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 July 31, 2009





[ ]
  TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the Transition Period from _____ to _____





Commission
File Number 000-53590





SUNOVIA
ENERGY TECHNOLOGIES, INC.


(Exact
name of small business issuer as specified in its charter)





Nevada
            
            98-0550703(State
      or other jurisdiction of incorporation
              or
      organization)
            
            (IRS
      Employer Identification No.)





6408
      Parkland Drive, Suite 104
              Sarasota,
      Florida
            
            34243
            
            941-751-6800(Address
      of principal executive office)
            
            (Postal
      Code)
            
            (Issuer's
      telephone  number)








Securities
registered under Section 12(b) of the Exchange Act: None





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $0.001 par value





Copies
to:


Stephen
M. Fleming, Esq.


Law
Offices of Stephen M. Fleming PLLC


110 Wall
Street, 11th
Floor


New York,
New York 10005


Telephone:
(516) 833-5034


Fax:
(516) 977-1209





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 by mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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 (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.    [
 ]




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






Large
accelerated filer
[  ]                                                                                     Accelerated
filer [  ]




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




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




State
issuer's revenues for its most recent fiscal year: $996,080.





The
aggregate market value of the voting stock held by non-affiliates as of November
12, 2009 was $68,530,079.





Number of
outstanding shares of the registrant's par value $0.001 common stock as of
November 12, 2009: 693,122,882.








1





SUNOVIA
ENERGY TECHNOLOGIES, INC.





FORM
10-K





For
the Fiscal Year Ended July 31, 2009





Part I
            
            
            PageItem
      1. Description of Business.
            
            
            3Item
      1A. Risk Factors
            
            
            17Item
      1B. Unresolved Staff Comments
            
            
            17Item
      2. Description of Property.
            
            
            17Item
      3. Legal Proceedings.
            
            
            17Item
      4. Submission of Matters to a Vote of Security Holders.
            
            
            17Part
      II
            
            
            PageItem
      5. Market for Common Equity and Related Stockholder
    Matters.
            
            
            17Item
      6. Selected Financial Data
            
            
            17Item
      7. Management's Discussion and Analysis or Plan of
    Operation.
            
            
            17Item
      7A. Quantitative and Qualitative Disclosures about Market
    Risk
            
            
            19Item
      8. Financial Statements and Supplementary Data
            
            
            19Item
      9. Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure.
            
            
            27Item
      9A. Controls and Procedures.
            
            
            28Item
      9A (T). Controls and Procedures.
            
            
            28Item
      9B. Other Information.
            
            
            29Part
      III
            
            
            PageItem
      10. Directors, Executive Officers and Corporate
Governance.
            
            
            30Item
      11. Executive Compensation.
            
            
            35Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            
            
            39Item
      13. Certain Relationships and Related Transactions.
            
            
            40Item
      14. Principal Accountant Fees and Services.
            
            
            40Item
      15 Exhibits, Financial Statement Schedules
            
            
            41Signatures.
            
            
            42Financial
      Statements
            
            
            F-1








2





PART I





FORWARD-LOOKING
INFORMATION





This
Annual Report on Form 10-K (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements regarding our business, financial condition,
results of operations and prospects. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form 10-K.
Additionally, statements concerning future matters are forward-looking
statements.





Although
forward-looking statements in this Annual Report on Form 10-K reflect the good
faith judgment of our management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. Factors that could cause or contribute to
such differences in results and outcomes include, without limitation, those
specifically addressed under the heading "Risks Factors” that may be included in
our reports from time to time, as well as those discussed elsewhere in this
Annual Report on Form 10-K. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We file reports with the Securities and Exchange Commission
("SEC"). We make available on our Web site under "Investor Relations/SEC
Filings," free of charge, our annual reports on Form 10-K, quarterly reports on
Form 10-QSB, current reports on Form 8-K and amendments to those reports as soon
as reasonably practicable after we electronically file such materials with or
furnish them to the SEC. Our Web site address is www.sunoviaenergy.com. You can
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site (www.sec.gov) that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC,
including us.





We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-K. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this Annual Report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and
prospects.





ITEM
1.                      DESCRIPTION
OF BUSINESS





Overview





The
scientists, engineers, managers, and personnel of Sunovia Energy Technologies,
Inc. (“the Company” or “Sunovia”) are dedicated to discovering, commercializing,
and improving technologies that bring the most economical and effective
conversion of light into electricity, as well as the most effective conversion
of electricity into light. We utilize multiple disciplines, from multiple
locations, using insights from one discipline to benefit the others. Sunovia was
named after the sun (which we use for solar energy) and nova (a “variable” star
that generates bright light).




3





This
approach has resulted in three areas of specialty (lighting, solar, and night
vision) and multiple subareas, some of which are in the early stages of product
development, some of which have begun production and some of which are in more
advanced stages of development. Our original product, SolartizementsTM, combined
solar thin film with LED lighting to make solar-powered lighting substrates. In
our attempts to reduce the costs of this product, we expanded into developing
techniques for making solar cells through nanotechnology and novel materials as
a base.  In the process of determining how best to build a more cost
effective solar cell, we found that techniques associated with night vision may
have applications in building the most efficient solar cells, and thus we are
supplementing our solar products with night vision products. And through
Solartizements, we saw opportunities to build solid-state lights using
light-emitting diodes (“LED”) lighting. As part of looking for ways to reduce
costs for LED lighting, we began the process of determining more cost-effective
ways to build LED lighting; we began the process of finding new materials to
build LEDs from and more efficient ways to build lighting components such as
power supplies.





History





On
November 5, 2005, Carl Smith founded Sologic, Inc., a Delaware corporation to
implement his product ideas.  In April 2005, the Company’s name was changed
to Sun Energy Solar, Inc. On November 27, 2007, we completed a reverse merger
with Acadia Resources, Inc. (“Acadia” or the “Company”). Acadia had been
incorporated under the laws of State of Nevada on March 1, 2006.  Acadia
originally was in the exploration stage of its resource business.





On
November 26, 2007, James Donahue, the record holder of 61.24% of the then issued
and outstanding common stock of Acadia entered into that certain Stock Purchase
Agreement (the “Stock Purchase Agreement”) with Carl L. Smith, III, pursuant to
which Mr. Donahue agreed to sell to Mr. Smith 4,500,000 shares (the “Control
Shares”) of the Company’s common stock for a purchase price in the aggregate
amount of $650,000.  The sale represented a change in control of the
Company and the Control Shares acquired by Mr. Smith represent 61.24% of the
issued and outstanding capital stock of the Company calculated on a
fully-diluted basis. Prior to the closing, Mr. Smith was not affiliated with the
Company. However, he became an affiliate of the Company after the closing
as a result of his stock ownership interest in the Company.





On
November 27, 2007, Acadia, Sunovia Solar, Inc., a wholly-owned subsidiary of the
Company (“Sunovia Solar”), Sun Energy Solar, Inc. (“Sun Energy”), and Carl L.
Smith, III, Richard Craig Hall and Rick St. George, (collectively the “Sun
Energy Majority Shareholders”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”), which closed on November 28, 2007.  Pursuant
to the terms of the Merger Agreement, Sun Energy merged with and into Sunovia
Solar, which became a wholly-owned subsidiary of the Company (the
“Merger”).  In consideration for the Merger, the Company issued an
aggregate of 58,485,098 shares of common stock to the Sun Energy Majority
Shareholders and the other shareholders of Sun Energy at the closing of the
Merger. Sun Energy Solar, Inc. had originally been incorporated under the laws
of the State of Delaware on November 9, 2005 for the purpose of
engineering, developing, marketing and distributing solar substrate
technologies. We then declared a 4.5 for 1 forward stock split.





As a
result of the Reverse Merger, Acadia ceased being a shell company as that term
is defined in Rule 12b-2, changed its name to Sunovia Energy Technologies, Inc.
and, through our newly-acquired subsidiary Sunovia Solar, Inc., entered into the
business of engineering, developing, marketing and distributing solar-powered
substrate and LED lighting technologies.




Products





The
company has developed or is developing products in three areas: LED lighting,
Infrared, and solar photovoltaics.





EvoLucia
LED Lighting





Sunovia
established its wholly owned EvoLucia, Inc. (“EvoLucia”) subsidiary in January
2008 to develop customized SSL products based on LED technology targeting
several large markets, primarily in the outdoor lighting sector, including (i)
the roadway / walkway lighting market (“cobra head,” “post-top” and “bell-top”
products) and (ii) the area lighting market (utility lights, wall packs, canopy
lights and parking garage lights).  Based on the Company’s initial
marketing efforts, Sunovia strategically decided to focus its fixture design
efforts primarily on the outdoor lighting market because, while smaller than the
indoor lighting market, it is still a very large opportunity and the design and
performance requirements are substantially higher and less subject to low-end
competition than the indoor market.




4





We
believe the U.S. lighting fixture market is large and growing.




The
Company’s core competency is in photometry, or delivering light precisely to a
target area with minimal spill/waste/overlap.   EvoLucia
generally incorporates its patent pending “Aimed Optics”TM technology, which uses
sophisticated software to design aiming platforms and optics that focus each LED
onto a specific targeted area to optimize the light output.  The
result is a high “Fitted Target Efficiency” that is uniform photometric light
output in the area to be lighted, including reduced glare at the light
source.  We believe this not only creates a superior, even light
distribution, but does so at a lower cost, as fewer LED light engines are
required to meet the required light output.





The
Company uses sophisticated software to engineer the Aimed Optics which are
mounted with each individual LED, creating a light engine that is strategically
aimed toward specific targets.  Most lighting sources (both
traditional and LED) have an uneven “bell shaped” light distribution, with the
light source brighter directly under the light source and progressively less
bright as you move away from the fixture.  .  EvoLucia has
submitted numerous patent applications to protect the propriety of this concept
and the products that have been developed utilizing this unique
philosophy.





Competing
LED lighting solutions typically mount the LED light engines straight onto a
flat surface pointing downward, creating the “bell shaped” lighting pattern
discussed above.  Most lighting applications have minimum lighting
requirements across a target lighting area.  Due to the “bell shaped”
lighting pattern of most LED lighting systems, in order to generate enough light
“at the edges” to meet industry specifications, competing lighting suppliers
have to “over light” the area directly below the light source which creates two
key issues.  First, this creates the excess glare directly below the
light source that is typical of many LED lighting fixtures and second, this
requires more of the expensive LED light engines. See “Status of New Products
and Services” for a more complete description of the individual products we are
selling and/or finalizing design of.





Sunovia
has assembled its LED lighting business team to include Rick Kauffman, designer
of the EvoLucia Cobra Head light, and Chairman of the Standard Practice
Sub-committee of the Roadway Lighting Committee of the Illuminating Engineering
Society  (IES) which oversees RP-8, the American National Standard
Practice for Roadway lighting; Don Sipes, head of product development, a
lighting optics specialist with experience at Optical Engines and Amoco Laser
(Scientific-Atlanta); and Ed Kramer, head of Sales and Marketing, with over 25
years of experience in the lighting industry including Hubbell Lighting
(Beacon), JJI Lighting, Phillips and Cooper Lighting, Tennessee Valley Authority
and a member of IES since 1972.





EPIR (CPV
Solar / Infrared Technologies)





Also in January 2008, Sunovia entered
into its arrangement with EPIR Technologies, Inc. (EPIR) for the research,
development, supply and shared ownership of advanced solar PV technologies using
cadmium telluride on silicon (CdTe/Si). The Agreement also includes the supply,
right to sale, and shared profit of advanced infrared (IR) detection devices
based on II-VI materials (that is, materials synthesized from Groups II and VI
of the periodic table of elements.





EPIR was
founded in 1998 by Dr. Siva Sivananthan (Dr. Siva), the Director of the
Microphysics Laboratory at the University of Illinois at Chicago (UIC), to
commercialize Dr. Siva’s research in the development of IR materials for light
detection devices for the U.S. military by researching CdTe/Si and mercury
cadmium telluride on Si (HgCdTe) and other II-VI materials in flat panel and
concentrating photovoltaic (CPV) products.  Over the past 20+ years,
Dr. Siva pioneered mercury cadmium telluride (HgCdTe) growth by molecular beam
epitaxy (MBE), and the growth of mercury cadmium telluride on silicon for the
production of IR sensors and imagers.





As part
of the agreement, Sunovia (i) acquired a 10% ownership in EPIR (and EPIR
acquired a 10% interest in Sunovia), (ii) received the exclusive marketing
rights to any and all products and technologies developed by EPIR, a 50% revenue
share in the EPIR IR products, and 50% ownership of the solar products and
intellectual properties related to the solar products created by EPIR (the
Agreement can be viewed at:http://www.sec.gov/Archives/edgar/data/1)   Under
the Agreement, Sunovia is required to make payments to EPIR totaling
approximately $24 million through 2018 (of which $9.8 million has been paid and
$14.2 million remain), to cover EPIR’s operating expenses for research,
development and creation of the mass manufacturing processes for the co-owned
solar technologies (Please see APPENDIX B for details on payment
schedule).








“Narrow-gap”
II-VI based semiconductors, such as mercury cadmium telluride (MCT), have for
many years been at the center of the IR night vision technology used by the U.S.
Army as the basis for its strategic and tactical superiority in night
operations.  In fact, the U.S. military has been so successful in this
effort that many military operations are currently undertaken only at
night.  Dr. Siva and his team at EPIR have been significant
contributors in the MCT night vision technology development efforts for the U.S.
military for more than a quarter century.




5





Through years of
theoretical analysis and experimentation, Dr. Siva and his team came upon the
right interface layer formula that allows silicon and MCT materials, which the
US can produce domestically to co-exist next to one another without introducing
excessive amounts of performance damaging strain, with only a thin intermediate
epitaxial layer of CdTe, also grown by MCT. EPIR helped in making this
technology available to the military, in part by establishing a network of close
collaborative relationships with the major Defense Department and industrial
labs involved in IR detection and imaging.  As a result, we believe
Dr. Siva’s technique of growing MCT on silicon is now becoming the dominant
approach for creating mid-wave IR imaging systems.





Dr. Siva
and his team at EPIR also came to the belief that the IR technologies they
developed are also directly applicable to the development and deployment of PV
technologies for solar cells, particularly their development of a protocol for
the manufacture of ultrahigh quality MBE-grown epitaxial CdTe
films.





The
transition layer between the silicon and the II-VI multi-junction structure was
the most crucial layer.  The key technology developed at by Dr. Siva
and EPIR is the manner of laying down the best, precisely controlled layers, one
atomic layer at a time, to provide a smooth transition between the highly
dissimilar materials.  Once completed, a highly pure, single crystal
layer of II-VI material (CdTe) is created.  This CdTe/Si structure
provides a platform for creating multi-junction PV structures that can optimize
all the advantages associated with a II-VI based PV solar system.





This
describes the process of how in September 2009, Sunovia and EPIR researchers
announced a new world record open circuit voltage (Voc) by increasing the Voc
from the previously demonstrated value of .91V for polycrystalline CdTe thin
film on glass solar panels to over 1.34V for the single crystal CdTe on Si cell,
a 45% increase. In a solar cell the electron that has been created via the
absorption of the solar photon must “run the gauntlet” of all the electron
trapping effects extant in the semiconductor material of the solar cell. The Voc
of the solar cell is simply the measure of the “free path” that the electron
sees in the material. We believe the increase seen in the cells based on the
Sunovia CdTe/II-VI material system is clear evidence of the advance in
fundamental material understanding of these materials and the ability to
transform this understanding into novel materials, devices and ultimately solar
systems.





Recent developments include the
following:







§
            October
      8, 2009 – Sunovia completes first articles inspection and initial
      shipments of more than 1000 LED cobra head fixtures for the Marine Corps
      Base in Camp Lejeune, North
Carolina.




§
            September
      25, 2009 – Sunovia signs partnership agreement with Solar Electric Power
      Company (SEPCO) to supply cobra head fixtures for their roadway solar
      lighting products. The agreement identifies more than $1,000,000 in sales
      opportunity.




§
            September
      24, 2009 – Sunovia researchers set a new world record open circuit voltage
      (Voc) for cadmium telluride (CdTe) thin film solar cells by over 45%,
      raising the theoretical potential efficiency of CdTe thin-film solar
      cells.




§
            August
      25, 2009 – Sunovia and EPIR announced the expansion of their research and
      development and pilot production facilities in Bolingbrook, IL for the
      optimization and pilot scale production of their CPV devices. The
      materials synthesis and device fabrication facility was also expanded to
      26,000 square feet including 4,000 square feet of clean-room laboratory
      space.




§
            July
      14, 2009 – Sunovia launched its LED-based Cobra Head product, which is the
      only LED-based replacement/retrofit for the most widely used 100-watt high
      pressure sodium (HPS) and Metal-Halide (MH) Cobra Heads (typically
      120-watt inputs) with an IES Type II medium light
      distribution.




§
            May
      29, 2009 – Sunovia and EPIR’s cadmium telluride on silicon (CdTe/Si) solar
      technology was selected for award negotiation for the Solar America
      Initiative (SAI) Photovoltaic Technology Pre-Incubator award by Energy
      Secretary Steven Chu.




§
            April
      22, 2009 – Sunovia announced it had successfully completed Phase I of its
      Fairview Parkway roadway installation, the first installation of its LED
      roadway lighting products, in Fairview,
TX.




§
            April
      14, 2009 – Sunovia and EPIR announced the receipt of a $9 million
      Department of Defense (DoD) SBIR Phase III contract that allows for the
      expansion of EPIR’s CdTe/Si manufacturing program
  capacity.




§
            April 3, 2009 – Sunovia, through
      its partnership with EPIR, finalized a 10-year, $33 million dollar basic
      order agreement to provide midway infrared (MWIR) single-layer, un-doped
      infrared wafers for night vision camera applications to an international
      entity.





6





DISTRIBUTION
METHODS





Sunovia’s
approach to the LED lighting market focuses on the following:





·
            Efficient
      utilization of resources while identifying and developing internal core
      competencies and sales networks,


·
            Developing
      marquee customers that will highlight Sunovia’s LED lighting products and
      solution capabilities,


·
            Developing
      key partnerships with OEMs (Original Equipment Manufacturers) that will
      accelerate Sunovia’s LED lighting solutions to market, transferring key
      technologies from Sunovia’s research and development efforts to accelerate
      the development new products and higher
margins.





LED-based
lighting products are still in the early stages of adoption by customers that
are beginning to purchase them and regulatory agencies that are starting to
establish guidelines for them. Sunovia’s approach was to first establish
credibility in the marketplace by demonstrating the core competencies that are
needed to successfully develop an LED lighting solution. These core competencies
include mechanical engineering with a focus on the Aimed optics and the thermal
management of the LEDs in a system, electronic engineering for the LEDs and
associated control systems, power conversion with an emphasis on long life in
high-temperature environments and general lighting systems expertise. All of
these elements reside at Sunovia and have been demonstrated to potential vendors
and partners with an initial product that passed regulatory approvals and was
successfully installed at a marquee customer site.





In order
to highlight our first in-house-designed LED roadway lighting product which
showcased our “Aimed Optics”TM methodology, we signed a contract in 2008 to
deliver and install streetlights for the City of Fairview, Texas. This product
provides the advantages of LED lighting while maintaining the same external
aesthetics that most lighting designers are familiar with. After the initial
customer installation was completed in spring 2009, the product was ready for
installation





In
September 2008, Sunovia and Beacon Products, LLC (now part of Hubbell Lighting,
Inc.) formalized a partnership for the development and marketing of unique
light-emitting diode (LED) products. The product development will include
critical components of energy-efficient LED lighting fixtures and LED lighting
system retrofit kits for sale to customers in the indoor and outdoor markets.
Sunovia has been providing research, engineering, development, design, test
services, sales and marketing support for the creation of the products. Hubbell
has provided general lighting industry expertise and market intelligence that is
critical to the formulation of design, performance and test requirements that
are needed for the design and sale of the products. We are in negotiations with
several OEMS for additional arrangements to distribute our
products.





The size
of the U.S. lighting market is larger than $25 billion.  Sunovia has
identified six primary distribution channels for its EvoLucia products,
including the Utility, Engineering Service Company (ESCO), Commercial and
Industrial (C&I), OEM, Federal Government and International
channels.  Ed Kramer, Sunovia’s Director of Sales & Marketing is
leading the build-up of the Company’s sales team and partner relationships to
address its target markets.





1)
Utility Market





Current
estimates from NEMA (North American Manufacturing Association) are that the
utilities have installed and currently maintain in excess of 12.5million Cobra
Head street lights, and 9 million decorative post-top pedestrian-scale street
lights in the U.S.  EvoLucia is in the process of developing a sales
and marketing infrastructure focused on the electric utility market
segment.  Electric utilities fit into one of four different
categories, including (i) the IOUs (Investor-Owned Utilities); (ii) Municipal
Power Companies (Munis); (iii) State and Federal-owned Utilities; and (iv) REAs
(Rural Electric Co-operatives, or Co-Ops).  There are more than 1,300
utilities in the U.S. alone, including 100 IOUs, 250 Munis, 930 REAs and 40
State/Federal owned. All four types of utilities have distinct and independent
internal organizations with input into street lighting equipment and
specifications, including a standards committee, a street lighting department, a
leased lighting department and a purchasing group, each of which we plan to have
called on by locally-based sales representatives.  Such local rep
agencies typically focus exclusively on the utilities in their territories, and
also represent other products sold to utilities other than lighting products,
including wire, transformers and switchgear.





Sunovia
is building a network of 35 geographically-focused sales reps that will
specifically sell to utilities, with the initial focus in the next 6 months on
12 reps covering the top 10 markets, including New York, New England, Chicago,
North and South Carolina, Florida and Northern and Southern California, and
expects to have lighting reps covering the entire U.S. market in place within 24
months. We currently have two utility reps. Sunovia expects sales reps to
require 6 months of training to become familiar with the Company’s utility
product line, get documentation, brochures, etc. and then an additional 6 months
to navigate the various departments within the utilities to begin selling
product.




7





2)
ESCOs





Energy
Service Companies (ESCOs) sell packages of enhanced energy-efficient
equipment/services for use in newly constructed buildings, or as retrofits to
existing systems.  ESCOs typically provide a broad range of energy
solutions, including design and implementation of energy savings projects, energy conservation,
energy infrastructure outsourcing, power generation and energy supply and risk
management.  Typical energy efficient products sold by ESCOs include
lighting, water heating, HVAC, elevators, air conditioning and
windows.  ESCOs typically perform upfront/in-depth analyses of
properties, design an energy-efficient solution, install the required elements
and maintain the system to ensure energy savings during the payback
period.  The savings in energy costs often are used to pay back
the capital investment of the project over a specified period.  The
opportunity for EvoLucia is to be the LED lighting provider in energy efficiency
projects/RFPs won by ESCOs.





Top ESCOs
include Siemens, Honeywell, Trane, Chevron, Florida Power and Lighting (FPL) and
Johnson Controls.   The Company is currently working with
specific ESCOs on individual projects, such as with Siemens, for the cities of
Sarasota and Pompano Beach, which are $5 million and $2 million projects,
respectively.





In early
2009, Sunovia hired an ESCO specialist and we expect to hire 3-4 additional
regional sales reps with ESCO experience by the early part of 2010, and have
complete geographical coverage by 2010.





3)
Commercial and Industrial (C&I)





The
C&I market segment represents what many think of when they refer to the
lighting market.  Typically, architects and/or engineers design and
specify lighting systems primarily for new construction. Projects are then sent
out for bid, and electrical contractors, usually under contract with a general
contractor, purchase the “lighting package” from electrical
distributors.  Lighting fixture manufacturers are represented by
manufacturer’s rep agencies.





The
C&I market has recently consolidated and is currently dominated by four Tier
1 lighting companies, including Lithonia (Acuity), Hubbell (Beacon, Varon),
Cooper Lighting (IO Lighting) and Philips (Genlyte), each of which has their own
agency network, with roughly 75–80 regional sales reps covering the U.S.
market.  The Tier 2, 3 and 4 companies typically sell their products
through representation by one of the Tier 1 companies.





Sunovia
is developing an agency network of manufacturers representatives whose
responsibility it is to present its lighting solutions to the
architects/engineers, distributors and contractors for new construction
projects, and to assist in the design of those projects.  Initially,
the Company will focus on the top 25 markets in the U.S., and through the
efforts of a market segment manager (MSM) and 2 regional sales managers,
recruit, train and manage an agency network in those specific
territories.  The Company has hired 6 C & I reps and anticipates
initially hiring 10-12 more agents by 1Q 2010. Representation may be through
partnerships with Tier 1 companies or with agencies that offer a more aggressive
market approach.




4)
Federal Government





The
federal government consists of 16 agencies with more than 65 departments, all of
whom, except the Department of Defense, are mandated to use lighting with the
lowest payback model per the Energy Act of 2007.  In order to sell any
products to the U.S. Government, you need approval from the General Services
Administration (GSA) and receive a GSA authorization number which we have been
working to obtain since 2008.  Once received, you are eligible to be
included in the GSA purchasing catalog where any Department or Agency may
purchase products up to $75,000 without an RFP or competitive
bid.  The Company has applied for a GSA schedule 56-206.4, which it
expects to be awarded by the end of 2009.





Additionally,
the Company has contracted with an independent government sales agency
headquartered in Washington, D.C. to assist them in the approval process and to
introduce the Company’s products to multiple departments and
agencies.  Moreover, the Company has started to work with two firms
with small disadvantaged business status, both of whom could benefit from
“set-aside” allocations within Federal purchases, one of which is American
Native-owned and the other by a disabled veteran.




8





5)
International


The international market represents a
very large opportunity for EvoLucia as many countries do not have the installed
power generation and distribution infrastructure that exists in the U.S., and
generally have electricity costs that are significantly higher than in the
U.S.  The Company is in active discussions with officials in Brazil,
via SEPCO (an OEM it is in negotiations with), the Bahamas, India and Puerto
Rico.  The Company has also made initial presentations and is securing
strategic partnerships / representation in Europe (Poland and
Turkey).  The Company is in the process of hiring 2 reps to oversee
the international market segment.




STATUS OF
NEW PRODUCTS AND SERVICES





We have a
number of products recently entered into the market place or under development
in lighting, infrared and solar.





