UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


(Mark One)





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended April 30, 2010





OR





o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





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)
(I.R.S. Employer Identification No.)





106 Cattlemen Rd. Sarasota, FL 34232


(Address of principal executive offices)





941-751-6800


(Issuer’s telephone number)





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





6408 Parkland Drive, Suite 104


Sarasota, Fl 34243





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


Yes  x  No o





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 o





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 o
Accelerated filer o
Smaller reporting company xNon-accelerated filer o (Do not check if a smaller reporting company)





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


Yes o   No x





The number of shares of the Registrant’s Common Stock outstanding as of June 17, 2010 was 698,987,139.












1







FORM 10-Q





INDEX





PagePART I: FINANCIAL INFORMATION
3ITEM 1. FINANCIAL STATEMENTS
3REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2CONSOLIDATED BALANCE SHEETS
F-3CONSOLIDATED STATEMENTS OF OPERATIONS
F-4CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
F-5CONSOLIDATED STATEMENTS OF CASH FLOWS
F-6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7-F-32ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
4ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
10ITEM 4. CONTROLS AND PROCEDURES
10ITEM 4T. CONTROLS AND PROCEDURES
10PART II. OTHER INFORMATIONITEM 1.  LEGAL PROCEEDINGS
11ITEM 1A. RISK FACTORS
11ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
11ITEM 3 DEFAULTS UPON SENIOR SECURITIES
12ITEM 4. (Removed and Reserved)
12ITEM 5.  OTHER INFORMATION
12ITEM 6. EXHIBITS
13SIGNATURES
15











2





PART 1: FINANCIAL STATEMENTS


SUNOVIA ENERGY TECHNOLOGIES, INC.





Introductory Note





Caution Concerning Forward-Looking Statements





This Report and our other communications and statements may contain “forward-looking statements,” including statements about our beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. These statements are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements, including when used in the negative. All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Forward-looking statements include, but are not limited to, statements about:




o
our expectations regarding our expenses and revenue;o
our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing;o
plans for future products, for enhancements of existing products and for development of new technologies;o
our anticipated growth strategies;


o
existing and new customer relationships;o
our technology strengths;o
our intellectual property, third-party intellectual property and claims related to infringement thereof;o
anticipated trends and challenges in our business and the markets in which we operate; and


o
sources of new revenue, if any.





Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that the expectations reflected in these forward-looking statements will prove to be correct. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Current shareholders and prospective investors are cautioned that any forward-looking statements are not guarantees of future performance. Such forward-looking statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results for future periods could differ materially from those discussed in this report, depending on a variety of important factors, among which are our ability to implement our business strategy, our ability to compete with major established companies, the acceptance of our products in our target markets, the outcome of litigation, our ability to attract and retain qualified personnel, our ability to obtain financing, our ability to continue as a going concern, and other risks described from time to time in our filings with the Securities and Exchange Commission. Forward-looking statements contained in this report speak only as of the date of this report. Future events and actual results could differ materially from the forward-looking statements. You should read this report completely and with the understanding that actual future results may be materially different from what management expects. We will not update forward-looking statements even though its situation may change in the future.








3








SUNOVIA ENERGY TECHNOLOGIES, INC.
 
 
 
 REPORT ON REVIEWS OF
 CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2010 AND 2009
             Bobbitt, Pittenger & Company, P.A.
 
 
 
 
 
 
 
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 
  CONTENTS U
  PAGEUREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2CONSOLIDATED BALANCE SHEETS
F-3CONSOLIDATED STATEMENTS OF OPERATIONS
F-4CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
F-5CONSOLIDATED STATEMENTS OF CASH FLOWS
F-6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7 -F-32
 
 F-1
   
 
 
 June 21, 2010
 
 To The Board of Directors and Stockholders
 Sunovia Energy Technologies, Inc.
 Sarasota , Florida
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 We have reviewed the accompanying consolidated balance sheet of Sunovia Energy Technologies, Inc., as of April 30, 2010 and the related consolidated statements of operations for the three and nine months ended April 30, 2010 and 2009 and the related consolidated statements of cash flows for the nine months ended April 30, 2010 and 2009 and the consolidated statement of changes in stockholders’ equity for the nine months ended April 30, 2010.  These consolidated financial statements are the responsibility of the Company’s management.
 
 We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
 
 Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
 We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Sunovia Energy Technologies, Inc., as of July 31, 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and in our report dated October 27, 2009, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of July 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
 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 $11,345,180 and $12,247,241 for the nine months ended April 30, 2010 and 2009, respectively. 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.
   
 Certified Public Accountants
 Sarasota, Florida
  
 
  F-2
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 CONSOLIDATED BALANCE SHEETS
  April 30, 2010


July 31, 2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
1,220,857


$
308,495Accounts receivable, net


396,019



138,196Prepaid expenses


32,232



30,347Inventory


640,405



234,551Tooling, net


17,187



-TOTAL CURRENT ASSETS


2,306,700



711,589Furniture and equipment, net


116,615



160,462Investment in EPIR Technologies, Inc.


3,780,385



3,780,385Other assets


53,988



53,988TOTAL ASSETS

$
6,257,688


$
4,706,424LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
504,826


$
146,415Accrued expenses


295,103



166,131Due to EPIR Technologies, Inc.


165,000



-Convertible debenture


-



500,000Noncash compensation payable


891,778



811,638Common stock redemption


650,000



650,000Current portion of notes payable


638,326



-Convertible debenture derivative liability


-



183,358TOTAL CURRENT LIABILITIES


3,145,033



2,457,542NOTES PAYBABLE, less current portion


68,000



-TOTAL LIABILITIES


3,213,033



2,457,542STOCKHOLDERS' EQUITYCommon stock, $.001 par value; 1,500,000,000 sharesauthorized: 698,987,139 and 533,493,450 at April 30, 2010 and July 31, 2009, respectively, issued and outstanding


698,987



533,493Additional paid-in capital


68,989,638



57,014,179Accumulated deficit


(66,609,495
)


(55,264,315
)3,079,130



2,283,357Less: treasury stock


(34,475
)


(34,475
)TOTAL STOCKHOLDERS' EQUITY


3,044,655



2,248,882TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
6,257,688


$
4,706,424
  and notes to consolidated financial statements
    F-3
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Three


For the Nine


For the Three


For the NineMonths Ended


Months Ended


Months Ended


Months EndedApril 30, 2010


April 30, 2010


April 30, 2009


April 30, 2009(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)Net sales

$
495,614


$
1,492,210


$
295,223


$
886,135Cost of sales


427,552



1,693,903



205,728



608,595Gross margin


68,062



(201,693
)


89,495



277,540Expenses:Selling, general and administrative


2,353,631



5,791,836



2,063,325



6,418,681Research and development


1,032,156



4,059,110



3,885,774



6,139,870Total expenses


3,385,787



9,850,946



5,949,099



12,558,551Operating loss


(3,317,725
)


(10,052,639
)


(5,859,604
)


(12,281,011
)Other income:Interest and dividends


1,289



3,537



7,813



33,770Convertible debenture derivative loss


-



(1,296,078
)


