UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 30, 2015

[  ]

               TRANSITION REPORT PURSUANT TO SECTION 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

(I.R.S. Employer

incorporation or organization)

            Identification No.)

398 Lemon Creek Dr. Suite A, Walnut CA 91789

(Address of principal executive offices)                                    (Zip Code)

(909) 598-0618

(Registrant’s telephone number)

Indicate 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. Yes [ X ]  No [  ]

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 (§232.405 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 [ X]  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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in

Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer   [  ] (Do not check if a smaller reporting company)

Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

      Class

     Outstanding as of August 12, 2015

Common Stock, $0.001 par value

4,357,883 shares

1

TABLE OF CONTENTS

Heading

Page  

PART  I – FINANCIAL INFORMATION

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets – June 30, 2015 (unaudited) and December 31, 2014

4

Condensed Consolidated Statements of Operations – three and six months ended June 30,

  2015 and 2014  (unaudited)

5

                    Condensed Consolidated Statements of Cash Flows – six months ended June 30, 2015 and

  2014 (unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and

10

  Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15

Item 4.

Controls and Procedures

15

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

15

Item 1A.

Risk Factors

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 3.

Defaults Upon Senior Securities

16

Item 4.

Mine Safety Disclosures

16

Item 5.

Other Information

17

Item 6.

Exhibits

17

Signatures

18

2

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

The accompanying condensed consolidated balance sheets of Sunvalley Solar, Inc. at June 30, 2015 and December 31, 2014, and the related condensed consolidated statements of operations for the three and six month periods ended June 30, 2015 and 2014 and the related condensed consolidated statements of cash flows for the six month periods ended June 30, 2015 and 2014 have been prepared by management in conformity with United States generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the period ended June 30, 2015, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2015.

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SUNVALLEY SOLAR, INC.

 Notes to Condensed Consolidated Financial Statements

June 30, 2015 and December 31, 2014

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2015, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in consolidated 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 consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2014 audited financial statements.  The results of operations for the periods ended June 30, 2015 and 2014 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.

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SUNVALLEY SOLAR, INC.

 Notes to Condensed Consolidated Financial Statements

June 30, 2015 and December 31, 2014

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company’s inventory consisted of the following at June 30, 2015 and December 31, 2014:

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 50,000 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 no such potentially anti-dilutive shares excluded as of June 30, 2015 as their effect would have been antidilutive. 

NOTE 4 - RESTRICTED CASH

In order to comply with the State of California's licensing requirement or contract bonds as of June 30, 2015 and December 31, 2014, the Company maintains a certificate of deposit in the amount of $50,000 and $25,000, respectively, with a financial institution.

NOTE 5 - PROPERTY AND EQUIPMENT

The following is a summary of property and equipment at June 30, 2015 and December 31, 2014:

Depreciation expense for the six months ended June 30, 2015 and 2014 was $11,483 and $11,628, respectively.

NOTE 6 – 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 substantial completion of the work.

As of June 30, 2015 and December 31, 2014, the Company has capitalized $384,164 and $318,734 of costs incurred in relation to installation projects.  

NOTE 7 – 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 June 30, 2015, the Company recognizes the current and long-term lease liability of $4,404 and $1,234, respectively. As of December 31, 2014, the Company has recorded the current and long-term lease liability of $4,017 and $3,537, respectively. Thus, the Company has $5,638 and $7,554 in remaining lease obligation as of June 30, 2015 and December 31, 2014, respectively.

NOTE 8– COMMON STOCK

Effective July 22, 2015, the Company’s common stock was reverse split on a 1 share for 20 shares basis. The accompanying financial statements reflect the reverse stock split on a retroactive basis.

NOTE 9– PREFERRED STOCK

As of June 30, 2015, the Company is authorized to issue up to 6,000,000 shares of $0.001 par value preferred stock; 1,000,000 shares of which are designated as Class A Convertible Preferred Stock, and 2,000,000 shares of which are designated as Class B Convertible Preferred Stock. The remaining 3,000,000 shares of preferred stock remain undesignated.

