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EXCEL - IDEA: XBRL DOCUMENT - SUNVALLEY SOLAR, INC. | Financial_Report.xls |
EX-31 - EX31_1 - SUNVALLEY SOLAR, INC. | ex31_1.htm |
EX-32.1 - EX32_1 - SUNVALLEY SOLAR, INC. | ex32_1.htm |
EX-31.2 - EX31_2 - SUNVALLEY SOLAR, INC. | ex31_2.htm |
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 September 30, 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 November 12, 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 | 8 |
Item 4: | Controls and Procedures | 8 |
PART II – OTHER INFORMATION
| ||
Item 1: | Legal Proceedings | 9 |
Item 1A: | Risk Factors | 9 |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 9 |
Item 3: | Defaults Upon Senior Securities | 9 |
Item 4: | Mine Safety Disclosures | 9 |
Item 5: | Other Information | 9 |
Item 6: | Exhibits | 9 |
2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Our financial statements included in this Form 10-Q are as follows:
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not necessarily indicative of the results that can be expected for the full year.
3 |
Balance Sheets
September 30, | December 31, | ||||||
2014 | 2013 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 523,519 | $ | 368,796 | |||
Restricted cash | 25,000 | 25,000 | |||||
Accounts receivable, net | 1,128,335 | 2,026,696 | |||||
Inventory | 1,706,190 | 380,155 | |||||
Costs in excess of billings on uncompleted contracts | 268,274 | 29,696 | |||||
Prepaid expenses and other current assets | 85,888 | 11,263 | |||||
Total current assets | 3,737,206 | 2,841,606 | |||||
PROPERTY AND EQUIPMENT, NET | 32,600 | 49,871 | |||||
OTHER ASSETS | |||||||
Long-term accounts receivable, net | 5,297,048 | 4,883,685 | |||||
Other assets | 3,870 | 3,870 | |||||
Total other assets | 5,300,918 | 4,887,555 | |||||
TOTAL ASSETS | $ | 9,070,724 | $ | 7,779,032 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable and accrued expenses | $ | 5,041,843 | $ | 5,573,200 | |||
Customer deposits | 2,358,315 | 93,713 | |||||
Accrued warranty | 73,164 | 73,539 | |||||
Advances from contractors | 103,389 | 103,389 | |||||
Current portion of long-term debt | 16,527 | 15,797 | |||||
Current portion of capital lease | 3,837 | 3,342 | |||||
Total current liabilities | 7,597,075 | 5,862,980 | |||||
LONG-TERM LIABILITIES | |||||||
Capital leases | 4,611 | 7,554 | |||||
Notes payable | 17,178 | 29,626 | |||||
Total long-term liabilities | 21,789 | 37,180 | |||||
TOTAL LIABILITIES | $ | 7,618,864 | $ | 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 | (2,788,329) | (2,361,317) | |||||
Total Stockholders' Equity | 1,451,860 | 1,878,872 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,070,724 | $ | 7,779,032 |
The accompanying notes are an integral part of these condensed financial statements.
F-1 |
Condensed Statements of Operations
(unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
REVENUES | $ | 882,160 | $ | 1,764,722 | $ | 901,788 | $ | 2,293,606 | ||||||||
COST OF SALES | 513,767 | 1,669,695 | 523,602 | 2,316,895 | ||||||||||||
GROSS PROFIT | 368,393 | 95,027 | 378,186 | (23,289 | ) | |||||||||||
OPERATING EXPENSES | ||||||||||||||||
Salary and wage expense | 128,283 | 102,971 | 357,544 | 311,741 | ||||||||||||
Bad debt expense | 49,620 | — | 99,620 | — | ||||||||||||
Professional fees | 28,910 | 8,167 | 107,920 | 147,905 | ||||||||||||
Selling, general and administrative expenses | 100,496 | 308,323 | 238,118 | 425,899 | ||||||||||||
Total Operating Expenses | 307,309 | 419,461 | 803,202 | 885,545 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS | 61,084 | (324,434 | ) | (425,016 | ) | (908,834 | ) | |||||||||
OTHER INCOME (EXPENSES) | ||||||||||||||||
Gain on derivative liability | — | — | — | 52,100 | ||||||||||||
Default penalty on convertible notes | — | — | — | (5,000 | ) | |||||||||||
Gain on settlement of litigation | — | 1,837,178 | — | 1,837,178 | ||||||||||||
Other income | 1,035 | 475 | 1,764 | 633 | ||||||||||||
Interest expense | (976 | ) | (1,368 | ) | (3,760 | ) | (10,405 | ) | ||||||||
Total other income (expenses) | 59 | 1,836,285 | (1,996 | ) | 1,874,506 | |||||||||||
INCOME (LOSS) BEFORE TAXES | 61,143 | 1,511,851 | (427,012 | ) | 965,672 | |||||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
NET INCOME (LOSS) | $ | 61,143 | $ | 1,511,851 | $ | (427,012 | ) | $ | 965,672 | |||||||
BASIC INCOME (LOSS) PER SHARE | $ | 0.00 | $ | 0.05 | $ | (0.00 | ) | $ | 0.01 | |||||||
DILUTED INCOME (LOSS) PER SHARE | $ | 0.00 | $ | 0.05 | $ | (0.00 | ) | $ | 0.01 | |||||||
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 87,156,979 | 29,479,567 | 87,156,979 | 65,005,087 | ||||||||||||
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 88,106,979 | 30,429,567 | 87,156,979 | 65,955,087 |
The accompanying notes are an integral part of these condensed financial statements.
