UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

of 1934 for the Fiscal Year Ended December 31, 2017

[  ]	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934  for the transition period from _________ to ________

Commission File Number:  333-150692

Sunvalley Solar, Inc.

(Exact name of registrant as specified in its charter)

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

Common Stock, par value $0.001 per share

(Title of class)

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

Yes [   ]   No [X]

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

Yes [   ]   No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

Yes [X]   No [     ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]   No [  ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Accelerated filer [  ]

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

Smaller reporting company [X]

Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ]   No [X]

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, on June 30, 2017, which is the last day of the registrant’s most recent completed second fiscal quarter, was approximately $285,346, using an average of bid and ask prices of $0.0471 per share on that date, and approximately 6,058,311 shares of common stock held by non-affiliates. Shares of common stock held by each officer and director of the registrant and by each person who may be deemed to be an affiliate have been excluded.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date of 25,263,176 as of April 6, 2018.

TABLE OF CONTENTS

                                                                                                                               

PART I

Item 1.

Business

    4

Item 2.  

Properties

    9

Item 3.  

Legal Proceedings

    9 Item 4.  Mine Safety Disclosures

  10

PART II

Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

  10

Item 6.  

Selected Financial Data

  12

Item 7.

Management's Discussion and Analysis of Financial Condition and

Results of Operations

  12

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

  17

Item 8.  

Financial Statements and Supplementary Data

  17

Item 9.  

Changes in and Disagreements with Accountants on Accounting

         

and Financial Disclosure

  18

Item 9A.

Controls and Procedures

  18

Item 9B.

Other Information

  19

PART III

Item 10.   

Directors, Executive Officers and Corporate Governance

  19

Item 11.

Executive Compensation

  22

Item 12.

Security Ownership of Certain Beneficial Owners and

         

Management and Related Stockholder Matters

  25

Item 13.

Certain Relationships and Related Transactions, and Director

Independence

  28

Item 14.

Principal Accounting Fees and Services

  29

PART IV

Item 15.

Exhibits, Financial Statement Schedules

  29

---

PART I

Item 1. Business

Sunvalley Solar, Inc. (the “Company”’ “we”, “our”) is a California-based solar power technology and system integration company founded in January of 2007. We are focused on developing our expertise and proprietary technology to install residential, commercial and governmental solar power systems. We offer turnkey solar system solutions for owners, builders and architecture firms that include designing, building, operating, monitoring and maintaining solar power systems. Our customers range from small private residences to large commercial solar power users. We have the necessary licenses and expertise to design and install large scale solar power systems. We hold a C-46 Solar License from CBCL (California Board of Contractor License). Some of the large scale commercial solar power systems that we have designed and installed include large office buildings, farming and manufacturing facilities and warehouses. Our proprietary technologies in solar installation provide our customers with a high quality, low cost and flexible solar power system solutions.

We are working to develop as an end-to-end solar energy solution provider by providing system solution, post-sale service, customer technical support, and solar system design and field installation.

Operating Subsidiaries

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

On May 15, 2016 we acquired Rayco Energy, Inc. (“Rayco”), a northern California company specializing in providing cost-saving and efficient energy solutions, including LED lighting, Solar Thermal and Solar Electricity, to local communities and business units. 

Principal Products and Services

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

 

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

- LED Design and Installation
- LED Research and Development
- LED Manufacturing and Distribution

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Through this technology, it is able to address the undesirable fluctuations in the voltage of the power grid due to uncertain environmental impact to solar system. Commercializing this technology into mass production will involve cooperation and approval from utility company. In addition, the networked PV panel  concept will also need to demonstrate that panels using the technology will have a productive life-span and a tolerance to environmental conditions such as humidity, temperature, wind load that are sufficient for the panels to be used in real life application. Accordingly, there is no guarantee that we will be able to commercially produce and market solar panels using our new networked PV panel system technology.

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

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

.

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

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

Our key current R&D topics include:

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

- Develop solar PV application technology to reduce system level cost and increase installation flexibility                                                

 – Develop new networked PV panel

- Commercializing our new advanced solar technology.

Solar Equipment Manufacturing and Distribution

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

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

Competition and Market Overview

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

Distribution Methods and Marketing

The most important part in a solar power system is the solar panel (PV module). Photovoltaic (PV) devices generate electricity directly from sunlight via an electric process that occurs naturally in certain types of materials. Groups of PV cells are configured into modules and arrays, which can be used to power any number of electrical loads.

Crystalline silicon - the same material commonly used by the semiconductor industry -is the material used in a large portion of all PV modules today. PV modules generate direct current (DC) electricity. For residential use, the current is then fed through an inverter to produce alternating current (AC) electricity that can be used to power home appliances.

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

The initial market focus for our commercial installation business has been the Chinese-American and broader Asian-American community of Southern California, with special emphasis on the Asian-American commercial market. We have been able to attract the attention of news media serving this market segment. Several newspapers (Chinese Daily News and World Journal), TV stations (Phoenix Satellite Television and DongSen Satellite Television), and local radio stations (AM1300), have had special reports on our company. These reports have generated positive reactions from readers, viewers, and listeners and have driven customer traffic to our office.

