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 October 31, 2009





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.)





6408
Parkland Drive, Suite 104, Sarasota, Fl 34243


(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)








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 December 21,
2009 was 687,476,215.











1





FORM
10-Q




INDEX





PagePART
      I: FINANCIAL INFORMATION
            3ITEM
      1. FINANCIAL STATEMENTS
            3REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            6CONSOLIDATED
      BALANCE SHEETS
            7CONSOLIDATED
      STATEMENTS OF OPERATIONS
            8CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
            9CONSOLIDATED
      STATEMENTS OF CASH FLOWS
            10NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
            11-35ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
            36ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
            41ITEM
      4. CONTROLS AND PROCEDURES
            41ITEM
      4T. CONTROLS AND PROCEDURES
            41PART
      II. OTHER INFORMATION
            42ITEM
      1.  LEGAL PROCEEDINGS
            42ITEM
      1A. RISK FACTORS
            42ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS
            42ITEM
      3 DEFAULTS UPON SENIOR SECURITIES
            42ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            42ITEM
      5.  OTHER INFORMATION
            42ITEM
      6. EXHIBITS
            43SIGNATURES
            44







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,” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 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:





·
            our
      expectations regarding our expenses and revenue;·
            our
      anticipated cash needs and our estimates regarding our capital
      requirements and our needs for additional
  financing;


·
            plans
      for future products, for enhancements of existing products and for
      development of new technologies;·
            our
      anticipated growth strategies;


·
            existing
      and new customer relationships;·
            our
      technology strengths;


·
            our
      intellectual property, third-party intellectual property and claims
      related to infringement thereof;·
            anticipated
      trends and challenges in our business and the markets in which we
      operate; and


·
            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 MONTHS ENDED OCTOBER
31, 2009 AND 2008
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 
 
 
 
 4
 
 
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
     CONTENTSU
  PAGEUFINANCIAL
      STATEMENTSREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  6CONSOLIDATED
      BALANCE SHEETS
                  7CONSOLIDATED
      STATEMENTS OF OPERATIONS
                  8CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
                  9CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                  10NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                  11-35
 
 
 5
 December
17, 2009
 
 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 October 31, 2009 and the related consolidated
statements of operations and cash flows for the three months ended October 31,
2009 and 2008 and the related consolidated statement of changes in stockholders’
equity for the three months ended October 31, 2009.  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 $4,789,598
and $2,912,017 for the three months ended October 31, 2009 and 2008,
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

















6






SUNOVIA
ENERGY TECHNOLOGIES, INC.


CONSOLIDATED
BALANCE SHEETS




October
      31,
              
              
              July
      31,2009
              
              
              2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              418,501
              
              
              $
              308,495Accounts
      receivable
              
              
              182,714
              
              
              
              138,196Prepaid
      expenses
              
              
              12,395
              
              
              
              30,347Inventory
              
              
              236,777
              
              
              
              234,551TOTAL
      CURRENT ASSETS
              
              
              850,387
              
              
              
              711,589Furniture
      and equipment, net
              
              
              150,016
              
              
              
              160,462Investment
      in EPIR Technologies, Inc.
              
              
              3,780,385
              
              
              
              3,780,385Other
      assets
              
              
              53,988
              
              
              
              53,988TOTAL
      ASSETS
              
              $
              4,834,776
              
              
              $
              4,706,424LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              278,348
              
              
              $
              146,415Accrued
      expenses
              
              
              200,057
              
              
              
              166,131Convertible
      debenture
              
              
              -
              
              
              
              500,000Noncash
      compensation payable
              
              
              820,388
              
              
              
              811,638Common
      stock redemption
              
              
              650,000
              
              
              
              650,000Convertible
      debenture derivative liability
              
              
              -
              
              
              
              183,358TOTAL
      CURRENT LIABILITIES
              
              
              1,948,793
              
              
              
              2,457,542STOCKHOLDERS'
      EQUITYCommon
      stock, $.001 par value; 1,500,000,000 sharesauthorized:
      612,808,557 and 533,493,450 at October 31, 2009 and July 31, 2009,
      respectively, issued and outstanding
              
              
              612,808
              
              
              
              533,493Additional
      paid-in capital
              
              
              62,361,563
              
              
              
              57,014,179Accumulated
      deficit
              
              
              (60,053,913
              )
              
              
              (55,264,315
              )2,920,458
              
              
              
              2,283,357Less:
      treasury stock
              
              
              (34,475
              )
              
              
              (34,475
              )TOTAL
      STOCKHOLDERS' EQUITY
              
              
              2,885,983
              
              
              
              2,248,882TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              4,834,776
              
              
              $
              4,706,424




See
report of independent registered public accounting firm
 and notes
to consolidated financial statements.






7


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS


For
      the Three
              
              
              For
      the ThreeMonths
      Ended
              
              
              Months
      EndedOctober 31, 2009
              
              
              October 31, 2008(Unaudited)
              
              
              (Unaudited)Net
      sales
              
              $
              240,871
              
              
              $
              310,823Cost
      of sales
              
              
              286,082
              
              
              
              282,171Gross
      margin
              
              
              (45,211
              )
              
              
              28,652Expenses:Selling,
      general and administrative
              
              
              1,429,735
              
              
              
              1,231,968Research
      and development
              
              
              2,019,034
              
              
              
              1,731,254Total
      expenses
              
              
              3,448,769
              
              
              
              2,963,222Operating
      loss
              
              
              (3,493,980
              )
              
              
              (2,934,570
              )Other
      income:Interest
      and dividends
              
              
              460
              
              
              
              22,553Convertible
      debenture derivative loss
              
              
              (1,296,078
              )
              
              
              -Total
      other income
              
              
              (1,295,618
              )
              
              
              22,553Loss
      before income tax benefit
              
              
              (4,789,598
              )
              
              
              (2,912,017
              )Income
      tax benefit
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (4,789,598
              )
              
              $
              (2,912,017
              )Loss
      per share:Basic
              
              $
              (0.01
              )
              
              $
              (0.01
              )Diluted
              
              $
              (0.01
              )
              
              $
              (0.01
              )Weighted
      average number of commonshares
      outstanding:Basic
              
              
              572,571,670
              
              
              
              527,541,587Diluted
              
              
              572,571,670
              
              
              
              527,541,587






See
report of independent registered public accounting firm
 and notes
to consolidated financial statements.




