UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] |
ANNUAL REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year
ended December 31, 2013 |
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[ ] |
TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition
period from _________ to ________ |
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Commission file number:
333-150692 |
Sunvalley
Solar, Inc. |
(Exact
name of registrant as specified in its charter) |
|
Nevada |
20-8415633 |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification
No.) |
|
|
398 Lemon Creek Dr., Suite A
Walnut, California |
91789 |
(Address of principal
executive offices) |
(Zip Code) |
Registrant’s telephone number: (909) 598-0618 |
|
Securities
registered under Section 12(b) of the Exchange Act: |
Title
of each class |
Name of
each exchange on which registered |
none |
not applicable |
|
|
Securities
registered under Section 12(g) of the Exchange Act: |
Title
of class |
none |
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 checkmark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.
[ ] Large
accelerated filer |
[ ] Accelerated
filer |
[ ] Non-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 [ ] 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 $2,411,548 as of June 30, 2013.
Indicate the number of shares outstanding
of each of the registrant’s classes of common stock, as of the latest practicable date of 87,156,979 as of April 7, 2014.
PART I
Item 1. Business
We are a California-based solar power technology
and system integration company founded in January of 2007. We are focused on developing our expertise and proprietary technology
to install residential, commercial and governmental solar power systems. We offer turnkey solar system solutions for owners, builders
and architecture firms that include designing, building, operating, monitoring and maintaining solar power systems. Our customers
range from small private residences to large commercial solar power users. We have the necessary licenses and expertise to design
and install large scale solar power systems. We hold a C-46 Solar License from CBCL (California Board of Contractor License).
Some of the large scale commercial solar power systems that we have designed and installed include large office buildings, manufacturing
facilities and warehouses. Our proprietary technologies in solar installation provide our customers with a high quality, low cost
and flexible solar power system solutions.
We are working to develop as an end-to-end
solar energy solution provider by providing system solution, post-sale service, customer technical support, solar system design
and field installation.
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 four specific areas:
- |
Solar Systems Design and Installation |
- |
Solar Technology Research and Development |
- |
Solar Equipment Manufacturing and Distribution |
- |
Distributed Power Plant Projects |
In 2011, 25.06% ($1.460 million) of our revenues
were generated from our Solar Equipment Distribution business and 74.94% ($4.366 million) were generated from our Solar Systems
Design and Installation business. In 2012, 5% ($170,098) of our revenues were generated from our Solar Equipment Distribution
business and 95% ($3,570,776) were generated from our Solar Systems Design and Installation business. In 2013, 1% ($39,471) of
our revenues were generated from our Solar Equipment Distribution business and 99% ($4,056,436) were generated from our Solar
Systems Design and Installation business. Our Solar Technology Research and Development and our Distributed Power Plant Projects
businesses are in the development stage and have not yet generated revenue.
We are not currently dependent on one or a
few major customers for our revenues. Instead, our total revenues for the last fiscal year were generated from over ten different
customers.
Solar Systems Design and Installation
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, manufacturing facilities, warehouses and hotels.
Our installation business generated all of
our revenues in 2007 and 2008, 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 2.0 million watts on an annual basis.
Solar Technology Research and Development
As a reusable and green energy source, the
solar cell has been providing an increasing portion of consumed energies, including in household heating and electricity,
in commercially available cars, and in centralized solar electricity plants. However, the current solar cell modules or panels
suffer severe drawbacks compared to fossil fuel energy sources in terms of cost-per-watt as well as in the efficiency of energy
storage. The cost issue is related to the poor energy conversion efficiency and the use of the costly semiconductors as the electricity
generation unit, which primarily corresponds to the light absorption of the solar cell module.
To improve the efficiency of the solar cell
without adding more cost to it, we are developing a new metallic sub-wavelength design to realize the combination of the electrodes
as SPP generators. A typical PV solar cell operates by receiving sun light on an electric conversion unit or active
layer. Active layers have typically been a semi-conductor having a p-n junction to produce electron-hole pairs or excitions whenever
illuminated with light. In operation, each electron and hole of produced excition pairs are pulled in opposite directions by the
internal electric field of the p-n junction resulting in an electric current. The same effect in organic cells is accomplished
via either a bi-layer of acceptor and donor materials or a bulk hetero-junction of an acceptor and donor material. The resultant
electric current may be extracted by electrodes and delivered to an electric circuit to an electricity storage device.
As one of potential solutionswe discovered
that surface plasmon polariton (SPP) assisted solar technologies may be developed to result in enhanced electricity production
due to surface resonant excitation or surface Plasmon resonance (SPR). SPP assisted PV cells have heretofore operated by using
the enhanced electrical fields produced by the SPR to either be directly converted to electricity or concentrate the light onto
an active layer. With this technology implemented in solar cell design, the efficiency of the solar cell can be increased, therefore
the cost of solar power per watt will be reduced also.
Our innovative design will also consider the
variant spectral and angles, to guarantee excitation of the SPP at any angle around the bang gap, or absorption region of the
solar cell unit. With the successful development of our new PV cells, we are expecting the efficiency of the organic thin-film-based
solar cells increases significantly.
Though this technology, it is able to increase
the efficiency of thin-film-based solar cells. Commercializing this technology into mass production will involve a trade-off between
manufacturing cost per-panel and increased per-panel efficiency. In addition, our new PV cell 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 PV 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 using Surface Plasmon
Polariton (SPP), our 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 |
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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 – racking and panel cleaning system |
- |
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
has grown 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.
Distributed Power Plant Projects
We are in the development stage for a new
line of business based on the installation of distributed solar power plants. Although we are not currently generating
revenue from the installation of distributed solar power plants, this area is a focus of our ongoing business development. Currently,
most proposed solar power plants are stand-alone large scale power plants. Also, all completed or proposed stand-alone large scale
solar power plants were proposed or implemented by large solar panel manufacturers (such as First Solar, Solar Power, etc.) as
well as investment bankers, utility companies or large installation companies as a group. We do not have sufficient funds and
resources to build stand-alone large scale solar power plant, and we do not intend to develop stand-alone large scale power plants
in the near future. Such plants are either solar thermal power plants (using solar panels to generate heat and then using thermal
electrical methods to generate electricity) or photovoltaic farms (using PV panels to generate electrical power directly). Stand-alone
power plants need to deploy high-voltage transformers, high-voltage power transmission lines, etc. Also, the limiting factor of
solar power is that it generates little electricity when skies are cloudy and none at night. Excess power must therefore be produced
during sunny hours and stored for use during dark hours. Most energy storage systems such as batteries are expensive or inefficient.
Pressurized caverns and hot salt technologies are commonly used right now for these solar power plants, but they will require
larger storage room and more complex technology. Due to these reasons, stand-alone power plants naturally are large scale (generally
more than 15M Watts), and most of them are built on open public land, such as in a hot desert, due to large installation physical
space required and cost of the land.
Building larger solar power plants involves
serious issues such as the need for large investments in land and infrastructure including power transmission line and electrical
distribution network constructions. Other troublesome issues are customer management independent from current utility company
billing systems, three years or even longer environmental impact assessment study (required by federal environmental protection
laws), sophisticated application processing for land use permits, different safety and security requirements for open public space,
etc. All of these difficulties add up to tremendous investments, efforts and long waiting times. The Bureau of Land Management
has taken as long as two years in order to just complete required environmental reviews.
By comparison, the small size, tied-to-grid,
Distributed Power Plants we are planning to launch would be quite different from stand-alone large scale power plants. Our planned
projects won’t use public land. Instead, our plan is to use free roofs on private commercial buildings or private
lands. We plan to build the power plants on private property to avoid environmental issues and easily tie to the grid to avoid
power transmission lines and electrical distribution networks construction. We would also use current utility company billing
systems to manage the system.
Most of environmental issues involved in the
use public lands involve costs related to the protection of certain plants and animals and to the maintenance of soil composition,
as the public lands that are suitable for large power plants are generally preserved open lands. Private property suitable for
smaller distributed power plants generally does not involve in such issues, however since the land is typically smaller tracts
in private agricultural use or existing rooftop spaces.
