative expenses related to stock options. During the years ended December 31, 2023 and 2022, no vested options to purchase shares of common stock were cancelled. No nonvested options to purchase common stock were cancelled during the years ended December 31, 2023 and 2022, respectively.
 
 As of December 31, 2023, total unrecognized compensation costs for outstanding unvested options awarded was $ 13.1 million, all of which is related to performance-based awards. The performance condition for such awards was not deemed probable at grant dates or at December 31, 2022 and the cost related to such awards will begin to be recognized once the performance condition is deemed probable.
 
 18. Taxes 
 
 The U.S. and PRC components of the Company’s income (loss) before income taxes for the years ended December 31, 2023 and 2022 are as follows:
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Domestic (U.S. Segment)
 
 $ ( 18,674 ) 
 $ ( 5,876,207 ) 
 Foreign (PRC Segment)
 
 389,266 
 
 ( 955,639 ) 
 Income (loss) before income taxes
 
 $ 370,592 
 
 $ ( 6,831,846 ) 
 
 The components of the Company’s provision (benefit) for income taxes for the year ended December 31, 2023 consist of: 
 
 Year Ended December 31, 2023 
 
 Federal 
 
 State 
 
 Foreign 
 
 Total 
 
 Current 
 
 $ - 
 
 $ 6,000 
 
 $ 14,000 
 
 $ 20,000 
 
 Deferred 
 
 270,518 
 
 125,370 
 
 212,896 
 
 608,783 
 
 Change in valuation allowance 
 
 ( 270,518 ) 
 
 ( 125,370 ) 
 
 ( 297,089 ) 
 
 ( 692,977 ) 
 Total 
 
 $ - 
 
 $ 6,000 
 
 $ ( 70,194 ) 
 $ ( 64,194 ) 
 
 The components of the Company’s provision for income taxes for the year ended December 31, 2022 consist of: 
 
 Year Ended December 31, 2022 
 
 Federal 
 
 State 
 
 Foreign 
 
 Total 
 
 Current 
 
 $ - 
 
 $ 6,000 
 
 $ 128,171 
 
 $ 134,171 
 
 Deferred 
 
 ( 1,152,627 ) 
 
 ( 263,494 ) 
 
 ( 364,027 ) 
 
 ( 1,780,148 ) 
 Change in valuation allowance 
 
 1,152,627 
 
 263,494 
 
 271,287 
 
 1,687,408 
 
 Total 
 
 $ - 
 
 $ 6,000 
 
 $ 35,431 
 
 $ 41,431 
 
 F-42 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Significant components of the deferred tax assets and liabilities for federal income taxes as of December 31, 2023 and 2022 consisted of the following:
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Deferred tax assets 
 
 Investment credits
 
 $ 1,037,362 
 
 $ 1,037,362 
 
 Net operating loss carryforwards
 
 14,512,493 
 
 14,926,045 
 
 Stock compensation and accrued bonus
 
 478,128 
 
 479,422 
 
 Depreciation
 
 63,518 
 
 45,296 
 
 Operating lease liabilities
 
 1,552,193 
 
 1,956,843 
 
 Contract accounting
 
 41,161 
 
 74,371 
 
 Other
 
 1,677,625 
 
 1,881,836 
 
 Deferred tax assets, gross
 
 19,362,480 
 
 20,401,175 
 
 Less: valuation allowance
 
 ( 17,666,793 ) 
 
 ( 18,367,053 ) 
 Deferred tax assets, net
 
 1,695,687 
 
 2,034,122 
 
 Deferred tax liabilities 
 
 Operating lease right-of-use assets
 
 ( 1,506,461 ) 
 
 ( 1,926,494 ) 
 Contract accounting
 
 - 
 
 - 
 
 Deferred tax liabilities, gross
 
 ( 1,506,461 ) 
 
 ( 1,926,494 ) 
 Deferred tax assets, net
 
 $ 189,226 
 
 $ 107,628 
 
 A 100 % valuation allowance was provided for the deferred tax assets related to the U.S. segment as of December 31, 2023 and 2022 due to the uncertainty surrounding the timing of realizing the benefits of the favorable tax attributes in future tax returns. 
 