Class A Convertible Preferred Stock

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 20 common share for 1 preferred share basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible. As of June 30, 2015 and December 31, 2014, there were 1,000,000 shares of Class A Convertible Preferred Stock issued and outstanding.

During the year ended December 31, 2014, the Board of Directors approved the incentive issuance of 50,000 shares of the Company’s Class A Convertible Preferred shares convertible at 20 Series A Preferred shares for 1 common share (previously 1 preferred share for 1 pre-split common share) as an incentive.  The issuance of such preferred shares was valued as stock-based compensation of $835 based on the fair market value of the Company’s common stock on the date of issuance.

Class B Convertible Preferred Stock

The holders of the Class B Convertible Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 post-split common shares and have the right to 10 votes per Class B Convertible Preferred share for all matters submitted to the holders of the Company’s common stock.  As of June 30, 2015 and December 31, 2014, there were no shares of Class B Convertible Preferred Stock issued and outstanding.

NOTE 10– COMMITMENTS AND CONTINGENCIES

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 June 30, 2015. On November 19, 2013, the court ruled that Case NC059003-Sunvalley Solar, Inc v. All Fortune Group, LLC is related to Case KC066248-All Fortune Group, LLC v. Sunvalley; Case NC059003 is deemed the lead case and all future hearing dates will be heard in Long Beach Superior Court. Sunvalley filed a motion for right to attach order and writ of attachment pursuant to Code of Civil Procedure section 483.010 on November 27, 2013, which was granted on February 4, 2014. On July 29, 2015, both parties had a mediation but did not reach any settlement.  The trial date is rescheduled for October 5, 2015.  Sunvalley contracted Absolute Urethane to remodel All Fortune’s roof in order to install the solar system. Per the roofing contract, Absolute Urethane shall furnish all labor, materials and equipment and perform all operations required as specified and the company provide a 15 year warranty for this roofing project. Since All Fortune brought the law suits against Sunvalley and Absolute Urethane at the same time, Absolute Urethane filed a cross-complaint against Sunvalley.  

NOTE 11– SUBSEQUENT EVENTS

On July 23, 2015, the Company issued 2,000,000 shares of Class B Convertible Preferred Stock, to multiple officers. The holders of the Class B Convertible Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 post-split common shares, and have the right to 10 votes per Class B Convertible Preferred share for all matters submitted to the holders of the Company’s common stock.  The Company also increased the number of authorized common shares from 4,500,000 to 150,000,000 and preferred shares from 1,000,000 to 6,000,000.

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.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 effect 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.

Operating Subsidiary

In December 2014 we formed a wholly-owned subsidiary known as Sunvalley Solar Tech, Inc., a California corporation.  Effective December 31, 2014, we transferred substantially all of our assets and liabilities to our wholly-owned subsidiary.  We now conduct our operations through our wholly-owned subsidiary, Sunvalley Solar Tech, Inc.

Failed Sale

On February 11, 2015, we and our wholly owned subsidiary, Sunvalley Solar Tech, Inc., entered into an Agreement for Sale and Purchase of Sunvalley Solar Tech, Inc., pursuant to which we agreed to sell 100% of the stock ownership of Sunvalley Solar Tech, Inc. to Sungold Holdings, a Nevada limited liability company (the “Buyer”).  The agreement provided that the subsidiary would be sold for Two Million Five Hundred Thousand Dollars ($2,500,000) plus five percent (5.0%) of all of Sunvalley Solar Tech, Inc.’s gross sales during 2015 through 2018, which could have increased the sale price to a maximum of Four Million Five Hundred Thousand Dollars ($4,500,000). The Buyer was not able to obtain the necessary financing to complete the sale by the agreed upon closing date of March 20, 2015, so the agreement expired.