The size of these types of roof-top solar
power plants is much smaller than typical solar power plants (1M to 2M watts is typical for roof-top power plants, compared to
over 15M watts for typical plants), but we would be able to build many smaller “power plants” on top of different
buildings and tie them to utility grid to form a distributed power plant system.
Our planned distributed PV power plants are
prompted by recent advances in solar technology that reduce the cost of installed photovoltaic generation and federal/state laws
that ensure the “oversize to load” (no restriction on homeowners or businesses over-sizing their solar system when
compared with their usage, or “load”) and provides greater fairness for consumers by requiring wholesale compensation
for surplus power. Building smaller roof solar power plants would avoid most of the difficulties that currently face those who
build larger solar power plants.
We are currently negotiating with some agricultural
farmers who are our existing customers in the Palm Desert, California area to use their private lands to build our power plants.
We are also in discussions with local utility companies about the possibility of selling excess solar power to be generated by
the plants back to the utilities.
As an established solar system designer/installer,
we have the requisite technical background, experience, licenses, and other capabilities necessary to build the roof-top distributed
power plants. Because of our experience in larger scale commercial solar system design and installation, the planned distributed
power plants would closely resemble some relatively larger commercial solar systems we are building today.
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, TianWei SolarFilms, 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
We made a progress on our smart system of
networked PV panels for improved provision of electricity to the power grid. We filed for patent protection in the U.S. for this
invention, “Networked Solar Panels and Related Methods,” on August 4, 2011.
EFS
ID |
10667328 |
Application Number |
13198076 |
Confirmation Number |
7067 |
Title |
Networked Solar Panels
and Related Methods |
Receipt Date |
04-AUG-2011 |
Application
Type |
Utility
under 35 USC 111(a) |
We received an Office Action from the USPTO
regarding this patent application in August 2013, and responded to it in November 2013.
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 a part 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 sq ft of office
space in the Walnut Tech Business Center located at 398 Lemon Creek Drive, Suite A, Walnut CA 91789 for $3,070 per month. This
lease terminated on November 30, 2012. We extended the lease for two years. As extended, the lease shall expire on November 30,
2014. The annual rent payable with respect to the premises is $34,212.00 and $35,232.00 for 12/1/2012 to 11/30/2013 and 12/1/2013
to 11/30/2014 respectively. 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. The exact amount sought is unknown. It is not clear that these situations have given rise
to liabilities, because we don't know if the situation will result in any future payments. Therefore, no accrued contingency liabilities
were recorded as of December 31, 2013.
Our agent for service of process in Nevada
is Cane Clark Agency, LLC, 3273 East Warm Springs Rd., Las Vegas, NV 89120.
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 OTCQB
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 OTCBB 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 OTCQB. The criteria
for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is
presently current and, since inception, we have filed our SEC reports on time.
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 OTCQB. 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, 2013 |
Quarter Ended |
|
High $ |
|
Low $ |
December 31, 2013 |
|
$0.0410 |
|
$0.0166 |
September 30, 2013 |
|
$0.0358 |
|
$0.0100 |
June 30, 2013 |
|
$0.0020 |
|
$0.0050 |
March 31, 2013 |
|
$0.0200 |
|
$0.0029 |
|
Fiscal Year Ending
December 31, 2012 |
Quarter Ended |
|
High $ |
|
Low $ |
December 31, 2012 |
|
$0.0500 |
|
$0.0043 |
September 30, 2012 |
|
$0.4200 |
|
$0.0351 |
June 30, 2012 |
|
$1.3000 |
|
$0.0500 |
March 31, 2012 |
|
$2.5000 |
|
$1.0000 |
On April 9, 2014, the last sales price per
share of our common stock was $0.0144.
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 7, 2014, we had 87,156,979 shares
of our common stock issued and outstanding, held by fifty-eight (58) 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, racking and panel cleaning system. By deploying these new technologies into
our PV panels and solar installation business, we hope to enhance the value provided to our customers and increase our profitability. |
• |
Promoting and enhancing our company’s brand and reputation
in solar design and integration and expanding our installation business. |
• |
Developing a PV panel manufacturing capability to provide high
efficiency and low cost solar panels to US market. This will complement our installation business and provide an implementation
platform for our R&D. |
• |
Getting involved in the private power providing
business (Distributed Power Plants). Developing this line of business will lead to higher profit margins and income
to our business. In the future, this line of business could become one of our main income sources. |
Expansion of Installation Business
We are planning to expand its installation
business. We will continue to execute our marketing and sales strategy in Southern California and, with additional capital, will
be able to expand our business to cover Northern California, Arizona or other states. The planned expansion is expected
to occur through acquiring smaller installation companies in these regions and/or through the establishment of subsidiaries in
these states and boost our installation profits. Our current intention is to establish two new offices located in Northern California
or other states and in San Diego. The estimated start-up cost for each new branch would be approximately $500,000.
If we are able to expand our installation
business, it will assist us in gaining favorable terms from OEM international manufacturers of our planned solar panel manufacturing
operation. In addition, an expanded installation business would allow us to accelerate the introduction of our new
technologies and solar parts and would generate additional revenue to fund initial investment in our planned Distributed Power
Plant business and to further fund our investments in R&D.
Commercialization of Research and Development
Prior to initiating our planned OEM manufacturing
of Sunvalley-branded solar panels, we will need to commercialize our advanced panel technology through the design, fabrication,
and characterization of a prototype solar cell. The total expense for planned commercialization of our research and
development will be approximately $500,000. The necessary equipment and facilities will be accessed from University
of California, San Diego. The Nano3 clean room facilities in the school of Engineering at UCSD are equipped with state-of-the-art
micro and nano fabrication equipment and facilities, and can be accessed by outside users with a $107 hourly fee.
The interference pattern that will be recorded
in the solar cells will be obtained using an Argon laser operating at 362nm. This laser and its associated equipment is available
to us through a special arrangement with the administration office in the University of California, San Diego, as well as the
Ultrafast and Nano-scale Optics lab in the Department of Electrical and Computer Engineering in UCSD.
Other equipment will also be required, including
coating machine for PV panel testing.
Initiate OEM Manufacturing of Solar
Panels
By leveraging our solar panel installation
business and R&D, we plan to procure OEM solar panels from selected Chinese manufacturers and to market them in the U.S. under
our brand name. We will be responsible for R&D, quality control, customer service, sales and marketing activities, as well
as panel certification in U.S.
The estimated OEM panel cost is less than
$0.50 per watt. As a reference, currently, the lowest panel price is around $0.70 per watt (Mono-crystalline, Polycrystalline).
We can use our own sales and installation platform to showcase the new panels and drive sales of the new panels in the U.S market.
Meanwhile, we will continue our R&D effort on panel coating and other advanced technologies and apply the results to its panel
manufacturing business. The goal will be to further improve the efficiency, lower the cost of solar panels with our proprietary
technologies, and to grow our market share.
Our marketing strategy for its planned OEM
solar panels is as follows:
• |
Set-up a platform to showcase our innovative solar panel
technologies and make Sunvalley solar panels a household name. |
Unlike other merchandise, solar panel is very
unique in that it requires very high level of quality assurance and customer satisfaction. Providing satisfactory customer service
and technical support is absolutely vital in solar panel sales. As the first step, we will strive to make its brand a household
name. The Sunvalley solar panel will be used by our installation business as well as several other installation companies which
have partnerships with us. We do not currently have partnerships with other solar installation companies, but we plan to pursue
them after introducing the panels to the market through our own installation business. A marketing campaign aimed at other solar
installation companies will help to achieve this goal. We will use our own installation business as the platform to showcase the
product quality and build up consumer awareness of its brand.
