UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act

of 1934 for the Fiscal Year Ended December 31, 2015

[  ]	Transition Report Under 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)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes [   ]   No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [   ]   No [X]

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 past 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant ’ s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]

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 Act).

Yes [  ]   No [ X ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant ’ s most recently completed second fiscal quarter. Approximately $1,003,054 as of June 30, 2015, using an average of bid and asked prices of $0.231 per share.

Indicate the number of shares outstanding of each of the registrant ’ s classes of common stock, as of the latest practicable date of 4,358,176 as of April 5, 2016.

TABLE OF CONTENTS

                                                                    Page No.                                                             

PART I

Item 1.

Business

    4

Item 2.  

Properties

    9

Item 3.  

Legal Proceedings

    9 Item 4.  

Mine Safety Disclosures

  10

PART II

Item 5.  

Market for Registrant ’ s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

  10

Item 6.  

Selected Financial Data

  12

Item 7.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

  12

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

  17

Item 8.  

Financial Statements and Supplementary Data

  17

Item 9.  

Changes in and Disagreements with Accountants on Accounting

         

and Financial Disclosure

  18

Item 9A.

Controls and Procedures

  18

Item 9B.

Other Information

  19

PART III

Item 10.   

Directors, Executive Officers and Corporate Governance

  19

Item 11.

Executive Compensation

  22

Item 12.

Security Ownership of Certain Beneficial Owners and

         

Management and Related Stockholder Matters

  25

Item 13.

Certain Relationships and Related Transactions, and Director

Independence

  28

Item 14.

Principal Accounting Fees and Services

  29

PART IV

Item 15.

Exhibits, Financial Statement Schedules

  29

PART I

Item 1. Business

Sunvalley Solar, Inc. (the “ Company ” ’ “ we ” , “ our ” ) is 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, farming and 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.

Principal Products and Services

Our philosophy is to “ provide solar electricity directly from the sun in a technology innovation-centric and cost effective way ” .  Since inception, we have concentrated on serving the solar power needs of residential and commercial customers tied to the electric power grid.  Our business plans are focused in three specific areas:

 

- Solar Systems Design and Installation
- Solar Technology Research and Development
- Solar Equipment Manufacturing and Distribution

Our Solar Technology Research and Development business is in the development stage and has not yet generated revenue.

The scope of our solar systems design and installation business includes:

- Designing solar systems for commercial, residential, governmental and non-profit customers
- Installing solar power systems and related constructional systems for solar power end users
- Providing technical support and service to solar power end users
- Providing system performance monitoring services to solar power end users
- Providing government permit/incentives application services to solar power end users

Since our founding in 2007, we have focused on solar system design and installation. Installation is our core business, and it also provides the company with a platform for solar product supply, new technology development, and other lines of business. Our gross revenues to date have come mostly from the solar systems installation business. Our installation business is focused primarily in California.  

We are one of a few companies in California that has the permit and expertise to install large commercial solar systems (over 250K watts). Design and installation of a solar power system, especially a large commercial solar power system, requires proper licenses, design capabilities in electrical systems and solar systems, and constructional (ground or roof) implementation ability, as well as experienced project management and an understanding of industry regulations. In addition, the ability to procure proper solar equipment is critical to large commercial solar system projects.

We have obtained a C-46 Solar License from CBCL (California Board of Contractor License). We have been focusing on developing our expertise and proprietary technology to install large commercial and governmental solar power systems since 2010. We are also able to procure the necessary equipment and supplies through our distribution partnerships. Some of large scale commercial solar power systems that we has designed and installed include large office buildings, farming and manufacturing facilities, warehouses and hotels.

Our installation business generated all of our revenues in 2014 and 2015, and it remains a significant component of our total revenue structure. Our development efforts in this area focus on the installation of large commercial and governmental solar power systems, as well as residential solar power systems. Our customers in this line of business run the gamut from small private residences to large commercial solar power projects.

Our current systems installation resources, which consist of two installation worker teams, one engineer/design team, and certain installation equipment, provide us with the capacity to install solar systems totaling over 4.0 million watts on an annual basis.

One problem with photovoltaics is that the amount of electrical energy generated by each one of the PV panels in a distributed plurality or array of PV panels depends on uncertain environmental factors (e.g., weather) which can cause undesirable fluctuations in the voltage of the power grid (voltage fluctuations unfavorably affect the deliverability of grid loads and overall manageability of the power grid). For example, the electrical production of a plurality of PV panels under moving clouds can change from very little to very large amounts in a short time period, which change will correspondingly cause a voltage fluctuation in the associated power grid. The identified voltage fluctuation problem is exacerbated by the uncertainty of draws on the electrical energy within the power grid, for instance, whenever high power consumption by households accessing the grid coincides with low power production from the PV panels or whenever low power consumption coincides with high power production. Accordingly, there is a need for systems and methods of converting solar energy into electrical energy without resulting in unfavorable voltage fluctuations in the power grid.

One attempt to reduce voltage fluctuations in the power grid is embodied by the advanced metering infrastructure (AMI) employed by the Sacramento Municipal Utility District (SMUD) in California. The AMI is a control system that predicts draws on the grid based on historical electricity consumption and power generation. With reference to photovoltaics, the AMI is suited for reducing the exacerbating effects of uncertain energy draws on the grid but the AMI does nothing to combat the environmental and other uncertainties associated with photovoltaic production of electrical energy. Accordingly, a need remains for systems and methods of converting solar energy into electrical energy without resulting in unfavorable voltage fluctuations in the power grid.

Another attempt to reduce voltage fluctuations in the power grid caused by photovoltaic production of electrical energy is numerical simulation. Numerical simulation uses historical data to predict electrical energy inputs to the power grid (electrical energy sources may include a plurality or array of PV panels). While better than nothing, this approach cannot accurately account for environmental and other uncertainties associated with photovoltaic production of electrical energy.

In view of the foregoing, we set a target finding systems and methods producing electricity without the need for high capacity or long batteries and without resulting in unfavorable voltage fluctuations in the power grid.

To meet this objective, we designed a system of networked PV panels, wherein each panel is coupled to a small capacity battery capable of storing electricity produced by the panels, wherein each battery is configured to

randomly and isolated (relative to other batteries coupled to the other panels) discharge its stored electricity into the power grid at a time before the battery reaches its capacity. Within said system, the randomized and delayed discharge of electricity may reduce voltage fluctuations when compared with other systems since (1) each panel only isolated contributes a small amount of electricity relative to the inherent electricity load of the grid so that the associated voltage fluctuation may be nominal or otherwise easy to manage, (2) the delayed discharge provides an opportunity for data to be collected so that the delayed discharge provides an opportunity for data to be collected so that the load of the power grid can be managed for the associated influx of electricity (like, e.g., in a feed-forward controlled system), and (3) the randomized discharge of electricity disrupts weather effects (e.g., the sudden drop in electricity generation of a solar panel may not be displayed by all affected solar panels simultaneously so that the system can accommodate and adapt to the change more easily).

Panels/Batteries within the system may communicate (i.e., be networked) with each other or a controller wirelessly or with wires to accomplish the isolated and delayed discharge, including the communication of energy production information

To meet this objective, the networked PV panel system may be distributed pluralities of solar panels, wherein each plurality of solar panels is coupled to a small capacity battery capable of storing electricity produced by the plurality of panels, wherein each battery is configured to randomly and isolated (relative to the other distributed pluralities of panels) discharge its stored electricity into the power grid at a time before the battery reaches its capacity (preferably every approximately zero to thirty minutes). Said distributed pluralities of panels and their respective batteries within the system may communicate (i.e., be networked) with each other or a controller wirelessly or with wires to accomplish the isolated and delayed discharge, including the communication of energy production information.

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 company. 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.