Reverse Stock Split

Effective July 22, 2015, the Company’s common stock was reverse split on a 1 share for 20 shares basis. The accompanying financial statements reflect the reverse stock split on a retroactive basis.  Shares of the Company’s issued and outstanding Class A Convertible Preferred Stock are now convertible to shares of the Company’s common stock on a 20 Class A Convertible Preferred shares for 1 common shares basis.

Class B Convertible Preferred Stock

On July 23, 2015, the Company issued 2,000,000 shares of its Class B Convertible Preferred Stock. The holders of the Class B Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 common shares, and have the right to 10 votes per Class B share for all matters submitted to the holders of the Company’s common stock.

Increase in Authorized Shares

In July 2015, the Company amended its Articles of Incorporation to increase the number of authorized common shares to 150,000,000 and preferred shares to 6,000,000.

Business Development Plan

The primary components of our growth strategy are as follows:

·

Developing and commercializing our patent solar technology. By deploying this new technology into our PV panels and solar system, we hope to get into solar system control management, 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.

Expansion of Installation Business

We are planning to expand our installation business through acquisition or merging. 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.

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

Our Patent “Networked Solar Panels and Related Methods” was issued on February 24, 2015.  We will need to commercialize this advanced technology through the design, fabrication, and characterization of prototype solar components and system cell.  The total expense for planned commercialization of our research and development will be approximately $2,000,000.  Through this technology, it is able to address the undesirable fluctuations in the voltage of the power grid due to uncertain environmental impact to solar system. Commercializing this technology into mass production will involve cooperation and approval from utility companies. In addition, the networked PV panel concept will also need to demonstrate that panels using the technology will have a productive life-span and a tolerance to environmental conditions such as humidity, temperature, wind load that are sufficient for the panels to be used in real life application. Accordingly, there is no guarantee that we will be able to commercially produce and market solar panels using our new networked PV panel system technology.

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.

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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, add control and management capability with our patent and 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 and networked 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, patent networked panel technology and other cutting edge technologies to further reduce the manufacturing cost and improve the panel efficiency and management capability.

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

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 June 30, 2015 and 2014

During the three months ended June 30, 2015, we generated gross revenues of $143,682. Total cost of sales was $94,340, resulting in gross profit of $49,342. Total operating expenses during the period were $287,310, and consisted of salary and wage expenses of $163,882, selling, general and administrative expenses of $73,925, and professional fees of $49,503. We experienced interest expense of $654 and other income of $235. Our net loss for the three months ended June 30, 2015 was therefore $238,387.

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By comparison, during the three months ended June 30, 2014, we generated gross revenues of $17,580. Total cost of sales was $7,972, resulting in gross profit of $9,608. Total operating expenses were $282,512, and consisted of salary and wage expenses of $128,864, selling, general and administrative expenses of $62,372, bad debt expense of $50,000, and professional fees of $41,276. We experienced interest expense of $1,589 and other income of $597. Our net loss for the three months ended June 30, 2014 was therefore $272,904.

We did not have significant gross revenues during the three months ended June 30, 2014, but we improved substantially in the three months ended June 30, 2015. 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 to 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 nine major installation projects with contract prices totaling approximately $11 million. Out of these contracts, two contracts in the amount of approximately $1.3 million and three contracts in the amount of approximately $4 million are expected to be substantially completed by the third and fourth quarters of 2015, respectively. The rest of these projects are expected to be substantially completed by June 2016.

The modest increase in operating expenses in the second quarter of 2015 was mainly due to an increase in salary and wage expense of $35,018, an increase in selling, general and administration expense of $11,553 and an increase of professional fees of $8,277, partially offset by a decrease in bad debt expense of $50,000.

