Quarterly Report (10-q)

Date : 08/14/2018 @ 6:53PM
Source : Edgar (US Regulatory)
Stock : Sunvalley Solar, Inc. (QB) (SSOL)
Quote : 0.0215  0.0 (0.00%) @ 12:59PM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q


[X]

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the quarterly period ended June 30, 2018




[  ]

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934




For the transition period from to__________




Commission File Number: 333-150692


Sunvalley Solar, Inc.
(Exact name of registrant as specified in its charter)

  Nevada

20-8415633

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

398 Lemon Creek Dr., Suite A, Walnut, CA 91789

(Address of principal executive offices)

 

(909) 598-0618

(Registrant s telephone number)


_____________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report) 

 

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

[ ] Large accelerated filer

[ ] Non-accelerated filer

[ ] Emerging growth company

[ ] Accelerated filer

[X] Smaller reporting company




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

 

State the number of shares outstanding of each of the issuer s classes of common stock, as of the latest practicable date: 25,263,176 common shares as of August 13, 2018.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]











TABLE OF CONTENTS





Page


PART I FINANCIAL INFORMATION


Item 1:

Condensed Consolidated Financial Statements 

3

Item 2:

Management s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4:

Controls and Procedures

16


PART II OTHER INFORMATION

Item 1:

Legal Proceedings

17

Item 1A:

Risk Factors

17

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 3:

Defaults Upon Senior Securities

17

Item 4:

Mine Safety Disclosures

17

Item 5:

Other Information

17

Item 6:

Exhibits

17

 



PART I - FINANCIAL INFORMATION

 

Item 1.

     Condensed Consolidated Financial Statements

 

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

 

F-1

Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017;

F-2

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited);

F-3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited);

F-4

Notes to Condensed Consolidated Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the Securities and Exchange Commission ( SEC ) instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2018 are not necessarily indicative of the results that can be expected for the full year.




SUNVALLEY SOLAR, INC.

Condensed Consolidated Balance Sheets










ASSETS





June 30,


December 31,


 



2018


2017





(unaudited)




CURRENT ASSETS








Cash and cash equivalents


$

       423,678


$

       792,050


Restricted cash



         47,500



         37,500


Current portion of accounts receivable, net



       198,210



    1,337,076


Current portion of notes receivable, current



         33,614



         30,395


Inventory



       219,207



       371,532


Contract assets



       126,983



          9,135


Prepaid expenses and other current assets


 

       157,804


 

         96,679



Total current assets


 

    1,206,996


 

    2,674,367


 








PROPERTY AND EQUIPMENT, NET


 

         80,870


 

         96,489










OTHER ASSETS








Long-term accounts receivable, net of current portion



         59,064



         44,645


Notes receivable, net of current portion



       118,032



       130,008


Other assets


 

          7,870


 

          7,870



Total other assets


 

       184,966


 

       182,523



TOTAL ASSETS


$

    1,472,832


$

    2,953,379


 




   




LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)










CURRENT LIABILITIES








Accounts payable and accrued expenses


$

    1,384,287


$

    1,842,523


Customer deposits



       183,080



       316,160


Accrued warranty



       152,499



       192,106


Advances from contractors



       103,389



       103,389


Legal settlement payable and other current liability


 

       334,528


 

       339,249



Total current liabilities


 

    2,157,783


 

    2,793,427



TOTAL LIABILITIES


 

    2,157,783


 

    2,793,427


STOCKHOLDERS' EQUITY (DEFICIT)








Class A convertible preferred stock, $0.001 par value,








  1,000,000 shares authorized, 500,000 and 500,000 shares








  issued and outstanding, as of June 30, 2018 and December 31, 2017, respectively



             500



             500


Class B convertible preferred stock, $0.001 par value,








2,000,000 shares authorized, 90,000 and 90,000 shares








issued and outstanding, as of June 30, 2018 and December 31, 2017, respectively



               90



               90


Common stock, $0.001 par value, 150,000,000 shares








  authorized, 25,263,176 and 24,563,176 shares issued and outstanding








  as of June 30, 2018 and December 31, 2017, respectively



         25,264



         24,564


Additional paid-in capital



    6,373,398



    6,364,308


Accumulated deficit


 

   (7,084,203)


 

   (6,229,510)



Total Stockholders' Equity (Deficit)


 

      (684,951)


 

       159,952



TOTAL LIABILITIES AND









  STOCKHOLDERS' EQUITY (DEFICIT)


$

    1,472,832


$

    2,953,379










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





SUNVALLEY SOLAR, INC.