• |
Penetrate into the 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 |
Develop Distributed Power Plant Business
With our resources and experience gained from
large scale solar power system designs, installation and other related business, we believe we have unique advantages in the design
and installation of large roof-top power plant systems. We are aggressively proposing our Distributed Power Plant solution to
utility companies in Southern California. We believe that by collaborating with us on this approach, utility companies will benefit
in the form of free installation, field space, and our expertise on large commercial solar system designs, installation and maintenance
services, as well as our technical and management experience. By collaborating with us, utility companies can help to achieve
their alternative energy requirements under California law.
We are among the few companies in California
that has the permit and expertise to install large-scale commercial and/or government solar power systems, together with roof
constructional design and building interior/exterior electrical designs. We believe additional advantages are provided by our
experience in filing solar power system permit applications and rebate applications and our expertise gained through our experience
with governments and utility companies.
Results of Operations for the Years Ended
December 31, 2013 and 2012
During the year ended December 31, 2013, we
generated gross revenues of $4,095,907. Total cost of sales was $3,895,091, resulting in gross profit of $200,816. Total operating
expenses were $1,234,359, and consisted of salary and wage expenses of $422,609, selling, general and administrative expenses
of $262,919, professional fees of $142,620 and bad debt expense of $406,211. We experienced interest expense of $14,806, a gain
of $52,100 on a derivative liability, a default penalty on convertible notes of $5,000, a loss on impairment of inventory of $57,523,
other income of $976, and a gain on legal settlement of $1,822,171. Our net income for the year ended December 31, 2013 was therefore
$764,375.
By comparison, during the year ended December
31, 2012, we generated gross revenues of $3,740,874. Total cost of sales was $2,381,746, resulting in gross profit of $1,359,128.
Total operating expenses were $1,284,041, and consisted of salary and wage expenses of $549,884, selling, general and administrative
expenses of $476,507, professional fees of $192,913 and bad debt expense of $64,737. We experienced a net interest expense of
$443,456, a loss of $617,926 due to the change in value of a derivative liability, loss on conversion of debt in the amount of
$703,634, a default penalty on convertible notes of $89,125, a gain on sale of property in the amount of $9,182, and other income
of $1,970. Our net loss for the year ended December 31, 2012 was therefore $1,767,902.
Although our revenues increased slightly in
2013 as compared to 2012, our gross profit declined significantly due to a much higher cost of sales. The reason for the much
higher cost of sales is that we subcontracted several installation projects due to our working capital limitations, caused by
the termination of Federal Cash Grant Incentives and reduction of rebates from local utility companies. This subcontracting reduced
our profit margin significantly since we shared a large portion of the project margin with the subcontractor. During 2013, we
were able to significantly reduce our expenses for salary and wages, professional fees, and selling, general, and administrative.
We incurred a significant bad debt expense, however, in the amount of $406,211. This amount consists primarily of accounts receivable
from All Fortune Group, LLC, which has ceased payment as the resulting of pending litigation, and one of our installation customers
going out of business. On September 8, 2013, we settled a legal dispute with Canadian Solar, Inc. (CSI). Under the settlement,
CSI agreed to release claims against us for trade payables. As a result, we recognized a net gain on the settlement of $1,822,171.
We are currently working on one major installation
project with a contract price of $900,000. This contract is expected to be substantially completed by the second quarter of 2014.
In addition, we have signed an agreement with an installation customer for a contract price of approximately $2.5 million.
Liquidity and Capital Resources
As of December 31, 2013, we had current assets
in the amount of 2,841,606, consisting of cash in the amount of $368,796, accounts receivable of $2,026,696, inventory in the
amount of $380,155, costs in excess of billings on uncompleted contracts of $29,696, prepaid expenses and other current assets
of $11,263, and restricted cash of $25,000. As of December 31, 2013, we had current liabilities in the amount of $5,862,980. These
consisted of accounts payable and accrued expenses in the amount of $5,573,200, customer deposits of $93,713, accrued warranty
of $73,539, advances from contractors of $103,389, the current portion of long term debt in the amount of $15,797, and the current
portion of a capital lease in the amount of $3,342. Our working capital deficit as of December 31, 2013 was therefore $3,021,374.
Our accounts payable and accrued expenses
as of December 31, 2013 consisted of the following:
Accounts Payable |
$ | 5,478,633 | |
Credit Card payable |
| 23,460 | |
Accrued vacation |
| 19,921 | |
Other accrued expense |
| 33,000 | |
Payroll liabilities |
| 10,821 | |
Sales tax payable |
| 7,365 | |
Total |
$ | 5,573,200 | |
As of December 31, 2013, our long-term liabilities
were $37,180, which consisted of a loan owing to East West Bank with a balance of $45,423 (long term portion $29,626) and the
remaining obligations of a capital lease in the amount of $10,896 (long term portion $7,554). The principal amount outstanding
on the East West Bank loan accrues annual interest at the bank's variable index rate. The East West Bank loan is collateralized
by all business assets.
In September 2011, we entered a lease- to-
own purchase agreement. We evaluated the lease at the time of purchase and determined that the agreement contained a beneficial
by-out option wherein we have the option to buy the equipment for $1 at the end of the lease term. Under the guidance in ASC 840,
we have classified the lease as a capital lease. We used the discounted value of future payments as the fair
value of this asset and have recorded the discounted value of the remaining payments as a liability. As of December 31, 2013 the
capital lease payable outstanding was $10,896, with $3,342 due within the next year.
On August 14, 2012 we 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. During the year
ended December 31, 2013 the Company made payments of $89,855 and reclassified $53,931 to accounts payable due to the Contractor
on these advances. The outstanding balance of the advances at December 31, 2013 and 2012 was $103,389 and $247,175.
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, 2013, there were no off
balance sheet arrangements.
Going Concern
We have experienced recurring losses from
operations and had an accumulated deficit of $2,361,317 as of December 31, 2013. To date, we have not been able to produce sufficient
sales to become cash flow positive and profitable on an ongoing 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. The Company’s allowance for doubtful accounts totals $272,686
and $116,752, as of December 31, 2013 and 2012, respectively.
Long-Lived Assets
In accordance with ASC 360, Accounting
for the Impairment or Disposal of 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, 2013 and 2012.
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 l0-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. The Company's accrued warranty provision was $73,538 and $78,053 at December 31, 2013 and 2012, 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, pursuant to ASC 605. 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 passing inspection by the Fire Department and obtaining the City’s Building Department’s
approval after its final inspection of the installed system. 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.
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:
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
Sunvalley Solar, Inc.
We have audited the accompanying balance sheet
of Sunvalley Solar, Inc. (the Company) as of December 31, 2013 and 2012 and the related statements of operations, stockholders’
equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these 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 audits 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 audits
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 financial statements referred
to above present fairly, in all material respects, the financial position of Sunvalley Solar, Inc. as of December 31, 2013 and
2012, and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting
principles.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the
Company has an accumulated deficit of $2,361,317, 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 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 11, 2014
SUNVALLEY SOLAR, INC.