Results of Operations for the six months ended June 30, 2015 and 2014

During the six months ended June 30, 2015, we generated gross revenues of $1,069,424. Total cost of sales was $797,818, resulting in gross profit of $271,606. Total operating expenses during the period were $543,202, and consisted of salary and wage expenses of $291,120, selling, general and administrative expenses of $156,929, and professional fees of $95,153. We experienced interest expense of $1,602 and other income of $585. Our net loss for the six months ended June 30, 2015 was therefore $272,613.

By comparison, during the six months ended June 30, 2014, we generated gross revenues of $19,628. Total cost of sales was $9,835, resulting in gross profit of $9,793. Total operating expenses were $495,893, and consisted of salary and wage expenses of $229,261, selling, general and administrative expenses of $137,622, bad debt expense of $50,000 and professional fees of $79,010. We experienced interest expense of $2,784 and other income of $729. Our net loss for the six months ended June 30, 2014 was therefore $488,155.

We did not have significant gross revenues during the six months ended June 30, 2014, but we improved substantially in the six months ended June 30, 2015. 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 to 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.

The increase in operating expenses in the first six months of 2015 were mainly due to an increase in salary and wage expense of $61,859, an increase in selling, general and administration expense of $19,307 and an increase of professional fees of $16,143, partially offset by a decrease in bad debt expense of $50,000.

Liquidity and Capital Resources

As of June 30, 2015, we had current assets in the amount of $3,141,423, consisting of cash in the amount of $479,309, accounts receivable of $1,266,098, inventory in the amount of $792,395, costs in excess of billings on uncompleted contracts of $384,164, prepaid expenses and other current assets of $169,457 and restricted cash of $50,000. As of June 30, 2015, we had current liabilities in the amount of $5,791,105. These consisted of accounts payable and accrued expenses in the amount of $3,815,771, customer deposits of $1,756,530, accrued warranty of $94,532, advances from contractors of $103,389, the current portion of long term debt in the amount of $17,279, and the current portion of a capital lease in the amount of $4,404. Our working capital deficit as of June 30, 2015 was therefore $2,650,482.

As of June 30, 2015, our long-term liabilities were $5,422, which consisted of a loan owing to East West Bank with a long term portion of $4,188 and the remaining long term obligations of a capital lease in the amount of $1,234. 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:

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 June 30, 2015, there were no off balance sheet arrangements.

Going Concern

We have experienced recurring losses from operations and we had an accumulated deficit of $3,918,258 as of June 30, 2015. 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 June 30, 2015. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Zhijian (James) Zhang and our Chief Financial Officer, Mandy Chung. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2015, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2015.

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 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 June 30, 2015. On November 19, 2013, the court ruled that Case NC059003-Sunvalley Solar, Inc v. All Fortune Group, LLC is related to Case KC066248-All Fortune Group, LLC v. Sunvalley; Case NC059003 is deemed the lead case and all future hearing dates will be heard in Long Beach Superior Court. Sunvalley filed a motion for right to attach order and writ of attachment pursuant to Code of Civil Procedure section 483.010 on November 27, 2013, which was granted on February 4, 2014. On July 29, 2015 both parties met in mediation but did not reach any settlement.  The trial date is rescheduled for October 5, 2015. Sunvalley contracted Absolute Urethane to remodel All Fortune’s roof in order to install the solar system. Per the roofing contract, Absolute Urethane shall furnish all labor, materials and equipment and perform all operations required as specified and the company provide a 15 year warranty for this roofing project. Since All Fortune brought the law suits against Sunvalley and Absolute Urethane at the same time, Absolute Urethane filed a cross-complaint against Sunvalley.  

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Our agent for service of process in Nevada is Cane Clark Agency, LLC, 3273 East Warm Springs Rd., Las Vegas, NV 89120.

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

During the year ended December 31, 2014, the Board of Directors approved the incentive issuance of 50,000 shares (of the Company’s Class A Convertible Preferred shares as an incentive to the Company’s President.  The issuance of such preferred shares was valued as stock-based compensation of $835 based on the fair market value of the Company’s common stock on October 10, 2014.  The shares vested immediately.  The shares were issued under Section 4(2) of the Securities Act of 1933 as a transaction not involving any public offering.  

