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, 2011
   
[  ]
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:  803,068,420 common shares as of May 23, 2011.

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]
 
 
 


 
 
 
Page
PART I – FINANCIAL INFORMATION
 
10
10
 
PART II – OTHER INFORMATION
 
11
11
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11
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11

 
2


 PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

Our financial statements included in this Form 10-Q are as follows:
 
 
 
 
 
 
 
 
 
 
 
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, 2011 are not necessarily indicative of the results that can be expected for the full year.

 
Consolidated Balance Sheets
 
ASSETS
 
 
March 31,
 
December 31,
 
 
2011
 
2010
 
 
(unaudited)
       
CURRENT ASSETS
           
Cash and cash equivalents
  $ 429,054     $ 546,164  
Restricted cash
    12,500       12,500  
Accounts receivable, net
    619,023       546,388  
Inventory
    1,451,056       1,925,233  
Construction in progress
    231,905       56,004  
Other receivables
    21,842       7,481  
Prepaid expenses and other current assets
    242,467       15,792  
                 
Total current assets
    3,007,847       3,109,562  
                 
PROPERTY AND EQUIPMENT, NET
    100,563       71,208  
                 
OTHER ASSETS
               
Other assets
    5,686       18,186  
                 
Total other assets
    5,686       5,686  
                 
TOTAL ASSETS
  $ 3,114,096     $ 3,186,456  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 2,928,055     $ 2,883,316  
Customer deposits
    13,927       70,070  
Accrued warranty
    26,867       27,688  
Current portion of long-term debt
    18,719       13,256  
Convertible debt
    100,000       -  
Derivative liability
    68,234       -  
                 
Total current liabilities
    3,155,802       2,994,330  
                 
LONG-TERM LIABILITIES
               
Notes payable
    95,322       74,269  
                 
Total long-term liabilities
    95,322       74,269  
                 
Total Liabilities
    3,251,124       3,068,599  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Common stock, $0.001 par value, 1,500,000,000 shares authorized, 803,068,420 shares issued and
         outstanding,  respectively
    803,068       800,068  
Additional paid-in capital
    221,332       276,713  
Accumulated deficit
    (1,161,428 )     (958,924 )
                 
Total Stockholders' Equity (Deficit)
    (102,228 )     117,857  
                 
  STOCKHOLDERS' EQUITY
  $ (137,028   $ 3,186,456  
 
The accompanying notes are an integral part of these financial statements
 
 
Consolidated Statements of Operations
(unaudited)
 
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
REVENUES
  $ 797,810     $ 767,645  
COST OF SALES
    683,446       619,267  
                 
GROSS PROFIT
    114,364       148,378  
                 
OPERATING EXPENSES
               
Salary and wage expense
    142,902       127,647  
Depreciation and amortization
    5,301       3,518  
General and administrative expenses
    165,038       93,511  
                 
     Total operating expenses
    313,241       224,676  
                 
LOSS FROM OPERATIONS
    (198,877 )     (76,298 )
                 
OTHER INCOME (EXPENSES)
               
Interest income
    2,391       -  
Interest expense
    (3,365 )     (354 )
Loss on derivative liability
    (2,653 )     -  
                 
     Total other income (expenses)
    (3,627 )     (354 )
                 
LOSS BEFORE TAXES
    (202,504 )     (76,652 )
                 
Provision for income taxes
    -       -  
                 
NET LOSS
  $ (202,504 )   $ (76,652 )
                 
LOSS PER SHARE
               
Basic and diluted
  $ (0.00 )   $ (0.00 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
               
Basic and diluted
    802,735,087       485,844,422  
 
The accompanying notes are an integral part of these financial statements
 
 
SUNVALLEY SOLAR, INC.
Consolidated Statements of Stock Holders' Equity (Deficit)
 
   
Common Stock
   
Additional
   
Accumulated
       
   
Shares
   
Amount
   
Paid-In Capital
   
Deficit
   
Total
 
                               
Balance at December 31, 2009
    485,151,406     $ 485,151     $ 391,630     $ (583,085 )   $ 293,696  
                                         
