Attached files
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EX-31.2 - EXHIBIT 31.2 - SUNVALLEY SOLAR, INC. | ex31_2.htm |
EX-32.1 - EXHIBIT 32.1 - SUNVALLEY SOLAR, INC. | ex32_1.htm |
EX-31.1 - EXHIBIT 31.1 - SUNVALLEY SOLAR, INC. | ex31_1.htm |
EX-10.1 - EXHIBIT 10.1 - SUNVALLEY SOLAR, INC. | ex10_1.htm |
EXCEL - IDEA: XBRL DOCUMENT - SUNVALLEY SOLAR, INC. | Financial_Report.xls |
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, 2012 | |
[ ] | 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: 1,074,808,309 common shares as of May 18, 2012.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
TABLE OF CONTENTS | Page | |
PART I – FINANCIAL INFORMATION | ||
Item 1: | 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 | 10 |
Item 4: | Controls and Procedures | 10 |
PART
II – OTHER INFORMATION | ||
11 | ||
Item 1: | Legal Proceedings | 11 |
Item 1A: | Risk Factors | 11 |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
Item 3: | Defaults Upon Senior Securities | 11 |
Item 4: | Mine Safety Disclosures | 11 |
Item 5: | Other Information | 12 |
Item 6: | Exhibits | 12 |
2 |
PART I - FINANCIAL INFORMATION
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, 2012 are not necessarily indicative of the results that can be expected for the full year.
3 |
SUNVALLEY SOLAR, INC.
Condensed Consolidated Balance Sheets
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(unaudited) | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 117,847 | $ | 162,403 | ||||
Restricted cash | 25,000 | 25,000 | ||||||
Accounts receivable, net | 4,156,833 | 4,512,198 | ||||||
Inventory | 1,076,872 | 847,083 | ||||||
Costs in excess of billings on uncompleted contracts | 387,989 | 168,493 | ||||||
Other receivables | 3,088 | 1,700 | ||||||
Prepaid expenses and other current assets | 9,917 | 14,289 | ||||||
Total current assets | 5,777,546 | 5,731,166 | ||||||
PROPERTY AND EQUIPMENT, NET | 214,650 | 224,375 | ||||||
OTHER ASSETS | ||||||||
Other assets | 27,787 | 28,827 | ||||||
Total other assets | 27,787 | 28,827 | ||||||
TOTAL ASSETS | $ | 6,019,983 | $ | 5,984,368 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 3,854,489 | $ | 4,135,229 | ||||
Customer deposits | 541,272 | 409,801 | ||||||
Accrued warranty | 69,807 | 68,881 | ||||||
Current portion of long-term debt | 14,245 | 14,073 | ||||||
Current portion of capital lease | 2,645 | 2,278 | ||||||
Convertible debt, net of discount | 210,933 | 124,789 | ||||||
Related party notes payable | 121,308 | 100,000 | ||||||
Factoring payable | 713,488 | 325,652 | ||||||
Derivative liability | 317,472 | 501,626 | ||||||
Total current liabilities | 5,845,659 | 5,682,329 | ||||||
LONG-TERM LIABILITIES | ||||||||
Capital leases | 12,806 | 13,299 | ||||||
Notes payable | 56,614 | 60,220 | ||||||
Total long-term liabilities | 69,420 | 73,519 | ||||||
TOTAL LIABILITIES | 5,915,079 | 5,755,848 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $0.001 par value, 1,500,000,000 shares authorized, 968,224,644 and 886,039,889 shares issued and outstanding, respectively | 968,225 | 886,040 | ||||||
Additional paid-in capital | 798,055 | 700,270 | ||||||
Subscription receivable | (45,000 | ) | — | |||||
Accumulated deficit | (1,616,376 | ) | (1,357,790 | ) | ||||
Total Stockholders' Equity | 104,904 | 228,520 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 6,019,983 | $ | 5,984,368 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1 |
SUNVALLEY SOLAR, INC.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
REVENUES | $ | 178,096 | $ | 797,810 | ||||
COST OF SALES | 169,960 | 683,446 | ||||||
GROSS PROFIT | 8,136 | 114,364 | ||||||
