UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 10-Q



|[X]  | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|---- | ---------------------------------------------------------------------------------------
|     |                                                                                        
|     | For the quarterly period ended June 30, 2013                                           
|     |                                                                                        
|[  ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934       
|     |                                                                                        
|     | For the transition period from to__________                                            
|     |                                                                                        
|     | Commission File Number: 333-150692                                                     



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



|Nevada                                                         | 20-8415633                       
|-------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)



|398 Lemon Creek Dr., Suite A, Walnut, CA 91789
|----------------------------------------------
|(Address of principal executive offices)      



|(909) 598-0618                                                                    
|----------------------------------------------------------------------------------
|(Registrant’s telephone number)                                                   
|                                                                                  
|_____________________________________________________________________             
|(Former name, former address and former fiscal year, if changed since last report)



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



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



|[ ] Large accelerated filer
        [ ] Non-accelerated filer | [ ] Accelerated filer
        [X] Smaller reporting company
|------------------------------------------------------------- | -----------------------------------------------------------



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



State the number of shares outstanding of each
of the issuer’s classes of common stock, as of the latest practicable date: 87,156,979 common shares as of August 8, 2013.



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]




Table of Contents




|                               | TABLE OF CONTENTS                                                                     | Page
|------------------------------ | ------------------------------------------------------------------------------------- | ----
|                              
|PART I – FINANCIAL INFORMATION
|                              
|Item 1:                        | Condensed Financial Statements                                                        | 3   
|Item 2:                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4   
|Item 3:                        | Quantitative and Qualitative Disclosures About Market Risk                            | 9   
|Item 4:                        | Controls and Procedures                                                               | 9   
|PART II – OTHER INFORMATION   
|Item 1:                        | Legal Proceedings                                                                     | 10  
|Item 1A:                       | Risk Factors                                                                          | 10  
|Item 2:                        | Unregistered Sales of Equity Securities and Use of Proceeds                           | 10  
|Item 3:                        | Defaults Upon Senior Securities                                                       | 10  
|Item 4:                        | Mine Safety Disclosures                                                               | 10  
|Item 5:                        | Other Information                                                                     | 10  
|Item 6:                        | Exhibits                                                                              | 10  



2


Table of Contents


PART I - FINANCIAL INFORMATION



Item 1.	     Condensed
Financial Statements



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



|F-1 | Condensed Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012;                          
|--- | ---------------------------------------------------------------------------------------------------------
|F-2 | Condensed Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited);
|F-3 | Condensed Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited);          
|F-4 | Notes to Condensed Financial Statements.                                                                 



These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions
to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating
results for the interim period ended June 30, 2013 are not necessarily indicative of the results that can be expected for the
full year.



3


Table of Contents




SUNVALLEY SOLAR, INC.

