UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X]

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934




For the quarterly period ended March 31, 2016



[  ]

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934




For the transition period from to__________




Commission File Number: 333-150692

 

Sunvalley Solar, Inc.
(Exact name of registrant as specified in its charter)

 

Nevada

20-8415633

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

398 Lemon Creek Dr., Suite A, Walnut, CA 91789

(Address of principal executive offices)

 

(909) 598-0618

(Registrant s telephone number)


_____________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report) 

 

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer

[ ] Non-accelerated filer

[ ] Accelerated filer

[X] Smaller reporting company




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer s classes of common stock, as of the latest practicable date: 4,357,176 common shares as of May 23, 2016.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]





TABLE OF CONTENTS

Page


PART I FINANCIAL INFORMATION


Item 1:

Condensed Financial Statements 

3

Item 2:

Management s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

14

Item 4:

Controls and Procedures

15


PART II OTHER INFORMATION

Item 1:

Legal Proceedings

16

Item 1A:

Risk Factors

16

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3:

Defaults Upon Senior Securities

16

Item 4:

Mine Safety Disclosures

16

Item 5:

Other Information

16

Item 6:

Exhibits

17

 



2


PART I - FINANCIAL INFORMATION

 

Item 1.

     Condensed Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1

Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015;

F-2

Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited);

F-3

Consolidated Statements of Cash Flows for the three months ended March 31, 2016  and 2015 (unaudited);

F-4

Notes to Condensed Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2016 are not necessarily indicative of the results that can be expected for the full year.

 

SUNVALLEY SOLAR, INC.

Consolidated Balance Sheets










ASSETS





March 31,


December 31,


 



2016


2015





(unaudited)




CURRENT ASSETS








Cash and cash equivalents


$

     1,032,740


$

     1,209,198


Resticted cash



          37,500



          37,500


Accounts receivable, net



     2,022,549



     1,997,935


Inventory



        107,870



        103,346


Costs in excess of billings on uncompleted contracts



        161,899



          58,235


Prepaid expenses and other current assets


 

          97,135


 

          14,187












Total current assets


 

     3,459,693


 

     3,420,401


 








PROPERTY AND EQUIPMENT, NET


 

          25,240


 

          27,948










OTHER ASSETS








Long-term accounts receivable, net



     2,034,805



     3,011,745


Other assets


 

            7,757


 

            7,757












Total other assets


 

     2,042,562


 

     3,019,502











 

TOTAL ASSETS


$

     5,527,495


$

     6,467,851


 




   




LIABILITIES AND STOCKHOLDERS' EQUITY










CURRENT LIABILITIES








Accounts payable and accrued expenses


$

     3,524,366


$

     4,478,157


Customer deposits



        450,212



          75,654


Accrued warranty



        104,870



        133,733


Advances from contractors



        103,389



        103,389


Current portion of capital lease


 

            2,412


 

            3,537












Total current liabilities


 

     4,185,249


 

     4,794,470


 










TOTAL LIABILITIES


 

     4,185,249


 

     4,794,470










STOCKHOLDERS' EQUITY



   














Class A convertible preferred stock, $0.001 par value,








  1,000,000 shares authorized, 1,000,000 shares








  issued and outstanding



            1,000



            1,000


Class B convertible preferred stock, $0.001 par value,








2,000,000 shares authorized, 2,000,000 shares








issued and outstanding



            2,000



            2,000


Common stock, $0.001 par value, 150,000,000 shares








  authorized, 4,357,849 shares issued and oustanding



            4,358



            4,358


Additional paid-in capital



     5,614,486



     5,115,857


Accumulated deficit


 

 (4,279,598)


 

 (3,449,834)












Total Stockholders' Equity


 

     1,342,246


 

     1,673,381












TOTAL LIABILITIES AND









  STOCKHOLDERS' EQUITY


$

     5,527,495


$

     6,467,851


 








The accompanying notes are an integral part of these consolidated financial statements.


SUNVALLEY SOLAR, INC.

Consolidated Statements of Operations

(unaudited)


 












For the Three Months Ended


 



March 31,


 



2016


2015


 



 

 


 

 

REVENUES


$

                     -


$

          925,742

COST OF SALES


 

                     -


 

          703,478










GROSS PROFIT


 

                     -


 

          222,264










OPERATING EXPENSES








Selling, general and



   



   


   administrative expenses



          831,295



          255,892





 

 


 

 


     Total Operating Expenses



          831,295



          255,892





 

 


 

 

INCOME (LOSS) FROM OPERATIONS



         (831,295)



          (33,628)





 

 


 

 

OTHER INCOME (EXPENSES)








Other income



              2,096



                350


Interest expense



               (147)



               (948)


Loss on disposal of assets



               (415)



 -





 

 


 

 


     Total other income (expenses)



              1,534



               (598)





 

 


 

 

INCOME (LOSS) BEFORE TAXES


 

         (829,761)


 

          (34,226)











Provision for income taxes


 

 -


 

 -










NET LOSS

   

$

         (829,761)


$

          (34,226)






   




BASIC AND DILUTED LOSS PER SHARE


$

              (0.19)


$

              (0.01)

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF







  COMMON SHARES OUTSTANDING


 

4,357,849


 

4,357,849









The accompanying notes are an integral part of these consolidated financial statements.


SUNVALLEY SOLAR, INC.

Consolidated Statements of Cash Flows

(unaudited)



 


For the Three Months Ended



 


March 31,



 


2016


2015



 





OPERATING ACTIVITIES:















Net income (loss)


$

(829,761)


$

         (34,226)


Adjustments to reconcile net income (loss) to net cash








provided by operating activities:









Depreciation and amortization



3,711



               225



Preferred stock issued for services



498,629



                   -



Loss on sale of asset



415



                   -


Changes in operating assets and liabilities:






   



Accounts receivable



952,326



        656,445



Inventory



(4,524)



        301,050



Prepaid expenses and other assets



(82,948)



         (39,706)



Costs in excess of billings on uncompleted contracts



(103,664)



            5,595



Accounts payable and accrued expenses



(953,794)



       (676,851)



Accrued warranty expenses



(28,863)



            7,854



Customer deposits


 

374,558


 

       (423,796)












Net Cash Used in Operating Activities


 

       (173,915)


 

       (203,410)



 







INVESTING ACTIVITIES:









Purchase of property and equipment



(2,013)






Proceeds from disposal of equipment


 

               595


 

                   -












Net Cash Used in Investing Activities


 

          (1,418)


 

                   -



 







FINANCING ACTIVITIES:

















Repayments of long term debt



                   -



          (4,077)


Payment of capital lease


 

          (1,125)


 

             (936)












Net Cash Used in Financing Activities


 

          (1,125)


 

          (5,013)



 







NET CHANGE IN CASH



       (176,458)



       (208,423)

CASH AT BEGINNING OF PERIOD


 

     1,209,198


 

        822,444










CASH AT END OF PERIOD


$

     1,032,740


$

        614,021



 







SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

















CASH PAID FOR:









Interest


$

               147


$

               948



Income taxes


$

                   -


$

                   -










The accompanying notes are an integral part of these consolidated financial statements.





6


SUNVALLEY SOLAR, INC.

 Notes to Condensed Consolidated Financial Statements

March 31, 2016 and December 31, 2015

NOTE 1 - CONDENSED FINANCIAL STATEMENTS


The accompanying consolidated financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2016, and for all periods presented herein, have been made.


Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015 audited consolidated financial statements.  The results of operations for the periods ended March 31, 2016 and 2015 are not necessarily indicative of the operating results for the full years.


NOTE 2 - GOING CONCERN


The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.


In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.


NOTE 3 SIGNIFICANT ACCOUNTING POLICIES


Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of the financial statements. The Company s management believes that these recent pronouncements will not have a material effect on the Company s financial statements.





7


SUNVALLEY SOLAR, INC.

 Notes to Condensed Consolidated Financial Statements

March 31, 2016 and December 31, 2015

NOTE 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined on an average cost basis; and the inventory is comprised of raw materials and finished goods. Raw materials consist of fittings and other components necessary to assemble the Company s finished goods.  Finished goods consist of solar panels ready for installation and delivery to customers.


The Company s inventory consisted of the following at March 31, 2016 and December 31, 2015:


 

March 31,

2016


December 31,

2015

Raw materials

$

-


$

-

Work in Progress


-



-

Finished goods


107,870



103,346

  TOTAL

$

107,870


$

103,346


Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic loss per share and diluted loss per share are the same amount because the impact of additional common shares that might have been issued under the Company s outstanding and exercisable stock options would be anti-dilutive. Dilutive instruments include 1,000,000 shares to be issued upon the conversion of the Series A Convertible Preferred Stock. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 1,000,000 such potentially anti-dilutive shares excluded as of March 31, 2016.


NOTE 4 COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS


The Company is currently involved in certain major short-term solar panel installation projects.  The Company is accounting for revenue and expenses associated with these contracts under the completed contract method of accounting in accordance with ASC 605.  Under ASC 605, income is recognized on when the contracts are completed or substantially completed and billings and others costs are accumulated on the balance sheet.  Under the completed contract method, no profit or income is recorded before completion of substantial completion of the work.


As of March 31, 2016 and December 31, 2015, the Company has capitalized $161,899 and $58,235 of costs incurred in relation to installation projects.  


NOTE 5 PREFERRED STOCK

 

Preferred Stock

 

The Company is authorized to issue up to 6,000,000 shares of $0.001 par value preferred stock; 1,000,000 shares of which are designated as Class A Convertible Preferred Stock, and 2,000,000 shares of which are designated as Class B Convertible Preferred Stock. The remaining 3,000,000 shares of preferred stock authorized remain undesignated.






8


SUNVALLEY SOLAR, INC.

 Notes to Condensed Consolidated Financial Statements

March 31, 2016 and December 31, 2015

NOTE 5 PREFERRED STOCK (CONTINUED)

 

Class A Convertible Preferred Stock


Holders of Class A Convertible Preferred Stock are entitled to vote together with the holders of the Company s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. Holders of Class A Convertible Preferred Stock are also entitled, at their option, to convert their shares into shares of the Company s common stock on a 20 common share for 1 preferred share basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible. As of March 31, 2016 and December 31, 2015, there were 1,000,000 shares of Class A Convertible Preferred Stock issued and outstanding.


Class B Convertible Preferred Stock


The holders of the Class B Convertible Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 post-split common shares and have the right to 10 votes per Class B Convertible Preferred share for all matters submitted to the holders of the Company s common stock. As of March 31, 2016 and December 31, 2015, there were 2,000,000 shares and -0- shares of Class B Convertible Preferred Stock issued and outstanding, respectively.


On July 23, 2015, the Company issued 2,000,000 shares of Class B Convertible Preferred Stock, to certain officers, directors and/or employees for services valued at $2,000,000, the value of which was based on the trading price of the common stock into which each share of preferred stock is convertible. The issuance of such preferred shares was valued as a stock subscription payable of $2,000,000 which is being amortized ratably over the vesting period to compensation expenses based on the fair market value of the Company s preferred shares on the date of issuance. Compensation expense of $498,630 was recorded during the three months ended March 31, 2016, and the remaining compensation expense related to the unvested portion of preferred stock was $619,179.


NOTE 6 SUBSEQUENT EVENTS


A security purchase agreement was entered into by and among the Shareholders of Rayco Energy, Inc. ( Rayco ), and Sunvalley Solar Inc., ( Sunvalley ) on May 15, 2016. Sunvalley shall purchase 100% of Rayco s issued and outstanding shares of capital stock in exchanged for Sunvalley s seventy five thousand and five hundred (75,500) Series B Preferred Shares which are convertible to 10 shares of Sunvalley s common stock.  In addition, Sunvalley agrees to pay an additional $350,000 in cash to shareholders of Rayco, conditioned upon the 2016 net profit from the operation of Rayco, as a wholly-owned subsidiary of Sunvalley, being in excess of $10,000 (the Condition ).  Sunvalley also agrees to invest no less than $350,000 working capital into Rayco after closing for its current projects and working capital. To evidence the unpaid balance of the purchase price, Sunvalley shall issue to Rayco s shareholders 6% subordinated promissory notes in the aggregate amount $350,000, payable only upon Rayco s 2016 net operating profit being in excess of $10,000 with interest and principal payable monthly on first day of each month commencing May 1, 2017.  Prepayments may be made at any time as the Company s cash flow allows, as determined by the Sunvalley s Board of Directors.  In the event that the Condition is not met, such notes shall be deemed null and void.  Both Sunvalley and Rayco agree that the acquisition shall be accounted for as if such acquisition had occurred upon the close of the business on May 15, 2016 (the Effective Date ), regardless of when the closing in fact occurs. 