 The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2023 and 2022: 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Rate 
 
 Amount 
 
 Rate 
 
 Amount 
 
 U.S. statutory rate
 
 21.0 % 
 $ 77,825 
 
 21.0 % 
 $ ( 1,434,688 ) 
 State taxes
 
 15.9 % 
 
 58,762 
 
 4.8 % 
 
 ( 330,496 ) 
 Foreign rate differential
 
 13.2 % 
 
 48,882 
 
 0.6 % 
 
 ( 38,629 ) 
 Subpart F
 
 3.0 % 
 
 11,094 
 
 0.1 % 
 
 ( 6,017 ) 
 Non-deductible interest
 
 47.1 % 
 
 174,494 
 
 (3.2 )% 
 
 219,092 
 
 PPP loans
 
 0.0 % 
 
 - 
 
 5.7 % 
 
 ( 392,459 ) 
 Other permanent items
 
 2.6 % 
 
 9,532 
 
 (0.1 )% 
 
 9,029 
 
 Uncertain tax positions
 
 0.0 % 
 
 - 
 
 (28.3 )% 
 
 1,934,568 
 
 Other adjustments
 
 22.5 % 
 
 83,259 
 
 (0.1 )% 
 
 3,458 
 
 State rate change
 
 2.0 % 
 
 7,479 
 
 0.1 % 
 
 ( 5,625 ) 
 Return-to-provision true-up
 
 42.5 % 
 
 157,457 
 
 23.5 % 
 
 ( 1,604,209 ) 
 Change in valuation allowance
 
 (187.0 )% 
 
 ( 692,977 ) 
 
 (24.7 )% 
 
 1,687,408 
 
 Effective tax
 
 (17.32 )% 
 $ ( 64,194 ) 
 
 -0.6 % 
 $ 41,432 
 
 F-43 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 As of December 31, 2023, the Company’s federal and state income tax net operating loss (“NOL”) carryforwards were $49.4 million and $56.5 million, respectively. As of December 31, 2022, the Company’s federal and state income tax net operating loss (“NOL”) carryforwards were $50.4 million and $57.3 million, respectively. These NOLs will expire at various dates from 2031 through 2042. The Company’s US federal NOL generated post 2017 of $ 27.3 million can be carried forward indefinitely. Additionally, the Company has investment tax credits of $ 1.0 million as of December 31, 2023 and 2022, for building qualifying energy properties and projects under IRC Section 48, which will expire at various dates from 2033 through 2034. 
 
 The above NOL carryforward and the investment tax credit carryforwards are subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and similar state provisions which limit the amount NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has performed an IRC Section 382 analysis as of December 31, 2020 which it was determined that no significant change in ownership had occurred. In addition, the Company has not experienced the ownership change greater than 50% subsequent to December 31, 2020 and up to 2023.
 
 As of December 31, 2023 and 2022, the Company had unused net operating loss carryforwards from its PRC subsidiaries in the amount of approximately $ 0.9 and $ 1.5 million, respectively, which may be applied against future taxable income and which begin to expire after 2024. 
 
 The Inflation Reduction Act 2022, which incorporates a Corporate Alternative Minimum Tax, was signed on August 16, 2022. The changes will become effective for the tax years beginning after December 31, 2022. The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability. The act is not expected to have a material impact for the Company. 
 
 The Company is no longer subject to income tax examination by the U.S. federal and certain state tax authorities for years ended December 31, 2018 or prior, however, its tax attributes such as NOL carryforwards and tax credits, are still subject to examination in the year they are used; therefore, the tax attributes from 2011 and forward are still subject to examination by the U.S. tax authorities. 
 
 The Company applies the two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods and transition. After applying the approach, the following table summarizes the changes to the Company’s gross unrecognized tax benefits for the years ended December 31, 2023 and 2022: 
 
 Years Ended 
 December 31, 
 
 2023 
 
 2022 
 
 Balance - beginning of period 
 
 $ 2,137,790 
 
 $ - 
 
 Increase related to prior period tax positions 
 
 - 
 
 2,137,790 
 
 Balance - end of period 
 
 $ 2,137,790 
 
 $ 2,137,790 
 
 The Company recognizes interest and penalties related to unrecognized tax positions as income tax expense. For the years ended December 31, 2023 and 2022, the Company did not incur any related interest and penalties.
 
 The Company’s PRC subsidiaries are subject to a 25 % statutory income tax rate according to the income tax laws of the PRC. Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. The Company’s PRC subsidiaries’ tax filings are subject to the PRC tax bureau’s examination for a period up to five years. These subsidiaries are not currently under examination by the PRC tax bureau.
 