8




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($0.05-$0.06
      per share)
              
              
              26,755,000
              
              
              
              26,755
              
              
              
              1,378,495
              
              
              
              -
              
              
              
              -
              
              
              
              1,405,250Shares
      issued to EPIR inaccordance
      with R&D agreement
              
              
              19,900,498
              
              
              
              19,900
              
              
              
              980,100
              
              
              
              -
              
              
              
              -
              
              
              
              1,000,000Shares
      issued to settle debentures
              
              
              30,992,943
              
              
              
              30,993
              
              
              
              2,448,443
              
              
              
              -
              
              
              
              -
              
              
              
              2,479,436Stock
      issued for services andcompensation  ($0.07
      per share)
              
              
              1,666,666
              
              
              
              1,667
              
              
              
              115,000
              
              
              
              -
              
              
              
              -
              
              
              
              116,667Stock
      options and warrantsgranted
      for services
              
              
              -
              
              
              
              -
              
              
              
              425,346
              
              
              
              -
              
              
              
              -
              
              
              
              425,346Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,789,598
              )
              
              
              -
              
              
              
              (4,789,598
              )Balance,
      October 31, 2009
              
              
              612,808,557
              
              
              $
              612,808
              
              
              $
              62,361,563
              
              
              $
              (60,053,913
              )
              
              $
              (34,475
              )
              
              $
              2,885,983






See
report of independent registered public accounting firm
 and notes
to consolidated financial statements.




9


SUNOVIA
ENERGY TECHNOLOGIES, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS




For
      the Three
                
                
                For
      the ThreeMonths
      Ended
                
                
                Months
      EndedOctober 31, 2009
                
                
                October 31, 2008(Unaudited)
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (4,789,598
                )
                
                $
                (2,912,017
                )Adjustments
      to reconcile net loss tonet
      cash used by operating activitiesDepreciation
                
                
                10,446
                
                
                
                16,079Inventory
      adjustment
                
                
                24,420
                
                
                
                -Convertible
      debenture derivative loss
                
                
                1,296,078
                
                
                
                -Stock
      issued and stock options issued for services
                  and
      compensation
                
                
                1,542,013
                
                
                
                1,682,452Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (44,518
                )
                
                
                (251,598
                )Prepaid
      expenses
                
                
                17,952
                
                
                
                (17,319
                )Inventory
                
                
                (26,646
                )
                
                
                50,647Other
      receivables
                
                
                -
                
                
                
                (16,500
                )Other
      assets
                
                
                -
                
                
                
                (33,804
                )Accounts
      payable
                
                
                131,933
                
                
                
                (220,058
                )Accrued
      expenses
                
                
                33,926
                
                
                
                -Noncash
      compensation payable
                
                
                8,750
                
                
                
                (1,117,068
                )NET
      CASH USED BY OPERATING ACTIVITIES
                
                
                (1,795,244
                )
                
                
                (2,819,186
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of furniture and equipment
                
                
                -
                
                
                
                (11,485
                )NET
      CASH USED BY INVESTING ACTIVITIES
                
                
                -
                
                
                
                (11,485
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of convertible debenture
                
                
                500,000Equity
      contributed by private placement
                
                
                1,405,250
                
                
                
                676,454NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                1,905,250
                
                
                
                676,454NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                110,006
                
                
                
                (2,154,217
                )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                308,495
                
                
                
                5,982,779CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                418,501
                
                
                $
                3,828,562Cash
      paid for:Interest
                
                $
                -
                
                
                $
                -Income
      taxes
                
                $
                -
                
                
                $
                -NONCASH
      OPERATING AND FINANCING ACTIVITIES:Stock,
      stock options, and warrants issued and granted
                  for
      services and compensation
                
                $
                1,542,013
                
                
                $
                1,682,452
 Treasury
      stock redeemed included in payables
                
                $
                -
                
                
                $
                3,765,816




See
report of independent registered public accounting firm
 and notes
to consolidated financial statements.




10




SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 FOR THE
THREE MONTHS ENDED OCTOBER 31, 2009 AND 2008
 
 
 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.
 
 Sun
Energy Solar was incorporated under the laws of the State of Delaware on
November 9, 2005.  Sun Energy Solar, Inc. was organized for the
purpose of developing solar related products and technologies.  The
Company was originally named Sologic, Inc.  On April 25, 2006, the
Company completed its name change from Sologic, Inc. to Sun Energy Solar,
Inc.
 
 On
December 21, 2005, the Company acquired the patent rights (patent applied for)
to No. 60/617,263 Titled Substrate with Light Display, applied for on September
2, 2005, from Sparx, Inc., a Florida corporation 100% owned by the Company’s
Chief Executive Officer.  Sparx, Inc. had acquired the patent rights
from company officers who were the original inventors.  As
compensation under this agreement, the Company has granted Sparx, Inc., a
royalty of 4.9% of gross revenues (see Note B).
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  For the three months ended October
31, 2009 and 2008 the Company has experienced losses of $4,789,598 and
$2,912,017. As of October 31, 2009, the Company also had a working capital
deficiency of $1,098,406.  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.
 
 
 11
 
 
 
 
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 U
  Basis of
Consolidation
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries.  All significant intercompany balances and transactions
have been eliminated.
 
 Accounting
Method
 
 The
Company recognizes income and expenses on the accrual basis of
accounting.  The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States.
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and revenue and
expenses during the reporting period.  Actual results could differ
from those estimates.
 
 Concentrations
 
 Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash and cash equivalents.  The Company maintains cash
and cash equivalents in deposit accounts with one financial institution located
in the United States.  Deposit accounts exceed federally insured
limits.  Management does not believe the Company is exposed to
significant risks on such accounts.  Generally, these deposits may be
redeemed upon demand and, therefore, bear minimal interest rate
risk.  At October 31, 2009, the Company had an uninsured cash balance
of approximately $171,000.
 
 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 October 31, 2009 is $63,951
in accrued royalty expense. There was no royalty expense recognized during the
three months ended October 31, 2008.
 