Solid-State
Lighting Products





Roadway Lighting
Products





The
Company’s current product offerings in the Roadway Lighting Market include (i) a
Cobra Head light in several different wattages (Type II distribution, or 2-lane
light) launched in July 2009, (ii) a decorative Fairview “Bell”-shaped light
(installed in the Fairview, TX  installation) and a decorative “Post
Top” product.  In development are several Type III and Type IV Cobra
Heads for larger installations (including 4 lane Highways and Parking Lots),
each of which are projected to require approximately $500 thousand in
development and tooling costs





Cobra
Head Roadway Lights





The Cobra
Head is the most common streetlight in the United States, with 2.5 million sold
annually and 12.5 million installed in the U.S., and an estimated 40 million
internationally.  The Company began developing an LED
replacement/retrofit for the “Cobra Head” street light in 2007 when the Company
hired Rick Kauffman, Chairman of the Standard Practice Sub-committee of the IES
Roadway Lighting Committee which oversees RP-8, the American National Standard
Practice for Roadway lighting, as a consultant to help develop the Cobra Head
LED product.  Kauffmann was the designer of the Cobra Head roadway
light fixtures that represent over 45% of the Cobra Heads currently installed in
the U.S.  EvoLucia’s LED Cobra Head luminaires are the most
energy-efficient (up to 75% less energy use), environmentally friendly and
maintenance free (up to 12 years) fixture to light roads, highways and
thoroughfares.





Sunovia’s
Aimed Optics, on the other hand, allows them to not only create the “average”
illumination required by the specification across the target light area, but
also to produce lights at a lower cost due to the fewer number of LEDs required
to satisfy the lighting requirement of the application. Sunovia’s Aimed Optics
technology also reduces cost because it results in fewer light poles needed to
produce the same amount of light. The EvoLucia cobra head is the first to meet a
“mounting height spacing” of 6. “Mounting height spacing” is used to determine
the amount of space needed between light poles. If the EvoLucia cobra head is
mounted at 25 feet, the customer can multiply that number by 6 to arrive at a
pole spacing figure of 150 feet. This means that the EvoLucia cobra head can be
installed every 150 feet and provide the same amount of light on the ground as
fixtures mounted at mounting height spacing of 5 (every 125 feet). Installing
the fewest number of poles directly translates to less energy consumption, less
maintenance costs and greater savings for the customer.





In July
2009, the Company completed the development of an IES Type-II distribution Cobra
Head product (designed for 2 lane and wide walkway installations) in standard 75
and 100 watt configurations designed to replace existing 150 watt metal halide
(MH) and high pressure sodium (HPS) products.  The Company is in the
process of receiving UL certification for the products, which is expected in Q1
2010.  EvoLucia’s Cobra Head products will replace/retrofit existing
Cobra Head installations without the need to move utility poles or change
existing infrastructure, so customers can cost-effectively upgrade with minimal
change to existing hardware.  The Company is currently developing
three additional lights with higher wattage for the Type-III, or general roadway
lighting market.





The
Company recently received a $400,000 purchase order for Cobra Head lights, with
a total project size of $2 million, for the largest Marine Corps base on the
East Coast, Camp Lejeune.  The first cobra heads were delivered for
installation in mid-October and the project is expected to continue through
2010.




9





Decorative
“Fairview Bell” and “Post Top” Walkway Lights





Sunovia
has developed two decorative LED lights, (i) the Fairview “Bell Top” light
currently installed in the Company’s Fairview, TX installation and (ii) a “Post
Top” version.  In April 2009, the Company completed Phase I of its LED
lighting installation in Fairview, TX.  The Company designed the
entire lighting system, including the spacing and height of the light poles,
specifically for the four-lane Fairview Parkway and it features 82
EvoLucia-brand lights.





The
lights installed in the Fairview Roadway installation are designed predominately
for walkways in municipalities and campuses. The Fairview lights are available
in 48W or 225W configurations and replace 150W or 400W MH or HPS lamps,
respectively. The Fairview luminaires utilize EvoLucia’s “Aimed Optics”
technology, and focus light through individually aimed lenses for uniform,
targeted light. The Fairview “Bell Top” uses up to 60% less energy and the
decorative “Post Top” uses up to 75% less energy than existing lights, and both
are maintenance free for over 50,000 hours





Area and Floodlighting
Products





The
Company’s Area and Floodlighting Products include a Parking Garage Light (PGL)
currently available for sale.  In development, Sunovia is designing a
second PGL with a flatter light distribution pattern as well as a Wall Pack, a
Utility Light and a Canopy Light.  Finally, based on a request from a
specific customer, the Company has hired a consultant to determine the market
size and potential of the stage and studio lighting market.





Parking
Garage Lights (PS14 and PS9)





Sunovia
began developing an LED light designed to replace existing Parking Garage lights
in 2008.  The PGL market has approximately 3.1 million parking
lot/garage lighting fixtures., (per the US Dept of Energy 2008 Study titled
“Energy Savings Estimates of Light Emitting Diodes – Niche Lighting
Applications”) of which we estimate 500,000 are replaced each year and has a
market size of $100 million annually  in the United
States.  Sunovia’s first PGL, the PS14 comes in 60-90 watt
configurations and is designed to replace 175 watt MH and 150 watt HPS
lights.  The Company’s product in development, the PS9 will be a
higher-end product with a shallower, 9-inch depth. This design has been
specifically requested by two OEMs to produce a flatter light pattern with less
glare.





Utility
Lights and Canopy Lights




The
Company’s Utility Light (UTL-1), used for illuminating sidewalks, pathways,
landscaping, storage areas, flag poles, statues, signs and monuments is
available in 15-24 watt configurations, use up to 75% less electricity than
incandescent, quartz or metal halide fixtures and will be maintenance free for
over 10 years.




EvoLucia’s
Canopy Light (CAN12), used for lighting exteriors, entryways, breezeways,
walkways, perimeters, parking garages, storage areas and industrial / commercial
spaces is available in 36 and 50 watt configurations, and is designed to replace
175 watt MH and 150 watt HPS lights.





Additional
Products In Development




Our LP3
Light Pack, designed for corridors, closets, cabinets, attics and residential
garages, has been redesigned to come in 15 and 30 watt configurations and
replace 75 watt incandescent fixtures with a 75% increase in efficiency, a
significant increase in life expectancy and no maintenance for up to 15 years.
Tooling has been purchased and this product is production ready.




The Company’s Wall Pack (WP15) is being
redesigned for mounting to outdoor building surfaces. It is ideal for general
lighting, security lighting, accent lighting, task lighting, stairwell lighting,
corridor & breezeway lighting, and perimeter lighting
applications.





Evolucia
is now a distributor of CREE LED Indoor Lighting Products. These products
include general purpose lighting fixtures and bulb replacements that last longer
than standard incandescent lighting or compact florescent and use less energy.
The enabling technology that is used within these lights is high-powered LEDs
that produce very efficient light while consuming very little
power.





Solar





As
discussed in the “Products” section, in early 2008, Sunovia acquired a ten
percent (10%) ownership in EPIR Technologies, Inc. (“EPIR”), a nationally
renowned laboratory founded by Dr. Siva Sivananthan, a pioneer microphysicist
from the University of Illinois - Chicago known for his work in the infrared
industry for his work in CdTe and Si substrates.  In addition to the
ownership interest, Sunovia acquired the exclusive marketing rights to any and
all products and technologies developed by EPIR, and a 50% interest in the solar
operations being designed and built by EPIR.




10





As with
all solar companies, we are working to find the most inexpensive material that
converts the most electricity from light. Silicon has proven to be inexpensive
but it does not capture electrons from the entire spectrum (“bandgap”) of the
sun’s rays. We have added materials, as discussed below, to silicon to
supplement where silicon is not generating electricity, and we have also added a
“concentrator” to increase the amount of sun that hits our solar cells.  To
put this in more technical language, we have developed proprietary technologies
and processes that will allow us to manufacture CdTe/Si solar cells in a
concentrator photovoltaic system whereby we believe the manufacturing costs can
be reduced. We currently are in the finalization of a contract with the
Dominican Republic that we believe will be our first solar
installation.




Florida
Governor Charlie Crist presented Sunovia with the Governor’s award for renewable
energy innovation and the local government is currently considering a financial
retention package that will keep the company in Florida for the next five years.




Infrared





Through
the expertise of Dr. Siva and EPIR, we began to offer next-generation infrared
sensor materials and devices for sale in early 2009. In April 3, 2009 Sunovia,
through its partnership with EPIR, finalized a 10-year, $33 million dollar basic
order agreement to provide mid-wave infrared (MWIR) single-layer, un-doped
infrared wafers for night vision camera applications to an international entity.
We have now obtained conditional approval from the state department to begin
shipping product under this arrangement. We are also in the process of marketing
doped infrared wafers (more complex product) to the United States government
itself, which is also funding research and development in this
area.




COMPETITION





We face
competition from numerous well known companies, which have greater resources
than we do.




Within
the lighting industry, there are producers of lighting fixtures (the entire
system), and lighting component suppliers (lamps, light bulbs or
luminaires).  The U.S. lighting fixtures market is somewhat fragmented
due to the broad range of markets and products; however in 2007, the four top
lighting fixture manufacturers were Acuity Brand Lighting, Cooper Industries,
Genlyte (Philips Electronics) and Hubbell Lighting who combined accounted for
about a quarter of industry sales.  A second tier of leaders includes
Siemens (Osram), Visteon, Koito and Schneider Electric (Juno) represent
approximately 9% if industry sales.





The
Leading Lighting Companies:





Acuity
(Lithonia) – Acuity Brands Lighting is the leading U.S. producer of lighting
fixtures, supplying 8% of the market in 2007, with U.S. lighting fixture sales
of $1.4 billion. Acuity has an extensive portfolio of indoor and outdoor
lighting products that comprise fixtures for commercial, institutional,
industrial and residential installations. Major customers include retail home
improvement centers, electrical distributors, lighting showrooms,
municipalities, and electric utilities. Acuity produces lighting fixtures under
several subsidiaries, such as Gotham Lighting, Lithonia, Peerless Lighting and
Spec Light.





Cooper
Industries – Cooper is the second largest lighting fixture producer with 6% of
the market in 2007, with U.S. lighting fixture sales of $1.1 billion. Cooper’s
products include track and recessed lighting; fixtures for incandescent,
fluorescent and high intensity discharge (HID) light sources; fixtures for light
emitting diodes (LED); and other types of lighting fixtures. This broad range of
products serves as a competitive advantage for the company, as does its strong
brand name recognition, large distribution network and growing focus on
international expansion. Cooper Lighting also benefits from access to its parent
company’s existing relationships with electrical customers, as well as to its
extensive resources available for product development, manufacturing, marketing
and distribution.





Phillips
(Genlyte) – Genlyte is the third largest U.S. producer of lighting fixtures and
accounted for 6% of total U.S. lighting fixture sales in 2007, or $1.1 billion.
Genlyte designs, produces and sells lighting fixtures for the commercial,
industrial and residential markets. Genlyte was the only U.S. market leader
focused exclusively on lighting products. Genlyte also has manufacturing
operations in Canada that make lighting fixtures for sale throughout Canada and
the U.S.





Hubbell Lighting – The fourth largest
manufacturer of lighting fixtures in the U.S. is Hubbell Lighting, which
supplied 4%-5% of the market in 2007, with U.S. lighting fixture sales of $800
million. Hubbell Lighting manufactures and markets outdoor, industrial,
commercial, institutional and residential luminaires at facilities in the U.S.,
Canada, Mexico, the United Kingdom, Singapore and other countries. The company’s
products are sold via distributors, lighting showrooms, home centers and sales
agents.




11




Sunovia Solar Competition





Given the
extremely large potential demand and consumer urgency to switch to renewable
sources, traditional industry structures and competitive force analyses do not
accurately describe the competitive situation Sunovia will encounter over the
coming years. Furthermore, the distributed nature of solar insulation and the
high granularity of solar deployments create opportunities which will tend to
highly fragment the industry. Going back to the oil well analogy, Norway doesn’t
really compete with Saudi Arabia for oil; a world price will exist. What will
differentiate suppliers is the profit made due cost structure and the ability
for the technology to scale in production and deployment velocity, as well as
fitting well in to a distributed energy distribution network with the minimum
use of collateral resources. In addition to developing a technology and product
having superior price/performance features, facilitating the establishment of
deployed grid-connected systems will key to developing a superior competitive
position for Sunovia.





To look
at the competitive landscape, we segment the market into technology types and
look at the key competitor in each field.





Thin-Film





First
Solar





First
Solar supplies 1-sun flat-panel solar arrays based on polycrystalline CdTe on
glass with efficiencies around 10%. They are the first panel maker to publically
break the $1 per Wp barrier for their panels. The low efficiency of their panels
lead to increased BOS costs with total system cost in the $3.5 to $4 per Wp and
land efficiencies of 10 Acres per MW. Being clearly in the lead, First Solar is
coming down the cost curve faster than other providers yet limited opportunities
for efficiency improvement will be a constant challenge for First
Solar.


Other
thin-film providers are:


CdTe:
AVA


CIGS:
Nanosolar, Global Solar, Miasole, Ascent, Solyndra


Amorphous
Silicon: Unisolar, Applied Materials, Oerlikon, Powerfilm





Monocrystaline
Silicon





Sun
Power





Sun Power
is the leading company in creating solar panels of the highest efficiency. They
have pioneered features such as patterned surface processing and back
contacting. They achieve the highest efficiency for flat panels at about 18%
panel efficiency. They are the highest price with system prices in the $4 - $6
per Watt, yet for roof top applications they have the highest utilization of
available space. Given the high relative efficiency of the systems, the Sun
Power panels are often deployed on single and dual-axis trackers.


Other
Monocrystalline Silicon providers are:


Sharp
Solar, Q-Cells, Yingli, Suniva





Polycrystalline
Silicon





These are
the blue-tinted panels commonly seen in residential settings. Given the ease of
fabrication of these panels, the number of suppliers of polycrystalline Si
panels numbers in the hundreds. Most of them have panel efficiencies in the 12%
to 13% range with panels prices in the $2.50 per Wp due to current overcapacity.
These panel prices lead to system prices in the $5 - $7 per Wp. Prices for these
panels have dropped considerably in the last year due to a large oversupply from
the very many suppliers.


Key
Suppliers of Polycrystaliline Si Panels:


BP Solar,
Sharp Solar, GE, Q-Cells, Yingli





Concentrating
Photovoltaics (CPV)





CPV is
considered the 4th
generation of Solar after Polycrystalline Si, Monocrystaline Si and thin-film.
CPV systems have the highest system efficiency as 35% has been demonstrated at
the system level with over 40% efficiency demonstrated at the chip level. CPV
uses less than 30% of the land when compared with Thin-Film Systems. More
importantly, yet not really realized by the solar industry as a whole, is that
the capital requirements for manufacturing scaling is a fraction of that for
thin-film systems. These systems are in their earliest stages with 10MW being
delivered during 2008 yet this segment of the solar industry is seeing growth in
excess of 400% per year. The complexity of the tracking systems are a challenge
for CPV system providers, yet the advantages offered by MCPV, CdTe/II-VI enabled
CPV greatly reduces the complexity of the tracking system.


Key
Suppliers of CPV Solar Systems:


Sol
Focus, Soliant, Energy Innovations, Emcore, Spectrolab




12




Sunovia
Infrared: Competition and Market Size





For 2008,
MaxTech’s Infrared Imaging News, an industry publication, estimates that the TAM
for the infrared industry for night vision cameras and thermographic equipment
was $5.9 billion dollars, with applications ranging from not only
military,  but security and surveillance (including Homeland
Security), automotive (BMW and Lexus),  Building & Maintenance,
and process control, among others. This industry has grown rapidly in the lat
ten years and forecasts continued rapid growth in the coming years.





Competition
in the thermographic industry (which uses infrared detectors that we provide) is
from large defense contractors and small suppliers.  We are a
component supplier to the industry, as are many of our competitors. It is
possible that one of our competitive suppliers may be purchased as one of the
Major Competitors below:




Danaher (DHR): is a
large competitor with over $11B in annual revenue. Fluke sells thermographic
equipment for industrial applications.[18]




Lockheed Martin
(LMT): is a U.S. defense contractor most widely known for the aircraft
and aircraft systems it produces. However, it also produces lines of
surveillance equipment, including thermal surveillance, for both shipboard and
ground use




L-3 Communications Holdings
(LLL): is also a government contractor that supplies aircraft,
communications, and surveillance equipment to the U.S. military as well as
federal and state agencies. In 2007, Command, Control, Communications,
Intelligence, Surveillance and Reconnaissance Systems (C3ISR) composed
approximately 17% of LLL's sales. Although C3ISR equipment includes thermal
imaging systems, L-3 also produces accompanying communications equipment to more
efficiently process information in battlefield scenarios.




Raytheon Company
(RTN): Is a large defense contractor with over $21B of annual revenue in
2007. Raytheon produces systems and offers services for nearly every sector of
the defense industry, including the production of thermographic surveillance
equipment.




FLIR
Systems Inc. (FLIR): Is an infrared night vision and heat sensing devices such
as night vision cameras and industrial grade heat sensors with annual revenue of
over $1B in 2008.




AXSYS
Technologies: was recently acquired by General Dynamics for $643 million, is a
leader in the design and manufacture of high-performance electro-optical
infrared (EO/IR) systems, multi-axis stabilized HD cameras, infrared lenses,
optical systems and components and motion control products with expected revenue
of $280 million in revenue in 2009.




SOURCES
AND AVAILABILITY OF RAW MATERIALS AND NAMES OF SUPPLIERS




The main
component suppliers for the Lighting industry are GE Lighting, Osram Sylvania,
Howard Industries and Hubbell Lighting. We buy the majority of our LEDs from
Cree and Osram*, and purchase components from various electronic supply houses
depending on the fixture. We have used 4 different manufacturing facilities to
outsource fixture manufacturing to in the last year.




The
materials used for our solar and infrared, as discussed earlier are easily
provided for in the united states, which is important for security
reasons.


*
            The
      Company is not dependant on any of these suppliers, all of which can be
      replaced, if necessary, with little expense or disruption to the
      Company.





13





DEPENDENCE
ON CUSTOMERS





We are
dependant on Hubbell Lighting, who represents 61% of the $996,080 sales we have
had during the year ended July 31, 2009, and the Town of Fairview, Texas,
represented 30% of our business during the same period. The development of new
products potentially will reduce our risks in this area.





The EPIR
IR Materials Contract finalized In April 2009, which is a 10-year $33 million
dollar Basic Order Agreement to provide midway infrared (MWIR), single-layer,
un-doped infrared wafers for night vision camera applications to a foreign
entity, and has received conditional approvals from the U.S. State Department
and we expect to begin shipping in Q4 2009, will represent 100% of our infrared
business until such time as we find other infrared customers.





Dominican
Republic 20MW Solar CPV Contract – During the year ended July 31, 2009, Sunovia
executed a letter of agreement with the Department of Energy of the government
of the Dominican Republic to construct a 20 megawatt solar CPV facility in Santo
Domingo, Dominican Republic.  The contract; again, until we obtain
additional contracts, this will represent 100% of our anticipated solar business
in the future.




PATENTS





The
Company, including its subsidiaries and affiliates, currently has 35 patents and
patents-pending covering solar, LED lighting, LEDs, and other components. We
also are scheduled to pay Sparx, Inc., a corporation 100% owned by our Chief
Executive, Carl Smith, a royalty of 4.9% of all revenues.




14




The
following is a schedule of Sunovia Energy Technologies, Inc. Patent Filings as
of October 16, 2009





U.S.
Patent Applications (including PCT applications):





Title
            Application
      Number
            Filing
      Date/ Priority Date
            Current
      Action
            StatusMethods
      and Apparatuses For Transferring Heat From an LED
Luminaire
            61/152,850
            Feb.
      16, 2009
            Regular
      Application and Foreign Filing due on Feb. 16, 2010
            PendingSolid
      State Lighting Unit Incorporating Optical Spreading
    Elements
            61/172,635
            April
      24, 2009
            Regular
      Application and Foreign Filing due on Apr. 24, 2010
            PendingSolid
      State Luminaire With Reduced Optical Losses
            61/173,428
            April
      28, 2009
            Regular
      Application and Foreign Filing due on Apr. 28, 2010
            PendingSolid
      State Luminaire Having Precise Aiming and Thermal Control
            61/173,522
            April
      28, 2009
            Regular
      Application and Foreign Filing due on Apr. 28, 2010
            PendingRetrofit
      System For Converting an Existing Luminaire into A Solid State Lighting
      Luminaire
            61/173,545
            April
      28, 2009
            Regular
      Application and Foreign Filing due on Apr. 28, 2010
            PendingLight
      Units with Communications Capability
            11/760,464
            June
      8, 2007/
              Sept.
      10, 2004
            Awaiting
      Examination
            PendingLED
      Light Unit With Battery Back-up, Communications and
Display
            12/027,232
            Feb.
      6, 2008/
              Feb.
      6, 2007
            Awaiting
      Examination
            PendingLED
      Light Unit With Battery Back-up And Internal Switch State
      Detection
            12/594,932
            April
      7, 2008/
              April
      6, 2007
            Submission
      of Inventor Declarations due December 6, 2009
            PendingModular
      Solar Panel System
            12/594,933
            April
      7, 2008/
              April
      6, 2007
            Submission
      of Inventor Declarations due December 6, 2009
            PendingMethod
      and System for Collecting and Optically Transmitting Solar
      Radiation
            PCT/US08/62311
            May
      1, 2008/
              May
      1, 2007
            National
      Stage Entry Due by November 1, 2009
            PendingLED
      Heat Sink and Lamp Assembly
            PCT/US08/70022
            July
      14, 2008/
              July
      12, 2007
            National
      Stage Entry Due by January 14, 2010
            PendingLED
      Lamp Assembly with Enhanced Cooling by Induced Air Flow
            PCT/US09/46023
            June
      2, 2009/
              June
      2, 2008
            National
      Stage Entry Due By December 2, 2010
            PendingLight
      Unit with Output Pattern Synthesized from Multiple Light
      Sources
            PCT/US09/49629
            July
      2, 2009/
              July
      2, 2008
            National
      Stage Entry Due By January 2, 2011
            Pending








Foreign
Applications (including PCT applications):





Title
            Country
            Application
      Number
            Filing
      Date/
              Priority
      Date
            Current
      Action
            StatusMethod
      and System for Collecting and Optically Transmitting Solar
      Radiation
            WIPO
            PCT/US08/62311
            05/01/2008
              05/01/2007
            Entry
      into National Phase on 11/01/2009
            PendingLED
      Heat Sink and Lamp Assembly
            WIPO
            PCT/US08/70022
            07/14/2008
              07/12/2007
            Entry
      into National Phase on 01/12/2010
            PendingLED
      Lamp Assembly with Enhanced Cooling by Induced Air Flow
            WIPO
            PCT/US09/46023
            06/02/2009
              06/02/2008
            Entry
      into National Phase on 12/02/2010
            PendingLight
      Unit with Output Pattern Synthesized from Multiple Light
      Sources
            WIPO
            PCT/US09/49629
            07/02/2009
              07/02/2008
            Entry
      into National Phase on 01/02/2011
            Pending




15




NEED FOR
GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS AND SERVICES





We do not
require government approval to sell any of our products except to export
infrared products, but in certain instances our customers may be required to
obtain governmental approval for carbon and tax credits associated with the use
of our products. As discussed in the “Status of New Products and Services”
section, we have now obtained “conditional” approval to sell infrared products
to South Korea, but must obtain additional export licenses for all future
shipments.





EFFECT OF
EXISTING OR PROBABLE GOVERNMENT REGULATIONS







We are
not aware of any existing or probable governmental regulations that may have a
material effect on the normal operations of our business.  With
respect to lighting,  the Energy Independence and
Security Act of 2007 (EISA 2007) requires that each Federal agency ensure
that major replacements of installed equipment (such as heating and cooling
systems) or renovation or expansion of existing space employ the most
energy-efficient designs, systems, equipment, and controls that are life-cycle
cost effective.






EISA 2007
sets several additional mandates surrounding the procurement of energy-efficient
products, including:






·
            Requires
      Federal agencies to minimize standby energy use in purchases of
      energy-using equipment, and to buy products with one watt or less of
      standby power when possible.




·
            Requires
      Federal procurement to focus on ENERGY STAR-qualified and FEMP-designated
      products




With
respect to solar, there are numerous federal and state incentives designed to
encourage adoption of our products.




With
respect to infrared there are numerous legal requirements that our industry is
subject to relating to export (discussed in need for governmental approval
section above).




We
typically build products and conduct business in a manner intended to meet these
standards.




AMOUNT
SPENT ON RESEARCH





For the
year ended July 31, 2009 we have spent $3.5 million on research at EPIR
Technologies, Inc., ($4.2 million during the fiscal year ended July 31, 2008)
and $200,000 ($625,000 during the fiscal year ended July 31, 2008) at Dongguk
University.




COSTS AND
EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS





Various
federal, state and local laws regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
directly impact our planned future. There also are no relevant environmental
laws that require compliance by us that may have a material effect on the normal
operations of the business, although in the event we offer compact fluorescent
lights for sale, there have been concerns regarding mercury pollution associated
with CFLs.





EMPLOYEES





As of
October 25, 2009, we had 13 full-time, at will employees and approximately 100
additional personnel working with us directly or indirectly as consultants,
agents, researchers, and advisors. We have not experienced any work stoppages
and consider relations with employees to be good.




16





ITEM
1A.  RISK FACTORS





As a
Smaller Reporting Company, the Company is not required to include the disclosure
under this Item 1A. Risk Factors.




ITEM
1B. UNRESOLVED STAFF COMMENTS





As a
Smaller Reporting Company, the Company is not required to include the disclosure
under this Item 1B. Unresolved Staff Comments.




ITEM
2. DESCRIPTION OF PROPERTY.




We
currently lease an operating facility at 6408 Parkland Drive, Sarasota, Florida
34243. This facility is under a one year and one term through October 31,
2010. The lease requires monthly rent of approximately $3750 plus tax and is
cancellable with 30 days notice. The building consists of approximately 5,316
square feet of laboratory, warehouse and office space. The facilities are in
good condition and are adequate for small scale commercialization of our
products. However, we do not believe our facility would be adequate to handle
more than 25 employees.





ITEM 3. LEGAL PROCEEDINGS.





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.




None of
our directors, officers or affiliates are involved in a proceeding adverse to
our business or have a material interest adverse to our business.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None.








PART II





ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.





MARKET
INFORMATION





Our
common stock is quoted on the OTC Bulletin Board under the symbol "SUNV". Prior
to January 9, 2009, our shares of common stock were quoted for trading on the
OTC Bulletin Board under symbol “AADI”.  However, there were never any
trades in our stock through the facilities of the OTC Bulletin Board from August
1, 2007 through January 9, 2008.