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

Principal Suppliers

We currently purchase solar panels primarily from three manufacturers, Canadian Solar, JS Solar and Hanwha SolarOne. We maintain good relationships with all of our suppliers, and especially with our primary and important suppliers. In addition, we are continuously adding new alternative suppliers to our supplier list. Due to the standardization of solar and LED 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, LED design and installation, as well as solar equipment distribution. In order to expand our installation business to states other than California, we will be required to comply with local license requirements by acquiring a local installer or by hiring locally-licensed contractors to serve as officers. For our solar equipment distribution business, no local licensures are required in California or other states.

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

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

Intellectual Property

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

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

Personnel

We have 32 employees, 23 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 led by a management team that includes a group of scientists, research/development engineers, a professional marketing/sales team, and an experienced supply chain management team. In addition, our team includes solar power system design engineers, solar power system installation engineers, electrical system design engineers and construction engineers.

Government Regulation

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

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

Item 2. Properties

We lease approximately 2,193 square feet of office space in the Walnut Tech Business Center located at 398 Lemon Creek Drive, Suite A, Walnut, CA 91789. Our lease was renewed until December 31, 2018. The annual rent is $38,158, which is payable monthly at the rate of $3,275 per month.  In addition, there is a fee for monthly expenses and taxes of $263 per month.  We also lease approximately 1,933 square feet of office  located at 5653 Stoneridge Drive, Pleasanton, CA 94588. The lease period was from September 1, 2017 to September 30, 2020. The monthly rent was ranging from approximately $2,610 to $2,803 during the lease term. Both properties are sufficient for our current business size.

Item 3. Legal Proceedings

All Fortune Group, LLC Case

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 complaint. The reliefs claimed by All Fortune are mainly monetary damages including punitive damages, costs of suit and other recoverable fees and damages. A settlement was reached between the Company and All Fortune on October 7, 2015. A money judgement in the amount of $874,689 to the Company. All Fortune will pay $380,000 within 20 days after All Fortune’s receipt of the Company’s insurer payment for $215,000. All Fortune agrees to pay the Company the remaining balance owed of $494,689 in 30 monthly payments at $16,453 and the 31st monthly payment of $1,100. The Company recorded $874,689 as collection of bad debt in the operating expenses in the 4th quarter of 2015.

Sunvalley filed a complaint on February 21, 2014 against John Chiang for two causes of action which are breach of contract and common counts. The reliefs prayed by Sunvalley are monetary damages and interests including attorneys’ fees and costs of suits for no less than $26,504. Chiang filed an answer to complaint on March 31, 2014. This case was consolidated with Sunvalley v. All Fortune, et al., which was later consolidated with case All Fortune v. Sunvalley. Sunvalley v. John Chiang was dismissed on December 18, 2015 due to dismissal of leading case All Fortune v. Sunvalley.

CEEG Case

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

CEEG (Shanghai) Solar Science & Technology Co., LTD., (parent of CEEG), here collectively called as CEEG, filed a lawsuit in USA against the Company on September 18, 2015 to enforce the Foreign Arbitration Award issued by the Shanghai International Economic and Trade Arbitration Commission (SIETAC) in favor of CEEG and against the Company, on December 10, 2013.  CEEG requested damages of $1,000,000 representing the principal amount awarded to CEEG under the Arbitral Award in China plus interest, currency exchange loss and other professional fees in the amount approximately $450,000. On February 5, 2016, the Central District Court of California granted CEEG’s motion to confirm the Foreign Arbitration Award against Sunvalley. Although Sunvalley appealed this ruling, the appeal was unsuccessful and CEEG’s arbitration award was affirmed on appeal. On May 10, 2017, the United States Court of Appeals for the Ninth Circuit affirmed CEEG’s arbitration award and closed Sunvalley’s appeal case against CEEG. Therefore, Sunvalley recorded the legal settlement expense of $334,527 and accrued liability of $334,527 related to the CEEG case in 2017.

Baoding Tianwei Case

The Company filed a contractual dispute case against one of its suppliers, Baoding Tianwei Solarfilms So. Ltd on September 20, 2013 for causes of action which are breach of contract, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose and negligence. The reliefs prayed by Sunvalley are monetary damages and interests including punitive damages, costs of suits, as well as other and further relief court deems just and proper. The damage sought is no less than $8 million dollars. Baoding Tianwei Baobian Electric Co. is added in as a codefendant and is undergoing Hague Convention service. On March 9, 2017, Sunvalley Solar voluntarily dismissed the complaint against Baoding Tianwei Baobian Electric Co., Ltd. Sunvalley has been preparing the default judgement package against Boading Tianwei Solarfilms So. Ltd. The package will be submitted with the court on or before April 20, 2017. On September 7, 2017, the Court ordered Baoding Tianwei to pay Sunvalley a total amount of $4,864,722, including damages of $4,859,567 and other costs of $5,155, as a result of the defendant’s default. Sunvalley wrote off the outstanding accounts payable of $706,780 owed to Baoding Tianwei, and recorded the same amount as a gain on settlement of litigation on September 7, 2017.

Irvine Florist Case

Sunvalley Solar Inc. filed a lawsuit against Irvine Florist, Ltd., on February 20, 2014; a default judgment was entered, in favor of Sunvalley and against Irvine Florist, Ltd., a suspended California Corporation for a total amount of $100,450. No such legal settlement award was recorded in Sunvalley’s book as of December 31, 2017 due to the unlikeness of collection of such payment from a suspended corporation.

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

Item 4. Mine Safety Disclosures

Not applicable.

PART II

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

Market Information

Our common stock is quoted under the symbol “SSOL” on the OTCQB tier of the electronic over-the0counter market operated by OTC Markets Group, Inc.