Balance Sheets
|
December 31, 2013 | |
December 31, 2012 |
ASSETS |
| |
|
CURRENT ASSETS |
| | | |
| | |
Cash and cash equivalents |
$ | 368,796 | | |
$ | 85,771 | |
Restricted cash |
| 25,000 | | |
| 25,000 | |
Accounts receivable, net |
| 2,026,696 | | |
| 1,767,137 | |
Inventory |
| 380,155 | | |
| 358,608 | |
Costs in excess of billings on uncompleted contracts |
| 29,696 | | |
| 139,237 | |
Prepaid expenses and other current assets |
| 11,263 | | |
| 6,326 | |
Total current assets |
| 2,841,606 | | |
| 2,382,079 | |
PROPERTY AND EQUIPMENT, NET |
| 49,871 | | |
| 75,743 | |
OTHER ASSETS |
| | | |
| | |
Long-tem accounts receivable, net |
| 4,883,685 | | |
| 3,667,655 | |
Other assets |
| 3,870 | | |
| 13,370 | |
Total other assets |
| 4,887,555 | | |
| 3,681,025 | |
TOTAL ASSETS |
$ | 7,779,032 | | |
$ | 6,138,847 | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
| | | |
| | |
CURRENT LIABILITIES |
| | | |
| | |
Accounts payable and accrued expenses |
$ | 5,573,200 | | |
$ | 3,825,203 | |
Customer deposits |
| 93,713 | | |
| 189,215 | |
Accrued warranty |
| 73,539 | | |
| 78,053 | |
Factoring payable |
| — | | |
| 571,508 | |
Advances from contractors |
| 103,389 | | |
| 247,175 | |
Derivative liability |
| — | | |
| 408,779 | |
Convertible debt, net |
| — | | |
| 122,686 | |
Current portion of long-term debt |
| 15,797 | | |
| 14,847 | |
Current portion of capital lease |
| 3,342 | | |
| 2,781 | |
Total current liabilities |
| 5,862,980 | | |
| 5,460,247 | |
LONG-TERM LIABILITIES |
| | | |
| | |
Capital leases |
| 7,554 | | |
| 10,896 | |
Notes payable |
| 29,626 | | |
| 45,451 | |
Total long-term liabilities |
| 37,180 | | |
| 56,347 | |
TOTAL LIABILITIES |
| 5,900,160 | | |
| 5,516,594 | |
STOCKHOLDERS' EQUITY |
| | | |
| | |
Preferred stock, $0.001 par value, 1,000,000 Class A shares authorized, 950,000 and 950,000 shares issued and outstanding, respectively |
| 950 | | |
| 950 | |
Common stock, $0.001 par value, 90,000,000 shares authorized, 87,156,979 and 19,812,298 shares issued and outstanding, respectively |
| 87,157 | | |
| 19,812 | |
Additional paid-in capital |
| 4,152,082 | | |
| 3,727,183 | |
Accumulated deficit |
| (2,361,317 | ) | |
| (3,125,692 | ) |
Total Stockholders' Equity |
| 1,878,872 | | |
| 622,253 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | 7,779,032 | | |
$ | 6,138,847 | |
The accompanying notes are an integral part
of these financial statements.
SUNVALLEY SOLAR, INC.
Statements of Operations
|
For the Year Ended
December 31, |
|
2013 | |
2012 |
REVENUES |
$ | 4,095,907 | | |
$ | 3,740,874 | |
COST OF SALES |
| 3,895,091 | | |
| 2,381,746 | |
GROSS PROFIT |
| 200,816 | | |
| 1,359,128 | |
OPERATING EXPENSES |
| | | |
| | |
Salary and wage expense |
| 422,609 | | |
| 549,884 | |
Bad debt expense |
| 406,211 | | |
| 64,737 | |
Professional fees |
| 142,620 | | |
| 192,913 | |
Selling, general and administrative expenses |
| 262,919 | | |
| 476,507 | |
Total Operating Expenses |
| 1,234,359 | | |
| 1,284,041 | |
INCOME (LOSS) FROM OPERATIONS |
| (1,033,543 | ) | |
| 75,087 | |
OTHER INCOME (EXPENSES) |
| | | |
| | |
Gain on sale of property |
| — | | |
| 9,182 | |
Gain (loss)on derivative liability |
| 52,100 | | |
| (617,926 | ) |
Default penalty on convertible notes |
| (5,000 | ) | |
| (89,125 | ) |
Loss on impairment of inventory |
| (57,523 | ) | |
| — | |
Loss on conversion of debt |
| — | | |
| (703,634 | ) |
Other income |
| 976 | | |
| 1,970 | |
Gain on legal settlement |
| 1,822,171 | | |
| — | |
Interest expense |
| (14,806 | ) | |
| (443,456 | ) |
Total other income (expenses) |
| 1,797,918 | | |
| (1,842,989 | ) |
INCOME (LOSS) BEFORE TAXES |
| 764,375 | | |
| (1,767,902 | ) |
Provision for income taxes |
| — | | |
| — | |
NET INCOME (LOSS) |
$ | 764,375 | | |
$ | (1,767,902 | ) |
BASIC INCOME (LOSS) PER SHARE |
$ | 0.01 | | |
$ | (0.26 | ) |
DILUTED INCOME (LOSS) PER SHARE |
$ | 0.01 | | |
$ | (0.26 | ) |
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
| 70,410,482 | | |
| 6,711,240 | |
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
| 71,360,482 | | |
| 6,771,240 | |
The accompanying notes are an integral part
of these financial statements.
SUNVALLEY SOLAR, INC.
Statements of Stockholders' Equity
|
Preferred Stock | |
Common Stock | |
Additional
Paid-In | |
Accumulated | |
|
|
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Total |
|
| |
| |
| |
| |
| |
| |
|
Balance at December 31, 2011 |
| — | | |
$ | — | | |
| 1,772,080 | | |
$ | 1,772 | | |
$ | 1,584,538 | | |
$ | (1,357,790 | ) | |
$ | 228,520 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for cash |
| — | | |
| — | | |
| 60,000 | | |
| 60 | | |
| 75,270 | | |
| — | | |
| 75,330 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for debt conversion |
| — | | |
| — | | |
| 17,980,218 | | |
| 17,980 | | |
| 1,296,291 | | |
| — | | |
| 1,314,271 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for related party debt conversion |
| | | |
| | | |
| 4,981,812 | | |
| 4,982 | | |
| 906,652 | | |
| | | |
| 911,634 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of preferred stock for services |
| 950,000 | | |
| 950 | | |
| — | | |
| — | | |
| 67,450 | | |
| — | | |
| 68,400 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares repurchased for note payable |
| — | | |
| — | | |
| (4,981,812 | ) | |
| (4,982 | ) | |
| (203,018 | ) | |
| — | | |
| (208,000 | ) |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the year ended December 31, 2012 |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,767,902 | ) | |
| (1,767,902 | ) |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2012 |
| 950,000 | | |
| 950 | | |
| 19,812,298 | | |
| 19,812 | | |
| 3,727,183 | | |
| (3,125,692 | ) | |
| 622,253 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for debt conversion |
| — | | |
| — | | |
| 67,344,681 | | |
| 67,345 | | |
| 424,899 | | |
| — | | |
| 492,244 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income for the period ended December 31, 2013 |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 764,375 | | |
| 764,375 | |
|
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2013 |
| 950,000 | | |
$ | 950 | | |
| 87,156,979 | | |
$ | 87,157 | | |
$ | 4,152,082 | | |
$ | (2,361,317 | ) | |
$ | 1,878,872 | |
The accompanying notes are an integral
part of these financial statements.
SUNVALLEY SOLAR, INC.