F-2 |
Condensed Statements of Cash Flows
(unaudited)
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2014 | 2013 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (427,012 | ) | $ | 965,672 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 17,271 | 19,994 | ||||||
(Gain) loss on re-measurement of derivative | — | (52,100 | ) | |||||
Gain on conversion of debt | — | — | ||||||
Bad debt expense | 100,000 | 225,650 | ||||||
Loss on impairment of inventory | — | 57,523 | ||||||
Penalty for default on convertible note | — | 5,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 384,998 | (576,497 | ) | |||||
Inventory | (1,326,035 | ) | 67,828 | |||||
Prepaid expenses and other assets | (74,625 | ) | (6,450 | ) | ||||
Other assets | — | 2,000 | ||||||
Costs in excess of billings on uncompleted contracts | (238,578 | ) | 92,430 | |||||
Accounts payable and accrued expenses | (531,357 | ) | 40,309 | |||||
Accrued warranty expenses | (375 | ) | (4,469 | ) | ||||
Customer deposits | 2,264,602 | 84,208 | ||||||
Net Cash Provided by Operating Activities | 168,889 | 921,098 | ||||||
INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | — | — | ||||||
Net Cash Provided By Investing Activities | — | — | ||||||
FINANCING ACTIVITIES: | ||||||||
Proceeds from related party notes payable | — | 160,000 | ||||||
Repayment of related party notes payable | — | (160,000 | ) | |||||
Repayment of advances from contractor | — | (129,402 | ) | |||||
Repayments of long term debt | (11,718 | ) | (11,067 | ) | ||||
Repayment of capital lease | (2,448 | ) | (2,037 | ) | ||||
Repayment of factoring line | — | (571,508 | ) | |||||
Net Cash Used in Financing Activities | (14,166 | ) | (714,014 | ) | ||||
NET INCREASE IN CASH | 154,723 | 207,084 | ||||||
CASH AT BEGINNING OF PERIOD | 368,796 | 85,771 | ||||||
CASH AT END OF PERIOD | $ | 523,519 | $ | 292,855 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
CASH PAID FOR: | ||||||||
Interest | $ | 3,760 | $ | 7,099 | ||||
Income taxes | $ | — | $ | — | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Common stock issued for debt | $ | — | $ | 492,244 |
The accompanying notes are an integral part of these condensed financial statements.
F-3 |
Notes to Condensed Financial Statements
September 30, 2014 and December 31, 2013
(Unaudited)
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 September 30, 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 September 30, 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.
F-4 |
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company’s inventory consisted of the following at September 30, 2014 and December 31, 2013:
2014 | 2013 | |||||||
Raw materials | $ | 1,306,866 | $ | 244,460 | ||||
Work in Progress | 1,586 | 1,326 | ||||||
Finished goods | 397,738 | 134,369 | ||||||
$ | 1,706,190 | $ | 380,155 |
Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic income (loss) per share and diluted 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 such potentially dilutive shares included as of September 30, 2014.
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 September 30, 2014 and December 31, 2013, the Company has capitalized $268,274 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 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 September 30, 2014, the Company recognizes the current and long-term lease liability of $3,837 and $4,611, 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 $8,448 in remaining lease obligation as of September 30, 2014.
F-5 |
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. Holders of Class A Convertible Preferred Stock are also entitled, at their option, to convert their shares into shares of the Company’s common stock on a 1 for 1 basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible.
During the year ended December 31, 2012, the Board of Directors approved the incentive issuance of 950,000 shares of the Company’s Class A Convertible Preferred shares to its executives and key employees and Restricted Stock Award Agreements were signed with such individuals for their shares will vest in full after two years from the date of grant with curtain restrictions. The issuance of such preferred shares were valued as stock-based compensation of $68,400 based on the fair market value of the Company’s common stock on August 28, 2012. The preferred shares vested with full rights to the shareholders on August 28, 2014.
