UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q/A

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended June 30, 2013
   
[  ] 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: 87,156,979 common shares as of August 8, 2013.

 

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]

 

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q of Sunvalley Solar, Inc. (the “Company”) for the quarter ended June 30, 2013 (the “Original Filing”), that was originally filed with the U.S. Securities and Exchange Commission on August 14, 2013. The Amendment is being filed to submit Exhibit 101 as it was erroneously excluded from the Original Filing.

Except as described above, the Amendment does not modify or update the disclosures presented in, or exhibits to, the Original Filing in any way. Those sections of the Original Filing that are unaffected by the Amendment are not included herein. The Amendment continues to speak as of the date of the Original Filing. Furthermore, the Amendment does not reflect events occurring after the filing of the Original Filing. Accordingly, the Amendment should be read in conjunction with the Original Filing, as well as the Company’s other filings made with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act subsequent to the filing of the Original Filing.

 
Table of Contents

 





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 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 9
Item 4: Controls and Procedures 9
PART II – OTHER INFORMATION
Item 1: Legal Proceedings 10
Item 1A: Risk Factors 10
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3: Defaults Upon Senior Securities 10
Item 4: Mine Safety Disclosures 10
Item 5: Other Information 10
Item 6: Exhibits 10

 

2
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PART I - FINANCIAL INFORMATION

 

Item 1.      Condensed Financial Statements

 

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

 

F-1 Condensed Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012;
F-2 Condensed Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited);
F-3 Condensed Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (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 June 30, 2013 are not necessarily indicative of the results that can be expected for the full year. 

 

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SUNVALLEY SOLAR, INC.

Condensed Balance Sheets

 

  June 30,   December 31,
  2013   2012
ASSETS   (unaudited)          
CURRENT ASSETS              
Cash and cash equivalents $ 321,604     $ 85,771  
Restricted cash   25,000       25,000  
Accounts receivable, net   4,474,022       5,434,792  
Inventory   243,992       358,608  
Costs in excess of billings on uncompleted contracts   114,787       139,237  
Prepaid expenses and other current assets   5,720       6,326  
Total current assets   5,185,125       6,049,734  
               
PROPERTY AND EQUIPMENT, NET   61,711       75,743  
               
OTHER ASSETS              
Other assets   13,370       13,370  
Total other assets   13,370       13,370  
TOTAL ASSETS $ 5,260,206     $ 6,138,847  
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
CURRENT LIABILITIES              
Accounts payable and accrued expenses $ 4,126,340     $ 3,825,203  
Customer deposits   266,844       189,215  
Accrued warranty   76,066       78,053  
Factoring payable   —         571,508  
Advances from contractors   157,320       247,175  
Derivative liability   —         408,779  
Convertible debt, net   —         122,686  
Current portion of long-term debt   15,439       14,847  
Current portion of capital lease   3,049       2,781  
Total current liabilities   4,645,058       5,460,247  
               
LONG-TERM LIABILITIES              
Capital leases   9,302       10,896  
Notes payable   37,528       45,451  
Total long-term liabilities   46,830       56,347  
TOTAL LIABILITIES   4,691,888       5,516,594  
               
STOCKHOLDERS' EQUITY              
Preferred stock, $0.001 par value, 1,000,000 Class A shares authorized, 950,000 and 950,000 shares issued and outstanding, respectively   950       950  
Common stock, $0.001 par value, 90,000,000 shares authorized, 87,156,979 and 19,812,298 shares issued and outstanding, respectively   87,157       19,812  
Additional paid-in capital   4,152,082       3,727,183  
Accumulated deficit   (3,671,871 )     (3,125,692 )
Total Stockholders' Equity   568,318       622,253  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,260,206     $ 6,138,847  

 

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

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SUNVALLEY SOLAR, INC.

