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 |
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|
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For
the quarterly period ended September 30, 2014 |
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[
] |
Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
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|
|
For
the transition period from to __________ |
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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]
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.
SUNVALLEY
SOLAR, INC.
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.
SUNVALLEY
SOLAR, INC.
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.
SUNVALLEY
SOLAR, INC.
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.
SUNVALLEY SOLAR,
INC.
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.
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.
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.
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.
Item 2. Management’s
Discussion and Analysis or Plan of Operation
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.” These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our
ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have
a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes
in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.
Company
Overview and Plan of Operation
We
are a California-based solar power technology and system integration company founded in January of 2007. We are focused on developing
our expertise and proprietary technology to install residential, commercial and governmental solar power systems. We offer turnkey
solar system solutions for owners, builders and architecture firms that include designing, building, operating, monitoring and
maintaining solar power systems. Our customers range from small private residences to large commercial solar power users. We have
the necessary licenses and expertise to design and install large scale solar power systems. We hold a C-46 Solar License from
CBCL (California Board of Contractor License). Some of the large scale commercial solar power systems that we have designed and
installed include large office buildings, manufacturing facilities and warehouses. Our proprietary technologies in solar installation
provide our customers with a high quality, low cost and flexible solar power system solutions.
We
are working to develop as an end-to-end solar energy solution provider by providing system solution, post-sale service, customer
technical support, solar system design and field installation.
Business
Development Plan
The
primary components of our growth strategy are as follows:
• |
Developing
and commercializing our proprietary solar technologies including our coating and focusing technologies, racking and panel
cleaning system. By deploying these new technologies into our PV panels and solar installation business, we hope to enhance
the value provided to our customers and increase our profitability. |
|
|
• |
Promoting
and enhancing our company’s brand and reputation in solar design and integration and expanding our installation business. |
|
|
• |
Developing
a PV panel manufacturing capability to provide high efficiency and low cost solar panels to US market. This will complement
our installation business and provide an implementation platform for our R&D. |
|
|
• |
Getting
involved in the private power providing business (Distributed Power Plants). Developing this line of business will
lead to higher profit margins and income to our business. In the future, this line of business could become one of our main
income sources. |
Expansion
of Installation Business
We
are planning to expand its installation business. We will continue to execute our marketing and sales strategy in Southern California
and, with additional capital, will be able to expand our business to cover Northern California, Arizona or other states. The
planned expansion is expected to occur through acquiring smaller installation companies in these regions and/or through the establishment
of subsidiaries in these states and boost our installation profits. Our current intention is to establish two new offices located
in Northern California or other states and in San Diego. The estimated start-up cost for each new branch would be approximately
$500,000.
If
we are able to expand our installation business, it will assist us in gaining favorable terms from OEM international manufacturers
of our planned solar panel manufacturing operation. In addition, an expanded installation business would allow us to
accelerate the introduction of our new technologies and solar parts and would generate additional revenue to fund initial investment
in our planned Distributed Power Plant business and to further fund our investments in R&D.
Commercialization
of Research and Development
Prior
to initiating our planned OEM manufacturing of Sunvalley-branded solar panels, we will need to commercialize our advanced panel
technology through the design, fabrication, and characterization of a prototype solar cell. The total expense for planned
commercialization of our research and development will be approximately $500,000. The necessary equipment and facilities
will be accessed from University of California, San Diego. The Nano3 clean room facilities in the school of Engineering at UCSD
are equipped with state-of-the-art micro and nano fabrication equipment and facilities, and can be accessed by outside users with
a $107 hourly fee.
The
interference pattern that will be recorded in the solar cells will be obtained using an Argon laser operating at 362nm. This laser
and its associated equipment is available to us through a special arrangement with the administration office in the University
of California, San Diego, as well as the Ultrafast and Nano-scale Optics lab in the Department of Electrical and Computer Engineering
in UCSD.
Other
equipment will also be required, including coating machine for PV panel testing.
Initiate
OEM Manufacturing of Solar Panels
By leveraging
our solar panel installation business and R&D, we plan to procure OEM solar panels from selected Chinese manufacturers and
to market them in the U.S. under our brand name. We will be responsible for R&D, quality control, customer service, sales
and marketing activities, as well as panel certification in U.S.
The
estimated OEM panel cost is less than $0.50 per watt. As a reference, currently, the lowest panel price is around $0.70 per watt
(Mono-crystalline, Polycrystalline). We can use our own sales and installation platform to showcase the new panels and drive sales
of the new panels in the U.S market. Meanwhile, we will continue our R&D effort on panel coating and other advanced technologies
and apply the results to its panel manufacturing business. The goal will be to further improve the efficiency, lower the cost
of solar panels with our proprietary technologies, and to grow our market share.
Our
marketing strategy for its planned OEM solar panels is as follows:
• |
Set-up
a platform to showcase our innovative solar panel technologies and make Sunvalley solar panels a household name. |
Unlike
other merchandise, solar panel is very unique in that it requires very high level of quality assurance and customer satisfaction.
Providing satisfactory customer service and technical support is absolutely vital in solar panel sales. As the first step, we
will strive to make its brand a household name. The Sunvalley solar panel will be used by our installation business as well as
several other installation companies which have partnerships with us. We do not currently have partnerships with other solar installation
companies, but we plan to pursue them after introducing the panels to the market through our own installation business. A marketing
campaign aimed at other solar installation companies will help to achieve this goal. We will use our own installation business
as the platform to showcase the product quality and build up consumer awareness of its brand.
• |
Penetrate
into the 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.
• |
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..
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.
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.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
Please refer
to our Annual Report on Form 10-K filed April 14, 2014 for information regarding our pending legal proceedings.
Item
1A. Risk Factors
A smaller
reporting company is not required to provide the information required by this Item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults upon Senior Securities
None
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information
None.
Item
6. Exhibits
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 |
CERTIFICATIONS
I, Zhijian
(James) Zhang, certify that;
1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of SunValley Solar, Inc. (the “registrant”); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
/s/ Zhijian James Zhang
By: Zhijian
(James) Zhang
Title: Chief Executive Officer
CERTIFICATIONS
I, Mandy Chung, certify that;
1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of SunValley Solar, Inc. (the “registrant”); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
/s/ Mandy Chung
By: Mandy Chung
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly
Report of SunValley Solar, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014 filed with
the Securities and Exchange Commission (the “Report”), I, Zhijian
(James) Zhang, Chief Executive Officer of
the Company, and I Mandy Chung, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
By: |
/s/ Zhijian James Zhang |
Name: |
Zhijian
(James) Zhang |
Title: |
Principal Executive Officer, Principal Financial Officer and Director |
Date: |
November 14, 2014 |
By: |
/s/ Many Chung |
Name: |
Mandy Chung |
Title: |
Principal Financial Officer |
Date: |
November 14, 2014 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.