We have not yet generated revenues from our new technology. With additional capital, however, we hope to commercialize our R&D outputs to our PV panels and installation applications. By combining our research and development capability with our existing installation business and planned panel manufacturing operation, we hope to establish a vertically integrated entity that can grow to become a premier supplier of solar panels in the United States.

Besides the new technology of Networked PV Panel System, our research and development ( “ R&D ” ) team is also involving some other topics in solar field.

The main points of focus for our R&D operation are as follows:

- Keeping and developing a small but strong R&D team in San Diego
- Collaborating with universities in the U.S. and panel manufacturers in China
- Effectively use resources from research institutes and universities in China
- Developing new solar technology and parts, focusing on application technologies

Our key current R&D topics include:

- Developing new coating technology to increase the efficiency of PV panel

- Develop solar PV application technology to reduce system level cost and increase installation flexibility                                                  – Develop new networked PV panel

- Commercializing our new advanced solar technology.

Solar Equipment Manufacturing and Distribution

In recent years, we have built good relationships with some large solar panel and solar inverter producers. Our partnerships with these manufacturers in the solar power industry have allowed us to broaden our customer base and to provide our customers with more cost competitive and complete solar system solutions with multiple selective options on PV panels and inverters. In 2009 and 2010, our solar equipment distribution business grew to constitute the majority of our revenues.  Since 2011, due to the dynamic market price of solar equipment, our distribution business decreased to a small portion of distribution to our revenue.

On the other side, although we have not yet generated revenue from the manufacture of our own solar panels, our R&D team is working on new technology which is able to increase the efficiency of solar panel. With proper funding, the new technology could be commercialized and implemented in solar panel manufacture starting from OEM manufactured panels from reputable solar panel manufacturers in China. The manufactured solar panels would use our brand name with new technology. We would be responsible for quality control, certification applying, marketing, technical support and services in the United States. Our unique technology, if successfully commercialized and brought to market, would provide the solar panel market with a higher efficiency, lower cost unit than competing panels currently on the market. Our ability to provide after-sale services such as system maintenance, technical support, training, etc. for its customers could add another selling point for promotion of the new panel.

Competition and Market Overview

The solar power industry is at an early stage of its growth and is highly fragmented with many smaller companies. The prospect for long-term worldwide demand for solar power has attracted many new solar panel manufacturers, as well as a multitude of design/integration companies in our market segment, with no single competitor gaining market dominance. We expect the manufacturing segment of the industry to consolidate as more solar panel manufacturing capacity comes online. We also expect there to be consolidation in the design/integration segment of the industry based mostly on branding, development of new technology and business process improvements.

Distribution Methods and Marketing

The most important part in a solar power system is the solar panel (PV module). Photovoltaic (PV) devices generate electricity directly from sunlight via an electric process that occurs naturally in certain types of materials. Groups of PV cells are configured into modules and arrays, which can be used to power any number of electrical loads. Crystalline silicon - the same material commonly used by the semiconductor industry -is the material used in a large portion of all PV modules today. PV modules generate direct current (DC) electricity. For residential use, the current is then fed through an inverter to produce alternating current (AC) electricity that can be used to power home appliances.

The majority of PV systems today are installed for homes and businesses that remain connected to the electric grid. Consumers use their grid-connected PV system to supply some of the power they need and use utility-generated power when their power usage exceeds the PV system output (e.g., at night). When the owner of a grid connected PV system uses less power than their PV system creates, they can sell the electricity back to their local utility, watch their meter spinning backwards, and receive a credit on their electric bill - a process referred as net metering. The electric grid thus serves as a “ storage device ” for PV-generated power.

The initial market focus for our commercial installation business has been the Chinese-American and broader Asian-American community of Southern California, with special emphasis on the Asian-American commercial market. We have been able to attract the attention of news media serving this market segment. Several newspapers (Chinese Daily News and World Journal), TV stations (Phoenix Satellite Television and DongSen Satellite Television), and

local radio stations (AM1300), have had special reports on our company. These reports have generated positive reactions from readers, viewers, and listeners and have driven customer traffic to our office.

We plan to continue to pursue our media-based marketing and sales strategy in Southern California. In addition, we are working very closely with our solar panel suppliers and inverter supplier to bid on larger power plants, including government contracts.  

Principal Suppliers

We currently purchase solar panels primarily from three manufacturers, Canadian Solar, JS Solar and Hanwha SolarOne. We maintain good relationships with all of our suppliers, and especially with our primary and important suppliers. In addition, we are continuously adding new alternative suppliers to our supplier list. Due to the standardization of solar equipment, all materials we purchase from our suppliers are available from other sources and suppliers.

Our revenues currently derive from solar system design and installation as well as solar equipment distribution. In order to expand our installation business to states other than California, we will be required to comply with local license requirements by acquiring a local installer or by hiring locally-licensed contractors to serve as officers. For our solar equipment distribution business, no local licensures are required in California or other states.

As a result of continuing global development at all levels of solar equipment manufacturing, including in the area of raw materials supply, in 2009 and 2010, the risk of disruption in the supply of necessary raw materials for solar panels has been greatly reduced since 2011. In addition, we have established solid relationships with several large solar equipment suppliers, allowing us to access multiple sources. For the immediate future, we therefore believe that raw materials for our products will continue to be readily available.

Currently, we believe that the market for solar power in China is not yet mature enough, while, the European market is overcrowded. As a result, we believe that Chinese manufacturers are looking for business opportunities in the United States. As an established technology and system integration company, Sunvalley maintains a unique position to act as the bridge between Chinese manufacturers. The partnership with these manufacturers in the solar power industry allows Sunvalley to provide its customers with a cost competitive, complete solar system solution with multiple selective options on PV panels and inverters.

Intellectual Property

Our patent “ Networked Solar Panels and Related Methods, ” was issued on February 24, 2015. This patent will last 20 years from the effective date of the original application, which was August 4, 2011.

Patent No	US 8,958,924 B2
Title	Networked Solar Panels and Related Methods
Patent Date	Feb. 17, 2015
Application Type	Utility under 35 USC 111(a)

Personnel

We have 11 employees, 7 of whom are full-time employees. Our current internal departments include the Administration Department, the Engineering Department, the Sales/Marketing Department and the New Technology Development Department. We are lead by a management team that includes a group of scientists, research/development engineers, a professional marketing/sales team, and an experienced supply chain management team. In addition, our team includes solar power system design engineers, solar power system installation engineers,

electrical system design engineers and construction engineers.

Government Regulation

The market for solar energy systems is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as policies adopted by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. For example, there currently exist metering caps in certain jurisdictions, which limit the aggregate amount of power that may be sold by solar power generators into the electric grid. These regulations and policies have been modified in the past and may be modified in the future in ways that could deter purchases of solar energy systems and investment in the research and development of solar energy technology. For example, without a mandated regulatory exception for solar energy systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. Such fees could increase the cost to our customers of using solar energy systems and make them less desirable, thereby harming our business, operating results and financial condition. Changes in net metering policies could also deter the purchase and use of solar energy systems. In addition, electricity generated by solar energy systems competes primarily with expensive peak hour electricity rates rather than with the less expensive average price of electricity. Modifications to the peak hour pricing policies of utilities, such as to a flat rate, would require solar energy systems to achieve lower prices in order to compete with the price of electricity.

The importation of some of the products we sell is subject to tariffs, duties and quotas imposed by the United States.  In addition, other restrictions on the importation of our products are periodically considered by the United States Congress, and may again be considered to protect against “ Asian ” deflation. No assurances can be given that tariffs or duties on such goods may not be raised, resulting in higher costs to us or that import quotas with respect to such goods will not be lowered. Deliveries of products from our foreign suppliers could be restricted or delayed by the imposition of lower quotas or increased tariffs. We may be unable to obtain similar quality products at equally favorable prices from domestic suppliers or from other foreign suppliers whose quotas have not been exceeded by the supply of goods to existing customers.