 F-44 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 As of December 31, 2023 and 2022, the Company’s foreign subsidiaries operated at a cumulative deficit for U.S. earnings and profit purposes. The Company does not record U.S. income taxes on the undistributed earnings of its foreign subsidiaries based upon the Company’s intention to permanently reinvest undistributed earnings to ensure sufficient working capital and further expansion of existing operations outside the U.S. In the event the Company is required to repatriate funds from outside of the U.S., such repatriation would be subject to local laws, customs, and tax consequences. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.
 
 19. Net Income (Loss) Per Share 
 
 The following table presents the calculation of the Company’s basic and diluted net income (loss) per share for the years ended December 31, 2023 and 2022:
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Numerator 
 
 Net income (loss)
 
 $ 434,786 
 
 $ ( 6,873,278 ) 
 Denominator 
 
 Weighted average shares used to compute net loss per share, basic
 
 39,735,536 
 
 39,735,536 
 
 Weighted average shares used to compute net loss per share, diluted
 
 40,025,153 
 
 39,735,536 
 
 Basic net income (loss) per share
 
 $ 0.01 
 
 $ ( 0.17 ) 
 Diluted net income (loss) per share
 
 $ 0.01 
 
 $ ( 0.17 ) 
 
 For the year ended December 31, 2023, outstanding options to purchase 6,295,858 shares of common stock and 5,079,111 equivalent shares of convertible notes were excluded from the computation of diluted earnings per share as the impact of including those option shares would be anti-dilutive.
 
 For the year ended December 31, 2022, outstanding options to purchase 6,387,741 shares and 264,650 outstanding nonvested shares of restricted stock, and 6,396,447 equivalent shares of convertible notes were excluded from the computation of diluted net loss per share as the impact of including those option shares and those restricted shares would be anti-dilutive.
 
 20. Segment Reporting 
 
 The Company uses the management approach for segment reporting disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reporting segments. For the years ended December 31, 2023 and 2022, the Company operates under two operating segments on the basis of geographical areas: The U.S. and the PRC. Operating segments are defined as components of an enterprise about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
 
 The Company evaluates performance based on several factors, including revenue, cost of revenue, operating expenses, and income from operations. The following tables show the operations of the Company’s operating segments for the years ended December 31, 2023 and 2022:
 
 Year Ended December 31, 2023 
 
 US 
 
 PRC 
 
 Total 
 
 Revenue from external customers 
 
 Solar energy systems
 
 $ 50,522,749 
 
 $ - 
 
 $ 50,522,749 
 
 Finance revenue
 
 562,055 
 
 - 
 
 562,055 
 
 LED and other
 
 3,054,526 
 
 - 
 
 3,054,526 
 
 Total
 
 54,139,330 
 
 - 
 
 54,139,330 
 
 Cost of revenue 
 
 Solar energy systems
 
 40,737,458 
 
 - 
 
 40,737,458 
 
 Other
 
 2,252,935 
 
 - 
 
 2,252,935 
 
 Total
 
 42,990,393 
 
 - 
 
 42,990,393 
 
 Depreciation and amortization expense
 
 180,084 
 
 299 
 
 180,383 
 
 Interest (expense) income, net
 
 ( 1,562,360 ) 
 
 54,464 
 
 ( 1,507,896 ) 
 Equity in income of solar farm projects
 
 - 
 
 864,132 
 
 864,132 
 
 Provision for income taxes
 
 6,000 
 
 ( 70,194 ) 
 
 ( 64,194 ) 
 Net income (loss)
 
 ( 24,675 ) 
 
 459,461 
 
 434,786 
 
 F-45 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Year Ended December 31, 2022 
 
 US 
 
 PRC 
 
 Total 
 
 Revenue from external customers 
 
 Solar energy systems
 
 $ 40,599,055 
 
 $ - 
 
 $ 40,599,055 
 
 Finance revenue
 
 814,065 
 
 - 
 
 814,065 
 
 LED and other
 
 3,304,910 
 
 - 
 
 3,304,910 
 
 Total
 
 44,718,030 
 
 - 
 
 44,718,030 
 
 Cost of revenue 
 
 Solar energy systems
 
 35,093,633 
 
 - 
 
 35,093,633 
 
 Other
 
 2,142,860 
 
 - 
 
 2,142,860 
 
 Total
 
 37,236,493 
 
 - 
 
 37,236,493 
 
 Depreciation and amortization expense
 
 275,000 
 
 2,932 
 
 277,932 
 
 Interest (expense) income, net
 
 ( 1,816,082 ) 
 