Condensed Balance Sheets





|                                                                                                                                        | June 30, |             | December 31,
|--------------------------------------------------------------------------------------------------------------------------------------- | -------- | ----------- | ------------
|                                                                                                                                        | 2013     |             | 2012        
|ASSETS                                                                                                                                  |          | (unaudited) |             
|CURRENT ASSETS                                                                                                                          |          |             |             
|Cash and cash equivalents                                                                                                               | $        | 321,604     |             
|Restricted cash                                                                                                                         |          | 25,000      |             
|Accounts receivable, net                                                                                                                |          | 4,474,022   |             
|Inventory                                                                                                                               |          | 243,992     |             
|Costs in excess of billings on uncompleted contracts                                                                                    |          | 114,787     |             
|Prepaid expenses and other current assets                                                                                               |          | 5,720       |             
|Total current assets                                                                                                                    |          | 5,185,125   |             
|                                                                                                                                        |          |             |             
|PROPERTY AND EQUIPMENT, NET                                                                                                             |          | 61,711      |             
|                                                                                                                                        |          |             |             
|OTHER ASSETS                                                                                                                            |          |             |             
|Other assets                                                                                                                            |          | 13,370      |             
|Total other assets                                                                                                                      |          | 13,370      |             
|TOTAL ASSETS                                                                                                                            | $        | 5,260,206   |             
|                                                                                                                                        |          |             |             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                    |          |             |             
|CURRENT LIABILITIES                                                                                                                     |          |             |             
|Accounts payable and accrued expenses                                                                                                   | $        | 4,126,340   |             
|Customer deposits                                                                                                                       |          | 266,844     |             
|Accrued warranty                                                                                                                        |          | 76,066      |             
|Factoring payable                                                                                                                       |          | —           |             
|Advances from contractors                                                                                                               |          | 157,320     |             
|Derivative liability                                                                                                                    |          | —           |             
|Convertible debt, net                                                                                                                   |          | —           |             
|Current portion of long-term debt                                                                                                       |          | 15,439      |             
|Current portion of capital lease                                                                                                        |          | 3,049       |             
|Total current liabilities                                                                                                               |          | 4,645,058   |             
|                                                                                                                                        |          |             |             
|LONG-TERM LIABILITIES                                                                                                                   |          |             |             
|Capital leases                                                                                                                          |          | 9,302       |             
|Notes payable                                                                                                                           |          | 37,528      |             
|Total long-term liabilities                                                                                                             |          | 46,830      |             
|TOTAL LIABILITIES                                                                                                                       |          | 4,691,888   |             
|                                                                                                                                        |          |             |             
|STOCKHOLDERS' EQUITY                                                                                                                    |          |             |             
|Preferred stock, $0.001 par value, 1,000,000 Class A shares authorized, 950,000 and 950,000 shares issued and outstanding, respectively |          | 950         |             
|Common stock, $0.001 par value, 90,000,000 shares authorized, 87,156,979 and 19,812,298 shares issued and outstanding, respectively     |          | 87,157      |             
|Additional paid-in capital                                                                                                              |          | 4,152,082   |             
|Accumulated deficit                                                                                                                     |          | (3,671,871  | )           
|Total Stockholders' Equity                                                                                                              |          | 568,318     |             
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                              | $        | 5,260,206   |             









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



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SUNVALLEY SOLAR, INC.

Condensed Statements of Operations

(unaudited)







|                                                                 | For the Three Months Ended |            | For the Six Months Ended
|---------------------------------------------------------------- | -------------------------- | ---------- | ------------------------
|                                                                 | June 30,                   |            | June 30,                
|                                                                 | 2013                       |            | 2012                    
|                                                                 |                            |            |                         
|REVENUES                                                         | $                          | 516,228    |                         
|COST OF SALES                                                    |                            | 561,002    |                         
|                                                                 |                            |            |                         
|GROSS PROFIT                                                     |                            | (44,774    | )                       
|                                                                 |                            |            |                         
|OPERATING EXPENSES                                               |                            |            |                         
|Salary and wage expense                                          |                            | 107,083    |                         
|Impairment of inventory                                          |                            | —          |                         
|Professional fees                                                |                            | 93,721     |                         
|Selling, general and administrative expenses                     |                            | 11,416     |                         
|Total operating expenses                                         |                            | 212,220    |                         
|                                                                 |                            |            |                         
|INCOME (LOSS) FROM OPERATIONS                                    |                            | (256,994   | )                       
|                                                                 |                            |            |                         
|OTHER INCOME (EXPENSES)                                          |                            |            |                         
|Gain on sale of property                                         |                            | —          |                         
|Gain (loss) on derivative liability                              |                            | 105,362    |                         
|Default penalty on convertible notes                             |                            | —          |                         
|Gain (loss) on conversion of debt                                |                            | —          |                         
|Other income                                                     |                            | 100        |                         
|Interest expense                                                 |                            | (5,499     | )                       
|Total other income (expenses)                                    |                            | 99,963     |                         
|                                                                 |                            |            |                         
|INCOME (LOSS) BEFORE TAXES                                       |                            | (157,031   | )                       
|                                                                 |                            |            |                         
|Provision for income taxes                                       |                            | —          |                         
|                                                                 |                            |            |                         
|NET INCOME (LOSS)                                                | $                          | (157,031   | )                       
|                                                                 |                            |            |                         
|BASIC AND DILUTED INCOME (LOSS) PER SHARE: Basic and diluted     | $                          | (0.00      | )                       
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic and diluted |                            | 37,752,149 |                         



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



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SUNVALLEY SOLAR, INC.