For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.




Fiscal
    2008
              
              Fiscal
      2009High
              
              Low
              
              High
              
              
              LowFirst
      Quarter
              N/A
              
              N/A
              
              $               1.00
              
              
              $               .51Second
      Quarter
              $9.00
              
              $.50
              
              $.67
              
              
              $.10Third
      Quarter
              $.77
              
              $.18
              
              
              $.13
              
              
              
              $.06Fourth
      Quarter
              $1.69
              
              $.48
              
              
              $.10
              
              
              
              $.06


* Through
October 16, 2009





17





Holders





As of
October 30, 2009, we had approximately 1,401 holders of our common stock.
The number of record holders was determined from the records of our transfer
agent and does not include beneficial owners of common stock whose shares are
held in the names of various security brokers, dealers, and registered clearing
agencies. The transfer agent of our common stock is Island Stock Transfer, Inc.
100 Second Avenue South, Suite 705S, St. Petersburg, Florida 33701.





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:


●
              wewould not be able to pay our debts as they become due in the usual
      course of business; or
 ●
                ourtotal 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.





We have
never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant.





Recent
Sales of Unregistered Securities





On
September 28, 2009, the face amount of the $500,000 convertible debenture dated
July, 2009, together with accrued interest, was converted 16,703,345 shares of
common stock which settled the obligation in full. Furthermore, on September 28,
2009, the face amounts for the $500,000 of convertible debentures dated July 2,
2009, together with accrued interest, were settled for 16,689,498 shares of
common stock which settled that obligation in full.





On August
1, 2009, the Company issued 19,900,498 common shares to EPIR Technologies, Inc.
in lieu of its required payment of $1,000,000 due on that same
date.





Also, on
October 13, 2009, 14 investors purchased an aggregate of 20,000,000 shares of
common stock at $0.05 per share for an aggregate purchase price of $1,000,000
from the Company.





Additionally,
on October 15, 2009, one accredited investor purchased an aggregate of 1,750,000
shares of common stock at $.06 per share for an aggregate purchase price of
$105,000 from the Company.





On
November 9, 2009, one accredited investor purchased an aggregate of 5,000,000
shares of common stock at $.06 per share for an aggregate purchase price of
$300,000 from the Company,





On
November 9, 2009, 23  investors purchased an aggregate of 38,905,000
shares of common stock at $.05 per share for an aggregate purchase price of
$1,945,250 from the Company.





On
November 9, 2009, one accredited investor purchased an aggregate of 30,952,381
shares of common stock at $.042 per share for an aggregate purchase price of
$1,300,000 from the Company.









* All of
the above offerings and sales were deemed to be exempt under Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of the Company or executive officers
of the Company, and transfer was restricted by the Company in accordance with
the requirements of the Securities Act of 1933. In addition to representations
by the above-referenced persons, we have made independent determinations that
all of the above-referenced persons were accredited or sophisticated investors,
and that they were capable of analyzing the merits and risks of their
investment, and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.





18





ITEM
6. SELECTED FINANCIAL DATA





As a
Smaller Reporting Company, the Company is not required to include the disclosure
under this Item 6. Selected Financial Data.





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.





The
following information should be read in conjunction with the consolidated
financial statements and the notes thereto contained elsewhere in this report.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Information in this Item 6, "Management's
Discussion and Analysis or Plan of Operation," and elsewhere in this 10-K that
does not consist of historical facts, are "forward-looking statements."
Statements accompanied or qualified by, or containing words such as "may,"
"will," "should," "believes," "expects," "intends," "plans," "projects,"
"estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
"presume," and "assume" constitute forward-looking statements, and as such, are
not a guarantee of future performance. The statements involve factors, risks and
uncertainties including those discussed in the “Risk Factors” section contained
elsewhere in this report, the impact or occurrence of which can cause actual
results to differ materially from the expected results described in such
statements. Risks and uncertainties can include, among others, fluctuations in
general business cycles and changing economic conditions; changing product
demand and industry capacity; increased competition and pricing pressures;
advances in technology that can reduce the demand for the Company's products, as
well as other factors, many or all of which may be beyond the Company's control.
Consequently, investors should not place undue reliance on forward-looking
statements as predictive of future results. The Company disclaims any obligation
to update the forward-looking statements in this report.





Our
activities to date have centered in these areas: Product Development, Research,
Marketing, and General and Administrative.





You
should read the following information in conjunction with our financial
statements and related notes contained elsewhere in this report. You should
consider the risks and difficulties frequently encountered by early-stage
companies, in new and rapidly evolving markets, such as the solar market. Our
limited operating history provides only a limited historical basis to assess the
impact that critical accounting policies may have on our business and our
financial performance.




Because
we have not begun substantial operations but have incurred costs in the areas
above, for the year ending July 31, 2009, the Company has had a net loss as
measured by generally accepted accounting principles of $14,471,361 as compared
to $34,836,961 for the year ended July 31, 2008.





Many of
the costs we have incurred for the year ending July 31, 2008 were initial costs
such as upfront inducements through stock to secure services we believe we will
need, market studies, core design work and other similar costs.




Overview





For the
year ended July 31, 2009, we have accomplished the following:





·
            We
      have shipped and installed the complete order of our new roadway and
      walkway lights for the Town of Fairview Texas, which we believe will open
      a significant market for the Company.  The project was awarded
      inclusion in the Cree® “LED City” program, a program designed to highlight
      the economic and environmental advantages of LED lighting. It was also the
      subject of a feature article in LD+A Magazine, the official magazine of
      the Illuminating Engineering Society of North America. The Fairview
      Collection of luminaires optimizes the LEDs by directing the light and
      creating the desired light pattern to meet IES street-lighting compliance
      standards, while simultaneously reducing energy and maintenance
      costs.  These LED lights were demonstrated, as a case study, to
      a group of engineers attending the IES Street Lighting Conference on March
      19, 2009.  With the addition of these lights to our portfolio
      (which includes many styles of decorative post-top lights), we have built
      a product line that gives us an opportunity to be a leader in the
      decorative street lighting market.





·
            We
      designed two LED cobra head streetlights and a cobra head LED retrofit
      kit. The EvoLucia LED cobra head is the first LED streetlight to meet a
      pole spacing of 6 mounting heights, which allows LED to meet the existing
      standards of light with out having to change the existing pole
      arrangement. The cobra heads will be retrofit-ready for fixtures that are
      currently installed throughout the country. Camp Lejeune, N.C. ordered
      1100 of these fixtures and we have delivered the fist part of this order.
      Cobra heads are America’s most common street light, and currently use
      high-pressure sodium or metal halide technology. This project was delayed
      because the aiming and placement of the LEDs is more challenging in this
      product due to the height of the fixture and the light spread that is
      required on the ground. We believe our LED technology will represent a
      technological breakthrough resulting in energy and cost savings in
      comparison to products currently available on the
  market.




19




·
            We
      have completed design and prototyping for the LED parking garage
      light.





·
            We
      have executed a letter of agreement with the Department of Energy of the
      government of the Dominican Republic to construct a 20 megawatt solar
      concentrator photovoltaic facility in Santo Domingo, Dominican Republic,
      subject to various terms and conditions.  A comprehensive formal
      agreement is currently being created that sets forth the obligations,
      terms and conditions specific to any and all aspects of the solar
      concentrator photovoltaic facility.  The company expects to sign the
      formal agreement during on or before the end of 2009, but until said
      formal agreement is executed by the Company and the Department of Energy
      of the Dominican Republic, the Company cannot guarantee any aspects of the
      transaction.





·
            We
      are beginning to develop retrofit products that convert traditional
      lighting to LED Lighting.  The retrofit kit approach makes it
      much easier to convert to LEDs. We have submitted patents on our retrofit
      kit concept.





·
            We
      have obtained contracts for our infrared products  and signed an
      agreement with a South Korean company during the calendar year 2009, and
      we received an export permit fro m the U.S. State Department to sell
      Mercury Cadmium Telluride (HgCdTe) undoped infrared wafers to that
      customer.





·
            We
      partnered with a major international energy service company (ESCO) for an
      energy savings proposal for the City of Sarasota, Florida. Together with
      Beacon Products, EvoLucia is providing the lighting component of the
      energy savings proposal. ESCO Providers offer an arrangement to the
      customer whereby they certify the cost savings provide upfront financing,
      and are paid from the savings. We plan to use this technique to help sell
      more products to the current
markets.





·
            We
      have partnered with a major international manufacturer of solar products
      to create a solar-powered LED light. The solar-powered LED light is
      entirely self-sufficient, and therefore greatly expands our market reach
      to areas that do not have power (such as parts of South America). Sales of
      this product have begun and are expected to increase rapidly through next
      year.





·
            Our
      Researchers at EPIR have set a new world record Open Circuit Voltage for
      Cadmium Telluride (CdTe) thin-film solar
cells.




We
continue to face challenges, particularly as follows:





·
            In
      spite of advantages in life cycle cost and sustainability, we have had
      difficulty persuading many local governments to accept LED technology over
      lower-priced but outdated technologies in our industry. Also, our business
      has rapidly changing prices due to technology changes that effect pricing
      decisions.  While our new LED products could be very profitable
      in the long run, the development and tooling cost need to be recovered
      through the initial sales. We believe that through education and time the
      market will transition to LED, but the exact timing of this transition is
      subject to debate among industry
experts.





·
            Like
      all companies, we face challenges related to economic issues worldwide.
      These affect quantities bought, upfront prices customers are willing to
      pay, and general attitudes regarding risk, as well as ability to raise
      capital, which is still crucial to implementation of our overall business
      plan.  Presently, we have several Volume Purchase Orders in
      place, though the quantity ordered to date is far less than originally
      projected. For one of our product families, we spent more on product
      upgrades than we sold.





·
            Our
      first 16.8-Watt power supply was approved by UL. However, the cost of
      development has proven to be greater than we could economically justify,
      and we have decided to use the products of other vendors. We may in the
      future resume this program, although presently we plan to outsource all
      activity in this area.





·
            Our
      infrared research products are associated with the military, and with the
      change in administration, military spending and underlying needs may be
      revised, and contract profit margins may not ultimately be as high with
      this type of work as we originally planned. In time we look to develop
      more profitable product lines arising from this work in addition to the
      solar applications of infrared, but this is currently in the planning
      stage.





·
            We
      entered into an agreement with Rayovac for exclusive global marketing
      rights for our LED Switchplate product, but they have recently filed for
      protection under Chapter 11 of the U.S. Bankruptcy Code. This, combined
      with other difficulties in the project, particularly with respect to
      adequacy of the intellectual property underlying the project and problems
      in the relationship with Direct One Source, our partner in the project,
      have resulted in its cancellation.





20





Our
lighting customers at this point have been a combination of original equipment
manufacturers and system integration providers who demand reliable LED lighting
solutions, as well as end users. Since the inception of the LED Lighting
Division, EvoLucia, the emphasis for our engineers has been to design the LED
System rather than parts of the system that do not necessarily perform optimally
as a whole.




In
addition, we are a distributor of Cree® indoor lighting products, including LED
bulbs, lamps and lay-ins.   We are in the process of completing an
application through the federal GSA program to become a vendor in the government
system. While we have started with a few basic products, as we add products
to our line, we believe the sales should increase proportionately and a new
revenue stream should be developed for the company.





Several
presentations have made to utility companies as we have partnered strategically
with contractors and other lighting companies to win renewable energy contracts
through local municipalities.  While these sales are long-term
projects, they can yield significant revenue at some point.  As we
become more skilled in making presentations to this type of customer, the
likelihood that we will be successful in our response to such requests for
proposals increases.





Results
of Operations





The
 following  table  sets  forth  the  percentage
 relationship  to total revenues of principal  items
 contained in the  statement of operations of the consolidated
 financial  statements included  herewith  for the years
ending July 31, 2009 and July 31, 2008.  It should be noted that
percentages discussed throughout this analysis are stated on an approximate
basis.





2009
            
            
            2008Amount
            
            
            AmountSales
            
            $
            996,080
            
            
            
            59,864Cost
      of Sales
            
            
            677,724
            
            
            
            48,822Selling,
      General & Administrative Expenses
            
            
            8,380,170
            
            
            
            19,682,954Research
      and Development Expenses
            
            
            6,294,626
            
            
            
            15,251,761Total
      Operating Costs and Expenses
            
            
            14,674,796
            
            
            
            34,934,715Operating
      Loss
            
            
            (14,356,440
            )
            
            
            (34,923,673
            )Interest
      Income
            
            
            68,437
            
            
            
            86,712Derivative
      Liability
            
            
            183,358Net
      Loss
            
            $
            14,471,361
            
            
            
            (34,836,961
            )





Year
ended July 31, 2009 compared to Year ending July 31, 2008





Revenues





For the
years ending July 31, 2008 and 2009, our revenues increased 1,663%, reflecting
the completion of marketable products in late fiscal year 2008. Although we had
a contract for larger quantities than were actually sold, 61.8% of our revenues
were with Hubbell Lighting, a large OEM, for light engines, our original core
product (light engines). In fiscal year 2009, we began to diversify the product
line by adding fixtures, the first of which, a decorative streetlight called the
“Fairview” after Fairview, Texas, where we completed the installation
represented 30.4% of our revenues for the year ending July 31, 2009. We believe
the diversification of our product line will result in a broader concentration
of sales as we develop new products.




21





Cost
of Sales





For the
years ending July 31, 2008 and 2009, our cost of sales increased 1388% ($48,822
for the year ended July 31, 2008 as compared to $677,724 for the year ended July
31, 2008),  commensurate with the completion of marketable products in
late fiscal year 2008. Our gross profit margin increased from 19% to 32%. We
expect continued volatility in our gross profit margins over the next few years;
our target margin is 30% to 40%, but the necessity of reducing prices to
establish markets with new products may affect our margins in the
future.





Expenses





Please
see “Overview” for a discussion of the nature of the work performed and the
accomplishments of the expenses we have occurred.




Selling, General
and Administrative Expenses





For the
year ended July 31, 2009, our selling, general and administrative (“SG&A”)
expenses decreased. For the Year period ending July 31, 2009, SG&A expenses
decreased $11,302,784 to $8,380, 170 when compared to $19,682,954 for the year
ended July 31, 2009.  This decrease was primarily the result of non-cash
share-based compensation of $15,320,079, for the year ended July 31, 2008 and
compared to $5,238,914 for the year ended July 31, 2009 respectively,
related to the hiring of management, marketing and other personnel that were
necessary to initiate the company’s product development and
operations.








Product
Development




While we
continue research and development efforts in the solar area, we are also working
to create products that can be resold at a profit. This began with our first
product, Solartizements (solar-powered substrates). For the year ended July 31,
2008, we spent $227,255 on Solartizements, as opposed to $-0- spent for the year
ended July 31, 2009. This reduction reflects the completion of the initial
design, but we were unable to develop a customer base for the product due to the
cost to the consumer, but it provided insight into both lighting and solar thin
film which are businesses we are pursuing vigorously that we believe show
promise.




However,
during the development of the engineering plan for Solartizements, we became
aware of the market potential for low-energy lighting such as LED-based lighting
(we use the term Solid-State lighting because one advantage of this type of
lighting is its ability to turn on instantaneously as opposed to compact
fluorescent lights that need time to warm up, particularly as they
age).




The
principle type of low-energy lighting currently in the market place is compact
fluorescents (CFLs). Solid-State Lighting is a newer technology than CFL
technology and lasts significantly longer, does not contain mercury, uses
somewhat less energy and we believe it is showing continued improvement each
year in performance. We began testing to see if we could develop a light that
properly manages heat, as issues in thermal management has prevented LED
lighting from enjoying market acceptance. Our engineers did successfully build
prototypes that significantly reduce the heat generated by the LEDs and then we
began the process of identifying product families that we felt had the most
opportunities and began our work on product families in these areas. That
process included, where possible, working to obtain orders from customers for
specialized lights, which we can design for a particular customer but also sell
to other customers as well, such as street lights. Our engineers will then
modify our existing core designs to the different specifications of new orders
that we received. We have identified several customers and types of lights which
we plan to pursue to add to the street lights and loading dock lights we have
already built from our initial technology design. Based on order flow and
information we obtain from the marketplace regarding overall customer demand, we
believe there will be several common lights we can carry in stock, and we plan
to consider carrying inventory and supplying customers from inventory as
well.




For the
year ending July 31, 2009 we spent $1,316,772 on product design for product
design for solid-state lighting, as opposed to $3,882,696 for the year ended
July 31, 2008, which was due to the effect of equity compensation granted as
inducements to our engineering staff . We were able to successfully develop our
initial product offerings into the concept of aimed optics and for the
development of the lights below in 2009. Product development consists of
engineering, design, purchasing of components and assembly of prototypes and
testing, and currently represents among the most crucial expenditures of the
company. Product development costs by product family for the year ending
July 31, 2009, including salaries, are as follows:





Power
      Supply
            133,490Fairview
            167,086Canopy
      Light
            140,285Decorative
      Street Light
            109,422Cobra
      Head
            243,143Garage
      Lights
            141,450Switch
      Plate Light
            280,064Utility
      & Other
            101,832


For a
detailed discussion of the status of these projects, please refer to the
introduction of Management’s Discussion and Analysis.





For the
year ended July 31, 2008, we expended our entire product development effort on
the development of light engines used in decorative streetlights and utility
lights.




General and
Administrative




As in all
companies, general and administrative expenses are the supporting services
needed to maximize the efforts of the other departments in performing their
duties. For the year ending July 31, 2009, we spent $ 512,281, a reduction in
spending in this area by 503% compared to the year ending July 31, 2008, we
spent $2,580,422. This was due to a reduction in equity compensation in the year
ending July 31, 2009 as compared to July 31, 2008




Research





Research
and development expenses in the past primarily consist of labor costs, material
costs and facilities. We had maintained an in-house research department that
principally has surveyed the current research field for designing an overall
program and made optical improvements for the lens of our Solid-State Lighting
and Solar programs. However, during the year period ending July 31, 2008, the
Company entered into research contracts with EPIR Technologies, Inc. and Dongguk
University which most of research will be predominately outsourced for the next
couple of years. We expense our research and development costs as incurred.
Research and Development expenses decreased from $15,251,761 for the year ending
July 31, 2008 (see “Item1 – Products of the Company” for a more complete
description of the Company’s plans in this area) to $6,294,626 for the year
ended July 31, 2008. Research and development expenses primarily consist of
labor costs, material costs and facilities. We expense our research and
development costs as incurred. .  For the year ended July 31, 2009,
Research and Development included $2,546,944 of share-based compensation,
$3,500,000 expended with EPIR and $200,000 expended with Dongguk University,
whereas for the year ended July 31, 2008, Research and Development included
$10,338,500 of share-based compensation and $4,200,000 expended with EPIR and
$625,000 expended with Dongguk University.




22




We
believe that our research and development will be critical to our strategic
objectives of developing our technologies, and ultimately reducing manufacturing
costs and meeting the requirements of our customers as well as adding new
customers and markets. One long-term objective of research and development is to
develop solar technologies that may be used to ensure that we have adequate
(both in terms of quantity and quality) thin-film in the future to power our
products.  As a result, we expect that our total research and development
expenses will increase in absolute terms in the future – specifically we have
budgeted $3,500,000 for the next twelve months in this area. Research and
development expenses primarily consist of labor costs, material costs and
facilities. We expect that our total research and development expenses will
increase in absolute terms in the future.




On
January 24, 2008, the Company and EPIR entered into an Amended and Restated
Research, Development and Supply Agreement (the “EPIR Agreement”) pursuant to
which the Company has become the exclusive supplier of certain (i) EPIR products
that are to be funded by the Company and developed by EPIR including one or more
versions of photovoltaic solar cells or solar cell encapsulate technologies (the
“EPIR Products”) and (ii) certain other products including infrared sensors and
biosensors (the “EPIR Independent Products”), which right is contingent upon
certain annual sales goals.





In
accordance with the EPIR Agreement, EPIR is required to:





·
            Use
      commercially reasonable efforts to develop the EPIR Products using all
      available new technology that will be identified and defined by a
      technology development board;·
            Use
      commercially reasonable efforts to supply EPIR Products and EPIR
      Independent Products in quantities that are consistent with the Company’s
      forecasted demand under this
Agreement;


·
            support
      the Company’s efforts in the marketing and promotion of the Company’s
      products;·
            refer
      any and all inquires for purchase of the EPIR Products or other products
      sold by the Company that incorporate the EPIR Products (the “Sunovia-EPIR
      Products”) received from third parties to the Company;
  and


·
            Inform
      the Company of any inquiries received by EPIR from third parties who or
      are interested in engaging EPIR to develop photovoltaic solar cells and
      related technologies.





In
accordance with the EPIR Agreement, the Company is required to:





·
            develop
      distribution channels for the Sunovia-EPIR
  Products;


·
            integrate,
      promote, market and sell the EPIR Products, EPIR Independent Products and
      the Sunovia-EPIR Products; and·
            Inform
      EPIR of any inquiries received by the Company from third parties who or
      are interested in engaging the Company and EPIR in connection with
      the development or use of photovoltaic solar cells and related
      technologies.





Unless
terminated sooner, the term of the EPIR Agreement is through January
2018.





In
addition to the above transaction, EPIR and the Company entered into a Stock
Purchase Agreement pursuant to which EPIR purchased 37,803,852 shares of common
stock of the Company (the “January 2008 Shares”) representing 10% of the issued
and outstanding of the Company in consideration for the Company purchasing
202,200 shares of common stock of EPIR representing 10% of the issued and
outstanding of EPIR. We spent $3,500,000 on this contract during the year ended
July 31, 2009 and $4,200,000 on this contract during the year ended July 31,
2008 which was our first year under this arrangement. In addition during the
year ended July 31, 2008, we also incurred $11,608,500 in equity
compensation towards these goals, which included an additional 8,990,000 shares
issued to employees of EPIR on June 30, 2008 for research, of which our
President has reimbursed the Company with shares from his holdings.




Although
the research Dongguk University has not proceeded to a product that can be
commercialized, we have signed a letter of intent for a 20 megawatt solar
facility in the Dominican Republic and have signed a $33 million, ten-year
volume purchase agreement with a South Korea for the infrared technology EPIR
has developed, for which we recently obtained an export permit from the United
States Secretary of State.




23




Other
Income and Expenses




Interest
income for the year ended July 31, 2008 was $86,712 compared to $68,437 for the
year ended July 31, 2009. This was due to the accumulation of cash from private
placements; more cash on hand was maintained during the year ending July 31,
2008 as compared to the year ending July 31, 2009. We had interest expense and
derivative expense of $183,358 for the year ended July 31, 2009 compared to July
31, 2008, when we did not have any convertible debentures.




Plan
of Operation




We
continue to evolve, and we are a very different company in comparison to the
year ended July 31, 2008. This is because of new sales and new products and new
product families, which will require a different infrastructure featuring
increased activity in sales and marketing, increasing efforts to convert
research activities into product development activities, and greater focus on
product development in development of new products within product families as
opposed to searching for new product lines. We presently have 13 employees and
approximately 100 people working on our behalf as consultants, sales
representatives, and advisors. We believe that the additional sales and
marketing people will be necessary to communicate with potential customers of
our solid-state lighting and provide the necessary support in terms of customer
service, credit and billing and accounting. While we will have other roles such
as fulfillment, manufacturing and shipping, we outsource these functions some of
the time. None of our employees are covered by a collective bargaining
agreement. We consider our relations with our employees to be good.





Cash
Flows and Working Capital





To date,
we have financed our operations primarily through equity contributions by our
shareholders. As of July 31, 2009, we had $308,495 in cash and cash equivalents.
We had receivables, net of allowances,  of $138,196 and inventory of
$234,551 and our current liabilities were $2,457,542, although more than 80% of
the liabilities are convertible into common stock.





On June
12, 2009, the Company issued convertible debentures in the amount of $500,000
(“Holder”). The Company has promised to pay the Holder or their successors and
assigns the principal amount together with accrued unpaid interest on or before
December 12, 2010. Interest will accrue on the outstanding principal balance at
an annual rate equal to 12%. The Company at its option shall have the right,
with three business days advance written notice, to redeem a portion or all
amounts outstanding under this debenture prior to the maturity date provided
that the closing bid price of the of the Company’s common stock is less than the
fixed price ($.10) at the time of the redemption. The Company shall pay an
amount equal to the principal amount being redeemed plus a redemption premium
equal to 20% of the principal amount being redeemed and accrued interest. The
debenture is secured by a security agreement between the Company and the Holder.
This debenture is convertible into shares of common stock at the option of the
Holder, in whole or in part at any time and from time to time, after the
original issue date. The number of shares of common stock issuable upon a
conversion equals the quotient obtained by dividing the outstanding amount of
the debenture to be converted by the conversion price. The conversion price is
defined as follows: price per share equal to the lesser of (a) $.10 or (b) an
amount equal to 50% of the lowest closing bid price of the Company’s common
stock for the five trading days immediately preceding the conversion date;
however, in no event shall the conversion price be less than $.03 per share. We
raised an additional $500,000 under a similar arrangement in September, 2009 and
converted both debentures to equity in October.





Since we
outsource our manufacturing, we are not a capital intensive
operation.





We also
raised $1,216,053 for the year ending July 31, 2009 and raised $11,057,290 for
the year ending July 31, 2008. We believe this decline reflects the downturn in
the economy. We have raised an additional $4.1 million dollars in common stock
at prices from $.042 to $.06 since July 31, 2009





To date,
we have financed our operations primarily through equity contributions by our
shareholders. As of November 5, 2009, we had $3,318,656 in cash and cash
equivalents. We had receivables of $138,196 and our current liabilities were
$2,457,452 as of July 31, 2009, although almost 90% of the liabilities are
convertible into common stock. At present levels we incur overhead of $250,000
per month in cash before our research commitments which are scheduled to be
$5,000,000 for the year ended July 31, 2009.





Operating
Activities




Net cash
used in operating activities for the year ended July 31, 2008 amounted to
$8,231,137 as compared to $7,357,846 for the year ending July 31, 2009. Net cash
used by operating activities was mainly a result of a net loss of $34,836,961
for the year ending July 31, 2008 which included non-cash share-based
compensation of $25,764,953.




24





Investing
Activities





Net cash
used in investing for the year ending July 31, 2008 was $93,599 as compared to $
32,941 for the year ending July 31, 2009, due primarily to our purchase of
software for product development purposes for year ended July 31, 2009, where as
the amounts in the previous period were more for office equipment.