Item 2. Properties

We lease approximately 2,193 square feet of office space in the Walnut Tech Business Center located at 398 Lemon Creek Drive, Suite A, Walnut, CA 91789 for $3,180 per month. Our lease was renewed until December 31, 2018. The annual rent is $38,158, which is payable monthly at the rate of $3,180 per month.  In addition, there is a fee for monthly expenses and taxes of $263 per month.  The property is sufficient for our current business size.

Item 3. 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.  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.  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.  A settlement was reached between Sunvalley and All Fortune on October 7, 2015.  A money judgement is awarded in the amount of $874,689 to Sunvalley.  All Fortune will pay $380,000 within 20 days after All Fortune ’ s receipt of Sunvalley ’ s insurer payment of $215,000.  All Fortune agrees to pay Sunvalley the remaining balanced owed of $494,689 in 30 monthly payments at $16,453 each and the 31st monthly payment of $1,100.

Sunvalley filed a lawsuit against China Electric Equipment Group Corporation (CEEG) on January 17, 2013 for breach of contract, intentional and negligent misrepresentation and violation of California business & professions code and requested CEEG to compensate the damages and economic losses in the amount of no less than $2,000,000.

CEEG (Shanghai) Solar Science & Technology Co., LTD., (parent of CEEG), here collectively called as CEEG, filed a lawsuit in USA against Sunvalley on September 18, 2015  to enforce the Foreign Arbitration Award issued by the Shanghai International Economic and Trade Arbitration Commission (SIETAC) in favor of CEEG and against Sunvalley on December 10, 2013.  CEEG requested damages of $1,000,000 representing the principal amount awarded to CEEG under the Arbitral Award in China plus interest, currency exchange loss and other professional fees in the amount approximately $450,000.      

On October 29, 2015, the Court granted CEEG ’ s motion to compel arbitration in China.  However, Sunvalley will file an appeal to the Court to request the ruling of the CEEG case in the United States instead of China. On February 5, 2016, the Central District Court of California granted CEEG ’ s motion to confirm the Foreign Arbitration Award against Sunvalley.  Sunvalley ’ s attorney is filing the appeal on this case.

Our agent for service of process in Nevada is Joe Laxague, Esq., 1 East Liberty, Suite 600, Reno, NV 89501.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is quoted under the symbol “ SSOL ” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. ( “ FINRA ” ) and the electronic market operated by OTC Markets Group, Inc. Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA. Consequently, market makers that once quoted our shares on the OTC Markets system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTC Markets system..

The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTC Markets quotation system. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Fiscal Year Ended December 31, 2015

Quarter Ended	High $	Low $
December 31, 2015	$0.06	$0.0176
September 30, 2015	$0.35	$0.021
June 30, 2015	$0.36	$0.182
March 31, 2015	$0.44	$0.18

Fiscal Year Ended December 31, 2014

Quarter Ended	High $	Low $
December 31, 2014	$0.38	$0.20
September 30, 2014	$0.40	$0.30
June 30, 2014	$0.68	$0.25
March 31, 2014	$0.60	$0.20

On March 30, 2015, the last sales price per share of our common stock was $0.06.

Penny Stock

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

Holders of Our Common Stock

As of April 5, 2016, we had 4,358,176 shares of our common stock issued and outstanding, held by fifty-seven (57)

shareholders of record.

Dividends

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

1.  we would not be able to pay our debts as they become due in the usual course of business, or;

2.  our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

Item 6. Selected Financial Data

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

Item 7. 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 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.

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, networked PV panel 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.

Expansion of Installation Business

We are planning to expand our 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.

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.

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.

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

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

  •

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

Unlike other merchandise, solar panel is very unique in that it requires very high level of quality assurance and

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

  •

Penetrate into the main stream distribution network

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

  •

Further sale activities

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

  •

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

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

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

•

Registration and Certification of OEM panels with our brand – $300,000, including UL certification fees, CEC registration fees, and lab testing fees.

•

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

•

OEM Management costs – $200,000

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.

Results of Operations for the Years Ended December 31, 2015 and 2014

During the year ended December 31, 2015, we generated gross revenues of $5,788,177. Total cost of sales was $4,268,743, resulting in gross profit of $1,519,434. Total operating expenses were $1,322,360, consisting entirely of

selling, general and administrative expenses.  We experienced interest expense of $1,358 and other income of $80. Our net income for the year ended December 31, 2015 was therefore $195,811.

By comparison, during the year ended December 31, 2014, we generated gross revenues of $3,317,039. Total cost of sales was $2,682,399, resulting in gross profit of $634,640. Total operating expenses were $1,916,511, consisting entirely of selling, general and administrative expenses. We experienced interest expense of $4,670, other income of $1,713, and a gain on sale of equipment of $500. Our net loss for the year ended December 31, 2014 was therefore $1,284,328.

Our revenues increased $2,471,138 in 2015 as compared to 2014.  Our gross profit increased significantly due to a lower cost of sales. The reason for the lower cost of sales is that contracts we completed in 2015 were a few larger scale commercial projects, and we implemented these projects by using internal resources to design and manage these projects, but sub-contracting field construction work to some local companies and workers to reduce construction cost.  During 2015, our expenses for salary and wages increased by approximately $298,723 and we had $882,191 as salary compensation related to preferred stock issued during 2015.  Our selling, general, and administrative expenses increased approximately $103,316.  We had collection of bad debt of $874,689 in 2015, while we had bad debt expense of $1,003,052 in 2014 mainly due to most of the written-off accounts receivable from All Fortune Group, LLC, which were considered as collectible after the lawsuit between Sunvalley and All Fortune was settled on October 7, 2015 (refer to Item 3. Legal Proceedings) .  

We are currently working on three major installation projects with contract prices totaling approximately $5.8 million. One of these contracts is expected to be substantially completed by the second quarter of 2016 and the other two contracts are expected to complete by the end of third quarter of 2016.

Liquidity and Capital Resources

As of December 31, 2015, we had current assets in the amount of $3,420,401, consisting of cash and cash equivalents in the amount of $1,209,198, accounts receivable of $1,997,935, inventory in the amount of $103,346, costs in excess of billings on uncompleted contracts of $58,235, prepaid expenses and other current assets of $14,187, and restricted cash of $37,500. As of December 31, 2015, we had current liabilities in the amount of $4,794,470. These consisted of accounts payable and accrued expenses in the amount of $4,478,157, customer deposits of $75,654, accrued warranty of $133,733, advances from contractors of $103,389, and the current portion of a capital lease in the amount of $3,537. Our working capital deficit as of December 31, 2015 was therefore $1,374,069.

Our accounts payable and accrued expenses as of December 31, 2015 consisted of the following:

Accounts Payable	$3,796,852
Credit Card payable	$73,425
Accrued vacation	$56,853
Other accrued expense	$283,995
Payroll liabilities	$216,272
Sales tax payable	$50,760
Total	$4,478,157

 

As of December 31, 2015, we had no long term liabilities.

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 December 31, 2015, there were no off balance sheet arrangements.

Going Concern

We have experienced recurring losses from operations and had an accumulated deficit of $3,449,834 as of December 31, 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.

Accounts Receivable  

The Company ’ s trade accounts receivable consist primarily of accounts due from wholesale customers, and accounts due from installation customers, with the most significant amounts arising from installation contracts. Trade receivables are due within 30 days on wholesale contracts, while receivables on installation contracts are due in installments over terms ranging from five to seven years. The Company performs periodic credit evaluations of its customers ’ respective financial conditions and does not require collateral. Credit losses have consistently been within management ’ s expectations. An allowance for doubtful accounts is recorded when it is probable that all or a portion of a trade receivables balance will not be collected.