 50,765 
 
 ( 1,765,317 ) 
 Equity in income of solar farm projects
 
 - 
 
 493,648 
 
 493,648 
 
 Provision for income taxes
 
 6,001 
 
 35,431 
 
 41,432 
 
 Net loss
 
 ( 5,882,208 ) 
 
 ( 991,070 ) 
 
 ( 6,873,278 ) 
 
 and as of December 31, 2023 and December 31, 2022:
 
 December 31, 2023 
 
 US 
 
 PRC 
 
 Total 
 
 Equity investments in solar farm projects
 
 $ - 
 
 $ 9,698,308 
 
 $ 9,698,308 
 
 Capital expenditures
 
 ( 27,999 ) 
 
 - 
 
 ( 27,999 ) 
 Long-lived assets
 
 11,258,512 
 
 17,475,104 
 
 28,733,616 
 
 Total reportable assets
 
 21,727,209 
 
 26,927,992 
 
 48,655,201 
 
 December 31, 2022 
 
 US 
 
 PRC 
 
 Total 
 
 Equity investments in solar farm projects
 
 $ - 
 
 $ 9,054,759 
 
 $ 9,054,759 
 
 Capital expenditures
 
 ( 83,466 ) 
 
 - 
 
 ( 83,466 ) 
 Long-lived assets
 
 15,424,085 
 
 16,968,298 
 
 32,392,383 
 
 Total reportable assets
 
 33,591,742 
 
 27,886,486 
 
 61,478,228 
 
 F-46 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 21. Subsequent Events 
 
 The Company has evaluated subsequent events through April 16, 2024, the date the December 31, 2023 consolidated financial statements were available to be issued and except as disclosed below, no other events require adjustment of, or disclosure in, the consolidated financial statements.
 
 Initial Public Offering 
 
 On February 27, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Kingswood, a division of Kingswood Capital Partners, LLC (the “Representative”), as representative of the underwriters. Pursuant to the Underwriting Agreement, the Company agreed to sell to the underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 4,500,000 shares of common stock, at a price of $ 4.00 per share. The gross proceeds of the offering were $ 18 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company. In addition, SolarMax granted the underwriters a 45-day option to purchase an additional 675,000 shares of common stock at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments. Pursuant to the Underwriting Agreement, the Company paid the Representative a 1% non-accountable expense allowance and reimbursed the Representative for certain accountable expenses of $ 175,000 .
 
 Pursuant to the Underwriting Agreement, the Company issued to the Representative a warrant (the “Representative’s Warrant”) to purchase 360,000 shares of Common Stock. a per share exercise price of $ 4.80 and are exercisable at any time and from time to time, in whole or in part, during the period commencing February 29, 2024 and terminating on February 12, 2029 . The Representative’s Warrant also provides for certain demand and “piggyback” registration rights for the shares of Common Stock issuable upon exercise of the Representative’s Warrant and contains customary anti-dilution provisions.
 
 On March 5, 2024, the Underwriters purchased 539,950 shares of common stock upon the partial exercise of the over-allotment option at the initial public offering price of $ 4.00 per share. Including proceeds from the sale of the additional shares, the aggregate gross proceeds from the offering was approximately $ 20 million, prior to deducting the underwriting discounts, commissions and offering expenses payable by the Company. In connection with the sale of the additional shares, the Company issued Representative’s Warrants to purchase 43,196 shares of common stock at an exercise price of $ 4.80 per share to the Representative.
 
 Net proceeds received by the Company from the public offering, including the partial exercise of the over-allotment option, were approximately $ 18.6 million.
 
 On March 13, 2024, the Representative’s Warrants were fully exercised on a cashless basis. Based on the formula for cashless exercise, the Company issued a total of 207,311 shares of common stock, and, as a result of the exercise, no Representative’s Warrants remained outstanding.
 
 Clawback Policy 
 
 On February 7, 2024, the Company adopted a clawback policy r equiring the Company to recover incentive-based compensation in the event of a financial restatement, and if the restatement affected the financial reporting measure on which the incentive-based compensation was paid.
 
 Extension of Forfeiture Date for Restricted Stock and Options 
 
 On February 14, 2024, the date for forfeiture of restricted stock and options if a public stock event has not occurred was extended to April 30, 2024. See Note 17.
 
