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, 2014
[  ]	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 May 13, 2014.

 

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

 

 

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Condensed Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4:	Controls and Procedures	7
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	8
Item 1A:	Risk Factors	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	8
Item 4:	Mine Safety Disclosures	8
Item 5:	Other Information	8
Item 6:	Exhibits	8

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.      Condensed Financial Statements

 

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

 

F-1	Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013;
F-2	Condensed Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited);
F-3	Condensed Statements of Cash Flows for the three months ended March 31, 2014  and 2013 (unaudited);
F-4	Notes to Condensed Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2014 are not necessarily indicative of the results that can be expected for the full year.

 

 

SUNVALLEY SOLAR, INC.

Balance Sheets

 

		March 31,				December 31,
		2014				2013
		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	178,837			$	368,796
Resticted cash			25,000				25,000
Accounts receivable, net			1,511,782				2,026,696
Inventory			500,107				380,155
Costs in excess of billings on uncompleted contracts			54,064				29,696
Prepaid expenses and other current assets			20,949				11,263
Total current assets			2,290,739				2,841,606
PROPERTY AND EQUIPMENT, NET			44,048				49,871
OTHER ASSETS
Long-term accounts receivable, net			5,261,497				4,883,685
Other assets			3,870				3,870
Total other assets			5,265,367				4,887,555
TOTAL ASSETS		$	7,600,154			$	7,779,032
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	5,394,773			$	5,573,200
Customer deposits			313,296				93,713
Accrued warranty			72,395				73,539
Advances from contractors			103,389				103,389
Current portion of long-term debt			16,025				15,797
Current portion of capital lease			3,499				3,342
Total current liabilities			5,903,377				5,862,980
LONG-TERM LIABILITIES
Capital leases			6,618				7,554
Notes payable			25,546				29,626
Total long-term liabilities			32,164				37,180
TOTAL LIABILITIES			5,935,541				5,900,160
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 87,156,979 shares issued and outstanding, respectively			87,157				87,157
Additional paid-in capital			4,152,082				4,152,082
Accumulated deficit			(2,575,576	)			(2,361,317	)
Total Stockholders' Equity			1,664,613				1,878,872
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	7,600,154			$	7,779,032

  

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

 

 

SUNVALLEY SOLAR, INC.

Condensed Statements of Operations

(unaudited)

 

		For the Three Months Ended
		March 31,
		2014				2013
REVENUES		$	2,048			$	12,656
COST OF SALES			1,863				28,675
GROSS PROFIT			185				(16,019	)
OPERATING EXPENSES
Salary and wage expense			100,397				101,687
Impairment of inventory			—				57,523
Professional fees			37,734				46,017
Selling, general and administrative expenses			75,250				106,160
Total Operating Expenses			213,381				311,387
LOSS FROM OPERATIONS			(213,196	)			(327,406	)
OTHER INCOME (EXPENSES)
Gain (loss) on derivative liability			—				(53,262	)
Default penalty on convertible notes			—				(5,000	)
Other income			132				58
Interest expense			(1,195	)			(3,538	)
Total other income (expenses)			(1,063	)			(61,742	)
LOSS BEFORE TAXES			(214,259	)			(389,148	)
Provision for income taxes			—				—
NET LOSS		$	(214,259	)		$	(389,148	)
BASIC LOSS PER SHARE		$	(0.00	)		$	(0.01	)
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			87,156,979				32,219,714

 

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

 

 

SUNVALLEY SOLAR, INC.