 Cash and Cash
Equivalents
 
 For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
 
 Accounts
Receivable
 
 Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to bad
    12
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Accounts Receivable
(Continued)
 
 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 $18,720 at
October 31, 2009 and July 31, 2009.  Management has not charged
interest on accounts receivable as of October 31, 2009.  At October
31, 2009, approximately 48% of accounts receivable are due from two
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.
 
 Accounting for Long-Lived
Assets
 
 In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets”, 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 SFAS 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
October 31, 2009 and July 31, 2009.  Costs capitalized in association
with patents totaled $47,008 at October 31, 2009 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.
 
 
 13
 
   SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
 
 NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Accounting for Derivative
Instruments
 
 Statement
of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, 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 (“SFAS”)
No. 161, “Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133”, which is now codified under ASC
Topic 815 (“ASC 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 SFAS 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.
   14
  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 three months ended
October 31, 2009 and 2008 totaled $2,002 and $8,077, 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 October 31, 2009 and July 31,
2009, there were no loss contingencies expected.
 
 Income Taxes
(Benefits)
 
 The
Company utilizes the guidance provided by SFAS 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 three months ended October 31, 2009 and 2008.
 
 At
October 31, 2009, the Company had a net operating loss carryforward of
approximately $22,522,000 that may be offset against future taxable income
through 2026.  The amount of the income tax benefit for the three
months ended October 31, 2009 and 2008, before the valuation allowance was
applied, totaled approximately $1,796,000 and $1,212,000,
respectively.
    15
  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 October 31, 2009 and 2008 as the effect is antidilutive was
547,405,974 and 508,247,267.
 
 Inventory
 
 Inventory
consists of various electronic components used in the assembly of LED lights,
power film and batteries.  Inventory is stated at the lower cost or
market.  Cost is determined by the first-in, first-out (FIFO) method.
Included in selling, general, and administrative expense during the three months
ended October 31, 2009 are inventory write-downs totaling $24,420 related to
inventory obsolescence and waste. There were no write-downs related to inventory
obsolescence and waste during the three months ended October 31, 2008. Included
in inventory at October 31, 2009 are consigned components totaling
$74,414.
 
 Comprehensive
Income
 
 The
Company has adopted SFAS 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 three months ended October 31, 2009 and 2008.
 
 Transfer of Financial
Assets
 
 In March
2006, the FASB issued SFAS 156 “Accounting for Servicing of Financial Assets”,
which is now codified under ASC Topic 860.  This Statement amends FASB
Statement No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” with respect to the accounting for
separately recognized servicing assets and servicing
liabilities.  Adoption of this statement has not had any material
effect on the Company’s financial position or results of
operations.
 
 
 16
   SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Fair Value
Measurements
 
 Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value
Measurements(“SFAS 157”), 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.
 
 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 and accrued liabilities are carried at cost, which
approximates their fair value, due to the relatively short maturity of these
instruments. Noncash compensation payable and common stock redemption are
carried at cost, which approximates their fair value, because they will be
redeemed at these specific amounts. The carrying value of the investment in EPIR
is $3,780,385. The fair value is believed to approximate $4,000,000 as of
October 31, 2009. The fair value is based on estimates using pricing models that
take into account the earning capacity of EPIR as of the balance sheet date. The
computation of the fair value was performed by the Company.
 
 Reclassifications
 
 Certain
amounts for the three months ended October 31, 2008 have been reclassified in
the comparative financial statements to be comparable to the presentation for
the period ended October 31, 2009.  These reclassifications had no
effect on net loss as previously reported.
 
 17
 
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 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.
 
 NOTE C -
INCOME TAXES
 
 The
Company's net deferred tax asset as of October 31, 2009 and July 31, 2009 is as
follows:
 
 October 31, 2009
                  
                  
                  July 31, 2009Deferred
      tax assetNet
      operating loss carryforward
                  
                  $
                  22,522,000
                  
                  
                  $
                  20,726,000Valuation
      allowance
                  
                  
                  (22,522,000
                  )
                  
                  
                  (20,726,000
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -
   18
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE C -
INCOME TAXES (CONTINUED)
 
 A
reconciliation of (provision) benefit for income taxes to income taxes at
statutory rate is as follows:
 
 For
      the Three
                  
                  
                  For
      the ThreeMonths
      Ended
                  
                  
                  Months
      EndedOctober 31, 2009
                  
                  
                  October 31, 2008Federal
      income (tax) benefitat
      statutory rate
                  
                  $
                  1,533,000
                  
                  
                  $
                  932,000State
      (taxes) benefit
                  
                  
                  263,000
                  
                  
                  
                  160,000Valuation
      allowance
                  
                  
                  (1,796,000
                  )
                  
                  
                  (1,092,000
                  )(Provision)
      benefit for income taxes
                  
                  $
                  -
                  
                  
                  $
                  -
 
 
 19
 
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 NOTE D -
FURNITURE AND EQUIPMENT, NET
 
 At
October 31, 2009 and July 31, 2009 furniture and equipment consisted of the
following:
  October 31, 2009
                    
                    
                    July 31, 2009Computer
      equipment
                    
                    $
                    249,524
                    
                    
                    $
                    249,524Furniture
      and fixtures
                    
                    
                    34,308
                    
                    
                    
                    34,308Leasehold
      improvements
                    
                    
                    17,327
                    
                    
                    
                    17,327301,159
                    
                    
                    
                    301,159Less:
      accumulated depreciation
                    
                    
                    (151,143
                    )
                    
                    
                    (140,697
                    )Furniture
      and equipment
                    
                    $
                    150,016
                    
                    
                    $
                    160,462
 
 Total
depreciation expense for the three months ended October 31, 2009 and 2008 was
$10,446 and $16,079, respectively.
 
 NOTE E -
STOCKHOLDERS' EQUITY
 
 Common
Stock
 
 Effective
November 27, 2007 the Company declared a 1 for 4 reverse stock split of the
Company’s common stock.  The reverse stock split resulted in a
decrease of shares outstanding of 175,455,294 shares.  The par value
of the shares was changed on the same date to $.001 per share.
 
 In
November 2007, the Company exchanged 7,350,000 shares of Acadia Resources, Inc.
common stock (See Note A) for the same number of shares in the
Company.
 