 F-47 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 Convertible Notes Issued 
 
 In February and March, 2024, the Company issued convertible notes in the principal amount of $ 1.0 million to limited partners of CEF I, which resulted in a reduction of $ 1.0 million in the principal amount of the related party notes to CEF I.
 
 In February and March, 2024, the Company issued convertible notes in the principal amount of $ 1.0 million to limited partners of CEF II, which resulted in a reduction of $ 1.0 million in the principal amount of the related party notes to CEF II.
 
 Promissory Notes Receivable 
 
 On March 1, 2024, the Company used $ 5,000,000 of its excess IPO proceeds to issue a short-term promissory note to Webao Limited, an unrelated party. The note yields 8% and matures on June 1, 2024 .
 
 On March 7, 2024, the Company used $ 2,000,000 of its excess IPO proceeds to issue a short-term promissory note to Webao Limited, an unrelated party. The note yields 8% and matures on June 1, 2024 .
 
 Payments Owed to Former Vice President 
 
 On March 21, 2024, the Company paid its former vice president $ 338,095 for the remaining balance owed on the deferred compensation component of the release and separation agreement and $ 500,000 owed in connection with the cash portion of the restricted stock exchanged for options. See Note 16–Commitments and Contingencies, under Employment Agreements.
 
 Insider Trading Policy 
 
 On March 27, 2024, the Company adopted an insider trading policy which prohibits trading based on “material, nonpublic information” regarding the Company or any company whose securities are listed for trading or quotation in the United States.
 
 F-48 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 F-49 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Condensed Financial Information of Parent 
 Condensed Balance Sheets 
 As of December 31 ,2023 and 2022 
 
 December 31, 
 2023 
 
 December 31, 
 2022 
 
 Assets 
 
 Current assets:
 
 Cash and cash equivalents
 
 $ 107,822 
 
 $ 177,783 
 
 Other current assets
 
 1,900,679 
 
 756,595 
 
 Inventories, net
 
 44,544 
 
 494,496 
 
 Total current assets
 
 2,053,045 
 
 1,428,874 
 
 Investments in and receivables from affiliates
 
 12,270,249 
 
 14,719,777 
 
 Other assets
 
 5,567,391 
 
 7,035,972 
 
 Total assets 
 
 $ 19,890,685 
 
 $ 23,184,623 
 
 Liabilities and stockholders' deficit 
 
 Current liabilities:
 
 Current liabilities
 
 $ 4,957,223 
 
 $ 5,029,242 
 
 Long-term debt, current
 
 2,000,000 
 
 2,000,000 
 
 Total current liabilities 
 
 6,957,223 
 
 7,029,242 
 
 Long-term debt, noncurrent
 
 24,958,658 
 
 24,958,658 
 
 Other liabilities
 
 3,862,633 
 
 6,862,976 
 
 Total liabilities 
 
 35,778,514 
 
 38,850,876 
 
 Stockholders’ deficit: 
 
 Preferred stock
 
 - 
 
 Common stock
 
 40,984 
 
 40,984 
 
 Additional paid-in capital
 
 55,786,634 
 
 55,786,634 
 
 Treasury stock
 
 ( 1,808,889 ) 
 
 ( 1,808,889 ) 
 Accumulated deficit
 
 ( 68,623,970 ) 
 
 ( 68,503,869 ) 
 Accumulated other comprehensive loss
 
 ( 1,282,588 ) 
 
 ( 1,181,113 ) 
 Total stockholders’ deficit 
 
 ( 15,887,829 ) 
 
 ( 15,666,253 ) 
 Total liabilities and stockholders’ deficit 
 
 $ 19,890,685 
 
 $ 23,184,623 
 
 See accompanying notes to condensed financial information of parent. 
 
 F-50 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Condensed Financial Information of Parent 
 Condensed Statement of Operations 
 For the Years Ended December 31, 2023 and 2022 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Revenues:
 
 Trade sales
 
 $ 1,909,689 
 
 $ 11,800,022 
 
 Management fee income
 
 5,661,812 
 
 4,446,246 
 
 Total revenues
 
 7,571,501 
 
 16,246,268 
 
 Cost of revenues
 
 2,524,006 
 
 12,543,393 
 
 Gross profit
 
 5,047,495 
 
 3,702,875 
 
 Expenses:
 
 General and administrative
 
 2,784,317 
 
 7,137,029 
 
 Interest income
 
 ( 7,365 ) 
 