-



-Total other income


1,289



(1,292,541
)


7,813



33,770Loss before income tax benefit


(3,316,436
)


(11,345,180
)


(5,851,791
)


(12,247,241
)Income tax benefit


-



-



-



-Net loss

$
(3,316,436
)

$
(11,345,180
)

$
(5,851,791
)

$
(12,247,241
)Loss per share:Basic

$
(0.00
)

$
(0.02
)

$
(0.01
)

$
(0.02
)Diluted

$
(0.00
)

$
(0.02
)

$
(0.01
)

$
(0.02
)Weighted average number of commonshares outstanding:Basic


690,358,645



649,874,511



537,213,451



533,265,466Diluted


690,358,645



649,874,511



537,213,451



533,265,466
  and notes to consolidated financial statements
   F-4
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 AdditionalCommon Stock


Paid-in


Accumulated


TreasuryShares


Amount


Capital


Deficit


Stock


TotalBalance, August 1, 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 per


1,139,212



1,139



452,221



-



-



453,360share)Treasury stock received as incomefrom 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
)


2,248,882Shares issued in private placement($0.04-$0.06 per share)


80,417,381



80,417



3,799,843



-



-



3,880,260Shares issued to EPIR inaccordance with R&D agreement


53,692,971



53,693



2,946,307



-



-



3,000,000Shares issued to settle debentures


30,992,943



30,993



2,448,443



-



-



2,479,436Shares cancelled


(3,000,000
)


(3,000
)


3,000



-



-



-Stock issued for services andcompensation ($0.07-$0.49 per share)


3,390,394



3,391



668,959



-



-



672,350Stock options and warrantsgranted for services


-



-



2,091,159



-



-



2,091,159Short swing profits


-



-



17,748



-



-



17,748Net loss


-



-



-



(11,345,180
)


-



(11,345,180
)Balance, April 30, 2010


698,987,139


$
698,987


$
68,989,638


$
(66,609,495
)

$
(34,475
)

$
3,044,655
   and notes to consolidated financial statements
  F-5
 
 SUNOVIA ENERGY TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine


For the NineMonths Ended


Months EndedApril 30, 2010


April 30, 2009(Unaudited)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(11,345,180
)

$
(12,247,241
)Adjustments to reconcile net loss tonet cash used by operating activitiesDepreciation and amortization


55,382



50,383Inventory adjustment


34,251



-Convertible debenture derivative loss


1,296,078



-Stock issued and stock options issued for servicesand compensation


5,763,509



6,795,420Changes in operating assets and liabilities:Accounts receivable


(257,823
)


(259,868
)Prepaid expenses


(1,885
)


(37,210
)Inventory


(440,105
)


(80,967
)Tooling


(17,187
)


-Other assets


-



(32,040
)Accounts payable


358,411



(103,914
)Accrued expenses


128,972



(61,518
)Due to EPIR Technologies, Inc.


165,000



-Noncash compensation payable


80,140



(398,568
)NET CASH USED BY OPERATING ACTIVITIES


(4,180,437
)


(6,375,523
)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of furniture and equipment


(11,535
)


(32,941
)NET CASH USED BY INVESTING ACTIVITIES


(11,535
)


(32,941
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from notes payable


706,326



-Proceeds from issuance of convertible debenture


500,000



-Short swing profits


17,748



-Equity contributed by private placement


3,880,260



1,214,028NET CASH PROVIDED BY FINANCING ACTIVITIES


5,104,334



1,214,028NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


912,362



(5,194,436
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


308,495



5,982,779CASH AND CASH EQUIVALENTS, END OF PERIOD

$
1,220,857


$
788,343Cash paid for:Interest

$
23,645


$
-Income taxes

$
-


$
-  NONCASH OPERATING AND FINANCING ACTIVITIES:Stock, stock options, and warrants issued and granted

for services and compensation

$
5,763,509


$
6,795,420Shares issued to settle debentures

$
2,479,436


$
-
  See report of independent registered public accounting firm and notes to consolidated financial statements.
  F-6
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2010 AND 2009
 
 
 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization, Nature, and Continuance of Operations
 
 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.
 
 On November 27, 2007, Acadia Resources, Inc. (“Acadia”), Sunovia Solar, Inc., a wholly owned subsidiary of Acadia (“Sunovia Solar”) and Sun Energy Solar, Inc. 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.
 
 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 nine months ended April 30, 2010 and 2009, the Company has experienced losses of $11,345,180 and $12,247,241. 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.
 
 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.
 
 
 F-7
 
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 U
 
 
 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 April 30, 2010, the Company had an uninsured cash balance of approximately $723,000.
 
 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 April 30, 2010 is $124,860 in accrued royalty expense. There was no royalty expense recognized during the nine months ended April 30, 2009.
 
 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, Net
 
 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 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 $13,725 at April 30, 2010 and July 31, 2009.  Management has
 
   F-8
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Accounts Receivable (Continued)
 
 not charged interest on accounts receivable as of April 30, 2010.  At April 30, 2010, approximately 69% of accounts receivable are due from three customers. Approximately 53% of the Company’s sales for the nine months ended April 30, 2010 are to three customers.
 
 Furniture and Equipment, Net
 
 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.
 
 Tooling, Net
 
 Tooling is recorded at cost. Amortization is calculated using the straight-line method, in amounts sufficient to relate the cost of tooling assets to operations over their estimated useful life which is five years.
 
 Accounting for Long-Lived Assets
 
 In accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is now codified under ASC Topic 360, 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 Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which is now codified under ASC Topic 350, 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 April 30, 2010 and July 31, 2009.  Costs capitalized in association with patents totaled $47,008 at April 30, 2010 and July 31, 2009.  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-9
 
 
 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 No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which is now codified under ASC Topic 815, 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 No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”, which is now codified under ASC Topic 815, 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 Statement of Financial Accounting Standards No. 2, “Accounting for Research and Development Costs”, which is now codified under ASC Topic 730, Research and Development ("R&D") expenses are charged to operations when incurred.  R&D is performed internally, and the Company does not perform R&D for other entities.  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 the Company’s products is recorded as product revenue.  The related costs are recorded as cost of sales.
 
  
 F-10
 
 
 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 nine months ended April 30, 2010 and 2009 totaled $17,349 and $13,689, respectively.
 
 Stock Based Compensation
 
 The Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, which is now codified under ASC Topic 718 (“ASC 718”), 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 ASC 718 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, ASC 718 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 April 30, 2010 and July 31, 2009, there were no loss contingencies expected.
 
 Income Taxes (Benefits)
 
 The Company utilizes the guidance provided by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, which is now codified under ASC Topic 740.  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 nine months ended April 30, 2010 and 2009.
 
 At April 30, 2010, the Company had a net operating loss carryforward of approximately $26,067,000 that may be offset against future taxable income through 2026.  The amount of the income tax benefit for the nine months ended April 30, 2010 and 2009, before the valuation allowance was applied, totaled approximately $2,091,000 and $2,195,000, respectively.
 