Condensed Statements of Cash Flows

(unaudited)

 

		For the Three Months Ended
		March 31,
		2014				2013
OPERATING ACTIVITIES:
Net loss		$	(214,259	)		$	(389,148	)
Adjustments to reconcile net loss to net cash provided by (used in ) operating activities:
Depreciation and amortization			5,823				7,505
(Gain) loss on re-measurement of derivative			—				53,262
Bad debt expense			—				5,000
Loss on impairment of inventory			—				57,523
Penalty for default on convertible note			—				5,000
Changes in operating assets and liabilities:
Accounts receivable			137,102				200,706
Inventory			(119,952	)			27,103
Prepaid expenses and other assets			(9,686	)			1,217
Costs in excess of billings on uncompleted contracts			(24,368	)			(2,960	)
Accounts payable and accrued expenses			(178,427	)			(177,513	)
Accrued warranty expenses			(1,144	)			(1,091	)
Factoring line			—				50,885
Customer deposits			219,583				—
Net Cash Provided by (Used in) Operating Activities			(185,328	)			(162,511	)
INVESTING ACTIVITIES:
Purchase of property and equipment			—				—
Net Cash Provided By Investing Activities			—				—
FINANCING ACTIVITIES:
Proceeds from related party notes payable			—				110,000
Repayments of long term debt			(3,852	)			(3,667	)
Repayment of capital lease			(779	)			(648	)
Net Cash Provided by (Used in) Financing Activities			(4,631	)			105,685
NET INCREASE (DECREASE) IN CASH			(189,959	)			(56,826	)
CASH AT BEGINNING OF PERIOD			368,796				85,771
CASH AT END OF PERIOD		$	178,837			$	28,945
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest		$	1,195			$	1,274
Income taxes		$	—			$	—
NON-CASH INVESTING AND FINANCING ACTIVITIES		$	—			$	—

 

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

 

 

SUNVALLEY SOLAR, INC.

Notes to Condensed Financial Statements

March 31, 2014 and December 31, 2013

 

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, 2014, 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, 2013 audited financial statements.  The results of operations for the periods ended March 31, 2014 and 2013 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.   

 

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company’s inventory consisted of the following at March 31, 2014 and December 31, 2013:

 

		2014				2013
Raw materials		$	352,653			$	244,460
Work in Progress			20,808				1,326
Finished goods			126,646				134,369
		$	500,107			$	380,155

 

Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic loss per share and diluted loss per share are the same amount because the impact of additional common shares that might have been issued under the Company’s outstanding and exercisable stock options would be anti-dilutive. Dilutive instruments include 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 950,000 and 950,000 such potentially dilutive shares excluded as of March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013, the Company has capitalized $54,064 and $29,696 of costs incurred in relation to installation projects.

 

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 buy-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, 2014, the Company recognizes the current and long-term lease liability of $3,499 and $6,618, respectively. As of December 31, 2013, the Company has recorded the current and long-term lease liability of $3,342 and $7,554, respectively. Thus, the Company has $10,117 in remaining lease obligation as of March 31, 2014.

  

NOTE 6– 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.

 

 

NOTE 6– PREFERRED STOCK (Continued)

 

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.

 

NOTE 7– 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.

 

 

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.

 

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

 

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

 

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

 

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

 

•	Penetrate into the main stream distribution network

 

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

 

•	Further sale activities

 

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

 

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

 

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

 

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

 

•	Registration and Certification of OEM panels with our brand – $300,000, including UL certification fees, CEC registration fees, and lab testing fees.
•	Initial Inventory – $1,500,000.  We will need to keep 4-5 containers of PV panels in the warehouse in order to support sales of 5~10M watts per year, which means we will need to have over $1,000,000 in inventory for PV panels only. An additional $300,000 in inventory would be needed in order to keep the requisite amount of inverters and racking and panel cleaning systems. In addition, we anticipate providing variable payment terms to different customers based on their creditworthiness; this will add additional cash flow pressure.
•	OEM Management costs – $200,000

 

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 months ended March 31, 2014 and 2013

 

During the three months ended March 31, 2014, we generated gross revenues of $2,048. Total cost of sales was $1,863, resulting in gross profit of $185. Total operating expenses were $213,381, and consisted of salary and wage expenses of $100,397, selling, general and administrative expenses of $72,250, and professional fees of $37,374. We experienced interest expense of $1,195 and other income of $132. Our net loss for the three months ended March 31, 2014 was therefore $214,259.