NOTE 7– SUBSEQUENT EVENTS
On October 10, 2014, the Board of Directors of the Company approved conditional common stock repurchases from certain officers, directors and/or employees of the Company named below at $8 per common share:
Name | Number of Shares | Cash Repurchase Price | ||||||
Zhijian Zhang | 46,200 | $ | 369,600 | |||||
Hangbo Yu | 41,200 | $ | 329,600 | |||||
Waiman Mandy Chung | 6,250 | $ | 50,000 | |||||
Shirley Liao | 5,000 | $ | 40,000 | |||||
Anyork Lee | 1,900 | $ | 15,200 | |||||
Thomas L Louie | 1,250 | $ | 10,000 | |||||
Dan Shi | 2,556 | $ | 20,448 |
The Company’s repurchase of the shares described above is conditioned upon the following events: (a) the completion of an acquisition of, or merger with, another company that is approved by the Company’s Board of Directors (the “Future Business Transaction”); and (b) the completion by the Company of at least $900,000 in funding on terms which will have been approved by the Company’s Board of Directors.
The Company has or will enter into a Stock Purchase Agreement with each selling shareholder consistent with the terms described above. Payments for these shares will be made within two (2) months after the Future Business Transaction is completed and the funding has been received in the Company’s bank account, provided that the Future Business Transaction and the funding is received by the Company on or before September 1, 2015. If the Future Business Transaction is not completed and the transaction funding is not in the Company’s account on or before September 1st, 2015, the stock buy back may be terminated by Board of Directors, in its sole discretion, and the common stock shares will not be purchased from the employees named above.
The stock repurchase transactions are at a per share price which is substantially higher than the existing market price for the Company’s shares of common stock. The transactions are intended to provide an incentive to the Company’s executives and key employees for their loyalty and long term employment. None of the conditions discussed above have been met through the current filing date.
F-6 |
NOTE 7– SUBSEQUENT EVENTS (Continued)
Effective October 10, 2014, the Board of Directors approved the issuance of 50,000 shares of Class A Convertible Preferred Stock to Zhijian Zhang at the price of $0.02 per share cash for total consideration of $1,000. No underwriting discounts or commissions were paid. The shares were issued to Mr. Zhang on October 10, 2014.
The shares of Class A Convertible Preferred Stock are convertible into shares of the Company’s Common Stock on a 1 for 1 share basis.
Effective October 10, 2014, Robert Dyskant was appointed as a director of the Company to serve until the next Annual Meeting of Shareholders and until his successor is elected and qualifies. All directors of the Company hold office for one year terms until the election and qualification of their successors. The Company will compensate its independent director no more than $300 for each Board of Directors meeting which he attends.
In accordance with ASC 855, Company management reviewed all material events through the date of this report and there are no material subsequent events to report.
F-7 |
Item 2. Management’s
Discussion and Analysis or Plan of Operation
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Company Overview and Plan of Operation
We are a California-based solar power technology and system integration company founded in January of 2007. We are focused on developing our expertise and proprietary technology to install residential, commercial and governmental solar power systems. We offer turnkey solar system solutions for owners, builders and architecture firms that include designing, building, operating, monitoring and maintaining solar power systems. Our customers range from small private residences to large commercial solar power users. We have the necessary licenses and expertise to design and install large scale solar power systems. We hold a C-46 Solar License from CBCL (California Board of Contractor License). Some of the large scale commercial solar power systems that we have designed and installed include large office buildings, manufacturing facilities and warehouses. Our proprietary technologies in solar installation provide our customers with a high quality, low cost and flexible solar power system solutions.
We are working to develop as an end-to-end solar energy solution provider by providing system solution, post-sale service, customer technical support, solar system design and field installation.
Business Development Plan
The primary components of our growth strategy are as follows:
• | Developing and commercializing our proprietary solar technologies including our coating and focusing technologies, racking and panel cleaning system. By deploying these new technologies into our PV panels and solar installation business, we hope to enhance the value provided to our customers and increase our profitability. |
• | Promoting and enhancing our company’s brand and reputation in solar design and integration and expanding our installation business. |
• | Developing a PV panel manufacturing capability to provide high efficiency and low cost solar panels to US market. This will complement our installation business and provide an implementation platform for our R&D. |
• | Getting involved in the private power providing business (Distributed Power Plants). Developing this line of business will lead to higher profit margins and income to our business. In the future, this line of business could become one of our main income sources. |
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.
4 |
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 mainstream 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 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.
5 |
• | 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 and nine months ended September 30, 2014 and 2013
During the three months ended September 30, 2014, we generated gross revenues of $882,160. Total cost of sales was $513,767, resulting in gross profit of $368,393. Total operating expenses were $307,309, and consisted of salary and wage expenses of $128,283, selling, general and administrative expenses of $100,496, professional fees of $28,910, and bad debt expense of $49,620. We experienced interest expense of $976 and other income of $1,035. Our net income for the three months ended September 30, 2014 was therefore $61,143.