 
 F-11
 
 
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 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 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 April 30, 2010 and 2009 as the effect is antidilutive was 552,055,974 and 544,405,974, respectively.
 
 Inventory
 
 Inventory consists of various electronic components used in the assembly of LED lights.  Inventory is stated at the lower of cost or market.  Cost is determined by the first-in, first-out (FIFO) method. Included in selling, general, and administrative expense during the nine months ended April 30, 2010 are inventory write-downs totaling $34,251 related to inventory obsolescence and waste. There were no write-downs related to inventory obsolescence and waste during the nine months ended April 30, 2009. Included in inventory at April 30, 2010 are consigned components totaling $19,326.
 
 Comprehensive Income
 
 The Company has adopted Statement of Financial Accounting Standards No. 130, “ReportingComprehensive Income”,which is now codified under ASC Topic 220. 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 nine months ended April 30, 2010 and 2009.
 
 Fair Value Measurements
 
 Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements,which is now codified under ASC Topic 820 (“ASC 820”).  ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.
 
 
 F-12
 
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Fair Value Measurements (Continued)
 
 ASC 820 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.  ASC 820 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:
 
 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, accrued liabilities, other payable and notes payable 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 standard also provides for situations under certain circumstances where it is acceptable not to use fair value. These would include the following: (1) an exemption to the requirement to measure fair value if fair value cannot be measured with sufficient reliability, (2) an exemption to the requirement to measure fair value if fair value is not reasonably determinable, or (3) an exemption to the requirement to measure fair value if it is not practicable to do so.  As discussed in Note G, the Company has determined it is essentially not possible currently to determine the fair market value of its investment in EPIR Technologies, Inc. because it has been unable to obtain the type of information required to calculate the fair value as provided for in Level 3. While the Company’s management continues to believe that there is value in its investment in EPIR Technologies, Inc., and has taken steps that it believes can provide an informed measurement of fair value, management believes the use of the cost allocated to the initial transaction is the most appropriate method to measure fair value until further information can be obtained.
 
 
 
 F-13
 
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Reclassifications
 
 Certain amounts for the nine months ended April 30, 2009 have been reclassified in the comparative financial statements to be comparable to the presentation for the period ended April 30, 2010.  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.
 
 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.
 
 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.
 
 
 
 F-14
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 NOTE C - INCOME TAXES
 
 The Company's net deferred tax asset is as follows:
 
 April 30, 2010


July 31, 2009Deferred tax assetNet operating loss carryforward

$
9,775,000


$
7,713,000Valuation allowance


(9,775,000
)


(7,713,000
)Net deferred tax asset

$
-


$
-
 
 A reconciliation of (provision) benefit for income taxes to income taxes at statutory rate is as follows:
 
 For the Nine


For the NineMonths Ended


Months EndedApril 30, 2010


April 30, 2009Federal income (tax) benefitat statutory rate

$
1,784,000


$
1,873,000State (taxes) benefit


307,000



322,000Valuation allowance


(2,091,000
)


(2,195,000
)(Provision) benefit for income taxes

$
-


$
-
 NOTE D - FURNITURE AND EQUIPMENT, NET
 
 At April 30, 2010 and July 31, 2009 furniture and equipment consisted of the following:
 April 30, 2010


July 31, 2009Computer equipment

$
249,524


$
249,524Furniture and fixtures


34,308



34,308Leasehold improvements


17,327



17,327301,159



301,159Less: accumulated depreciation


(184,544
)


(140,697
)Furniture and equipment

$
116,615


$
160,462
 Total depreciation expense for the nine months ended April 30, 2010 and 2009 was $43,847 and $50,383, respectively.
 
 F-15
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 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 3,000,000 shares and 4,495,000 shares during the nine months ended April 30, 2010 and year ended July 31, 2009, respectively.
 
 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.
 
 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 was for a period of three years and commenced on October 1, 2006.  The base rent over the term was approximately $134,000.  The lease was renewed for an additional year effective November 1, 2009. The Company is responsible for all taxes, insurance and utility expenses associated with the leased property.  On April 14, 2010, the Company entered into a new operating lease for office space/warehouse facilities in Sarasota, Florida.  The lease commenced the day after completion of the landlord’s work and the Company’s certificate of occupancy, which was in June 2010. The lease term is for a period of five years and six months after the commencement date. The base rent for the first year is $83,154.   Rental expense for the nine months ended April 30, 2010 and 2009 totaled $61,286 and $51,908, respectively.
 
 
 
 
 F-16
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE F - RENTAL AND LEASE INFORMATION (CONTINUED)
 
 Future minimum rental payments are as follows:
  For the fiscal year ended 2010:

$
36,299For the fiscal year ended 2011:


94,375For the fiscal year ended 2012:


83,874For the fiscal year ended 2013:


88,187For the fiscal year ended 2014:


93,218For the fiscal year ended 2015:


83,673$
479,626
 The Company is participating in a performance-based incentive grant through Sarasota County, Florida that could total $100,000 over three years contingent on the Company adding 68 employees and providing an average annual wage exceeding the county average.
 
 NOTE G - INVESTMENT IN EPIR TECHNOLOGIES, INC.
 
 The Company has 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.
 
 Currently, the Company has disputes with EPIR Technologies, Inc., which may ultimately result in litigation. The Company has notified EPIR that it is in breach of the mutual agreement and submitted a formal request for specific corporate and financial records. The agreement required EPIR to deliver a 1MW to 3MW pilot production facility in early 2010 for solar CPV Cadmium Telluride wafers. This date was not met by EPIR. Additionally, the Company requested financial records from EPIR for reporting purposes and to verify the specific amount owed. The Company believes these records should be made available to them, as a shareholder of EPIR and under the agreement between the companies.
 
 In December 2009, the Company billed and collected $165,000 for the sale of infrared wafers to an entity, which it had purchased from EPIR under a cost plus sharing of profits arrangement.  EPIR has requested that it be paid 95 percent of the sum. The Company is presently unable to determine the validity of such amount as it has been unable to review the documentation it believes is necessary to agree to any amount. However, the Company has reserved the entire amount of $165,000 for payment for the wafers.
 
 In April 2010, the founder and chairman of EPIR and shareholder of Sunovia Energy Technologies (OTC BB: SUNV), voluntarily disgorged $17,748 of short swing profits under Section 16 of the Securities Exchange Act of 1934.
 
 
 
 F-17
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE G - INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 As a result of these matters, and other concerns, the Company notified EPIR that it is in breach of the contract and withheld $1,000,000 that was due on June 1, 2010. EPIR has announced it considers the allegations false, considers the nonpayment due June 1 and the nonpayment of the amount associated with the infrared wafers to be a breach of contract by the Company, suspended its research activities, and intends to vigorously defend its position. The Company has hired a special counsel to represent it in this matter.
 