Statements of Cash Flows
|
For the Years Ended December
31, |
|
2013 | |
2012 |
OPERATING ACTIVITIES: |
| | | |
| | |
Net income (loss) |
$ | 764,375 | | |
$ | (1,767,902 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
| | | |
| | |
Depreciation and amortization |
| 25,872 | | |
| 36,421 | |
Amortization of discount |
| — | | |
| 406,964 | |
(Gain) loss on re-measurement of derivative |
| (52,100 | ) | |
| 617,926 | |
Loss
on conversion of debt |
| | | |
| (703,634 | ) |
Gain on property |
| — | | |
| (9,182 | ) |
Bad debt expense |
| 174,899 | | |
| — | |
Loss on impairment of inventory |
| 57,523 | | |
| — | |
Penalty for default on convertible note |
| 5,000 | | |
| 89,215 | |
Stock based compensation |
| — | | |
| 68,400 | |
Changes in operating assets and liabilities: |
| | | |
| | |
Accounts receivable |
| (1,650,488 | ) | |
| (922,594 | ) |
Inventory |
| (79,070 | ) | |
| 488,475 | |
Prepaid expenses and other assets |
| (4,937 | ) | |
| 7,963 | |
Other receivables |
| — | | |
| 1,700 | |
Costs in excess of billings on uncompleted contracts |
| 109,541 | | |
| 29,256 | |
Other assets |
| 9,500 | | |
| 15,457 | |
Accounts payable and accrued expenses |
| 1,755,876 | | |
| (280,547 | ) |
Accrued warranty expenses |
| (4,514 | ) | |
| 9,172 | |
Factoring line |
| — | | |
| 163,808 | |
Customer deposits |
| (95,502 | ) | |
| (220,586 | ) |
Net Cash Provided by (Used in) Operating Activities |
| 1,015,975 | | |
| (562,420 | ) |
INVESTING ACTIVITIES: |
| | | |
| | |
Sale of property |
| — | | |
| 121,393 | |
Net Cash Provided By Investing Activities |
| — | | |
| 121,393 | |
FINANCING ACTIVITIES: |
| | | |
| | |
Proceeds from related party notes payable |
| 160,000 | | |
| 71,308 | |
Repayment of related party notes payable |
| (160,000 | ) | |
| (171,308 | ) |
Repayment of advances from contractor |
| (143,786 | ) | |
| 247,175 | |
Repayments of long term debt |
| — | | |
| (28,995 | ) |
Proceeds from convertible debt |
| — | | |
| 78,500 | |
Repayment of capital lease |
| (2,781 | ) | |
| (4,663 | ) |
Repayment of factoring line |
| — | | |
| (1,163,407 | ) |
Proceeds from factoring line |
| (571,508 | ) | |
| 1,245,455 | |
Proceeds from sale of common stock |
| — | | |
| 75,330 | |
Proceeds from notes payable |
| (14,875 | ) | |
| 15,000 | |
Net Cash Provided by (Used in) Financing Activities |
| (732,950 | ) | |
| 364,395 | |
NET INCREASE (DECREASE) IN CASH |
| 283,025 | | |
| (76,632 | ) |
CASH AT BEGINNING OF PERIOD |
| 85,771 | | |
| 162,403 | |
CASH AT END OF PERIOD |
$ | 368,796 | | |
$ | 85,771 | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
| | | |
| | |
CASH PAID FOR: |
| | | |
| | |
Interest |
$ | 7,099 | | |
$ | 10,665 | |
Income taxes |
$ | — | | |
$ | — | |
NON-CASH INVESTING AND FINANCING ACTIVITIES |
| | | |
| | |
Derivative liability |
$ | — | | |
$ | 75,500 | |
Repurchase of shares for note payable - related parties |
$ | — | | |
$ | (208,000 | ) |
Common stock issued for debt |
$ | 492,244 | | |
$ | 1,314,271 | |
The accompanying notes are an integral
part of these financial statements.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
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.
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, 2013 and has an accumulated deficit
of $2,361,317 as of December 31, 2013. 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.
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.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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, 2013, the Company had $118,796 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 totals $272,686 and $116,752,
as of December 31, 2013 and 2012, respectively.
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.
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 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. As of December 31, 2013,
the Company wrote off $57,523 which was recorded as a loss on impairment of inventory. The Company’s reserve for excess and
obsolete inventory amounted to $-0- and $-0- as of December 31, 2013 and 2012.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company’s inventory consisted
of the following at December 31, 2013 and December 31, 2012:
|
2013 | |
2012 |
Raw materials |
$ | 244,460 | | |
$ | 937 | |
Work in Progress |
| 1,326 | | |
| 11,790 | |
Finished goods |
| 134,369 | | |
| 345,881 | |
|
$ | 380,155 | | |
$ | 358,608 | |
The Company revalued its inventory at
the lower of cost or net realizable value as of December 31, 2013 and recorded impairment of inventory of $57,523.
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:
|
Useful Life |
Automobile |
5
Years |
Furniture |
7
Years |
Software |
3
Years |
Office
Equipment |
5
Years |
Machinery |
5-7
Years |
Long-Lived Assets
In accordance with ASC 360, Accounting
for the Impairment or Disposal of 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, 2013 and 2012.
Fair Value of Financial Instruments
For certain financial instruments, including
accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their relatively
short maturities. In the case of the Notes Payable, the interest rate on the notes approximates the market rate of interest for
similar borrowings. Consequently the carrying value of the Notes Payable also approximates the fair value. It is not practicable
to estimate the fair value of the Notes Payable to Related Party due to the relationship of the counterparty.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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, pursuant to ASC 605. 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 passing inspection by the Fire Department and obtaining the City’s Building Department’s approval after
its final inspection of the installed system. 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.
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 l0-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. The Company's accrued warranty provision was $73,539 and $78,053 at December 31, 2013 and 2012, respectively.
Advertising Expenses
Advertising expenses are expensed as incurred. Total
advertising expenses amounted to $1,738 and $2,560 for the years ended December 31, 2013 and 2012, 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, 2013 and 2012, respectively. These costs
are included in selling, general and administrative expenses in the accompanying statements of operations.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Income Taxes
The Company applies ASC 740, which requires
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 adopted ASC 740, at the beginning
of fiscal year 2008. This interpretation requires recognition and measurement of uncertain tax positions using a “more-likely-than-not”
approach, requiring the recognition and measurement of uncertain tax positions. The adoption of ASC 740 had no material impact
on the Company’s 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 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 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.
Reclassification of Financial Statement
Accounts
Due to the accounts receivable on installation
contracts are due in installments over terms from five to seven years, the accounts receivable amount as of December 31, 2013 and
2012 in the financial statements have been reclassified to current versus long-term amounts. The current accounts receivable amount
totals $2,026,696 and $1,767,137 as of December 31, 2013 and 2012, respectively. The long-term accounts receivable amount totals
$4,883,685 and $3,667,655 as of December 31, 2013 and 2012, respectively.
Basic and Diluted Earnings and Loss Per
Common Share
Basic earnings 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 loss per share and diluted loss per share are the same amount because the impact of additional common
shares that might have been issued under the Company’s outstanding and exercisable stock options would be anti-dilutive.
Dilutive instruments include 950,000 shares to be issued upon the conversion of the Series A Convertible Preferred Stock. These
dilutive shares were included in the computation of diluted earnings per share. Accordingly, there were 950,000 such dilutive shares
included as of December 31, 2013 and 35,814,313 such potentially dilutive shares excluded as of December 31, 2012.
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, 2013 and 2012 the Company maintains a certificate of deposit
in the amount of $25,000 and $25,000, respectively, with a financial institution.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property
and equipment at December 31, 2013 and 2012:
|
2013 | |
2012 |
Computer and equipment |
$ | 75,268 | | |
$ | 57,706 | |
Buildings |
| | | |
| — | |
Furniture |
| 16,655 | | |
| 16,655 | |
Software |
| 2,368 | | |
| 2,368 | |
Vehicles |
| 92,174 | | |
| 110,286 | |
Gross Property and Equipment |
| 186,465 | | |
| 187,015 | |
Less: accumulated depreciation |
| (136,594 | ) | |
| (111,272 | ) |
Net Property and Equipment |
$ | 49,871 | | |
$ | 75,743 | |
Depreciation expense for the years ended
December 31, 2013 and 2012 was $25,872 and $36,421, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company owed $100,000 for short-term
related party loans with maturity dates of less than 1 year bearing an interest rate of 6.5%; per annum to its stockholders as
of December 31, 2011, respectively. During the year ended December 31, 2012, the Company borrowed an additional $71,308 from
two of the officers of the Company. These notes accrues interest at 6.5 % per annum, are unsecured and due on demand. On May 22,
2012 the holders converted $104,000 of their debt into 821,812 shares of common stock of the Company. The Company then immediately
repurchased the shares as treasury stock and assumed the $104,000 notes from the related parties. On July 3, 2012 the Company cancelled
the 821,812 shares of its treasury stock which bought back from the two officers of the Company. The Company recognized a loss
of $183,634 from the May 22, 2012 conversion.
On July 20, 2012 the holders of the
notes converted the $104,000 notes payable again for 4,160,000 shares of common stock. The Company recognized a loss from conversion
in the amount of $520,000, totaling a loss of $703,634 for the year ended December 31, 2012 for related party debt conversions.
During
the year ended December 31, 2012, the Company paid $171,308 in reduction of the notes, as a result, the related party loan payables
were paid off as of December 31, 2012.