Condensed Statements of Cash Flows

(unaudited)





|                                                                                | For the Six Months Ended
|------------------------------------------------------------------------------- | ------------------------
|                                                                                | June 30,                
|                                                                                | 2013                    
|                                                                                |                         
|OPERATING ACTIVITIES:                                                           |                         
|Net loss                                                                        | $                       
|Adjustments to reconcile net loss to net cash provided by operating activities: |                         
|Depreciation and amortization                                                   |                         
|Amortization of discount                                                        |                         
|Gain on re-measurement of derivative                                            |                         
|Loss on conversion of debt                                                      |                         
|Gain on sale of property                                                        |                         
|Bad debt expense                                                                |                         
|Loss on impairment of inventory                                                 |                         
|Penalty for default on convertible note                                         |                         
|Changes in operating assets and liabilities:                                    |                         
|Accounts receivable                                                             |                         
|Inventory                                                                       |                         
|Prepaid expenses and other assets                                               |                         
|Other receivables                                                               |                         
|Costs in excess of billings on uncompleted contracts                            |                         
|Accounts payable                                                                |                         
|Accrued warranty expenses                                                       |                         
|Factoring line                                                                  |                         
|Customer deposits                                                               |                         
|                                                                                |                         
|Net Cash Provided By (Used In) Operating Activities                             |                         
|                                                                                |                         
|INVESTING ACTIVITIES:                                                           |                         
|                                                                                |                         
|Sale of property                                                                |                         
|                                                                                |                         
|Net Cash Provided By Investing Activities                                       |                         
|                                                                                |                         
|FINANCING ACTIVITIES:                                                           |                         
|                                                                                |                         
|Proceeds from related party notes payable                                       |                         
|Repayment of related party notes payable                                        |                         
|Proceeds from factoring line                                                    |                         
|Repayment of advances from contractor                                           |                         
|Repayments of long term debt                                                    |                         
|Proceeds from convertible debt                                                  |                         
|Repayment of capital lease                                                      |                         
|Repayments from factoring line                                                  |                         
|Proceeds from sale of common stock                                              |                         
|Proceeds from notes payable                                                     |                         
|                                                                                |                         
|Net Cash Provided by (Used In) Financing Activities                             |                         
|                                                                                |                         
|NET INCREASE (DECREASE) IN CASH                                                 |                         
|CASH AT BEGINNING OF PERIOD                                                     |                         
|                                                                                |                         
|CASH AT END OF PERIOD                                                           | $                       
|                                                                                |                         
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |                         
|                                                                                |                         
|CASH PAID FOR:                                                                  |                         
|Interest                                                                        | $                       
|Income taxes                                                                    | $                       
|                                                                                |                         
|NON-CASH INVESTING AND FINANCING ACTIVITIES                                     |                         
|Derivative liability                                                            | $                       
|Repurchase of shares for note payable - related parties                         | $                       
|Common stock issued for debt                                                    | $                       





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



F-3


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SUNVALLEY SOLAR, INC.

Notes to Condensed Financial
Statements

June 30, 2013 and December 31, 2012



NOTE 1 - CONDENSED FINANCIAL STATEMENTS



The accompanying financial statements
have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2013,
and for all periods presented herein, have been made.



Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's December 31, 2012 audited financial statements.  The
results of operations for the periods ended June 30, 2013 and 2012 are not necessarily indicative of the operating results for
the full years.



NOTE 2 - GOING CONCERN



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



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



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



NOTE 3 – SIGNIFICANT ACCOUNTING
POLICIES



Use of Estimates

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



Recent Accounting Pronouncements

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



Inventory

Inventory is stated at the lower of
cost or net realizable value. Cost is determined on an average cost basis; and the inventory is comprised of raw materials and
finished goods. Raw materials consist of fittings and other components necessary to assemble the Company’s finished goods.  Finished
goods consist of solar panels ready for installation and delivery to customers.

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SUNVALLEY SOLAR, INC.