OPERATING EXPENSES | ||||||||
Salary and wage expense | 175,762 | 142,902 | ||||||
Professional fees | 23,368 | — | ||||||
Selling, general and administrative expenses | 132,576 | 170,339 | ||||||
Total operating expenses | 331,706 | 313,241 | ||||||
LOSS FROM OPERATIONS | (323,570 | ) | (198,877 | ) | ||||
OTHER INCOME (EXPENSES) | ||||||||
Gain (loss) on derivative liability | 271,075 | (2,653 | ) | |||||
Other income | 469 | 2,391 | ||||||
Interest income (expense), net | (206,560 | ) | (3,365 | ) | ||||
Total other income (expenses) | 64,984 | (3,627 | ) | |||||
LOSS BEFORE TAXES | (258,586 | ) | (202,504 | ) | ||||
Provision for income taxes | — | — | ||||||
NET LOSS | $ | (258,586 | ) | $ | (202,504 | ) | ||
BASIC AND DILUTED LOSS PER SHARE | $ | (0.00 | ) | $ | (0.00 | ) | ||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC AND DILUTED | 939,519,738 | 802,735,087 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2 |
SUNVALLEY SOLAR, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (258,586 | ) | $ | (202,504 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 9,725 | 5,301 | ||||||
Amortization of discount | 194,544 | — | ||||||
(Gain) loss on re-measurement of derivative | (271,054 | ) | 2,653 | |||||
Stock-based compensation | — | 13,200 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 355,365 | (72,635 | ) | |||||
Inventory | (229,789 | ) | 474,177 | |||||
Prepaid expenses and other assets | 4,861 | (226,674 | ) | |||||
Other receivables | (1,388 | ) | (14,361 | ) | ||||
Costs in excess of billings on uncompleted contracts | (219,496 | ) | (175,902 | ) | ||||
Other receivables | 551 | — | ||||||
Accounts payable | (276,460 | ) | 43,916 | |||||
Accrued warranty expenses | 926 | — | ||||||
Customer deposits | 131,471 | (56,143 | ) | |||||
Net Cash Used in Operating Activities | (559,330 | ) | (208,972 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Purchase in property and equipment | — | (34,655 | ) | |||||
Net Cash Used in Investing Activities | — | (34,655 | ) | |||||
FINANCING ACTIVITIES: | ||||||||
Proceeds from related party notes payable | 21,308 | 100,000 | ||||||
Repayments of long term debt | (3,560 | ) | (3,573 | ) | ||||
Proceeds from factoring line | 387,836 | 30,090 | ||||||
Proceeds from sale of common stock | 30,690 | — | ||||||
Proceeds from convertible debt | 78,500 | — | ||||||
Net Cash Provided by Financing Activities | 514,774 | 126,517 | ||||||
NET DECREASE IN CASH | (44,556 | ) | (117,110 | ) | ||||
CASH AT BEGINNING OF YEAR | 187,403 | 546,164 | ||||||
CASH AT END OF YEAR | $ | 142,847 | $ | 429,054 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
CASH PAID FOR: | ||||||||
Interest | $ | 1,862 | $ | 1,545 | ||||
Income taxes | $ | — | $ | — | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Derivative liability | $ | 86,900 | $ | 65,581 | ||||
Common stock issued for debt | $ | 104,280 | $ | — | ||||
Subscription receivable | $ | 45,000 | $ | — |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3 |
SUNVALLEY SOLAR, INC.
Condensed Consolidated Notes to Financial Statements
March 31, 2012 and December 31, 2011
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, 2012, 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, 2011 audited financial statements. The results of operations for the periods ended March 31, 2012 and 2011 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
Reclassification
of Financial Statement Accounts
Certain amounts in the March 31, 2011 financial statements have been reclassified to conform to the presentation in
the March 31, 2012 financial statements.