 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 June 1, 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. The August 1, 2009, October 1, 2009 and December 1, 2009 payments were satisfied through the issuance of the Company’s common stock. 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 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 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
 
 
 
 F-18
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE G - INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 Immediately upon the date which EPIR received the accelerated payment, the Company, in its sole discretion, may, 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 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.  Effective August 1, 2009, the Company issued 19,900,498 shares of the Company’s common stock to EPIR in satisfaction of the August 1, 2009 payment.  In satisfaction of the October 1, 2009 payment, the Company issued 20,000,000 shares of common stock at $.05 per share to select EPIR employees. The EPIR employees remitted $1,000,000 to EPIR for the shares. The funds were retained by EPIR and accounted for as the October 1, 2009 payment from the Company. In satisfaction of the December 1, 2009 payment, the Company issued 23,900,000 shares of common stock at $.05 per share to EPIR and select EPIR employees. A total of $1,195,000 was remitted to the Company. These funds were then remitted to EPIR and $1,000,000 was accounted for as the December 1, 2009 payment from the Company and $195,000 was considered a prepayment for the March 1, 2010 payment. In satisfaction of the March 1, 2010 payment, the Company issued 9,892,473 shares of common stock at $.08 per share to EPIR. Payments as shown on the following schedule through March 1, 2010 have been made by the Company.
 
 
 F-19
    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, 2018500,000

October 1, 2018$
23,700,000
 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).
 
 
 F-20
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE G - INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 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 Statement of Financial Accounting Standards 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 Segment
 For the nine months ended April 30, 2010
 Solar

Substrate


Lighting

Product


Corporate

and OtherNet sales

$
-


$
1,492,210


$
-Operating loss

$
(4,059,110
)

$
(5,679,630
)

$
(313,899
)Interest income

$
-


$
-


$
3,537Convertible debenture derivative loss

$
-


$
-


$
(1,296,078
)Depreciation and amortization

$
-


$
-


$
55,382Assets

$
3,780,385


$
1,170,226


$
1,307,077
 F-21
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H – SEGMENT INFORMATION (CONTINUED)
 For the nine months ended April 30, 2009
 Solar

Substrate


Lighting

Product


Corporate

and OtherNet sales

$
-


$
886,135


$
-Operating loss

$
(6,029,171
)

$
(5,824,394
)

$
(427,446
)Interest income

$
-


$
-


$
33,770Depreciation and amortization

$
-


$
-


$
50,383Assets

$
3,780,385


$
989,651


$
876,303


NOTE I - RETIREMENT PLAN
 
 Effective January 1, 2007, the Company implemented 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 retirement expense for the nine months ended April 30, 2010 and 2009 was approximately $17,400 and $15,900, 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 nine months ended April 30, 2010 and 2009, 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-22
    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:
 
 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 2008, the Company entered into an employment agreement with its current Chief Financial Officer.  The employment agreement granted the Chief Financial Officer an annual salary of $100,000 per year 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 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. The unrecognized compensation cost at April 30, 2010 related to these options is $175,000.
 
 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 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 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.
 
   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 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 issued the consultant 265,000 shares of common stock.
 
 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 1,916,665 options vested as of April 30, 2010 (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 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 provided 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) assisted with the development of advertising and marketing programs and materials, (ii) reviewed and made any necessary modifications to the Company press releases, collaterals, presentations, and other sales, and marketing and promotional materials, (iii) assisted with key executive searches and offer executive qualification evaluations,  (iv) consulted biweekly with the President and/or CEO of the Company, (v) attended select meetings with the President and/or CEO of the Company, and (vi) assisted with due diligence of potential acquisitions and partnerships. In consideration for services rendered, the Company paid 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 vesting over a period of three years. 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 receive options consisting of 50,000 shares of common stock of the Company vesting over a period of three years (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.
 
 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.
 
 Effective February 8, 2010 and March 1, 2010, the Company entered into an employment agreement with two employees which provides for 1,000,000 and 350,000 stock options to be issued under the Company’s 2008 Incentive Stock Plan (see Note O), respectively.  The options have an exercise price of $0.0001.  The total compensation expense recognized related to the vested options was approximately $20,000. Total unrecognized compensation cost at April 30, 2010 related to these options is $125,338.
 
 Effective April 1, 2010, the Company entered into employment agreements with 10 employees which provides for 3,300,000 stock options to be issued under the Company’s 2008 Incentive Stock Plan (see Note O).  The options have an exercise price of $0.0001.  The total compensation expense recognized related to the vested options was approximately $54,000. Total unrecognized compensation cost at April 30, 2010 related to these options is $245,818.
 
 
 F-25
   SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE N - STOCK COMPENSATION
 
 The Company has recorded expenses, paid or accrued in common stock or common stock options, of $5,843,649 and $6,396,852 for the nine months ended April 30, 2010 and 2009, respectively. For the nine months ended April 30, 2010, salary, consulting, and research and development expenses paid or accrued for payment in common stock or common stock options, totaled $601,624, $2,242,025, and $3,000,000, respectively.  For the nine months ended April 30, 2009, consulting expense paid or accrued for payment in common stock, totaled $6,396,852.
 
 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 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.
 
 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 ASC 718.  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 these options at April 30, 2010.
 
 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 1,749,999 options vested as of April 30, 2010.  The consulting expense related to the vested options totaled $1,900,641.  The unrecognized compensation cost associated with these options is $1,430,002.
 
 
 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 recognized related to these options totaled $2,025,000. The unrecognized compensation cost associated with these options is $175,000.
 
 The fair value of the October 1, 2008 options for 200,000 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 5 years.  No dividends were assumed in the calculations.
 
 The fair value 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 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 $80,709.  The unrecognized compensation expense associated with these options is $113,070.
 
 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.
 
 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.  The options have an exercise price of $0.083.  The compensation expense related to these options totaled $234,205.  During the six months ended January 31, 2010, the Company’s president cancelled 3,000,000 shares of his outstanding common stock to offset the dilution to the Company’s common stock shares.
   
 F-27
    SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE O – STOCK OPTION PLANS (CONTINUED)
 
 The fair value of the October 5, 2009 options for 3,000,000 shares is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.21%, expected volatility of 130% and expected life of 5 years.  No dividends were assumed in the calculations.
 
 Effective February 8, 2010 and March 1, 2010, the Company entered into employment agreements with two employees which provide for 1,000,000 and 350,000 stock options to be issued under the Company’s 2008 Incentive Stock Plan (see Note O), respectively.  The options have an exercise price of $0.0001.  The total compensation expense recognized related to the vested options was approximately $20,000. The unrecognized compensation expense associated with these options is $125,338.
 
 Effective April 1, 2010, the Company entered into employment agreements with 10 employees which provides for 3,300,000 stock options to be issued under the Company’s 2008 Incentive Stock Plan (see Note O).  The options have an exercise price of $0.0001.  The total compensation expense recognized related to the vested options was approximately $54,000. The unrecognized compensation expense associated with these options $242,820.
 
 The fair value of the February 8, 2010, March 1, 2010, and April 1, 2010 options for a total of 4,650,000 shares is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%, expected volatility of 130% and expected life of 5 years.  No dividends were assumed in the calculations.
 