By comparison, during the three months ended September 30, 2013, we generated gross revenues of $1,764,722. Total cost of sales was $1,669,695, resulting in gross profit of $95,027. Total operating expenses were $419,461, and consisted of salary and wage expenses of $102,971, selling, general and administrative expenses of $308,323, and professional fees of $8,167. We experienced interest expense of $1,368, other income of $475, and a gain on settlement of litigation in the amount of $1,837,178. Our net income for the three months ended September 30, 2013 was therefore $1,511,851.
During the nine months ended September 30, 2014, we generated gross revenues of $901,788. Total cost of sales was $523,602, resulting in gross profit of $378,186. Total operating expenses were $803,202, and consisted of salary and wage expenses of $357,544, selling, general and administrative expenses of $238,118, bad debt expense of $99,620, and professional fees of $107,920. We experienced interest expense of $3,760, and other income of $1,764. Our net loss for the nine months ended September 30, 2014 was therefore $427,012.
By comparison, during the nine months ended September 30, 2013, we generated gross revenues of $2,293,606. Total cost of sales was $2,316,895, resulting in gross loss of $23,289. Total operating expenses were $885,545, and consisted of salary and wage expenses of $311,741, selling, general and administrative expenses of $425,899, and professional fees of $147,905. We experienced interest expense of $10,405, other income of $633, a default penalty on convertible notes of $5,000, a gain of $52,100 due to the change in value of a derivative liability, and a gain on settlement of litigation in the amount of $1,837,178. Our net profit for the nine months ended September 30, 2013 was therefore $965,672.
Our gross revenues decreased during the three and nine months ended September 30, 2014 compared to the same periods last year due to the varying implementation periods and completion dates of our various larger projects. Our total operating expenses decreased during the three and nine months ended September 30, 2014 compared to the same periods last year due to decreased inventory impairment and professional fees and increased bad debt, payroll and insurance expenses.
We are currently working on certain major installation projects with a total contract amount of approximately $8 million dollars. A few contracts totaled approximately $3.3 million dollars are expected to be substantially completed by the fourth quarter of 2014. The rest of the projects, in the amount of approximately $4.7 million dollars, are expected to be substantially completed by the first half of 2015..
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Liquidity and Capital Resources
As of September 30, 2014, we had current assets in the amount of $3,737,206, consisting of cash in the amount of $523,519, accounts net, short term receivable of $1,128,335, inventory in the amount of $1,706,190, costs in excess of billings on uncompleted contracts of $268,274, prepaid expenses and other current assets of $85,888 and restricted cash of $25,000. As of September 30, 2014, we had current liabilities in the amount of $7,597,075. These consisted of accounts payable and accrued expenses in the amount of $5,041,843, customer deposits of $2,358,315, accrued warranty of $73,164, advances from contractors of $103,389, the current portion of long term debt in the amount of $16,527, and the current portion of a capital lease in the amount of $3,837. Our working capital deficit as of September 30, 2014 was therefore $3,859,869.
Our net accounts receivable decreased by $798,362 as of September 30, 2014 compared to December 31, 2013 primarily due to the receipt of customers' regular monthly payments, utilities rebates and cash grant awards for certain commercial customers during the first nine months in 2014. In addition, costs in excess of billings increased $238,578 from December 31, 2013 to September 30, 2014 due to the costs worked on several large installation projects which have been capitalized due to the completion accounting method. The prepaid expenses and other current assets increased by $74,625 from last year mostly due to the advanced deposits we made to our vendor for purchasing materials for certain work-in-progress projects.
The company's accounts payable and accrued expenses reduced by $531,357 for the nine months ended September 30, 2014 mostly due to payments paid to our vendor after we received approximately half million dollars of cash grant awards from our customers. In addition, our customers' deposits increased by $2.2 million dollars due to the receipts of certain customers' prepayments for their installation projects.
As of September 30, 2014, our long-term liabilities were $21,789, which consisted of a loan owing to East West Bank with a long term portion of $17,178 and the remaining long term obligations of a capital lease in the amount of $4,611. 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 September 30, 2014, there were no off balance sheet arrangements.
Going Concern
We have experienced recurring losses from operations and had an accumulated deficit of $2,788,329 as of September 30, 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 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 September 30, 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 September 30, 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.
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PART II – OTHER INFORMATION
Please refer to our Annual Report on Form 10-K filed April 14, 2014 for information regarding our pending legal proceedings.
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.
None.
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 |
101 | Materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in Extensible Business Reporting Language (XBRL) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Sunvalley Solar, Inc. | |
Date: | November 14, 2014 |
By: /s/ Zhijian (James) Zhang Zhijian (James) Zhang Title: Chief Executive Officer and Director | |
Date: | November 14, 2014 |
By: /s/ Mandy Chung Mandy Chung Title: Chief Financial Officer |
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