Lon g -Lived Assets

Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an

impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Product Warranties  

The Company warrants its products for various periods against defects in material or installation workmanship. The manufacturers of the solar panels and the inverters provide a warranty period of generally 25 years and l0 years, respectively. The Company will assist its customers in the event that the manufacturers ’ warranty needs to be used to replace a defective solar panel or inverter. The Company provides for a 10-year warranty on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers ’ warranty. Maintenance services such as cleaning the solar panels and checking the systems are offered to customers twice a year without a separate service charge.

 

The Company records a provision for the installation warranty, an expense included in cost of sales, based on management's best estimate of the probable cost to be incurred in honoring its warranty commitment.

 

Revenue Reco g nition

The completion of a solar installation project ranges from six to eighteen months; therefore, the Company recognizes revenue from a system installation under the completed contract method of accounting. Revenue from system installations and sales of solar panels is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. The Company defines its services as having been substantially completed upon the installed systems are ready for City ’ s Building Department ’ s final inspection. Wholesale revenues are recognized pursuant to the same criteria; however, with wholesale arrangements the Company defines its delivery as having been completed at such time the customer takes possession of the Company ’ s product.

Stock-based Compensation

The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.

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 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements Required by Article 8 of Regulation S-X:

Audited Financial Statements:

SUNVALLEY SOLAR, INC.

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

AND

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended

December 31, 2015 and 2014

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

 F-3

Balance Sheets

 F-4 to F-5

Statements of Operations

 F-6

Statement of Stockholders ’ Equity

 F-7

Statements of Cash Flows

 F-8

Notes to Financial Statements

 F-9 to F-18

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Sunvalley Solar, Inc.

We have audited the accompanying consolidated balance sheets of Sunvalley Solar, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of income, stockholders ’ equity, and cash flows for each of the years in the two year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company ’ s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company ’ s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sunvalley Solar, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit of $3,449,834, which raises substantial doubt about its ability to continue as a going concern. Management ’ s plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Sadler, Gibb & Associates, LLC

Salt Lake City, UT

April 12, 2016  

SUNVALLEY SOLAR, INC.
Consolidated Balance Sheets
			December 31,			December 31,
			2015			2014
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		$	1,209,198		$	822,444
	Restricted cash			37,500			25,000
	Accounts receivable, net			1,997,935			2,167,580
	Inventory, net			103,346			1,051,669
	Costs in excess of billings on uncompleted contracts			58,235			318,734
	Prepaid expenses and other current assets			14,187			16,002
		Total current assets		3,420,401			4,401,429
PROPERTY AND EQUIPMENT, NET				27,948			26,957
OTHER ASSETS
	Long-term accounts receivable, net			3,011,745			3,042,976
	Other assets			7,757			3,870
		Total other assets		3,019,502			3,046,846
		TOTAL ASSETS	$	6,467,851		$	7,475,232
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	4,478,157		$	4,740,648
	Customer deposits			75,654			1,900,928
	Accrued warranty			133,733			97,654
	Advances from contractors			103,389			103,389
	Current portion of long-term debt			-			16,774
	Current portion of capital lease			3,537			4,017
		Total current liabilities		4,794,470			6,863,410
LONG-TERM LIABILITIES
	Capital leases			-			3,537
	Notes payable			-			12,906
		Total long-term liabilities		-			16,443
		TOTAL LIABILITIES		4,794,470			6,879,853
STOCKHOLDERS' EQUITY
	Class A convertible preferred stock, $0.001 par value,
	1,000,000 shares authorized, 1,000,000 shares
	issued and outstanding			1,000			1,000
	Class B convertible preferred stock, $0.001 par value,
	2,000,000 shares authorized, 2,000,000 and -0- shares
	issued and outstanding, respectively			2,000			-
	Common stock, $0.001 par value, 150,000,000 shares
	authorized, 4,357,849 shares issued and oustanding			4,358			4,358
	Additional paid-in capital			5,115,857			4,235,666
	Accumulated deficit			(3,449,834)			(3,645,645)
		Total Stockholders' Equity		1,673,318			595,379
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,467,851		$	7,475,232
The accompanying notes are an integral part of these consolidated financial statements.
F-5

SUNVALLEY SOLAR, INC.
Consolidated Statements of Cash Flows
			For the Years Ended
			December 31,
			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)		$	195,811		$	(1,284,328)
	Adjustments to reconcile net income (loss) to net cash
	provided by operating activities:
		Depreciation and amortization		22,783			22,914
		Gain on sale of equipment		-			(500)
		Preferred stock issued for services		882,191			835
		Bad debt expense		(874,689)			1,003,052
	Changes in operating assets and liabilities:
		Restricted cash		(12,500)			-
		Accounts receivable		1,075,565			696,773
		Inventory		948,323			(693,107)
		Prepaid expenses and other assets		1,815			-
		Other assets		(3,887)			(4,739)
		Costs in excess of billings on uncompleted contracts		260,499			(289,038)
		Accounts payable and accrued expenses		(226,412)			998,778
		Customer deposits		(1,825,274)			-
		Net Cash Provided by Operating Activities		444,225			450,640
CASH FLOWS FROM INVESTING ACTIVITIES:
	Sale of equipment			-			500
	Purchases of equipment			(23,774)			-
		Net Cash Provided By (Used in) Investing Activities		(23,774)			500
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayments of long term debt			(29,680)			(15,743)
	Repayments of capital lease			(4,017)			(3,342)
		Net Cash Used in Financing Activities		(33,697)			(19,085)
NET CHANGE IN CASH				386,754			432,055
CASH AT BEGINNING OF YEAR				822,444			368,796
CASH AT END OF YEAR			$	1,209,198		$	800,851
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	CASH PAID FOR:
		Interest	$	2,513		$	4,670
		Income taxes	$	-		$	-
The accompanying notes are an integral part of these consolidated financial statements.
F-8

F-7

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

Sunvalley Solar, Inc. (the Company) was incorporated on August 16, 2007 under the laws of the State of Nevada as Western Ridge Minerals, Inc., Sunvalley Solar Inc. (the "Subsidiary"), formerly known as West Coast Solar Technologies Corporation, a California corporation, was incorporated on January 30, 2007.

 

On June 24, 2010, in accordance with the Exchange Agreement dated June 24, 2010, Western Ridge Minerals acquired all of the issued and outstanding shares of the Sunvalley, which resulted in Sunvalley becoming a wholly-owned subsidiary.  In exchange for all of the issued and outstanding shares of Sunvalley, the shareholders of the Sunvalley received a total of 960,082 shares of Western Ridge Mineral ’ s common stock, which represented approximately 60% of the Company ’ s outstanding common stock following the acquisition. There were 2,098,543 shares of the Company ’ s common stock outstanding before giving effect to the stock issuances in the acquisition and the cancellation of 1,458,488 shares by Mr. Marco Bastidas and certain other shareholders resulted in there being 1,600,137 shares outstanding post acquisition. As a result, the shareholders of the Subsidiary became the controlling shareholders of the combined entity. In connection with the acquisition, $400,000 was contributed to the Company from a Company shareholder.

 

Accordingly, the transaction is accounted for as a recapitalization with the Subsidiary deemed to be the accounting acquirer and the Company the legal acquirer in the reverse acquisition. Consequently, the assets and liabilities and the historical operations of the Subsidiary prior to the Merger are reflected in the financial statements and are recorded at the historical cost basis of the Subsidiary. Following the Acquisition the Company ’ s fiscal year-end has been changed from March 31 to December 31.

 

On August 10, 2012 the Company effected an 1 to 500 reverse stock split accordingly all the share amounts were restated to reflect the reverse stock split on a retro-active basis.

 

On August 29, 2012, the Company ’ s shareholders and board of directors approved an amendment to the Articles of Incorporation to decrease the total authorized common stock from 7,500,000,000 shares to 90,000,000 shares.

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.