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.
F-4 |
SUNVALLEY SOLAR, INC.
Condensed Consolidated Notes to Financial Statements
March 31, 2012 and December 31, 2011
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is determined on an average cost basis; and the inventory is comprised of raw materials and finished goods. Raw materials consist of fittings and other components necessary to assemble the Company’s finished goods. Finished goods consist of solar panels ready for installation and delivery to customers.
2012 | 2011 | |||||||
Raw materials | $ | 3,222 | $ | 585 | ||||
Work in Progress | 50,644 | 12,361 | ||||||
Finished goods | 1,023,006 | 834,137 | ||||||
$ | 1,076,872 | $ | 847,083 |
Loss Per Common Share
Basic net loss per common share is computed by dividing the net loss by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic loss per share and diluted loss per share are the same amount because the impact of additional common shares that might have been issued under the Company’s outstanding and exercisable warrants would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 294,397,333 and 191,235,412 such potentially dilutive shares excluded as of March 31, 2012 and December 31, 2011, respectively.
The Company’s inventory consisted of the following at March 31, 2012 and December 31, 2011:
NOTE 4 – COSTS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
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 completed and billings and others costs are accumulated on the balance sheet. Under the completed contract method, no profit or income is recorded before completion of substantial completion of the work.
As of March 31, 2012 and December 31, 2011, the Company has capitalized $387,989 and $168,493 of costs incurred in relation to installation projects. The company expects two major projects to be completed or substantially completed by June 30, 2012.
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 March 31, 2012 the net book value of this leased asset is $14,442 as the Company recognizes $15,451 in remaining lease obligations.
SUNVALLEY SOLAR,
INC. Condensed
Consolidated Notes to Financial Statements March
31, 2012 and December 31, 2011 NOTE
6 - RELATED PARTY TRANSACTIONS During
the three months ended March 31, 2012, the Company borrowed $21,308 from one of the officers of the Company. The note
accrues interest at 6.5 percent per annum, is unsecured and due on demand. As of December 31, 2011, the Company owes $100,000
for short-term related party loans with maturity dates of less than 1 year bearing an interest rate of 6.5%; per annum. The
interest expense incurred on the related party payables was $1,757 and $178, for the three months ended March 31, 2012 and
the year ended December 31, 2011, respectively. As of March 31, 2012, the Company has accrued interest of $1,935 compared to
$178 as of December 31, 2011. NOTE
7 – CONVERTIBLE DEBT On
July 21, 2011, the Company borrowed $100,000 in the form of a convertible note payable. 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 $100,000 on the note date. The note is due on April
17, 2012, is unsecured, and bears an interest rate of 8%. As of March 31, 2012, the full amount of the note was converted to the
Company’s common stock along with $4,280 of accrued interest. On
October 3, 2011, the Company borrowed $75,000 in the form of a convertible note payable. The note is convertible at the hold’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 $30,313 on the note date. The note is due on June
27, 2012, is unsecured and bears an interest rate of 8%. As of March 31, 2012 the Company had recorded $2,959 in accrued interest
on the note. As of March 31, 2012 the Company had amortized $6,875 of the debt discount to interest expense, leaving $13,371 in
unamortized debt discount at March 31, 2012. On
October 26, 2011, the Company borrowed $75,000 in the form of a convertible note payable. 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 $75,000 on the note date. The note is due on July
20, 2012, is unsecured and bears an interest rate of 8%. As of March 31, 2012 the Company had recorded $2,851 in accrued interest
on the note. As of March 31, 2012 the Company had amortized $19,195 of the debt discount to interest expense, leaving $37,335
in unamortized debt discount at March 31, 2012. 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%. As of March 31, 2012 the Company had recorded $6,902 in accrued
interest on the note. As of March 31, 2012 the Company had amortized $100,399 of the debt discount to interest expense, leaving
$99,288 in unamortized debt discount at March 31, 2012. On
February 22, 2012, the Company borrowed $78,500 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. 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 November
21, 2012, is unsecured and bears an interest rate of 8%. As of March 31, 2012 the Company had recorded $654 in accrued interest
on the note. As of March 31, 2012 the Company had amortized $10,927 of the debt discount to interest expense, leaving $67,573
in unamortized debt discount at March 31, 2012.