Notes to Condensed Financial
Statements

June 30, 2013 and December 31, 2012



NOTE 3 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



The Company’s inventory consisted
of the following at June 30, 2013 and December 31, 2012:



|                 | 2013 |         | 2012
|---------------- | ---- | ------- | ----
|Raw materials    | $    | 9,366   |     
|Work in Progress |      | 9,341   |     
|Finished goods   |      | 225,285 |     
|                 | $    | 243,992 |     



The Company revalued
its inventoryat the lower of cost or net realizable value as of June 30, 2013 and recorded impairment of inventory of
$57,523 for the six months ended June 30, 2013 and $0 in 2012.





Basic and Diluted Income (Loss) Per Common
Share

Basic net income
(loss) per common share is computed by dividing the net income (loss) by the weighted average number of outstanding common shares
(restricted and free trading) during the periods presented. Basic income (loss) per share and diluted income (loss) per share are
the same amount because the impact of additional common shares that might have been issued under the Company’s outstanding
and exercisable stock options would be anti-dilutive. Dilutive instruments include 950,000 shares to be issued upon the conversion
of the Series A Convertible Preferred Stock. Such potentially dilutive shares are excluded when the effect would be to reduce net
loss per share. Therewere -0-and 35,814,313 such potentially dilutive shares excluded as of
June 30, 2013 and December 31, 2012, respectively.



NOTE 4 – COSTS IN EXCESS OF
BILLINGS ON UNCOMPLETED CONTRACTS



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



As of June
30, 2013 and December 31, 2012, the Company has capitalized $114,787 and $139,237 of costs incurred in relation to installation
projects. The Companyexpects three major projects to be completed or substantially completed
by December 31, 2013.



NOTE 5 – CAPITAL LEASE



The Company leased equipment
in September 2011 and such lease has been classified as a capital lease because it contained a beneficial by-out option at the
end of the lease.   The Company has used the discounted value of future payments as the fair value of this asset
and has recorded the discounted value of the remaining payments as a liability.

As of June 30, 2013, the Company recognizes the current and long-term lease liability of $3,049 and $9,302, respectively.
As of December 31, 2012, the Company has recorded the current and long-term lease liability of $2,781 and $10,896, respectively.
Thus, the Company has $12,351 in remaining lease obligation as of June 30, 2013.

NOTE 6– RELATED PARTY TRANSACTIONS





During the six months ended June
30, 2013, the Company borrowed $160,000 from two officers of the Company. These notes accrue interest at 6.5 percent per
annum,  are unsecured and due on demand. The related parties payable were repaid during May and June 2013.



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SUNVALLEY SOLAR, INC.

Notes to Condensed Financial
Statements

June 30, 2013 and December 31, 2012



NOTE 7– DERIVATIVE LIABILITY



Effective July 31, 2009, the Company
adopted ASC Topic No. 815-40 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s
own stock. These debts are convertible at the holder’s option at 61% of the average of the lowest three trading prices during
the 10 days prior to conversion. The number of shares issuable upon conversion of these debts are limited so that the Holder’s
total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares.



The exercise price of these warrants
are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock
options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes.
If these provisions are triggered, the conversion price of the note will be reduced.  As a result, the Company has determined
that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded
equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative
liability.



ASC 815 requires Company management to assess
the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another
income or expense item.  The Company’s only asset or liability measured at fair value on a recurring basis is its
derivative liability associated with the above convertible debts. As of December 31, 2012, the Company recorded the derivative liability of $408,779. During the six months ended June 30, 2013,
the Company converted all of its convertible debt and thereby reduced the derivative liability to $0. As such reduction, the Company realized a gain on the derivative liability
due to the conversion of the convertible note of $52,100 for the six month period ended June 30, 2013 and recognized a loss
on derivative liability of $617,926 as of December 31, 2012. (See Note 8 for details on convertible debt).