Financing
Activities





Our net
cash raised in financing activities for the year ending July 31, 2008 was
$10,849,786 compared to $1,716,503 for the year ending July 31, 2009. In both
periods, we were in the process of completing a private placement for ten cents
a share. On or before November 3, 2007, the Company redeemed and retired
37,523,114 of outstanding shares of common stock for $3,752,311. The purchase
price was $.10 per share. The number of reissued redeemed shares during the year
ended July 31, 2008 totaled 28,948,075.




Cash
Requirements





As of
November 5, 2009, we had $3,318,656 in cash and cash equivalents. However, we
presently anticipate spending approximately $3 million over the next twelve
months on operations, $5 million on research and development and have additional
product development needs in the amount of $2.5 million to further enhance the
cobra head product line we building.  We have increased sales, but
payment from customers and to vendors is typically on a 90-day basis, however
there is a production time lag of usually 30 days. To finance these operations
and to take advantage of these opportunities the Company will need to raise
capital and/or incur debt. There is no assurance that such capital can be raised
or if such capital can be raised on terms that are not highly dilutive to our
current shareholders. If we are not successful in raising capital we will have
to limit our plans accordingly, and we may not be able to take full advantage of
opportunities we believe exist.  Further, there is no assurance that we be
successful in collecting amounts owed in connection with these new sales.








In April,
2009, the Company and EPIR entered into an Amendment to the research,
development, and supply agreement. As of July 31, 2009, the Company has made all
scheduled payments to EPIR pursuant to the terms and condition of the Agreement
in the aggregate amount of approximately $7,700,000. All payments to EPIR are to
be used to cover operating expenses of EPIR towards the research, development
and creation of the mass manufacturing processes for solar technologies. The
Amendment (i) accelerates the Company’s payment of the June 1, 2009 scheduled
payment and (ii) allows the Company to issue and deliver to EPIR warrants for
the purchase of the Company’s stock. Therefore in consideration of the mutual
covenants and other valuable consideration, the Company and EPIR (“the Parties”)
agree as follows:





The
Company’s Obligations: In exchange for, and as an integral part of, EPIR’s
entering into the Amendment, the Company shall deliver, or cause to be
delivered, to EPIR, for no cash or other consideration (except as set forth
herein):





a.
            The
      June 1, 2009 scheduled payment of $1,000,000 within 72 hours of the
      Parties’ execution of the Amendment by wire transfer of immediately
      available funds to a bank designated by EPIR
and





b.
            Issuance
      to EPIR of a warrant (the “Warrant”) to purchase 25,000,000 shares of the
      Company’s common stock at an exercise price equal to $0.10 per
      share





Immediately
upon the date in which EPIR receives the accelerated payment, the Company, in
its sole discretion, shall, without limitation and subject to the applicability
of all of the foregoing provisions of the Agreement, satisfy any or all of the
August 1, 2009, October 1, 2009, December 1, 2009 and March 1, 2010 either by
(1) payment in cash or (2) the issuance of such number of restricted shares of
common stock of the Company equal to the quotient of One Million Dollars
($1,000,000) divided by the Conversion Price (as defined below).  For
purposes of the EPIR Amendment, the “Conversion Price” shall be an amount equal
to the seventy-five percent (75%) of the average closing price of the Company’s
common stock as quoted on the Over-the-Counter Bulletin Board for the twenty
(20) trading days prior to the date a scheduled payment is due under the EPIR
Agreement.





Going
Concern





With our
present cash and cash equivalents management expects to be able to continue some
of our operations for at least the next twelve months. However, we have suffered
losses from operations. The continuation of our company is dependent upon our
company attaining and maintaining profitable operations and raising additional
capital as needed. In this regard we have raised additional capital through the
equity offerings noted above. We may, however, require additional cash due to
changing business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our existing cash is
insufficient to meet our requirements, we may seek to sell additional equity
securities, debt securities or borrow from lending institutions. We cannot
assure you that financing will be available in the amounts we need or on terms
acceptable to us, if at all. The issuance of additional equity securities,
including convertible debt securities, by us could result in a significant
dilution in the equity interests of our current stockholders. The incurrence of
debt would divert cash for working capital and capital expenditures to service
debt obligations and could result in operating and financial covenants that
restrict our operations and our ability to pay dividends to our shareholders. If
we are unable to obtain additional equity or debt financing as required, our
business operations and prospects may suffer. In such event, we will be forced
to scale down or perhaps even cease our operations.




25





We have
undertaken steps as part of a plan to improve operations with the goal of
sustaining our operations for the next twelve months and beyond. These steps
include (a) raising additional capital and/or obtaining financing; (b)
increasing our revenues and gross profits and (c) controlling overhead and
expenses.





There can
be no assurance that we will successfully accomplish these steps and it is
uncertain we will achieve a profitable level of operations and/or obtain
additional financing. There can be no assurance that any additional financings
will be available to us on satisfactory terms and conditions, if at all. In the
event we are unable to continue as a going concern, we may elect or be required
to seek protection from our creditors by filing a voluntary petition in
bankruptcy or may be subject to an involuntary petition in bankruptcy. To date,
management has not considered this alternative, nor does management view it as a
likely occurrence.





These
consolidated financial statements do not give effect to any adjustments which
would be necessary should the Company be unable to continue as a going concern
and therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying consolidated financial statements.




Off-Balance
Sheet Arrangements





We do not
currently have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to our
stockholders.





Our
arrangement with EPIR may require working capital in the future, but at this
time we cannot predict what effect that will be.





Our
company has not entered into any transaction, agreement or other contractual
arrangement with an entity unconsolidated with us under which we
have





·
            an
      obligation under a guarantee contract, although we do have obligations
      under certain sales arrangements including purchase obligations to
      vendors·
            a
      retained or contingent interest in assets transferred to the
      unconsolidated entity or similar arrangement that serves as credit,
      liquidity or market risk support to such entity for such
      assets,


·
            any
      obligation, including a contingent obligation, under a contract that would
      be accounted for as a derivative instrument, or·
            any
      obligation, including a contingent obligation, arising out of a variable
      interest in an unconsolidated entity that is held by us and material to us
      where such entity provides financing, liquidity, market risk or credit
      risk support to, or engages in leasing, hedging or research  and
      development services with us.





In
December 2005, we acquired all of the patent rights owned by Sparx, Inc. from
Carl Smith; our Chief Executive officer owns all of the capital stock of Sparx.
In connection with the acquisition of the patent rights, we issued 500,000,000
stock options to Mr. Smith and have agreed to pay a royalty of 4.9% of
revenues to Sparx, Inc., a Company owned by Mr. Smith


In
February, 2008, the Company informally agreed to finance an entity that entered
into a research and development agreement with an educational institution in
consideration of the assignment of certain patent rights held by the educational
institution to the Company. The educational institution will perform research
and development services and assign intellectual property created during the
course of those services to the entity, who in turn will assign such rights to
the Company. The Company has agreed to pay on behalf of the entity, $2,000,000
to the educational institution in the first year. If an agreement is made to
extend the agreement to the second year, the Company will pay an additional
$2,000,000. If a decision is made to extend the agreement to the third year, the
Company will make a final payment of $1,000,000. In August, 2008, the entity,
Novakor, Inc., transferred all patent rights under this agreement to Sunovia,
Inc.




26





We
utilize certain accounting policies and procedures to manage changes that occur
in our business environment that may affect accounting estimates made in
preparation of our financial statements. These estimates relate primarily to our
allowance for doubtful accounts receivable and the recognition and measurement
of potential impairment on long-lived and intangible assets. Our strategy for
managing doubtful accounts includes stringent, centralized credit policies and
collection procedures for all customer accounts. We utilize a credit risk rating
system in order to measure the quality of individual credit transactions. We
strive to identify potential problem receivables early, take appropriate
collection actions, and maintain adequate reserve levels. Management reviews its
long-lived and intangible assets for impairment whenever changes in
circumstances or other events indicate potential impairment. Management has
determined that the allowance for doubtful accounts and impairment losses are
adequate at July 31, 2009.





Quantitative
and Qualitative Disclosures about Market Risk





We have
no material exposure to interest rate changes.  We are subject to
changes in the price of energy, which are out of our control.





Effect
of Changes in Prices





Changes
in prices during the past few years have been a significant factor in the solar
and lighting industries. Although the price of solar and lighting has been
declining gradually over recent years and part of a decreasing overall trend,
the cost of commodities used including silicon has created challenges for our
industry. Ultimately, success in research towards finding more cost effective
materials is the Company’s strategy for maximizing profit within these
constraints.





Critical
Accounting Policies and Estimates





“Management's
Discussion and Analysis of Financial Condition and Results of Operations”
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates our estimates and judgments, including those related to
revenue recognition, recovery of oil and gas reserves, financing operations, and
contingencies and litigation.





Recent
Accounting Pronouncements




See
Consolidated Financial Statements beginning on page F-1.





ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.





Previous independent registered public
accounting firm





On
December 27, 2007 (the “Dismissal Date”), we advised Ronald R. Chadwick, P.C.
(the “Former Auditor”) that it was dismissed as the Company’s independent
registered public accounting firm.  The decision to dismiss the Former
Auditor as the Company’s independent registered public accounting firm was
approved by the Company’s Board of Directors on December 27,
2007.  Except as noted in the paragraph immediately below, the reports
of the Former Auditor on the Company’s consolidated financial statements for the
years ended August 31, 2007 and 2006 did not contain an adverse opinion or
disclaimer of opinion, and such reports were not qualified or modified as to
uncertainty, audit scope, or accounting principle.





The
reports of the Former Auditor on the Company’s consolidated financial statements
as of and for the years ended August 31, 2007 and 2006 contained an explanatory
paragraph which noted that there was substantial doubt as to the Company’s
ability to continue as a going concern as the Company had limited sources of
revenue and operations.




27





During
the years ended August 31, 2007 and 2006, and through the Dismissal Date, the
Company has not had any disagreements with the Former Auditor on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the Former Auditor’s
satisfaction, would have caused them to make reference thereto in their reports
on the Company’s consolidated financial statements for such years.





During
the years ended August  31, 2007 and 2006, and through the Dismissal Date,
there were no reportable events, as defined in Item 304(a)(1)(v) of
Regulation S-K.





New
independent registered public accounting firm





On
December 27, 2007 (the “Engagement Date”), the Company engaged BOBBITT PITTENGER
& CO. (“New Auditor”) as its independent registered public accounting firm
for the Company’s fiscal year ended July 31, 2009. The decision to engage the
New Auditor as the Company’s independent registered public accounting firm was
approved by the Company’s Board of Directors.




During
the two most recent fiscal years and through the Engagement Date, the Company
has not consulted with the New Auditor regarding either:





1.
            the
      application of accounting principles to any specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on the Company’s financial statements, and neither a written report was
      provided to the Company nor oral advice was provided that the New Auditor
      concluded was an important factor considered by the Company in reaching a
      decision as to the accounting, auditing or financial reporting issue;
      or





2.
            any
      matter that was either subject of disagreement or event, as defined in
      Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to
      Item 304 of Regulation S-B, or a reportable event, as that term is
      explained in Item 304(a)(1)(iv)(A) of Regulation
  S-B.





ITEM
9A - CONTROLS AND PROCEDURES





Not
applicable.





ITEM
9A(T) - CONTROLS AND PROCEDURES





Under the
supervision and with the participation of management, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as
of the end of the period covered by this by this Annual Report on Form 10-K for
the year ended July 31, 2009. Based upon that evaluation, the  Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this Annual Report on Form 10-K, our disclosure controls
and procedures were not effective,because certain deficiencies
in internal controls constituted material weaknesses as discussed below. The
material weaknesses identified did not result in the restatement of any
previously reported financial statements or any other related financial
disclosure, nor does management believe that it had any effect on the accuracy
of the Company's financial statements for the current reporting
period.





Management
Annual Report on Internal Control over Financial Reporting





The
financial statements, financial analyses and all other information included in
this Annual Report on Form 10-K was prepared by the Company's management, which
is responsible for establishing and maintaining adequate internal control over
financial reporting.





The
Company's internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  The Company's internal control
over financial reporting includes those policies and procedures
that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





28


·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and





·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition and use or disposition of the Company's assets
      that could have a material effect on the Company's financial
      statements.





There are
inherent limitations in the effectiveness of any internal control, including the
possibility of human error and the circumvention or overriding of controls.
 Accordingly, even effective internal controls can provide only reasonable
assurances with respect to financial statement preparation.  Furthermore,
due to changes in conditions, the effectiveness of internal controls may vary
over time.




Our
Company, conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework(1992) and Internal Control Over Financial
Reporting – Guidance for Smaller Public Companies(2006), issued by the
Committee of Sponsoring Organizations of the Treadway Commission.  Based on
this evaluation, the Company's management concluded that there are certain
material weaknesses in our internal control over financial reporting as of July
31, 2009.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company's annual or
interim financial statements will not be prevented or detected on a timely
basis.





The
material weaknesses identified are as follows:





We lack
segregation of duties in the period-end financial reporting process.  The
Company has historically had limited accounting and minimal operating revenue
and, as such, all accounting and financial reporting operations have been and
are currently performed by one individual.  The party that performs the
accounting and financial reporting operations is the only individual with any
significant knowledge of generally accepted accounting principles.  The
person is also in charge of the general ledger (including the preparation of
routine and non-routine journal entries and journal entries involving accounting
estimates), the preparation of accounting reconciliations, the selection of
accounting principles, and the preparation of interim and annual financial
statements (including report combinations, consolidation entries and footnote
disclosures) in accordance with generally accepted accounting principles. 
In addition, the lack of additional staff with significant knowledge of
generally accepted accounting principles has resulted in ineffective oversight
and monitoring.





This
Annual Report on Form 10-K does not include an attestation report of the
Company’s independent registered public accounting firm regarding internal
control over financial reporting.  Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.





Changes
in Internal Control over Financial Reporting





There has
been no change in the Company’s internal control over financial reporting during
fiscal year 2009 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




ITEM
9B - Other Information





None.





29





PART III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.




The
following are the names and certain other information regarding or current
directors and executive officers.





Name
            
            Age
            
            PositionCarl
      .  Carl Smith, III
            
            40
            
            Director,
      Chairman of the Board and Chief Executive OfficerRobert
      Fugerer
            
            50
            
            President,
      Chief Technology Officer and DirectorMattheMatthew
      Veal
            
            50
            
            Chief
      Financial Officer, Controller and
Secretary




Pursuant
to our Bylaws, our directors are elected at our annual meeting of stockholders
and each director holds office until his or her successor is elected and
qualified. Officers are elected by our Board of Directors and hold office until
an officer’s successor has been duly appointed and qualified unless an officer
sooner dies, resigns or is removed by the Board. There are no family
relationships among any of our directors and executive officers.




BACKGROUND
OF DIRECTORS AND EXECUTIVE OFFICERS




CARL L. SMITH, III, DIRECTOR,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. Mr. Smith is the
founder of our business. Prior to 2005, Mr. Smith founded and was a
principal of Research Capital, a venture capital firm located in Sarasota,
Florida. Mr. Smith attended Appalachian State University in Boone, North
Carolina.




BOB FUGERER, PRESIDENT, CHIEF
TECHNOLOGY OFFICER & DIRECTOR. Mr. Fugerer has been a
member of our Board of Directors since April 2006. Prior to 2006 Mr.
Fugerer served as principal engineer for electro-optical and signal
processing technologies at the Arnold Engineering and
Development Center in Tullahoma Tennessee and then Senior Applications
Engineer for Arrow Electronics in Tampa Florida. Mr. Fugerer has a Bachelor
degree in Engineering Science from Lipscomb University and Bachelor degree in
Electrical Engineering from Vanderbilt University where he graduated Summa Cum
Laude. Mr. Fugerer also has a Master of Science in Electrical Engineering
from the University of Tennessee and Master of Science in Engineering Management
from the University of Alabama.




MATTHEW VEAL, CHIEF FINANCIAL
OFFICER, CONTROLLER, AND SECRETARY. Mr. Veal has been our Chief
Financial and Accounting Officer, Controller and Secretary since the inception
of the Company. From 2004 until present, served on the board and is the former
CFO (2004 to 2006) for Global Water Technologies, Inc. Mr. Veal graduated
from the Fisher School of Accounting at the University of Florida in
1980.





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Exchange Act of 1934 requires the
Company’s Directors and executive officers, and persons who own more than 10
percent of the Company’s common stock, to file with the SEC the initial reports
of ownership and reports of changes in ownership of common stock. Officers,
Directors and greater than 10 percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.





Specific
due dates for such reports have been established by the SEC and the Company is
required to disclose in this report any failure to file reports by such dates
during fiscal 2009. Based solely on its review of the copies of such reports
received by it, or written representations from certain reporting persons that
no Forms 5 were required for such persons, the Company believes that during the
fiscal year ended July 31, 2009, there was no failure to comply with Section
16(a) filing requirements applicable to its officers, Directors and ten percent
stockholders.




30




COMMITTEES
OF THE BOARD





Audit
Committee





We do not
have an Audit Committee, as our board of directors during 2009 performed the
same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. We do not currently have a written
audit committee charter or similar document.





Nominating
Committee





We do not
have a Nominating Committee or Nominating Committee Charter. Our board of
directors performed some of the functions associated with a Nominating
Committee. We have elected not to have a Nominating Committee at this time,
however, our Board of Directors intend to continually evaluate the need for a
Nominating Committee.




Compensation
Committee





We
currently do not have a compensation committee of the board of directors. Until
a formal committee is established, if at all, our entire board of directors will
review all forms of compensation provided to our executive officers, directors,
consultants and employees including stock compensation and loans.




Advisory
Board




Our board
also has established a separate advisory committee to assist management. Below
is a list of the members and backgrounds of the Committee. Each of the advisors
also performs services for the Company.




Spencer Abraham Consultant
& Chairman – Business Advisory Board




Spencer Abraham is Chairman
and CEO of The Abraham Group, an international strategic consulting firm based
in Washington, DC. After being nominated by President-elect George W. Bush,
Spencer Abraham was sworn in as the tenth Secretary of Energy in United States
history on January 20, 2001. He began his tenure in the midst of a severe energy
crisis that included the California blackouts, declining domestic energy
supplies and insufficient international energy trade opportunities. In response,
he helped President Bush devise America's first national energy plan in over a
decade and oversaw its implementation. As part of this plan, he led efforts to
broaden America's international energy partnerships, working with China, Japan,
Russia, the E.U., countries in South America and Africa and certain OPEC
nations. Secretary Abraham has been a close observer of world energy markets,
and under his leadership the Department of Energy conducted a number of short
and long-term studies of world oil, gas, electricity and other markets. Prior to
being named Secretary of Energy, Abraham served as a U.S. Senator from Michigan
for six years, where he was the author of 22 pieces of legislation signed into
law - an  accomplishment for a freshman senator.  He
authored three particularly ground-breaking pieces of technology legislation:
the Electronic Signature in Global and National Commerce Act, the Government
Paperwork and Elimination Act, and the Anti-Cybersquatting Consumer Protection
Act. He also chaired two subcommittees: Manufacturing and Competitiveness and
Immigration.




Abraham is also a
Distinguished Visiting Fellow at the Hoover Institution, and a periodic
contributor of op-ed articles to the Financial Times, The Wall Street Journal,
The Washington Post, The Weekly Standard and other publications as well as
frequently appears as a guest commentator on CNN, CNBC, Bloomberg, Fox News and
Fox Business. Spencer Abraham and his wife, Jane, are the parents of three
children. He holds a law degree from Harvard University, where he co-founded the
Federalist Society, and is a native of East Lansing,
Michigan.




Dr. Siva
Sivananthan / EPIR Technologies




Dr.
Sivananthan is President of EPIR Technologies, Distinguished Professor of
Physics at the University of Illinois at Chicago (UIC), adjunct professor of
electrical and computer engineering at UIC, and Director of the Microphysics
Laboratory at UIC. Dr. Sivananthan has pioneered the MBE growth and
characterization of II-VI narrow and wide gap semiconductors, hetero- and
homo-structures, and multiple quantum well structures on CdZnTe, GaAs and
Si.




Dr. Siva
has more than 25 years experience in MBE growth kinematics, giving him a clear
understanding of transport and structural properties, encapsulation, interface
formation and of quantum well structures. He is also an organizer of several
national and international conferences. He is the author of more than 200
refereed journal articles and numerous presentations, including several invited
papers. As the founder of EPIR Technologies, he has established business
relations and related specific defense requirements into business opportunities,
leveraged partnerships between industry and government laboratories, and
formulated processes to transfer R&D into a profitable product
model.




31




Ken
Juster - Consultant




Juster
has over 27 years of experience in government, law, business, and international
affairs. He currently serves on the President’s Advisory Committee for Trade
Policy and Negotiations and has served since 2005 as the Executive Vice
President for Law, Policy and Corporate Strategy for Salesforce.com. He
previously served as U.S. Under Secretary of Commerce from 2001-2005, in charge
of the Bureau of Industry and Security. In that capacity, Juster oversaw issues
at the intersection of business and national security, including strategic trade
controls, imports and foreign investments that affect U.S. security, enforcement
of anti-boycott laws, and industry compliance with international arms control
agreements. He also founded and served as the U.S. Chair of the U.S.-India High
Technology Cooperation Group, and was one of the key architects of the Next
Steps in Strategic Partnership initiative between the United States and India.
In addition, he was responsible for negotiating and signing the End-Use Visit
Understanding between the United States and China that facilitated increased
exports of U.S. high technology to China. Upon completion of his term at the
Commerce Department, Juster received the Secretary of Commerce’s William C.
Redfield Award and Medal, the Commerce Department’s highest honor.




Juster
also served as the Counselor (Acting) of the U.S. Department of State from
1992-1993, and as the Deputy and Senior Adviser to Deputy Secretary of State
Lawrence S. Eagleburger from 1989-1992. He was one of the key U.S. government
officials involved in establishing and managing U.S. assistance programs to
Central and Eastern Europe and the former Soviet Union. He also was actively
involved in policy matters relating to China, Japan, Latin America, Israel, and
the Persian Gulf. Upon completion of his tenure at the State Department, Juster
received the Secretary of State’s Distinguished Service Award and Medal, the
State Department’s highest honor.




From
1981-1989 and 1993-2001, Juster practiced law at the firm of Arnold &
Porter, where he became a senior partner and his work involved international
arbitration and litigation, corporate counseling, regulatory matters, and
international trade and transactions. Juster also served as a law clerk in
1980-1981 to Judge James L. Oakes of the U.S. Court of Appeals for the Second
Circuit, and worked at the National Security Council in 1978.




Among the
awards that Juster has received are the Officer’s Cross of the Order of Merit in
2006 from the President of the Federal Republic of Germany (for contributions to
U.S.-German relations); the Vasco Núñez de Balboa en el Grado de Gran Cruz
Decoration and Medal in 2004 from the President of Panama (for contributions to
U.S.-Panama relations); the 2004 Blackwill Award from the U.S.-India Business
Council (for contributions to U.S.-India relations); and the 2002 and 2004
Friendship Awards from the U.S.-Panama Business Council (for contributions to
U.S.-Panama relations). Juster also has published extensively on international
economic and legal issues, including Making Economic Policy: An Assessment of
the National Economic Council (Brookings Institution, 1997) and “The Myth of
Iraqgate” in Foreign Policy magazine (Spring 1994).




Juster
holds a law degree from the Harvard Law School, a Master’s degree in public
policy from the John F. Kennedy School of Government at Harvard, and a Bachelor
of Arts degree in government (Phi Beta Kappa) from Harvard College. He is a
graduate of Scarsdale High School, where he was named in 2007 as one of its
Distinguished Alumni. He is a member of the Council on Foreign Relations, where
he was a Visiting Fellow in 1993. He is a former AFS Exchange Student to
Thailand (1971).




Fernando
Cuza - Consultant




Fernando
Cuza began his career as a sports agent in 1984 and played an integral part in
the negotiations of some of the largest contracts in Major League Baseball
history. He has worked and traveled in Latin America for 20 years representing
some of the highest profile baseball players from Mexico, the Dominican
Republic, Puerto Rico, Panama and Venezuela. His extensive experience and
language fluency with the numerous cultures has resulted in the establishment of
a network which has had a measurable benefit to players. His work with some of
the largest Latin corporations and advertising agencies has resulted in the
establishment of significant promotional income opportunities for players in
their native countries. Cuza attended Wittenberg University in Springfield, Ohio
and received a bachelor’s degree in business administration from Florida State
University in Tallahassee, Fla. He lives in Sarasota with his wife and four
children.




Don Sipes
- Consultant




Don Sipes
joined Sunovia Energy Technologies, Inc. in July of 2006 as a lead consultant
for the evaluation, development, and deployment of renewable energy strategies
with a focus on solar energy, primarily in the area of photovoltaic systems.
Sipes was appointed to the Board of Advisors in February of 2007 where he
accepted the role of Director of Research and Development. Sipes is instrumental
in identifying key requirements within the solar industry that must be addressed
to capitalize on the growing market potential, then orchestrating the
appropriate research and development efforts necessary to meet those
requirements. Currently, Sipes plays a key role on the technology development
board that guides the SETI/EPIR partnership to advance the state-of-the-art in
photovoltaic technology and associated systems.




Since
2005, Sipes has served as President and CEO of Optical Engines Inc, a startup
company providing laser system consulting and the development of high-powered,
fiber-coupled laser diodes and fiber laser systems, primarily for the Department
of Defense. Sipes also served as vice president, research and development of
Amoco Laser for 10 years where his inventions in the area of highly efficient
lasers formed the foundation of the company and its business. After
Scientific-Atlanta Inc. purchased Amoco Laser, Sipes assumed the role of vice
president, technology and remained in that position for more than 10 years. In
this role he had numerous executive responsibilities including the oversight of
more than 200 engineers and budgets of more than $50 million annually. Sipes’
technical leadership led to securing the development of the Verizon FIOS network
by his company.




32




Sipes
attended the University of California-Berkeley where he completed a bachelor’s
degree in physics and applied mathematics. After attending graduate courses in
electrical engineering at the University of Southern California, Sipes moved to
the University of Illinois-Chicago where he completed a master’s degree in
business administration with an emphasis on finance and quality systems. He is
married with 4 children.




R. Craig
Hall - Business Advisor




As a
business advisor, Hall provides valuable support in several areas such
as investor relations and communication, corporate fund raising, and
business development that includes planning, proposals and marketing
strategies.