 A summary of the Company’s stock option activity is as follows for the nine months ended January 31, 2010.  The following summary, presents information regarding outstanding stock options as of April 30, 2010 and July 31, 2009 and changes during the nine months and year then ended.
  April 30, 2010
 
 Outstanding




Weighted-AverageWeighted-Average


Aggregate

RemainingShares


Exercise Price


Intrinsic Value

Contractual LifeOptions outstanding atbeginning of year


544,405,974


$
0.105


$Options granted


7,650,000



0.033Outstanding at April 30, 2010


552,055,974


$
0.103


$
381,250

10.5 yearsExercisable at April 30, 2010


545,326,472


$
0.103


$
381,250

10.5 years
 
 
 
 F-28
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE O – STOCK OPTION PLANS (CONTINUED)
 July 31, 2009
 Outstanding





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
  Aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (difference between the Company’s closing stock price on April 30, 2010 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 April 30, 2010. This amount changes based on the fair market value of the Company’s stock.
 
 NOTE P – CONVERTIBLE DEBENTURE
 
 On July 2, 2009 and August 12, 2009, the Company entered into securities purchase agreements (the “Agreements”) with accredited investors (the “Investors”) pursuant to which the Investors purchased an aggregate principal amount of $500,000 each, total $1,000,000 of 12% Senior Secured Convertible Debentures (the “Debentures”). The Debentures bore interest at 12% and matured twelve months from the date of issuance. The Debentures were 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 would the conversion price be less than $0.03 per share.
 
 The conversion price of the Debentures was 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 had 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 was due upon a default under the terms of the Debentures. The Debentures ranked senior to all current and future indebtedness of the Company and were secured by substantially all of the assets of the Company. The Company’s obligations under the Debentures were guaranteed by the Company’s wholly-owned subsidiaries. At any time prior to the maturity of the Debentures, the Company may have, upon written notice, redeemed 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.
    F-29
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE P – CONVERTIBLE DEBENTURE (CONTINUED)
 
 The Company valued the conversion features in their convertible notes using a valuation model, with the assistance of a valuation consultant.  The model valued the embedded derivatives based on a probability weighted discounted cash flow model.  This model was 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 used 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 had determined that the conversion feature of the convertible debentures and the warrants issued with the convertible debentures were 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 required 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.
 
 On September 28, 2009, the convertible debenture face amounts for the $500,000 of convertible debentures dated July 2, 2009 and the $500,000 of convertible debentures dated August 12, 2009, together with accrued interest, were converted September 28, 2009 to 30,992,943 shares of common stock at $.08 per share which settled the obligations in full. This conversion resulted in a convertible debenture derivative loss of $1,296,078.
 
 NOTE Q – NOTES PAYABLE
 
 The Company has notes payable in the amount of $638,326 at April 30, 2010 to nine stockholders. There were no notes payable at July 31, 2009. The notes are payable in monthly interest only payments at an annual rate of 10%. The notes mature in December 2010, January 2011, February 2012, and March 2012 with up to five consecutive renewal options. Interest expense for the nine months ended April 30, 2010 totaled $23,645.
 
 
 
 
 F-30
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS
 
 In the current period, the Financial Accounting Standards Board (“FASB”) finalized the “FASB Accounting Standards Codification” (“Codification” or “ASC”), which is effective for periods ending on or after September 15, 2009.  Accordingly, the Company has implemented the ASC structure required by the FASB and any references to guidance issued by the FASB in these footnotes are to the ASC, in addition to the other forms of standards.  The ASC does not change how the Company accounts for transactions or the nature of the related disclosures made.
 
 In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value” (“ASU 2009-05”) which represents an update to ASC 820.  ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:  1) a valuation technique that uses either the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as an asset; or 2) another valuation technique that is consistent with the principles in ASC 820 such as the income and market approach to valuation.  The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity that is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  This update further clarifies that if the fair value of a liability is determined by reference to a quoted price in an active market for an identical liability, that price would be considered a Level 1 measurement in the fair value hierarchy.  Similarly, if the identical liability has a quoted price when traded as an asset in an active market, it is also a Level 1 fair value measurement if no adjustments to the quoted price of the asset are required.  This update is effective for the first reporting period (including interim periods) beginning after issuance.  The Company does not expect ASU No. 2009-05 to have a material impact on its financial statements.
 
 In August 2009, the FASB issued ASU No. 2009-04, “Accounting for Redeemable Equity Instruments” (“ASU 2009-04”) which relates to ASC Topic 480.  ASU 2009-04 represents an update to ASC Topic 480 “Distinguishing Liabilities from Equity” and provides guidance on what type of instruments should be classified as temporary versus permanent equity, as well as guidance regarding measurement. The Company does not expect ASU No. 2009-04 to have a material impact on its financial statements.
 
 In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FIN 46(R)”, which is now codified under ASC Topic 810 (“ASC 810”).  SFAS 167 modifies how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  In addition, a reporting entity will be required to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.  ASC 810 is effective at the start of the first fiscal year beginning after November 15, 2009.  The Company is currently assessing the impact that ASC 810 will have on the financial statements.
 
 In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166 “Accounting for Transfers of Financial Assets,” which is now codified under ASC Topic 860 (“ASC 860”).  ASC 860 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets.  It eliminates the concept of a “qualifying special purpose
 
 
 F-31
 
 SUNOVIA ENERGY TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
 
 entity”, changes the requirements for derecognizing financial assets and requires additional disclosures.  ASC 860 is effective at the start of the first fiscal year beginning after November 15, 2009.  The Company does not expect ASC 860 to have a material impact on its financial statements.
 
 In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”) which represents an update to ASC Topic 605.  ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates.  This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.  This update is effective prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010 and early adoption is permitted.  The Company does not expect ASU 2009-13 to have a material impact on its financial statements.
 
 On November 13, 2009, the FASB amended ASC Topic 820 to provide new disclosure requirements for transfers in and/or out of Levels 1 and 2. A reporting entity should disclose the amounts of significant transfers in and/or out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present information about purchases, sales, issuances, and settlements on a gross basis rather than as one net number. The amendment also clarifies some existing disclosure requirements. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. In terms of disclosure about inputs and valuation techniques, a reporting entity should provide disclosures about the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements. These disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The final amendments to the Accounting Standards Codification will be effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis. That requirement will be effective starting in annual periods beginning after December 15, 2010. The Company is currently assessing the impact that this amendment will have the financial statements.
 
 NOTE S – SUBSEQUENT EVENTS
 
 The Company has evaluated subsequent events through the date the financial statements were issued.
 
 All significant subsequent events have been disclosed in Note G.










F-32




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





The following discussion and analysis summarizes the significant factors affecting: (i) our results of operations for the three months ended April 30, 2010; and (ii) financial liquidity and capital resources.  This discussion and analysis should be read in conjunction with our financial statements and notes included in this Form 10-Q.