NOTE 8 – CONVERTIBLE DEBT





On October 28, 2011, the Company borrowed
$200,000 in the form of a convertible note. The note is convertible at the holder’s option at 61% of the average of the
lowest three trading prices during the 10 trading days prior to conversion. Pursuant to this conversion feature, the Company recorded
a discount on debt in the amount of $200,000 on the note date. The convertible debt is due on July 18, 2012, is unsecured and
bears an interest rate of 8%. The Company defaulted on the note and as a result, the interest rate on the outstanding balance
increased to 22% per annum and the Company incurred a default penalty in the amount of $144,125, however, the Company entered
into n agreement with the lender to amend the note agreement to reduce the default penalty by $55,000 from $144,125 to $89,125.
In addition the amendment adjusted the conversion factor from 61% to 50%. On September 14, 2012 the lender and the Company agreed
to amend the agreement to extend the maturity date to December 6, 2013 and increase the outstanding balance of the note by $5,000
for legal fees. During the six months ended June 30, 2013 the Company incurred a default penalty in the amount of $5,000. During
the six months ended June 30, 2013 the Company recorded $1,590 in interest expense on the note. As of June 30, 2012 the Company
had amortized the entire $200,000 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at June
30, 2013. During the six months ended June 30, 2013 the Company issued 28,249,555 shares of common stock upon conversion of $72,776
of the note and accrued interest payable. As of June 30, 2013 and December 31, 2012 the outstanding note balance was $-0- and
$200,000, respectively.



During the six months ended June 30,
2012, the Company borrowed $78,500 of convertible debt. On May 24, 2012 the Company and the lender amended the agreement wherein
the debt was convertible at the holder’s option at 61% of the average of the lowest three trading prices during the 10 trading
days prior to conversion to 40% of the average of the lowest three trading prices during the 10 trading days prior to conversion.
Pursuant to this conversion feature, the Company recorded a discount on debt in the amount of $78,500 on the note date. The convertible
debt is due on August 24, 2013, is unsecured and bears an interest rate of 8%. During the six months ended June 30, 2013 the Company
issued 39,095,126 shares of common stock upon conversion of $63,174 of the note and accrued interest payable. As of June 30, 2013
and December 31, 2012 the outstanding note balance was $-0- and $56,500, respectively.



As of June 30, 2013 all of the convertible
debts were fully converted into shares of the Company’s common stock and the Company realized a gain on the derivative liability
due to the conversion of the convertible note of $52,100 for the six month period ended June 30, 2013 and recognized a loss on
derivative liability of $617,926 as of December 31, 2012.



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SUNVALLEY SOLAR, INC.

Notes to Condensed Financial
Statements

June 30, 2013 and December 31, 2012



NOTE 9 - FACTORING LINE PAYABLE



During the six months ended June 30, 2013,
the Company repaid its factoring provider in full including all fees and accrued interest.



NOTE 10– COMMON STOCK



During the six months ended June 30, 2013 the
Company issued 67,344,681 shares of the Company’s common stock upon conversion of $127,686 of its debt plus $8,264 of accrued
interest. The Company also recorded $424,899 to additional paid in capital as a result of the conversion of the debt.



On July 20, 2012 the Company effected an 1
to 500 reverse stock split accordingly all the share amounts were restated to reflect the reverse stock split on a retro-active
basis.



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



NOTE 11– PREFERRED STOCK



On August 28, 2012, the Company’s
Board of Directors voted to designate a class of preferred stock entitled Class A Convertible Preferred Stock, consisting of up
to one million (1,000,000) shares, par value $0.001. The rights of the holders of Class A Convertible Preferred will participate
on an equal basis per-share with holders of the Company’s common stock in any distribution upon winding up, dissolution,
or liquidation.



Holders of Class A Convertible Preferred
Stock are entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders
at a rate of one hundred (100) votes for each share held. Holders of Class A Convertible Preferred Stock are also entitled, at
their option, to convert their shares into shares of the Company’s common stock on a 1 for 1 basis. The Class A Convertible
Preferred shares were valued at the trading price of the common shares into which they are convertible.