Prior to
working with Sunovia, Hall was co-founder and president of Research Capital
Partners, a Florida-based venture capital firm that specialized in funding
early-stage biotechnology companies. Research Capital Partners helped to build
several life science companies which are developing new products and treatments
that continue to serve the medical and forensic markets.




Hall
served as the head of bond-trading at RBC Centura, and as the head of
mortgage-backed bond trading at Wachovia Securities while marketing to a retail
sales force of over 500 financial advisors. While working in fixed income, Hall
focused in the area of security valuation and financial analysis. Hall is a
certified financial planner, and has shared his knowledge by working as a
part-time instructor at local community colleges in the areas of economics,
entrepreneurship and finance. He has also completed Part 1 of his Chartered
Financial Analyst designation. Hall graduated from the University of North
Carolina at Chapel Hill with a bachelor’s degree in economics in
1992.




Rick
Kauffman - Kauffman Consulting




As chief
manager of Kauffman Consulting, Rick Kauffman handles product and market
development primarily for original equipment manufacturers (OEMs). Kauffman
Consulting specializes in rapid product development, offering services such as
concept development, solid (3-D) modeling, prototyping, finite element analysis
(FEA), drawing generation, technical support, testing, sourcing, manufacturing
engineering, and market introduction.





Kauffman
consulting has more than 75 combined years of lighting design experience and
works exclusively with Sunovia for the development of LED lighting products. As
leaders in roadway lighting for the past 20 years, Kauffman consulting is more
than qualified to lead Sunovia’s efforts in the creation of next generation
roadway lighting that not only places light on the road, but is in compliance
with the latest in roadway standards and recommendations.  Kauffman
Consulting is a critical component in Sunovia’s drive to become an industry
leader in advanced LED based lighting products.





From
1988-2002, Kauffman was with American Electric Lighting (now part of Holophane)
and most recently served as director of product and market development. In this
role, he was responsible for product management, product marketing, engineering
and test labs for indoor and outdoor HID lighting and controls for the
commercial, industrial, utility and infrastructure markets. Additionally,
Kauffman developed annual sales plans, expense and capital budgets, product
development strategies and marketing and training programs; provided technical
sales support; and developed a strategy for securing incremental sales to
investor owned utilities. In addition to the development of new products,
Kauffman implemented more than $1 million in cost reductions annually and
initiated a Continuous Improvement Program for the engineering and manufacturing
teams.





Prior to
his work at American Electric Lighting, Kauffman was manager of development
engineering for Litton Microwave. There, he managed a group of engineers
responsible for product development of commercial and international consumer
microwave ovens, including the first microwave oven with a dedicated popcorn
popping feature. He managed international licensees and contracts for customers
such as Mars, Inc., Life Blood, and the U.S. Government. Additionally, Kauffman
has served as senior manufacturing engineer at Sunbeam Appliance Co., project
engineer for Spaulding Composites and manufacturing engineer for Emerson
Electric Co.





Kauffman
is a member of the Illuminating Engineering Society of North America (IESNA),
where he serves on the Roadway Lighting Committee, Industrial Lighting
committee, Security Lighting Committee, the Street and Area Lighting Committee
and the Medal Committee, and as chairman of the Standard Practice Sub-Committee,
Industrial Lighting Committee, and the Light Control and Luminaire Design
Committee. He is also a member of the American National Standards Institute
(ANSI), where he serves on the Roadway and Area Lighting Committee. He has had
more than 10 patents issued and received several design awards.





Kauffman
holds a Bachelor of Science degree in mechanical engineering from Memphis State
University and a Master of Science degree in mechanical engineering from
Vanderbilt University.




33




FAMILY
RELATIONSHIPS




There are
no family relationships between any of our directors or executive
officers.




INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS




Other
than as discussed herein, none of our directors, executive officers, promoters
or control persons have been involved in any of the following events during the
past five years:




1. any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;




2. any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offences);




3. being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or




4. being
found by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.




Code
of Conduct





We have
adopted a written code of conduct that governs all of our officers, directors,
employees and contractors. The code of conduct relates to written standards that
are reasonably designed to deter wrongdoing and to promote:





·
              Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;·
              Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the Commission and in
      other public communications made by an issuer;·
              Compliance
      with applicable governmental laws, rules and
  regulations;·
              The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code; and
              ·
              Accountability
      for adherence to the code.




AUDIT
COMMITTEE FINANCIAL EXPERT





We do not
have an Audit Committee, as our board of directors during 2009 performed the
same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. We do not currently have a written
audit committee charter or similar document.  As the Company does not
have an Audit Committee, it does not have an Audit Committee Financial
Expert.


We
believe that the members of our board of directors are collectively capable of
analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. In addition, we believe that
retaining an independent director who would qualify as an “audit committee
financial expert” would be overly costly and burdensome and is not yet cost
effective for the Company.




34





ITEM
11. EXECUTIVE COMPENSATION.




The
following table sets forth information concerning the total compensation that we
have paid or that has accrued on behalf of our chief executive officer and our
other executive officers during the fiscal years ended July 31, 2009 and
2008.





Name
      and
              principal position
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
              Awards
              ($)
            Option
      Awards
              ($)
            Non-Equity
      Incentive Plan
              Compensation
              ($)
            Nonqualified
      Deferred
              Compensation
      Earnings
              ($)
            All
      Other
              Compensation
              ($)
            Total
              ($)Carl
      Smith
            2008
            $0
            
            
            897,637
            0
            0
            0
            $11,369
            $909,0062009
            $0
            
            
            -0-
            0
            0
            0
            0
            $0Robert
      Fugerer
            2008
            $150,000
            
            
            506,978
            0
            0
            0
            $10,921
            $667,8992009
            $150,000
            
            
            
            0
            0
            0
            0
            $150,000Matthew
      Veal
            2008
            $100,000
            
            
            201,346
            0
            0
            0
            $10,298
            $311,6442009
            $100,000
            
            
            
            0
            0
            0
            
            $100,000Craig
      Hall
            2008
            $0
            
            
            897,637
            0
            0
            0
            $11,369
            $909,0062009
            $0
            
            
            -0-
            0
            0
            0
            0
            $0Donna
      Webb
            2008
            $43,333
            
            
            365,000
            0
            0
            0
            0
            $373,2542009
            $104,000
            
            
            0
            0
            0
            0
            0
            $104,000




Below is
information concerning unexercised options; stock that has not vested; and
equity incentive plan awards for each named executive officer outstanding as of
the end of the registrant's last completed fiscal year:




OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of Securities Underlying Unexercised Options
              (#)
              Exercisable
            Number
      of Securities Underlying Unexercised Options
              (#)
              Unexercisable
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
              (#)
            Option
      Exercise Price
              ($)
            Option
      Expiration Date
            Number
      of Shares or Units of Stock That Have Not Vested
              (#)
            Market
      Value of Shares or Units of Stock That Have Not Vested
              ($)
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested
              (#)
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested
              (#)


PEO
              CarlSmith
            -0-
            -0-
            -0-
            -0-
            -0-
            n/a
            -0-
            -0-
            -0-PFO.
              MatthewVeal
            -0-
            -0-
            488,060
            488,060
            .62
            5/1/2013
            488,060
            -0-
            -0-President
              RobertFugerer
            -0-
            -0-
            -0-
            -0-
            -0-
            n/a
            -0-
            -0-
            -0-Donna
      Webb
            -0-
            -0-
            488,060
            488,060
            .62
            5/1/2013
            488,060
            -0-
            -0-CraigHall
            -0-
            -0-
            -0-
            -0-
            -0-
            n/a
            -0-
            -0-
            -0-




Below is
the information concerning each exercise of stock options, SARs and similar
instruments, and each vesting of stock, including restricted stock, restricted
stock units and similar instruments, during the last completed fiscal year for
each of the named executive officers on an aggregated basis:




OPTION
      EXERCISES AND STOCK VESTEDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of
              Shares
              Acquired
              on
      Exercise
              (#)
            Value
              Realized
              on
              Exercise
              ($)
            Number
      of
              Shares
              Acquired
              on
              Vesting
              (#)
            Value
              Realized
              on
              Vesting
              ($)PEO
              CarlSmith
            -0-
            -0-
            -0-
            -0-PFO.
              MatthewVeal
            -0-
            -0-
            -0-
            -0-President
              RobertFugerer
            -0-
            -0-
            -0-
            -0-Donna
      Webb
            -0-
            -0-
            -0-
            -0-CraigHall
            -0-
            -0-
            -0-
            -0-




DIRECTORS
COMPENSATION




The
Company has agreed to compensate outside directors 30,000 shares per year of
service plus expenses for service on the board of directors, although it
currently has no such directors.





35





Limitation of Liability of
Directors





Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.





Election
of Directors and Officers.





Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.





No
Executive Officer or Director has been the subject of any order, judgment, or
decree of any Court of competent jurisdiction, or any regulatory agency
permanently or temporarily enjoining, barring suspending or otherwise limiting
him from acting as an investment advisor, underwriter, broker or dealer in the
securities industry, or as an affiliated person, director or employee of an
investment company, bank, savings and loan association, or insurance company or
from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any
securities.





No
Executive Officer or Director has been convicted in any criminal proceeding
(excluding traffic violations) or is the subject of a criminal proceeding which
is currently pending.





No
Executive Officer or Director is the subject of any pending legal
proceedings.





Compensation
Discussion and Analysis





Currently,
the Company’s philosophy is to align compensation with its short-term and
long-term goals: short term - development of products, sales, and generating
positive cash flow, and providing expertise to develop long-term development of
markets for the Company to pursue. Our plan was determined by a combination of
upper management, finance and operations departments, based on research
available from NCEO (the National Center for Employee Ownership) and other
research management is familiar with. The current plan has the flexibility to be
changed as the needs of the Company and the circumstances surrounding it change.
The Company has designed its compensation structure to provided its core people
base compensation to insure they maintain (but not necessarily upgrade) the
lifestyle each has built from past business successes and supplement that
compensation with equity compensation that statistics demonstrate a result of
both an increase in productivity and stock price increases over companies that
do not provide equity compensation. Our CEO currently is not paid any
compensation. We have provided compensation in stock and options to ensure that
all of our employees and consultants are rewarded if and when our shareholders
are rewarded; this is the fundamental basis of our plan, rather than using an
estimate before (or after) the services have been provided to match to the
compensation. We feel this is appropriate due to the fact we are in the
development stage. Certain consultants have elected to be paid in shares
only.





We do not
work from any formula other than the statistics we have researched from the
NCEO. We changed from predominately stock grants to predominately stock options
as opposed to other forms of equity ownership due to simplicity, particularly in
the tax area. Individual awards were based on the importance of the type of work
performed to the Company’s overall goals. In sales, we have provided for sales
performance bonus in equity compensation (as well as sales commissions), but all
other awards were based on time of service, which we find to be consistent with
survey data we looked at. We did not use a separate plan based on type of
employee (management vs. employee) as we are small and wished to limit the
distinctions among personnel. We have a general goal of having 15% percent of
the ownership of the Company in the hands of our employees. In comparison to
NCEO survey data we do not find this to be excessive in comparison with other
companies that have employee ownership plans. We have awarded options with lives
of 3 to 5 years to provide longer term horizons for those who have received
options, but other than vesting based on service years we do not have any
long-term conditions in our compensation structure.





We
provide benefits in the form of contributions to 401(k) matched by the Company
as the only form of retirement plan we offer.  We pay a portion of health
insurance for our employees. We use annual, quarterly and milestone-based (where
specific, clear goals are targeted vesting based on management’s best judgment
as to what is appropriate). We have used signing bonuses in stock in the days
before we were public to attract employees and consultants but have discontinued
the practice.  We do have a change in control protection at the CEO level
only, and all of our contracts have provisions where the contract can be
discontinued for any reason.




36





We record
expense from equity compensation using either market prices of stock, or a
calculation using Black Sholes using high volatilities estimated by one of our
business advisors who has considerable expertise in his career trading options
using Black Sholes and other valuation techniques. Tax-wise, we have reviewed
our program for compliance with IRS section 409A. Where possible we have elected
to provide employees with incentive stock options that provide tax advantages to
employees as opposed to strategies that offer greater tax benefits to the
Company. This is because we have yet to generate taxable income so that there
would be significant tax benefits. We recognize that we may need to modify this
compensation structure in the future and have provisions in each employment
contract that acknowledge and provide for an ordinary transition for
modifications in the future.





We may
elect to award a cash bonus to key employees, directors, officers and
consultants based on meeting individual and corporate planned objectives. We
currently have written employment agreements with our officers, and the
following shows additional information, including the annual salaries, bonuses
and stock awards for our officers and executives.





LONG-TERM
INCENTIVE PLANS




Other
than the Company’s 401(k) plan which is available to all employees, prior to May
1, 2008, there were no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers, except that
our employees, directors and executive officers did receive stock compensation
at the discretion of our board of directors.




On May 1,
2008, the Company adopted the 2008 Incentive Stock Plan (“the plan”) designed to
retain directors, employees, executives and consultants and reward them for
making major contributions to the success of the Company. The foregoing is a
summary of the agreement and does not purport to be all of the
agreement:




The plan
is administered by the board of directors. The plan did not have any individual
caps other than the limitation of granting incentive stock options to employees,
the exercise of more than $100,000 per year in fair market value of stock per
year. The plan permits the grant of restricted stock and nonstatutory options to
participants where appropriate. The maximum number of shares under the plan is
30,000,000. The plan shall terminate ten years from the date it was adopted. The
board of directors may, as permitted by law, modify the terms of any grants
under the agreement, and also amend, suspend, or extend the plan
itself.




Key
terms associated with participants leaving the Company include:




Termination
other than good cause: The right of exercise for vested options for a period not
less than 30 days or more than three months.




Termination
for good cause: Surrender of all unvested options




Disability
permits the exercise of vested options for a period not less than three months
or more than six months.




Death
permits the exercise of vested options for a period not less than six months or
more than a year.




Retirement
permits exercise in accordance with the terms of the option.




In each
case, if the option expires before the end of the above indicated period, the
options shall not be extended. Options cannot be transferred without the consent
of the board of directors. Cashless exercise is permitted. Individual grants are
made by the board.




We
do not have any material bonus or profit sharing plans pursuant to which cash or
non-cash compensation is or may be paid to our directors or executive officers,
except that stock compensation may be granted at the discretion of our board of
directors.




37




We have
no plans or arrangements in respect of remuneration received or that may be
received by our executive officers to compensate such officers in the event of
termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $60,000 per executive officer except we
have entered into a Change of Control Severance Agreement with Mr. Smith,
dated as of December 21, 2005. Pursuant to this agreement, in the event of
a change of control as defined in the agreement, we may terminate
Mr. Smith’s employment with us. In the event that we terminate
Mr. Smith’s employment with us other than for cause (as defined in the
agreement), or as the result of his death or disability, then we must pay
Mr. Smith the sum of his annual base salary (at the highest rate in effect
for any period within three years prior to the Termination Date) plus any annual
bonus, incentive, profit sharing, performance discretionary pay (in an amount
equal to the product of the target award percentage under the applicable
Incentive Pay plan or program in effect immediately prior to the Change of
Control). For 12 months following his termination with us, Mr. Smith will
also be entitled to receive any employee benefits that are provided under any
“welfare plan” (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) of the Company.
Mr. Smith will also be entitled to receive reimbursement for relocation
expenses on a basis consistent with our practices; provided he was relocated at
our request within five years of his termination date. However, other than
health insurance, Mr. Smith did not receive any remuneration of any kind under
his employment plan from May 2008 to November 2009. At the option of
Mr. Smith, in the event of a change of control, subject to a maximum of
500,000,000 shares, Craca LLC, a Florid LLC of which Mr. Smith is a Principal
shall be granted voting rights on such number of common shares that would result
in his having a voting majority of shares needed for any shareholder meeting as
governed by our bylaws.





EMPLOYMENT
AGREEMENTS




In June
2006, we originally entered into a one-year employment agreement with Carl L.
Smith, our Chief Executive Officer. Under the employment agreement
Mr. Smith receives a base salary of two million shares of common stock per
year. The agreement provides that Mr. Smith will be entitled to receive up
to two million shares of common stock for each year of service beginning June,
2007. The agreement was renewed until May, 2008. The agreement grants the same
benefits as our other executives but no cash remuneration. Mr. Smith signed a
new agreement in Amy 2008, which had no compensation outside of health insurance
for Mr. Smith and his family. In November, 2009, Mr. Smith signed a new
agreement with the company that compensates him 2,000,000 restricted common
shares per year.





The
Company granted to Mr. Carl L. Smith, our Chief Executive Officer,
additional voting rights (by eliminating the exercise price and exercise
restrictions on up to 500,000,000 options in the name of Craca, LLC, a Florida
LLC which Mr. Smith is a principal).  so that in the event that an
outside party were to acquire 20% or more of the Company and attempt a change in
control, Mr. Smith would have the right to vote  be granted enough
additional shares so that he would have a voting majority (providing that the
Company has sufficient shares of unissued common stock to do so) in any
shareholders’ meeting, thus effectively, giving Mr. Smith veto power over
any takeover attempt.  Under the voting rights that Mr. Smith holds, the
shares would be granted to Mr. Smith without further consideration.  In
addition to these voting rights, Mr. Smith holds 65,665,408 shares and
500,000,000 options (in the name of Craca, LLC, a Florida LLC which Mr. Smith is
a principal) at an exercise price of 10 cents.





On May 1,
2008, we entered into a new five year contract with Mr. Smith, including
extensions, whereby Mr. Smith would continue as the Company’s CEO without
additional compensation other than his health insurance benefit. In November,
2009, we signed a new agreement with Mr. Smith that provides annual compensation
of 2,000,000 shares in common stock.


.


Effective
July 2006 we entered into a one-year employment agreement with Robert H.
Fugerer, our President. Under a revised employment agreement we granted
Mr. Fugerer two million three hundred fifty thousand shares initially and
500,000 shares for each quarter of service. The agreement is automatically
renewable each year and is subject to conditional vesting based on the
completion of each year service and can be renegotiated or terminated by either
party with 60 days notice. The agreement granted Mr. Fugerer who became
president in January 2007 the same benefits as our other executives, cash
remuneration of $150,000 per year and a one-time payment of $60,000. On May 1,
2009, we entered into a new five-year contract with Mr. Fugerer, including
extensions, whereby Mr. Fugerer would continue as the Company’s President for a
base salary of $150,000 per year, health insurance and 401k benefits, but no
other compensation.




On
May 29, 2006, we entered into a one-year employment agreement with Matthew
A. Veal, Secretary, Controller and our Chief Accounting Officer. Under the
agreement, the Company granted Mr. Veal stock of one million shares for
each year of service after his initial year of employment in addition to his
2,000,000 founding shares. In the event that Mr. Veal did not complete his
initial year of service, he was required to return 1,000,000 shares to the
Company (however, Mr. Veal did complete his year of service). The agreement
is automatically renewable each year and is subject to conditional vesting based
on the completion of each year service and can be renegotiated or terminated by
either party with 60 days notice. In May, 2008, Mr. veal signed a new agreement
to serve as Chief Financial Officer which grants Mr. Veal the same benefits
as other executives of the Company, and an annual salary of $100,000 per
year, health insurance and 401k
benefits, and 488,060 stock options exercisable at $.62.




The
following is a summary of the termination provisions of all current Employment
contracts:




Company
may terminate any executive or employee for any reason at any time. However, as
discussed earlier, Mr. Smith, our CEO does retain a number of rights in the
event of a change in control that would result in his termination (see above for
a description of those rights)




38




Executives
shall not own, manage, operate, control, or have any 5% or more financial
interest in any competitive business or engage for w two year period after they
leave the company.





For a
one-year period after they leave the Company Executive or employee may not
attempt to employ any employee, consultant, agent, or representative of the
Company or its affiliates for any reason or solicit directly any customer of the
Company.




Executives
or employees shall be subject to Nondisclosure Agreement that extends two years
after their full term after employment ceases.


Executives
or employees must notify the Company of any discoveries made while under the
company’s employment.





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.




SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
following table sets forth certain information, as of October 19, 2009 with
respect to the beneficial ownership of the outstanding common stock by
(i) any holder of more than five (5%) percent; (ii) each of our
executive officers and directors; and (iii) our directors and executive
officers as a group.





The following table sets forth certain
information regarding beneficial ownership of our common stock as of November 9,
2009:





·
        by each person who is known by us to beneficially own more
      than 5% of our common stock;·
        by each of our officers and directors;
  and


·
        by all of our officers and directors as a group.





Except as
otherwise indicated, each of the stockholders listed below has sole voting and
investment power over the shares beneficially owned.


NAME
      AND ADDRESS OF BENEFICIAL OWNER
            TITLE
      OF CLASS
            NUMBER
      OF SHARES OWNED (1)
            PERCENTAGE
      OF CLASS (2)Robert
      Fugerer**
              6408
      Parkland Drive, Suite 104
              Sarasota,
      Florida 34243
            Common
      Stock
            54,495,408
            4.5%Carl
      Smith**
              6408
      Parkland Drive, Suite 104
              Sarasota,
      Florida 34243
            Common
      Stock
            565,000,409
            46.7%Matthew
      Veal**
              6408
      Parkland Drive, Suite 104
              Sarasota,
      Florida 34243
            Common
      Stock
            2,543,077
            *%All
      Officers and Directors
              As
      a Group (3 persons)
            Common
      Stock
            622,038,894
            61.3%





* Less
than 1%.


**
Executive officer and/or director.





(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of November 1, 2009 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.


(2) Based
on  666,442,882 shares of common stock issued and 544,405,974 options
currently exercisable or convertible, or exercisable or convertible within 60
days of November 11, 2009 to purchase common stock outstanding as of October 27,
2009.





Equity
Compensation Plan Information




A
            
            B
            CNumber of
      SecuritiesRemaining Available
      forNumber of
      Securities
            
            
            Future Issuance
      underto be Issued
      upon
            
            Weighted-average
            Equity
      CompensationExercise
    of
            
            Exercise Price
      of
            Plans
      (excludingOutstanding
      Options,
            
            Outstanding
      Options,
            securities reflected
      inPlan Category
            Warrants and
      Rights
            
            Warrants and
      Rights
            Column
A)Equity Compensation Plans
      Approved by Security HoldersTotal-Approved
      Plans
            none
            
            N/A
            noneEquity Compensation PlansNOTApproved by Security Holders
      (5)2008
      Stock OptionPlan
      (2)
            4,880,600
            (1)
            $.62
            25,119,400Total-All
      Plans
            0
            
            $
            0




(1)
            
            The
      weighted-average exercise price does not take into account shares issuable
      upon vesting of outstanding Restricted Shares which have no exercise
      price...(2)
            
            On
      May 1, 2009, the Company adopted the plan and authorized 30 million shares
      to be reserved for issuance thereunder. All of the shares reserved for
      issuance under the 2009 Plan may be granted as stock options, or
      restricted stock.




39




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.




On
December 21, 2005, we acquired the patent rights (patent applied for) to
No. 60/617,263 Titled Substrate with Light Display, applied for on
September 2, 2005, from Sparx, Inc., a Florida corporation 100% owned by
our Chief Executive Officer. In connection with this acquisition, we paid a
royalty of 4.9% of gross sales. Sparx, Inc. had acquired the patent rights from
Carl Smith, Craig Hall, and Eric Morin. For the fiscal year ended July 31, 2009,
the Company accrued $50,000 under such agreement.





In
February, 2008, the Company agreed to finance Novakor, Inc. an entity controlled
by Carl Smith,  which entered into a research and development
agreement with Dongkuk University of Seoul, South Korea, in which Dongkuk in
turn agreed to transfer patent rights to a Zinc Oxide LED Technology that
Dongkuk held. Dongkuk performed such research and development services and
assigned intellectual property created during the course of those services to
Novakor who transferred all such rights to our company in August, 2008. The
Company paid $925,000 on behalf of the entity, to the educational institution in
the first year. If an agreement is made to extend the agreement to the second
year, the Company will pay an additional $2,000,000. If a decision is made to
extend the agreement to the third year, the Company will make a final payment of
$1,000,000. Presently, we have made no decision regarding a new agreement. In
August, 2009, all rights of this entity were transferred to the company without
remuneration of any kind to Mr. Smith.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Selection
of our Independent Registered Public Accounting Firm is made by the Board of
Directors. Bobbitt Pittenger & Co. has been selected as our Independent
Registered Public Accounting Firm for the current fiscal year. All audit and
non-audit services provided by Bobbitt Pittenger & Co. are pre-approved by
the Board of Directors which gives due consideration to the potential impact of
non-audit services on auditor independence.





In
accordance with Independent Standard Board Standards No. 1 (Independence
Discussion with Audit Committees), we received a letter and verbal communication
from Bobbitt Pittenger & Co.. that it knows of no state of facts which would
impair its status as our independent public accountants. The Board of Directors
has considered whether the non-audit services provided by Bobbitt Pittenger
& Co.. are compatible with maintaining its independence and has determined
that the nature and substance of the limited non-audit services have not
impaired Bobbitt Pittenger & Co’s status as our Independent Registered
Public Accounting Firm.





AUDIT
FEES


Our
principal accountant, Bobbitt Pittenger & Co., rendered invoices to us
during the fiscal periods indicated for the following fees and
services:





Fiscal
      year ended
            
            
            Fiscal
      year endedJuly
      31, 2008
            
            
            July
      31, 2009Audit
      fees
            
            $
            31,000
            
            
            $
            27,500Audit-related
      fees
            
            $
            22,100
            
            
            $
            16,500Tax
      fees
            
            Nil
            
            
            NilAll
      other fees
            
            Nil
            
            
            Nil





40





Audit
fees consist of fees related to professional services rendered in connection
with the audit of our annual financial statements, the review of the financial
statements included in each of our quarterly reports on Form
10-QSB.





Our
policy is to pre-approve all audit and permissible non-audit services performed
by the independent accountants.  These services may include audit services,
audit-related services, tax services and other services.  Under our audit
committee’s policy, pre-approval is generally provided for particular services
or categories of services, including planned services, project based services
and routine consultations.  In addition, we may also pre-approve particular
services on a case-by-case basis.  We approved all services that our
independent accountants provided to us in the past two fiscal
years.




ITEM
15. EXHIBITS, Financial Statement Schedules.




Exhibit
      No.
            