 On
December 4, 2007, the Company declared a 4.5 for 1 forward stock split of the
Company’s common stock, effective to stockholders of record on December 11,
2007.  The stock split resulted in an additional 230,422,843 shares of
the Company’s common stock being issued.
 
 20
 
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   
 NOTE E -
STOCKHOLDERS' EQUITY (CONTINUED)
 
 As of
January 31, 2008, the Company redeemed 37,523,114 shares of Sun Energy Solar,
Inc. common stock at the issuance price of $.10.  Subsequent to
January 31, 2008, the Company issued 28,948,975 shares of Sunovia Energy
Technologies, Inc. common stock to shareholders who chose not to receive cash
for their shares.  Cash payments totaling $207,385 were made to
shareholders of Sun Energy Solar, Inc.  There are 6,500,000 shares of
Sunovia Energy Technologies, Inc. common stock still to be issued.
 
 The
Company’s President cancelled 4,495,000 shares during the year ended July 31,
2009.
 
 Treasury
Stock
 
 On April
17, 2009, the Company received 313,410 shares of the Company’s common stock as
income from EPIR. The fair value of this transaction totaled
$34,475.
 
 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.  Rental
expense for the three months ended October 31, 2009 and 2008 totaled $16,754 and
$18,606, respectively.  Future minimum rental payments are as
follows:
  For
      the fiscal year ended 2010:
                  
                  $
                  44,874For
      the fiscal year ended 2011:
                  
                  
                  11,219$
                  56,093
 
 NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC.
 
 The
Company has entered into a research, development and supply agreement (“the
Agreement”) with EPIR Technologies, Inc. (EPIR) for an exclusive marketing,
supply and development partnership for advanced solar photovoltaic (PV) and
encapsulate technologies to develop advanced light detection devices and II-VI
materials.  The II-VI materials are uniquely combined to form the
semiconductors that are used in solar PV technologies.  The
partnership also provides for the commercialization of advanced light detection
technologies that form a foundation for accelerating advanced PV development
that is aimed at reducing the overall cost of energy from a solar PV
System.  The Company and EPIR are developing a solar PV encapsulate
that eliminates the need for glass encapsulates that are prevalent in today’s
market.
 
 Consideration
for the agreement included exchanging 37,803,852 shares of the Company’s common
stock for 202,200 (10%) shares of EPIR common stock.  The net profits
resulting from the sale of any and all EPIR products, EPIR Independent Products,
and related products of the Company, directly or indirectly, to any and all
third parties will be split equally between EPIR and the Company.
 
 21
 
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 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 and
October 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 shall deliver, or cause to be
delivered, to EPIR, for no cash or other consideration (except as set forth
herein):
 
 a.
                The
      June 1, 2009 scheduled payment of $1,000,000 within 72 hours of the
      Parties’ execution of the Amendment by wire transfer of immediately
      available funds to a bank designated by EPIR
and
 
 b.
                Issuance
      to EPIR of a warrant (the “Warrant”) to purchase 25,000,000 shares of the
      Company’s common stock at an exercise price equal to $0.10 per
      share
 
 Immediately
upon the date which EPIR received the accelerated payment, the Company, in its
sole discretion, shall, without limitation and subject to the applicability of
all of the foregoing provisions of the Agreement, satisfy any or all of the
August 1, 2009, October 1, 2009, December 1, 2009 and March 1, 2010 either by
(1) payment in cash or (2) the issuance of such number of restricted shares of
common stock of the Company equal to the quotient of One Million Dollars
($1,000,000) divided by the Conversion Price (as defined below).  For
purposes of the EPIR Amendment, the “Conversion Price” shall be an amount equal
to the seventy-five percent (75%) of the average closing price of the Company’s
common stock as quoted on the Over-the-Counter Bulletin Board for the twenty
(20) trading days prior to the date a scheduled payment is due under the EPIR
Agreement.  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.
  22
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 Payments
as shown on the following schedule through June 1, 2009 have been made by the
Company.
 
 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
  23
   SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE G -
INVESTMENT IN EPIR TECHNOLOGIES, INC. (CONTINUED)
 
 On June
30, 2008, The Company issued 8,990,000 shares, valued at $10,338,500 or $1.15
per share to employees of EPIR Technologies, Inc. for research. The Company’s
Chief Executive Officer and President agreed to cancel 4,495,000 shares each of
their outstanding common stock to offset the dilution to the Company’s common
stock shares. The Company’s President cancelled 4,495,000 shares during the year
ended July 31, 2009 (see Note E).
 
 On April
17, 2009, the Company received 313,410 shares of the Company’s common stock as
income from EPIR. The value of this transaction totaled $34,475 (see Note
E).
 
 NOTE H –
SEGMENT INFORMATION
 
 The
Company is organized into operating segments based on product groupings. These
operating segments have been aggregated into two reportable business segments:
Solar Substrate and Lighting Product. The reportable segments were determined in
accordance with the way that management of the Company develops and executes the
Company’s operations. The accounting policies of the business segments are the
same as the policies described in Note A.
 
 In
accordance with SFAS No. 131, for purposes of business segment performance
measurement, the Company does not allocate to the business segments items that
are of a nonoperating nature or corporate organizational and functional expenses
of a governance nature. Corporate expenses consist of corporate office expenses
including compensation, benefits, occupancy, depreciation, and other
administrative costs.
 