In accordance with ASC 855, Company management reviewed all material events through the date of this report and there are no material subsequent events to report.  




9



Item 2.     Management s Discussion and Analysis or Plan of Operation

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements. These forward-looking statements generally are identified by the words believes, project, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Company Overview and Plan of Operation

 

Sunvalley Solar, Inc. (the Company we , our ) is a California-based solar power technology and system integration company founded in January of 2007. We are focused on developing our expertise and proprietary technology to install residential, commercial and governmental solar power systems. We offer turnkey solar system solutions for owners, builders and architecture firms that include designing, building, operating, monitoring and maintaining solar power systems. Our customers range from small private residences to large commercial solar power users. We have the necessary licenses and expertise to design and install large scale solar power systems. We hold a C-46 Solar License from CBCL (California Board of Contractor License). Some of the large scale commercial solar power systems that we have designed and installed include large office buildings, farming and manufacturing facilities and warehouses. Our proprietary technologies in solar installation provide our customers with a high quality, low cost and flexible solar power system solutions.

We are working to develop as an end-to-end solar energy solution provider by providing system solution, post-sale service, customer technical support, solar system design and field installation.  We conduct our operations through our wholly-owned subsidiary, Sunvalley Solar Tech, Inc.

Business Development Plan


The primary components of our growth strategy are as follows:


"

Developing and commercializing our proprietary solar technologies including our coating and focusing technologies, networked PV panel system. By deploying these new technologies into our PV panels and solar installation business, we hope to enhance the value provided to our customers and increase our profitability.


"

Promoting and enhancing our company s brand and reputation in solar design and integration and expanding our installation business.


"

Developing a PV panel manufacturing capability to provide high efficiency and low cost solar panels to US market. This will complement our installation business and provide an implementation platform for our R&D.



10



Expansion of Installation Business


We are planning to expand our installation business. We will continue to execute our marketing and sales strategy in Southern California and, with additional capital, will be able to expand our business to cover Northern California, Arizona or other states. The planned expansion is expected to occur through acquiring smaller installation companies in these regions and/or through the establishment of subsidiaries in these states and boost our installation profits. Our current intention is to establish two new offices located in Northern California or other states and in San Diego. The estimated start-up cost for each new branch would be approximately $500,000.


If we are able to expand our installation business, it will assist us in gaining favorable terms from OEM international manufacturers of our planned solar panel manufacturing operation. In addition, an expanded installation business would allow us to accelerate the introduction of our new technologies and solar parts and would generate additional revenue to fund initial investment in our planned Distributed Power Plant business and to further fund our investments in R&D.


Prior to initiating our planned OEM manufacturing of Sunvalley-branded solar panels, we will need to commercialize our advanced panel technology through the design, fabrication, and characterization of a prototype solar cell. The total expense for planned commercialization of our research and development will be approximately $500,000.


Commercialization of Research and Development


Our Patent Networked Solar Panels and Related Methods was issued on February 24, 2015.  We will need to commercialize this advanced technology through the design, fabrication, and characterization of prototype solar components and system cell.  The total expense for planned commercialization of our research and development will be approximately $2,000,000.   Through this technology, it is able to address the undesirable fluctuations in the voltage of the power grid due to uncertain environmental impact to solar system. Commercializing this technology into mass production will involve cooperation and approval from utility companies. In addition, the networked PV panel concept will also need to demonstrate that panels using the technology will have a productive life-span and a tolerance to environmental conditions such as humidity, temperature, wind load that are sufficient for the panels to be used in real life application. Accordingly, there is no guarantee that we will be able to commercially produce and market solar panels using our new networked PV panel system technology.


Initiate OEM Manufacturing of Solar Panels


By leveraging our solar panel installation business and R&D, we plan to procure OEM solar panels from selected Chinese manufacturers and to market them in the U.S. under our brand name. We will be responsible for R&D, quality control, customer service, sales and marketing activities, as well as panel certification in U.S.


The estimated OEM panel cost is less than $0.50 per watt. As a reference, currently, the lowest panel price is around $0.70 per watt (Mono-crystalline, Polycrystalline). We can use our own sales and installation platform to showcase the new panels and drive sales of the new panels in the U.S market. Meanwhile, we will continue our R&D effort on panel coating and other advanced technologies and apply the results to its panel manufacturing business. The goal will be to further improve the efficiency, lower the cost of solar panels with our proprietary technologies, and to grow our market share.


Our marketing strategy for its planned OEM solar panels is as follows:


"



11



Set-up a platform to showcase our innovative solar panel technologies and make Sunvalley solar panels a household name.


Unlike other merchandise, solar panel is very unique in that it requires very high level of quality assurance and customer satisfaction. Providing satisfactory customer service and technical support is absolutely vital in solar panel sales. As the first step, we will strive to make its brand a household name. The Sunvalley solar panel will be used by our installation business as well as several other installation companies which have partnerships with us. We do not currently have partnerships with other solar installation companies, but we plan to pursue them after introducing the panels to the market through our own installation business. A marketing campaign aimed at other solar installation companies will help to achieve this goal. We will use our own installation business as the platform to showcase the product quality and build up consumer awareness of its brand.


"

Penetrate into the main stream distribution network


By leveraging early successes and customer trust earned from our initial installations, we plan to penetrate into the mainstream distribution network with our OEM solar panels.


"

Further sale activities


Once our brand name solar panels become well known, our sales team will begin an aggressive marketing campaign to connect the individual sales points (distributors and venders) to form a distribution network. The marketing campaigns will also include attending trade shows, advertising in the media (TV commercials and newspaper advertisement) and designating local representatives to boost the market share and brand awareness.


"

Offer a low cost, high efficiency solar panel derived from advanced research


To boost our solar panel market share, our R&D team will work with our OEM partner to apply selective coating technique and other cutting edge technologies to further reduce the manufacturing cost and improve the panel efficiency.


The total capital required to initiate our planned panel manufacturing business would be approximately $2,000,000 which can be categorized into three parts:


"

Registration and Certification of OEM panels with our brand $300,000, including UL certification fees, CEC registration fees, and lab testing fees.


"

Initial Inventory $1,500,000. We will need to keep 4-5 containers of PV panels in the warehouse in order to support sales of 5~10M watts per year, which means we will need to have over $1,000,000 in inventory for PV panels only. An additional $300,000 in inventory would be needed in order to keep the requisite amount of inverters and racking and panel cleaning systems. In addition, we anticipate providing variable payment terms to different customers based on their creditworthiness; this will add additional cash flow pressure.


"

OEM Management costs $200,000


We are among the few companies in California that has the permit and expertise to install large-scale commercial and/or government solar power systems, together with roof constructional design and building interior/exterior electrical designs. We believe additional advantages are provided by our



12



experience in filing solar power system permit applications and rebate applications and our expertise gained through our experience with governments and utility companies.


Expected Changes In Number of Employees, Plant, and Equipment

 

We do not currently plan to purchase specific additional physical plant and significant equipment within the immediate future. We do not currently have specific plans to change the number of our employees during the next twelve months.


Results of Operations for the three months ended March 31, 2016 and 2015

 

During the three months ended March 31, 2016, we generated no revenues. We incurred selling, general, and administrative expenses of $831,295, other income of $2,096, interest expense of $147, and a loss on disposal of assets on $415. Our net loss for the quarter ended March 31, 2016 was $829,761.


By comparison, during the quarter ended March 31, 2015, we generated revenue of $925,742, and had costs of sales in the amount of $703,478, resulting in gross profit of $222,264. We incurred selling, general, and administrative expenses of $255,892, other income of $350, and interest expense of $948. Our net loss for the quarter ended March 31, 2015 was $34,226.


We generated no revenues during the quarter ended March 31, 2016 because under the completed
contract method of accounting, no profit or income is recorded before substantial completion of the work.
The revenue for the projects which were in progress are therefore to be recognized after their completion.
Due to the implementation periods for different size of projects, revenue fluctuations like the one
experienced during this quarter are a normal occurrence for construction companies, including solar system integration companies.


We are currently working on three major installation projects with contract prices totaling approximately
$5.8 million. One of these contracts is expected to be substantially completed by the second quarter of 2016 and the other two contracts are expected to complete by the end of 2016.


The significant increase in operating expenses of $575,403 in the first quarter of 2016 was mainly due to a $567,630 increase in salaries and wages expense which included $498,630 from the issuance of the
Company s 2,000,000 shares of Class B Convertible Preferred Stock to certain officers, directors and/or
employees on July 23, 2015 which is being recognized over the vesting period.


Liquidity and Capital Resources

 

As of March 31, 2016, we had current assets in the amount of $3,459,693, consisting of cash and cash equivalents in the amount of $1,032,740, accounts receivable of $2,022,549, inventory in the amount of $107,870, costs in excess of billings on uncompleted contracts of $161,899, prepaid expenses and other current assets of $97,135, and restricted cash of $37,500. As of March 31, 2016, we had current liabilities in the amount of $4,185,249. These consisted of accounts payable and accrued expenses in the amount of $3,524,366, customer deposits of $450,212, accrued warranty of $104,870, advances from contractors of $103,389, and the current portion of a capital lease in the amount of $2,412. Our working capital deficit as of March 31, 2016 was therefore $725,556.





13



Our accounts payable and accrued expenses as of March 31, 2016 consisted of the following:

Accounts Payable

$3,151,738

Credit Card payable

$35,648

Accrued vacation

$59,159

Other accrued expense

$173,997

Payroll liabilities

$53,825

Sales tax payable

$49,979

Total

$3,524,366

 As of March 31, 2016, we had no long term liabilities.

In order to move forward with our business development plan set forth above, we will require additional financing in the approximate amount of $4,500,000, to be allocated as follows:

Initiate OEM Manufacturing

$ 2,000,000

R&D Commercialization Costs

$    500,000

Expansion of Installation Business

(3 new branches)

$ 1,500,000

Additional working capital and

general corporate

$    500,000

Total capital needs

$ 4,500,000


We will require substantial additional financing in the approximate amount of $4,500,000 in order to execute our business expansion and development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible.

We are currently seeking additional financing. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.

Off Balance Sheet Arrangements

 

As of March 31, 2016, there were no off balance sheet arrangements.

 

Going Concern

 

We have experienced recurring losses from operations and had an accumulated deficit of $4,278,598 as of March 31, 2016. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

 

Critical Accounting Policies

 



14



In December 2001, the SEC requested that all registrants list their most critical accounting polices in the Management Discussion and Analysis. The SEC indicated that a critical accounting policy is one which is both important to the portrayal of a company s financial condition and results, and requires management s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies currently fit this definition.

 

Recently Issued Accounting Pronouncements

 

Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk


A smaller reporting company is not required to provide the information required by this Item.

 

Item 4.     Controls and Procedures


We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2016. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Zhijian (James) Zhang and our Chief Financial Officer, Mandy Chung. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2016.


Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in



15



part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.














PART II OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Please refer to our Annual Report on Form 10-K filed April 14, 2016 for information regarding our pending legal proceedings.

 

Item 1A. Risk Factors


A smaller reporting company is not required to provide the information required by this Item.

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

Effective May 15, 2016, we agreed to issue 75,500 our Series B Preferred Shares for the acquisition of all of the capital stock of Rayco Energy, Inc., as described in Item 5, below.  We engaged in no general solicitation or advertising with regard to this issuance, which was exempt under Section 4(2) of the Securities Act.

 

Item 3.     Defaults upon Senior Securities

 

None

 

Item 4.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

On May 4, 2016, Robert Dyskant resigned from our board of directors.  There was no known disagreement with Mr. Dyskant regarding our operations, policies, or practices.

Effective May 15, 2016 we entered into a Securities Purchase Agreement with the shareholders of Rayco Energy, Inc. ( Rayco ). Rayco is a northern California company specializing in providing cost-saving and efficient energy solutions, including LED lighting, Solar Thermal and Solar Electricity, to local



16



communities and business units. Under the Agreement, we shall purchase 100% of Rayco s issued and outstanding shares of capital stock in exchange for seventy five thousand and five hundred (75,500) our Series B Preferred Shares.  Our Series B Preferred shares are convertible to common stock on a 10 for 1 basis. In addition, we agreed to pay an additional $350,000 in cash to the shareholders Rayco, conditioned upon the 2016 net profit from the operation of Rayco, as a wholly-owned subsidiary of Sunvalley, being in excess of $10,000 (the Condition ). We also agreed to invest no less than $350,000 working capital into Rayco after closing for its current projects and working capital. To evidence the unpaid balance of the purchase price, we shall issue to Rayco s shareholders 6% subordinated promissory notes in the aggregate amount $350,000, payable only upon Rayco s 2016 net operating profit being in excess of $10,000. Interest and principal are payable monthly under the notes on first day of each month commencing May 1, 2017.  Prepayments may be made at any time as the Company s cash flow allows, as determined by the Sunvalley s Board of Directors.  In the event that the Condition is not met, such notes shall be deemed null and void.  