MANAGEMENT’S DISCUSSION AND ANALYSIS





To familiarize themselves with our operations, readers are encouraged to review our securities filings on the SEC’s Edgar database, including the annual report on form 10-K filed for the year ended July 31, 2009, and the quarterly report on form 10-Q for the quarter ended January 31, 2010. This quarterly report provides an update of that information. Since we filed that report, we have accomplished the following:





·
We have recently moved into a new facility, tripling the size of our old facility. We are participating in an incentive-based grant program through Sarasota County, FL which could provide certain incentives.


·
We have shipped our first major parking garage order (De Paul University) which we believe can be used as a demonstration for other customers.


·
We have added 22 international and domestic representatives to our sales and marketing effort. There is no assurance that the engagement of these sales personnel will result in sales.


·
The trend lines for performance and cost for both our fixtures and LEDs in general are showing improvement. The main components of our fixtures, LEDs, have had considerable improvement in the last year. For instance, a year ago, the top performing LED performed at a maximum level of approximately 100 lumens per watt (lpw) at a price of $2.45. That price is now $1.05, and there are now LEDs available that can perform at maximum of 150 lumens per watt. In turn, using the best performing LEDS available, we were building fixtures that performed at a level of 53 lumens per watt a year ago, and now build fixtures that perform in the area of 90 lumens per watt.


·
In  addition to the lumens per watt, we are building fixtures that are beating the competition in the performance metric of  Fitted Target Efficacy (FTE), which is a standard the U.S. Department of Energy (DOE) evaluates the efficacy with which a luminaire delivers uniform illumination for a rectangular uniform area of coverage. According to the DOE, other existing project-independent metrics do not adequately measure the efficacy with which outdoor pole-mounted luminaries will deliver light to intended target areas with limited light spill and waste.


·
EvoLucia Aimed Optics technology consistently outperforms “light bar” technology on FTE tests as described in the chart below.





Company
Type
FTE Required*
Actual FTEAEL
Type I Medium
37
29GE
Type IV Medium
37
40GE
Type II Medium
37
42EvoLucia
Type III Medium
37
56





*FTE standard required by city of Los Angeles, California.








We continue to face challenges. Currently, Sunovia is in a series of disputes with EPIR Technologies, Inc., (“EPIR”) which may ultimately result in litigation with EPIR. Sunovia has notified EPIR that it is in breach of the mutual agreement and submitted a formal request for specific corporate and financial records. The agreement required EPIR to deliver a 1MW to 3MW pilot production facility in early 2010 for solar CPV Cadmium Telluride wafers. This date was not met by EPIR. Additionally, Sunovia requested financial records from EPIR for reporting purposes and to verify amounts EPIR believes it is owed and for financial planning purposes. Sunovia believes these records should be made available, as a shareholder of EPIR and under the agreement between the companies. Sunovia has reserved up to $165,000 for payment for the wafers, which contractually was agreed upon to based on generally accepted accounting principles. Once able to make a determination as to the validity of those charges, Sunovia plans to pay the contractually agreed upon amount.  In April 2010, Dr. Siva Sivananthan, founder and chairman of EPIR and shareholder of Sunovia, voluntarily disgorged $17,748 of short swing profits under Section 16 of the Securities Exchange Act of 1934. On June 1, 2010, the Company withheld payment to EPIR of $1 million payment that was due pending resolution of the matters in question. EPIR has announced it considers the allegations false and intends to vigorously defend its position.  EPIR has that it has halted research and development work under the agreement in response to Sunovia withholding payment.








4








Our lighting customers have primarily been end users with some original equipment manufacturers and system integration providers who demand reliable LED lighting solutions. Our infrared customers consist entirely of original equipment manufacturers. This may change again as we hope to build a network of representatives who will introduce lighting distributors and contractors to our customer base.  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.  We hope to develop our own sales and marketing staff, but at this stage of development for the lighting division, it is most cost-effective to use already established sales channels to promote our solid-state lighting products.





Having only recently emerged from the development stage, we have had a limited operating history that can serve as the basis to evaluate our business. There are many factors that could have a material adverse effect on our business and operating results once operations begin. 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.




Results of Operations








Results of Operations for the Quarter ended April 30, 2010








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 quarters ended April 30, 2010 and April 30, 2009.  It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.





2010


2009Amount


AmountSales

$
495,614


$
295,223Cost of Sales

$
427,552


$
205,728Gross Profit

$
68,062


$
89,495Selling, General & Administrative Expenses

$
2,353,631


$
2,063,325Research and Development Expenses

$
1,032,156


$
3,885.774Operating Loss

$
(3,317,725
)

$
(5,859,604
)Net Loss

$
(3,316,436
)

$
(5,851,791
)





Revenues and Cost of Sales





For the quarter ended April 30, 2010, sales increased by approximately 67%, due to continued development of our product line, particularly cobra head street lights and parking garage fixtures. Our largest customer for the quarter, Graybar Electric, represented 21 % of our sales in the quarter ended April 30, 2010, but none in the comparable prior year quarter.





Cost of Sales was higher as aggressive initial pricing in an attempt to land additional business caused a drop in operating margins from 30% to 13%.







5








Expenses





Selling, General and Administrative Expenses





For the quarter ended April 30, 2010, our selling, general and administrative (“SG&A”) expenses increased. For the Quarter period ended April 30, 2010, SG&A expenses increased $290,306 to $2,353,631 when compared to $2,063,325 for the quarter ended April 30, 2009.  Of those amounts, non-cash share-based compensation  decreased $71,498  to $ 1,183,550 for the three months ended April 30, 2010 compared to $1,255,048 for the three months ended April 30, 2009, respectively, related to the compensation of, engineering, sales and other personnel that were necessary to initiate the company’s product development.





The remaining offset represented product development, including engineering, design, purchasing of components and assembly of prototypes and testing. Currently, the increase and bulk of the engineering work is in design upgrades, improvements to keep up with technological advances and development of Cobrahead fixtures that are larger and that have different lighting patterns. During the quarter ended April 30, 2010, we achieved the Underwriters Laboratory (UL) approval on our CAN12 (12” square LED canopy luminaire) along with the LP3 (LED light pack luminaire), and the PS14 (LED parking structure luminaire), that passed UL testing and was submitted for to UL for certification. We achieved CE certification (European electrical safety standard) for the LP3, CAN12, PS14, UTL, general utility light/flood light, and SCH RFK, Retrofit Kit LED Cobrahead Luminaire. The IP (international protection rating) testing is complete on the UTL, LP3 and SCH RFK. Some recent completed projects are the design and prototype of the LED Shoebox, ECH (EvoLucia Cobra head), IP66 Power Module assembly and dimmable driver control.





We were the first recipient of Cree’s leading edge XPG LED which at the time was reaching efficacy levels of 130 lumens per watt. Currently, commercially available versions of this chip have advanced to levels of 150 lpw, with laboratory grade devices reaching 165 lpw.  Our LED fixtures feature open architecture, in that it permits us to tailor to the customer whether they want a more economical choice or increase performance within the same fixture.  As do some of our competitors, we also offer our customers a variable power supply, featuring the capacity for the end user to change the wattage in a fixture. This feature allows the customer the ability to make adjustments in the event the end user complains about too much light.