Condensed Statements of Operations

(unaudited)

 

  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  2013   2012   2013   2012
               
REVENUES $ 516,228     $ 763,612     $ 528,884     $ 941,708  
COST OF SALES   561,002       383,224       589,677       553,184  
                               
GROSS PROFIT   (44,774 )     380,388       (60,793 )     388,524  
                               
OPERATING EXPENSES                              
Salary and wage expense   107,083       140,930       208,770       316,692  
Impairment of inventory   —         —         57,523       —    
Professional fees   93,721       20,125       139,738       43,493  
Selling, general and administrative expenses   11,416       121,054       117,576       253,630  
     Total operating expenses   212,220       282,109       523,607       613,815  
                               
INCOME (LOSS) FROM OPERATIONS   (256,994 )     98,279       (584,400 )     (225,291 )
                               
OTHER INCOME (EXPENSES)                              
Gain on sale of property   —         9,481       —         9,481  
Gain (loss) on derivative liability   105,362       189,126       52,100       460,201  
Default penalty on convertible notes   —         —         (5,000 )     —    
Gain (loss) on conversion of debt   —         (183,634 )     —         (183,634 )
Other income   100       184       158       653  
Interest expense   (5,499 )     (89,279 )     (9,037 )     (295,839 )
     Total other income (expenses)   99,963       (74,122 )     38,221       (9,138 )
                               
INCOME (LOSS) BEFORE TAXES   (157,031 )     24,157       (546,179 )     (234,429 )
                               
Provision for income taxes   —         —         —         —    
                               
NET INCOME (LOSS) $ (157,031 )   $ 24,157     $ (546,179 )   $ (234,429 )
                               
BASIC AND DILUTED INCOME (LOSS) PER SHARE: Basic and diluted $ (0.00 )   $ 0.01     $ (0.01 )   $ (0.17 )
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic and diluted   37,752,149       1,841,702       53,683,008       1,396,907  

 

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

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SUNVALLEY SOLAR, INC.

Condensed Statements of Cash Flows

(unaudited)

 

  For the Six Months Ended
  June 30,
  2013   2012
       
OPERATING ACTIVITIES:              
Net loss $ (546,179 )   $ (234,429 )
Adjustments to reconcile net loss to net cash provided by operating activities:              
Depreciation and amortization   14,032       19,101  
Amortization of discount   —         271,849  
Gain on re-measurement of derivative   (52,100 )     (460,180 )
Loss on conversion of debt           183,634  
Gain on sale of property   —         (9,438 )
Bad debt expense   10,000       —    
Loss on impairment of inventory   57,523       —    
Penalty for default on convertible note   5,000       —    
Changes in operating assets and liabilities:              
Accounts receivable   950,770       578,942  
Inventory   57,093       (195,863 )
Prepaid expenses and other assets   1,825       (5,509 )
Other receivables   (1,219 )     (98 )
Costs in excess of billings on uncompleted contracts   24,450       (547,074 )
Accounts payable   309,016       (243,495 )
Accrued warranty expenses   (1,987 )     856  
Factoring line   —         91,533  
Customer deposits   77,629       288,937  
               
Net Cash Provided By (Used In) Operating Activities   905,853       (260,266 )
               
INVESTING ACTIVITIES:              
               
Sale of property   —         121,393  
               
Net Cash Provided By Investing Activities   —         121,393  
               
FINANCING ACTIVITIES:              
               
Proceeds from related party notes payable   160,000       71,308  
Repayment of related party notes payable   (160,000 )     —    
Proceeds from factoring line   —         726,217  
Repayment of advances from contractor   (89,855 )        
Repayments of long term debt   (7,331 )     (7,597 )
Proceeds from convertible debt   —         78,500  
Repayment of capital lease   (1,326 )     —    
Repayments from factoring line   (571,508 )     (833,927 )
Proceeds from sale of common stock   —         75,330  
Proceeds from notes payable   —         15,000  
               
Net Cash Provided by (Used In) Financing Activities   (670,020 )     124,831  
               
NET INCREASE (DECREASE) IN CASH   235,833       (14,042 )
CASH AT BEGINNING OF PERIOD   85,771       187,403  
               
CASH AT END OF PERIOD $ 321,604     $ 173,361  
               
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:              
               
CASH PAID FOR:              
Interest $ 5,731     $ 3,831  
Income taxes $ —       $ —    
               
NON-CASH INVESTING AND FINANCING ACTIVITIES              
Derivative liability $ —       $ 78,500  
Repurchase of shares for note payable - related parties $ —       $ 104,000  
Common stock issued for debt $ 492,244     $ 314,983  

 

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

F- 3

SUNVALLEY SOLAR, INC.

Notes to Condensed Financial Statements

June 30, 2013 and December 31, 2012

 

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 June 30, 2013, 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, 2012 audited financial statements.  The results of operations for the periods ended June 30, 2013 and 2012 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.