Item 6.      Exhibits

 Exhibit Number

Description of Exhibit

10.1

Securities Purchase Agreement for Rayco Energy, Inc.

31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

Materials from the Company s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language (XBRL)

 

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.

 


Sunvalley Solar, Inc.




Date:

May 23, 2016

 

 

 


By:        /s/ Zhijian (James) Zhang

             Zhijian (James) Zhang

Title:     Chief Executive Officer and Director

 


Date:

May 23, 2016

 

 

 


By:        /s/ Mandy Chung

             Mandy Chung

Title:     Chief Financial Officer




18






 SECURITIES PURCHASE AGREEMENT



By and among



SUNVALLEY SOLAR, INC.


as the Buyer,



RAYCO Energy, INC.


as the Company,


      and


THE SHAREHOLDERS NAMED HEREIN,


                      as the Sellers.





   EFFECTIVE DATE: MAY 15, 2016





TABLE OF CONTENTS

                Page    

Section 1.

Sale and Purchase of the Shares.                                                                 4

Section 2.

Closing.                                                                                                        4

Section 3.

Purchase Price.                                                                                             4

Section 4.

Representations and Warranties of the Sellers                                             5

Section 5.

Representations and Warranties of the Buyer                                             13

Section 6.

Survival of Representations and Warranties; Indemnification.                  15

Section 7.

Confidentiality                                                                                            17

Section 8.

The Company’s Covenants Prior to Close                                                  17

Section 9.

Conditions Precedent to the Obligation of the Buyer to Close                   18

Section 10.

Conditions Precedent to the Obligations of Sellers and the

                       Company to Close.                                                                                     19

Section 11.

The Buyer’s Obligations at Closing.                                                           20

Section 12.

The Sellers’ Obligations at Closing                                                            20

Section 13.

Parties in Interest                                                                                         21

Section 14.

Entire Agreement                                                                                        21

Section 15.

Governing Law.                                                                                           21

Section 16.

Expenses                                                                                                      21

Section 17.

Consent to Jurisdiction                                                                                21

Section 18.

Arbitration                                                                                                   21

Section 19.

Severability.                                                                                                 22

Section 20.

Notices.                                                                                                        22

Section 21.

Non-Waivers                                                                                               24

Section 22.

Assignment                                                                                                  24

Section 23.

Miscellaneous                                                                                              24



                                 SCHEDULES


Schedule A:

Company Shares.


                                   EXHIBITS


Exhibit 2(b):

                  Notes to Sellers

Exhibit 4(a)(xix):           Formation Documents, Good Standing Certificates, and Licenses





1

 

 

 





SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of May 15, 2016, is entered into by and among the Shareholders of Rayco Energy, Inc. (the “Sellers”), Rayco Energy, Inc., a California corporation, (the “Company”) and Sunvalley Solar, Inc., a Nevada corporation (the “Buyer”).

W I T N E S S E T H :

WHEREAS , the Sellers own 100% of the issued and outstanding shares of capital stock  of the Company (the “Company Shares”), as set forth on Schedule A ;


WHEREAS , the Sellers wish to sell and the Buyer wishes to purchase the Company Shares (the "Acquisition") on the terms and subject to the conditions set forth in this Agreement;


WHEREAS , the Company has represented it has a pipeline of solar and LED lighting construction projects;

WHEREAS , the Board of Directors of the Buyer has determined that the Acquisition is consistent with and in furtherance of its long-term business strategy and fair to, and in the best interests of the Buyer and its stockholders;


WHEREAS , the Shareholders of the Company have determined that the Acquisition is consistent with and in furtherance of its long-term business strategy and fair to, and in the best interests of the Company and its Shareholders;


WHEREAS , the Board of Directors of each of Buyer and the Company have each adopted resolutions approving this Agreement and the Acquisition, resulting in the acquisition of all of the issued and outstanding capital stock of the Company by the Buyer and with the Company continuing as a wholly-owned subsidiary of the Buyer upon the terms and conditions set forth in this Agreement.


NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.

Sale and Purchase of the Shares.

Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as hereinafter defined), the Sellers shall sell, transfer and deliver to the Buyer all Company Shares owned by them, and the Buyer shall purchase from the Sellers all such Company Shares, which collectively constitute one hundred percent (100%) of the issued and outstanding shares of capital stock of the Company, all of which shall be transferred to the Buyer free and clear of all liens, mortgages, deeds of trust, security interests, pledges, charges, encumbrances, liabilities and claims of every kind, except those contemplated by the terms of this Agreement or arising under applicable federal and state securities laws.

Section 2.

Closing .

The closing of the sale and purchase of the Company Shares provided for in Section 1 of this Agreement (the “Closing”) shall take place upon the execution of this Agreement. The deliveries to be made by each of the parties at the Closing are specified in Sections 11 and 12 below.

Section 3.

Purchase Price .  

(a)

Purchase Price .  At Closing, in consideration for Sellers’ sale and transfer of their Company Shares to the Buyer, the Buyer shall issue SEVENTY FIVE THOUSAND and FIVE HUNDRED (75,500) SSOL Series B Preferred Shares (approximately 3% of all issued Buyer preferred shares as of April 30, 2016) to the Sellers as set forth on Schedule A. . The SSOL Series B Preferred Shares are convertible to common stock in SSOL at ratio of 10 shares of common stock for each share of Series B Preferred Stock. In addition to the SSOL Series B Preferred Shares, Buyer agrees to pay an additional $350,000 in cash to Sellers as set forth on Schedule A-2 , conditioned upon the 2016 net profit from the operation of Rayco Energy, Inc, as a wholly-owned subsidiary of the Buyer, being in excess of $10,000 (the “CONDITION”). Buyer also agrees to invest no less than $350,000 working capital into the purchased Company after Closing for its current projects and working capital. Such additional investment shall be allocated as set forth in Schedule A-3 hereto, and shall be tendered and paid contemporaneously with the Closing.

(b)

Promissory Notes . To evidence the unpaid balance of the Purchase Price, Buyer shall issue to Sellers 6% subordinated promissory note s in the aggregate amount $350,000.00, payable only upon the condition (the “CONDITION”) listed in Section 3 (a).  As set forth in the form of Note attached hereto as Exhibit 2(b) , interest and principal are payable monthly on first day of each month commencing May 1, 2017 if the CONDITION is met. The payment amount shall be determined on the basis of a six-month amortization schedule.  Prepayments may be made at any time as the Company’s cash flow allows, as determined by the Company’s Board of Directors. In the event that the CONDITION is not met, such notes shall be deemed null and void.

 (c)

Effective Date of the Acquisition . The parties hereto agree that the Acquisition shall be accounted for as if such Acquisition had occurred upon the close of business on May 15, 2016 (the “Effective Date”), regardless of when the Closing in fact occurs. In the event that the Acquisition is consummated, Buyer shall realize any operating profit or loss from the operation of the business of the Company after the Effective Date. Accordingly, the Sellers agree to consult the Buyer on any material issues or contracts that relate to a period of time beyond the Effective Date.

Section 4.

Representations and Warranties of the Sellers .  The representations and warranties of the Sellers to the Buyer are as set forth in this Section 4.  

(a)

Sellers hereby represent and warrant to the Buyer as of the date hereof, as follows:

(i)

Ownership of Company Shares .  Sellers are the owners, beneficially and of record, of the Shares set forth opposite his name in Schedule A attached hereto (the “Company Shares”). Company Shares are not pledged, mortgaged or otherwise encumbered in any way and there is no lien, mortgage, charge, claim, liability, security interest or encumbrance of any nature against the Company Shares arising from such Sellers’ actions. The Company Shares are not party to any outstanding warrants, rights of subscription or conversion, calls, commitments, agreements, arrangements, understandings, plans, contracts, proxies, voting trusts, voting agreements or instruments of any kind or character, oral or written, relating to the issuance, voting or sale of Company Shares or of any securities representing the right to purchase or otherwise receive any such Shares.  Sellers are not party to any security holders agreements, preemptive rights or other agreements, arrangements, commitments or understandings, oral or written, relating to the voting, issuance, acquisition or disposition of the Company Shares or the conduct or management of the Company by its Board of Managers. At the Closing, the Sellers shall have good and marketable title to the Company Shares and full right to transfer title to such Shares, subject to any restrictions imposed by state or federal securities laws, free and clear of all liens, mortgages, charges, liabilities, claims, security interests or encumbrances of every type whatsoever.  The sale, conveyance, transfer and delivery of the Company Shares by the Sellers to the Buyer pursuant to this Agreement, against payment therefor in accordance with the terms hereof, will transfer full legal and equitable right, title and interest in the Company Shares to the Buyer, free and clear of all liens, mortgages, charges, claims, liabilities, security interests and encumbrances of any nature whatsoever other than as contemplated by this Agreement and the other agreements and instruments to be entered into in connection with the transactions contemplated hereby (the “Other Agreements”).

(ii)

Capacity .  Sellers have full capacity to enter into and perform their respective obligations under this Agreement and all Other Agreements to which they are a party, and to consummate such transactions. No consent of any other persons or corporations is required to be obtained by Sellers as a condition to their ability to consummate such transactions.  The Sellers have no equity interest in any entity engaged in any businesses competitive with those of the Company. This Agreement and each of the Other Agreements to which Sellers are a party have been duly executed and delivered by Sellers.  This Agreement and each of the Other Agreements to which Sellers are a party constitute the legal, valid and binding obligation of Sellers enforceable against Sellers in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally or by general equitable principles.  

(iii)

Company Shares .  The Company Shares, set forth on Schedule A, attached hereto constitute one hundred percent (100%) of the issued and outstanding shares of capital stockof the Company.  The Shares are the sole equity of the Company and are duly authorized, validly issued, fully paid and non-assessable.  The Shares are not subject to any pledge, mortgage or other encumbrance arising by or through any act of the Company, and there is no lien, mortgage, charge, claim, liability, security interest or encumbrance of any nature against the Stock. There are no outstanding options, warrants, rights of subscription or conversion, calls, commitments, agreements, arrangements, understandings, plans, contracts, proxies, voting trusts, voting agreements or instruments of any kind or character, oral or written, to which the Company is party or by which the Company is bound, relating to the issuance, voting or sale of the Company Shares. The Company is not party to any operating agreements, preemptive rights or other agreements, arrangements, commitments or understandings, oral or written, relating to the voting, issuance, acquisition or disposition of the Shares of the Company or the conduct or management of the Company by its Board of Managers.  

(iv)

Organization; Standing; Capitalization .  The Company has full corporate power and authority to enter into and perform its obligations under this Agreement and all Other Agreements to which it is a party, and to consummate such transactions.  The Company has no subsidiaries.  The Company does not hold any equity interest in any entity that is engaged in businesses competitive with those of the Company.  This Agreement and each of the Other Agreements to which the Company is a party have been duly executed and delivered by the Company.  This Agreement and each of the Other Agreements to which the Company is a party constitute the legal, valid and binding obligation of the Company, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights generally or by general equitable principles.  The Company is duly organized and validly existing under the laws of the State of California, has full power and authority to conduct its business as it is now being conducted and is duly qualified to do business in each jurisdiction where the nature of the property owned or leased, or the nature of the business conducted by the Company requires such qualification, except where the failure to have such power and authority or to so qualify would not have a material adverse effect on the Company.  The Articles of Incorporation of the Company and the Bylaws, and the minutes and records of the Company delivered to the Buyer are complete and correct.  The Company has all necessary licenses and authority to operate its business as now being conducted, except where the failure to have such licenses or authority would not have a material adverse effect on the Company.

(v)

Legal Proceedings . To the best of Sellers knowledge:

(A)

Neither the Sellers nor the Company is a named party or otherwise directly involved in any pending litigation, arbitration, administrative proceeding or to any investigation related to the business of the Company, and no such litigation, arbitration, administrative proceeding or investigation that, if adversely decided, would result in a material adverse change in the financial condition, business or properties of the Company, is threatened.