Research and Development Expenses





The Company has entered into research contracts with EPIR Technologies, Inc. and Dongguk University (currently on hold). Most of our research will be predominately outsourced for the next couple of years. We expense our research and development costs as incurred. Research and Development expenses were $ 1,032,156 for the quarter ended April 30, 2010. As opposed to $3,885,774 for the quarter ending April 30, 2009, of which $2,305,131 was in now cash compensation related to the issuance of 25,000,000 options as part of a modification agreement with EPIR. Research and Development included $ 1,000,000 expended with EPIR Technologies, Inc., and are established by contract (see discussion above for additional detail in this area)





Results of Operations for the Nine Months ended April 30, 2010




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 nine months  ended April 30, 2010 and April 30, 2009.  It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.





2010


2009Amount


AmountSales

$
1,492,210


$
886,135Cost of Sales

$
1,693,903


$
608,595Gross Profit

$
(201,693
)

$
277,540Selling, General & Administrative Expenses

$
5,791,836


$
6,418,681Research and Development Expenses

$
4,059,110


$
6,139,870Operating Loss

$
(10,052,639
)

$
(12,281,011
)Convertible Debenture Derivative Loss

$
(1,296,078
)

$
-0-Net Loss

$
(11,345,180
)

$
(12,247,241
)








6





Revenues and Cost of Sales





For the nine months ended April 30, 2010, sales increased by approximately 68 %, due to both increases in lighting and the successful shipment of our first infrared order in connection with our ten year arrangement for the sale of infrared products. Our largest customer for the quarter, Graybar Electric, represented   32 % of our sales, respectively in the nine months ended April 30, 2010 (there were no sales to Graybar prior to this fiscal year). Hubbell, Inc. represented approximately 15% of our product sales for the first nine months of 2009/10 as opposed to approximately 70 % of our product sales for the same period in the comparable prior year period.





Cost of Sales was higher as initial order costs with Graybar and in the area of infrared, along with aggressive pricing in an attempt to land additional business caused a drop in operating margins from a positive 31% to a negative 13%.





Expenses





Selling, General and Administrative Expenses





For the nine months ended April 30, 2010, our selling, general and administrative (“SG&A”) expenses decreased. For the nine months period ended April 30, 2010, SG&A expenses decreased $626,845 to $5,791,836 when compared to $ 6,418,681 for the nine months ended April 30, 2009.  Of those amounts, non-cash share-based compensation of $2,843,649 and $4,051,097, for the nine months ended April 30, 2010 and 2009, respectively, related to the compensation of, engineering and other personnel that were necessary to initiate the company’s product development. Noncash compensation decreased due to the decline in stock price used for initial measurement; however, some of the older contracts have measurement dates from 2008 which had higher stock prices than we currently have, and some of these contacts are expected to continue in force in the coming year. The bulk of the remaining difference between the comparable periods went to salaries, in particular a significant effort in the last nine months to build up the sales department and continuing to support the product development activities discussed above.




Research and Development Expenses





The Company has entered into research contracts with EPIR Technologies, Inc. and Dongguk University (currently on hold). Most of our research will be predominately outsourced for the next couple of years. We expense our research and development costs as incurred. Research and Development expenses were $ 4,059,110 for the nine months ended April 30, 2010, as compared to $6,139,870 for the nine months ended April 30, 2009. Research and Development included $  4,000,000  expended with EPIR for the nine months ended April 30, 2010 as compared to $  6,005,131 for the nine months ended April 30, 2009., and is established by contract (see discussion above for additional detail in this area).




Convertible Debentures Derivative expense





Interest expense from the settlement of convertible debentures was approximately $1.3 million for the   nine months ended April 30, 2010 (there were no such expenses for the nine months ended April 30, 2009). The Company entered into an arrangement that was convertible into stock at a discount, which triggered the expense. While it has worked to avoid such arrangements, the difficulties in the economic markets, combined with the immaturity of the company’s sales did necessitate the Company using this type of financing.








7





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 over and above our research commitment, 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





o
an obligation under a guarantee contract, although we do have obligations under certain sales arrangements including purchase obligations to vendorso
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,o
any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, oro
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.  Mr. Smith 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.. Mr. Smith has waived payment of royalties for this quarter as part of attempts to conserve the Company’s resources. The Company has accrued royalty expense of    $124,860 at April 30, 2010.





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 assigned 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.





Plan of Operation





By the end of the fiscal year ending July 31, 2010, we expect to continue generating sales through our sales network being constructed, the pursuit of opportunities presently in the marketplace, and developing new products within the product families we have established, including Cobrahead lights.  This will require a different infrastructure featuring increased activity 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.





For the Nine Month Period Ended April 302010


2009Cash flows used in Operations

$
(4,180,437)


$
(6,375,523)Capital Expenditures

$
(11,535)


$
(32,941)Funds Raised

$
5,104,334


$
1,214,028Cash at end of period

$
1,220,857


$
788,343





We currently lease an operating facility at 106 Cattlemen Rd Sarasota, FL 34232. This facility is under a five year and six months lease contract. The lease requires monthly rent of approximately $6,930 which includes tax. The building consists of 17,252 square feet of laboratory, warehouse and office space. The facilities are in good condition and are adequate for small scale commercialization of our products. Sunovia Energy is participating in an incentive-based grant program through Sarasota County which could total $100,000 over three years as the company follows through with plans to add 68 employees and provide an average annual wage exceeding the county average. Prior to June 15, 2010, we leased an operating facility at 6408 Parkland Drive, Sarasota, Florida 34243. This facility was under a one year extension through October 31, 2010, prior to our termination effective June 15, 2010. The lease required a monthly rent of approximately $5,585 which included tax. The building consisted of approximately 5,316 square feet of laboratory, warehouse and office space. However, we did not believe our facility would be adequate to handle more than 25 employees, which resulted in our moving.





Our staffing increased to 18 employees and 12 consultants.  A sales and marketing manager who can further assist in building a sales force may be the next strategic hire.  As the sales volume increases, we will also be adding some operating and administrative staff to assist with customer service duties, purchasing, billing and overall accounting.  We will continue to work with the consultant model whenever possible in order to minimize the office space that is needed and the cost for ancillary benefits for full-time employees of the company.





On June 17, 2010, the company engaged on executive search firm to recruit candidates for top level positions in the company. Under this arrangement, the Company agreed to issue CT Partners 3,384,912 warrants at .069 cents.








8





Cash Flows and Working Capital





To date, we have financed our operations primarily through equity contributions by our shareholders. As of June 19, 2010, we had $ 700,000 in cash and cash equivalents. We had receivables of $ 500,000 and inventory of $ 950,000   and our current liabilities were $ 3.4 million. Approximately 45 % of the liabilities are convertible into common stock. At present levels we incur overhead of approximately $300,000 per month in cash before our research commitments.





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





We raised approximately $ 5 million for the nine months ended April 30, 2010 and raised approximately $ 1 million for the nine months ended April 30, 2009. We are raising additional capital including debt, to fund our operations and our research commitment.