Condensed Consolidated Statements of Operations

(Unaudited)


 


 














For the Three Months Ended


For the Six Months Ended


 


June 30,


June 30,


 


2018


2017


2018


2017


 


 

 


 

 


 

 


 

 

REVENUES

$

          710,522


$

        3,300,131


$

       907,282


$

     3,595,240

COST OF SALES

 

          561,999


 

        2,538,565


 

       714,087


 

     2,802,162















GROSS PROFIT

 

     148,523


 

           761,566


 

       193,195


 

     793,078















OPERATING EXPENSES













General and administrative


          534,704



        929,115



     1,046,701



     1,679,488




 



 



 



 



     Total Operating Expenses


    534,704



           929,115



     1,046,701



     1,679,488




 

 


 

 


 

 


 

 

LOSS FROM OPERATIONS


    (386,181)



         (167,549)



     (853,506)



     (886,410)




 

 


 

 


 

 


 

 

OTHER INCOME (EXPENSES)













Other income


             8,427



             (1,315)



           4,603



     (3,391)


Interest expense


            (5,790)



             (1,001)



          (5,790)



          (4,260)




 

 


 

 


 

 


 

 


     Total other income (expenses)


             2,637



            (2,316)



        (1,187)



         (7,651)




 

 


 

 


 

 


 

 

LOSS BEFORE TAXES

 

       (383,544)


 

        (169,865)


 

     (854,693)


 

     (894,061)















NET LOSS

$

       (383,544)


$

        (169,865)


$

     (854,693)


$

     (894,061)





   



   



   



   


BASIC AND DILUTED LOSS PER SHARE

$

             (0.02)


$

          (0.01)


$

           (0.03)


$

           (0.04)















BASIC AND DILUTED












  WEIGHTED AVERAGE NUMBER OF












  COMMON SHARES OUTSTANDING

$

     25,263,176


$

      24,563,176


$

   25,054,336


$

   24,231,629














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






SUNVALLEY SOLAR, INC.

 

Condensed Consolidated Statements of Cash Flows

 

(Unaudited)

 



 


For the Six Months Ended



 


June 30,



 


2018


2017



 





OPERATING ACTIVITIES:





 


Net loss


$

      (854,693)


$

       (894,061)

 


Adjustments to reconcile net loss to net cash







 


provided by operating activities:







 



Depreciation and amortization



         15,618



          76,008



Preferred stock issued for services



          9,790



          41,884


Changes in operating assets and liabilities:







 



Restricted cash



        (10,000)



                   -



Accounts receivable



       955,696



     1,676,990



Inventory



       152,325



         (28,725)



Prepaid expenses



        (61,125)



           (6,095)



Notes Receivable



         19,256



                   -



Contract assets



      (117,848)



       (836,071)



Other assets



                 -



            2,622



Accounts payable and accrued expenses



      (304,704)



         (14,315)



Accrued warranty expense



        (39,607)



       (476,339)



Customer deposits


 

      (133,080)


 

            7,450












Net Cash Provided by (Used in) Operating Activities


 

      (368,372)


 

       (450,652)



 







INVESTING ACTIVITIES:







 



Purchase of equipment


 

 -


 

         (60,709)





 

 


 

 



Net Cash Used in Investing Activities


 

                 -


 

         (60,709)



 







FINANCING ACTIVITIES:







 


Repayments of long term debt


 

                 -


 

         (85,210)

 












Net Cash Provided by (Used in) Financing Activities


 

                 -


 

         (85,210)










NET CHANGE IN CASH



      (368,372)



       (596,571)

 

CASH AT BEGINNING OF PERIOD


 

       792,050


 

     1,563,781

 










CASH AT END OF PERIOD


$

       423,678


$

        967,210

 



 







SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:







 











CASH PAID FOR:







 



Interest


$

          5,790


$

            4,260



Income taxes


$

                 -


$

            -










NON-CASH INVESTING AND FINANCING ACTIVITIES







 



Common stock issued for debt


$

                 -


$

          41,543



Conversion of preferred stock to common stock


$



$

              706










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

 







SUNVALLEY SOLAR, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2018

NOTE 1 - CONDENSED FINANCIAL STATEMENTS


The accompanying consolidated financial statements have been prepared by the Company without audit.  The Consolidated Financial Statements include the accounts of Sunvalley and its subsidiary, Sunvalley Solar Energy, Inc. (formerly known as Rayco Energy, Inc).  All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2018, and for all periods presented herein, have been made.


Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2017 audited consolidated financial statements.  The results of operations for the periods ended June 30, 2018 and 2017 are not necessarily indicative of the operating results for the full years.


NOTE 2 - GOING CONCERN


The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.


In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.


NOTE 3   SIGNIFICANT ACCOUNTING POLICIES


Cash and Cash Equivalents


The Company considers all highly liquid investments purchased with an original or remaining maturity of less than six months at the date of purchase to be cash equivalents.


Use of Estimates


The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.


Recent Accounting Pronouncements


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




SUNVALLEY SOLAR, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2018

NOTE 3   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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.


The Company s inventory consisted of the following at June 30, 2018 and December 31, 2017:








 

June 30, 2018


December 31, 2017

Raw materials

$

-


$

-

Work in Progress


-



-

Finished goods


219,207



371,532

  TOTAL

$

219,207


$

371,532


Loss per Common Share


Basic net loss per common share is computed by dividing the net loss by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic loss per share and diluted loss per share are the same amount because the impact of additional common shares that might have been issued under the Company s outstanding and exercisable stock options would be anti-dilutive. Dilutive instruments include 25,000 shares to be issued upon the conversion of the Series A Convertible Preferred Stock, and 900,000 shares to be issued upon the conversion of the Series B Convertible Preferred Stock. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 925,000 and 925,000 such potentially anti-dilutive shares excluded as of June 30, 2018 and 2017, respectively.


Allowance for Doubtful Accounts


The allowance for doubtful accounts is based upon the Company s assessment of the collectability of customer accounts.  The Company periodically reviews the allowance by reviewing factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions which may affect a customer s ability to pay. The allowances for doubtful accounts were $36,699 and $80,461 as of June 30, 2018 and December 31, 2017, respectively.


Principles of Consolidation


The accompanying consolidated financial statements include the accounts of the Company and its subsidiary.  All intercompany amounts and transactions have been eliminated in consolidation,


Depreciation and Amortization


Property and equipment are stated at cost, less accumulated depreciation and amortization.  Depreciation and amortization are computed using the straight-line method over the expected useful life of the asset.


Goodwill and Intangible Assets


Goodwill is tested on an annual basis and during the period between annual tests in certain circumstances, and written down when impaired.  No impairment tests were performed during the periods ended June 30, 2018 and there was no impairment recorded as of June 30, 2018




NOTE 3   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Impairment and Long-Lived Assets


Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Determination of recoverability of long-lived assets is based upon an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based upon the fair value of the asset.  Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.


Fair Value of Financial Instruments


The fair value of certain of the Company s financial instruments, including cash and cash equivalents, accrued compensation and other current liabilities approximates the carrying amount because of their short maturities.  


Concentrations of Risk


Cash and cash equivalents are maintained with banks insured by the FDIC.  Currently none of the cash held by banks exceeds the insured value.


Advertising Costs


Advertising costs are expensed as incurred.  There were $23,918 and $27,959 of advertising costs for the periods ended June 30, 2018 and 2017, respectively.


Revenue Recognition


In preparation for adoption of the ASC 606 standard, we have implemented internal controls and completed our impact assessment of implementing this guidance. We have evaluated each of the five steps in ASC 606, which are as follows: (1) Identify the contract with the customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations; and (5) Recognize revenue when (or as) performance obligations are satisfied.


Our reported revenue will not be affected materially in any period due to the adoption of ASC 606 because: (1) we expect to identify similar performance obligations under ASC 606 as compared with deliverables and separate units of account previously identified; (2) we have determined the transaction price to be consistent; and (3) we record revenue at the same point in time, upon shipment or delivery under ASC 606, as applicable under the terms of the contract with the customer. Additionally, we do not expect the accounting for fulfillment costs or costs incurred to obtain a contract to be affected materially in any period due to the adoption of ASC 606.


Contract Assets


Contract assets represent unbilled amounts earned and reimbursable under contracts. These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of milestones or completion of the project. Generally, such unbilled amounts will be billed and collected over the next twelve months. Based on our historical experience, we generally consider the collection risk related to these amounts to be low. When events or conditions indicate that the amounts outstanding may become uncollectible, an allowance is estimated and recorded.