SUNVALLEY SOLAR,
INC. Condensed
Consolidated Notes to Financial Statements March
31, 2012 and December 31, 2011 NOTE
8 – 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. The
total fair value of the conversion option of the February 22, 2012 note was $86,900 and has been recognized as a derivative liability
on the date of issuance with all future changes in the fair value of the conversion option being recognized in earnings in the
Company’s statement of operations under the caption “Other income (expense) – Gain on derivative liability”
until such time as the warrant is exercised or expires. The
Company uses the Black-Scholes option pricing model to value the derivative liability on February 22, 2012. Included in the model
are the following assumptions: stock price at valuation date of $0.0027, exercise price of $0.0015, dividend yield of zero, years
to maturity of nine months or 0.75, risk free rate of 0.17 percent, and annualized volatility of 143.32 percent. During
the three month period ending March 31, 2012, the Company issued 52,184,755 shares of the Company’s common stock to convert
the July 21, 2011 note in full. Accordingly, the remaining value of the associated derivative liability was recognized in earnings
at conversion. ASC
815 requires the Company to assess the fair market value of certain derivatives at each reporting period and recognize any change
in the fair market value of the derivatives as gain (loss) on the income statements. As of March 31, 2012 and December
31, 2011, the Company has recognized a gain of $271,075 and $220,279, respectively. 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. At
March 31, 2012, the Company revalued the conversion features using the following assumptions: stock price of $0.0025, exercise
price of $0.0015, dividend yield of zero, years to maturity vary according to convertible note, risk free rate ranging from 0.07
to 0.15 percent, and annualized volatility ranging from 123 to 133 percent and determined that, during the three months ended
March 31, 2012, the Company’s derivative liability decreased to $317,472. The Company recognized a corresponding gain on
derivative liability in conjunction with this revaluation. SUNVALLEY SOLAR,
INC. Condensed
Consolidated Notes to Financial Statements March
31, 2012 and December 31, 2011 NOTE
9 - FACTORING LINE PAYABLE During
March 2012, the Company paid $344,334 to its factoring provider, inclusive of accrued fees, and the Company borrowed a total of
$685,794 from the factoring provider against its accounts receivable with a discount fee of approximately 0.95% for each 15-day
period the accounts receivable remain unpaid. As of March 31, 2012, accrued interest and fees on this factoring line totaled $27,693.
The Company’s credit facility with the factoring company was increased to one million in March 2012. NOTE
10 – COMMON STOCK On
January 27, 2012, the Company issued 4,000,000 shares of its common stock for cash at $0.0049 per share. On February 9, 2012,
the Company issued 6,000,000 shares of its common stock for cash at $0.0028 per share. On March 19, 2012, the Company issued 20,000,000
shares of its common stock for cash at $0.0022 per share, which as of the end of the period has been recorded as a subscription
receivable in the amount of $45,000. During
the three months ended March 31, 2011, the Company issued 52,184,155 shares of common stock upon conversion of $100,000 of its
debt plus accrued interest of $4,280. NOTE
11 – SUBSEQUENT EVENTS During
April and May 2012, the Company issued 106,583,665 shares of common stock upon conversion of $97,000 of its convertible debts
issued during 2011. On
May 12, 2012 the Company received an additional $15,000 from the issuance of convertible debt. 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. 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: 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. 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 $0.60 per watt. As a reference, currently, the lowest panel price is around $1.00 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: 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. 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. 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. 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: 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. 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, 2011 and 2010 During the three months ended March 31, 2012, we generated gross
revenues of $178,096. Total cost of sales was $169,960, resulting in gross profit of $8,136. Total operating expenses were $331,706,
and consisted of salary and wage expenses of $175,762, selling, general and administrative expenses of $132,576, and professional
fees of $23,368. We experienced interest expense of $206,560, other income of $469 and a gain of $271,075 due to the change in
value of a derivative liability. Our net loss for the three months ended March 31, 2012 was therefore $258,586. By comparison, 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. Total operating expenses
were $313,241, and consisted of salary and wage expenses of $142,902 and selling, general and administrative expenses of $170,339.