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

Fiscal Year Ended December 31, 2017

Quarter Ended	High $	Low $
December 31, 2017	$0.15	$0.0351
September 30, 2017	$0.10	$0.042
June 30, 2017	$0.0988	$0.044
March 31, 2017	$0.1588	$0.0454

Fiscal Year Ended December 31, 2016

Quarter Ended	High $	Low $
December 31, 2016	$0.185	$0.04
September 30, 2016	$0.22	$0.066
June 30, 2016	$0.15	$0.057
March 31, 2016	$0.11	$0.03

On March 30, 2018, the last sales price per share of our common stock was $0.02.

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 6, 2018, we had 25,263,176 shares of our common stock issued and outstanding, held by 61 shareholders of record.

Dividends

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

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

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

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

Item 6. Selected Financial Data

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements

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

Business Development Plan

The primary components of our growth strategy are as follows:

·

Developing and commercializing our proprietary solar technologies including our coating and focusing technologies, networked PV panel system. By deploying these new technologies into our PV panels and solar installation business, we hope to enhance the value provided to our customers and increase our profitability.

·

Promoting and enhancing our company’s brand and reputation in solar design and integration and expanding our installation business.  Expanding our business into the energy management space.

·

Developing a PV panel manufacturing capability to provide high efficiency and low cost solar panels to US market. This will complement our installation business and provide an implementation platform for our R&D.

Expansion of Installation Business

We are planning to expand our installation business. We will continue to execute our marketing and sales strategy in Southern California and, with additional capital, will be able to expand our business to cover Northern California, Arizona or other states. The planned expansion is expected to occur through acquiring smaller installation companies in these regions and/or through the establishment of subsidiaries in these states and boost our installation profits. Our current intention is to establish two new offices located in Northern California or other states and in San Diego. The estimated start-up cost for each new branch would be approximately $500,000.

If we are able to expand our installation business, it will assist us in gaining favorable terms from OEM international manufacturers of our planned solar panel manufacturing operation. In addition, an expanded installation business would allow us to accelerate the introduction of our new technologies and solar parts and would generate additional revenue to fund initial investment in our planned Distributed Power Plant business and to further fund our investments in R&D.

Commercialization of Research and Development

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

Prior to initiating our planned OEM manufacturing of Sunvalley-branded solar panels, we will need to commercialize our advanced panel technology through the design, fabrication, and characterization of a prototype solar cell. The total expense for planned commercialization of our research and development will be approximately $500,000.

Initiate OEM Manufacturing of Solar Panels

By leveraging our solar panel installation business and R&D, we plan to procure OEM solar panels from selected Chinese manufacturers and to market them in the U.S. under our brand name. We will be responsible for R&D, quality control, customer service, sales and marketing activities, as well as panel certification in U.S.

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

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

·

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

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

·

Penetrate into the main stream distribution network

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

·

Further sale activities

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

·

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

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

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

·

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

·

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

·

OEM Management costs – $200,000

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

Results of Operations for the Years Ended December 31, 2017 and 2016

During the year ended December 31, 2017, we generated gross revenues of $5,718,974. Total cost of sales was $4,625,036, resulting in gross profit of $1,093,938. Total operating expenses were $3,235,081, consisting  of selling, general and administrative expenses, the impairment of intangible assets of $415,378 and the impairment of goodwill of $218,076.  We also incurred legal settlement expense of $334,528, a gain on settlement of litigation of  $706,780, interest expense of $4,770, and other income of $6,897. Our net loss for the year ended December 31, 2017 was $1,780,558.

By comparison, during the year ended December 31, 2016, we generated gross revenues of $8,492,944. Total cost of sales was $6,792,823, resulting in gross profit of $1,700,121. Total operating expenses were $2,823,805, consisting entirely of selling, general and administrative expenses.  We also experienced a gain on write-down of contingent consideration of $104,000, interest expense of $22,417 and other expense of $1,303. Our net loss for the year ended December 31, 2016 was $999,118.

Our gross revenues, as well as our cost of sales, decreased significantly in 2017 compared to 2016. The main reason for the decrease was that more projects were substantially completed at the end of 2016, when the company used the completed contract method of accounting method to recognize project revenues.  Effective January 1, 2017, however, the company adopted the percentage of completion method to record project revenues.  Our operating expenses were higher in 2016 compared to 2017 in the amount of $411,276, mainly due to: (i) salary and wages increasing by approximately $1 million in 2016 as a result of salary compensation related to preferred stock issued during July 2015 netting off with the actual salary increase of approximately $600,000; (ii) telemarketing expense increasing approximately $31,000; (iii) insurance expense increasing approximately $46,000; (iv) rent expense increasing approximately of $24,000;  (v) increased amortization expense of approximately of $47,000,  (vi) impairment of goodwill of $218,076; and (vii) impairment of intangible assets of $415,378.

The company recorded a legal settlement expense of $334,528 related to the CEEG case in 2017 (refer to Legal Proceedings’ section for details). In addition, Sunvalley filed a lawsuit in Superior Court of the State of California, County of Los Angles-East District, against Baoding Tianwei Solarfilms Co., Ltd (Baoding Tianwei) on September 20, 2013. The suit centered on a contractual dispute, with monetary damages and interest claimed in the amount of approximately $7.8 million.  On September 7, 2017, the Court ordered Baoding Tianwei to pay Sunvalley a total amount of $4,864,722, including damages of $4,859,567 and other costs of $5,155, as a result of the defendant’s default. Sunvalley wrote off the outstanding accounts payable of $706,780 owed to Baoding Tianwei, and recorded the same amount as a gain on settlement of litigation on September 7, 2017.   