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 in accordance with ASC 606 effectively January 1, 2018.  Revenues from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term contracts are recorded on the basis of the Company s estimates of the percentage of completion of contracts based on the ratio of the actual cost incurred to total estimated costs. This



SUNVALLEY SOLAR, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2018

cost-to-cost method is used because management considers it to be the best available measure of progress on these contracts.  Revenues from cost-plus fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.


As of June 30, 2018, and December 31, 2017, the Company has capitalized $126,983 and $9,135 of costs incurred in relation to installation projects.  


Income Taxes


Income tax expense is based on pretax financial accounting income.  Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the bases of assets and liabilities and their reported amounts.  Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.  No tax expense or benefit was recorded for the three month period ended June 30, 2018.


NOTE 4   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 0.5 common share for 1 preferred share basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible. As of June 30, 2018 and December 31, 2017, there were 500,000 and 500,000 shares of Class A Convertible Preferred Stock issued and outstanding, respectively.


Class B Convertible Preferred Stock


The holders of the Class B Convertible Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 post-split common shares and have the right to 10 votes per Class B Convertible Preferred share for all matters submitted to the holders of the Company s common stock. As of June 30, 2018 and December 31, 2017, there were 90,000 shares and 90,000 shares respectively and 2,000,000 shares of Class B Convertible Preferred Stock issued and outstanding, respectively.


NOTE 5   COMMON STOCK


On February 24, 2017, the Company issued 700,000 shares of common stock to employees for services provided. The shares were valued at $61,600, which was based on the trading price of the Company s common stock on the date of issuance. The shares vest one year from the issuance date if the recipients remain employed by the Company during the entire year. For the six months ended June 30, 2018, the Company recognized $9,790 of compensation expense related to the issuance of the shares, leaving a remaining amount to be expensed of $0.


NOTE 6   SUBSEQUENT EVENTS


In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there are no additional material subsequent events to report.






Item 2.     Management s Discussion and Analysis or Plan of Operation

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements. These forward-looking statements generally are identified by the words believes, project, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Company Overview and Plan of Operation

 

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. From energy management, system design, permitting, to installation, maintenance and system services, we oversee the entire project from beginning to the end, and provide a single point of contact to our customer throughout the life of the solar system.

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.  We conduct our operations through our wholly-owned subsidiaries, Sunvalley Solar Tech, Inc., and Rayco Energy, Inc. ( Rayco ), a northern California company specializing in providing cost-saving and efficient energy solutions, including LED lighting, Solar Thermal and Solar Electricity, to local communities and business units.

 

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.  Expanding our business into the energy management space.


·

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.

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.  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.

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.

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 have the permit and expertise to install large-scale commercial and/or government solar power systems, together with roof constructional design and building interior/exterior electrical designs. We believe additional advantages are provided by our experience in filing solar power system permit applications and rebate applications and our expertise gained through our experience with governments and utility companies.


Expected Changes in Number of Employees, Plant, and Equipment

 

We do not currently plan to purchase specific additional physical plant and significant equipment within the immediate future. We do not currently have specific plans to change the number of our employees during the next twelve months.



Results of Operations for the three and six months ended June 30, 2018 and June 30, 2017


During the three months ended June 30, 2018, we generated revenues of $710,522 and incurred costs of sales of $561,999, resulting in gross profit of $148,523. We incurred general and administrative expenses of $534,704, interest expense of $5,790, and other income of $8,427. Our net loss for the quarter ended June 30, 2018 was $383,544.


During the sixth months ended June 30, 2018, we generated revenues of $907,282 and incurred costs of sales of $714,087, resulting in gross profit of $193,195.  We incurred general and administrative expenses of $1,046,701, interest expense of $5,790, and other income of $4,603.  Our net loss for the six months ended June 30, 2018 was $854,693.


By comparison, during the three months ended June 30, 2017, we generated revenues of $3,300,131 and incurred costs of sales of $2,538,565, resulting in gross profit of $761,566. We incurred general and administrative expenses of $929,115, interest expense of $1,001, and other expense of $1,315. Our net loss for the quarter ended June 30, 2017 was $169,865.


During the sixth months ended June 30, 2017, we generated revenues of $3,595,240 and incurred costs of sales of $2,802,162, resulting in gross profit of $793,078.  We incurred general and administrative expenses of $1,679,488, interest expense of $4,260, and other expense of $3,391.  Our net loss for the six months ended June 30, 2017 was $894,061.