Repurchase of common stock
    (5,110,353 )     (5,110 )     (194,890 )     -       (200,000 )
                                         
Recapiltalization
    320,027,367       320,027       (320,027 )     -       -  
                                         
Contributed capital
    -       -       400,000       -       400,000  
                                         
Net loss for the year ended December 31, 2010
    -       -       -       (375,839 )     (375,839 )
                                         
Balance at December 31, 2010
    800,068,420       800,068       276,713       (958,924 )     117,857  
                                         
Common stock issued for services     3,000,000       3,000       10,200       -       13,200  
                                         
Adjustment for derivative liability
    -       -       (65,581 )     -       (65,581 )
                                         
Net loss for the three months ended March 31, 2011 (unaudited)
    -       -       -       (154,504 )     (154,504 )
                                         
Balance at March 31, 2011 (unaudited)
    803,068,420     $ 803,068     $ 221,332     $ (1,160,428 )   $ (137,028 )
 
The accompanying notes are an integral part of these financial statements

 
F-3

Consolidated Statements of Cash Flows
(unaudited)
 
   
For the Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
             
OPERATING ACTIVITIES:
           
             
Net income (loss)
  $ (202,504 )   $ (76,652 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Common stock issued for services     13,200       -  
Depreciation and amortization
    5,301       3,518  
Changes in operating assets and liabilities:
               
Accounts receivable
    (72,635 )     (55,430 )
Inventory
    474,177       (197,449 )
Prepaid expenses and other assets
    (226,674 )     58,299  
Construction in Progress     (175,902        
Other receivables
    (14,361 )     (6,006 )
Accounts payable and accrued warranty expenses
    43,916       181,061  
Customer deposits
    (56,143 )     (1,339 )
Loss on derivative liability
    2,653          
                 
Net Cash Provided by (Used) in Operating Activities
    (208,972 )     (93,998 )
                 
INVESTING ACTIVITIES:
               
                 
Purchase in property and equipment
    (34,655 )     (1,250 )
                 
Net Cash (Used) in Investing Activities
    (34,655 )     (1,250 )
                 
FINANCING ACTIVITIES:
               
                 
Repayments from notes payable
    (3,573 )     (3,064 )
Proceeds from notes payable
    30,090          
Proceeds from convertible notes
    100,000       -  
Repurchase of common stock
    -       (30,000 )
                 
Net Cash Provided by Financing Activities
    126,517       (33,064 )
                 
NET INCREASE (DECREASE) IN CASH
    (117,110 )     (128,312 )
CASH AT BEGINNING OF PERIOD
    546,164       309,453  
                 
CASH AT END OF PERIOD
  $ 429,054       181,141  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
CASH PAID FOR:
               
Interest
  $ 1,545     $ 907  
Income taxes
  $ -     $ -  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Derivative liability
  $ 65,581     $ -  

The accompanying notes are an integral part of these financial statements.
 
SUNVALLEY SOLAR, INC.
March 31, 2011 and December 31, 2010

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying 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, 2011, 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, 2010 audited financial statements.  The results of operations for the periods ended March 31, 2011 and 2010 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 our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
 
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.   

Reclassification of Financial Statement Accounts
Certain amounts in the March 31, 2010 financial statements have been reclassified to conform to the presentation in the March 31, 2011 financial statements.
 
 
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company’s inventory consisted of the following at March 31, 2011 and December 31, 2010:
 
   
2011
   
2010
 
Raw materials
  $ 113,842     $ 8  
Work in Progress
    47,692       6,741  
Finished goods
    1,289,522       1,918,484  
    $ 1,451,056     $ 1,925,233  

NOTE 4 – CONSTRUCTION IN PROGRESS

The Company is currently involved in two major short-term solar panel installation projects.  The Company is accounting for revenue and expenses associated with these two 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 complete 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, 2011 and December 31, 2010, the Company has capitalized $231,905 and $56,004 of costs incurred in relation to these two contracts.  The company expects the two contracts to be complete or substantially complete by September 2011.

NOTE 5 – CONVERTIBLE DEBT

On January 7, 2011, the Company borrowed $100,000 of convertible debt. The debt is convertible at the holder’s option at 61% of the average of the lowest three trading prices during the 10 trading days prior to conversion. The convertible debt is due on October 7, 2011, is unsecured and bears an interest rate of 8%.