During the year ended December 31, 2013,
the Company borrowed $160,000 from two officers of the Company. These notes accrue interest at 6.5 percent per annum, are unsecured
and due on demand. The related party payables were repaid during May and June 2013.
The interest expense incurred on the
related party payables was $3,384 and $5,422 , for the years ended December 31, 2013 and 2012, respectively.
NOTE 6 – COSTS IN EXCESS OF
BILLINGS ON UNCOMPLETED CONTRACTS
The Company is currently involved in
certain major short-term solar panel installation projects. The Company is accounting for revenue and expenses associated with
these contracts under the completed contract method of accounting in accordance with ASC 605. Under ASC 605, income is recognized
on when the contracts are completed or substantially completed and billings and others costs are accumulated on the balance sheet.
Under the completed contract method, no profit or income is recorded before completion of substantial completion of the work.
As of December 31, 2013 and December
31, 2012, the Company has capitalized $29,696 and $139,237 of costs incurred in relation to installation projects.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 7 - NOTES PAYABLE
Notes payable outstanding as of December
31, 2013 and 2013 consisted of the following:
|
2013 | |
2012 |
Notes payable (1) |
| | | |
| | |
Current portion |
$ | 15,797 | | |
$ | 14,847 | |
Long-term portion |
| 29,626 | | |
| 45,451 | |
Total Notes Payable |
$ | 45,423 | | |
$ | 60,298 | |
(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 6.00% as of December 31, 2013).
Future maturities of notes payable are
as follows:
| 2014 | | |
$ | 15,797 | |
| 2015 | | |
| 16,777 | |
| 2016 | | |
| 12,849 | |
| | | |
| | |
| Total | | |
$ | 45,423 | |
NOTE 8 - CAPITAL 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. Under the guidance in ASC 840, the Company has classified the lease as a 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, 2013 and 2012 consisted of the following:
|
2013 | |
2012 |
Forklift lease |
$ | 10,896 | | |
$ | 13,677 | |
Total Capital Leases |
$ | 10,896 | | |
$ | 13,677 | |
Future maturities of capital leases
are as follows:
2014 |
| 3,342 | |
2015 |
| 4,017 | |
2016 |
| 3,537 | |
|
| | |
Total minimum lease payments |
| 10,896 | |
Less executory costs |
| 794 | |
Net minimum lease payments |
| 10,102 | |
Less amount representing interest |
| 3,093 | |
|
| | |
Present value of minimum lease payments |
$ | 12,300 | |
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 9 - DERIVATIVE LIABILITY
Effective July 31, 2009, the Company
adopted ASC Topic No. 815-40 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s
own stock. These debts are convertible at the holder’s option at 61% of the average of the lowest three trading prices during
the 10 days prior to conversion. The number of shares issuable upon conversion of these debts are limited so that the Holder’s
total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares.
The exercise price of these warrants
are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock
options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes.
If these provisions are triggered, the conversion price of the note will be reduced. As a result, the Company has determined
that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded
equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative
liability.
ASC 815 requires Company management to assess
the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another
income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its
derivative liability associated with the above convertible debts. During the year ended December 31, 2013 the convertible
debt was fully converted to common stock.
NOTE 10 - CONVERTIBLE DEBT
On October 28, 2011, the Company
borrowed $200,000 in the form of a convertible note. The note is convertible at the holder’s option at 61% of the
average of the lowest three trading prices during the 10 trading days prior to conversion. Pursuant to this conversion
feature, the Company recorded a discount on debt in the amount of $200,000 on the note date. The convertible debt is due on
July 18, 2012, is unsecured and bears an interest rate of 8%. The Company defaulted on the note and as a result, the interest
rate on the outstanding balance increased to 22% per annum and the Company incurred a default penalty in the amount of
$144,125, however, the Company entered into an agreement with the lender to amend the note agreement to reduce the default
penalty by $55,000 from $144,125 to $89,125. In addition the amendment adjusted the conversion factor from 61% to 50%. On
September 14, 2012 the lender and the Company agreed to amend the agreement to extend the maturity date to December 6, 2013
and increase the outstanding balance of the note by $5,000 for legal fees. During the year ended December 31, 2013 the
Company incurred a default penalty in the amount of $5,000. During the year ended December 31, 2013 the Company recorded
$1,590 in interest expense on the note. As of June 30, 2012 the Company had amortized the entire $200,000 of the debt
discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December
31, 2013 the Company issued 28,249,555 shares of common stock upon conversion of $72,836 of the note and accrued interest
payable. As of December 31, 2013 and December 31, 2012 the outstanding note balance was $-0- and $66,186, respectively.
On February 22, 2012, the Company borrowed
$78,500 of convertible debt. On May 24, 2012 the Company and the lender amended the agreement wherein the debt was convertible
at the holder’s option at 61% of the average of the lowest three trading prices during the 10 trading days prior to conversion
to 40% of the average of the lowest three trading prices during the 10 trading days prior to conversion. Pursuant to this conversion
feature, the Company recorded a discount on debt in the amount of $78,500 on the note date. The convertible debt is due on August
24, 2013, is unsecured and bears an interest rate of 8%. During the year ended December 31, 2013 the Company issued 39,095,127
shares of common stock upon conversion of $62,729 of the note and accrued interest payable. As of December 31, 2013 and December
31, 2012 the outstanding note balance was $-0- and $56,500, respectively.
As of December 31, 2013 all of the convertible
debts were fully converted into shares of the Company’s common stock and the Company recognized a gain on the derivative
liability of $52,100.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 11 - FACTORING LINE PAYABLE
During the year ended December 31, 2013, the
Company repaid its factoring provider in full including all fees and accrued interest.
NOTE 12 - COMMON STOCK
During the year ended December 31, 2012
the Company issued 60,000 shares of common stock for cash of $75,330.
During the year ended December 31, 2012
the Company issued 17,980,218 shares of the Company’s common stock upon conversion of $1,314,271 of its debt. On
June 25, 2012 the Company purchased 821,812 shares of its common stock for notes payable to related parties of $104,000 owed to
two Company officers. On July 3, 2012 the Company cancelled the 821,812 shares of treasury stock which were bought back from the
two Company officers. On July 24, 2012, the Company issued 4,160,000 shares of common stock in exchange for converting the $104,000
of the outstanding notes payable related parties to these same officers. On October 17, 2012 the Company repurchased 4,160,000
shares of its common stock for $104,000 from two Company officers and such shares were canceled afterward.
On July 20, 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.
During the year ended December 31, 2013 the
Company issued 67,344,681 shares of the Company’s common stock upon conversion of $127,686 of its debt plus $7,879 of accrued
interest. The Company also recorded $424,899 to additional paid in capital as a result of the conversion of the debt.
NOTE 13 – PREFERRED STOCK
On August 28, 2012, the Company’s
Board of Directors voted to designate a class of preferred stock entitled Class A Convertible Preferred Stock, consisting of up
to one million (1,000,000) shares, par value $0.001. The rights of the holders of Class A Convertible Preferred will participate
on an equal basis per-share with holders of the Company’s common stock in any distribution upon winding up, dissolution,
or liquidation.
Holders of Class A Convertible Preferred
Stock are entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders
at a rate of one hundred (100) votes for each share held. Holders of Class A Convertible Preferred Stock are also entitled, at
their option, to convert their shares into shares of the Company’s common stock on a 1 for 1 basis. The Class A Convertible
Preferred shares were valued at the trading price of the common shares into which they are convertible.
During the year ended December 31, 2012,
the Board of Directors approved the incentive issuance of 950,000 shares of the Company’s Class A Convertible Preferred shares
to its executives and key employees and Restricted Stock Award Agreements were signed with such individuals for their shares will
vest in full after two years from the date of grant with curtain restrictions. The issuance of such preferred shares were
valued as stock-based compensation of $68,400 based on the fair market value of the Company’s common stock on August 28,
2012.