The Sellers have no knowledge of and have not received written notice of any claims, threats, plans or intentions to discontinue commercial relations or transactions from any major customer of the Company, any purchaser of a material amount of goods or services from the Company, any employee or independent contractor significant to the conduct or operation of the Company or its businesses or any party to any material agreement to which the Company is a party that, if resulting in the actual discontinuance of such commercial relations or transaction, would result in a material adverse change in the financial condition, business or properties of the Company .

(B)

The Sellers have received no written notice of any claim (whether on whatever theory) relating directly or indirectly to any product manufactured or sold, or any services performed by the Company asserting that the Company is liable for an alleged deficiency in such product or services that, if adversely decided, would result in a material adverse change in the financial condition, business or properties of the Company.

(C)

The Company is under no obligation with respect to the return of goods in the possession of customers except for those occurring in the ordinary course of business, which are not in the aggregate material to the Company’s business, or against which the Company has established a reserve on its financial statements.

(vi)

Encumbrances . There are no liens, mortgages, deeds of trust, claims, charges, security interests or other encumbrances or liabilities of any type whatsoever to which any of the assets of the Company are subject, except for those arising in the ordinary course of business or by operation of law, which do not materially interfere with the ownership or operation of such assets.

(vii)

Trade Names .  The Company does not own or hold the license or rights to use, any trade names, trademarks, service marks, assumed names or copyrights.

(viii)

Patents . None.

(ix)

Financial Statements .

(A)

Sellers and Shareholders shall provide the Buyer all financial information required by Buyer, who shall prepare audited financial statements of the Company for any time periods required for the Buyers filings (the “Audited Financial Statements”), together with the related notes and schedules required for Buyer to prepare interim financial statements of the Company for any period required thereafter (the “Interim Financial Statements”), together with the related notes and schedules (collectively, the “Financial Statements”). Sellers shall produce accurate information as required and Sellers shall sign all Financial Statements as may be required. Financial Statements prepared by Buyer shall, (i) have been prepared in accordance with generally accepted accounting principles consistently applied and as in effect in the United States from time to time (“GAAP”); (ii) present fairly and in all material respects, the financial condition, results of operations, and cash flows of the Company as of and for the periods specified therein; (iii) have been audited by a certified public accountant and include an unqualified opinion; (iv) are true, correct and complete statements in all material respects of the financial condition and the results of operations of the Company as at and for the periods therein specified; (v) shall and not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by the Financial Statements; and (vi) shall have been prepared from and are in accordance with the accounting Books and Records of the Company. Sellers shall provide all material assistance reasonably requested by Buyer in connection with an audit of the financial statements of the Company to be prepared and filed in compliance with the federal securities laws.

(B)

Except as and to the extent shown or provided for in the Financial Statements or as disclosed in any of the Schedules to this Agreement or such current liabilities as may have been incurred since December 31, 2015 in the ordinary course of business, the Company has no liabilities or obligations (whether accrued, absolute, contingent or otherwise). As of December 31, 2015, there was no material asset used by the Company in its operations that has not been reflected in the Financial Statements when prepared, and, except as set forth in the Financial Statements or disclosed in any Schedule to this Agreement, no material assets have been acquired by the Company since such date except those acquired in the ordinary course of business.

(x)

Tax Matters .

(A)

Filing of Tax Returns and Payment of Taxes .    As of the date hereof, the Sellers have not filed any tax returns with any governmental agency on behalf the Company.  Following the Closing, the Buyer shall be responsible to file all required tax returns for the period commencing on the Closing Date; provided, that the Sellers shall file all required tax returns for the period prior to the date hereof.

(B)

Audit History, Extensions, Etc . There is no action, suit, Taxing authority proceeding (foreign, federal, state or local), or audit with respect to any Tax now in progress, pending, or to the best of the Sellers’ knowledge, threatened, against or with respect to the Company.  

(C)

Shareholdership in Affiliated Groups, Etc .  The Company has never been a member of any affiliated group, or filed or been included in a combined, consolidated, or unitary Tax Return other than a consolidated Tax return with respect to the Company. The Company is not a party to or bound by any Tax sharing or allocation agreement or has any current or potential contractual obligation to indemnify any other person with respect to Taxes.

(D)

Withholding Taxes .  The Company has withheld and paid all Taxes required to have been withheld and paid by it in connection with amounts paid or owing to any employee, creditor, independent contractor, or other person.

(E)

Amending Tax Returns .  Following Closing, no Tax Returns with respect to the Company shall be amended without the prior written consent of the Sellers if such amendments could result in liability to such Sellers.

(xi)

Accounts Receivable . None. (xii)

(xii)

Title of Properties .

(A)

The Company does not own any real property.  Except as disclosed on Schedule 4(a)(xii) , the Company has good, marketable and insurable title to all properties and assets, real and personal, tangible and intangible, as reflected in the Financial Statements or acquired subsequent to December 31, 2015 (other than those which have been disposed of in the ordinary course of business prior to the Closing Date).  

(B)

The Company does not have any leases or other agreements requiring aggregate payments by the Company in excess of $15,000.

(C)

The Sellers are not aware of, nor has he received notice of, the violation of any applicable zoning regulation, ordinance or other law, order, regulation or requirement in force on the date hereof relating to the Company’s business or its owned or leased real or personal properties,

(xiii)

Material Contracts .

(A)

Schedules B, C and D attached hereto contains a complete and correct list as of the date hereof of all material agreements, contracts and commitments, obligations and understandings, as amended, requiring aggregate payments or services to or by the Company which are not set forth in any other Schedule (“Material Contracts”). All such Material Contracts are in full force and effect and, the Company has and, to the best knowledge of the Sellers, all other parties to, or otherwise bound by, such Material Contracts have performed all obligations required to be performed by them to date.  The Company has not received written notice that it is in default of any Material Contract, and to the best knowledge of the Sellers, no event, occurrence, condition or act exists which gives rise to (or which with notice or the lapse of time, or both, would result in) a default or right of cancellation, acceleration or loss of contractual benefits under any Material Contract.  There have been no written threatened cancellations thereof, and the Company is not involved in any outstanding disputes under any Material Contract. No consent of any counterparty to any Material Contract is required as a condition to the Company’s execution and delivery of this Agreement.  Any contracts, agreements, leases or commitments relating to the business of the Company, but held in the name of the Sellers (and set forth in the Schedules hereto) shall be assigned to either the Buyer or the Company on the Closing Date.  

(B)

Each Material Contract constitutes a valid and binding obligation of the Company and, to the best knowledge of the Sellers, of the other respective parties to such agreements.  To the best knowledge of the Sellers, no counterparty to any Material Contract is in default thereof, nor are they aware of any event that, with notice, lapse of time or both, would constitute a default by the Company or such other parties in respect of which adequate steps have not been taken to cure such default or to prevent a default from occurring or continuing.  

(C)

No agreement, contract, commitment, obligation or undertaking listed on the Schedules hereto which the Company is a party or by which it or any of its properties is bound, contains any provision, the performance of which materially adversely affects the condition, properties, assets, liabilities, business, operations or prospects of the Company following the date hereof.

(xiv)

Default; Violations or Restrictions .  The execution, delivery and performance of this Agreement and of any Other Agreement by the Company, and the consummation of any of the transactions contemplated hereby or thereby will not (or with the giving of notice or the lapse of time or both would) (A) result in the breach of any term or provision of the Articles of Incorporation or Bylaws of the Company; or (B) violate any provision of or result in the breach of, or constitute a default under any law, order, writ, injunction, decree, statute, rule or regulation of any court, governmental agency or arbitration tribunal applicable to the Company (other than such violations, breaches or defaults that would not result in a material adverse effect on the Company); or (C) violate any provision of or result in the breach of, modification of, acceleration of the maturity of obligations under, or constitute a default, or give rise to any right of termination, cancellation, acceleration or otherwise be in conflict with or result in a loss of material contractual benefits to the Company under any of the terms, conditions or provisions of any contract, lease, note, bond, mortgage, deed of trust, indenture, license, security agreement, agreement or other instrument or obligation to which the Company is a party or by which it is bound (other than such violations, breaches, modifications, defaults or conflicts that would not result in a material adverse effect on the Company); or (D) require any consent, approval or notice under any law, rule or decree, document or instrument (other than where the failure to obtain such consent or approval, or give such notice, would not result in a material adverse effect on the Company); or (E) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon the Company’s assets (other than such liens, claims, restrictions, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the Company).

(xv)

Court Orders and Decrees .  The Company has not received written or oral notice that there is outstanding, pending, or threatened any order, writ, injunction or decree of any court, governmental agency or arbitration tribunal against the Company or involving the Company Shares or any of the Company’s material assets.  

(xvi)

Books and Records .  The books and records of the Company are, in all material respects, complete and correct and have been maintained in accordance with good business practice.  True and complete copies of the Articles of Incorporation and Bylaws of the Company and all amendments thereto and true and complete copies of all minutes, resolutions, Share certificates and Share transfer records of the Company are contained in the minute books and that have been previously delivered to the Buyer for inspection, and will be transferred and delivered to the Buyer at the Closing.

(xvii)

Labor Matters .   Schedule 4(a)(xvii)(a) contains a true, complete and correct list as of the date hereof setting forth (i) the names, hire dates, current compensation rates and job titles of all individuals presently employed by the Company and (ii) the names and total annual compensation for all independent contractors who render services on a regular basis to the Company. No person listed thereon has received any bonus or increase in compensation, nor has there been any promise to the employees listed on Schedule 4(a)(xvii) orally or in writing made by the Company or its officers or other employees. There is no commitment or obligation to hire any other person.

The Company is not a party to or obligated with respect to any collective bargaining agreements or contracts with any labor union or other representative of employees or any employee benefits provided for by any such agreement.

(xviii)

Relationships with Customers, Clients and Payors .  The Sellers believe that the Company’s relationships with its customers and clients, and payors are satisfactory, and the Sellers have no knowledge of any facts or circumstances which might materially alter, negate, impair or in any way materially adversely affect the continuity of any such relationships. The Company and the Sellers have no knowledge of any material claims of any of its customers or clients presently outstanding, pending or threatened against the Company.  

(xix)

Licenses, Contracts and Permits .  To Sellers’ knowledge, Exhibit (a)(xix) contains a correct and complete list of all material governmental and administrative consents, permits, appointments, approvals, licenses, certificates, payor/insurance contracts and franchises which are (i) necessary for the operation of the Company, and (ii) required in connection with the Company’s execution, delivery or performance of this Agreement, all of which have been obtained by the Company and are in full force and effect. The Company is and has been in compliance in all material respects with all Permits set forth on Schedule 4(a)(xix) , all of which are valid, binding and in full force and effect, and the Company has not received any written notice to the contrary. None of such Permits will require the consent, approval, novation or waiver of, or giving of notice to, any Governmental Authority or other third party in connection with the consummation of the transactions contemplated by this Agreement.

(xx)

Brokers .  No person acting on behalf of any of the Company or under its authority is or will be entitled to a financial advisory fee, brokerage commission, finder’s fee or other like payment in connection with the transactions contemplated hereby.

(xxi)

Compliance With Laws .

(A)

The operations and activities of the Company have previously and continue to comply in all material respects with all applicable federal, state and local laws, statutes, codes, ordinances, rules, regulations, permits, judgments, orders, writs, awards, decrees or injunctions applicable to the Company (collectively, the “Laws”), as in effect on or before the date of this Agreement, except where such noncompliance would not have a Material Adverse Effect.  The conduct of the business of the Company as presently conducted does not conflict with the rights of any other person or violate (with or without the giving of notice or the passage of time, or both), conflict with or result in a default, right to accelerate or loss of material rights under, any terms or provisions of its Articles of Incorporation and Bylaws as presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease, license, agreement, understanding, or Laws to which the Company is a party or by which it is bound, other than such conflicts, violations or defaults as do not, in the aggregate, have a Material Adverse Effect.  The Company has received no written notice or communication from any third party asserting a failure to comply with any Laws, nor has the Company received any written notice that any authority or third party intends to seek enforcement against the Company to compel compliance with any such Laws.