 

Description of Business

The Company markets, sells, designs and installs solar panels for residential and commercial customers. The Company ’ s primary market is in the state of California, however the Company may sell anywhere in the United States.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

As reflected in the accompanying financial statements, the Company has experienced recurring losses from operations through December 31, 2015 and has an accumulated deficit of $3,449,834 as of December 31, 2015. These factors, among others, raise substantial doubt about the Company ’ s ability to continue as a going concern.

 

Management plans to raise additional operating capital through a private placement of the Company ’ s common stock. Management believes that with sufficient working capital the Company can produce sufficient sales to become cash flow positive and profitable which will allow it to continue as a going concern. There is no assurance that the Company will be successful in its plans.

F-8

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

Accounting Method

The Company's financial statements are prepared using the accrual method of accounting.  The Company has elected a December 31, year-end.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States 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 periods. Significant estimates made in preparing the financial statements include the allowance for doubtful accounts, accrued warranty, convertible debt derivative liabilities and discount expenses. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

Operating Segments

The Company operates in one operating segment.

 

Cash and Cash Equivalents

Cash equivalents are comprised of certain highly liquid investments with original maturities of three months or less when purchased.  The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits.  The Company has not experienced any losses related to this concentration of risk. As of December 31, 2015 and 2014, the Company had $959,198 and $572,444, respectively, in cash in bank deposits that exceeded the $250,000 federally insured limits.

 

Accounts Receivable

The Company ’ s trade accounts receivable consist primarily of accounts due from wholesale customers, and accounts due from installation customers, with the most significant amounts arising from installation contracts. Trade receivables are due within 30 days on wholesale contracts, while receivables on installation contracts are due in installments over terms ranging from five to seven years. The Company performs periodic credit evaluations of its customers ’ respective financial conditions and does not require collateral. Credit losses have consistently been within management ’ s expectations. An allowance for doubtful accounts is recorded when it is probable that all or a portion of a trade receivables balance will not be collected. The Company ’ s allowance for doubtful accounts consisted of the following as of December 31, 2015 and 2014:

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.   

 

At each balance sheet date, the Company evaluates its ending inventory for excess quantities and obsolescence. This evaluation includes an analysis of sales levels by product type.  Among other factors, the Company considers current

F-9

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

product configurations, historical and forecasted demand, market conditions and product life cycles when determining the net realizable value of the inventory. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the excess or obsolete inventory.  

Property and Equipment

Property and equipment are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets.   Management evaluates useful lives regularly in order to determine recoverability taking into consideration current technological conditions.

Maintenance and repairs are charged to expense as incurred; additions and betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation of the disposed assets are removed, and any resulting gain or loss is recorded. Fully depreciated assets are not removed from the accounts until physical disposition. The estimated useful lives are as follows:

Classification		Useful life
Automobile		5 years
Furniture		7 years
Software		3 years
Office equipment		5 years
Machinery		5 to 7 years

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Based on this analysis, the Company believes that no impairment of the carrying value on its long-lived assets existed at December 31, 2015 and 2014.

Customer Deposits

Customer deposits represent advance payments received for installation projects. Typically the Company will receive five percent of a contract total at the commencement of the installation project. These amounts are recorded as liabilities until such time that the Company has performed the majority of its contractually agreed-upon work, at which time the deposits are recognized as revenue in accordance with the Company ’ s revenue recognition policy.

Product Warranties

The Company warrants its products for various periods against defects in material or installation workmanship. The manufacturers of the solar panels and the inverters provide a warranty period of generally 25 years and l0 years, respectively. The Company will assist its customers in the event that the manufacturers ’ warranty needs to be used to replace a defective solar panel or inverter. The Company provides for a 10-year warranty on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers ’ warranty. Maintenance services such as cleaning the solar panels and checking the systems are offered to customers twice a year without a separate service charge.

F-10

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company records a provision for the installation warranty, an expense included in cost of sales, based on management's best estimate of the probable cost to be incurred in honoring its warranty commitment. The Company's accrued warranty provision was $133,733 and $97,654 at December 31, 2015 and 2014, respectively.

Revenue Recognition

The completion of a solar installation project ranges from six to eighteen months; therefore, the Company recognizes revenue from a system installation under the completed contract method of accounting. Revenue from system installations and sales of solar panels is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. The Company defines its services as having been substantially completed upon the installed systems are ready for City ’ s Building Department ’ s final inspection. Wholesale revenues are recognized pursuant to the same criteria; however, with wholesale arrangements the Company defines its delivery as having been completed at such time the customer takes possession of the Company ’ s product.

 

Cost of Sales

Cost of sales is comprised primarily of the cost of purchased product, as well as direct labor, inbound freight costs and other material costs required to complete products and installation projects. For installation projects, the direct labor costs are recorded as work-in-progress inventory and other installation project costs incurred by the Company are recorded as costs in excess of billings on uncompleted contracts before the project ’ s revenue is recognized. When the Company uses contractors for installation projects, if the contractor provides progress billings to the Company, then those costs will be recorded as work-in-progress inventory. However, if the contractor doesn ’ t provide progress billings to the Company, then the Company will record the costs to cost of sales once the contractor bills the Company.

 

Advertising Expenses

Advertising expenses are expensed as incurred. Total advertising expenses amounted to $3,013 and $1,688 for the years ended December 31, 2015 and 2014, respectively.

 

Research and Development

Research and development costs are expensed as incurred and amounted to approximately $-0- and $-0- for the years ended December 31, 2015 and 2014, respectively. These costs are included in selling, general and administrative expenses in the accompanying statements of operations.

Income Taxes

The Company applies the asset and liability method of accounting for income taxes. The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.

 

The Company recognizes and measures any uncertain tax positions using a “ more-likely-than-not ” approach. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of

F-11

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

management, it is more likely than not that some portion or all of the deferred tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Basic and Diluted Earnings (Loss) per Common Share

Basic earnings (loss) per common share is computed by dividing the net earnings by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic earnings (loss) per share are equal to diluted earnings (loss) per share due to the impact of additional common shares that could be issued upon conversion of issued and outstanding convertible preferred stock would be anti-dilutive. Dilutive instruments include 20,000,000 shares to be issued upon conversion of Series A Convertible Preferred Stock and 20,000,000 shares to be issued upon conversion of Series B Convertible Preferred Stock. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 40,000,000 such potentially anti-dilutive shares excluded as of December 31, 2015 as their effect would have been antidilutive. 

Fair Value Measurements

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Stock-based Compensation

The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  

Reclassification of Financial Statement Accounts

Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.

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.

NOTE 3  – RESTRICTED CASH

 

In order to comply with the State of California's licensing requirement or contract bonds as of December 31, 2015 and 2014 the Company maintains a certificate of deposit in the amount of $37,500 and $25,000, respectively, with a financial institution.

F-12

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 4  – INVENTORY

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

 

The Company ’ s reserve for excess and obsolete inventory amounted to $-0- and $-0- as of December 31, 2015 and 2014.

NOTE 5 – 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. The Company recognizes revenue 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 December 31, 2015 and December 31, 2014, the Company has capitalized $58,235 and $318,734 of costs incurred in relation to installation projects.

NOTE 6 – PROPERTY AND EQUIPMENT

 

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

 

Depreciation expense for the years ended December 31, 2015 and 2014 was $22,783 and $22,912, respectively.

NOTE 7 –  ADVANCES FROM CONTRACTORS

 

On August 14, 2012 the Company entered into a funding agreement with a contractor to receive funding to complete various projects. During the year ended December 31, 2012, the Company received advances under said funding agreement of $247,175. The advances bear no interest and are due on demand. The outstanding balance of the advances at December 31, 2015 and 2014, was $103,389 and $103,389, respectively.

NOTE 8 – EQUIPMENT LEASE

In September 2011, the Company entered a lease-to-own purchase agreement. The Company evaluated the lease at the time of purchase and determined that the agreement contained a beneficial by-out option wherein the Company has the option to buy the equipment for $1 at the end of the lease term. The Company has classified the lease as a

F-13

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

capital lease. The Company 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.