NOTE 14 - 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. During the year ended December 31, 2013 the Company made payments of $143,786 on
these advances. The outstanding balance of the advances at December 31, 2013 and 2012 was $103,389 and $247,175.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 15 - INCOME TAXES
The FASB has issued FASB ASC 740-10
which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. This standard
requires a company to determine 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. As a result of the implementation of this standard, the
Company performed a review of its material tax positions in accordance with recognition and measurement standards established by
FASB ASC 740-10.
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.
The income tax provision differs from
the amount of income tax determined by applying the U.S. federal and state income tax rates of 34% to pretax income from continuing
operations for the years ended December 31, 2013 and 2012. The components of income tax expense are as follows:
|
2013 | |
2012 |
Operating loss carry forwards |
$ | 802,848 | | |
$ | 1,064,359 | |
Gain on derivative liability |
| (117,486 | ) | |
| (135,200 | |
Amortization of discount |
| (147,164 | ) | |
| (138,368 | |
Loss on debt conversion |
| (239,236 | ) | |
| (239,236 | |
Valuation allowance |
| (298,952 | ) | |
| (551,555 | ) |
|
$ | — | | |
$ | — | |
The Company currently has no issues
creating timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future
years. Due to the uncertainty of the utilization of net operating loss carry forwards, an evaluation allowance has been made to
the extent of any tax benefit that net operating losses may generate. A provision for income taxes has not been made due to net
operating loss carry-forwards of $802,848 and $1,064,359 as of December 31, 2013 and 2012, respectively, which may be offset against
future taxable income through 2032. No tax benefit has been reported in the financial statements.
A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
|
2013 | |
2012 |
Federal statutory rate (34%) |
$ | (259,888 | ) | |
$ | (601,087 | ) |
Non-deductible expenses |
| 8,918 | | |
| 587,698 | ) |
State tax benefit, net of federal tax effect |
| — | | |
| — | |
Change in valuation allowance |
| 250,970 | | |
| 13,389 | |
Provision for income taxes |
$ | — | | |
$ | — | |
The Company did not have any tax positions
for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease
within the next 12 months. The Company includes interest and penalties arising from the underpayment of income taxes in the statements
of operations in the provision for income taxes. As of December 31, 2013 and 2012, the Company had no accrued interest or
penalties related to uncertain tax positions. The tax years that remain subject to examination by major taxing jurisdictions are
for the years ended December 31, 2013, 2012, 2011, 2010, and 2009.
SUNVALLEY SOLAR, INC.
Notes to Financial Statements
December 31, 2013 and December 31, 2012
NOTE 16 - CONCENTRATIONS OF RISK
Supplier Concentrations
The Company purchases solar panels from
three and one manufacturer(s) during the years ended December 31, 2013 and 2012, respectively. For the years ended December 31,
2013 and 2012, these vendors accounted for approximately 90% and 47%, respectively, of total inventory purchases.
Customer Concentrations
For the years ended December 31, 2013
and 2012, three and two customers, respectively, represented more than 10% of the Company’s sales. This translates to approximately
86% and 64%, respectively, of the Company's annual net revenues.
NOTE 17 – SIGNIFICANT EVENTS
The
Company and Canadian Solar, Inc. (CSI) resolved and settled by the agreement dated September 8, 2013 by which CSI agreed not to
enforce any claims in the amount of approximately $1,862,671 owed by the Company to CSI. In return, the Company agreed to
dismiss the lawsuit brought against CSI. Accordingly, the Company recognized a gain on the settlement of litigation in the amount
of $1,822,170 during the year ended December 31, 2013.
NOTE 18 – COMMITMENTS
AND CONTINGENCIES
Office Lease -
The Company leases an office under an operating lease that expires on November 30, 2014. Total rent expense amounted
to $36,929 and $38,049 for the fiscal years ended December 31, 2013 and 2012, respectively.
Minimum base lease payments
required to be made during 2014 total $32,296.
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. The exact amount
sought is unknown. It is not clear that these situations have given rise to liabilities, because the Company doesn't know if the
situation will result in any future payments. Therefore, no accrued contingency liabilities were recorded as of December 31, 2013.
NOTE 19 – 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.
The company has signed an agreement
with an installation customer for a contract price of approximately $2.5 million in March 2014.
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, 2011.
Item 9A(T). 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, 2013. 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, 2013
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, 2013, 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, 2014: (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.
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 April 10, 2013.
Name |
Age |
Office(s) held |
Zhijian (James) Zhang |
47 |
President, CEO, Director |
Mandy Chung |
45 |
Chief Financial Officer, Secretary, Treasurer |
Hangbo (Henry) Yu |
60 |
General Manager, Director |
Fang Xu |
48 |
Chief Technology Officer |
Shirley Liao |
45 |
Director of Administration |
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 the past five 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 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.
Fang Xu – Dr. Xu is our Chief
Technology Officer. He has served in this position since July of 2008. From 2005 through June of 2008, he was a staff
design engineer at Via Telecom, Inc. He graduated from the Electrical Department of Beijing University in China, has a Masters
Degree in Electronics from the University of Alabama, and a PhD in Photonics from the University of California, San Diego. Dr.
Xu is currently in charge of our research and development efforts . Dr. Xu has over 13 years of experience in both in academic
and industrial environments. Dr. Xu has extensive knowledge in photonics, and optics, as well as micro and nano-scale device processing
technologies. In addition, Dr. Xu has hands on experience in making the nano-scale structure that modifies the effective dielectric
properties of optical materials. Dr. Xu has been a pioneer in the use polarization selective materials to construction micro and
nanoscale diffractive optical elements.
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.
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.
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 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 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, 2013, 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, 2013 and 2012.
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 |
2013
2012 |
74,400
104,308 |
-0 |
12,600 |
-0 |
-0 |
-0 |
-0 |
74,400
116,908 |
Mandy Chung, CFO, Secretary, and Treasurer |
2013
2012 |
48,000
52,154 |
-0 |
5,400 |
-0 |
-0 |
-0 |
-0 |
48,000
57,554 |
Hangbo (Henry) Yu, General Manager and Director |
2013
2012 |
72,000
98,685 |
-0 |
10,800 |
-0 |
-0 |
-0 |
-0 |
72,000
109,485 |
Fang Xu, CTO |
2013
2012 |
0
1,038 |
-0 |
-0 |
-0 |
-0 |
-0 |
-0 |
0
1,038 |
Shirley Liao, Director of Administration |
2013
2012 |
54,100
66,346 |
-0 |
3,150 |
-0 |
-0 |
-0 |
-0 |
54,100
69,496 |
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.
During the year ended December 31, 2013, we
approved an incentive issuance of Class A Convertible Preferred Stock to our executives and certain key employees. Restricted
Stock Award agreements were signed with each person issued Class A Convertible Preferred Stock. Ownership of these shares will
fully vest in two years from the date of issue, and they are generally subject to forfeiture in the event the holder leaves the
company prior to the vesting date. Each share of Class A Convertible Preferred Stock is convertible at the option of the holder
into one (1) share of our common stock. In addition, holders of Class A Convertible Preferred Stock are entitled to cast 100 votes
for each share held on all matters submitted to a vote of the holders of our common stock. The goals of the incentive issuances
of Class A Convertible Preferred Stock to our executives in 2012 were (i) to provide a continuing incentive for such executives
to remain with the company, and (ii) to give our management and key employees a greater voice in the governance of the corporation.
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, 2013.
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 (#)(1) |
Market
Value of Shares or Shares of Stock That Have Not Vested
($) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Shares or Other Rights That Have Not Vested (#) |
Zhijian (James) Zhang, President, CEO, and Director |
- |
- |
- |
- |
- |
280,000 |
-5,600 |
- |
- |
Mandy Chung, CFO, Secretary, and Treasurer |
- |
- |
- |
- |
- |
120,000 |
-2,400 |
- |
- |
Hangbo (Henry) Yu, General Manager and Director |
- |
- |
- |
- |
- |
240,000 |
-4,800 |
- |
- |
Fang Xu, CTO |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Shirley Liao, Director of Administration |
- |
- |
- |
- |
- |
70,000 |
-1,400 |
- |
- |
(1) The figures in this column represent shares of
Class A Convertible Preferred Stock issued on August 28, 2012. Ownership of these shares will fully vest in two years from
the date of issue, and they are generally subject to forfeiture in the event the holder leaves the company prior to the vesting
date. Each share of Class A Convertible Preferred Stock is convertible at the option of the holder into one (1) share of our common
stock.