During the year ended December 31, 2012,
the Board of Directors approved the incentive issuance of 950,000 shares of the Company’s Class A Convertible Preferred shares
to its executives and key employees and Restricted Stock Award Agreements were signed with such individuals for their shares will
vest in full after two years from the date of grant with curtain restrictions.  The issuance of such preferred shares were
valued as stock-based compensation of $68,400 based on the fair market value of the Company’s common stock on August 28,
2012.



NOTE 12– SUBSEQUENT EVENTS



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



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



Forward-Looking Statements



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



Company Overview and Plan of Operation



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



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



Business Development Plan



The primary components of our growth strategy
are as follows:



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



|• | Promoting and enhancing our company’s brand and reputation in solar design and integration and expanding our installation business.
|- | -----------------------------------------------------------------------------------------------------------------------------------



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



|• | Getting involved in the private power providing business (Distributed Power Plants).  Developing this line of business will lead to higher profit margins and income to our business. In the future, this line of business could become one of our main income sources.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Expansion of Installation Business



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



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



Commercialization of Research and Development



Prior to initiating our planned OEM manufacturing
of Sunvalley-branded solar panels, we will need to commercialize our advanced panel technology through the design, fabrication,
and characterization of a prototype solar cell.  The total expense for planned commercialization of our research and
development will be approximately $500,000.The necessary equipment and facilities will be accessed from University
of California, San Diego. The Nano3 clean room facilities in the school of Engineering at UCSD are equipped with state-of-the-art
micro and nano fabrication equipment and facilities, and can be accessed by outside users with a $107 hourly fee.



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 market price of solar price is around $0.65 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.
|- | -----------------------------------------------------------------------------------------------------------------------



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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 $2,000,000which can be categorized into three parts:



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



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



|• | OEM Management costs – $200,000
|- | -------------------------------



Develop Distributed Power Plant Business



With our resources and experience gained from
large scale solar power system designs, installation and other related business, we believe we have unique advantages in the design
and installation of large roof-top power plant systems. We are aggressively proposing our Distributed Power Plant solution to utility
companies in Southern California. We believe that by collaborating with us on this approach, utility companies will benefit in
the form of free installation, field space, and our expertise on large commercial solar system designs, installation and maintenance
services, as well as our technical and management experience. By collaborating with us, utility companies can help to achieve their
alternative energy requirements under California law.



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



Expected Changes In Number of Employees, Plant, and Equipment



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



Results of Operations for the three
and six months ended June 30, 2013 and 2012



During the three months ended June 30, 2013, we generated gross
revenues of $516,228. Total cost of sales was $561,002, resulting in gross loss of $44,774. Total operating expenses were $212,220,
and consisted of salary and wage expenses of $107,083, selling, general and administrative expenses of $11,416, and professional
fees of $93,721. We experienced interest expense of $5,499, other income of $100, and a gain of $105,362 due to the change in value
of a derivative liability. Our net loss for the three months ended June 30, 2013 was therefore $157,031.



By comparison, during the three months ended June 30, 2012, we generated
gross revenues of $763,612. Total cost of sales was $383,224, resulting in gross profit of $380,388. Total operating expenses were
$282,109, and consisted of salary and wage expenses of $140,930, selling, general and administrative expenses of $121,054, and
professional fees of $20,125. We experienced interest expense of $89,279, other income of $184, a loss on conversion of debt in
the amount of $183,634, a gain on sale of property of $9,481, and a gain of $189,126 due to the change in value of a derivative
liability. Our net income for the three months ended June 30, 2012 was therefore $24,157.



During the six months ended June 30, 2013, we generated gross revenues
of $528,884. Total cost of sales was $589,677, resulting in gross loss of $60,793. Total operating expenses were $523,607, and
consisted of salary and wage expenses of $208,770, selling, general and administrative expenses of $117,576, impairment of inventory
of $57,523, and professional fees of $139,738. We experienced interest expense of $9,037, other income of $158, a default penalty
on convertible notes of $5,000, and a gain of $52,100 due to the change in value of a derivative liability. Our net loss for the
six months ended June 30, 2013 was therefore $546,179.