Capital leases payable outstanding as of December 31, 2015 and 2014 consisted of the following:

(1)

Arrangement with a bank having a maximum borrowing of $100,000; is collateralized by all business assets. Any principal amounts outstanding accrue interest at the bank's variable index rate (currently 6.07 percent as of December 31, 2015). The remaining loan balance of $14,456 was paid off in full on December 1, 2015.

NOTE 10 – STOCKHOLDERS ’ EQUITY

Preferred Stock

 

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 authorized 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 September 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.

NOTE 10 – STOCKHOLDERS ’ EQUITY (CONTINUED)

Preferred Stock (Continued)

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 September 30, 2015 and December 31, 2014, there were 2,000,000 shares and -0- shares of Class B Convertible Preferred Stock issued and outstanding, respectively.

 

On July 23, 2015, the Company issued 2,000,000 shares of Class B Convertible Preferred Stock, to certain officers, directors and/or employees for services valued at $2,000,000, the value of which was based on the trading price of the common stock into which each share of preferred stock is convertible. The issuance of such preferred shares was valued as a stock subscription payable of $2,000,000 which is being amortized ratably over the vesting period to compensation expenses based on the fair market value of the Company ’ s preferred shares on the date of issuance. Compensation expense of $882,191 was recorded during the nine months ended December 31, 2015, and the remaining compensation expense related to the unvested portion of preferred stock was $1,117,809.

Common Stock

Effective July 22, 2015, the Company ’ s common stock was reverse split on a 1 share for 20 shares basis. The accompanying consolidated financial statements reflect the reverse stock split on a retroactive basis. 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. No shares of common stock were issued during the years ended December 31, 2015 and 2014.

NOTE 11 –  INCOME TAXES

 

The Company determines whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Net deferred tax assets consist of the following components:

F-15

SUNVALLEY SOLAR, INC.

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

NOTE 11 –  INCOME TAXES (CONTINUED)

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income statutory tax rates to pretax income (loss) from continuing operations as follows:

The Company has accumulated net operating loss carryovers of approximately $1,172,943 as of December 31, 2015 which are available to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may limit the utilization of the net operating loss carry forwards in future years. The tax losses begin to expire in 2033. The fiscal years 2015 and 2014 remain open to examination by federal tax authorities and other tax jurisdictions.

NOTE 12 – CONCENTRATIONS OF RISK

 

Supplier Concentrations

The Company purchases solar panels from three and two manufacturers during the years ended December 31, 2015 and 2014, respectively. For the years ended December 31, 2015 and 2014, these vendors accounted for approximately 54 percent and 63 percent, respectively, of total inventory purchases.

 

Customer Concentrations

For the years ended December 31, 2015 and 2014, four and two customers, respectively, represented more than 10 percent of the Company ’ s sales. This translates to approximately 99 percent of the Company's annual net revenues.

 

NOTE 13 –  COMMITMENTS AND CONTINGENCIES

 

Leases

The Company leases an office under an operating lease that expires on December 31, 2018.  Total rent expense amounted to $44,961 and $36,929 for the fiscal years ended December 31, 2015 and 2014, respectively.

At December 31, 2015, minimum annual commitments, which do not include common are maintenance charges or real estate taxes which are also required contractual obligation under our operating leases, under non-cancelable leases were as follows:

NOTE 13 –  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings

The Company filed a contractual fraud case against one of its commercial installation customers, All Fortune Group, LLC ( “ All Fortune ” ), during September 2013 for causes of action such as breach of contract, common counts and fraudulent transfer. The reliefs claimed by the Company mainly are monetary damages and interest including punitive dames, costs of suits for no less than 1.2 million. As a result of the filing by the Company, All Fortune filed a lawsuit against the Company for causes of action which are breach of contract, negligent misrepresentation, intentional misrepresentation and fraud in All Fortune ’ s compliant. The reliefs claimed by All Fortune are mainly monetary damages including punitive damages, costs of suit and other recoverable fees and damages. A settlement was reached between the Company and All Fortune on October 7, 2015. A money judgement in the amount of $874,689 to the Company. All Fortune will pay $380,000 within 20 days after All Fortune ’ s receipt of the Company ’ s insurer payment for $215,000. All Fortune agrees to pay the Company the remaining balance owed of

$494,689 in 30 monthly payments at $16,453 and the 31st monthly payment of $1,100. The Company recorded $874,689 as collection of bad debt in the operating expenses in the 4th quarter of 2015.

The Company filed a lawsuit against China Electric Equipment Group Corporation (CEEG) on January 17, 2013 for breach of contract, intentional and negligent misrepresentation and violation of California business & professions code. The Company requested CEEG to compensate the damages and economic losses in the amount of no less than $2,000,000.

CEEG (Shanghai) Solar Science & Technology Co., LTD., (parent of CEEG), here collectively called as CEEG, filed a lawsuit in USA against the Company on September 18, 2015 to enforce the Foreign Arbitration Award issued by the Shanghai International Economic and Trade Arbitration Commission (SIETAC) in favor of CEEG and against the Company, on December 10, 2013.  CEEG requested damages of $1,000,000 representing the principal amount awarded to CEEG under the Arbitral Award in China plus interest, currency exchange loss and other professional fees in the amount approximately $450,000. On February 5, 2016, the Central District Court of California granted CEEG ’ s motion to confirm the Foreign Arbitration Award against Sunvalley. Sunvalley ’ s attorney is filing an appeal on this case.

                                       

NOTE 14 – SUBSEQUENT EVENTS

In accordance with ASC 855, Company management reviewed all material events through the date of this report and there are no material subsequent events to report.

F-17

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

No events occurred requiring disclosure under Item 307 and 308 of Regulation S-K during the fiscal year ending December 31, 2015.

Item 9A. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended December 31, 2015. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission ’ s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company ’ s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.

Management ’ s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2015, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2016: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management ’ s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

16

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following information sets forth the names, ages, and positions of our current directors and executive officers as of March 30, 2016.

Name

 Age

Office(s) held

                            

Zhijian James Zhang

48

President, CEO, Director

Mandy Chung

47

Chief Financial Officer, Secretary, Treasurer

Hangbo (Henry) Yu

61

Chief Technology Officer

Shirley Liao

46

Director of Administration

William Hsien

39

CEO & Director of Sunvalley Solar Tech, Inc.

Robert Dyskant

89

Director

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

Zhijian (James) Zhang – Dr. Zhang is our President, CEO, and a member of our board of directors. He has held these positions since January of 2007. Dr. Zhang graduated from Tsinghua University with a Ph.D. in opto-electronics. He has over 15 years of experience in opto-electronics and the semiconductor industry. From 2006 to 2008, he held the position of senior manager at Motorola, a leading telecommunication equipment provider. From 2004 to 2006, he held the position of Director at ZTE San Diego, also a leading telecommunication equipment provider.

Dr. Zhang has a strong reputation as an executive in the opto-electronics/semiconductor industry, including the solar energy field. Dr. Zhang has quality leadership experience in business operations, especially in product and program development, product development procedures, and milestone setting and enforcement, and R&D team building.

Mandy Chung – Ms. Chung is our Chief Financial Officer, Secretary, and Treasurer. She has held these positions since August of 2008. Ms. Chung co-founded Chung & Chung Accountancy Corporation, CPAs (CCAC) in 2004 and she is licensed as a Certified Public Accountant in California. Ms. Chung is one of the partners in CCAC and she provides audit, review, compilation, consulting, tax services and financial planning to various clients. Ms. Chung has been working for CCAC for more than the past ten years since its establishment.