            Description
      of Exhibit3.1
            
            Certificate
      of Change (2)3.2
            
            Agreement
      and Plan of Merger between Acadia Resources, Inc.  and Sunovia
      Solar, Inc. (3)3.3
            
            Certificate
      of Merger between Sun Energy Solar, Inc. and Sunovia Solar, Inc.
      (3)3.4
            
            Certificate
      of Merger between Acadia Resources, Inc. And Sunovia Energy Technologies,
      Inc. (3)3.5
            
            Articles
      of Incorporation (6)3.6
            
            Bylaws
      (6)4.1
            
            Form
      of Subscription Agreement (5)10.1
            
            Royalty
      Agreement between Sun Energy Solar, assigned to the Registrant and Sparx,
      Inc., dated December 20, 2005 (3)10.2
            
            Stock
      Option Agreement between Sun Energy Solar, assigned to the Registrant and
      Carl Smith, dated December 20, 2005 (3)10.3
            
            Change
      of Control Severance Agreement between Sun Energy Solar, assigned to the
      Registrant and Carl Smith, dated December 21, 2005 (3)10.4
            
            Modification
      to Stock Option Agreement between Sun Energy Solar, assigned to the
      Registrant and Carl Smith relating to Charitable Pledge by Executive,
      dated June 29, 2006 (3)10.5
            
            Employment
      Contract between Sun Energy Solar, Inc. (now known as Sunovia Solar, Inc.)
      and Bob Fugerer, dated July 10, 2006, and addendum (3)10.6
            
            Executive
      Employment Contract between Sun Energy Solar, Inc. (now known as Sunovia
      Solar, Inc.) and Matthew Veal, dated May 29, 2006 and addendum
      (3)10.7
            
            Consulting
      Agreement between Sun Energy Solar, Inc. (to be assigned to Sunovia Energy
      Technologies, Inc.) and Ken Juster dated July 16, 2007
  (3)10.8
            
            Consulting
      Agreement between Sun Energy Solar, Inc. (now known as Sunovia Solar,
      Inc.) and Don Sipes dated July 18, 2007 (3)10.9
            
            Consulting
      Agreement between Sun Energy Solar, Inc. (now known as Sunovia Solar,
      Inc.) and Don Sipes dated July 18, 2007 (3)10.10
            
            Agreement
      between Sun Energy Solar, Inc. (now known as Sunovia Solar, Inc.) and EPIR
      Technologies dated November 1, 2007 (3)10.11
            
            Addendum
      to employment contract between the Company and Bob Fugerer, dated January
      25, 2007 (4)10.12
            
            Amended
      and Restated  Research, Development and Supply Agreement, dated
      January 24, 2008, between EPIR Technologies, Inc. Sunovia Energy
      Technologies, Inc, dated January 24, 2008 (1)10.13
            
            Stock
      Purchase Agreement between EPIR Technologies, Inc. and Sunovia Energy
      Technologies, Inc., dated January 24, 2008 (1)10.14
            
            Amended
      and Restated Consulting Agreement between Sunovia Energy Technologies,
      Inc. and Fernando Cuza dated March 17, 2008 (4)10.15
            
            Consulting
      Agreement between the Company and Pacific Coast Capital Advisors, Inc.
      dated June 10, 2008 (4)10.16
            
            Employment
      Agreement between the Company  and Robert Fugerer, dated May 1,
      2008 (4)10.17
            
            Employment
      Agreement between the Company  and Carl Smith, dated May 1, 2008
      (4)10.18
            
            Employment
      Agreement between the Company  and Matthew Veal, dated May 1,
      2008 (4)10.19
            
            Sunovia
      Energy Technologies, Inc. 2008 Incentive Stock Plan date May 1, 2008
      (4)10.20
            
            Employment
      Agreement between the Company  and Donna Webb, dated May 1, 2008
      (7)10.21
            
            Consulting
      Agreement between the Company and Rick Kauffman, dated June 6, 2008
      (7)10.22
            
            Purchase
      Agreement between the Company and Precision Lighting dated May 16, 2008
      (7)10.23
            
            Purchase
      Agreement between the Company and Beacon Products dated May 16, 2008
      (7)10.24
            
            Consulting
      Agreement between the Company and The Abraham Group, dated October 1, 2008
      (7)10.25
            
            Assignment
      Agreement Between the Company and Novakor dated August 31, 2008
      (7)10.26
            
            Amendment
      to Consulting Agreement between the Company and Kenneth I. Juster dated
      October 28, 2008 (7)10.27
            
            Consulting
      Agreement between the Company and Akaoni Management dated October 10, 2008
      (7)10.28
            
            Consulting
      Agreement between the Company and Bay Hill Partners, LLC, dated November
      4, 2008 (8)10.29
            
            Distribution
      agreement between the Company and Spectrum Brands, Inc. effective November
      18,2008 (8)10.30
            
            Common
      Stock Purchase warrant between the Company and EPIR Technologies, Inc.
      dated April 15, 2009 (10)10.31
            
            Amendment
      No. 1 to the Amended and Restated Research, Development, and Supply
      Agreement dated April 15, 2009 (10)10.32
            
            Form
      of Secured Convertible Debentures dated June 15,
  2009(11)10.33
            
            Form
      of Security Agreement dated June 15, 2009(11)10.34
            
            Form
      of Subsidiary Guarantee dated June 15, 2009 (11)10.35
            
            Form
      of  Securities Purchase Agreement dated June 15,
      2009(11)10.36
            
            Agreement
      of Principal Terms and Conditions between the Company and Parque
      Cibernertica de Santo Domingo SA dated July 7, 200910.37
            
            Form
      of Subscription Agreement dated October 13, 2009 ($.05 per
  share)10.38
            
            Form
      of Subscription Agreement dated October 15, 2009 ($.06 per
      share)10.39
            
            Form
      of Subscription Agreement dated November 9, 2009 ($.042 per
      share)10.40
            
            Form
      of Subscription Agreement dated November 9, 2009 ($.05 per
      share)10.41
            
            Form
      of Subscription Agreement dated November 9, 2009 ($.06 per
      share)10.42
            
            Form
      of Subscription Agreement dated November 12, 2009 ($.05 per
      share)10.43
            
            Employment
      Contract between the Company and Carl Smith, dated November 10,
      2009,10.44
            
            Consulting
      Agreement between the Company and R.Craig Hall dated November
      10, 200931.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a)31.2
            
            Certification
      of  Chief Financial Officer pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 193432
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to
      Securities Exchange Act Rule 13a-14(b) and 18 U.S. C. Section
      1350





(1)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange
Commission on January 30, 2008.


(2)
Incorporated by reference to the Form 8-K filed with the Securities and Exchange
Commission on December 14, 2007.


(3)
Incorporated by reference to the Form 10QSB filed with the Securities Exchange
Commission on December 21, 2007


(4)
Incorporated by reference to the Form 10QSB filed with the Securities Exchange
Commission on March 17, 2008


(5)
Incorporated by reference to the Form 8K Current Report filed with the
Securities and Exchange Commission on January 16, 2008.


(6)
Incorporated by reference to the Form SB-2 Registration Statement filed with the
Securities and Exchange Commission on January 1, 2007


(7)
Incorporated by reference to the Form 10-K Annual Report filed
with the Securities and Exchange Commission on November 14, 2008.


(8)
Incorporated by reference to the form 10-Q filed with the Securities and
Exchange Commission on December 15, 2008.


(9)
Incorporated by reference to the Form 8-K filed with the Securities Exchange
Commission on April 16, 2009








41











SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.








SUNOVIA
      ENERGY TECHNOLOGIES, INC.Date:
      November 12, 2009
            By:
            /s/ CARL
      SMITHCarl
      SmithChief
      Executive Officer (Principal Executive Officer)Date:
      November 12, 2009
            By:
            /s/ MATTHEW
      VEALMatthew
      VealChief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name
            
            Position
            
            Date/s/
      CARL SMITH
            
            Chief
      Executive Officer (Principal Executive Officer)
            
            November
      12, 2009Carl
      Smith
            
            and
      Chairman of the Board of Directors/s/
      MATTHEW VEAL
            
            Chief
      Financial Officer (Principal Financial Officer and
            
            November
      12, 2009Matthew
      Veal
            
            Principal
      Accounting Officer) and Secretary/s/
      ROBERT FUGERER
            
            President
      and Director
            
            November
      12, 2009Robert
      Fugerer






42





SUNOVIA
ENERGY TECHNOLOGIES, INC.














REPORT
ON AUDITS OF


CONSOLIDATED
FINANCIAL STATEMENTS











FOR
THE YEARS ENDED JULY 31, 2009 AND 2008





SUNOVIA
ENERGY TECHNOLOGIES, INC.

















CONTENTS




PageFINANCIAL
      STATEMENTSREPORT OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              1CONSOLIDATED BALANCE
      SHEETS
              2CONSOLIDATED
      STATEMENTS OF OPERATIONS
              3CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
              4CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              6NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS
              8

















Bobbit, Pettenger
      & Company, P.A.
              Certified Public
  Accountants




October
27, 2009




To The
Board of Directors and Stockholders


Sunovia
Energy Technologies, Inc.


Sarasota
, Florida




UREPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





We have
audited the accompanying consolidated balance sheets of Sunovia Energy
Technologies, Inc. as of July 31, 2009 and 2008, and the related consolidated
statements of operations, changes in stockholders’ equity, and cash flows for
the years then ended.  These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Sunovia Energy Technologies,
Inc. at July 31, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced losses of $14,471,361 and
$34,836,961 for the years ended July 31, 2009 and 2008, respectively. As of July
31, 2009, the Company also had a working capital deficiency of $1,745,953. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management’s plans regarding those matters also are described in Note
A. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.




/s/ Bobbit,Pittenger
& Company, P.A.


Certified
Public Accountants





Sarasota,
Florida






F -
1




SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      BALANCE SHEETSJULY
      31,2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              308,495
              
              
              $
              5,982,779Accounts
      receivable, net
              
              
              138,196
              
              
              
              40,299Prepaid
      expenses
              
              
              30,347
              
              
              
              28,801Inventory
              
              
              234,551
              
              
              
              351,265TOTAL
      CURRENT ASSETS
              
              
              711,589
              
              
              
              6,403,144Furniture
      and equipment, net
              
              
              160,462
              
              
              
              210,615Investment
      in EPIR Technologies, Inc.
              
              
              3,780,385
              
              
              
              3,780,385Other
      assets
              
              
              53,988
              
              
              
              53,988$
              4,706,424
              
              
              $
              10,448,132LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              146,415
              
              
              $
              364,801Accrued
      expenses
              
              
              166,131
              
              
              
              177,600Convertible
      debenture
              
              
              500,000
              
              
              
              -Noncash
      compensation payable
              
              
              811,638
              
              
              
              1,503,374Common
      stock redemption
              
              
              650,000
              
              
              
              650,000Convertible
      debenture derivative liability
              
              
              183,358
              
              
              
              -TOTAL
      CURRENT LIABILITIES
              
              
              2,457,542
              
              
              
              2,695,775STOCKHOLDERS'
      EQUITYCommon
      stock, $0.001 par value; 1,500,000,000 sharesauthorized:
      533,493,450 issued and outstanding at July 31, 2009 and 524,543,964 value
      par $0.001 issued and outstanding at July 31, 2008
              
              
              533,493
              
              
              
              524,544Additional
      paid-in capital
              
              
              57,014,179
              
              
              
              48,020,767Accumulated
      deficit
              
              
              (55,264,315
              )
              
              
              (40,792,954
              )2,283,357
              
              
              
              7,752,357Less:
      treasury stock
              
              
              (34,475
              )
              
              
              -TOTAL
      STOCKHOLDERS' EQUITY
              
              
              2,248,882
              
              
              
              7,752,357$
              4,706,424
              
              
              $
              10,448,132
  See notes
to consolidated financial statements.
  F -
2


SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE YEARS ENDED JULY 31,2009
            
            
            2008Net
      sales
            
            $
            996,080
            
            
            $
            59,864Cost
      of sales
            
            
            677,724
            
            
            
            48,822Gross
      profit
            
            
            318,356
            
            
            
            11,042Expenses:Selling,
      general and administrative
            
            
            8,380,170
            
            
            
            19,682,954Research
      and development
            
            
            6,294,626
            
            
            
            15,251,761Total
      expenses
            
            
            14,674,796
            
            
            
            34,934,715Operating
      loss
            
            
            (14,356,440
            )
            
            
            (34,923,673
            )Other
      income and (expense):Interest
      and dividends
            
            
            68,437
            
            
            
            86,712Convertible
      debenture derivative loss
            
            
            (183,358
            )
            
            
            -Total
      other (expense) income
            
            
            (114,921
            )
            
            
            86,712Loss
      before income tax benefit
            
            
            (14,471,361
            )
            
            
            (34,836,961
            )Income
      tax benefit
            
            
            -
            
            
            
            -Net
      loss
            
            $
            (14,471,361
            )
            
            $
            (34,836,961
            )Loss
      per share:Basic
            
            $
            (0.03
            )
            
            $
            (0.09
            )Diluted
            
            $
            (0.03
            )
            
            $
            (0.09
            )Weighted
      average number of commonshares
      outstanding:Basic
            
            
            534,760,575
            
            
            
            368,866,089Diluted
            
            
            534,760,575
            
            
            
            368,866,089




See notes
to consolidated financial statements.


F -
3





SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
   AdditionalCommon Stock
              
              
              Paid-in
              
              
              Accumulated
              
              
              TreasuryShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Stock
              
              
              TotalBalance,
      August 1, 2007
              
              
              264,913,506
              
              
              $
              13,241
              
              
              $
              8,786,946
              
              
              $
              (5,955,993
              )
              
              $
              -
              
              
              $
              2,844,194Common
      stock redemption($0.10
      per share)
              
              
              (37,523,114
              )
              
              
              (1,875
              )
              
              
              (3,750,436
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,752,311
              )Stock
      issued for servicesand
      compensation
                ($0.10
      per share)
              
              
              18,197,500
              
              
              
              11,974
              
              
              
              1,807,776
              
              
              
              -
              
              
              
              -
              
              
              
              1,819,750Reverse
      stock split, 1 for 4 sharesand
      change in par value of stock
              
              
              (175,455,294
              )
              
              
              46,793
              
              
              
              (46,793
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      exchanged forAcadia
      Resources, Inc.
              
              
              7,350,000
              
              
              
              7,350
              
              
              
              (7,350
              )
              
              
              -
              
              
              
              -
              
              
              
              -Stock
      split, 4.5 for 1 share
              
              
              230,422,843
              
              
              
              230,423
              
              
              
              (230,423
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued in private placement($0.10
      per share)less
      syndication costs)
              
              
              110,625,510
              
              
              
              110,626
              
              
              
              10,946,664
              
              
              
              -
              
              
              
              -
              
              
              
              11,057,290Stock
      issued for servicesand
      compensation($0.73
      per share)
              
              
              5,256,226
              
              
              
              5,256
              
              
              
              3,831,789
              
              
              
              -
              
              
              
              -
              
              
              
              3,837,045Shares
      issued for equity investmentin
      EPIR Technologies, Inc.
              
              
              37,803,852
              
              
              
              37,804
              
              
              
              3,742,581
              
              
              
              -
              
              
              
              -
              
              
              
              3,780,385Reissuance
      of previously
                redeemed
      stock
              
              
              28,948,075
              
              
              
              28,948
              
              
              
              2,865,859
              
              
              
              -
              
              
              
              -
              
              
              
              2,894,807Stock
      options granted for services
              
              
              -
              
              
              
              -
              
              
              
              9,663,284
              
              
              
              -
              
              
              
              -
              
              
              
              9,663,284




See notes
to consolidated financial statements.


F -
4








SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  (CONTINUED)AdditionalCommon Stock
            
            
            Paid-in
            
            
            Accumulated
            
            
            TreasuryShares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            Stock
            
            
            TotalStock
      options exercised
            
            
            24,922,360
            
            
            
            24,922
            
            
            
            (24,922
            )
            
            
            -
            
            
            
            -
            
            
            
            -Stock
      issued for servicesand
      compensation($1.15
      per share)
            
            
            9,082,500
            
            
            
            9,082
            
            
            
            10,435,792
            
            
            
            -
            
            
            
            -
            
            
            
            10,444,874Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (34,836,961
            )
            
            
            -
            
            
            
            (34,836,961
            )Balance,
      July 31, 2008
            
            
            524,543,964
            
            
            
            524,544
            
            
            
            48,020,767
            
            
            
            (40,792,954
            )
            
            
            -
            
            
            
            7,752,357Shares
      issued in private placement($0.10
      per share)less
      syndication costs)
            
            
            12,305,274
            
            
            
            12,305
            
            
            
            1,204,198
            
            
            
            -
            
            
            
            -
            
            
            
            1,216,503Stock
      options and warrantsgranted
      for services
            
            
            -
            
            
            
            -
            
            
            
            7,332,498
            
            
            
            -
            
            
            
            -
            
            
            
            7,332,498Shares
      cancelled
            
            
            (4,495,000
            )
            
            
            (4,495
            )
            
            
            4,495
            
            
            
            -
            
            
            
            -
            
            
            
            -Stock
      issued for services andcompensation
      ($0.06-$1.15 pershare)
            
            
            1,139,212
            
            
            
            1,139
            
            
            
            452,221
            
            
            
            -
            
            
            
            -
            
            
            
            453,360Treasury
      stock received as income from EPIR
            
            
            
            (34,475
            )
            
            
            (34,475
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (14,471,361
            )
            
            
            -
            
            
            
            (14,471,361
            )Balance,
      July 31, 2009
            
            
            533,493,450
            
            
            $
            533,493
            
            
            $
            57,014,179
            
            
            $
            (55,264,315
            )
            
            $
            (34,475
            )
            
            $
            2,248,882




See notes
to consolidated financial statements.
   F -
5


SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Year
            
            
            For
      the YearEnded
            
            
            EndedJuly 31, 2009
            
            
            July 31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (14,471,361
            )
            
            $
            (34,836,961
            )Adjustments
      to reconcile net loss tonet
      cash used in operating activitiesBad
      debt expense
            
            
            18,720
            
            
            
            -Depreciation
            
            
            74,951
            
            
            
            55,657Loss
      on disposal of fixed assets
            
            
            8,143
            
            
            
            -Inventory
      adjustments
            
            
            410,839
            
            
            
            3,300Stock,
      stock options, and warrants issued andgranted
      for services and compensation
            
            
            7,785,858
            
            
            
            25,764,953Fair
      value change on convertible debenture
              derivative
      liability, net
            
            
            183,358
            
            
            
            -Treasury
      stock received as income from EPIR
            
            
            (34,475
            )
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (116,617
            )
            
            
            (40,299
            )Prepaid
      expenses
            
            
            (1,546
            )
            
            
            (7,076
            )Inventory
            
            
            (294,125
            )
            
            
            (311,508
            )Accounts
      payable
            
            
            (218,386
            )
            
            
            247,583Accrued
      expenses
            
            
            (11,469
            )
            
            
            63,516Noncash
      compensation payable
            
            
            (691,736
            )
            
            
            838,698Related
      party payables
            
            
            -
            
            
            
            (9,000
            )Net
      cash used by operating activities
            
            
            (7,357,846
            )
            
            
            (8,231,137
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of furniture and equipment
            
            
            (32,941
            )
            
            
            (93,599
            )Net
      cash used in investing activities
            
            
            (32,941
            )
            
            
            (93,599
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of convertible debenture
            
            
            500,000
            
            
            
            -Sale
      of common stock through private placement, net
            
            
            1,216,503
            
            
            
            11,057,290Common
      stock redemption
            
            
            -
            
            
            
            (207,504
            )Net
      cash provided by financing activities
            
            
            1,716,503
            
            
            
            10,849,786NET
      (DECREASE) INCREASE IN CASH AND
              CASH
      EQUIVALENTS
            
            
            (5,674,284
            )
            
            
            2,525,050CASH
      AND CASH EQUIVALENTS,BEGINNING
      OF YEAR
            
            
            5,982,779
            
            
            
            3,457,729CASH
      AND CASH EQUIVALENTS,END
      OF YEAR
            
            $
            308,495
            
            
            $
            5,982,779




See notes
to consolidated financial statements.





F -
6





SUNOVIA
      ENERGY TECHNOLOGIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS(CONTINUED)For
      the Year
            
            
            For
      the YearEnded
            
            
            EndedJuly 31, 2009
            
            
            July 31, 2008Cash
      paid for:Interest
            
            $
            -
            
            
            $
            -Income
      taxes
            
            $
            -
            
            
            $
            -Noncash
      operating and financing activities:Stock,
      stock options, and warrants issued and granted
              for
      services and compensation
            
            $
            7,785,858
            
            
            $
            25,764,953Stock
      redeemed
            
            $
            -
            
            
            $
            3,752,311Reissuance
      of redeemed stock
            
            $
            -
            
            
            $
            2,894,807Shares
      issued for equity investment in EPIR Technologies, Inc.
            
            $
            -
            
            
            $
            3,780,385Shares
      received in cashless exercise of stock options
            
            $
            -
            
            
            $
            125,000Treasury
      stock received as income from EPIR
            
            $
            (34,475
            )
            
            $
            -


See notes
to consolidated financial statements.


F -
7




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


FOR THE
YEARS ENDED JULY 31, 2009 AND 2008








NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





UOrganization,
Nature, and Continuance of OperationsUT





Sunovia
Energy Technologies, Inc. (“the Company”) is incorporated in
Nevada.  The Company is developing, designing, and integrating
photovoltaic solar cells into products for incident management, energy efficient
advertising, and low-cost durable solar modules for easy installation and
incremental upgrading of capacity.  The Company is also developing and
selling environmentally responsible, energy efficient lighting products that are
based on the latest and most efficient light emitting diode (LED) technologies
and mercury cadmium telluride infrared cells.





On
November 27, 2007, Acadia Resources, Inc. (“Acadia”), Sunovia Solar, Inc., a
wholly owned subsidiary of Acadia (“Sunovia Solar”) and Sun Energy Solar, Inc.
(“Sun Energy Solar”) entered into an Agreement and Plan of Merger which closed
on November 28, 2007.  Pursuant to the terms of the Merger agreement,
Sun Energy Solar merged with and into Sunovia Solar, which became a wholly-owned
subsidiary of Acadia (the “Merger”). The transaction was accounted for as a
purchase. On December 17, 2007, Acadia changed its name to Sunovia Energy
Technologies, Inc.





In March,
2008, the Company launched a new subsidiary, EvoLucia, which is the solid state
lighting division of the Company. EvoLucia creates, patents, and markets
proprietary LED lighting fixtures through strategic partnerships and energy
solution providers.





Sun
Energy Solar was incorporated under the laws of the State of Delaware on
November 9, 2005.  Sun Energy Solar, Inc. was organized for the
purpose of developing solar related products and technologies.  The
Company was originally named Sologic, Inc.  On April 25, 2006, the
Company completed its name change from Sologic, Inc. to Sun Energy Solar,
Inc.





On
December 21, 2005, the Company acquired the patent rights (patent applied for)
to No. 60/617,263 Titled Substrate with Light Display, applied for on September
2, 2005, from Sparx, Inc., a Florida corporation 100% owned by the Company’s
Chief Executive Officer.  Sparx, Inc. had acquired the patent rights
from company officers who were the original inventors.  As
compensation under this agreement, the Company has granted Sparx, Inc., a
royalty of 4.9% of gross revenues (see Note B).





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  For the years ended July 31, 2009
and 2008 the Company has experienced losses of $14,471,361 and $34,836,961. As
of July 31, 2009, the Company also had a working capital deficiency of
$1,745,953. To date the Company has funded operations through the issuance of
common stock and common stock options.  Management’s plan is to
continue raising funds through future equity or debt financings as needed until
it achieves profitable operations.  The ability of the Company to
continue its operations as a going concern is dependent on continuing to raise
sufficient new capital to fund its business and development activities and to
fund ongoing losses, if needed, and ultimately on generating profitable
operations.





U











F -
8




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Basis of
Consolidation





The
consolidated financial statements include the accounts of the Company and its
subsidiaries.  All significant intercompany balances and transactions
have been eliminated.





Accounting
Method





The
Company recognizes income and expenses on the accrual basis of
accounting.  The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States.





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, disclosures of contingent
assets and liabilities at the date of the financial statements and revenue and
expenses during the reporting period.  Actual results could differ
from those estimates.





Concentrations





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash and cash equivalents.  The Company maintains cash
and cash equivalents in deposit accounts with one financial institution located
in the United States.  Deposit accounts exceed federally insured
limits.  Management does not believe the Company is exposed to
significant risks on such accounts.  Generally, these deposits may be
redeemed upon demand and, therefore, bear minimal interest rate
risk.  At July 31, 2009, the Company had an uninsured cash and cash
equivalent balance of approximately $35,000.





Royalty
Agreements





The
Company has entered into an agreement that requires the payment of royalties to
Sparx, Inc. (See Note B), a company owned by the Chief Executive Officer and
largest stockholder.  The agreement requires the Company to expense
royalties as product costs during the period in which the related revenues are
recorded.  Included in accrued expenses at July 31, 2009 is $51,741 in
accrued royalty expense. There was no royalty expense recognized during the year
ended July 31, 2008.





Cash and Cash
Equivalents





For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.





Accounts
Receivable





Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to bad debt expense and a credit to an allowance for
uncollectible accounts based on its assessment of the current status of
individual accounts. Balances that are still outstanding after








F -
9





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





management
has used reasonable collection efforts are written off through a charge to the
allowance for uncollectible accounts and a credit to accounts
receivable.  The allowance for uncollectible accounts totaled $18,720
at July 31, 2009.  Management deemed all accounts receivable at July
31, 2008 collectible, and accordingly, no allowance for doubtful accounts was
required.  Management has not charged interest on accounts receivable
as of July 31, 2009.  At July 31, 2009, approximately 72% of accounts
receivable are due from two customers.





Furniture and
Equipment





Furniture
and equipment are recorded at cost.  Maintenance, repairs and other
renewals are charged to expense when incurred.  Major additions are
capitalized, while minor additions, which do not extend the useful life of an
asset, are charged to operations when incurred.  When property and
equipment are sold or otherwise disposed of, the related cost and accumulated
depreciation is removed from the accounts, and any gain or loss is included in
operations.  Depreciation is calculated using the straight-line
method, in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated useful lives, which range from three to seven
years.  Leasehold improvements are amortized using the straight-line
method over the lives of the respective leases or the service lives of the
improvements, whichever is shorter.