 

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 .   

F- 4

SUNVALLEY SOLAR, INC.

Notes to Condensed Financial Statements

June 30, 2013 and December 31, 2012

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company’s inventory consisted of the following at June 30, 2013 and December 31, 2012:

 

  2013   2012
Raw materials $ 9,366     $ 3,222  
Work in Progress   9,341       50,644  
Finished goods   225,285       1,023,006  
  $ 243,992     $ 1,076,872  

 

The Company revalued its inventory at the lower of cost or net realizable value as of June 30, 2013 and recorded impairment of inventory of $57,523 for the six months ended June 30, 2013 and $0 in 2012.

 

Basic and Diluted Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic income (loss) per share and diluted income (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 950,000 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 -0- and 35,814,313 such potentially dilutive shares excluded as of June 30, 2013 and December 31, 2012, respectively. 

 

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 June 30, 2013 and December 31, 2012, the Company has capitalized $114,787 and $139,237 of costs incurred in relation to installation projects. The Company expects three major projects to be completed or substantially completed by December 31, 2013.

 

NOTE 5 – CAPITAL LEASE

 

The Company leased equipment in September 2011 and such lease has been classified as a capital lease because it contained a beneficial by-out option at the end of the lease.   The Company has used the discounted value of future payments as the fair value of this asset and has recorded the discounted value of the remaining payments as a liability.

As of June 30, 2013, the Company recognizes the current and long-term lease liability of $3,049 and $9,302, respectively. As of December 31, 2012, the Company has recorded the current and long-term lease liability of $2,781 and $10,896, respectively. Thus, the Company has $12,351 in remaining lease obligation as of June 30, 2013.

NOTE 6– RELATED PARTY TRANSACTIONS

 

During the six months ended June 30, 2013, the Company borrowed $160,000 from two officers of the Company. These notes accrue interest at 6.5 percent per annum, are unsecured and due on demand. The related parties payable were repaid during May and June 2013.

 

F- 5

SUNVALLEY SOLAR, INC.

Notes to Condensed Financial Statements

June 30, 2013 and December 31, 2012

 

NOTE 7– 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. These debts are 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 number of shares issuable upon conversion of these debts are 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.

 

The exercise price 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.

 

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 debts. As of December 31, 2012, the Company recorded the derivative liability of $408,779. During the six months ended June 30, 2013, the Company converted all of its convertible debt and thereby reduced the derivative liability to $0. As such reduction, the Company realized a gain on the derivative liability due to the conversion of the convertible note of $52,100 for the six month period ended June 30, 2013 and recognized a loss on derivative liability of $617,926 as of December 31, 2012. (See Note 8 for details on convertible debt).  

 

NOTE 8 – CONVERTIBLE DEBT

 

On October 28, 2011, the Company borrowed $200,000 in the form of a convertible note. The note 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. Pursuant to this conversion feature, the Company recorded a discount on debt in the amount of $200,000 on the note date. The convertible debt is due on July 18, 2012, is unsecured and bears an interest rate of 8%. The Company defaulted on the note and as a result, the interest rate on the outstanding balance increased to 22% per annum and the Company incurred a default penalty in the amount of $144,125, however, the Company entered into n agreement with the lender to amend the note agreement to reduce the default penalty by $55,000 from $144,125 to $89,125. In addition the amendment adjusted the conversion factor from 61% to 50%. On September 14, 2012 the lender and the Company agreed to amend the agreement to extend the maturity date to December 6, 2013 and increase the outstanding balance of the note by $5,000 for legal fees. During the six months ended June 30, 2013 the Company incurred a default penalty in the amount of $5,000. During the six months ended June 30, 2013 the Company recorded $1,590 in interest expense on the note. As of June 30, 2012 the Company had amortized the entire $200,000 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at June 30, 2013. During the six months ended June 30, 2013 the Company issued 28,249,555 shares of common stock upon conversion of $72,776 of the note and accrued interest payable. As of June 30, 2013 and December 31, 2012 the outstanding note balance was $-0- and $200,000, respectively.