NOTE 6 – DERIVATIVE LIABILITY

Effective July 31, 2009, the Company adopted ASC Topic No. 815-40 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. On January 7, 2011, the Company borrowed $100,000 which debt is convertible at the holder’s option at 61% of the average of the lowest three trading prices during the 10 days prior to conversion.
 
The exercise price of the both sets of these warrants are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes.  If these provisions are triggered, the conversion price of the note will be reduced.  As a result, the Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment.  In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
 
The total fair value of the imbedded conversion feature associated with the note issued on January 7, 2011, amounting to $65,581 has been recognized as a derivative liability on the date of issuance with all future changes in the fair value of these warrants being recognized in earnings in the Company’s statement of operations under the caption “Other income (expense) – Gain (loss) on derivative liability” until the note is converted or extinguished.  
 
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item.  The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the above convertible debt.  At March 31, 2011, the Company revalued the conversion feature and determined that, during the three months ended March 31, 2011, the Company’s derivative liability increased by $2,653 to $68,234.  The Company recognized a corresponding loss on derivative liability in conjunction with this revaluation.

 
NOTE 7 – COMMON STOCK

During the year ended December 31, 2010, the Company entered into agreements to repurchase a total of 5,110,353 (200,000 pre-split) common stock shares from shareholders at a price of $0.04 per share.  As of December 31, 2010, the Company had received all of the stock certificates and had paid the investors in full.
 
On January 11, 2011, the Company issued 3,000,000 to a consultant for services provided to the Company.  The shares were valued at $0.0044 per share based on the value of the shares on the date of issuance.  The Company recorded $13,200 in general and administrative expenses.
 
NOTE 8 – SIGNIFICANT EVENTS

On June 24, 2010, in accordance with the Exchange Agreement dated June 24, 2010 Western Ridge Minerals acquired all of the issued and outstanding shares of Sunvalley, which resulted in Sunvalley becoming a wholly-owned subsidiary.  In exchange for all of the issued and outstanding shares of Sunvalley, the shareholders of Sunvalley received a total of 480,041,053 (2,514,600 pre-split) shares of Western Ridge Mineral’s common stock, which represented approximately 60% of the Company’s outstanding common stock following the Acquisition. There were 1,049,271,312 (5,496,400 pre-split) shares of our common stock outstanding before giving effect to the stock issuances in the Acquisition and the cancellation of 729,243,944 (3,820,000 pre-split) shares by Mr. Marco Bastidas and certain other shareholders resulted in there being 800,068,420 (4,191,000 pre-split) shares outstanding post acquisition.  As a result, the shareholders of the Company became the controlling shareholders of the combined entity. In connection with the acquisition, $400,000 was contributed to the company from a company shareholder.
 
Accordingly, the transaction is accounted for as a recapitalization with Sunvalley deemed to be the accounting acquirer and Western Ridge Mineral the legal acquirer in the reverse acquisition. Consequently, the assets and liabilities and the historical operations of Sunvalley prior to the Merger are reflected in the financial statements and are recorded at the historical cost basis of Sunvalley. The Company’s consolidated financial statements after completion of the Acquisition include the assets and liabilities of both companies. Following the Acquisition our fiscal year-end has been changed from March 31 to December 31.
 
On July 20, 2010 the Company’s board of directors approved a 19.0885235 for 1 forward stock split of the Company’s common stock.  On August 23, 2010 the Company’s board of directors approved a 10 for 1 forward stock split of the Company’s common stock.  The Company’s authorized common stock was increased to 1,500,000,000.  This forward splits have been retroactively applied and is reflected in the financial statements.

NOTE 9 – SUBSEQUENT EVENTS
 
On March 29, 2011, the board of directors approved the entry into a Convertible Promissory Note (the “Note”) under the SPA in the amount of $100,000.  The SPA and the Note are effective April 6, 2011.  The Note bears interest at an annual rate of 8%, with principal and interest coming due on January 4, 2012.  The Note may be converted in whole or in part, at the option of the holder, to shares of the Company’s common stock, par value $0.001, at 61% of the average of the 3 lowest closing prices for the Company’s common stock on the 10 trading days immediately preceding the conversion date.  The number of shares issuable upon conversion is limited so that the Holder’s total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares.
 