Director Compensation
The table below summarizes all compensation
of our directors for our last completed fiscal year.
DIRECTOR COMPENSATION |
Name |
Fees Earned or
Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive
Plan Compensation ($) |
Non-Qualified
Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
Zhijian (James) Zhang |
0 |
-0 |
-0 |
-0 |
-0 |
-0 |
-0 |
Hangbo (Henry) Yu |
0 |
-0 |
-0 |
-0 |
-0 |
-0 |
-0 |
Anyork Lee (former director) |
0 |
-0 |
-0 |
-0 |
-0 |
-0 |
-0 |
Narrative Disclosure to the Director Compensation
Table
We do not currently provide any set compensation
to directors for their service as directors.
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. Except as otherwise indicated, all Shares are
owned directly and the percentage shown is based on 87,156,979 shares common stock issued and outstanding as of April 7, 2014
and 950,000 shares of Class A Convertible Preferred Stock issued and outstanding as of April 7, 2014.
Title of class |
Name and address of beneficial owner (1) |
Amount of
beneficial ownership |
Percent of class |
Current Executive Officers & Directors: |
Common Stock |
Zhijian (James) Zhang
12161 Salix Way
San Diego CA 92129 |
441,152 shares(2) |
0.51% |
Common Stock |
Hangbo (Henry) Yu
3309 S. Gauntlet Dr.
West Covina, CA 91792 |
367,118 shares(3) |
0.42% |
|
|
|
|
Common Stock |
Shirley Liao
3309 S Gauntlet Dr.
West Covina, CA 91792 |
87,948 shares(4) |
0.10% |
Common Stock |
Mandy Chung
1059 Moreno Way
Placentia, CA 92870 |
133,799 shares(5) |
0.15% |
Common Stock |
Fang Xu
11239 Vandemen Way
San Diego, CA 92131 |
256 shares |
- |
Common Stock Total of All Current Directors and Officers: |
1,030,273 |
1.18% |
|
|
|
Class A Convertible Preferred Stock |
Zhijian (James) Zhang
12161 Salix Way
San Diego CA 92129 |
280,000 shares |
29.47% |
Class A Convertible Preferred Stock |
Hangbo (Henry) Yu
3309 S. Gauntlet Dr.
West Covina, CA 91792 |
240,000 shares |
25.26% |
Class A Convertible Preferred Stock |
Shirley Liao
3309 S Gauntlet Dr.
West Covina, CA 91792 |
70,000 shares |
7.37% |
Class A Convertible Preferred Stock |
Mandy Chung
1059 Moreno Way
Placentia, CA 92870 |
120,000 shares |
12.63% |
Class A Convertible Preferred Stock |
Fang Xu
11239 Vandemen Way
San Diego, CA 92131 |
0 shares |
- |
Class A Convertible Preferred Stock Total of All Current Directors and Officers: |
710,000 shares |
74.73% |
|
|
|
|
|
|
|
|
|
|
More than 5% Beneficial Owners |
Common Stock |
None |
|
|
Class A Convertible Preferred Stock |
Anyork Lee
1050 Yorba Linda Rd.
Placentia, CA 92870 |
100,000 |
10.52% |
Class A Convertible Preferred Stock |
William Hsien |
70,000 |
7.37% |
Class A Convertible Preferred Stock |
Mehmet Cercioglu |
70,000 |
7.37% |
|
|
|
|
(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 160,152 shares of common stock and 280,000 shares of
Class A Convertible Preferred Stock, which are convertible at the option of the holder into 280,000 shares of common stock. |
(3) |
Includes 127,118 shares of common stock and 240,000 shares of
Class A Convertible Preferred Stock, which are convertible at the option of the holder into 240,000 shares of common stock. |
(4) |
Includes 17,948 shares of common stock and 70,000 shares of
Class A Convertible Preferred Stock, which are convertible at the option of the holder into 70,000 shares of common stock. |
(5) |
Includes 13,799 shares of common stock and 120,000 shares of
Class A Convertible Preferred Stock, which are convertible at the option of the holder into 120,000 shares of common stock. |
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 December 21, 2011, we borrowed the sum of $50,000 from James Zhang, our President, under
the terms of a Private Loan Agreement. The loan was due within a year and bore interest at a rate of 6.50% per year. This note
was converted to buy 410,906 shares of common stock on May 25, 2012.
2.
On December 21, 2011, we borrowed the sum of $50,000 from Hangbo (Henry) Yu, our General
Manager, under the terms of a Private Loan Agreement. The loan was due within a year and bore interest at a rate of 6.50% per
year. This note was converted to buy 410,906 shares of common stock on May 25, 2012
3.
On February 24, 2012, we borrowed the sum of $21,307.90 from Hangbo (Henry) Yu, our General
Manager, under the terms of a Private Loan Agreement. The loan was due within a year and bore interest at a rate of 6.50% per
year. The sum of $19,307.90 repaid on September 24, 2012. The remaining $2,000 was converted to common stock.
4.
On April 16, 2012, we borrowed the sum of $50,000 from James Zhang, our President, under
the terms of a Private Loan Agreement. The loan was due within a year and bore interest at a rate of 6.50% per year. The sum of
$48,000 was repaid on May 25, 2012, with the remaining balance added to another note.
5.
On January 24, 2013, we borrowed the sum of $90,000 from Hangbo (Henry) Yu, our General Manager,
under the terms of a Private Loan Agreement. The loan was repaid in 2013.
6.
On February 20, 2013, we borrowed the sum of $20,000 from Hangbo (Henry) Yu, our General
Manager, under the terms of a Private Loan Agreement. The loan was repaid in 2013.
7.
On April 4, 2013, we borrowed the sum of $50,000 from James Zhang, our President, under the
terms of a Private Loan Agreement. The loan was repaid in 2013.
Director Independence
We are not a “listed issuer” within
the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our
directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not believe
that we currently have any independent directors.
Item 14. Principal Accounting Fees and
Services
Below is the table of Audit Fees (amounts
in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:
Financial Statements for the
Year Ended: |
Audit
Services |
Audit
Related Fees |
Tax
Fees |
Other
Fees |
December 31, 2013 |
$50,000 |
$0 |
$0 |
$0 |
December 31, 2012 |
$33,000 |
$0 |
$0 |
$0 |
PART IV
Item 15. Exhibits, Financial Statements Schedules
(a) |
Financial Statements and Schedules |
The following financial statements and schedules
listed below are included in this Form 10-K.
Financial Statements (See Item 8)
(1) |
Incorporated by reference to Annual Report on Form 10-K filed
on March 31, 2011. |
(2) |
Incorporated by reference to Annual Report on Form 10-K/A filed
on May 12, 2011. |
(3) |
Incorporated by reference to Current Report on Form 10-K filed
on April 16, 2012. |
(4) |
Incorporated by reference to Current Report on Form 8-K filed
on September 5, 2012. |
(5) |
Incorporated by reference to Annual Report on Form 10-K filed
on April 16, 2013. |
** |
Provided herewith |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Sunvalley Solar, Inc.
By: |
/s/ James Zhang |
|
James Zhang
President, Chief Executive Officer,
and Director
|
|
April 14, 2014 |
In accordance with Section 13 or 15(d) of the
Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
By: |
/s/ James Zhang |
|
James Zhang
President, Chief Executive Officer,
and Director
|
|
April 14, 2014 |
By: |
/s/ Mandy Chung |
|
Mandy Chung
Chief Financial Officer, Principal Accounting Officer,
Secretary, and Treasurer
|
|
April 14, 2014 |
By: |
/s/ Hangbo (Henry) Yu |
|
Hangbo (Henry) Yu
General Manager, Director
|
|
April 14, 2014 |