Our decrease in revenues of approximately $2.6 million and our decrease in related cost of goods sold of approximately $2 million during the second quarter of 2018, as compared to the same quarter last year, are mainly due to two major projects which were in the construction stage and incurred more costs and recognized more revenues in the second quarter of 2017, whereas our current major projects were in the permitting stage and incurred less costs and recognized less revenues in the second quarter of 2018. Similarly, our decrease in revenues of approximately $2.7 million and related cost of goods sold of approximately $2.1 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, are mainly due to two major projects which were in the construction stage and incurred more costs and recognized more revenues in the first half of 2017, whereas our current major projects were in the permitting stage and incurred less costs and recognized less revenues in the first half of 2018.


Our operating expenses were lower in second quarter of 2018 compared to the same quarter of 2017 in the amount of approximately $400,000, mainly due to: (i) salary and wages decreasing by approximately $73,000 in second quarter of 2018; (ii) insurance expense increasing approximately $25,000; (iii) bad debt expense increasing approximately of $16,000; (iv) professional expense increasing approximately $7,000, (v) the legal settlement expense of $334,527 related to the CEEG case was recorded in the second quarter of 2017 and not in 2018; and (vi) the reduction of amortization expense of approximately $30,000 for the second quarter of 2018.


Our operating expenses were lower for the six months ended June 30, 2018 compared to the same periods in 2017 in the amount of approximately $638,000, mainly due to: (i) salary and wages decreasing by approximately $182,000 in the first half of 2018; (ii) key employee and consultant s compensation decreasing by approximately $32,000 as the result of our issuance of 2,000,000 shares of Class B Convertible Preferred Stock to certain officers, directors, and employees on July 23, 2015, which was being recognized over the vesting period of the grants, (iii) reduction of amortization expense of approximately $61,000 for the six months ended June 30, 2018; (iv)  the legal settlement expense of $334,527 related to the CEEG case was recorded in the first half of 2017 and not in 2018; and (v) the reduction of advertising expense of approximately of $21,000 for the six months ended 2018.


Liquidity and Capital Resources


As of June 30, 2018, we had current assets in the amount of $1,206,996 consisting of cash and cash equivalents in the amount of $423,678, inventory of $219,207, the current portion of accounts receivable of $198,210, prepaid expenses and other current assets of $157,804, contract assets of $126,983, restricted cash of $47,500, and current portion of notes receivable in the amount of $33,614.


As of June 30, 2018, we had current liabilities in the amount of $2,157,783. These consisted of accounts payable and accrued expenses in the amount of $1,384,287, customer deposits of $183,080, accrued warranty of $152,499, advances from contractors of $103,389, and a legal settlement payable of $334,528. Our working capital deficit as of June 30, 2018 was therefore $950,787. During the six months ended June 30, 2018, our operating activities used a net $368,372 in cash.

Our accounts payable and accrued expenses as of June 30, 2018 consisted of the following:

Accounts Payable

$1,108,210

Credit Card payable

117,634

Contingent liability

-

Other accrued expense

40,102

Payroll liabilities

114,661

Sales tax payable

3,680

Total

$1,384,287

 As of June 30, 2018, 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 June 30, 2018, there were no off balance sheet arrangements.

 

Going Concern

 

We have experienced recurring net losses and had an accumulated deficit of $7,084,203 as of June 30, 2018. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

 





Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most critical accounting polices in the Management Discussion and Analysis. The SEC indicated that a critical accounting policy is one which is both important to the portrayal of a company s financial condition and results, and requires management s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies currently fit this definition.

 

Recently Issued Accounting Pronouncements

 

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

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk


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

 

Item 4.     Controls and Procedures


We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2018. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Zhijian (James) Zhang and our Chief Financial Officer, Mandy Chung. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2018, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2018.


Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls and various reconciliation and control procedures not regularly performed due to the lack of staff and resources.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.





PART II OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Please refer to our Annual Report on Form 10-K filed April 6, 2018 for information regarding our pending legal proceedings.

 

Item 1A. Risk Factors


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

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.     Defaults upon Senior Securities

 

None

 

Item 4.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

None.

Item 6.      Exhibits

 Exhibit Number

Description of Exhibit

31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

Materials from the Company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 formatted in Extensible Business Reporting Language (XBRL)



 















SIGNATURES

 

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

 


Sunvalley Solar, Inc.


Date:

August 14, 2018

 


 

By:       /s/ Zhijian (James) Zhang

             Zhijian (James) Zhang

Title:     Chief Executive Officer and Director

 


Date:

August 14, 2018


 

By:        /s/ Mandy Chung _

             Mandy Chung

Title:     Chief Financial Officer




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