By comparison, during the six months ended June 30, 2012, we generated
gross revenues of $941,708. Total cost of sales was $553,184, resulting in gross profit of $388,524. Total operating expenses were
$613,815, and consisted of salary and wage expenses of $316,692, selling, general and administrative expenses of $253,630, and
professional fees of $43,493. We experienced interest expense of $295,839, other income of $653, a loss on conversion of debt in
the amount of $183,634, a gain on sale of property of $9,481, and a gain of $460,201 due to the change in value of a derivative
liability. Our net loss for the six months ended June 30, 2012 was therefore $234,429.



Our gross revenues decreased during the
six months ended June 30, 2013 compared to the same period last year due to the varying implementation periods and completion dates
of our various larger projects.



Liquidity and Capital Resources



As of June 30, 2013, we had current assets
in the amount of $5,185,125, consisting of cash in the amount of $321,604, accounts receivable of $4,474,022, inventory in the
amount of $243,992, costs in excess of billings on uncompleted contracts of $114,787, prepaid expenses and other current assets
of $5,720, and restricted cash of $25,000. As of June 30, 2013, we had current liabilities in the amount of $4,645,058. These
consisted of accounts payable and accrued expenses in the amount of $4,126,340, customer deposits of $266,844, accrued warranty
of $76,066, advances from contractors of $157,320, the current portion of long term debt in the amount of $15,439, and the current
portion of a capital lease in the amount of $3,049. Our working capital as of June 30, 2013 was therefore $540,067.

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As of June 30, 2013, our long-term liabilities
were $46,830, which consisted of a loan owing to East West Bank with a balance of $37,528 and the remaining long term obligations
of a capital lease in the amount of $9,302. The principal amount outstanding on the East West Bank loan accrues annual interest
at the bank's variable index rate. The East West Bank loan is collateralized by all business assets.



In the past, we have received debt financing
from Asher Enterprises, Inc. under a series of Convertible Promissory Notes and from Tonaquint, Inc. under a Convertible Promissory
Note. During the six months ended June 30, 2013, the Tonaquint note and the last of the Asher notes were fully converted to shares
of our common stock, with no balance remaining due.



In the past, we have received financing from
CapFlow Funding Group Managers LLC under a credit facility for the purpose of factoring our accounts receivable. During
the six months ended June 30, 2013, we repaid our factoring provider in full including all fees and accrued interest.



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
through the sale of common equity and/or the issuance of short-term debt convertible to common equity as discussed above. If we
are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our
operations.



Off Balance Sheet Arrangements



As of June 30, 2013, there were no off balance
sheet arrangements.



Going Concern



We have experienced recurring losses from operations and had an
accumulated deficit of $3,671,871 as of June 30, 2013. 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.

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Recently Issued Accounting Pronouncements



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



Item 3.     Quantitative and Qualitative
Disclosures About Market Risk



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



Item 4.     Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2013. This evaluation was carried out under the supervision and with
the participation of our Chief Executive Officer, Zhijian (James) Zhang and our Chief Financial Officer, Mandy Chung. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls
and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter
ended June 30, 2013.



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



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



Limitations on the Effectiveness of Internal
Controls



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



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PART II – OTHER INFORMATION



Item 1.     Legal
Proceedings



We are not a party to any pending legal proceeding. We are not aware
of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting
securities are adverse to us or have a material interest adverse to us.



Item 1A. Risk Factors



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



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



None.



Item 3.     Defaults
upon Senior Securities



None



Item 4.     Mine
Safety Disclosures



Not applicable.



Item 5.     Other
Information



None.



Item 6.      Exhibits



|Exhibit Number | Description of Exhibit                                                                                                                                                       
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1           | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|31.2           | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|32.1           | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES



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



|      | Sunvalley Solar, Inc.                                                                                                               
|----- | ------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                     
|Date: | August 14, 2013                                                                                                                     
|      |                                                                                                                                     
|      | By:       /s/ Zhijian
        (James) Zhang
        Zhijian
        (James) Zhang
        Title:Chief Executive Officer and Director
|      |                                                                                                                                     
|Date: | August 14, 2013                                                                                                                     
|      |                                                                                                                                     
|      | By:       /s/ Mandy Chung
        Mandy
        Chung
        Title:Chief Financial Officer                                         





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