 

During the six months ended June 30, 2012, the Company borrowed $78,500 of convertible debt. On May 24, 2012 the Company and the lender amended the agreement wherein the debt was 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 to 40% of the average of the lowest three trading prices during the 10 trading days prior to conversion. Pursuant to this conversion feature, the Company recorded a discount on debt in the amount of $78,500 on the note date. The convertible debt is due on August 24, 2013, is unsecured and bears an interest rate of 8%. During the six months ended June 30, 2013 the Company issued 39,095,126 shares of common stock upon conversion of $63,174 of the note and accrued interest payable. As of June 30, 2013 and December 31, 2012 the outstanding note balance was $-0- and $56,500, respectively. 

 

As of June 30, 2013 all of the convertible debts were fully converted into shares of the Company’s common stock and the Company realized a gain on the derivative liability due to the conversion of the convertible note of $52,100 for the six month period ended June 30, 2013 and recognized a loss on derivative liability of $617,926 as of December 31, 2012.

F- 6

SUNVALLEY SOLAR, INC.

Notes to Condensed Financial Statements

June 30, 2013 and December 31, 2012

 

NOTE 9 - FACTORING LINE PAYABLE

 

During the six months ended June 30, 2013, the Company repaid its factoring provider in full including all fees and accrued interest.  

 

NOTE 10– COMMON STOCK

 

During the six months ended June 30, 2013 the Company issued 67,344,681 shares of the Company’s common stock upon conversion of $127,686 of its debt plus $8,264 of accrued interest. The Company also recorded $424,899 to additional paid in capital as a result of the conversion of the debt.

 

On July 20, 2012 the Company effected an 1 to 500 reverse stock split accordingly all the share amounts were restated to reflect the reverse stock split on a retro-active basis.

 

On August 29, 2012, the Company’s shareholders and board of directors approved an amendment to the Articles of Incorporation to decrease the total authorized common stock from 7,500,000,000 shares to 90,000,000 shares.

 

NOTE 11– PREFERRED STOCK

 

On August 28, 2012, the Company’s Board of Directors voted to designate a class of preferred stock entitled Class A Convertible Preferred Stock, consisting of up to one million (1,000,000) shares, par value $0.001. The rights of the holders of Class A Convertible Preferred will participate on an equal basis per-share with holders of the Company’s common stock in any distribution upon winding up, dissolution, or liquidation.

 

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 1 for 1 basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible.

 

During the year ended December 31, 2012, the Board of Directors approved the incentive issuance of 950,000 shares of the Company’s Class A Convertible Preferred shares to its executives and key employees and Restricted Stock Award Agreements were signed with such individuals for their shares will vest in full after two years from the date of grant with curtain restrictions.  The issuance of such preferred shares were valued as stock-based compensation of $68,400 based on the fair market value of the Company’s common stock on August 28, 2012.

 

NOTE 12– SUBSEQUENT EVENTS

 

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.

F- 7

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 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, 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.

 

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.

 

 • 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.

 

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Expansion of Installation Business

 

We are planning to expand its 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.

 

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.

  

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 market price of solar price is around $0.65 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.

 

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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

 

Develop Distributed Power Plant 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.

 

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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 and six months ended June 30, 2013 and 2012

 

During the three months ended June 30, 2013, we generated gross revenues of $516,228. Total cost of sales was $561,002, resulting in gross loss of $44,774. Total operating expenses were $212,220, and consisted of salary and wage expenses of $107,083, selling, general and administrative expenses of $11,416, and professional fees of $93,721. We experienced interest expense of $5,499, other income of $100, and a gain of $105,362 due to the change in value of a derivative liability. Our net loss for the three months ended June 30, 2013 was therefore $157,031.

 

By comparison, during the three months ended June 30, 2012, we generated gross revenues of $763,612. Total cost of sales was $383,224, resulting in gross profit of $380,388. Total operating expenses were $282,109, and consisted of salary and wage expenses of $140,930, selling, general and administrative expenses of $121,054, and professional fees of $20,125. We experienced interest expense of $89,279, other income of $184, a loss on conversion of debt in the amount of $183,634, a gain on sale of property of $9,481, and a gain of $189,126 due to the change in value of a derivative liability. Our net income for the three months ended June 30, 2012 was therefore $24,157.

 

During the six months ended June 30, 2013, we generated gross revenues of $528,884. Total cost of sales was $589,677, resulting in gross loss of $60,793. Total operating expenses were $523,607, and consisted of salary and wage expenses of $208,770, selling, general and administrative expenses of $117,576, impairment of inventory of $57,523, and professional fees of $139,738. We experienced interest expense of $9,037, other income of $158, a default penalty on convertible notes of $5,000, and a gain of $52,100 due to the change in value of a derivative liability. Our net loss for the six months ended June 30, 2013 was therefore $546,179.