During 2017, management has concluded that the intangible and goodwill asset should be fully impaired as of December 31, 2017. As a result, the Company recorded impairment of intangibles and goodwill of $415,578 and $218,076, respectively, as of December 31, 2017.

Liquidity and Capital Resources

As of December 31, 2017, we had current assets in the amount of $2,674,367, consisting of cash and cash equivalents in the amount of $792,050, current portion of accounts receivable of $1,337,076, current portion of notes receivable in the amount of $30,395, inventory in the amount of $371,532, costs in excess of billings on uncompleted contracts of $9,135, prepaid expenses and other current assets of $96,679, and restricted cash of $37,500. As of December 31, 2017, we had current liabilities in the amount of $2,793,379. These consisted of accounts payable and accrued expenses in the amount of $2,181,772, customer deposits of $316,160, accrued warranty of $192,106, and advances from contractors of $103,389. Our working capital deficit as of December 31, 2017 was therefore $119,060.  

As of December 31, 2017, we had no long term liabilities.

In order to move forward with our business development plan set forth above, we will require additional financing in the approximate amount of $4,500,000, to be allocated as follows:

Initiate OEM Manufacturing

$ 2,000,000

R&D Commercialization Costs

      500,000

Expansion of Installation Business (3 new branches)   

   1,500,000

Additional working capital and general corporate

      500,000

Total capital needs

$ 4,500,000

We will require substantial additional financing in the approximate amount of $4,500,000 in order to execute our business expansion and development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible.

 

We are currently seeking additional financing. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.

Off Balance Sheet Arrangements

As of December 31, 2017, there were no off balance sheet arrangements.

Going Concern

We have experienced recurring losses from operations and had an accumulated deficit of $6,229,510 as of December 31, 2017. To date, we have not been able to produce sufficient sales to become cash flow positive and profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies

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

Accounts Receivable  

The Company's trade accounts receivable consist primarily of accounts due from wholesale customers, and accounts due from installation customers, with the most significant amounts arising from installation contracts. Trade receivables are due within 30 days on wholesale contracts, while receivables on installation contracts are due in installments over terms ranging from five to seven, years. The Company performs periodic credit evaluations of its customers' respective financial conditions ns 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.

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 a values. Once established, write-downs are considered permanent adjustments to the cost basis to the excess or obsolete inventory.

Property and Equipment

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

Maintenance and repairs are charged to expense as incurred; additions and betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation of the disposed assets are removed, and any resulting gain or loss is recorded. Fully depreciated assets are n t removed from the accounts until physical disposition.

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 co pares 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, 2016.  During 2017, pursuant to ASC 350, the Company performed its annual analysis of impairment of goodwill. The Company evaluated the profitability of its recently acquired subsidiary, Sunvalley Solar Energy, Inc. (Formerly Rayco, Inc.) and determined that Sunvalley Solar Energy, Inc. has incurred significant losses during the calendar years 2016 and 2017. The Company has also analyzed expected future operations of Sunvalley Solar Energy, Inc. and determined that profitability is uncertain for approximately two more years. Accordingly, management has concluded that the intangible and goodwill asset should be fully impaired as of December 31, 2017, and recorded impairment expenses of $415,379.

Goodwill

The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of December 31, 2017, is attributable to the purchase of Rayco Energy, Inc. The Company does not amortize goodwill.

In January 2017, the Financial Accounting Standards Board ("F ASB") issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company adopted his new guidance in the fourth quarter of 2016.

The Company performs an impairment assessment of goodwill annually as of December 31, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company reported $218,076 of impairment to goodwill at the years end December 31, 2017 and no impairment to goodwill in the year end December 31, 2016.

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 10 years, respectively. The Company will assist its customers in the event that the manufacturers' warranty needs to be used to replace a defective solar panel or inverter. The Company provides for a 10-year warranty on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers' warranty. Maintenance. Services such as cleaning the solar panels and checking the systems are offered to customers twice a year without a separate service charge.

The Company records a provision for the installation warranty, an expense included in cost of sales, based on management's best estimate of the probable cost to be incurred in honoring its warranty commitment. The Company's accrued warranty provision was $192,106 and $163,121 at December 3 I, 2017 and 2016, 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 meth of accounting. Revenue from system installations and sales of solar panels is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably ass red. The Company defines its services as having been substantially completed upon the installed systems are ready for the City Building Department's final inspection. Wholesale revenues are recognized pursuant to the same criteria; however, with wholesale arrangements the Company defines its delivery as having been completed at such time the customer takes possession of the Company's product.

Rayco's revenue consists of solar and LED installation projects, both to commercial and residential customers. Revenues from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term contracts are recorded on the basis of the Company's estimates of the percentage of completion of contracts based on the ratio of the ac al cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to be the best available measure of progress on these contracts. Revenues from cost-plus fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.

Costs in Excess of Billings on Uncompleted Contracts

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

The Company is currently involved in certain major short-term solar panel installation projects. The Company is accounting for revenue and expenses associated with these contracts under the completed contract method of accounting in accordance with ASC 605. Under ASC 605, income is recognized when the contracts are completed or substantially completed and billings and others cos s are accumulated on the balance sheet. Under the completed contract method, no profit or income is recorded before substantial completion of the work.