Ms. Chung graduated from Texas A&M University (College Station) with a Master ’ s degree in Finance and a Bachelor ’ s degree in Accounting. Ms. Chung has over 15 years of public accounting experience in providing auditing, accounting, business consulting and tax services to a wide range of industries. She has extensive experience in performing reviews and audits for various organizations, including publicly reporting companies. In addition, Ms. Chung helped the former founder of Dietrich Coffee to prepare a ten-year business and financial plan to establish a new series of coffee stores. Ms. Chung also conducted various incurred costs audits for MGM Mirage, Los Angeles County Metropolitan Transportation Authority and Caltrans. On a daily basis, Ms. Chung is responsible for the accounting operations and record keeping of Sunvalley Solar Inc.  Her duties include customer deposits and check payments recording, accounts receivable, accounts payable and inventory recording, customers ’ credit evaluation, employees hiring and termination issues, sales tax filing, payroll tax filing, monthly bank reconciliation, preparing financial statements, performing preparation for annual audit, quarterly review and income

17

tax return filing. Approximately 50% of Ms.Chung ’ s time is used to perform her job as the CFO of Sunvalley Solar Inc.

Hangbo (Henry) Yu – Mr. Yu is our General Manager and a member of our Board of Directors. He has served in these positions since January of 2007 and was the founder of our business. From 2004 through 2006, Mr. Yu was the General Manager and a board member of International Transportation Corp., Canada. He graduated from Beijing University of Aeronautics and Astronautics with a Bachelor ’ s degree in Structure Design. He has run several startup companies in China and Canada, respectively. Over the past 12 months, Mr. Yu has been working to establish relationships with major solar power equipment manufacturers in China. Mr. Yu is an experienced business and operations manager. He has over 20 years of experience in import-export, logistics, international transportation, solar business operation and solar power system project planning and field managing.

Shirley Liao – Mrs. Liao is our Director of Administration. She has served Sunvalley Solar, Inc. in this position since January of 2007. She graduated from Guangxi University in Art and Financial Management. Before moving to the United States, Shirley Liao worked in an international trading company (Audio & Video Company of Guangxi) as an executive management member. While working there, Mrs. Liao acquired experience in international trade as well as general sales management. From 1997 through 1998, she worked at Trust Bank as a Loan Officer. She has also worked at Coldwell Banker George Realty since 2000 as a real estate broker. Through the real estate sales business, she established good relationships with local societies, business owners, banks, builders and government agencies. Her excellent market and sales experiences as well as connections to customers bring an exceptional value to the company. Currently, Mrs. Liao does not spend working hours at Coldwell Banker George Realty. She is a full time employee devoting forty hours per week to Sunvalley Solar, Inc.

William Hsien – Mr. Hsien graduated from University of California Berkeley with Bachelor of Art in Architecture. He has worked in design and construction over 15 years. With the architectural and design-build construction background, Mr. Hsien is able to run a very efficient design and construction team at Sunvalley Solar Inc. Providing turn-key solution and project management in the solar industry. Ever since taking over the operation at Sunvalley Solar Tech Inc., he was able to build a more efficient team and meet company financial projection in 2015.

Mr. Hsien is in charge for the engineering department and construction at Sunvalley over the past 8 years, with the in-house engineering design team, and construction crew, Sunvalley is famous for fast turnaround time and quality craftsmanship and installation of the solar system.

Robert Dyskant , age 89, retired from the Dyskant Company, a company in which he was the Chief Executive Officer and owner for over 20 years.  The Dyskant Company was involved in the import, export and wholesale business.  Prior to establishing the Dyskant Company, Mr. Dyskant served as a senior sales manager in a precious jewelry business for over 10 years.

Term of Office

Our Directors are appointed for a one year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

Family Relationships

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers other than Shirley Liao and Hangbo (Henry) Yu who are wife and husband.

18

Involvement in Certain Legal Proceedings

To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Committees of the Board

We do not currently have a compensation committee, executive committee, or stock plan committee.

Audit Committee

We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “ audit committee financial expert ” within the definition of Item 407(d)(5)(ii) of Regulation S-K. Mandy Chung, our CFO, Secretary, and Treasurer, attends all meetings of the Board of Directors, including those meetings at which the board is performing those functions which would generally be performed by an audit committee. Mrs. Chung is licensed as a Certified Public Accountant in California. Mrs. Chung has over 15 years of public accounting experience in providing auditing, accounting, business consulting and tax services to a wide range of industries. She has extensive experience in performing reviews and audits for various organizations including publicly reporting companies. She also had prior audit experience in the filing process for a start-up company that filed with the SEC to become a publicly reporting company. We believe that Mrs. Chung ’ s accounting expertise and audit experience allows her to provide satisfactory counsel to the Board and that, at our current size and stage of development, the addition of a special audit committee financial expert to the Board is not necessary.

Nomination Committee

Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.

When evaluating director nominees, our directors consider the following factors:

-The appropriate size of our Board of Directors;

-Our needs with respect to the particular talents and experience of our directors;

-The knowledge, skills and experience of nominees, including experience in finance, administration or

public service, in light of prevailing business conditions and the knowledge, skills and experience

19

already possessed by other members of the Board;

-Experience in political affairs;

-Experience with accounting rules and practices; and

-The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided

by new Board members.

Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.

Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.

Code of Ethics

As of December 31, 2015, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

Item 11.  Executive Compensation

Compensation Discussion and Analysis

We presently do not have employment or compensation agreements with any of our named executive officers and have not established any overall system of executive compensation or any fixed policies regarding compensation of executive officers. Currently, our executive officers receive fixed cash compensation as set forth below.

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended December 31, 2015 and 2014.

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Zhijian (James) Zhang, President, CEO, and Director	2015 2014	115,939 106,800	29,400  -0-	551,370 835	-0- -0-	-0- -0-	-0- -0-	-0- -0-	696,709 107,635
Mandy Chung, CFO, Secretary, and Treasurer	2015 2014	53,769 52,500	9,720 -0-	30,877  -0-	-0- -0-	-0- -0-	-0-  -0-	-0-  -0-	94,366 52,500
Hangbo (Henry) Yu, General Manager and Director	2015 2014	113,631 100,800	15,000  -0-	143,356  -0-	-0-  -0-	-0-  -0-	-0-  -0-	-0-  -0-	271,987 100,800
William Hsien, CEO and Director of Sunvalley Solar Tech, Inc.	2015 2014	110,469   84,700	24,000 -0-	30,877  -0-	-0-  -0-	-0-  -0-	-0-  -0-	-0-  -0-	165,346  84,700
Shirley Liao, Director of Administration	2015 2014	73,500 67,600	11,250 -0-	30,877 -0-	-0-  -0-	-0- -0-	-0- -0-	-0- -0-	115,627 67,600

 

Narrative Disclosure to the Summary Compensation Table

Currently, our executive officers receive fixed cash compensation as set forth in the Summary Compensation Table. We presently do not have employment or compensation agreements with any of our named executive officers and have not established any overall system of executive compensation or any fixed policies regarding compensation of executive officers.

On July 23, 2015, we issued 2,000,000 shares of Class B Convertible Preferred Stock to certain officers, directors, and others in exchange for services valued at $2,000,000. 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. 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.

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 CEO, Zhijian (James) Zhang.  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.

Stock Option Grants

We have not granted any stock options to the executive officers or directors since our inception.

Outstanding Equity Awards at Fiscal Year-End

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2015.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS						STOCK AWARDS
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options  (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise  Price ($)	Option Expiration Date	Number Of Shares or Shares of Stock That Have Not Vested (#)	Market Value of Shares or Shares of Stock That Have Not Vested ($)	Equity Incentive Plan Awards:  Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not  Vested (#)
Zhijian (James) Zhang, President, CEO, and Director	-	-	-	-	-	1,250,000	$0	-	-
Mandy Chung, CFO, Secretary, and Treasurer	-	-	-	-	-	70,000	$0	-	-
Hangbo (Henry) Yu, General Manager and Director	-	-	-	-	-	325,000	$0	-	-
William Hsien, CEO, Sunvalley Solar Tech, Inc.	-	-	-	-	-	70,000	$0	-	-
Shirley Liao, Director of Administration	-	-	-	-	-	70,000	$0	-	-

 

Director Compensation

The table below summarizes all compensation of our directors for our last completed fiscal year.