 

By comparison, during the six months ended June 30, 2012, we generated gross revenues of $941,708. Total cost of sales was $553,184, resulting in gross profit of $388,524. Total operating expenses were $613,815, and consisted of salary and wage expenses of $316,692, selling, general and administrative expenses of $253,630, and professional fees of $43,493. We experienced interest expense of $295,839, other income of $653, a loss on conversion of debt in the amount of $183,634, a gain on sale of property of $9,481, and a gain of $460,201 due to the change in value of a derivative liability. Our net loss for the six months ended June 30, 2012 was therefore $234,429.

 

Our gross revenues decreased during the six months ended June 30, 2013 compared to the same period last year due to the varying implementation periods and completion dates of our various larger projects.

 

Liquidity and Capital Resources

 

As of June 30, 2013, we had current assets in the amount of $5,185,125, consisting of cash in the amount of $321,604, accounts receivable of $4,474,022, inventory in the amount of $243,992, costs in excess of billings on uncompleted contracts of $114,787, prepaid expenses and other current assets of $5,720, and restricted cash of $25,000. As of June 30, 2013, we had current liabilities in the amount of $4,645,058. These consisted of accounts payable and accrued expenses in the amount of $4,126,340, customer deposits of $266,844, accrued warranty of $76,066, advances from contractors of $157,320, the current portion of long term debt in the amount of $15,439, and the current portion of a capital lease in the amount of $3,049. Our working capital as of June 30, 2013 was therefore $540,067.

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As of June 30, 2013, our long-term liabilities were $46,830, which consisted of a loan owing to East West Bank with a balance of $37,528 and the remaining long term obligations of a capital lease in the amount of $9,302. The principal amount outstanding on the East West Bank loan accrues annual interest at the bank's variable index rate. The East West Bank loan is collateralized by all business assets.

 

In the past, we have received debt financing from Asher Enterprises, Inc. under a series of Convertible Promissory Notes and from Tonaquint, Inc. under a Convertible Promissory Note. During the six months ended June 30, 2013, the Tonaquint note and the last of the Asher notes were fully converted to shares of our common stock, with no balance remaining due.

 

In the past, we have received financing from CapFlow Funding Group Managers LLC under a credit facility for the purpose of factoring our accounts receivable. During the six months ended June 30, 2013, we repaid our factoring provider in full including all fees and accrued interest.

 

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 and/or the issuance of short-term debt convertible to common equity as discussed above. 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 June 30, 2013, there were no off balance sheet arrangements.

 

Going Concern

 

We have experienced recurring losses from operations and had an accumulated deficit of $3,671,871 as of June 30, 2013. 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

 

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.

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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 June 30, 2013. 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 June 30, 2013, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2013.

 

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 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.

 

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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.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

None.

 

Item 6.      Exhibits

 

Exhibit Number Description of Exhibit
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

 

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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: August 14, 2013

By:        /s/ Zhijian (James) Zhang

             Zhijian (James) Zhang

Title:     Chief Executive Officer and Director

 
Date:

August 14, 2013

 

By:        /s/ Mandy Chung

             Mandy Chung

Title:     Chief Financial Officer

 

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CERTIFICATIONS

 

I, Zhijian James Zhang, certify that;

 

1. I have reviewed this amended quarterly report on Form 10-Q/A for the quarter ended June 30, 2013 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: August 14, 2013

 

/s/ Zhijian James Zhang

By: Zhijian James Zhang

Title: Chief Executive Officer

CERTIFICATIONS

 

I, Mandy Chung, certify that;

 

1. I have reviewed this amended quarterly report on Form 10-Q/A for the quarter ended June 30, 2013 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: August 14, 2013

 

/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 amended quarterly Report of Sunvalley Solar, Inc. (the “Company”) on Form 10-Q/A for the quarter ended June 30, 2013 filed with the Securities and Exchange Commission (the “Report”), We, Zhijian James Zhang, Chief Executive Officer of the Company, and Mandy Chung, Chief Financial Officer, 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: August 14, 2013

 

By: /s/ Mandy Chung
Name: Mandy Chung
Title: Principal Financial Officer and Director
Date: August 14, 2013

 

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