 Assets of
the Solar Substrate segment consist of cash, capitalized patent costs, and
inventory. Assets of the Lighting Product segment consist of inventory. All
other assets including prepaid expenses, deposits, and fixed assets are
allocated to Corporate and Other.
   Consolidated
Operations by Business Segment
 For the three months ended October 31,
2009
  Solar
                      Substrate
                    
                    
                    Lighting
                      Product
                    
                    
                    Corporate
                      and
      OtherNet
      sales
                    
                    $
                    -
                    
                    
                    $
                    240,871
                    
                    
                    $
                    -Operating
      loss
                    
                    $
                    (2,019,033
                    )
                    
                    $
                    (1,377,384
                    )
                    
                    $
                    (97,563
                    )Interest
      income
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    460Convertible
      debenture derivative loss
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (1,296,078
                    )Depreciation
      and amortization
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    10,446Assets
                    
                    $
                    3,780,385
                    
                    
                    $
                    569,507
                    
                    
                    $
                    484,884
   24
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE H –
SEGMENT INFORMATION (CONTINUED)
 For the three months ended October 31,
      2008Solar
                    Substrate
                  
                  
                  Lighting
                    Product
                  
                  
                  Corporate
                    and
      OtherNet
      sales
                  
                  $
                  -
                  
                  
                  $
                  310,823
                  
                  
                  $
                  -Operating
      loss
                  
                  $
                  (1,508,333
                  )
                  
                  $
                  (1,240,718
                  )
                  
                  $
                  (185,519
                  )Interest
      income
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  22,553Depreciation
      and amortization
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  (16,079
                  )Assets
                  
                  $
                  3,780,385
                  
                  
                  $
                  843,786
                  
                  
                  $
                  3,933,724
 
 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 three
months ended October 31, 2009 and 2008 was approximately $6,300 and $4,400,
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 three months ended October 31, 2009 and 2008,
include the consulting agreements discussed in Note M and the stock options
discussed in Note O.
 
 NOTE L -
RISKS AND UNCERTAINTIES
 
 Operating
results may be affected by a number of factors.  The Company is
dependent upon a number of major inventory and intellectual property
suppliers.  Presently, the Company does not have formal arrangements
with any supplier, and shortages of key solar components exist in the
industry.  In the future, if the Company is unable to obtain
satisfactory supplier relationships, or a critical supplier had operational
problems, or ceased making material available, operations could be adversely
affected.
   25
  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.
 
 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.
 
 26
  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 has 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 1,000,000
options has vested as of October 31, 2009 (see Note O).
 
 On June
30, 2008, The Company issued 8,990,000 shares to employees of EPIR technologies
inc. as compensation. The Company’s Chief Executive Officer and Business
Development Representative have agreed to cancel 4,495,000 shares of their
common stock each to offset the dilution to the Company’s common stock. During
the year ended July 31, 2009, the Company’s President canceled 4,495,000 shares
of his common stock (see Note G).
 
 In
October 2008, the Company entered into a two year consulting agreement with an
organization. The organization provides assistance with (i) expansion and
growth, (ii) brand building, (iii) public relations, marketing and business
development, (iv) strategic advice and assistance in Washington and key states,
and (v) assistance with the advisory board and other personnel matters. In
consideration for services rendered, the Company paid the organization a monthly
retainer amount of $10,000. The agreement required the Company to issue the
organization 100,000 shares of common stock on the first day of each quarter
beginning in the first quarter of 2009 and ending in the fourth quarter of 2010.
The Company issued the organization an option to purchase 200,000 shares of the
Company’s common stock with an expiration period of five years and an exercise
price of 75% of the market bid price as of the date of the
grant.   In October 2008, the Chief Executive Officer agreed to
effectively cancel options covering 500,000 shares of common stock. The
equivalent options were then issued to the organization. The 700,000 options
vested during year ended July 31, 2009 (see Note O). This agreement was
terminated in September 2009.
 
 
 27
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
 NOTE M -
EMPLOYMENTCONTRACTS AND CONSULTING
AGREEMENTS (CONTINUED)
 
 In
October 2008, the Company entered into a one year consulting agreement with a
consulting company. This agreement was revised in November 2008. The consulting
company (i) assists with the development of advertising and marketing programs
and materials, (ii) reviews and makes any necessary modifications to the Company
press releases, collaterals, presentations, and other sales, and marketing and
promotional materials, (iii) assists with key executive searches and offer
executive qualification evaluations,  (iv) consults biweekly with the
President and/or CEO of the Company, (v) attends select meetings with the
President and/or CEO of the Company, and (vi) assists with due diligence of
potential acquisitions and partnerships. In consideration for services rendered,
the Company pays the consulting company a fee of $15,000 per month. These
payments were suspended prior to July 31, 2009. During the year ended July 31,
2009, the consulting company received stock options for 3,800,000 shares of
common stock of the Company (See Note O).
 
 In
January 2009, the Company entered into a three year consulting agreement with an
individual. The individual provides advice and recommendations to the Company
and introduces the Company to nationally recognized entities. In consideration
for services rendered, the consultant will receive options consisting of
1,900,000 shares of common stock of the Company. The Company entered into two
additional consulting agreements with two individuals who are employed by the
above consultant. The term of the agreements is three years. These individuals
provide advice and recommendations to the Company and introduce the Company to
nationally recognized entities. In consideration for services rendered, the
consultants will each receive options consisting of 50,000 shares of common
stock of the Company (See Note O).
 
 In March
2009, the Company entered into a three year consulting agreement with an
individual. The individual renders engineering services in accordance with
generally accepted and currently recognized engineering practices, procedures,
and principles. In consideration for services rendered, the individual receives
$100,000 per year as well as a bonus of 5% of any governmental grants or
investment capital that is procured through the direct efforts of the
individual.
 
 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.
 
 NOTE N -
STOCK COMPENSATION
 
 The
Company has recorded expenses, paid or accrued in common stock or common stock
options, of $1,550,763 and $565,385 for the three months ended October 31, 2009
and 2008, respectively. For the three months ended October 31, 2009 consulting
expenses paid or accrued for payment in common stock or common stock options,
totaled $1,550,763.  For the three months ended October 31, 2008,
consulting expense paid or accrued for payment in common stock, totaled
$565,385.
 
 28
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  
 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 SFAS 123R.  The cost is
measured at the grant date, based on the calculated fair value of the award, and
is recognized as an expense over the employee’s requisite service period
(generally the vesting period of the equity award).
 
 On May 1,
2008, options for 4,880,600 shares were issued to ten employees for services,
exercisable at a price of $.62. The options terminate five years from the date
of the option agreement.  The total salary expense related to these
options totaled $2,787,009 (see Note M).  There is no unrecognized
compensation cost related to unvested options at October 31, 2009.
 
 On June
6, 2008, options for 3,000,000 shares were granted to a consultant, exercisable
at a price of $.10.  The options vest over a period of three years,
with 1,000,000 options vested as of October 31, 2009.  The consulting
expense related to the vested options totaled $690,644.  The
unrecognized compensation cost associated with these options is
$3,156,521.
 