Accounting for Long-Lived
Assets





In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”, the Company’s
policy is to evaluate whether there has been a permanent impairment in the value
of long-lived assets, certain intangibles and goodwill.  In evaluating
for possible impairment, the Company uses an estimate of undiscounted cash
flows.  Factors considered in the valuation include current operating
results, trends and anticipated undiscounted future cash flows.  The
Company has not recorded any impairment losses since inception.





Intangible
Assets





In
accordance with SFAS No. 142, “Goodwill
and Other Intangible Assets”, intangible assets with an indefinite useful
life are not amortized. Intangible assets with a finite useful life are
amortized using the straight-line method over the estimated useful
life.  All intangible assets are tested for impairment annually during
the fourth quarter of the fiscal year.  The Company had an intangible
asset consisting of capitalized patent costs at July 31, 2009 and
2008.  Costs capitalized in association with patents totaled $47,008
at July 31, 2009 and 2008.  Patent costs are included in other assets
on the balance sheet.  The costs of internally developing,
maintaining, or restoring such intangibles that are not specifically
identifiable, have indeterminate lives, or are inherent in a continuing business
are charged to expense when incurred.








F -
10




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Accounting for Derivative
Instruments





Statement
of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, requires all derivatives to be
recorded on the balance sheet at fair value.  These derivatives,
including embedded derivatives in the Company’s structured borrowings, are
separately valued and accounted for on the Company’s balance
sheet.  Fair values for exchange traded securities and derivatives are
based on quoted market prices.  Where market prices are not readily
available, fair values are determined using market based pricing models
incorporating readily observable market data and requiring judgment and
estimates.





The
Company has adopted Statement of Financial Accounting Standards (“SFAS”)
No. 161, “Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133”, which requires additional
disclosures about (a)
how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows.





Research and
Development





In
accordance with SFAS No. 2, “Accounting
for Research and Development Costs”, Research and Development ("R&D")
expenses are charged to expense when incurred.  The Company has
consulting arrangements which are typically based upon a fee paid monthly or
quarterly.  Samples are purchased that are used in testing, and are
expensed when purchased.  R&D costs also include salaries and
related personnel expenses, direct materials, laboratory supplies, equipment
expenses and administrative expenses that are allocated to R&D based upon
personnel costs.





Revenue
Recognition





In
accordance with SEC Staff Accounting Bulletin 101, “Revenue Recognition”, as
amended by Staff Accounting Bulletin 104, the Company recognizes revenue when
the following conditions have been met: there is persuasive evidence an
arrangement exists which includes a fixed price, there is reasonable assurance
of collection, the services or products have been provided and delivered to the
customer, no additional performance is required, and title and risk of loss has
passed to the customer.





Products
may be placed on consignment to a limited number of
resellers.  Revenue for these consignment transactions will also be
recognized as noted above.





Shipping and Handling
Costs





Amounts
charged to customers for shipping and handling of products is recorded as
product revenue.  The related costs are recorded as cost of
sales.








F -
11




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Advertising





Advertising
costs, including direct response advertising costs, are charged to operations as
incurred. Advertising costs charged to expense for the years ended July 31, 2009
and 2008 totaled $19,090 and $25,929, respectively.





Share-Based
Payments





The
Company adopted the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) requiring that
compensation cost relating to share-based payment transactions be recognized in
the financial statements.  The cost is measured at the grant date,
based on the calculated fair value of the award, and is recognized as an expense
over the employee’s requisite service period (generally the vesting period of
the equity award).  The Company adopted SFAS 123R using the modified
prospective method and, accordingly, did not restate prior periods to reflect
the fair value method of recognizing compensation cost.  Under the
modified prospective approach, SFAS 123R applies to new awards and to awards
that were outstanding on August 1, 2006 that are subsequently modified,
repurchased or cancelled.





Legal Costs Related to Loss
Contingencies





The
Company accrues legal costs expected to be incurred in connection with loss
contingencies as they occur.  As of July 31, 2009 and 2008, there were
no loss contingencies expected.





U


Income Taxes
(Benefits)





The
Company utilizes the guidance provided by SFAS No. 109, “Accounting for Income
Taxes”.  Deferred tax assets and liabilities are determined
based on the difference between the basis of assets and liabilities for
financial statement and income tax purposes as measured by the enacted tax rates
that are expected to be in effect when these differences
reverse.  Valuation allowances are provided if necessary to reduce
deferred tax assets to the amount expected to be realized.





The
Company has established a valuation allowance against the deferred tax asset due
to uncertainties in its ability to generate sufficient taxable income in future
periods to make realization of such assets more likely than not.  The
Company has not recognized an income tax benefit for the operating losses
generated during the years ended July 31, 2009 and 2008.





At July
31, 2009, the Company had a net operating loss carryforward of approximately
$20,724,000 that may be offset against future taxable income through
2028.  The amount of the income tax benefit for the years ended July
31, 2009 and 2008, before the valuation allowance was applied, totaled
approximately $5,427,000 and $13,064,000, respectively.





Loss Per
Share





Loss per
share is computed using the basic and diluted calculations on the statement of
operations.  Basic loss per share is calculated by dividing net loss
available to common share stockholders by the weighted average number of shares
of common stock outstanding for the period.  Weighted average number
of shares has been adjusted for stock splits and reverse





F -
12




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





stock
splits.  Diluted loss per share is calculated by dividing net loss by
the weighted average number of shares of common stock outstanding for the
period, adjusted for the dilutive effect of common stock equivalents, using the
treasury stock method.  The total number of shares not included in the
calculation at July 31, 2009 and 2008 as the effect is antidilutive was
544,405,974 and 507,980,600.





Inventory





Inventory
consists of various electronic components used in the assembly of LED lights,
power film and batteries.  Inventory is stated at the lower cost or
market.  Cost is determined by the first-in, first-out (FIFO) method.
Included in selling, general, and administrative expense during the year ended
July 31, 2009 are inventory write-downs totaling $410,839 related to inventory
obsolescence and waste.





Comprehensive
Income





The
Company has adopted SFAS No. 130, “TReporting
Comprehensive Income”T. The
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements.  The statement requires all items that are required to be
recognized under accounting standards as components of comprehensive income to
be disclosed in the financial statements.





Comprehensive
income is defined as the change in equity during a period from transactions and
other events from non-owner sources.  The Company has no components of
comprehensive income and, accordingly, net loss is equal to comprehensive loss
for the years ended July 31, 2009 and 2008.





Transfer of Financial
Assets





In March
2006, the FASB issued SFAS 156 “Accounting for Servicing of Financial Assets.”
This Statement amends FASB Statement No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” with respect
to the accounting for separately recognized servicing assets and servicing
liabilities.  This statement was effective for the first fiscal year
that began after August 1, 2007.  Adoption of this statement did not
have a material effect on the Company’s financial position or results of
operations.





Fair Value
Measurements





Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value
Measurements(“SFAS 157”).  SFAS 157 defines fair value,
establishes a framework for measuring fair value and enhances disclosures about
fair value measurements.





SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  SFAS 157 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value.  The standard describes three levels of inputs that may be
used to measure fair value:





F -
13




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Level
1:  Observable inputs such as quoted prices (unadjusted) in active
markets for identical assets or liabilities.





Level
2:  Inputs other than quoted prices that are observable for the asset
or liability, either directly or indirectly.  These include quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are
observable.  Valuations may be obtained from, or corroborated by,
third-party pricing services.





Level
3:  Unobservable inputs to measure fair value of assets and
liabilities for which there is little, if any market activity at the measurement
date, using reasonable inputs and assumptions based upon the best information at
the time, to the extent that inputs are available without undue cost and
effort.





Fair Value of Financial
Instruments





The
Company’s financial instruments, including cash and cash equivalents,
receivables, accounts payable and accrued liabilities are carried at cost, which
approximates their fair value, due to the relatively short maturity of these
instruments. Noncash compensation payable and common stock redemption are
carried at cost, which approximates their fair value, because they will be
redeemed at these specific amounts. The carrying value of the investment in EPIR
is $3,780,385. The fair value is believed to approximate $4,000,000 as of July
31, 2009. The fair value is based on estimates using pricing models that take
into account the earning capacity of EPIR as of the balance sheet date. The
computation of the fair value was performed by the Company.





Reclassifications





Certain
amounts for the year ended July 31, 2008 have been reclassified in the
comparative financial statements to be comparable to the presentation for the
year ended July 31, 2009.  These reclassifications had no effect on
net loss as previously reported.




NOTE B -
ACQUISITION OF PATENT RIGHTS FROM SPARX, INC.





On
December 21, 2005, the Company acquired certain patent rights (see Note A) from
Sparx, Inc., a Florida corporation 100% owned by the Company’s Chief Executive
Officer and largest stockholder.  As compensation under this
agreement, the Company has granted Sparx, Inc., a royalty of 4.9% of gross
revenues (see Note A).





The
Company entered into a change of control severance agreement with the Chief
Executive Officer and largest stockholder on December 21, 2005.  If
any person, entity, or group acquires beneficial ownership of 20% or more of the
Company, the Chief Executive Officer is granted voting rights on a number of
common shares that would result in his having a voting majority of shares needed
for any stockholder meeting.








F -
14


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE B -
ACQUISITION OF PATENT RIGHTS FROM SPARX, INC. (CONTINUED)





If there
is a change of control of the Company, as defined within the agreement, the
Chief Executive Officer will receive a cash payment equal to the value of his
annual bonus for the performance period that includes the date the change in
control occurred, disregarding any applicable vesting requirements; provided
that such amount will be equal to the product of the target award percentage
under the applicable annual incentive plan or program in effect immediately
prior to the change in control times the base pay, but prorated to base payment
only on the portion of the executive’s service that had elapsed during the
applicable performance period through the change in control.  Such
payments are to be made within five business days after the change in
control.





If the
Company fails to comply with any of the terms of the agreement, any related
legal expenses will be paid by the Company, without respect to whether the Chief
Executive Officer prevails.  Reimbursement for relocation expenses on
a basis consistent with the Company’s practices for senior executives, up to
$50,000, shall be provided to the executive, if the executive is relocated at
the request of the Company within five years of the termination
date.  For a period of twelve months following the termination date,
the Company shall provide the executive with benefits substantially similar to
those that the Chief Executive Officer was entitled to receive immediately prior
to the termination date.





NOTE C -
INCOME TAXES





The
Company's net deferred tax asset as of July 31, 2009 and 2008 is as
follows:






2009
            
            
            2008Deferred
      tax assetNet operating loss
      carry forward
            
            $
            20,726,000
            
            
            $
            15,299,000Valuation
      allowance
            
            
            (20,726,000
            )
            
            
            (15,299,000
            )Net deferred
      tax asset
            
            
            -
            
            
            
            -





A
reconciliation of provision (benefit) for income taxes to income taxes at
statutory rate is as follows:




For
      the year
              
              
              For
      the yearended
              
              
              endedJuly 31, 2009
              
              
              July 31, 2008Federal
      income tax (benefit)at
      statutory rate
              
              $
              (4,703,000
              )
              
              $
              (11,322,000
              )State
      taxes (benefit)
              
              
              (724,000
              )
              
              
              (1,742,000
              )Valuation
      allowance
              
              
              5,427,000
              
              
              
              13,064,000Provision
      (benefit) for income taxes
              
              $
              -
              
              
              $
              -





F -
15


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE D -
FURNITURE AND EQUIPMENT, NET





At July
31, 2009 and 2008, furniture and equipment consisted of the
following:




2009
              
              
              2008Computer
      equipment
              
              $
              249,524
              
              
              $
              221,540Furniture
      and fixtures
              
              
              14,905
              
              
              
              29,350Leasehold
      improvements
              
              
              36,730
              
              
              
              36,730301,159
              
              
              
              287,620Less:
      accumulated depreciation
              
              
              (140,697
              )
              
              
              (77,005
              )Furniture
      and equipment
              
              $
              160,462
              
              
              $
              210,615





Total
depreciation expense for the years ended July 31, 2009 and 2008 was $74,951 and
$55,657, respectively.





NOTE E -
STOCKHOLDERS' EQUITY





Common
Stock





Effective
November 27, 2007 the Company declared a 1 for 4 reverse stock split of the
Company’s common stock.  The reverse stock split resulted in a
decrease of shares outstanding of 175,455,294 shares.  The par value
of the shares was changed on the same date to $.001 per share.





In
November 2007, the Company exchanged 7,350,000 shares of Acadia Resources, Inc.
common stock (See Note A) for the same number of shares in the
Company.





On
December 4, 2007, the Company declared a 4.5 for 1 forward stock split of the
Company’s common stock, effective to stockholders of record on December 11,
2007.  The stock split resulted in an additional 230,422,843 shares of
the Company’s common stock being issued.





As of
January 31, 2008, the Company redeemed 37,523,114 shares of Sun Energy Solar,
Inc. common stock at the issuance price of $.10.  Subsequent to
January 31, 2008, the Company issued 28,948,975 shares of Sunovia Energy
Technologies, Inc. common stock to shareholders who chose not to receive cash
for their shares.  Cash payments totaling $207,385 were made to
shareholders of Sun Energy Solar, Inc.  There are 6,500,000 shares of
Sunovia Energy Technologies, Inc. common stock still to be issued.





The
Company’s President cancelled 4,495,000 shares during the year ended July 31,
2009.





Treasury
Stock





On April
17, 2009, the Company received 313,410 shares of the Company’s common stock as
income from EPIR. The fair value of this transaction totaled
$34,475.








F -
16




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE F -
RENTAL AND LEASE INFORMATION





Operating
Leases





The
Company leases office space/warehouse facilities in Sarasota, Florida under an
operating lease.  The lease term is for a period of three years and
commenced on October 1, 2006.  The base rent over the term is
approximately $134,000.  The company is responsible for all taxes,
insurance and utility expenses associated with the leased
property.  Rental expense for the years ended July 31, 2009 and 2008
totaled $59,681 and $62,063, respectively.





Future
minimum rental payments are as follows:





Through
October 31,
2009                                                                         $11,219





NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC.





The
Company has entered into a research, development and supply agreement (“the
Agreement”) with EPIR Technologies, Inc. (EPIR) for an exclusive marketing,
supply and development partnership for advanced solar photovoltaic (PV) and
encapsulate technologies to develop advanced light detection devices and II-VI
materials.  The II-VI materials are uniquely combined to form the
semiconductors that are used in solar PV technologies.  The
partnership also provides for the commercialization of advanced light detection
technologies that form a foundation for accelerating advanced PV development
that is aimed at reducing the overall cost of energy from a solar PV
System.  The Company and EPIR are developing a solar PV encapsulate
that eliminates the need for glass encapsulates that are prevalent in today’s
market.





Consideration
for the agreement included exchanging 37,803,852 shares of the Company’s common
stock for 202,200 (10%) shares of EPIR common stock.  The net profits
resulting from the sale of any and all EPIR products, EPIR Independent Products,
and related products of the Company, directly or indirectly, to any and all
third parties will be split equally between EPIR and the Company.





The
investment in EPIR is accounted for under the cost method of accounting because
the Company does not exercise significant influence over EPIR’s operations.
Under the cost method of accounting, investments are carried at cost and are
only adjusted for other-than-temporary declines in fair value and distributions
of earnings.





The
Company regularly evaluates the recoverability of its investment in EPIR based
on the performance and the financial position of EPIR, as well as other evidence
of market value.  Such evaluation includes but is not limited to,
reviewing EPIR’s financial position, recent financings, projected and historical
financial performance, cash flow forecasts and financing needs.  The
Company has not recognized any loss in the value of its investment in
EPIR.





In April,
2009, the Company and EPIR entered into an Amendment to the research,
development, and supply agreement. As of July 31, 2009, the Company had made all
scheduled payments to EPIR pursuant to the terms and condition of the Agreement
in the aggregate amount of approximately $7,700,000.  All payments to
EPIR are to be used to cover operating expenses of EPIR towards the research,
development and creation of the mass manufacturing processes for solar
technologies. The Amendment (i) accelerated the Company’s payment of the June 1,
2009 scheduled payment and (ii) allowed the Company to issue and




F -
17




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)





deliver
to EPIR warrants for the purchase of the Company’s stock (see Note O). Therefore
in consideration of the mutual covenants and other valuable consideration, the
Company and EPIR (“the Parties”) agreed as follows:





The
Company’s Obligations: In exchange for, and as an integral part of, EPIR’s
entering into the Amendment, the Company shall deliver, or cause to be
delivered, to EPIR, for no cash or other consideration (except as set forth
herein):





a.
            The
      June 1, 2009 scheduled payment of $1,000,000 within 72 hours of the
      Parties’ execution of the Amendment by wire transfer of immediately
      available funds to a bank designated by EPIR
and





b.
            Issuance
      to EPIR of a warrant (the “Warrant”) to purchase 25,000,000 shares of the
      Company’s common stock at an exercise price equal to $0.10 per
      share





Immediately
upon the date which EPIR received the accelerated payment, the Company, in its
sole discretion, shall, without limitation and subject to the applicability of
all of the foregoing provisions of the Agreement, satisfy any or all of the
August 1, 2009, October 1, 2009, December 1, 2009 and March 1, 2010 either by
(1) payment in cash or (2) the issuance of such number of restricted shares of
common stock of the Company equal to the quotient of One Million Dollars
($1,000,000) divided by the Conversion Price (as defined below).  For
purposes of the EPIR Amendment, the “Conversion Price” shall be an amount equal
to the seventy-five percent (75%) of the average closing price of the Company’s
common stock as quoted on the Over-the-Counter Bulletin Board for the twenty
(20) trading days prior to the date a scheduled payment is due under the EPIR
Agreement.





Payments
as shown on the following schedule through June 1, 2009 have been made by the
Company.





F -
18





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)





The
Agreement calls for the Company to make to EPIR the non-refundable payments set
forth below:





Payment Amount
              Payment to be received
by$       1,700,000
              November
      30, 20071,000,000
              February
      1, 20081,000,000
              April
      1, 20081,000,000
              October
      1, 20081,000,000
              December
      1, 20081,000,000
              March
      1, 20091,000,000
              June
      1, 20091,000,000
              August
      1, 20091,000,000
              October
      1, 20091,000,000
              December
      1, 20091,000,000
              March
      1, 20101,000,000
              June
      1, 20101,000,000
              August
      1, 20101,000,000
              October
      1, 20101,000,000
              December
      1, 2010500,000
              April
      1, 2011500,000
              October
      1, 2011500,000
              April
      1, 2012500,000
              October
      1, 2012500,000
              April
      1, 2013500,000
              October
      1, 2013500,000
              April
      1, 2014500,000
              October
      1, 2014500,000
              April
      1, 2015500,000
              October
      1, 2015500,000
              April
      1, 2016500,000
              October
      1, 2016500,000
              April
      1, 2017500,000
              October
      1, 2017500,000
              March
      1, 2017500,000
              October
      1, 2017$     23,700,000
  F -
19
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS








NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)





On June
30, 2008, The Company issued 8,990,000 shares, valued at $10,338,500 or $1.15
per share to employees of EPIR Technologies, Inc. for research. The Company’s
Chief Executive Officer and President agreed to cancel 4,495,000 shares each of
their outstanding common stock to offset the dilution to the Company’s common
stock shares. The Company’s President cancelled 4,495,000 shares during the year
ended July 31, 2009 (see Note E).





On April
17, 2009, the Company received 313,410 shares of the Company’s common stock as
income from EPIR. The value of this transaction totaled $34,475 (see Note
E).





NOTE H –
SEGMENT INFORMATION





The
Company is organized into operating segments based on product groupings. These
operating segments have been aggregated into two reportable business segments:
Solar Substrate and Lighting Product. The reportable segments were determined in
accordance with the way that management of the Company develops and executes the
Company’s operations. The accounting policies of the business segments are the
same as the policies described in Note A.





In
accordance with SFAS No. 131, for purposes of business segment performance
measurement, the Company does not allocate to the business segments items that
are of a nonoperating nature or corporate organizational and functional expenses
of a governance nature. Corporate expenses consist of corporate office expenses
including compensation, benefits, occupancy, depreciation, and other
administrative costs.





Assets of
the Solar Substrate segment consist of cash, capitalized patent costs, and
inventory. Assets of the Lighting Product segment consist of inventory. All
other assets including prepaid expenses, deposits, and fixed assets are
allocated to Corporate and Other.








Consolidated
      Operations by Business SegmentFor the year ended July 31,
      2009Solar
              Substrate
            
            
            Lighting
              Product
            
            
            Corporate
              and
      OtherNet
      sales
            
            $
            -
            
            
            $
            996,080
            
            
            $
            -Operating
      loss
            
            $
            (6,029,171
            )
            
            $
            (7,814,448
            )
            
            $
            (512,821
            )Interest
      and dividends
            
            $
            -
            
            
            $
            -
            
            
            $
            68,437Convertible
      debenture derivative loss
            
            $
            -
            
            
            $
            -
            
            
            $
            (183,358
            )Depreciation
      and amortization
            
            $
            -
            
            
            $
            -
            
            
            $
            (74,951
            )Assets
            
            $
            3,780,385
            
            
            $
            533,209
            
            
            $
            392,830





F -
20


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE H –
SEGMENT INFORMATION (CONTINUED)





Consolidated
      Operations by Business SegmentFor the year ended July 31,
      2008Solar
                Substrate
              
              
              Lighting
                Product
              
              
              Corporate
                and
      OtherNet
      sales
              
              $
              -
              
              
              $
              59,864
              
              
              $
              -Operating
      loss
              
              $
              (23,280,403
              )
              
              $
              (9,062,848
              )
              
              $
              (2,580,422
              )Interest
      income
              
              $
              -
              
              
              $
              -
              
              
              $
              86,712Depreciation
      and amortization
              
              $
              -
              
              
              $
              -
              
              
              $
              (55,657
              )Assets
              
              $
              3,780,385
              
              
              $
              600,865
              
              
              $
              6,066,882
  NOTE I -
RETIREMENT PLAN





The
Company sponsors a 401(k) plan, which allows all eligible employees to
contribute a percentage of their salary and receive a safe harbor matching
contribution from the Company which cannot exceed certain maximum defined
limitations.  The total retirement expense for the years ended July
31, 2009 and 2008 was approximately $23,000 and $17,000,
respectively.





NOTE J -
COMMITMENTS AND CONTINGENCIES





In the
normal course of business, the Company is subject to litigation.  The
Company believes that any adverse outcome from potential litigation would not
have a material effect on its financial position or results of
operations.





NOTE K -
RELATED PARTY TRANSACTIONS





Transactions
with related parties during the period years ended July 31, 2009 and 2008
include the consulting agreements discussed in Note M and the stock options
discussed in Note O.





NOTE L -
RISKS AND UNCERTAINTIES





Operating
results may be affected by a number of factors.  The Company is
dependent upon a number of major inventory and intellectual property
suppliers.  Presently, the Company does not have formal arrangements
with any supplier, and shortages of key solar components exist in the
industry.  In the future, if the Company is unable to obtain
satisfactory supplier relationships, or a critical supplier had operational
problems, or ceased making material available, operations could be adversely
affected.





F -
21





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS








NOTE M -
EMPLOYMENTCONTRACTS AND CONSULTING
AGREEMENTS





The
Company has signed a series of contracts with stockholders, directors, and
consultants as listed below:





In June
2006, the Company entered into a one-year employment agreement with its Chief
Executive Officer.  Under the employment agreement, the Chief
Executive Officer received a base salary of two million shares of common stock
per year.  The employment agreement further provided up to two million
shares of common stock for each year of service beginning June,
2007.  In May 2008, the Company entered into a new contract with its
Chief Executive Officer that reduced compensation to employee benefits
only.





In June
2006, the Company entered into an employment agreement with its Co-founder and
current Business Development Representative.  Under the employment
agreement, the Co-founder and current Business Development Representative
received a base salary of two million shares of common stock per
year.  The employment agreement further provided up to two million
shares of common stock for each year of service beginning June,
2007.  In May, 2008, the Company entered into a new contract with its
Co-founder and Business Development Representative that reduced compensation to
employee benefits only.





Under an
employment agreement dated January 25, 2007, the Company granted the President
two million three hundred fifty thousand shares of common stock initially and
five hundred thousand shares for each quarter of service.  The
employment agreement granted the President cash remuneration of $150,000 per
year and a one-time payment of $60,000. In May 2008, the Company entered into a
new contract with its President that eliminated all equity compensation but
retained all other terms.





In May
2006, the Company entered into a one-year employment agreement with its current
Chief Financial Officer.  Under the employment agreement, the Company
granted the current Chief Financial Officer one million shares of common stock
for each year of service after his initial year of employment in addition to his
two million founding shares.  The employment agreement was
automatically renewable each year and was subject to conditional vesting based
on the completion of each year of service.  The employment agreement
granted the Chief Financial Officer an annual salary of $100,000 per year. In
May 2008, the Company entered into a new contract with its Chief Financial
Officer with the same terms and an additional provision that he receive 488,060
stock options to purchase common stock at $0.62 per share (see Note
O).





Effective
May 1, 2008, the Company entered into new employment agreements with its
employees. These agreements superseded all employment agreements between the
Company and the employees. Under the new agreements, 4,880,600 stock options
were granted to ten employees including the Chief Financial Officer, noted above
(see Note O).





In May
2006, the Company entered into a consulting agreement with an individual who had
worked with the Company in its initial stage whereby the individual would
develop relationships with customers that the Company considers crucial to its
development and long term success. On March 17, 2008, the Company and the
individual entered into an amended and restated consulting agreement whereby the
individual would provide the Company with services related to the introduction
of the Company to nationally recognized entities for product distribution
opportunities, introduction to potential sales leads and acting as a liaison to
various




F -
22




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE M -
EMPLOYMENTCONTRACTS AND CONSULTING
AGREEMENTS (CONTINUED)





corporations. 
The term of the agreement began on May 22, 2006 and was effective through May
2009. As compensation for providing such services, the Company issued to the
individual (i) an option to purchase an aggregate of 25,000,000 shares of common
stock of the Company at an exercise price of $0.005 on a cashless basis for a
term of seven years (see Note O) and (ii) an option to purchase an aggregate of
5,000,000 shares of common stock of the Company at an exercise price of $0.005
on a cashless basis for a term of seven years, which were issued in January
2009. In May 2008, 25,000,000 options were exercised on a cashless
basis.





In July
2007, the Company entered into a two-year agreement with a strategic business
advisor.  The business advisor scrutinizes Company products and
opportunities, and makes recommendations that he feels will be important to
realizing value and furthering efficiencies within the Company.  The
agreement was revised in October, 2008. Under the revised agreement, the advisor
received a fee of 1,000,000 shares of common stock.  In October 2008,
the Chief Executive Officer agreed to effectively cancel options covering
3,000,000 shares of common stock (see Note O). The equivalent options were
issued to the strategic business advisor under the revised agreement with 1/3
vesting as of the effective date of the contract, 1/3 vesting on July 16, 2009,
and the remainder on July 16, 2010.