As of December 31, 2017 and December 31, 2016, the Company has capitalized $9,135 and $37,790 of costs incurred in relation to installation projects.

Stock-based Compensation

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

Recently Issued Accounting Pronouncements

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Item 8. Financial Statements and Supplementary Data

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

---

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Sunvalley Solar, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sunvalley Solar, Inc. (“the Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

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 suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to 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.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.  

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2010.

Salt Lake City, UT

April 6, 2018  

SUNVALLEY SOLAR, INC.
Consolidated Balance Sheets
			December 31,			December 31,
			2017			2016
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		$	792,050		$	1,563,781
	Restricted cash			37,500			37,500
	Current portion of Accounts receivable, net			1,337,076			2,622,379
	Current portion of Notes receivable, current			30,395			-
	Inventory			371,532			95,461
	Costs in excess of billings on uncompleted contracts			9,135			37,790
	Prepaid expenses and other current assets			96,679			76,358
		Total current assets		2,674,367			4,433,269
PROPERTY AND EQUIPMENT, NET				96,489			62,751
OTHER ASSETS
	Long-term accounts receivable, net of current portion of			44,645			393,330
	Notes receivable, net of current portion			130,008			-
	Intangible assets, net			-			537,536
	Goodwill			-			218,076
	Other assets			7,870			7,220
		Total other assets		182,523			1,156,162
		TOTAL ASSETS	$	2,953,379		$	5,652,182
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	1,842,523		$	3,423,523
	Customer deposits			316,160			13,396
	Accrued warranty			192,106			163,121
	Advances from contractors			103,389			103,389
	Legal settlement payable			339,249			-
	Notes payable, net of discounts			-			81,181
		Total current liabilities		2,793,427			3,784,610
STOCKHOLDERS' EQUITY
	Preferred stock, $0.001 par value, 1,000,000 Class A shares authorized,
	500,000 and 120,000 shares issued and outstanding, respectively			500			120
	Preferred stock, $0.001 par value, 2,000,000 Class B shares authorized,
	90,000 and 130,000 shares issued and outstanding, respectively			90			130
	Common stock, $0.001 par value, 150,000,000 shares authorized,
	24,563,176 and 23,857,176 shares issued and outstanding, respectively			24,564			23,858
	Additional paid-in capital			6,364,308			6,292,416
	Accumulated deficit			(6,229,510)			(4,448,952)
		Total Stockholders' Equity		159,952			1,867,572
		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,953,379		$	5,652,182
The accompanying notes are an integral part of these consolidated financial statements.

SUNVALLEY SOLAR, INC.
Consolidated Statements of Operations
			For the Years Ended
			December 31,
			2017			2016
REVENUES			$	5,718,974		$	8,492,944
COST OF SALES				4,625,036			6,792,823
GROSS PROFIT				1,093,938			1,700,121
OPERATING EXPENSES
	Selling, general and administrative			2,601,627			2,823,805
	Impairment of goodwill			218,076			-
	Impairment of intangible assets			415,378			-
	Total Operating Expenses			3,235,081			2,823,805
LOSS  FROM OPERATIONS				(2,141,143)			(1,123,684)
OTHER INCOME (EXPENSES)
	Legal settlement expense			(334,528)			-
	Gain on settlement of Litigation			706,780			-
	Gain on write-down of contingent consideration			-			104,000
	Other income and expenses			(6,897)			(1,303)
	Interest expense			(4,770)			(22,417)
	Total other income (expenses)			360,585			80,280
LOSS  BEFORE TAXES				(1,780,558)			(1,043,404)
	Provision (benefit) for income taxes			-			(44,286)
NET LOSS			$	(1,780,558)		$	(999,118)
BASIC AND DILUTED LOSS PER COMMON SHARE			$	(0.07)		$	(0.08)
BASIC DILUTED AND WEIGHTED AVERAGE NUMBER
	OF COMMON SHARES OUTSTANDING			24,398,765			12,493,760

Consolidated Statements of Cash Flows
			For the Years Ended
			December 31,
			2017			2016
OPERATING ACTIVITIES:
	Net Loss		$	(1,780,558)		$	(999,118)
	Adjustments to reconcile net loss to net cash
	provided by operating activities:
		Depreciation and amortization		149,129			96,831
		Preferred stock issued for services		21,125			1,117,812
		Common stock issued for services		51,813			-
		Loss on disposal of equipment		-			415
		Gain on write-down of contingent consideration		-			(104,000)
		Impairment of intangible assets and goodwill		633,455			-
		Amortization of debt discounts		4,029			10,485
	Changes in operating assets and liabilities:
		Accounts and notes receivable		1,473,585			183,526
		Inventory		(276,071)			44,555
		Prepaid expenses and other assets		(20,321)			(62,171)
		Other assets		(650)			3,887
		Costs in excess of billings on uncompleted contracts		28,655			20,445
		Accounts payable and accrued expenses		(1,581,001)			(175,721)
		Accrued warranty expenses		28,985			(7,504)
		Customer deposits		302,704			(62,258)
		Legal settlement payable		339,249			-
		Net Cash Provided by (Used in) Operating Activities		(625,812)			418,623
INVESTING ACTIVITIES:
	Proceeds from disposal of property and equipment			-			595
	Purchases of property and equipment			(60,709)			(36,718)
	Cash acquired in business combination			-			23,711
		Net Cash Provided By Investing Activities		(60,709)			(12,412)
FINANCING ACTIVITIES:
	Proceeds from long term debt			-			150,000
	Repayments of long term debt			(85,210)			(198,091)
	Repayment of capital lease			-			(3,537)
		Net Cash (Used in) Financing Activities		(85,210)			(51,628)
NET CHANGE IN CASH				(771,731)			354,583
CASH AT BEGINNING OF YEAR				1,563,781			1,209,198
CASH AT END OF YEAR			$	792,050		$	1,563,781
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	CASH PAID FOR:
		Interest	$	4,770		$	2,513
		Income taxes	$	-		$	-
	NON-CASH INVESTING AND FINANCING ACTIVITIES:
		Common stock and notes payable issued in business combination	$	-		$	1,020,063
		Original issuance discounts on notes payable	$	-		$	14,514
		Conversion of preferred A stock into common stock	$	120		$	-
		Conversion of preferred B stock into common stock	$	700		$	-
		Transfer of account receivable to note receivable	$	165,333		$	-
The accompanying notes are an integral part of these consolidated financial statements.