 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.
   29
 SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE O –
STOCK OPTION PLANS (CONTINUED)
 
 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 $1,675,000. The unrecognized compensation cost associated
with these options is $525,000.
 
 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 $48,426.  The unrecognized compensation expense associated
with these options is $145,654.
 
 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.
    30
 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.
 
 A summary
of the Company’s stock option activity is as follows for the three months ended
October 31, 2009 and 2008  The following summary, presents information
regarding outstanding stock options as of October 31, 2009 and July 31, 2009 and
changes during the three months then ended.
 
 October 31, 2009Outstanding
                  
                  
                  
                  
                  Weighted-AverageWeighted-Average
                  
                  
                  Aggregate
                  
                  RemainingShares
                  
                  
                  Exercise
      Price
                  
                  
                  Intrinsic
      Value
                  
                  Contractual
      LifeOptions
      outstanding atbeginning
      of year
                  
                  
                  544,405,974
                  
                  
                  $
                  0.105Options
      granted
                  
                  
                  3,000,000
                  
                  
                  
                  0.083Outstanding
      at October 31, 2009
                  
                  
                  547,405,974
                  
                  
                  $
                  0.104
                  
                  
                  $
                  22,224,250
                  
                  10.5
      yearsExercisable
      at October  31, 2009
                  
                  
                  540,080,774
                  
                  
                  $
                  0.104
                  
                  
                  $
                  22,224,250
                  
                  10.6
      yearsJuly 31, 2009Outstanding
                  
                  
                  
                  
                  
                  Weighted-AverageWeighted-Average
                  
                  
                  Aggregate
                  
                  RemainingShares
                  
                  
                  Exercise
      Price
                  
                  
                  Intrinsic
      Value
                  
                  Contractual
      LifeOptions
      outstanding atbeginning
      of year
                  
                  
                  507,980,600
                  
                  
                  $
                  0.105Options
      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 October 31, 2009 and
the exercise price, multiplied by the number of in-the-money options) that would
have been received by the option holders had all the option holders exercised
their options on October 31, 2009.  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
   31
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE P –
CONVERTIBLE DEBENTURE (CONTINUED)
 
 closing
bid price of the common stock, $0.001 par value for the five (5) trading days
immediately preceding the conversion date; provided, however, in no event shall
the conversion price be less than $0.03 per share.
 
 The
conversion price of the Debentures 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.
 
 The
Company had 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 uses the model to develop a set of
management’s projections.  These probabilities are used to create a
cash flow projection over the term of the debentures and determine the
probability that the projected cash flow will be achieved.  A
discounted weighted average cash flow for each scenario is then calculated and
compared to the discounted cash flow of the debentures without the compound
embedded derivative in order to determine a value for the compound embedded
derivative.
 
 As a
result of the convertible debentures, the Company 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
 
 32
   SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE P –
CONVERTIBLE DEBENTURE (CONTINUED)
 
 treatment
of these derivative financial instruments requires that the Company record the
derivatives at their fair values as of the inception date of the note agreements
and at fair value as of each subsequent balance sheet date as a
liability.  Any change in fair value is recorded as non-operating,
non-cash income or expense at each balance sheet date.
 
 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 -
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 is
currently assessing the impact that ASU 2009-05 will have the 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.
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FIN 46(R)” (“SFAS 167”),
which has not yet been incorporated into the Codification.  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
  33
  SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE Q -
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
 
 provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that
involvement.  SFAS 167 is effective at the start of the first fiscal
year beginning after November 15, 2009.  The Company does not expect
SFAS 166 to have a material impact on its financial statements.
 
 In June
2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial
Assets,” (“SFAS 166”), which has not yet been incorporated into the
Codification.  SFAS 166 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
entity”, changes the requirements for derecognizing financial assets and
requires additional disclosures.  SFAS 166 is effective at the start
of the first fiscal year beginning after November 15, 2009.  The
Company does not expect SFAS 166 to have a material impact on its financial
statements.
 
 In
December 2008, SFAS No. 132 (Revised 2003), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits,” which is now codified under ASC
Topic 715 (“ASC 715”), was amended by FSP SFAS 132 (R)-1 “Employers’ Disclosures
about Postretirement Benefit Plan Assets,” which is also codified under ASC 715
provides guidance on an employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan and is effective for financial
statements issued for fiscal years ending after December 15,
2009.  The Company does not expect its adoption will have a material
impact on the 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 SFAS 166 to have a material impact on its financial
statements.
 
 On
November 13, 2009, the FASB amended ASU No. 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
 
 34
   SUNOVIA
ENERGY TECHNOLOGIES, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE Q -
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
 
 annual
periods beginning after December 15, 2010. The Company is currently assessing
the impact that this amendment will have the financial statements.
 
 NOTE R –
SUBSEQUENT EVENTS
 
 The
Company has evaluated subsequent events through the date of the independent
auditors’ report.
 
 On
November 9, 2009, one accredited investor purchased an aggregate of 5,000,000
shares of common stock at $.06 per share for an aggregate purchase price of
$300,000 from the Company,
 
 On
November 9, 2009, 23 investors purchased an aggregate of 38,905,000 shares
of common stock at $.05 per share for an aggregate purchase price of $1,945,250
from the Company.
 
 On
November 9, 2009, one accredited investor purchased an aggregate of 30,952,381
shares of common stock at $.042 per share for an aggregate purchase price of
$1,300,000 from the Company.
 
 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.










35


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 October 31, 2009; 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 10-K filed for the
year ending July 31, 2009. This quarterly report provides an update of that
information. Since we filed that report, we have accomplished the
following:
 
 ·
              We
      have begun shipping products under the infrared purchase order agreement
      discussed in the Form 10-K for the year ended July 31,
    2009.
 
 ·
              We
      successfully shipped our largest order to date, totaling nearly $500,000,
      for Cobrahead streetlights installed in Camp Lejeune, North Carolina from
      October to  December,
2009.
 