In accordance with ASC 855, Company management reviewed all material events through the date of this report and there are no other material subsequent events to report.
 
 
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

We are a California-based solar power technology and system integration company. Since the inception of our business in 2007, we have 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, manufacturing facilities and warehouses. Our proprietary technologies in solar installation provide its customers with a high quality, low cost and flexible solar power system solutions.

We seek to continue our development 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.

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, racking and panel cleaning 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 from Southern California to Northern California, Arizona or other states.

·  
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.

·  
Getting involved in the private power providing business (Distributed Power Plants).  Developing this line of business will lead to higher profit margins and income to our business. In the future, this line of business could become one of our main income sources.
 
 
Expansion of Installation Business

We are planning to expand its installation business from Southern California to Northern California, Arizona or other states in two to three years. 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.
 
Commercialization of Research and Development

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.   The necessary equipment and facilities will be accessed from University of California, San Diego. The Nano3 clean room facilities in the school of Engineering at UCSD are equipped with state-of-the-art micro and nano fabrication equipment and facilities, and can be accessed by outside users with a $107 hourly fee.

The interference pattern that will be recorded in the solar cells will be obtained using an Argon laser operating at 362nm. This laser and its associated equipment is available to us through a special arrangement with the administration office in the University of California, San Diego, as well as the Ultrafast and Nano-scale Optics lab in the Department of Electrical and Computer Engineering in UCSD.

Other equipment will also be required, including coating machine for PV panel testing.

 
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 $1.40 per watt. As a reference, currently, the lowest panel price is around $1.80 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:

·  
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 at least 4 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
 
Develop Distributed Power Plan Business

With our resources and experience gained from large scale solar power system designs, installation and other related business, we believe we have unique advantages in the design and installation of large roof-top power plant systems. We are aggressively proposing our Distributed Power Plant solution to utility companies in Southern California. We believe that by collaborating with us on this approach, utility companies will benefit in the form of free installation, field space, and our expertise on large commercial solar system designs, installation and maintenance services, as well as our technical and management experience. By collaborating with us, utility companies can help to achieve their alternative energy requirements under California law.

We are pursuing substantial contracts with some of our current installation customers who control or own over 2,000,000 square feet of roofs on warehouses or other buildings in Southern California. We are also seeking additional private space agreements with other commercial customers. 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 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, 2011 and 2010

During the three months ended March 31, 2011, we generated gross revenues of $797,810.  Total cost of sales was $683,446, resulting in gross profit of $114,364.  Selling, general, and administrative expenses were $165,038.  Salary and wage expenses were $142,902. Depreciation was $5,301. We experienced interest expense of $3,365 and other income of 2,391 and a loss due to the change in value of a derivative liability of $2,653.  The net loss for the three months ended March 31, 2011 was therefore $202,504. By comparison, during the three months ended March 31, 2010, we generated gross revenues of $767,645.  Total cost of sales was $619,267, resulting in gross profit of $148,378.  Selling, general, and administrative expenses were $93,511.  Salary and wage expenses were $127,647. Depreciation was $3,518.  We experienced interest expense of $354 and no other income or loss on derivatives.  The net loss for the three months ended March 31, 2010 was therefore $76,652.

Although we had expected to see an increase of over 150% in our solar installation business in 2009, our solar installation business and the solar industry as a whole was badly affected by the global economic crisis started in late 2008.  During 2009 and 2010, because banks and investment institutes were very reluctant to loan money to solar customers, many potential solar power system customers suspended their plans to invest in new solar power systems.  This development, in turn, had a negative impact on our solar installation business in 2009 and 2010. In order to reduce the risk to our business presented by these developments, we expanded our operations to include a new solar equipment distribution business beginning in November of 2008. We established distribution partnerships with Canadian Solar Inc., CEEG SST, Tainwei Solarfilms, and PV Powered Inc., to distribute solar panels, solar inverters and other solar equipments to their clients in the U.S. Although the gross margin for our distribution business is less than 10%, this line of business contributed to the majority of our gross revenues in 2009 and 2010.
 