---

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 May 15, 2016, the Company entered into a share exchange agreement with to purchase 100 percent of the issued and outstanding common stock of Rayco Energy, Inc. which was renamed as Sunvalley Solar Energy, Inc. effective August 9, 2016. (“Rayco”), a San Francisco Bay Area-based energy service company focused on energy efficiency, solar power, and building modernization, in exchange for 75,500 shares of Series B Preferred Stock.

Description of Business

The Company markets, sells, designs, and installs solar panels and LED lights 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, 2017 and has a working capital deficit of ($119,059) and an accumulated deficit of $6,229,510 as of December 31, 2017. 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.

Accounting Method

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

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made in preparing the financial statements include the allowance for doubtful accounts, accrued warranty, convertible debt derivative liabilities and discount expenses. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

Operating Segments

The Company operates in one segment and therefore segment information is not presented.

Principles of Consolidation

 

The consolidated financial statements include the Company’s wholly owned subsidiaries. Intercompany balances and transactions have been eliminated.

 

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, 2017 and 2016, the Company had $199,723 and $1,425,746, respectively, in cash in bank deposits that exceeded the $250,000 federally insured limits.

 

Accounts Receivable

The Company’s trade accounts receivable consist primarily of accounts due from wholesale customers, and accounts due from installation customers, with the most significant amounts arising from installation contracts. Trade receivables are due within 30 days on wholesale contracts, while receivables on installation contracts are due in installments over terms ranging from five to seven years. The Company performs periodic credit evaluations of its customers’ respective financial conditions and does not require collateral. Credit losses have consistently been within management’s expectations. An allowance for doubtful accounts is recorded when it is probable that all or a portion of a trade receivables balance will not be collected. The Company’s accounts receivable consisted of the following as of December 31, 2017 and 2016:

		December 31, 2017			December 31, 2016
Current portion	$	1,397,537		$	2,680,174
Long-term portion		64,645			438,330
Allowance for doubtful accounts		(80,461)			(102,795)
Total accounts receivable, net	$	1,381,721		$	3,015,709

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.  

Property and Equipment

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

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

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

Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in

Circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Based on this analysis, the Company believes that no impairment of the carrying value on its long-lived assets existed at December 31, 2016. During 2017, pursuant to ASC 350, the Company has performed it’s annual analysis of impairment of goodwill.

Intangible Assets

Intangible assets are stated at cost and are amortized on a straight line basis, at the following rates:

Classification		Useful life
Customer list		5 years
Assembled workforce		5 years

The Company recorded $415,379 of impairment to intangible assets at the years end December 31, 2017 and no impairment in the year end December 31, 2016. The Company evaluated the profitability of its recently acquired subsidiary, Sunvalley Solar Energy, Inc. (Formerly Rayco, Inc.) and determined that Sunvalley Solar Energy, Inc. has incurred significant losses during the calendar years 2016 and 2017. the company has also analyzed expected future operations of Sunvalley Solar Energy, Inc. and determined that profitability is uncertain for approximately two more years. Accordingly, management has concluded that the intangible and goodwill asset should be fully impaired as of December 31, 2017.

Goodwill

The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of December 31, 2017, is attributable to the purchase of Rayco Energy, Inc. The Company does not amortize goodwill.

In January 2017, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company adopted this new guidance in the fourth quarter of 2016.

The Company performs an impairment assessment of goodwill annually as of December 31, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company recorded $218,076 of impairment to goodwill at the year end December 31, 2017 and no impairment to goodwill in the year end December 31, 2016. The Company evaluated the profitability of its recently acquired subsidiary, Sunvalley Solar Energy, Inc. (Formerly Rayco, Inc.) and determined that Sunvalley Solar Energy, Inc. has incurred significant losses during the calendar years 2016 and 2017. the company has also analyzed expected future operations of Sunvalley Solar Energy, Inc. and determined that profitability is uncertain for approximately two more years. Accordingly, management has concluded that the intangible and goodwill asset should be fully impaired as of December 31, 2017.