 We
continue to face challenges, particularly as follows:
 
 ·
              Our
      “Aimed Optics”TM technology, while very sound from an energy and economic
      perspective, requires customers to look at lighting differently than they
      have in the past. In certain cases during the quarter, products using
      traditional technology producing less overall lighting and economic
      performance than ours were selected by customers, and the amount of light
      directly underneath the fixture, which is not significantly greater than
      other areas with aimed optics than without, was cited as a
      reason.  Prior to the introduction of our aimed optics and the
      onset of technologies with high “fitted target efficiencies”, for over 100
      years, more light underneath the fixture has meant that the whole fixture
      puts out more light. In spite of objective measurement, many people
      perceive still perceive this to be
true.
 
 ·
              In
      July 2009, the United States Department of Energy (USDOE) announced that
      the standard “Fitted Target Efficiency” would be adopted by the USDOE as
      part of its Energy Star® program requirements. This would have benefited
      the company because our Aimed Optics technology allows for maximum Fitted
      Target Efficiency; however, the USDOE has, after receiving comments,
      decided to not pursue vigorous adoption of such a standard in the near
      future. USDOE expressed concern that the industry be given more time to
      mature so as to avoid what it considers premature widespread adoption. We
      expect USDOE to change its views as raid technological change occurs, but
      for now, some customers have Energy Star® criteria in their purchasing
      requirements which we are unable to promote until such a standard is
      adopted.
 
 ·
              Some
      of our initial product offerings and proposals are lower-margin as we are
      trying to build market share and gain widespread adoption of our fixtures.
      Costs will reduce over time and economies of scale will adjust as we grow,
      therefore we continue to be optimistic regarding future performance, and
      we believe early profit margins do not reflect our long-term high-margin
      potential.
 
 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 the lighting division, it is most cost-effective to use
already-established sales channels to promote our solid-state lighting
products.
  Numerous
presentations have been made to utility companies and municipalities, including
occasions where we have partnered strategically with contractors, Energy Savings
Contractors (ESCOs) and other lighting companies to win renewable energy
contracts through local municipalities.  While these sales are
long-term projects, they can yield significant revenue at some
point.  As we become more skilled in making presentations to this type
of customer, along with the increased technological proficiency our products
have demonstrated, the likelihood that we will be successful in our response to
such requests for proposals increases dramatically.
 
 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.




36


Because
we have only recently begun substantial operations but have incurred costs in
the areas above, for the quarter ending October 31, 2009, the Company has had a
net loss as measured by generally accepted accounting principles of
$(4,789,598).
 
 Many of
the costs we have incurred in both the quarter ending October 31, 2009 were
costs that we believe are non-recurring, or are scheduled, by contract, to be
significantly less after the year 2010. However, we continue to maintain a
vigorous product development program which we believe will result in increased
sales in the future, which will be crucial to our long term
success.





Results
of Operations





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





2009
              
              
              2008Amount
              
              
              AmountSales
              
              $
              240,871
              
              
              $
              310,823Cost
      of Sales
              
              $
              286,082
              
              
              $
              282,171Gross
      Profit
              
              $
              (45,211
              )
              
              $
              28,652Selling,
      General & Administrative Expenses
              
              $
              1,429,735
              
              
              $
              1,231,968Research
      and Development Expenses
              
              $
              2,019,034
              
              
              $
              1,731,254Operating
      Loss
              
              $
              (3,493,980
              )
              
              $
              (2,934,570
              )Convertible
      Debenture Derivative Loss
              
              $
              (1,296,078
              )
              
              $Net
      Loss
              
              $
              (4,789,598
              )
              
              $
              (2,912,017
              )





Revenues
and Cost of Sales





For the
quarter ending October 31, 2009, we sold 1,672 fixtures and light engines at an
average price of $142.78 with an average cost of $169.58.  For the
quarter ending October 31, 2008, we sold 5,163 fixtures and light engines at an
average price of $60.20 with an average cost of
$54.76.  However, an additional 612 lights were sent to
customers and testing agencies for promotional and evaluation purposes in
the quarter ending October 31, 2008; for the quarter ending October 31, 2009, we
changed our policy so that we charge for samples and promotional items at our
cost. As a result, our gross profit was $ (45,211) for the quarter ended October
31, 2009 as compared to   $28,652, for the quarter ending October
31, 2008. The principal decline was due to the reduction in sales and related
profitability to our largest customer. Our largest customer, Hubbell Lighting,
represented 94% of our sales, respectively in the quarter ending October 31,
2008. For the quarter ended October 31, 2009, Hubbell Lighting represented 56%
of our sales.




Expenses





Selling,
General and Administrative Expenses




Our
activities to date have centered in these areas:





·
            Product
      Development,·
            Sales
      and Marketing


·
            General
      and Administrative






37





For the
quarter ended October 31, 2009, our selling, general and administrative
(“SG&A”) expenses increased. For the Quarter period ending October 31, 2009,
SG&A expenses increased $197,767 to $1,429,735 when compared to $1,231,968
for the quarter ended October 31, 2007.  Of  those amounts,
non-cash share-based compensation of  $550,763 and $565,384 , for the
quarter ended October 31, 2009 and 2008, respectively, related to the
compensation of, marketing and other personnel that were necessary to initiate
the company’s product development and operations and the result of higher
personnel and personnel-related expenses, associated with the increase in
management and administrative headcount that was necessary to initiate the
company’s product development and operations. The components of this category
for the quarters ended October 31 in each of the respective years are
discussed in the table and notes below:






2008
                
                
                
                2009
                
                
                
                Increase(Decrease)%Selling,
      general and administrative
                
                
                1,231,968
                
                
                
                1,429,735
                
                
                
                16
                %Other
      General & Administrative
                
                
                216,346
                
                
                
                422,808
                
                
                
                95
                %Product
      Development - Lighting
                
                
                266,070
                
                
                
                269,002
                
                
                
                1
                %Legal
      (1)
                
                
                82,844
                
                
                
                63,618
                
                
                
                (23
                )%Administrative
      salaries, not including benefits & taxes (2)
                
                
                50,052
                
                
                
                89,317
                
                
                
                44
                %
 Noncash
      Compensation
                
                
                565,384
                
                
                
                550,763
                
                
                
                2.6
                %Sales
      & Marketing
                
                
                51,272
                
                
                
                34,227
                
                
                
                (34
                )%Headcount:Employees
                
                
                13
                
                
                
                13
                
                
                
                -0-Consultant
                
                
                14
                
                
                
                8
                
                
                
                (40)
                %





Product
Development





Product
development consists of engineering, design, purchasing of components and
assembly of prototypes and testing. At this point, the bulk of the engineering
work is in design upgrades, improvements necessary to keep up with technological
changes, and development of Cobrahead fixtures that are larger and that have
different lighting patterns.