(B)

There are no existing claims or potential claims which may exist against the Company, with respect to the presence on or under, or the escape, seepage, leakage, spillage, discharge, or emission discharging or emanating from, the real property leased by the Company to the extent regulated under any Environmental Laws (defined below), of any petroleum or fraction thereof, petroleum product, petroleum by-product, fuel oil, waste oil, explosive, reactive material, ignitable material, corrosive material, hazardous chemical, hazardous waste, hazardous substance, extremely hazardous substance, toxic substance, toxic chemical, radioactive material, medical waste, biomedical waste, infectious material, pollutant, toxic pollutant, herbicide, fungicide, rodenticide, insecticide, contaminant or pesticide and any other element, compound, mixture, solution or substance which may reasonably pose a present or potential risk to human health or the environment (“Hazardous Material”), including, without limitation, any losses, liabilities, damages, injuries, costs, expenses, reasonable fees of counsel or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA”), or any other applicable federal, state or local statute, law, ordinance, code, rule, regulation, order or decree now in effect (“Environmental Laws”) regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Material.  Since the date first acquired or leased by the Company, the Company has not placed any Hazardous Material on or under the real property owned or leased by the Company and there has been no Hazardous Material on or under the real property owned or leased by the Company.

(C)

Neither the Company, nor any officer, employee or agent of the Company acting on its behalf has, directly or indirectly, within the past three (3) years given or received or agreed to give or receive any gift or similar benefit to any governmental employee or other person which violates the Foreign Corrupt Practices Act or any other similar Law applicable to the Company.

(xxii)

  Guarantees .  The Sellers have not personally guaranteed any of the obligations of the business of the Company, except as indicated on Schedule A-4 hereto

(xxiii)

Absence of Undisclosed Liabilities. To the best of Sellers knowledge, there are no undisclosed liabilities.

Section 5.

Representations and Warranties of the Buyer .  Buyer warrants and represents to the Sellers as of the Closing Date as set forth in this Section 5.  As used herein, “best knowledge” or “to the best knowledge” shall mean information actually known by the relevant party or what should be known to such party after due inquiry or in the exercise of reasonable care in the performance of the duties of his office.

(a)

Capacity; No Conflict .  The Buyer has full right, power and capacity to execute, deliver and perform its obligations under this Agreement and the Other Agreements and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and the Other Agreements does not, and the consummation of the transactions contemplated by this Agreement and the other Agreements will not (i) violate, conflict with or constitute a breach of or default under any term or provision of the Certificate of Incorporation or By-laws of the Buyer, (ii) violate, conflict with or constitute a breach of any law, order, writ, injunction, decree, statute, rule or regulation of any court, governmental agency or arbitration tribunal known by the Buyer to be applicable to it, (iii) any violate any provision of or result in the breach of, modification of, acceleration of the maturity of obligations under, or constitute a default, or give rise to any right of termination, cancellation, acceleration or otherwise be in conflict with or result in a loss of material contractual benefits to the Buyer under any of the terms, conditions or provisions of any contract, lease, note, bond, indenture, instrument, mortgage, deed of trust, license, security agreement or other agreement, obligation or instrument to which the Buyer is a party or by which it is bound, (iv) require any consent, approval or notice under any law, rule or decree, document or instrument (other than where the failure to obtain such consent or approval, or give such notice, would not result in a material adverse effect on the Buyer); or (v) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon the Buyer or any of its assets, other than with respect to clauses (ii), (iii) or (iv) of this Section 5(a), such violations, conflicts, breaches, modifications or defaults, or such liens, claims, restrictions, charges or encumbrances that would not result in a material adverse effect on the financial condition of the Buyer or on its ability to enter into and perform its obligations hereunder and under the Other Agreements.

(b)

Organization .

The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has the corporate power and authority to carry on its business as now conducted and to own, lease or operate the properties and assets now used by it in connection therewith.  The Buyer is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties make such qualification necessary.

(c)

Consents and Approvals .  No governmental license, permit or authorization, and no registration or filing with any court, governmental authority or regulatory agency, and no consent, authorization or approval of, or notice to, any other third party, is required to be obtained by the Buyer as a condition to or in connection with its execution, delivery or performance of this Agreement and the Other Agreements or the consummation of the transactions contemplated hereby or thereby.

(d)

Legal Proceedings .  Neither the Buyer nor any of its officers or directors is a party to or affected by any pending litigation, arbitration or any governmental administrative proceeding or investigation that would in any manner materially affect its entering into this Agreement or the Other Agreements or performing the transactions contemplated hereby or thereby, or that might result in any material adverse change in the financial condition, business or properties of the Buyer, and to the best of Buyer’s knowledge, no such litigation, arbitration, proceeding or investigation is threatened.

(e)

Binding Obligation .  This Agreement and each of the Other Agreements has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with their respective terms, except to the extent that such enforceability may be limited by general principles of equity or bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights generally.  All action of the Board of Directors of the Buyer and all other corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Other Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly taken.

(f)

Accuracy .  No representation, warranty, covenant or statement by the Buyer in this Agreement, including the Schedules and Exhibits attached hereto and the certificates furnished or to be furnished to the Sellers pursuant hereto, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein in light of the circumstances under which they were made, not false or materially misleading.

 (g)

Compliance With Laws .  The operations and activities of the Buyer have previously and continue to comply in all material respects with all applicable federal, state and local laws, statutes, codes, ordinances, rules, regulations, permits, judgments, orders, writs, awards, decrees or injunctions known to be applicable to the Buyer (collectively, the “Laws”), as in effect on or before the date of this Agreement, except where such noncompliance would not materially and adversely affect the Buyer.  The conduct of the business of the Buyer as presently conducted does not conflict with the rights of any other person or violate (with or without the giving of notice or the passage of time, or both), conflict with or result in a default, right to accelerate or loss of material rights under, any terms or provisions of its Certificate of Incorporation or By-laws as presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease, license, agreement, understanding, or Laws to which the Buyer is a party or by which it is bound, other than such conflicts, violations or defaults as do not, in the aggregate, have a material adverse effect on the Buyer. The Buyer has received no written notice or communication from any third party asserting a failure to comply with any Laws, nor has the Buyer received any written notice that any authority or third party intends to seek enforcement against the Buyer to compel compliance with any such Laws.


Section 6.

Survival of Representations and Warranties; Indemnification .

(a)

Survival of Representations and Warranties .  All representations and warranties made by the Sellers or the Buyer in this Agreement, including without limitation all representations and warranties made in any Exhibit or Schedule hereto or certificate delivered hereunder, shall survive the Closing until two (2) years from the Closing Date (the “Survival Date”); provided, however, that all representations and warranties made by the Sellers in Sections 4(a)(x) and (xxi), and by the Buyer in Section 5(h) hereof shall survive the Closing until the expiration of the applicable statute of limitations (the “Extended Survival Date”).

(b)

Indemnification by the Sellers .  Subject to the limitations set forth in Section 6(d)(iv) below, the Sellers hereby agree to indemnify, defend and hold harmless the Buyer and its affiliates, and the officers, directors, employees, contractors, agents, representatives of the Buyer, from and against all liabilities, losses, costs or damages whatsoever (including expenses and reasonable fees of legal counsel) (“Losses”) arising out of or relating to any claims, demands, actions, lawsuits or proceedings (“Claims”) made prior to the Survival Date or the Extended Survival Date, if applicable, that Losses have been incurred as a result of (i) the inaccuracy in any material respect of any representation or warranty contained in Section 4 made by the Sellers; (ii) the non-performance by the Sellers in any material respect of any covenant, agreement or obligation to be performed by the Sellers under this Agreement or any Other Agreement; and (iii) the assessment of any federal, state local or other tax liabilities due and payable by the Company for all periods through the Closing Date; provided, however, that:

(A)

to the extent that the underlying representation, warranty, covenant, agreement or obligation (the breach of which gave rise to such Losses) was made by the Sellers, then Sellers’ indemnification obligations hereunder shall be (subject to the limitations set forth in Section 6(d)(iv) below) limited in amount to those Losses directly attributable to Sellers’ breach;

(B)

Sellers shall not be liable for Losses attributable, to the operation of the business of the Company on and after the Closing Date.

(c)

Indemnification by Buyer .  Subject to the limitations set forth in Section 6(d)(iv) below, the Buyer hereby agrees to indemnify, defend and hold harmless the Sellers from and against all Losses arising out of or from or based upon (i) the inaccuracy in any material respect of any representation or warranty contained in Section 5 by the Buyer; (ii) the non-performance by the Buyer in any material respect of any covenant, agreement or obligation to be performed by the Buyer under this Agreement or any Other Agreement; (iii) the assessment of any federal, state local or other tax liabilities due and payable by the Company for all periods from and after the Closing Date; and (iv) any liabilities arising out of the operation of the business of the Company by Buyer on and after the Closing Date.

(d)

Defense of Claims .  

(i)

Whenever any Claim shall be made that alleges a Loss for which indemnification would be payable hereunder, the party entitled to indemnification (the “Indemnitee”) shall notify the indemnifying party (the “Indemnitor”) in writing within 30 days after the Indemnitee has actual knowledge of such Claim (the “Notice of Claim”).  The Notice of Claim shall specify all facts known to the Indemnitee giving rise to such Claim and a detailed breakdown of the amount or an estimate of the amount of the Loss arising therefrom.

(ii)

If the facts giving rise to any such Claim shall involve any actual, threatened or possible claim or demand by any person against the Indemnitee, the Indemnitor shall be entitled (without prejudice to the right of the Indemnitee to participate at its expense through co-counsel of its own choosing) to contest or defend such Claim at its expense and through counsel of its own choosing if it gives written notice of its intention to do so to the Indemnitee within 10 days after receipt of the Notice of Claim; provided that Indemnitor diligently prosecutes or defends such Claim.

(iii)

Neither the Indemnitee nor the Indemnitor shall settle any Claim or consent to the entry of judgment with respect thereto without the prior written consent of the other party, which consent shall not unreasonably be withheld or delayed.  If a firm offer is made to settle a Claim defended by the Indemnitee and the Indemnitor refuses to accept such offer within 20 days after receipt of written notice from the Indemnitee of the terms of such offer, then, in such event, the Indemnitee shall continue to contest or defend such Claim and shall be indemnified pursuant to the terms hereof.  If a firm offer is made to settle a Claim and the Indemnitor notifies the Indemnitee in writing that the Indemnitor desires to accept and agree to such settlement, but the Indemnitee elects not to accept or agree to it, the Indemnitee may continue to contest or defend such Claim and in such event, the total maximum Losses for which indemnification would be due hereunder with respect to such Claim shall be limited to and shall not exceed the amount of such settlement offer, plus reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) to the date of notice that the Indemnitor desires to accept such settlement.

(iv)

Notwithstanding any provision of this Agreement to the contrary, no Claim for indemnification pursuant to this Section 6 by the Indemnitee shall be asserted except to the extent indemnifiable Losses exceed, in the aggregate, the sum of $25,000 (the “Basket Amount”), after which only aggregate Losses in excess of the Basket Amount shall be indemnifiable hereunder by the Sellers.  Notwithstanding any provision of this Agreement to the contrary, the maximum liability for indemnification by the Buyer shall not exceed the Purchase Price, and for Sellers, shall not exceed the Purchase Price received by Sellers.   Any liability of any Sellers for indemnification with respect to a Claim shall be satisfied in cash up to the Purchase Price received by Sellers.

Section 7.

Confidentiality .  From and after the date of this Agreement, each party hereto and their representatives shall maintain the confidentiality of all documents and information of a confidential nature received from any other party hereto in the course of their negotiations and due diligence review.

Section 8.

The Company’s Covenants Prior to Close .  The Company and the Sellers hereby covenant that, except as otherwise consented to in writing by Buyer, from and after the date hereof until the Closing or the earlier termination of this Agreement:

(a)

Conduct of Business .

(A)

The Company shall carry on the Company’s business (the “Business”) in the ordinary course and in the same manner as heretofore conducted, in consultation with Buyer, not carry on any activity relating to the Business other than normal day-to-day activities, and shall not take any action or fail to take any action, with respect to the Business, if such action or failure thereof could reasonably be expected to have a material adverse effect ("Material Adverse Effect").  “Material Adverse Effect” shall mean, with respect to the Business, any material adverse effect or material adverse change in the financial condition, operations or results of operations of the Business, taken as a whole, or on the ability of Sellers to consummate this transaction.