 

By comparison, during the three months ended March 31, 2013, we generated gross revenues of $12,656. Total cost of sales was $28,675, resulting in gross loss of $16,019. Total operating expenses were $311,387, and consisted of salary and wage expenses of $101,687, selling, general and administrative expenses of $106,160, professional fees of $46,017, and an impairment of inventory in amount of $57,523. We experienced interest expense of $3,358, other income of $58, a loss on derivative liability in the amount of $53,602, and a default penalty on convertible notes of $5,000. Our net loss for the three months ended March 31, 2013 was therefore $389,148.

 

We did not have significant gross revenues during the three months ended March 31, 2014 and 2013. Under the completed contract method of accounting, no profit or income is recorded before substantial completion of the work. The revenue for the projects which were in progress are therefore be recognized after their completion. Due to the implementation periods for different size of projects, revenue fluctuations like the one experienced during this quarter are a normal occurrence for construction companies, including solar system integration companies.

 

We are currently working on one major installation project with a contract price of $900,000. This contract is expected to be substantially completed by the second quarter of 2014. In addition, we have signed an agreement with an installation customer for a contract price of approximately $2.5 million.

 

The operating expenses decreased in the first quarter of 2014 were mainly due to the factoring fee of $50,885 and the impairment of inventory of $57,523 only incurred during the three months ended March 31, 2013.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had current assets in the amount of $2,290,739, consisting of cash in the amount of $178,837, accounts receivable of $1,511,782, inventory in the amount of $500,107, costs in excess of billings on uncompleted contracts of $54,064, prepaid expenses and other current assets of $20,949 and restricted cash of $25,000. As of March 31, 2014, we had current liabilities in the amount of $5,903,377. These consisted of accounts payable and accrued expenses in the amount of $5,394,773, customer deposits of $313,296, accrued warranty of $72,395, advances from contractors of $103,389, the current portion of long term debt in the amount of $16,025, and the current portion of a capital lease in the amount of $3,499. Our working capital deficit as of March 31, 2014 was therefore $3,612,638.

 

As of March 31, 2014, our long-term liabilities were $32,164, which consisted of a loan owing to East West Bank with a long term portion of $25,546 and the remaining long term obligations of a capital lease in the amount of $6,618. 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 order to move forward with our business development plan set forth above, we will require additional financing in the approximate amount of $4,500,000, to be allocated as follows:

 

Initiate OEM Manufacturing		$	2,000,000
R&D Commercialization Costs		$	500,000
Expansion of Installation Business (3 new branches)		$	1,500,000
Additional working capital and general corporate		$	500,000
Total capital needs		$	4,500,000

 

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

 

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

 

 

Off Balance Sheet Arrangements

 

As of March 31, 2014, there were no off balance sheet arrangements.

 

Going Concern

 

We have experienced recurring losses from operations and had an accumulated deficit of $2,575,576 as of March 31, 2014. 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.

 

Recently Issued Accounting Pronouncements

 

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

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4.     Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2014. 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, 2014, 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, 2014.

 

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

 

Item 1.     Legal Proceedings

 

We are a party to the following material pending legal proceedings:

 

We filed a contractual fraud case against one of our commercial installation customers, All Fortune Group LLC (All Fortune), during September 2013 for causes of action including breach of contract, common counts and fraudulent transfer. The relief claimed consists mainly of monetary damages and interest including punitive dames, costs of suits for no less than $1.2 million. As a result of the filing, All Fortune filed a lawsuit against us for causes of action including breach of contract, negligent misrepresentation, intentional misrepresentation and fraud. The relief claimed by All Fortune consists mainly of monetary damages including punitive damages, costs of suit and other recoverable fees and damages. The exact amount sought is unknown. It is not clear that these situations have given rise to liabilities, because we don't know if the situation will result in any future payments. Therefore, no accrued contingency liabilities were recorded as of March 31, 2014.

 

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

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Sunvalley Solar, Inc.
Date:	May 15, 2014
	By:       /s/ Zhijian James Zhang    Zhijian (James) Zhang Title:    Chief Executive Officer and Director
Date:	May 15, 2014
	By:       /s/ Mandy Chung    Mandy Chung Title:    Chief Financial Officer