Marketing





The
completion of new products has necessitated marketing expenses. For the quarter
ending October 31, 2008, we spent $51,272 on marketing, which for the quarter
ending October 31, 2009 were $34,227. This was almost entirely due to
development and printing of sales materials, offset by the addition of sales
personnel.





General
and Administrative





As in all
companies, general and administrative expenses are the supporting services
needed to maximize the efforts of the other departments in performing their
duties. For the quarter ending October 31, 2009, we spent $ 422,808, and in the
quarter ending October 31, 2008, we spent $216,346 for other general and
administrative expenses, the most significant rise was in the are of consulting
expense.  Additional detail regarding these costs is provided
below:





(1)
            Legal
      - The Company expensed $63,618 for the three months ended October 31,
      2009, as compared to $82,844 for the three months ended October 31,
      2008, represented a decline in expenses from a number of filings that
      were the result of our research activities over a several month period. We
      expect this amount to increase in the future as a result of engineering
      and research effort.(2)
            Salaries
      and Benefits - We have employment contracts in place for approximately $
      250,000 per quarter (plus benefits and taxes), for all personnel,
      including $80,000 for accounting and administrative personnel. most of
      which were put into place in May, 2008.(3)
            Non
      Cash Salaries and Consulting – This amount is discretionary,
      based  partly on stock option plans for employees, and are
      typically intended as a motivator for improvements made during the quarter
      (see the beginning of this section for a discussion of the accomplishments
      during the quarter.






38





Research
and Development Expenses





The
Company has entered into research contracts with EPIR Technologies, Inc. and
Dongguk University (currently on hold) which 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
$2,019,034 for the quarter ending October 31, 2009. We expense our research and
development costs as incurred. Research and Development included $2,000,000
expended with EPIR.





Other
Income and Expenses





Interest
expense from the settlement of convertible debentures was the approximately $1.3
million for the quarter ended October 31, 2009 (there were no such expenses for
the quarter ending October 31, 2008). 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
such an arrangement.




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 owns all of the capital stock of Sparx.
In connection with the acquisition of the patent rights, we issued 500,000,000
stock options to Mr. Smith and have agreed to pay a royalty of 4.9% of
revenues to Sparx, Inc., a Company owned by Mr. Smith. Mr. Smith has waived
royalties for this quarter as part of attempts to conserve the Company’s
resources.





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, in the event that we generating
additional sales, develope 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 Three month Period Ending October 312008
            
            
            2009Cash
      flows used in Operations
            
            $
            2,819,186
            
            
            $
            1,795,244Capital
      Expenditures
            
            $
            11,485
            
            
            $
            -0-Equity
      Raised
            
            $
            676,454
            
            
            $
            1,905,250Cash
      at end of period
            
            $
            3,828,562
            
            
            $
            418,501





We
currently lease an operating facility at 6408 Parkland Drive, Sarasota, Florida
34243. This facility is under a one year extension through October 31,
2010. The lease requires monthly rent of approximately $5,584.63 which includes
tax. The building consists of approximately 5,316 square feet of laboratory,
warehouse and office space. The facilities are in good condition and are
adequate for small scale commercialization of our products. However, we do not
believe our facility would be adequate to handle more than 25
employees.





Our
staffing reduced somewhat with 13 employees and 8 consultants; however, we are
at the point where we are beginning to seek other professionals in the lighting
industry to join our company and have added over 50 sales agents in the last
year.  There are also over 50 paid employees and consultants at EPIR
Technologies, which we fund as part of our research arrangement. 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.




39





Cash
Flows and Working Capital





To date,
we have financed our operations primarily through equity contributions by our
shareholders. As of December 21, 2009, we had $2,574,086 in cash and cash
equivalents. We had receivables of $182,714 and inventory of $236,777 and our
current liabilities were $1,948,793 as of October 31, 2009, although over 75% of
the liabilities are convertible into common stock. At present levels we incur
overhead of $200,000 per month in cash before our research
commitments.





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





We raised
$676,454 for the quarter ending October 31, 2008 and raised 1,905,250 for the
quarter ending October 31, 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 approximately $2.4 million
on operations, $5.0 million on research and development and $100,000 on capital
equipment. To date, we have unfulfilled purchase orders from customers totaling
$1.0 million. In turn, we have open purchase orders to suppliers for $.9 million
to fulfill the orders we have received. Payment from customers and to vendors is
typically on a 90-day basis, however there is a production time lag of usually
30 days. To finance these operations and to take advantage of these
opportunities the Company will need to raise capital and/or incur debt. There is
no assurance that such capital can be raised or if such capital can be raised on
terms that are not highly dilutive to our current shareholders. If we are not
successful in raising capital we will have to limit our plans accordingly, and
we may not be able to take full advantage of opportunities we believe
exist.  Further, there is no assurance that we be successful in
collecting amounts owed in connection with these 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





·
            raising
      additional capital and/or obtaining financing;·
            increasing
      our revenues and gross profits and


·
            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.





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.




40




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 October 31, 2009.





Recent
Accounting Pronouncements





See
Consolidated Financial Statements beginning on page F-1.





ITEM 3. QUA NTITATIVE 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.





Not
applicable.





ITEM 4T. 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 October 31, 2009 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.





41


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.





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





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





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





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





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





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





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




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.





* 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.




42





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)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,
      2009,10.44
            
            Consulting
      Agreement between the Company and R. Craig Hall dated November
      10, 200931.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to
      Securities Exchange Act Rule 13a-14(a)/15d-14(a)31.2
            
            Certification
      of  Chief Financial Officer pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 193432.1
            
            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 __, 2009.


(11)
            Incorporated
      by reference to the Form 10-K Annual Report filed with the Securities and
      Exchange Commission on November 13,
2009.







43





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
            December
      21, 2009/s/
      Matthew Veal
              Matthew
      Veal
            Secretary,
      Chief Financial Officer, Treasurer, and Principal Accounting
      Officer
            December
      21, 2009














45