We experienced interest expense of $3,365, 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. Our revenues decreased significantly for the three months ended
March 31, 2012 compared to the first quarter of last year. This change is due to the fact that we have been implementing several
large commercial solar systems during the first and second quarter which are scheduled to be completed in the second quarter or
third quarter of 2012. Under the completed contract method of accounting, no profit or income is recorded before substantial completion
of the work. The revenue for these projects will therefore be recognized after their completion. Due to the implementation periods
for different size of projects, revenue fluctuations like the one experienced during this quarter are a normal occurrence for construction
companies, including solar system integration companies. We use
the Black-Scholes option pricing model to value our derivative liabilities and the subsequent remeasurement of our convertible
notes. Due to these accounting procedures relating to our convertible notes, we recognized $202,940 as interest expenses and gain
on derivative liabilities of $271,075 during the three months ended March 31, 2012. During
2011, due to the incentives provided by utility companies’ rebate programs and the Federal Recovery Act’s cash grant
program, we were able to obtain more large commercial installation projects than we did in 2010. We implemented over 1M watts in
solar installation projects in year 2011, We have signed installation contracts for over 1.5M watts in solar systems for 2012 and
they are currently under implementation. We expect these projects to be completed before the end of Q4, 2012. Liquidity
and Capital Resources As of March 31, 2012, we had current assets in the amount of $5,777,546,
consisting of cash in the amount of $117,847, accounts receivable of $4,156,833, inventory in the amount of $1,076,872, costs in
excess of billings on uncompleted contracts of $387,989, prepaid expenses and other current assets of $9,917, other receivables
of $3,088, and restricted cash of $25,000. As of March 31, 2012, we had current liabilities in the amount of $5,845,659. These
consisted of accounts payable and accrued expenses in the amount of $3,854,489, a derivative liability of $317,472, customer deposits
of $541,272, a factoring payable of $713,488, convertible debt of $210,933, related party notes payable of $121,308, accrued warranty
of $69,807, the current portion of long term debt in the amount of $14,245, and the current portion of a capital lease in the amount
of $2,645. Our working capital deficit as of March 31, 2012 was therefore $68,113. Our accounts payable and accrued expenses as of March 31, 2012 consisted
of the following: As of March 31, 2012, our long-term liabilities were $69,420, which
consisted of a loan owing to East West Bank with a long term portion of $56,614 and the remaining long term obligations of a capital
lease in the amount of $12,806. The current portion of East West Bank loan due within the next year is $14,245 and the principal
amount outstanding accrues annual interest at the bank's variable index rate. The East West Bank loan is collateralized by all
business assets. In September 2011, we entered a lease-to-own purchase agreement.