Customer Deposits

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

Product Warranties

The Company warrants its products for various periods against defects in material or installation workmanship. The manufacturers of the solar panels and the inverters provide a warranty period of generally 25 years and l0 years, respectively. The Company will assist its customers in the event that the manufacturers’ warranty needs to be used to replace a defective solar panel or inverter. The Company provides for a 10-year warranty on the installation of a system and all equipment and incidental supplies other than solar panels and inverters that are recovered under the manufacturers’ warranty. Maintenance

Product Warranties (Continued)

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 $192,106 and $163,121 at December 31, 2017 and 2016, respectively.

Revenue Recognition

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

Rayco’s revenue consists of solar and LED installation projects, both to commercial and residential customers. Revenues from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to be the best available measure of progress on these contracts. Revenues from cost-plus fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.

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.

Costs in Excess of Billings on Uncompleted Contracts

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

The Company is currently involved in certain major short-term solar panel installation projects.  The Company is accounting for revenue and expenses associated with these contracts under the completed contract method of accounting in accordance with ASC 605.  Under ASC 605, income is recognized when the contracts are completed or substantially completed and billings and others costs are accumulated on the balance sheet.  Under the completed contract method, no profit or income is recorded before substantial completion of the work.

As of December 31, 2017 and December 31, 2016, the Company has capitalized $9,135 and $37,790 of costs incurred in relation to installation projects.  

Advertising Expenses

Advertising expenses are expensed as incurred. Total advertising expenses amounted to $44,081 and $36,655 for the years ended December 31, 2017 and 2016, respectively.

 

Research and Development

Research and development costs are expensed as incurred and amounted to $-0- and $-0- for the years ended December 31, 2017 and 2016, respectively. These costs are included in selling, general and administrative expenses in the accompanying statements of operations.

Income Taxes

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

 

The Company recognizes and measures any uncertain tax positions using a “more-likely-than-not” approach. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of  management, it is more likely than not that some portion or all of the deferred tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Basic and Diluted Earnings (Loss) per Common Share

Basic earnings (loss) per common share is computed by dividing the net earnings by the weighted average number of outstanding common shares (restricted and free trading) during the periods presented. Basic earnings (loss) per share are equal to diluted earnings (loss) per share due to the impact of additional common shares that could be issued upon conversion of issued and outstanding convertible preferred stock would be anti-dilutive. Dilutive instruments include 25,000 shares to be issued upon conversion of Series A Convertible Preferred Stock and 900,000 shares to be issued upon conversion of Series B Convertible Preferred Stock. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 925,000 such potentially anti-dilutive shares excluded as of December 31, 2017 as their effect would have been antidilutive. 

Fair Value Measurements

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

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

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

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

Stock-based Compensation

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

Reclassification of Financial Statement Accounts

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

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of the financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements. ASC 606 consideration.

NOTE 3 – BUSINESS COMBINATION

On May 15, 2016, the Company entered into a share exchange agreement with to purchase 100 percent of the issued and outstanding common stock of Rayco Energy, Inc. (“Rayco”), a San Francisco Bay Area-based energy service company focused on energy efficiency, solar power, and building modernization, in exchange for 75,500 shares of Series B Preferred Stock. In addition, the Company agrees to pay an additional $350,000 in cash to shareholders of Rayco, conditioned upon the 2016 net profit from the operation of Rayco being in excess of $10,000 (“the Condition”).  To evidence the contingent unpaid balance of the purchase price, the Company executed 6 percent subordinated promissory notes with Rayco’s shareholders in the aggregate amount $350,000, payable only upon Rayco’s 2016 net operating profit being in excess of $10,000 with interest and principal payable monthly on first day of each month

commencing May 1, 2017. As of December 31, 2016 the Condition had not been met, and as such the note was deemed null and void.  

The results of operations related to this acquisition have been included in our financial statement since the acquisition date.

In addition to consolidating the financial statements of the Company and subsidiary, certain intangible assets were identified and recognized, based upon the excess of purchase price to the net assets of the acquired subsidiary. The total purchase price for the business combination was allocated as follows:

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Consideration paid:

 

 

Liabilities assumed

$

840,563

Contingent liability issued

 

104,000

Preferred stock issued

 

  75,500

Total

$        1,020,063

Consideration received:

 

 

Cash

$

23,711

Accounts receivable

           104,794

Inventories

 

36,670

Other current assets

 

  3,350

Property and equipment, net

 

18,462

Identified intangible assets

(customer list and assembled workforce)

           615,000

Goodwill

 

           218,076

Total

$      1,020,063

The company added a wholly-owned subsidiary named Sunvalley Solar Service, Inc. during 2016 which business is mainly for solar system maintenance and services. No business activities were incurred for this company as of December 31, 2017.  

NOTE 4 – RESTRICTED CASH

 

In order to comply with the State of California's licensing requirement or contract bonds as of December 31, 2017 and 2016 the Company maintains a certificate of deposit in the amount of $37,500 and $37,500, respectively, with a financial institution.

NOTE 5 – INVENTORY

The Company’s inventory consisted of the following at December 31, 2017 and December 31, 2016:

 

The Company’s reserve for excess and obsolete inventory amounted to $10,253 and $-0- as of December 31, 2017 and 2016.

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 and percentage of completion methods of accounting. The Company recognizes revenue when the contracts are completed or substantially completed and billings and others costs are accumulated on the balance sheet. Under the completed contract method, no profit or income is recorded before completion of substantial completion of the work.

 

As of December 31, 2017 and December 31, 2016, the Company has capitalized $9,135 and $37,790 of costs incurred in relation to installation projects.