In July 2015, the Board of Directors approved the incentive issuance of 2,000,000 shares of the Company’s Class B Convertible Preferred shares as an incentive to the following persons, in the following amounts:

Zhijian (James) Zhang

1,250,000 shares

Hangbo (Henry) Yu

   325,000 shares

Waiman Mandy Chung

     70,000 shares

Anyork Lee

     50,000 shares

Shirley Liao

     70,000 shares

William Hsien

     70,000 shares

Mehmet Cercioglu

     55,000 shares

Thomas L. Louie

     30,000 shares

Dan Shi

     20,000 shares

Fang Xu

     60,000 shares

These shares were issued as incentive compensation for services rendered or to be rendered by certain officers, directors, and key employees of the Company, and the issuance to each individual is governed by a Restricted Stock Award Agreement. Under the relevant award agreements, the shares issued are subject to forfeiture in event of the recipient’s resignation or dismissal within (1) year of issuance. Prior to vesting, the shares issued may not be transferred or encumbered.

This issuance was exempt from registration under Section 4(2) of the Securities Act of 1933 as a transaction by an issuer not involving any public offering.

The shares of Class B Convertible Preferred Stock vote together with the Company’s Common shares, but shares of the Class B Convertible Preferred Stock have 10 votes per share.  The Class B Convertible Preferred Stock is convertible into shares of the Company’s Common Stock at the conversion rate of one (1) Class B Convertible Preferred Share for ten (10) Common shares.

Item 3.   Defaults upon Senior Securities

None

Item 4.   Mine Safety Disclosures

Not applicable.

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Item 5.   Other Information

None.

Item 6.   Exhibits

(a)

Exhibits:

Exhibit

Description

Number

3.1

Certificate of Amended and Restated Articles of Incorporation

(1)

3.2

Certificate of Designation for Class A Convertible Preferred Stock

(2)

3.3

Certificate of Designation for Class B Convertible Preferred Stock

(1)

3.4

Bylaws

(3)

10.1

Premises Lease dated as of December 1, 2014

(4)

10.2

Distribution Contract – Tian Wei Solar Fils Co.

(5)

31.1           

Certification of the Chief Executive Officer pursuant to Rule 13a-14

            Filed Herein

of the Securities and Exchange Act of 1934, as amended, as adopted

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2           

Certification of the Chief Financial Officer pursuant to Rule 13a-14

            Filed Herein

of the Securities and Exchange Act of 1934, as amended, as adopted

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1           

Certification of the Chief Executive Officer pursuant to 18 U.S.C.

            Filed Herein

Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002.

32.2           

Certification of the Chief Financial Officer pursuant to 18 U.S.C.

            Filed Herein

Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002.

101.INS**

XBRL Instance Document

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase

101.LAB**

XBRL Taxonomy Extension Label Linkbase

101.DEF**

XBRL Taxonomy Extension Definition Linkbase

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase

101.SCH**

XBRL Taxonomy Extension Schema

(1)

Incorporated by reference to Current Report on Form 8-K filed on July 24, 2015

(2)

Incorporated by reference to Current Report on Form 8-K filed on September 5, 2012

(3)

Incorporated by reference to Annual Report on Form 10-K filed on March 31, 2011

(4)

Incorporated by reference to Annual Report on Form 10-K filed on April 15, 2015

(5)

Incorporated by reference to Annual Report on Form 10-K/A filed on May 12, 2011

**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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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.

By: /s/ Zhijian (James) Zhang_____________________  Zhijiang (James) Zhang  President, Chief Executive Officer,  and Director  August 19, 2015

By:  /s/ Mandy Chung____________________________  Mandy Chung  Chief Financial Officer, Principal Accounting

  Officer, Secretary, and Treasurer  August 19, 2015

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