We evaluated the lease at the time of purchase and determined that the agreement contained a beneficial by-out option wherein we
have the option to buy the equipment for $1 at the end of the lease term. Under the guidance in ASC 840, we have classified the
lease as a capital lease. We used the discounted value of future payments as the fair value of this asset and
have recorded the discounted value of the remaining payments as a liability. As of March 31, 2012 the capital lease payable outstanding
was $15,451, with $2,645 due within the next year. In addition, we have received debt financing from Asher Enterprises,
Inc. under a series of Convertible Promissory Notes. The notes, both converted and currently outstanding, are as follows: All Notes issued to Asher Enterprises, Inc. 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. We have determined that the conversion feature of these notes is
not considered to be solely indexed to our own stock and is therefore not afforded equity treatment. In accordance with ASC 815,
we have bifurcated the conversion feature of the notes and recorded a derivative liability. As of March 31, 2012 the value of the
derivative liability was $317,472 and we recognized a gain on the derivative of $271,075 for the quarter ended March 31, 2012. In addition, we have also recently received debt financing from
Tonaquint, Inc. in the amount of $200,000 under a Convertible Promissory Note as follows: The note issued to Tonaquint, Inc. bears interest at a rate of 8%
per year and is convertible at a conversion price equal to 61% of the Market Price of our common stock on the conversion date. For
purposes of the Note, “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
Note is limited so that the holder’s total beneficial ownership of our common stock may not exceed 9.99% 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. On November 10, 2011, we entered into a Factoring and Security Agreement
(the “Agreement”) with CapFlow Funding Group Managers LLC (“CapFlow”). The Agreement is a credit facility
for the purpose of factoring our accounts receivable. The cost of this funding is a discount of 1.85% of the gross amount of each
receivable factored for the first 30 days, and an additional 0.95% for each additional 15 day period thereafter until the factored
account receivable is closed. Under the Agreement, 20% to 25% of the amount of the purchased invoices is reserved. Our obligations
to CapFlow under the Agreement are secured by substantially all of our assets. The total available credit line under the Agreement
is $1,000,000. During
March 2012, the Company paid $344,334 to its factoring provider, inclusive of accrued fees, and the Company borrowed a total of
$685,794 from the factoring provider against its accounts receivable with a discount fee of approximately 0.95% for each 15-day
period the accounts receivable remain unpaid. As of March 31, 2012, accrued interest and fees on this factoring line totaled $27,693.
The Company’s credit facility with the factoring company was increased to one million in March 2012. 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: 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 an existing Draw-Down Equity Financing
Agreement, 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
March 31, 2012, there were no off balance sheet arrangements. Going Concern We have experienced recurring losses from operations and had an
accumulated deficit of $1,616,376 as of March, 2012. 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 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. PART II – OTHER INFORMATION 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. 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. On April 16, 2012, we borrowed an additional
sum of $50,000 from our President, James Zhang under the terms of a Private Loan Agreement. The loan bears interest at 6.50% per
year, and is due in less than one year. 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. May 21, 2012 By: /s/
Zhijian (James) Zhang Zhijian
(James) Zhang Title: Chief Executive
Officer and Director May 21, 2012 By: /s/
Mandy Chung Mandy
Chung Title: Chief Financial
Officer F-5 F-6 F-7 F-8
-
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. 4
-
Set-up a platform to showcase our innovative solar panel technologies and make Sunvalley solar panels a household name.
5
-
Penetrate into the main stream distribution network
-
Further sale activities
-
Offer a low cost, high efficiency solar panel derived from advanced research
-
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 6 7
Accounts Payable
$
3,565,992
Credit Card payable
34,665
Accrued vacation
25,016
Other accrued expense
90,087
Payroll liabilities
40,036
Sales tax payable
98,693
Total
$
3,854,489
Amount
Issue date
Due date
Shares issued upon conversion
Conversion date(s)
Principal amount outstanding
$
100,000
01/07/11
10/7/11
15,652,625
July 8-25, 2011
$
0
$
100,000
04/06/11
1/4/12
41,370,513
Oct. 7-25, 2011
$
0
$
100,000
07/21/11
4/17/12
52,184,755
Jan. 24 - Feb. 10, 2012
$
0
$
75,000
10/03/11
6/27/12
80,027,472
April 16 - May 10, 2012
$
3,000
$
75,000
10/26/11
7/20/12
—
—
$
75,000
$
78,500
02/15/12
11/21/12
—
—
$
78,500 8
Amount
Issue date
Due date
Shares issued upon conversion
Conversion date(s)
Principal amount outstanding
$
200,000
10/28/11
7/18/12
26,556,193
April 30, 2012
$
175,000
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
9
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2012. 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, 2012, 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, 2012.10 11 12
Sunvalley Solar, Inc.
Date:
Date:
13