DIRECTOR COMPENSATION
Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Non-Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Zhijian (James) Zhang	-	-	-	-	-	-	-
Hangbo (Henry) Yu	-	-	-	-	-	-	-
Robert Dyskant	1,200	-	-0	-	-	-	1,200

 

Narrative Disclosure to the Director Compensation Table

We provided compensation to directors for their service as directors listed as above in 2015.

Employment Agreements with Current Management

We do not currently have any employment agreements in place with any of our executive officers.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the beneficial ownership of our capital stock by each executive officer and director, by each person known by us to beneficially own more than 5% of any class of stock and by the executive officers and directors as a group. Percentage figures for beneficial ownership of common stock are based upon: (i) 4,358,176 shares of common stock outstanding; (ii) 1,000,000 shares of Class A Convertible Preferred Stock outstanding, which are convertible to a total of 50,000 of common stock; and (iii) 2,000,000 shares of Series B Convertible Preferred Stock outstanding, which are convertible to 20,000,000 shares of common stock.  Total common stock on a fully diluted basis is therefore 24,408,176 shares.  Percentage figures for voting power of common stock are based upon: (i) 4,358,176 shares of common stock outstanding with one vote per share; (ii) 1,000,000 shares of Class A Convertible Preferred Stock outstanding, with 100 votes per share; and (iii) 2,000,000 shares of Series B Convertible Preferred Stock outstanding, with 10 votes per share.  Total shareholder voting power is therefore 124,358,176 votes.  

Common Stock
Name and address of beneficial owner (1)		Amount of beneficial ownership		Percent of beneficial ownership		Percent of voting power
Current Executive Officers & Directors:
Zhijian (James) Zhang 12161 Salix Way San Diego CA 92129		12,524,508 (2)		51.31%		36.59%
Hangbo (Henry) Yu 3309 S. Gauntlet Dr. West Covina, CA 91792		3,268,356 (3)		13.39%		21.92%
Robert Dyskant 339 Calver Park Beaumont Park CA 9223		0		0%		0%
Shirley Liao 3309 S Gauntlet Dr. West Covina, CA 91792		704,398 (4)		2.89%		5.69%
Mandy Chung 1059 Moreno Way Placentia, CA 92870		706,690 (5)		2.90%		10.21%
William Hsien 2430 Hawkwood Dr. Chino Hills, CA 91709		703,500 (6)		2.88%		6.19%
Total of All Current Directors and Officers:	17,803,952		73.37%		80.60%
Other > 5% Beneficial Owners:
Mehmet Cercioglu 123 S. Figueroa St. Los Angeles, CA 90012	553,500 (7)		2.27%		6.07%
Anyork Lee 1050 Yorba Linda Blvd. Placentia, CA 92870	508,067 (8)		2.08%		8.45%

(1)	As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
(2)	Includes 8,008 shares of common stock; 330,000 shares of Class A Convertible Preferred Stock, which are convertible into 16,500 shares of common stock and vote 100:1; and 1,250,000 shares of Class B Convertible Preferred Stock, which are convertible to 12,500,000 shares of common stock and vote 10:1.
(3)	Includes 6,356 shares of common stock; 240,000 shares of Class A Convertible Preferred Stock, which are convertible into 12,000 shares of common stock and vote 100:1; and 325,000 shares of Class B Convertible Preferred Stock, which are convertible to 3,250,000 shares of common stock and vote 10:1.
(4)	Includes 898 shares of common stock; 70,000 shares of Class A Convertible Preferred Stock, which are convertible into 3,500 shares of common stock and vote 100:1; and 70,000 shares of Class B Convertible Preferred Stock, which are convertible into 700,000 shares of common stock and vote 10:1.
(5)	Includes 690 shares of common stock; 120,000 shares of Class A Convertible Preferred Stock, which are convertible into 6,000 shares of common stock and vote 100:1; and 700,000 shares of Class B Convertible Preferred Stock, which are convertible into 700,000 shares of common stock and vote 10:1.
(6)	Consists of 70,000 shares of Class A Convertible Preferred Stock, which are convertible to 3,500 shares of common stock and vote 100:1; and 70,000 shares of Class B Convertible Preferred Stock, which are convertible to 700,000 shares of common stock and vote 10:1.
(7)	Consists of 70,000 shares of Class A Convertible Preferred Stock, which are convertible to 3,500 shares of common stock and vote 100:1; and 55,000 shares of Class B Convertible Preferred Stock, which are convertible to 550,000 shares of common stock and vote 10:1.
(8)	Consists of 3,067 shares of common stock; 100,000 shares of Class A Convertible Preferred Stock, which are convertible to 5,000 shares of common stock and vote 100:1; and 50,000 shares of Class B Convertible Preferred Stock, which are convertible to 500,000 shares of common stock and vote 10:1.

Class A Convertible Preferred Stock
Name and address of beneficial owner		Amount of beneficial ownership		Percent of beneficial ownership
Zhijian (James) Zhang 12161 Salix Way San Diego CA 92129		330,000		33%
Hangbo (Henry) Yu 3309 S. Gauntlet Dr. West Covina, CA 91792		240,000		24%
Robert Dyskant 339 Calver Park Beaumont Park CA 9223		0		0%
Shirley Liao 3309 S Gauntlet Dr. West Covina, CA 91792		70,000		7%
Mandy Chung 1059 Moreno Way Placentia, CA 92870		120,000		12%
William Hsien 2430 Hawkwood Dr. Chino Hills, CA 91709		70,000		7%
Total of All Current Directors and Officers:	830,000		83%
Other > 5% Beneficial Owners:
Anyork Lee 1050 Yorba Linda Blvd. Placentia, CA 92870	100,000		10%

Class B Convertible Preferred Stock
Name and address of beneficial owner		Amount of beneficial ownership		Percent of beneficial ownership
Zhijian (James) Zhang 12161 Salix Way San Diego CA 92129		1,250,000		62.50%
Hangbo (Henry) Yu 3309 S. Gauntlet Dr. West Covina, CA 91792		325,000		16.25%
Robert Dyskant 339 Calver Park Beaumont Park CA 9223		0		0%
Shirley Liao 3309 S Gauntlet Dr. West Covina, CA 91792		70,000		3.50%
Mandy Chung 1059 Moreno Way Placentia, CA 92870		70,000		3.50%
William Hsien 2430 Hawkwood Dr. Chino Hills, CA 91709		70,000		3.50%
Total of All Current Directors and Officers:	1,785,000		89.25%
Other > 5% Beneficial Owners:
None.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us:

1.

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 buyback 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.

 

2.

  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.  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.

3.

On July 23, 2015, the Company issued 2,000,000 shares of Class B Convertible Preferred Stock, to certain officers, directors and/or employees for services valued at $2,000,000, the value of which was based on the trading price of the common stock into which each share of preferred stock is convertible. The issuance of such preferred shares was valued as a stock subscription payable of $2,000,000 which is being amortized ratably over the vesting period to compensation expenses based on the fair market value of the Company ’ s preferred shares on the date of issuance. Compensation expense of $882,191 was recorded during the period ended December 31, 2015, and the remaining compensation expense related to the unvested portion of preferred stock was $1,117,809.

Director Independence

We are not a “ listed issuer ” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not believe that we currently have any independent directors, other than Robert Dyskant.

Item 14. Principal Accountant Fees and Services

The following table presents the aggregate fees billed for each of the last two fiscal years by the Company ’ s independent registered public accounting firm, Sadler, Gibb & Associates, LLC, in connection with the audit of the Company ’ s consolidated financial statements and other professional services rendered.