NOTE 7 – PROPERTY AND EQUIPMENT

 

The following is a summary of property and equipment at December 31, 2017 and 2016:

 

Depreciation expense for the years ended December 31, 2017 and 2016 was $20,306 and $15,200, respectively.

NOTE 8 – INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of goodwill and of the unamortized portion of identified intangible assets (customer list and assembled workforce) recorded in connection with the business combination with Rayco Energy, Inc. The following table presents the detail of intangible assets for the periods presented:

		December 31, 2017			December 31, 2016
Identified intangible assets	$	615,500		$	615,000
Goodwill		218,076			218,076
Accumulated amortization		(100,122)			(77,464)
Impairment		(633,454)			-
Total intangible assets and goodwill		-			755,612
Weighted average remaining life		-			4.37

Amortization expense on definite-lived intangible assets (excluding goodwill) included as a charge to income was $122,157 and $77,464 for the years ended December 31, 2017 and 2016, respectively. The impairment of goodwill of $218,078 was charged to income for the year ended December 31, 2017. See Footnote 2 for details about long-lived assets and goodwill sections.

NOTE 9 – ADVANCES FROM CONTRACTORS

 

On August 14, 2012 the Company entered into a funding agreement with a contractor to receive funding to complete various projects. During the year ended December 31, 2012, the Company received advances under said funding agreement of $247,175. The advances bear no interest and are due on demand. The outstanding balance of the advances at December 31, 2017 and 2016 was $103,389 and $103,389, respectively.

NOTE 10 – NOTES PAYABLE

 

Notes payable outstanding as of December 31, 2017 and 2016 consisted of the following:

(1) Arrangement with a bank having a maximum borrowing of $100,000; is collateralized by all business assets. Any principal amounts outstanding accrue interest at the bank's variable index rate (currently 6.07 percent as of December 31, 2016). The remaining loan balance of $76,266 was paid off in full on August 15, 2016 through the execution of a new note payable under the same terms with a face value of $150,000 and an original issuance discount of $14,514 which matures on May 25, 2017. As of December 31, 2017, the principal remaining on the note is $0 with a remaining discount of $0. Interest expenses amounted to $4,770 and $22,138 for the years ended December 31, 2017 and 2016, respectively.

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

 

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

Class A Convertible Preferred Stock

 

Holders of Class A Convertible Preferred Stock are entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. Holders of Class A Convertible Preferred Stock are also entitled, at their option, to convert their shares into shares of the Company’s common stock on a 0.5 common shares for 1 preferred share basis. The Class A Convertible Preferred shares were valued at the trading price of the common shares into which they are convertible. As of December 31, 2017 and December 31, 2016, there were 500,000 and 120,000 shares of Class A Convertible Preferred Stock issued and outstanding, respectively.

During the year ended December 31, 2016, holders of Class A Convertible Preferred stock elected to convert 880,000 shares into 44,000 shares of common stock.

During the year ended December 31, 2017, the Company issued 500,000 shares of Series A Preferred Stock, 30,000 shares of Series B preferred Stock, and 700,000 shares of common stock to various individuals for services provided.

On February 24, 2017, the Company issued 500,000 shares of Series A Preferred Stock, to an officer for service valued at $1,625, the value of which was based on the trading price of the common stock into which each share of preferred stock is convertible.

Class B Convertible Preferred Stock

The holders of the Class B Convertible Preferred Stock have no dividend rights, have the right to convert each Class B share into 10 post-split common shares and have the right to 10 votes per Class B Convertible Preferred share for all matters submitted to the holders of the Company’s common stock. As of December 31, 2017 and December 31, 2016, there were 90,000 shares and 130,000 shares of Class B Convertible Preferred Stock issued and outstanding, respectively.

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

On May 15, 2016, the Company issued 75,500 shares of Series B Preferred Shares, valued at $75,500 to the owners of Rayco Energy, Inc. (‘Rayco”) as consideration toward the purchase of its wholly-owned subsidiary, Rayco Energy, Inc.

During the year ended December 31, 2016, holders of Class B Convertible Preferred stock elected to convert 19,455,500 shares into 1,945,000 shares of common stock.

On February 24, 2017 the Company issued 30,000 shares of Series B preferred Stock, to an individual for service valued at $19,500, the value of which was based on the trading price of the common stock into which each share of preferred stock is convertible.

Common Stock

No shares of common stock were issued during the year ended December 31, 2016, other than the shares issued in the preferred stock conversions noted above.

On February 24, 2017, the Company issued 700,000 shares of common stock to employees for services provided. The shares were valued at $61,600, which was based on the trading price of the Company’s common stock on the date of issuance. The shares vest one year from the issuance date if the recipients remain employed by the Company during the entire year. For the twelve months ended December 31, 2017, the Company recognized $51,813 of compensation expense related to the issuance of the shares, leaving a remaining amount to be expensed of $9,280

Compensation expense of $51,813 and $1,117,812 was recorded during the years ended December 31, 2017 and 2016, respectively.

NOTE 12 – INCOME TAXES

 

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company’s net deferred tax assets consist of the following components:

		December 31, 2017			December 31, 2016
Deferred tax asset:
Net operating loss carryforwards	$	(1,791,997)		$	(1,314,939)
Valuation allowance		1,791,997			1,314,939
Net deferred tax asset	$	-		$	-

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