(b)

Further Assurances . If after the Closing, Buyer determines or is advised that any deeds, bills of sale, instruments of conveyance, assignments, assurances or any other actions or things are necessary (i) at any time, to vest or perfect ownership (of record or otherwise) of its right, title or interest in, to or under, any or all of the Sharess of the Company, (ii) at any time during the 18-month period after the Closing, (A) to vest or perfect ownership (of record or otherwise) by the Company of any of its rights, properties or assets or (B) otherwise to carry out this Agreement, Sellers shall execute and deliver, or cause to be executed and delivered, all deeds, bills of sale, instruments of conveyance, powers of attorney, assignments and assurances and to take and do all such other actions and things as are necessary in order to vest or perfect any and all right, title and interest in, to and under such rights, properties or assets in Buyer, the Company or otherwise to carry out this Agreement.

Section 9.

Conditions Precedent to the Obligation of the Buyer to Close .  The obligation of the Buyer to complete this transaction shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)

There shall not have been any breach of the representations, warranties, covenants and agreements of the Sellers or the Company contained in this Agreement or the Schedules and Exhibits hereto, and all such representations and warranties shall be true at all times on and before the Closing as if given at such times, except to the extent that any such representation or warranty is expressly stated to be true as of some other time.

(b)

The Sellers and the Company shall have performed and complied with all covenants, agreements and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing Date. All documents and instruments required in connection with this Agreement shall be reasonably satisfactory in form and substance to the Buyer.

(c)

The Buyer shall have received certificates dated the Closing Date and signed by the Sellers and the Company certifying that the conditions specified in subsections (a) and (b) above have been fulfilled except to the extent that any non-fulfillment was disclosed in writing to the Buyer prior to the Closing Date.

(d)

The Company and/or the Sellers shall have obtained and delivered to the Buyer any required consents or approvals of any third parties whose consent is required by such party as a condition to the consummation of the transactions contemplated hereunder.

(e)

The Buyer shall have received originals or certified copies, reasonably satisfactory in form and substance to the Buyer, of the following corporate documents of the Company:

(i)

the Articles of Incorporation of the Company and all amendments thereto and restatements thereof certified as of a recent date by the Secretary of State of California;

(ii)

the Bylaws of the Company and all amendments thereto and restatements thereof certified as of the Closing Date by an officer of the Company;

(iii)

certificate of existence of the Secretary of State of California, certifying as of a recent date that the Company is duly organized, validly existing and in good standing under the laws of that State;

(iv)

copies of the minutes and resolutions of the Shareholders of the Company showing the approval by the Shareholders of the execution and delivery by the Company to the Buyer of this Agreement and of the agreements and instruments provided for herein and of the performance of the obligations of the Company under this Agreement and such other instruments and agreements, certified as of a recent date by the Secretary or another officer of the Company;

(v)

a certificate of incumbency identifying the officers and directors of the Company immediately before Closing;

(vi)

an Investment Letter, executed by each of the Sellers in a form reasonably acceptable to Buyer.

(f)

The Company and/or the Sellers shall have delivered to the Buyer an assignment or consent to all of the leases (if any).

(g)

The Buyer shall have received from the Sellers, original copies of this Agreement and each of the Other Agreements, validly executed and delivered by the Sellers.

(h)

 There shall have been no material adverse change in the condition (financial or otherwise), business, assets, liabilities, properties, results of operations or earnings of the Company.

(i)

There shall be no outstanding actions or threats of action by any party that may materially adversely effect the condition (financial or otherwise), business, assets, liabilities, properties, results of operations, or earnings of the Company.

(j)

The Company’s outstanding debt obligations and Liabilities consists entirely and solely of those obligations set forth in Schedule A-4 hereto.

Section 10.

Conditions Precedent to the Obligations of Sellers and the Company to Close .  The obligations of the Sellers and the Company to complete this transaction shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a)

There shall not have been any breach of the representations, warranties, covenants and agreements of the Buyer contained in this Agreement, and all such representations and warranties shall be true at all times at and before the Closing, except to the extent that any such representation or warranty is expressly stated to be true as of some other time.

(b)

The Buyer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by them. All documents and instruments required in connection with this Agreement shall be reasonably satisfactory in form and substance to the Sellers.

(c)

The Sellers shall have received a certificate dated the Closing Date and signed by the Buyer, certifying that the conditions specified in Sections 10(a) and 10(b) above have been fulfilled.

(d)

The Buyer shall have obtained and delivered to the Sellers any required consents or approvals of any third parties whose consent is required by the Buyer as a condition to the consummation of the transactions contemplated hereunder.

(e)

The Sellers shall have received from the Buyer, original copies of this Agreement and each of the Other Agreements, validly executed and delivered by the Buyer.

(f)

The Sellers shall have received originals or certified copies, reasonably satisfactory in form and substance to the Sellers, of the following corporate documents of the Buyer:

(i)

a certificate of existence certifying as of a recent date that the Buyer is a company in good standing under the laws of its state of incorporation;

(ii)

copies of the minutes and resolutions of the Board of Directors of the Buyer showing the authorization and approval by such Board of the execution and delivery by the Buyer of this Agreement and the agreements and instruments provided for herein and of the performance of the obligations of the Buyer under this Agreement and such other instruments and agreements, certified as of a recent date by the Secretary or another officer of the Buyer; and

(iii)

a certificate of incumbency identifying the officers and directors of the Buyer as of the Closing Date.

Section 11.

The Buyer’s Obligations at Closing .

(a)

At the Closing, in addition to fulfilling the conditions to closing appearing in Section 9 of this Agreement, the Buyer shall deliver:

(i)

None    

Section 12.

The Sellers’ Obligations at Closing .  At the Closing, in addition to fulfilling the conditions to Closing appearing in Section 8 herein:

(a)

the Sellers shall deliver to the Buyer the Company Shares representing all of the securities of the Company, free of all liens, claims and encumbrances properly endorsed, or with stock powers executed in blank, and with any and all transfer, stamp or similar taxes upon the transfer of the shares to the Buyer paid in full by Sellers.

(b)

the Sellers shall transfer and deliver to the Buyer all original minute books, stock books, stock transfer ledger, canceled stock certificates, corporate seals and financial records and statements of the Company.

Section 13.

Parties in Interest .  This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and assigns. Nothing herein expressed or implied is intended or shall be construed to confer upon or to give any person, firm, or corporation other than the parties hereto any rights or remedies under or by reason hereof.

Section 14.

Entire Agreement .  This Agreement, including the Schedules and Exhibits hereto, and together with the Other Agreements, contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements, arrangements and understandings, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof.  All references herein to this Agreement shall specifically include, incorporate and refer to the Schedules and Exhibits attached hereto which are hereby made a part hereof.  There are no representations, promises, warranties, covenants, undertakings or assurances (express or implied) other than those expressly set forth or provided for herein and in the other documents referred to herein.  This Agreement may not be modified or amended orally, but only by a writing signed by all the parties hereto.

Section 15.

Governing Law .  This Agreement and all rights and obligations hereunder shall be governed by, and construed in accordance with, the laws of the State of California, applicable to agreements made and to be performed wholly within said State, without regard to the conflicts of laws principles of such State.

Section 16.

Expenses .  The Buyer, the Company and the Sellers shall each pay their own expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the transactions contemplated hereby.

Section 17.

Consent to Jurisdiction .  Notwithstanding any other provision in this Agreement to the contrary, controversies between Buyer and Sellers shall be resolved, to the extent possible, by informal meetings and discussions in good faith between the parties.

Section 18.

Arbitration .  Any dispute with respect to this Agreement which absent, fraud or a misrepresentation of a material fact, cannot be made acceptable to the parties by an adjustment of the Terms of this Agreement shall be resolved by mediation and, if mediation is not successful, then by arbitration as provided herein.

The parties agree first to endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association (the “AAA”) or such other mediation service as is mutually agreeable to the parties to the dispute under either the AAA’s Commercial Mediation Rules or such other commercial mediation rules as is mutually agreeable to the parties to the dispute.  The mediation shall take place in San Diego, California, with representatives of the parties present with full authority to negotiate a settlement.  The parties must participate in the Mediation process with a neutral mediator for at least ten hours over at least two days prior to commencement of any arbitration.  If a party to the dispute refuses to participate in the mediation, the party demanding mediation may either compel mediation by seeking an appropriate order from a court of competent jurisdiction or proceed immediately to arbitration.  Thereafter, any unresolved dispute shall be settled by arbitration administered by the AAA or such other arbitration service as is mutually agreeable to the parties to the dispute in accordance with the AAA’s Commercial Arbitration Rules or such other commercial arbitration rules as is mutually agreeable to the parties to the dispute.  Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof, and the resolution of the disputed matter as determined by the arbitrator(s) shall be binding on the parties.  Any such mediation or arbitration shall be conducted in San Diego, California applying California law.

Any party may, without inconsistency with this Agreement, seek from a court any interim or provisional relief that may be necessary to protect the rights or property of that party pending the establishment of the arbitral tribunal, or pending the arbitral tribunal’s determination of the merits of the controversy.

The arbitrator(s) may award costs and fees to the prevailing party if, in his/her (their) discretion, the non-prevailing party did not prosecute the arbitration or settlement of the dispute in good faith.  “Costs and fees” for this purpose shall mean reasonable pre-award expenses of the arbitration, including fees for the arbitrator(s), administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, witness fees and attorneys’ fees.  Except as otherwise awarded by the arbitrator(s), all costs and fees shall be borne by the party incurring such costs and fees.

The award shall be in writing and shall be signed by the arbitrator(s) and shall include a statement regarding the disposition of any statutory claim.

Section 19.

Severability .  If any part of this Agreement is held to be unenforceable or invalid under, or in conflict with, the applicable law of any jurisdiction, the unenforceable, invalid or conflicting part shall, to the extent permitted by applicable law, be narrowed or replaced, to the extent possible, with a judicial construction in such jurisdiction that effectuates the intent of the parties regarding this Agreement and such unenforceable, invalid or conflicting part. To the extent permitted by applicable law, notwithstanding the unenforceability, invalidity or conflict with applicable law of any part of this Agreement, the remaining parts shall be valid, enforceable and binding on the parties.

Section 20.

Notices .

(a)

All notices, requests, consents and demands by the parties hereunder shall be delivered by hand, by recognized national overnight courier or by deposit in the United States mail, postage prepaid, by registered or certified mail, return receipt requested, addressed to the party to be notified at the addresses set forth below:

if to the Company to:

Rayco Energy Inc.

3222 Castro Valley Blvd

Castro Valley, CA 94546

Attn: Ricky Chu

Phone (510) 646-7566


if to the Buyer to:

Sunvalley Solar, Inc.

398 Lemon Creek Dr.

Walnut, CA 91789

Attention: James Zhang

Phone (909) 598-6633



(b)

Notices given by mail shall be deemed effective on the earlier of the date shown on the proof of receipt of such mail or. unless the recipient proves that the notice was received later or not received, three (3) days after the date of mailing thereof. Other notices shall be deemed given on the date of receipt. Any party hereto may change the address specified herein by written notice to the other parties hereto.

Section 21.

Non-Waivers .  Neither any failure nor any delay on the part of any party to this Agreement in exercising any right, power or privilege hereunder shall operate as a waiver of any right, power or privilege of such party, unless such waiver is made by a writing executed by the party and delivered to the other parties hereto; nor shall a single or partial exercise of any right, power or privilege preclude any other or further exercise of any other right, power or privilege accorded to any party hereto.

Section 22.

Assignment .  This Agreement may not be assigned by any party without the prior written consent of the other parties.

Section 23.

Miscellaneous .

(a)

Further Assurances :  Each of the parties hereto shall use its best efforts to take or cause to be taken, and to cooperate with the other party hereto to the extent necessary with respect to, all action, and to do, or cause to be done, consistent with applicable law, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.  Without limiting the generality of the foregoing, the Sellers and Buyer shall cooperate with and provide assistance to the other in connection with the preparation and filing of all federal, state, local and foreign income tax returns which relate to the Company and relate to pre-Closing periods but which are not required to be filed until after the Closing, and shall also cooperate with and provide assistance to the other or the Company with respect to any audit of any tax returns filed prior to, or that related to periods ending prior to, the Closing; provided, however, that the Buyer and the Company hereby covenant and agree that the Company will not file any amended income tax return for any period ending prior to Closing without first obtaining the Sellers’ written consent thereto.

(b)

Headings .  The headings contained herein are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(c)

Counterparts .  This Agreement may be executed and delivered in multiple counterpart copies.  each of which shall be an original and all of which shall constitute one and the same agreement.



2

 

 

 





IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written.

SELLERS:




/s/Ricky Chu
Ricky Chu




/s/ Todd Hammer

Todd Hammer




/s/ Gabriel Cooley


THE COMPANY:


RAYCO Energy, INC.