Cash Requirements





Over the next twelve months, we presently anticipate spending up to $ 4   million on operations, $ 5   million on research and development and $ 1 million on tooling and capital equipment. Payments from customers and to vendors are typically on a 90-day basis, however there is a production time lag of usually 30 days. To finance these operations 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 will be successful in collecting amounts owed in connection with these purchase orders.





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.





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





o
raising additional capital and/or obtaining financing;o
increasing our revenues and gross profits ando
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.








9





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, financing operations, and contingencies and litigation.





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 April 30, 2010.





Recent Accounting Pronouncements





See Consolidated Financial Statements beginning on page F-1.





ITEM 3. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK





As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.





ITEM 4. CONTROLS AND PROCEDURES.








As of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer (the “Officers”) conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon this evaluation, the Officers concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and our disclosure controls and procedures are also not effective for the purpose of ensuring that material information required to be in this report is made known to management and others, as appropriate, to allow timely decisions regarding required disclosures.  The ineffectiveness of our disclosure controls and procedures is the result of 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. 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.





In addition, no change in our internal control over financial reporting occurred during the fiscal quarter ended April 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.











10








PART II: OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





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. However, as discussed above. We are in a series of disputes with EPIR Technologies, Inc., (“EPIR”) which may ultimately result in litigation with EPIR. Sunovia has notified EPIR that it is in breach of the mutual agreement and submitted a formal request for specific corporate and financial records. The agreement required EPIR to deliver a 1MW to 3MW pilot production facility in early 2010 for solar CPV Cadmium Telluride wafers. This date was not met by EPIR. Additionally, Sunovia requested financial records from EPIR for reporting  and financial planning purposes and to verify amounts EPIR believes it is owed. Sunovia believes these records should be made available to us, as a shareholder of EPIR and under the agreement between the companies. Sunovia has reserved up to $165,000 for payment for the wafers, which contractually was agreed upon to based on generally accepted accounting principles. Once able to make a determination as to the validity of those charges, it plans to pay the contractually agreed upon amount.  In April 2010, Dr. Siva Sivananthan, founder and chairman of EPIR and shareholder of Sunovia, voluntarily disgorged $17,748 of short swing profits under Section 16 of the Securities Exchange Act of 1934. On June 1, 2010, the Company withheld payment to EPIR of a $1 million payment that was due pending resolution of the matters in question. EPIR has announced it considers the allegations false and intends to vigorously defend its position.  EPIR has that it has halted research and development work under the agreement in response to Sunovia withholding payment.








ITEM 1A. RISK FACTORS





As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.





ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





On September 28, 2009, the Company issued 30,992,943 shares of common stock upon conversion of the $500,000 of convertible debentures dated July 2, 2009 and the $500,000 of convertible debentures dated August 12, 2009, together with accrued interest, which settled both obligations 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.





On August 1, 2009, the Company issued 150,000 shares of common stock at valued at $.06 per shares in payment of accrued services  owed to a consultant of the Company.




On August 27, 2009, the Company issued 1,666,666 shares of common stock at valued at $.07 per shares in payment of accrued services owed to a consultant of the Company.





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 14,005,000 shares of common stock at $.05 per share for an aggregate purchase price of $1,945,250 from the Company.







11






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.





On November 12, 2009, 9 investors purchased an aggregate of 6,700,000 shares of common stock at $.05 per share for an aggregate purchase price of $335,000 from the Company.





On November 16, 2009, the Company issued 1,053,333 shares of common stock at valued at $.49 per shares in payment of accrued services of $513,333 owed to a consultant of the Company.





Also, In December, 2009, 67 investors purchased an aggregate of 23,900,000 shares of common stock at $0.05 per share for an aggregate purchase price of $1,195,000 from the Company.




In December, 2009, and January, 2010, the Company sold 10% promissory notes in the amount of $490,000. The notes were due in one year, were unsecured, and interest payments were due monthly.





On January 1, 2010, the Company issued 350,000 shares of common stock at valued at $.10 per shares in payment of accrued services owed to a consultant of the Company.





On January 1, 2010, the Company issued 172,395 shares of common stock at valued at $.08 per shares in payment of accrued services owed to a consultant of the Company.





On February 1, 2010, one accredited investor purchased an aggregate of 1,000,000 shares of common stock at $.09 per share for an aggregate purchase price of $90,000 from the Company.





On February 2, 2010, the Company issued 10,000 shares of common stock at valued at $.12 per share in payment of accrued services owed to a consultant of the Company.





On March 1, 2010, the Company issued 9,892,473 common shares to EPIR Technologies, Inc. in lieu of its required payment of $1,000,000 due on that same date.





In February, 2010, the Company sold 10% promissory notes in the amount of $58,000. The notes were due in two year, were unsecured, and interest payments were due monthly.





In April, 2010, the Company sold 10% promissory notes in the amount of $158,326. The notes were due in two year, were unsecured, and interest payments were due monthly.







* 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.




ITEM 3.DEFAULTS UPON SENIOR SECURITIES





None





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





None





ITEM 5.OTHER INFORMATION





None.








12





ITEM 6. EXHIBITS








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)    13
   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, 2009(11)10.37

Form of Subscription Agreement dated October 13, 2009 ($.05 per share) (11)10.38

Form of Subscription Agreement dated October 15, 2009 ($.06 per share) (11)10.39

Form of Subscription Agreement dated November 9, 2009 ($.042 per share) (11)10.40

Form of Subscription Agreement dated November 9, 2009 ($.05 per share) (11)10.41

Form of Subscription Agreement dated November 9, 2009 ($.06 per share) (11)10.42

Form of Subscription Agreement dated November 12, 2009 ($.05 per share) (11)10.43

Employment Contract between the Company and Carl Smith, dated November 10, 2009 (12)10.44

Consulting Agreement between the Company and R. Craig Hall dated November 10, 2009 (12)10.45

Consulting Agreement between the Company and Oak Ridge Strategies Group, Inc. dated February 1, 2010 (13)10.46

Form of Subscription Agreement dated  ($.09 per share)  dated February 1, 2010 (13)10.47

Form of Promissory note used in December, 2009 and January, 2010 (13)10.48

Form of Promissory note used in February, 2010 (13)10.49

Assignment Agreement by and between Carl L. Smith and Craca Properties LLC, dated December 9, 200731.1

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 193432.1

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





(10)
Incorporated by reference to the form 10-Q filed with the Securities and Exchange Commission on March 16, 2009.





(11)
Incorporated by reference to the Form 10-K Annual Report filed with the Securities and Exchange Commission on November 13, 2009.(12)
Incorporated by reference to the form 10-Q filed with the Securities and Exchange Commission on December 21, 2009.(13)
Incorporated by reference to the form 10-Q filed with the Securities Exchange Commission on March 22, 2010.








14








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.





Signature

Title

Date/s/ Carl L. Smith, III



Carl L. Smith, III

Chief Executive Officer and Chairman of Board of Directors

June 21, 2010/s/ Matthew Veal

Matthew Veal

Secretary, Chief Financial Officer, Treasurer, and Principal Accounting Officer

June 21, 2010