 
Liquidity and Capital Resources

As of March 31, 2011, we had current assets in the amount of 3,007,847, consisting of cash in the amount of $429,054, accounts receivable of $619,023, inventory in the amount of $1,451,056, construction in progress of $231,905, prepaid expenses of $242,467, and other current assets of $34,342.  As of March 31, 2011, we had current liabilities in the amount of $3,155,802.  These consisted of accounts payable and accrued expenses in the amount of $2,928,055, accrued warranty in the amount of $26,867, customer deposits of $13,927, and the current portion of long term debt in the amount of $18,719.  We also had convertible notes of $100,000 and a derivative liability of $68,234.  Our working capital deficit as of March 31, 2011 was therefore $41,706.
 
Our accounts payable and accrued expenses as of March 31, 2011 consisted of the following:

Accounts Payable
  $ 2,812,167
Credit Card payable
    38,315
Accrued vacation
    16,653
Other accrued expense
    15,441
Payroll liabilities
    36,277
Sales tax payable
    8,402
State Income tax payable
    800
Total
  $ 2,928,055

As of March 31, 2011, our only long-term liability was a loan owing to East West Bank with a balance of $114,041.  The current portion due within the next year is $18,719.  The principal amount outstanding accrues annual interest at the bank's variable index rate (approx. 6.00% as of December 31, 2010).  The East West Bank loan is collateralized by all business assets.

In addition, we are currently party to two Convertible Promissory Notes, each in the amount of $100,000, owing to Asher Enterprises, Inc. The first of these $100,000 Notes is due on October 7, 2011 and the second Note is due on or before January 4, 2012. Both Notes bear interest at a rate of 8% per year and are convertible at a conversion price equal to 61% of the Market Price of our common stock on the conversion date.  For purposes of the Notes, “Market Price” is defined as the average of the 3 lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion date.  The number of shares issuable upon conversion of the Notes is limited so that the holder’s total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days notice.

The Company has determined that the conversion feature of this note is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment.  In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability. As of March 31, 2011 the value of the derivative liability is $68,234 and we recognized a loss on the change in the value of the derivative of $2,653.

 
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 through the sale of common equity, including the sale of common equity to Auctus Private Equity Fund, LLC through a Draw-Down Equity Financing Agreement, and/or the issuance of debt convertible to common equity.  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, 2011, there were no off balance sheet arrangements.

Going Concern

We have experienced recurring losses from operations and had an accumulated deficit of $1,113,428 as of  March 31, 2011. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on an ongoing 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

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 September 30, 2010.  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, 2011, 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, 2011.

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. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.  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 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

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

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

None.

Item 3.     Defaults upon Senior Securities

None

Item 4.     Submission of Matters to a Vote of Security Holders

No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the quarterly period ended September 30, 2010.

Item 5.     Other Information

None

Item 6.      Exhibits

Exhibit
Number
Description
of Exhibit
 
 
SIGNATURES

In accordance with the requirements of the Securities and 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, 2011
   
 
By:        /s/ Zhijian (James) Zhang                                                           
             Zhijian (James) Zhang
Title:     Chief Executive Officer and Director
   
Date:
May 23, 2011
   
 
By:        /s/ Mandy Chung                                                                 
             Mandy Chung
Title:     Chief Financial Officer
   


CERTIFICATIONS

I, Zhijian (James) Zhang , certify that;
 
1.
 
I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2011 of Sunvalley Solar, Inc.;
 
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, 2011
 
 
/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, 2011 of Sunvalley Solar, Inc.
 
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, 2011
 
/s/ Mandy Chung
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, 2011 filed with the Securities and Exchange Commission (the “Report”), We, Zhijian (James) Zhang , Chief Executive Officer, and 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 19, 2011
 
 
By:
 
 
/s/ Mandy Chung
 
Name:
 
Mandy Chung
 
Title:
 
Principal Financial Officer
 
Date:
 
May 19, 2011

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