By: /s/ Ricky Chu
Name: Ricky Chu

Title: CEO



BUYER:


SUNVALLEY SOLAR, INC.




BY: /s/ James Zhang
Name: James Zhang

Title:  CEO



3

 

 

 





SCHEDULE A

     

RAYCO Energy, INC. SHAREHOLDERS


SHAREHOLDERS

COMPANY SHARES

% OF COMPANY SHARES

SERIES B PREFERRED STOCK TO BE RECEIVED

Ricky Chu

1,000

33.4%

73,500

Todd Hamer

1,000

33.3%

1,000

Gabriel Cooley

1,000

33.3%

1,000

Totals

3,000

100%

75,500





4

 

 

 





SCHEDULE A-2



SELLERS

CASH PORTION

Ricky Chu

$170,000

Todd Hamer

$90,000

Gabriel Cooley

$90,000

Totals

$350,000




5

 

 

 





 

[F101SECURITIES_PURCHASEAG001.JPG]
















































[F101SECURITIES_PURCHASEAG002.JPG]

















































INVESTMENT LETTER


To Whom It May Concern:

In connection with the acquisition of a total of 75,500 Series B Preferred shares (the "Shares") of Sunvalley Solar, Inc. (the "Corporation") by the undersigned shareholders (the "Shareholders") pursuant to a Securities Purchase Agreement dated May 15, 2016, the undersigned hereby make the following acknowledgments, representations and warranties:

l.

Investment Intent . Shareholders are acquiring the Shares for investment solely for their own account and not with a present view to any distribution, transfer or resale to others, including any "distribution" within the meaning of Securities Act of 1933, as amended, (the "Securities Act"). Shareholders understand that the Shares have not and will not be registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends on, among other things, the bona fide nature of the investment intent and the accuracy of their representations made herein.

2.

Financial Ability . Shareholders are financially able to bear the economic risks of an investment in the Corporation and have no need for liquidity in this investment. Furthermore, the financial capacity of Shareholders is of such a proportion that the total cost of Shareholders' commitment is not material when compared with their total committed capital. Shareholders are financially able to suffer a complete loss of this investment.

3.

Experience. Shareholders have such knowledge and experience in financial and business matters in general and with respect to investments of a nature similar to that evidenced by the Shares so as to be capable, by reason of such knowledge and experience, of evaluating the merits and risks of, and making an informed business decision with regard to, and protecting their own interests in connection with, the acquisition of the Shares.

4.

Restrictive Legend. Shareholders acknowledge that certificates representing the Shares will bear a legend substantially as follows:

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED UNLESS THEY ARE SO REGISTERED OR, IN THE OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION, SUCH TRANSFER IS EXEMPT FROM REGISTRATION.

6.

Reliance for Exemptions. Shareholders understand that the Shares are being issued to them pursuant to exemptions from the registration requirements of federal and applicable state securities laws and acknowledges that the Corporation is relying upon the investment and other representations made herein as the basis for such exemptions.

7.

Accuracy of Purchaser Representations. Shareholders represent that the information and representations contained in this letter are true, correct and complete.


/s/ Ricky Chu
Ricky Chu



/s/ Todd Hammer

Todd Hammer


/s/ Gabriel Cooley

Gabriel Cooley




6

 

 

 





CONVERTIBLE PROMISSORY NOTE



1.   Principal Obligation .   FOR VALUE RECEIVED, SUNVALLEY SOLAR, INC., a Nevada corporation (“ Maker ”), promises to pay to RICKY HUGHES (“ Holder ”) the principal sum of U.S. One Hundred Seventy Thousand Dollars (US $170,000).


2.   Maturity Date .  Notwithstanding any other provision of this Note, the maturity date of this Note is November 1, 2017 (the “ Maturity Date ”) at which time all principal, accrued and unpaid interest and any other amounts owed under this Note shall be due and payable in full.


3.   Payment. On or before the Maturity Date, all unpaid principal and accrued interest shall be due and payable in full.  All payments will be applied first to interest and then, if any, to principal.


4.   Interest; Monthly Payments.  The outstanding principal sum of this Promissory Note shall bear interest at six percent (6.00 %) per annum commencing May 1, 2017.  Maker shall repay this Note in six (6) equal monthly installments of principal and interest then accrued, commencing on May 1, 2017.


5.

Obligation Conditional .

All obligations arising under this Note shall be conditioned upon the 2016 net profit from the operation of Rayco Energy, Inc, as a wholly-owned subsidiary of the Maker, being in excess of $10,000 (the “CONDITION”). In the event that the CONDITION is not met, this note shall be deemed null and void.


6. Prepayment .  Maker shall have the right to prepay all or any part of the principal amount of this Note from time to time without penalty.


7.   Default and Acceleration .  Any one or more of the following events shall be deemed to be a breach by Maker of its obligations under this Note and an event of default hereunder (individually, an Event of Default ”):  


(i)

Holder’s failure to pay principal, interest, or any other indebtedness, or monetary obligation or liability to Holder payable under this Note, as and when due and payable, whether at maturity or by acceleration and without the necessity of any prior demand therefor by Holder; or


(ii)

Maker’s failure to perform or breach of any non-monetary obligation, covenant, agreement or condition under this Note, if the same is not cured in full within ten (10) days following delivery of written notice from Holder to Maker of such failure; or

  

(iii)

Maker’s commencement of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to  itself or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or any substantial part of its property, or Maker’s consent to any such relief or to the appointment or taking possession by any such official in any involuntary case or other proceeding commenced against it; or


(iv)

An involuntary case or other proceeding commenced against Maker seeking liquidation, reorganization or other relief with respect  Maker or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or over any substantial part of its property, and such involuntary case or other proceeding shall remain undis­missed and unstayed for a period of thirty (30) days; or


 

(v)

Maker’s assignment for the benefit of creditors, or admission in writing their inability to pay their debts generally as they become due.


Upon the occurrence of any Event of Default, Holder shall have and hereby expressly preserves all rights and remedies, whether provided in this Note, at law, or in equity.  If any amount due under this Note is reduced to judgment, or if any Event of Default described above shall occur, without limiting any of its other rights or remedies, Holder, or any successor Holder of this Note, may, at its option, accelerate and declare the entire unpaid principal balance then payable under this Note to be immediately due and payable.


8.   Attorneys’ Fees .  In the event that suit be brought hereon, or an attorney be employed or expenses be incurred to compel payment of this Note or any portion of the indebtedness evidenced hereby, or to enforce any rights or remedies of Holder under this Note in accordance therewith, Maker promises to pay all such attorney’s fees, costs and expenses of investigation as actually incurred by Holder  as a result thereof and including, without limitation, attorneys’ fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapters 7, 11 or 13 of the United States Bankruptcy Code or any successor thereto.


9.   Waiver of Notice .  Maker and any endorsers, guarantors and sureties of this Note, and each of them, jointly and severally hereby waive diligence, grace, demand, presentment for payment, exhibition of this Note, notice of nonpayment, notice of dishonor, protest, notice of protest, and any and all exemption rights against the indebtedness evidenced by this Note, and specifically consent to and waive notice of any renewals or extensions of this Note, whether made to or in favor of the Maker or any other person or persons and agree to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal or partial payment shall release any one or all of them from the obligation of payment of this Note or any installment of this Note, and consent to offsets of any sums owed to any one or all of them by Holder at any time.  The pleading of any statute of limitations as a defense to any demand against Maker or any such endorsers, guarantors or sureties is expressly waived by each and all of said parties.


10. Loss, Theft, Destruction or Mutilation of Note .  In the event of the loss, theft or destruction of this Note, upon Maker’s receipt of a reasonably satisfactory indemnification agreement executed in favor of Makers by the party who held this Note immediately prior to its loss, theft or destruction, or in the event of the mutilation of this Note, upon Holder’s surrender to Maker of the mutilated Note, Maker shall execute and deliver to such party or Holder, as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.  


11. Exercise of Rights .  No single or partial exercise of any power granted to Holder under this Note shall preclude any other or further exercise thereof or the exercise of any other power.  Holder shall at all times have the right to proceed in such order and manner as Holder may deem fit, without waiving any rights with respect to any other remedy.  No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right.


 

12. Successors and Assigns .  The terms of this Note shall apply to, inure to the benefit of, and bind all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns.


13. Construction of Note .  Captions in this Note are included solely for convenience and are not to be referred to in construing or interpreting this Note.  Each reference in this Note to a particular paragraph is a reference to a paragraph of this Note unless otherwise expressly indicated.  The terms “include,” “includes,” and “including” are not used in any limiting sense, but rather by way of example or illustration.  If any portion of this Note is declared invalid, illegal or unenforceable by any court of competent jurisdiction, such portion shall be deemed severed from this Note and the remaining portions shall continue in full force and effect.  Time is strictly of the essence of each and every provision of this Note.


14. Choice of Law .   This Note shall be constructed and construed in accordance with the internal substantive laws of the State of Nevada, without regard to the choice of law principles of said State.


15. Waiver of Jury Trial .   Maker hereby knowingly, voluntarily, intentionally, unconditionally and irrevocably waives any and all right to trial by jury in any action, suit, counterclaim or cross claim arising out of, or in connection with this Note or any course of conduct, course of dealing, statements (whether oral or written) or actions of Holder with respect to this Note.  Maker agrees that it has received sufficient consideration for their waiver hereunder, and understands that any such action shall be tried by a judge without a jury.


16. Amendments .  The only way to amend or otherwise modify this Note is for all the parties to sign a written instrument which expresses the intent to amend or otherwise modify this Note.  The party benefited by any condition or obligation may waive the same, but such waiver shall not be enforceable by another party unless made in writing and signed by the waiving party.


IN WITNESS WHEREOF, this Note has been executed effective the date and place above written.



SUNVALLEY SOLAR, INC.,

a Nevada corporation ( Maker )



By: /s/ James Zhang

James Zhang

President and CEO






7

 

 

 





CONVERTIBLE PROMISSORY NOTE



1.   Principal Obligation .   FOR VALUE RECEIVED, SUNVALLEY SOLAR, INC., a Nevada corporation (“ Maker ”), promises to pay to GABRIEL COOLEY (“ Holder ”) the principal sum of U.S. Ninety Thousand Dollars (US $90,000).


2.   Maturity Date .  Notwithstanding any other provision of this Note, the maturity date of this Note is November 1, 2017 (the “ Maturity Date ”) at which time all principal, accrued and unpaid interest and any other amounts owed under this Note shall be due and payable in full.


3.   Payment. On or before the Maturity Date, all unpaid principal and accrued interest shall be due and payable in full.  All payments will be applied first to interest and then, if any, to principal.


4.   Interest; Monthly Payments.  The outstanding principal sum of this Promissory Note shall bear interest at six percent (6.00 %) per annum commencing May 1, 2017.  Maker shall repay this Note in six (6) equal monthly installments of principal and interest then accrued, commencing on May 1, 2017.


5.

Obligation Conditional .

All obligations arising under this Note shall be conditioned upon the 2016 net profit from the operation of Rayco Energy, Inc, as a wholly-owned subsidiary of the Maker, being in excess of $10,000 (the “CONDITION”). In the event that the CONDITION is not met, this note shall be deemed null and void.


6. Prepayment .  Maker shall have the right to prepay all or any part of the principal amount of this Note from time to time without penalty.


7.   Default and Acceleration .  Any one or more of the following events shall be deemed to be a breach by Maker of its obligations under this Note and an event of default hereunder (individually, an Event of Default ”):  


(i)

Holder’s failure to pay principal, interest, or any other indebtedness, or monetary obligation or liability to Holder payable under this Note, as and when due and payable, whether at maturity or by acceleration and without the necessity of any prior demand therefor by Holder; or


(ii)

Maker’s failure to perform or breach of any non-monetary obligation, covenant, agreement or condition under this Note, if the same is not cured in full within ten (10) days following delivery of written notice from Holder to Maker of such failure; or

  

(iii)

Maker’s commencement of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to  itself or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or any substantial part of its property, or Maker’s consent to any such relief or to the appointment or taking possession by any such official in any involuntary case or other proceeding commenced against it; or


(iv)

An involuntary case or other proceeding commenced against Maker seeking liquidation, reorganization or other relief with respect  Maker or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or over any substantial part of its property, and such involuntary case or other proceeding shall remain undis­missed and unstayed for a period of thirty (30) days; or


 

(v)

Maker’s assignment for the benefit of creditors, or admission in writing their inability to pay their debts generally as they become due.