In August
2007, the Company entered into a ten year agreement with an individual to serve
as a scientific advisor to the Company.  Under the agreement the
Company granted the principal 6,000,000 shares of common stock initially and
1,666,666 shares for each year of service commencing with the completion of the
second year of services and terminating at the completion of the tenth year of
services.





In August
2007, the Company entered into a six month consulting agreement with an
individual. The consultant rendered engineering services in accordance with
generally accepted and currently recognized engineering practices, procedures,
and principles. In consideration for services rendered, the Company issued the
consultant 500,000 shares of common stock.





In
December, 2007, the Company entered into a one year consulting agreement with an
individual.  The consultant rendered research, product development,
and strategic partnership development advice.  In consideration for
services rendered, the Company paid the consultant a fee equal to 125,000 shares
of common stock every three months.  In addition, the Company provided
an option to purchase up to 100,000 shares of the Company’s common stock at an
exercise price of $0.10 per share and an expiration date of December 31, 2009
(see Note O).





In
January, 2008, the Company entered into agreement with their stock transfer
agent. The transfer agent provides services as the Company’s transfer agent and
edgarization service provider. In consideration for services rendered, the
Company agreed to pay the transfer agent a fee equal to 62,500 shares of the
Company’s common stock quarterly.





In
February, 2008, an entity which the Company has agreed to finance, entered into
a research and development agreement with an educational institution in exchange
for certain patent rights. The educational institution performs research and
development services and assigns intellectual property created during the course
of those services to the entity, who in turn will assigns such rights to the
Company.  During the years ended July 31, 2009 and 2008, the Company
paid $200,000 and $625,000 to the educational institution,
respectively.




F -
23





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE M -
EMPLOYMENTCONTRACTS AND CONSULTING
AGREEMENTS (CONTINUED)





In June,
2008, the Company entered into a one year strategic sales, marketing, sourcing,
consulting and representation agreement with a professional organization. The
organization acted as the Company’s non-exclusive sales
representative.  The Company agreed to pay the organization $100,000
per year payable monthly as well as 500,000 shares annually of common stock paid
quarterly beginning October 1, 2008 during the term of the agreement. This
agreement was terminated March 31, 2009.





In June,
2008, the Company entered into a three year consulting agreement with an
individual. The individual provides advice and recommendations and introduces
the Company to nationally recognized entities. In consideration for services
rendered, the Company has issued the consultant 265,000 shares of common
stock.





In June,
2008, the Company entered into a three month consulting agreement with a
company. The consultant provided advice to the Company in corporate development
and strategic planning. In consideration for services rendered, the Company paid
the consultant a fee equal to $2,500 and 15,000 shares of common stock per
month.





In June,
2008, the Company entered into an agreement with a company. The consultant
serves as the Company’s principal engineering consultant for strategic product
development and marketing support efforts. In consideration for services
rendered, the Company pays the consultant on an hourly basis. In addition, the
Company provides an option to purchase up to 3,000,000 shares of the Company’s
common stock at an exercise price of $0.10 per share. The options vest according
to a schedule over a period of three years.  A total of 1,000,000
options vested during the years ended July 31, 2009 and 2008 (see Note
O).





On June
30, 2008, The Company issued 8,990,000 shares to employees of EPIR technologies
inc. as compensation. The Company’s Chief Executive Officer and Business
Development Representative have agreed to cancel 4,495,000 shares of their
common stock each to offset the dilution to the Company’s common stock. During
the year ended July 31, 2009, the Company’s President canceled 4,495,000 shares
of his common stock (see Note G).





In
October 2008, the Company entered into a two year consulting agreement with an
organization. The organization provides assistance with (i) expansion and
growth, (ii) brand building, (iii) public relations, marketing and business
development, (iv) strategic advice and assistance in Washington and key states,
and (v) assistance with the advisory board and other personnel matters. In
consideration for services rendered, the Company paid the organization a monthly
retainer amount of $10,000. The agreement required the Company to issue the
organization 100,000 shares of common stock on the first day of each quarter
beginning in the first quarter of 2009 and ending in the fourth quarter of 2010.
The Company issued the organization an option to purchase 200,000 shares of the
Company’s common stock with an expiration period of five years and an exercise
price of 75% of the market bid price as of the date of the
grant.   In October 2008, the Chief Executive Officer agreed to
effectively cancel options covering 500,000 shares of common stock. The
equivalent options were then issued to the organization. The 700,000 options
vested during year ended July 31, 2009. (see Note O). This agreement was
terminated in September 2009.




F -
24





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE M -
EMPLOYMENTCONTRACTS AND CONSULTING
AGREEMENTS (CONTINUED)





In
October 2008, the Company entered into a one year consulting agreement with a
consulting company. This agreement was revised in November 2008. The consulting
company (i) assists with the development of advertising and marketing programs
and materials, (ii) reviews and makes any necessary modifications to the Company
press releases, collaterals, presentations, and other sales, and marketing and
promotional materials, (iii) assists with key executive searches and offer
executive qualification evaluations,  (iv) consults biweekly with the
President and/or CEO of the Company, (v) attends select meetings with the
President and/or CEO of the Company, and (vi) assists with due diligence of
potential acquisitions and partnerships. In consideration for services rendered,
the Company pays the consulting company a fee of $15,000 per month. These
payments were suspended prior to July 31, 2009. During the year ended July 31,
2009, the consulting company received stock options for 3,800,000 shares of
common stock of the Company (See Note O).





In
January 2009, the Company entered into a three year consulting agreement with an
individual. The individual provides advice and recommendations to the Company
and introduces the Company to nationally recognized entities. In consideration
for services rendered, the consultant will receive options consisting of
1,900,000 shares of common stock of the Company. The Company entered into two
additional consulting agreements with two individuals who are employed by the
above consultant. The term of the agreements is three years. These individuals
provide advice and recommendations to the Company and introduce the Company to
nationally recognized entities. In consideration for services rendered, the
consultants will each receive options consisting of 50,000 shares of common
stock of the Company (See Note O).





In March
2009, the Company entered into a three year consulting agreement with an
individual. The individual renders engineering services in accordance with
generally accepted and currently recognized engineering practices, procedures,
and principles. In consideration for services rendered, the individual receives
$100,000 per year as well as a bonus of 5% of any governmental grants or
investment capital that is procured through the direct efforts of the
individual.





NOTE N -
STOCK COMPENSATION





The
Company has recorded expenses, paid or accrued in common stock or common stock
options, of $7,094,122 and $26,633,647 for the years ended July 31, 2009 and
2008, respectively. For the year ended July 31, 2009, consulting expenses paid
or accrued for payment in common stock or common stock options, totaled
$7,094,122. For the year ended July 31, 2008, salary, consulting and research
and development expenses paid or accrued for payment in common stock, totaled
$6,362,878, $9,932,269, and $10,338,500, respectively.





NOTE O –
STOCK OPTION PLANS





The
Company granted stock options to its Chief Executive Officer under a stock
option agreement dated December 20, 2005.  The 2005 stock option
agreement provides for the granting of non-qualified and incentive stock options
to purchase up to 500,000,000 shares of common stock for a period not to exceed
15 years.  The options are vested.  Under the agreement, the
option exercise price equals $.10, which was the stock's market price on
the




F -
25


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE O –
STOCK OPTION PLANS (CONTINUED)





date of
grant.  In December, 2007, the Chief Executive Officer then
transferred the options to Craca Properties, LLC, which he had become 100% owner
of. In October, 2008, the CEO transferred certain rights to one of the Company’s
consultants and effectively retired (and the Company accounted for the
reissuance) of 3,500,000 options at ten cents.





The
equivalent options were then issued to two consultants of the Company (See Note
M). 1,500,000 vested in October 2008, 1,000,000 vested on July 16, 2009, and the
remaining 1,000,000 will vest on July 16, 2010.





The
Company measured compensation for 500,000,000 common stock options under APB
Opinion No. 25. No compensation cost was recognized as the purchase price for
the options was at or above the fair market value of the underlying stock at the
date of grant.





On
December 6, 2007, options for 100,000 shares were issued to a consultant to the
Company for services, exercisable at a price of $.10. The total consulting
expense related to these options totaled $20,080.





On March
17, 2008, options for 25,000,000 shares were issued to a consultant to the
Company for services, exercisable at a price of $.005. The total consulting
expense related to these options was $6,215,000. These options were exercised on
a cashless basis in May 2008.





The fair
values of the December 6, 2007 and the March 17, 2008 options were estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions used: risk-free interest rates of 6%, expected volatility
of 130% and expected lives of 2-7 years.  No dividends were assumed in
the calculations.





In April
2008, the Company’s Board of Directors approved the 2008 Incentive Stock Plan
which authorizes, up to a maximum of 30,000,000 shares, for the granting of
awards to key employees, directors, and consultants in the form of options to
purchase the Company’s common stock or restricted stock. The Company’s Board of
Directors determines the number of shares, the term, the frequency and date, the
type, the exercise periods, any performance criteria pursuant to which awards
may be granted and the restrictions and other terms and conditions of each grant
of restricted shares in accordance with the terms of the plan. The Company
measures compensation for these options under SFAS 123R.  The cost is
measured at the grant date, based on the calculated fair value of the award, and
is recognized as an expense over the employee’s requisite service period
(generally the vesting period of the equity award).





On May 1,
2008, options for 4,880,600 shares were issued to ten employees for services,
exercisable at a price of $.62. The options terminate five years from the date
of the option agreement.  The total salary expense related to these
options totaled $2,787,009 (see Note M).  There is no unrecognized
compensation cost related to unvested options at July 31, 2009.





On June
6, 2008, options for 3,000,000 shares were granted to a consultant, exercisable
at a price of $.10.  The options vest over a period of three years,
with 500,000 options each vesting during the years ended July 31, 2009 and
2008.  The consulting expense related to the vested options totaled
$690,644.  The unrecognized compensation cost associated with these
options is $3,150,551.




F -
26




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE O –
STOCK OPTION PLANS (CONTINUED)





The fair
values of the May 1, 2008 and June 6, 2008 options were estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used: risk-free interest rates of 6%, expected volatility of 130%
and expected life of 3 years.  No dividends were assumed in the
calculations.





On
October 1, 2008, the Chief Executive Officer effectively cancelled 500,000 of
his 500,000,000 outstanding options. The equivalent options, exercisable at
$.10, were then issued to a consultant under an agreement dated October 1, 2008
(see Note M). The consulting expense related to these options totaled $275,000
The Company also granted an option for an additional 200,000 shares of common
stock to the consultant on October 1, 2008, exercisable at $.4875. The
consulting expense related to these options totaled $116,020.





On
October 28, 2008, the Chief Executive Officer agreed to effectively cancel
options covering 3,000,000 shares (see Note M). The equivalent options,
exercisable at $.10, were issued to the strategic business advisor under the
revised agreement. 1,000,000 shares vested retroactively as of the original date
of the contract of July 2007. 1,000,000 shares vested on July 16, 2009 with the
remainder vesting on July 16, 2010. The consulting expense related to these
options totaled $1,500,000. The unrecognized compensation cost associated with
these options is $700,000.





On
November 13, 2008, options for 3,800,000 shares, exercisable at $.10, were
granted to a consultant. The options vested during the year ended July 31, 2009.
The consulting expense related to these options totaled $1,919,054.





The fair
values of the October 1, 2008 options for 200,000 shares and the November 13,
2008 options for 3,800,000 shares are estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used:
risk-free interest rates of 6%, expected volatility of 130% and expected life of
5 years.  No dividends were assumed in the calculations.





The fair
values of the October 1, 2008 and October 28, 2008 options for 500,000 and
2,000,000 shares are estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used: risk-free interest
rates of 6%, expected volatility of 130% and expected life of 15
years.  No dividends were assumed in the calculations.





On
December 31, 2008, options for 100,000 shares were issued to a consultant to the
Company for services, exercisable at a price of $.10. The consulting expense
related to these options totaled $20,674.





On
January 1, 2009, options for 5,000,000 shares were issued to a consultant to the
Company for services, exercisable at a price of $.005. The consulting expense
related to these options totaled $843,582.





On
January 1, 2009, options for 162,687 shares were issued to an employee of the
Company for services, exercisable at $.62. The consulting expense related to
these options totaled $15,928.





On
January 12, 2009, options for 162,687 shares were issued to an employee of the
Company for services, exercisable at $.62. The consulting expense related to
these options totaled $13,562.




F -
27




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE O –
STOCK OPTION PLANS (CONTINUED)





On
January 27, 2009, options for 1,900,000 shares were granted to a consultant to
the Company for services, exercisable at a price of $.10. The options vest over
a period of three years, with 8.33% vesting each quarter. Options for 100,000
shares were also issued to two individuals that work for this consultant,
exercisable at a price of $.10. The consulting expense related to these options
totaled $32,284.  The unrecognized compensation expense associated
with these options is $161,496.





The fair
value of the December 31, 2008 options for 100,000 shares is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used: risk-free interest rates of 6%, expected volatility of 130%
and expected life of 1 year.  No dividends were assumed in the
calculations.





The fair
value of the January 1, 2009 options for 5,000,000 shares is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used: risk-free interest rates of 6%, expected volatility of 130%
and expected life of 7 years.  No dividends were assumed in the
calculations.





The fair
value of the January 1, 2009 and January 12, 2009 options for 162,687 shares
each is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used: risk- free interest rates of 6%,
expected volatility of 130% and expected life of 3 years.  No
dividends were assumed in the calculations.





The fair
value of the January 27, 2009 options for a total of 2,000,000 shares is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used: risk-free interest rates of 6%, expected
volatility of 130% and expected life of 1 year.  No dividends were
assumed in the calculations.





On April
15, 2009, warrants for 25,000,000 shares were granted to EPIR, exercisable at a
price of $.10 (see Note G). The research and development expense related to
these warrants totaled $2,546,944.





The fair
value of the April 15, 2009 warrants for 25,000,000 shares is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used: risk-free interest rates of 2.82%, expected volatility of 130%
and expected life of 7 years.  No dividends were assumed in the
calculations.





A summary
of the Company’s stock option activity is as follows for the years ended July
31, 2009 and 2008.  The following summary, presents information
regarding outstanding stock options as of July 31, 2009 and 2008 and changes
during the years then ended.




F -
28




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE O –
STOCK OPTION PLANS (CONTINUED)


July 31, 2009Outstanding
              
              
              
              
              Weighted-AverageWeighted-Average
              
              
              Aggregate
              
              RemainingShares
              
              
              Exercise
      Price
              
              
              Intrinsic
      Value
              
              Contractual
      LifeOptions
      outstanding atbeginning
      of year
              
              
              507,980,600
              
              
              $
              0.105
              
              
              
              
              $Options
      granted
              
              
              39,925,374
              
              
              
              0.092Options
      cancelled
              
              
              (3,500,000
              )
              
              
              0.100Outstanding
      at July 31, 2009
              
              
              544,405,974
              
              
              $
              0.104
              
              
              $
              277,250
              
              10.6
      yearsExercisable
      at July 31, 2009
              
              
              539,739,174
              
              
              $
              0.104
              
              
              $
              277,250
              
              10.6
      years




July 31, 2008Outstanding
              
              
              
              
              Weighted-AverageWeighted-Average
              
              
              Aggregate
              
              RemainingShares
              
              
              Exercise
      Price
              
              
              Intrinsic
      Value
              
              Contractual
      LifeOptions
      outstanding atbeginning
      of year
              
              
              500,000,000
              
              
              $
              0.100
              
              
              
              
              $Options
      granted
              
              
              32,980,600
              
              
              
              0.105Options
      cancelled
              
              
              (25,000,000
              )
              
              
              0.100Outstanding
      at July 31, 2008
              
              
              507,980,600
              
              
              $
              0.105
              
              
              $
              454,644,628
              
              11.9
      yearsExercisable
      at July 31, 2008
              
              
              507,980,600
              
              
              $
              0.105
              
              
              $
              454,644,628
              
              11.9
      years





Aggregate
intrinsic value in the tables above represents the total pre-tax intrinsic value
(difference between the Company’s closing stock price on July 31, 2009 and the
exercise price, multiplied by the number of in-the-money options) that would
have been received by the option holders had all the option holders exercised
their options on July 31, 2009. This amount changes based on the fair market
value of the Company’s stock.





NOTE P –
CONVERTIBLE DEBENTURE





On July
2, 2009, the Company entered into a securities purchase agreement (the
“Agreement”) with accredited investors (the “Investors”) pursuant to which the
Investors purchased an aggregate principal amount of $500,000 of 12% Senior
Secured Convertible Debentures for an aggregate purchase price of $500,000 (the
“Debentures”). The Debentures bear interest at 12% and mature twelve months from
the date of issuance. The Debentures are convertible at the option of the holder
at any time into shares of common stock, at an initial conversion price equal to
the lesser of (a) $0.10 or (b) an amount equal to fifty percent (50%) of the
lowest closing bid price of the common stock, $0.001 par value for the five (5)
trading days immediately preceding the conversion date; provided, however, in no
event shall the conversion price be less than $0.03 per share.





The
conversion price of the Debentures is subject to full ratchet and anti-dilution
adjustment for subsequent lower price issuances by the Company, as well as
customary adjustments provisions for stock splits, stock dividends,
recapitalizations and the like.





Each of
the Investors has contractually agreed to restrict their ability to convert the
Debentures such that the number of shares of the Company common stock held by
each of them and their affiliates after such conversion does not exceed 4.99% of
the Company’s then issued and outstanding shares of common stock.




F -
29




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE P –
CONVERTIBLE DEBENTURE (CONTINUED)





The full
principal amount of the Debentures is due upon a default under the terms of the
Debentures. The Debentures rank senior to all current and future indebtedness of
the Company and are secured by substantially all of the assets of the Company.
The Company’s obligations under the Debentures are guaranteed by the Company’s
wholly-owned subsidiaries. At any time prior to the maturity of the Debentures,
the Company may, upon written notice, redeem the Debentures in cash at 120% of
the then outstanding principal amount of the Debentures, plus accrued interest
thereon, provided the closing bid price of the of the Company’s common stock, as
reported by Bloomberg, LP, is less than $0.10 at the time of the
redemption.





The
Company has valued the conversion features in their convertible notes using a
valuation model, with the assistance of a valuation consultant.  The
model values the embedded derivatives based on a probability weighted discounted
cash flow model.  This model is based on future projections of the
five primary alternatives possible for settlement of the features included
within the embedded derivative, including: (1) payments are made in cash, (2)
payments are made in stock, (3) the holder exercises its right to convert the
debentures, (4) the Company exercises its right to convert the debentures and
(5) the Company defaults on the debentures.  The Company uses the
model to analyze (a) the underlying economic factors that influence which of
these events will occur, (b) when they are likely to occur, and (c) the common
stock price and specific terms of the debentures such as interest rate and
conversion price that will be in effect when they occur.  Based on the
analysis of these factors, the Company uses the model to develop a set of
management’s projections.  These probabilities are used to create a
cash flow projection over the term of the debentures and determine the
probability that the projected cash flow will be achieved.  A
discounted weighted average cash flow for each scenario is then calculated and
compared to the discounted cash flow of the debentures without the compound
embedded derivative in order to determine a value for the compound embedded
derivative.





As a
result of the convertible debentures, the Company has determined that the
conversion feature of the convertible debentures and the warrants issued with
the convertible debentures are embedded derivative instruments pursuant to
Statement of Financial Accounting Standards (SFAS) 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended.  Under the
provisions of EITF Issue No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the
accounting treatment of these derivative financial instruments requires that the
Company record the derivatives at their fair values as of the inception date of
the note agreements and at fair value as of each subsequent balance sheet date
as a liability.  Any change in fair value is recorded as
non-operating, non-cash income or expense at each balance sheet
date.





The fair
value of the embedded conversion option at July 2, 2009 was $790,856, which
exceeds the face value of the debenture by $290,856. The fair value of the
embedded conversion option at July 31, 2009 was $683,358, which is a decrease of
$107,498 from the fair value calculation at July 2, 2009. The amount of the fair
value that exceeds the face value of $500,000 of the Debentures is shown as
convertible debenture derivative liability with a corresponding charge to income
during the year ended July 31, 2009.




F -
30




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE Q -
RECENT ACCOUNTING PRONOUNCEMENTS





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”).  SFAS 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
accounting principles generally accepted in the United States of America
(GAAP).  SFAS 162 directs the GAAP hierarchy to the entity, not the
independent auditors, as the entity is responsible for selecting accounting
principles for financial statements that are presented in conformity with
GAAP.  SFAS 162 is effective 60 days following the Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight Board
amendments to remove the GAAP hierarchy from the auditing
standards.  The Company does not expect SFAS 162 to have a material
impact on its consolidated financial statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts” (“SFAS 163”). SFAS 163 requires that an insurance
enterprise recognize a claim liability prior to an event of default when there
is evidence that credit deterioration has occurred in an insured financial
obligation. This Statement also clarifies how Statement 60 applies to financial
guarantee insurance contracts, including the recognition and measurement to be
used to account for premium revenue and claim liabilities. The Company does not
expect SFAS 163 to have a material impact on its consolidated financial
statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. Specifically, SFAS 165 provides (1) the period after
the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (2) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (3) the disclosures that an entity should
make about events or transactions that occurred after the balance sheet date.
The Company has not yet determined what effect, if any, adoption of this
Statement will have on the Company’s financial position or results of
operations.





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS 167”), which changes the approach to determining the
primary beneficiary of a variable interest entity (“VIE”) and requires companies
to more frequently assess whether they must consolidate VIEs. SFAS 167 is
effective for the first annual reporting period beginning after
November 15, 2009 and for interim periods within that first annual
reporting period. The Company has not yet determined what effect, if any,
adoption of this Statement will have on the Company’s financial position or
results of operations.




In June
2009, the FASB issued SFAS No. 168, FASB Accounting Standards Codification
(“Codification”) and the Hierarchy of Generally Accepted Accounting Principles
(“GAAP”) – a replacement of FASB Statement No. 162 (“SFAS 168”). The
purpose of the Codification is to provide a single source of authoritative U.S.
GAAP. SFAS 168 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. Accordingly, the Company
will adopt SFAS 168 in the first quarter of fiscal year 2010. As the
Codification was not intended to change or alter existing GAAP, the adoption of
SFAS 168 is not expected to have a material effect on the Company’s financial
statements.




F -
31


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE R –
SUBSEQUENT EVENTS





As of
July 31, 2009, the Company was obligated on $500,000 face amount of Debentures
issued to the Investor. The Debentures were a debt obligation arising other than
in the ordinary course of business which constitute a direct financial
obligation of the Company. On September 28, 2009, the fair value of the
convertible debenture, which includes the convertible debenture derivative
liability, together with the related accrued interest, was converted to
16,703,345 shares of common stock which settled the obligation in full (see Note
P).





On August
12, 2009, the Company entered into a securities purchase agreement (the
“Agreement”) with an accredited investor (the “Investor”) pursuant to which the
Investor purchased an aggregate principal amount of $500,000 of 12% Senior
Secured Convertible Debentures for an aggregate purchase price of $500,000 (the
“Debentures”). The Debentures bear interest at 12% and mature twelve months from
the date of issuance. The Debentures are convertible at the option of the holder
at any time into shares of common stock, at an initial conversion price equal to
the lesser of (a) $0.10 or (b) an amount equal to fifty
percent (50%) of the lowest closing bid price of the common stock, $0.001
par value (the “Common Stock”) for the five (5) trading days immediately
preceding the conversion date; provided, however, in no event shall the
conversion price be less than $0.03 per share (“Initial Conversion
Price”).





The
conversion price of the Debentures is subject to full ratchet and anti-dilution
adjustment for subsequent lower price issuances by the Company, as well as
customary adjustments provisions for stock splits, stock dividends,
recapitalizations and the like.





Each of
the Investors has contractually agreed to restrict their ability to convert the
Debentures such that the number of shares of the Company common stock held by
each of them and their affiliates after such conversion does not exceed 4.99% of
the Company’s then issued and outstanding shares of common stock.





The full principal amount of the Debentures is due upon a default
under the terms of the Debentures. The Debentures rank senior to all current and
future indebtedness of the Company and are secured by substantially all of the
assets of the Company. The Company’s obligations under the Debentures are
guaranteed by the Company’s wholly-owned subsidiaries.





At any
time prior to the maturity of the Debentures, the Company may, upon written
notice, redeem the Debentures in cash at 120% of the then outstanding principal
amount of the Debentures, plus accrued interest thereon, provided the closing
bid price of the of the Company’s Common Stock, as reported by Bloomberg, LP, is
less than $0.10 at the time of the redemption.





On
September 28, 2009, the convertible debenture face amounts for the $500,000 of
convertible debentures dated August 12, 2009, together with accrued interest,
was secured September 28, 2009 for 16,689,498 shares of common stock which
settled that obligation in full.





On August
1, 2009, the company issued 19,900,398 common shares to EPIR Technologies, Inc.
in lieu of its required payment of $1,000,000 due on that same date. On October
1, 2009, the Company made the payment due to EPIR Technolgies in
cash.





F -
32





SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


NOTE R –
SUBSEQUENT EVENTS (CONTINUED)





Effective
October 5, 2009, the Company entered into employment agreements with 10
employees which provides for 3,000,000 stock options to be issued under the
Company’s 2008 Incentive Stock Plan (see Note O).  The options have an
exercise price of $0.083. The compensation expense related to these options
totaled approximately $234,000.





On
October 13, 2009, 14 investors purchased an aggregate of 20,000,000 shares of
common stock at $0.05 per share for an aggregate purchase price of $1,000,000
from the Company.  Additionally, on October 15, 2009, one accredited
investor purchased an aggregate of 1,750,000 shares of common stock at $.06 per
share for an aggregate purchase price of $105,000 from the Company.





On
November 9, 2009, one accredited investor purchased an aggregate of 5,000,000
shares of common stock at $.06 per share for an aggregate purchase price of
$300,000 from the Company, 23  investors purchased an aggregate of
38,905,000 shares of common stock at $.05 per share for an aggregate purchase
price of $1,945,250 from the Company, and one accredited investor purchased an
aggregate of 30,952,381 shares of common stock at $.042 per share for an
aggregate purchase price of $1,300,000 from the Company.