 ( 541 ) 
 Interest expense
 
 217,054 
 
 152,637 
 
 Other expense (income), net
 
 263,113 
 
 ( 707,907 ) 
 Total expenses
 
 3,257,119 
 
 6,581,218 
 
 Income (loss) before equity in losses of affiliates
 
 1,790,376 
 
 ( 2,878,343 ) 
 Equity in losses of affiliates
 
 ( 1,352,790 ) 
 
 ( 3,399,199 ) 
 Income (loss) before income taxes
 
 437,586 
 
 ( 6,277,542 ) 
 Income tax provision (benefit)
 
 2,800 
 
 800 
 
 Net income (loss)
 
 $ 434,786 
 
 $ ( 6,278,342 ) 
 
 See accompanying notes to condensed financial information of parent. 
 
 F-51 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Condensed Financial Information of Parent 
 Condensed Statements of Cash Flows 
 For the Years Ended December 31, 2023 and 2022 
 
 Years Ended December 31, 
 
 2023 
 
 2022 
 
 Net cash provided by (used in) operating activities
 
 $ ( 69,960 ) 
 $ 7,214,420 
 
 Net cash used in investing activities
 
 - 
 
 ( 27,960 ) 
 
 Net cash used in financing activities
 
 - 
 
 ( 7,050,000 ) 
 Net increase (decrease) in cash and cash equivalents
 
 ( 69,960 ) 
 
 136,460 
 
 Cash and cash equivalents, beginning of the year
 
 177,783 
 
 41,323 
 
 Cash and cash equivalents, end of the period
 
 $ 107,823 
 
 $ 177,783 
 
 Supplemental disclosures of cash flow information: 
 
 Interest paid in cash
 
 $ 217,054 
 
 $ 152,637 
 
 Income taxes paid (received) in cash
 
 551 
 
 ( 1,520 ) 
 
 Non-cash activities for investing and financing activities: 
 
 Right-of-use assets acquired through operating leases
 
 $ - 
 
 $ 6,274,652 
 
 Right-of-use assets acquired through operating leases, related party
 
 $ - 
 
 $ 5,165,503 
 
 Promissory note issued in lieu of a payable for rent and security deposit
 
 $ - 
 
 $ 1,358,658 
 
 Convertible notes issued to related parties in lieu of EB-5 loans
 
 $ - 
 
 $ 2,141,342 
 
 See accompanying notes to condensed financial information of parent. 
 
 F-52 
 
 Table of Contents 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Notes to Consolidated Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 SolarMax Technology, Inc. and Subsidiaries 
 
 Condensed Financial Information of Parent 
 Notes to Condensed Financial Statements 
 For the Years Ended December 31, 2023 and 2022 
 
 Note 1. Basis of Presentation 
 
 The accompanying condensed financial statements of SolarMax Technology, Inc. (“Parent”) should be read in conjunction with the consolidated financial statements and notes thereto of SolarMax Technology, Inc. and Subsidiaries (the “Company”). Parent’s significant accounting policies are consistent with those of the Company.
 
 Note 2. Related Party Transactions 
 
 Intercompany Sales 
 
 Parent’s revenues include sales of solar panels, LED components, as well as certain battery storage system components to its subsidiaries. Parent does not have any sales to external customers.
 
 Management Fee Income 
 
 At a board of directors meeting in July 2016, the board discussed charging management fees from Parent to each United States subsidiary. Subsequently, executive directors implemented a management fee based on 10% of the subsidiary’s revenue to compensate for Parent’s management of each United States subsidiary.
 
 Headquarter Rent Expense Allocation 
 
 During the years ended December 31, 2023 and 2022, the total rent expense of the headquarters was $1,694,808 and $1,522,292, respectively, of which $847,818 and $1,035,561, respectively, was allocated to United States subsidiaries, based on the estimated square feet occupied by employees and other personnel assigned to such subsidiaries.
 
 Intercompany receivables and payables 
 
 Currently, Parent does not have any plans to settle the receivables from and payables to its various subsidiaries. Accordingly, Parent reports the balances in the receivables from and payables to subsidiaries in its investments in subsidiaries.
 
 Intercompany Loan 
 
 During the year ended December 31, 2023 and 2022, Parent issued $0 million and $2.1 million, respectively, of 4% secured subordinated convertible notes to settle the CEF related party loans issued by its subsidiary. The intercompany loan issued on behalf of its subsidiary is non-interest bearing and currently has no written agreement.
 
 F-53
SolarMax Technology, Inc. 10-K

Item 9A. Controls and Procedures