Upon the occurrence of any Event of Default, Holder shall have and hereby expressly preserves all rights and remedies, whether provided in this Note, at law, or in equity.  If any amount due under this Note is reduced to judgment, or if any Event of Default described above shall occur, without limiting any of its other rights or remedies, Holder, or any successor Holder of this Note, may, at its option, accelerate and declare the entire unpaid principal balance then payable under this Note to be immediately due and payable.


8.   Attorneys’ Fees .  In the event that suit be brought hereon, or an attorney be employed or expenses be incurred to compel payment of this Note or any portion of the indebtedness evidenced hereby, or to enforce any rights or remedies of Holder under this Note in accordance therewith, Maker promises to pay all such attorney’s fees, costs and expenses of investigation as actually incurred by Holder  as a result thereof and including, without limitation, attorneys’ fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapters 7, 11 or 13 of the United States Bankruptcy Code or any successor thereto.


9.   Waiver of Notice .  Maker and any endorsers, guarantors and sureties of this Note, and each of them, jointly and severally hereby waive diligence, grace, demand, presentment for payment, exhibition of this Note, notice of nonpayment, notice of dishonor, protest, notice of protest, and any and all exemption rights against the indebtedness evidenced by this Note, and specifically consent to and waive notice of any renewals or extensions of this Note, whether made to or in favor of the Maker or any other person or persons and agree to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal or partial payment shall release any one or all of them from the obligation of payment of this Note or any installment of this Note, and consent to offsets of any sums owed to any one or all of them by Holder at any time.  The pleading of any statute of limitations as a defense to any demand against Maker or any such endorsers, guarantors or sureties is expressly waived by each and all of said parties.


10. Loss, Theft, Destruction or Mutilation of Note .  In the event of the loss, theft or destruction of this Note, upon Maker’s receipt of a reasonably satisfactory indemnification agreement executed in favor of Makers by the party who held this Note immediately prior to its loss, theft or destruction, or in the event of the mutilation of this Note, upon Holder’s surrender to Maker of the mutilated Note, Maker shall execute and deliver to such party or Holder, as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.  


11. Exercise of Rights .  No single or partial exercise of any power granted to Holder under this Note shall preclude any other or further exercise thereof or the exercise of any other power.  Holder shall at all times have the right to proceed in such order and manner as Holder may deem fit, without waiving any rights with respect to any other remedy.  No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right.


 

12. Successors and Assigns .  The terms of this Note shall apply to, inure to the benefit of, and bind all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns.


13. Construction of Note .  Captions in this Note are included solely for convenience and are not to be referred to in construing or interpreting this Note.  Each reference in this Note to a particular paragraph is a reference to a paragraph of this Note unless otherwise expressly indicated.  The terms “include,” “includes,” and “including” are not used in any limiting sense, but rather by way of example or illustration.  If any portion of this Note is declared invalid, illegal or unenforceable by any court of competent jurisdiction, such portion shall be deemed severed from this Note and the remaining portions shall continue in full force and effect.  Time is strictly of the essence of each and every provision of this Note.


14. Choice of Law .   This Note shall be constructed and construed in accordance with the internal substantive laws of the State of Nevada, without regard to the choice of law principles of said State.


15. Waiver of Jury Trial .   Maker hereby knowingly, voluntarily, intentionally, unconditionally and irrevocably waives any and all right to trial by jury in any action, suit, counterclaim or cross claim arising out of, or in connection with this Note or any course of conduct, course of dealing, statements (whether oral or written) or actions of Holder with respect to this Note.  Maker agrees that it has received sufficient consideration for their waiver hereunder, and understands that any such action shall be tried by a judge without a jury.


16. Amendments .  The only way to amend or otherwise modify this Note is for all the parties to sign a written instrument which expresses the intent to amend or otherwise modify this Note.  The party benefited by any condition or obligation may waive the same, but such waiver shall not be enforceable by another party unless made in writing and signed by the waiving party.


IN WITNESS WHEREOF, this Note has been executed effective the date and place above written.



SUNVALLEY SOLAR, INC.,

a Nevada corporation ( Maker )



By: /s/ James Zhang

James Zhang

President and CEO






8

 

 

 





CONVERTIBLE PROMISSORY NOTE



1.   Principal Obligation .   FOR VALUE RECEIVED, SUNVALLEY SOLAR, INC., a Nevada corporation (“ Maker ”), promises to pay to TODD HAMMER (“ Holder ”) the principal sum of U.S. Ninety Thousand Dollars (US $90,000).


2.   Maturity Date .  Notwithstanding any other provision of this Note, the maturity date of this Note is November 1, 2017 (the “ Maturity Date ”) at which time all principal, accrued and unpaid interest and any other amounts owed under this Note shall be due and payable in full.


3.   Payment. On or before the Maturity Date, all unpaid principal and accrued interest shall be due and payable in full.  All payments will be applied first to interest and then, if any, to principal.


4.   Interest; Monthly Payments.  The outstanding principal sum of this Promissory Note shall bear interest at six percent (6.00 %) per annum commencing May 1, 2017.  Maker shall repay this Note in six (6) equal monthly installments of principal and interest then accrued, commencing on May 1, 2017.


5.

Obligation Conditional .

All obligations arising under this Note shall be conditioned upon the 2016 net profit from the operation of Rayco Energy, Inc, as a wholly-owned subsidiary of the Maker, being in excess of $10,000 (the “CONDITION”). In the event that the CONDITION is not met, this note shall be deemed null and void.


6. Prepayment .  Maker shall have the right to prepay all or any part of the principal amount of this Note from time to time without penalty.


7.   Default and Acceleration .  Any one or more of the following events shall be deemed to be a breach by Maker of its obligations under this Note and an event of default hereunder (individually, an Event of Default ”):  


(i)

Holder’s failure to pay principal, interest, or any other indebtedness, or monetary obligation or liability to Holder payable under this Note, as and when due and payable, whether at maturity or by acceleration and without the necessity of any prior demand therefor by Holder; or


(ii)

Maker’s failure to perform or breach of any non-monetary obligation, covenant, agreement or condition under this Note, if the same is not cured in full within ten (10) days following delivery of written notice from Holder to Maker of such failure; or

  

(iii)

Maker’s commencement of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to  itself or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or any substantial part of its property, or Maker’s consent to any such relief or to the appointment or taking possession by any such official in any involuntary case or other proceeding commenced against it; or


(iv)

An involuntary case or other proceeding commenced against Maker seeking liquidation, reorganization or other relief with respect  Maker or its debts under any bankruptcy, insolvency or other similar debtor relief law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official over it, or over any substantial part of its property, and such involuntary case or other proceeding shall remain undis­missed and unstayed for a period of thirty (30) days; or


 

(v)

Maker’s assignment for the benefit of creditors, or admission in writing their inability to pay their debts generally as they become due.


Upon the occurrence of any Event of Default, Holder shall have and hereby expressly preserves all rights and remedies, whether provided in this Note, at law, or in equity.  If any amount due under this Note is reduced to judgment, or if any Event of Default described above shall occur, without limiting any of its other rights or remedies, Holder, or any successor Holder of this Note, may, at its option, accelerate and declare the entire unpaid principal balance then payable under this Note to be immediately due and payable.


8.   Attorneys’ Fees .  In the event that suit be brought hereon, or an attorney be employed or expenses be incurred to compel payment of this Note or any portion of the indebtedness evidenced hereby, or to enforce any rights or remedies of Holder under this Note in accordance therewith, Maker promises to pay all such attorney’s fees, costs and expenses of investigation as actually incurred by Holder  as a result thereof and including, without limitation, attorneys’ fees, costs and expenses of investigation incurred in appellate proceedings or in any action or participation in, or in connection with, any case or proceeding under Chapters 7, 11 or 13 of the United States Bankruptcy Code or any successor thereto.


9.   Waiver of Notice .  Maker and any endorsers, guarantors and sureties of this Note, and each of them, jointly and severally hereby waive diligence, grace, demand, presentment for payment, exhibition of this Note, notice of nonpayment, notice of dishonor, protest, notice of protest, and any and all exemption rights against the indebtedness evidenced by this Note, and specifically consent to and waive notice of any renewals or extensions of this Note, whether made to or in favor of the Maker or any other person or persons and agree to any and all extensions or renewals from time to time without notice and to any partial payments of this Note made before or after maturity and that no such extension, renewal or partial payment shall release any one or all of them from the obligation of payment of this Note or any installment of this Note, and consent to offsets of any sums owed to any one or all of them by Holder at any time.  The pleading of any statute of limitations as a defense to any demand against Maker or any such endorsers, guarantors or sureties is expressly waived by each and all of said parties.


10. Loss, Theft, Destruction or Mutilation of Note .  In the event of the loss, theft or destruction of this Note, upon Maker’s receipt of a reasonably satisfactory indemnification agreement executed in favor of Makers by the party who held this Note immediately prior to its loss, theft or destruction, or in the event of the mutilation of this Note, upon Holder’s surrender to Maker of the mutilated Note, Maker shall execute and deliver to such party or Holder, as the case may be, a new promissory note in form and content identical to this Note in lieu of the lost, stolen, destroyed or mutilated Note.  


11. Exercise of Rights .  No single or partial exercise of any power granted to Holder under this Note shall preclude any other or further exercise thereof or the exercise of any other power.  Holder shall at all times have the right to proceed in such order and manner as Holder may deem fit, without waiving any rights with respect to any other remedy.  No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right.


 

12. Successors and Assigns .  The terms of this Note shall apply to, inure to the benefit of, and bind all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns.


13. Construction of Note .  Captions in this Note are included solely for convenience and are not to be referred to in construing or interpreting this Note.  Each reference in this Note to a particular paragraph is a reference to a paragraph of this Note unless otherwise expressly indicated.  The terms “include,” “includes,” and “including” are not used in any limiting sense, but rather by way of example or illustration.  If any portion of this Note is declared invalid, illegal or unenforceable by any court of competent jurisdiction, such portion shall be deemed severed from this Note and the remaining portions shall continue in full force and effect.  Time is strictly of the essence of each and every provision of this Note.


14. Choice of Law .   This Note shall be constructed and construed in accordance with the internal substantive laws of the State of Nevada, without regard to the choice of law principles of said State.


15. Waiver of Jury Trial .   Maker hereby knowingly, voluntarily, intentionally, unconditionally and irrevocably waives any and all right to trial by jury in any action, suit, counterclaim or cross claim arising out of, or in connection with this Note or any course of conduct, course of dealing, statements (whether oral or written) or actions of Holder with respect to this Note.  Maker agrees that it has received sufficient consideration for their waiver hereunder, and understands that any such action shall be tried by a judge without a jury.


16. Amendments .  The only way to amend or otherwise modify this Note is for all the parties to sign a written instrument which expresses the intent to amend or otherwise modify this Note.  The party benefited by any condition or obligation may waive the same, but such waiver shall not be enforceable by another party unless made in writing and signed by the waiving party.


IN WITNESS WHEREOF, this Note has been executed effective the date and place above written.



SUNVALLEY SOLAR, INC.,

a Nevada corporation ( Maker )



By: /s/ James Zhang

James Zhang

President and CEO







9

 

 

 



CERTIFICATIONS


I, Zhijian (James) Zhang, certify that;

 

1.

 

I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2016 of SunValley Solar, Inc. (the “registrant”);

 

2.

 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

 

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

 

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

 

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

 

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

 

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

 

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

 

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 23, 2016


/s/ Zhijian (James) Zhang

By: Zhijian (James) Zhang

Title: Chief Executive Officer



CERTIFICATIONS


I, Mandy Chung, certify that;

 

1.

 

I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2016 of SunValley Solar, Inc. (the “registrant”);

 

2.

 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

 

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

 

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

 

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

 

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

 

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

 

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

 

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 23, 2016


/s/ Zhijian (James) Zhang

By: Mandy Chung

Title: Chief Financial Officer



CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the quarterly Report of SunValley Solar, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2016 filed with the Securities and Exchange Commission (the “Report”), I, Zhijian (James) Zhang, Chief Executive Officer of the Company, and I, Mandy Chung, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


1.

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and


2.

The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.


By:

/s/ Zhijian (James) Zhang

Name:

Zhijian (James) Zhang

Title:

Principal Executive Officer and Director

Date:

May 23, 2016


By:

/s/ Mandy Chung

Name:

Mandy Chung

Title:

Principal Financial Officer and Director

Date:

May 23, 2016


This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.