SNRY Solar Energy Initiatives Inc (PK)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

 

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

For the fiscal year ended July 31, 2012

 

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

 

Commission File Number: 000-54873

 

Solar Energy Initiatives, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		20-5241121
(State or other jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

 

2500 Regency Parkway

Cary, NC 27518

(Address of principal executive offices including zip code)

 

(904) 644-6090

Registrant’s telephone number, including area code:

 

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

 

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ]   No [X]

 

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

 

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

 

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

 

Indicate by a 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 [  ]   No [  ]

 

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

 

Large accelerated filer    [  ]

Accelerated filer   [  ]

Non-accelerated filer   [  ]

Smaller Reporting Company   [X]

 

The aggregate market value of the voting stock held by non-affiliates of the registrant at January 31, 2012 was approximately $1,189,422. The aggregate market value was computed by using the closing price of the common stock as of that date on the OTC Markets. (For purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates.)

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of October 31, 2012, the Company had outstanding 69,725,740 shares of its common stock, par value $0.001.

 

 

 

SOLAR ENERGY INITIATIVES, INC.

Form 10-K for the Fiscal Year Ended July 31, 2012

Index

 

			PAGE  NO.
PART I
Item 1.	Business		4
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		19
Item 2.	Properties		19
Item 3.	Legal Proceedings		19
Item 4.	Submission of Matters to a Vote of Security Holders		19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and issuer purchase of Equity securities		20
Item 6.	Selected Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		30
Item 8.	Financial Statements and Supplementary Data		30
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		30
Item 9A(T).	Controls and Procedures		30
Item 9B.	Other Information		31
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance		31
Item 11.	Executive Compensation		32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		36
Item 13.	Certain Relationships and Related Transactions, and Director Independence		36
Item 14.	Principal Accountant Fees and Services		37
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		37
Signatures			38

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements are statements that do not represent historical facts. We use words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “continue” and similar expressions to identify forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis or Plan of Operation”, our plans and expectations regarding future financial results, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements are based on information available to us as of the date of this Annual Report on Form 10-K and current expectations, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond our control. Please see “Item 1A: Risk Factors” and our other filings with the Securities and Exchange Commission for additional information on risks and uncertainties that could cause actual results to differ. These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we are under no obligation to, and expressly disclaim any responsibility to, update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.

 

The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Our fiscal year ends on July 31 of the applicable calendar year. All references to fiscal periods apply to our fiscal quarters or year which ends on the last day of the calendar month end.

 

Estimates of Future Financial Results are Inherently Unreliable.

 

From time to time, representatives of Solar Energy Initiatives, Inc. (“Solar Energy,” the “Company,” “we,” “our,” or “us”) may make public predictions or forecasts regarding the Company’s future results, including estimates regarding future revenues, expense levels, earnings or earnings from operations. Any forecast regarding the Company’s future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and, as a matter of course, many of them will prove to be incorrect. Further, the achievement of any forecast depends on numerous factors (including those described in this discussion), many of which are beyond the Company’s control. As a result, there can be no assurance that the Company’s performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Investors are cautioned not to base their entire analysis of the Company’s business and prospects upon isolated predictions, but instead are encouraged to utilize the entire available mix of historical and forward-looking information made available by the Company, and other information affecting the Company and its products, when evaluating the Company’s prospective results of operations. In addition, representatives of the Company may occasionally comment publicly on the perceived reasonableness of published reports by independent analysts regarding the Company’s projected future performance. Such comments should not be interpreted as an endorsement or adoption of any given estimate or range of estimates or the assumptions and methodologies upon which such estimates are based. Undue reliance should not be placed on any comments regarding the conformity, or lack thereof, of any independent estimates with the Company’s own present expectations regarding its future results of operations. The methodologies employed by the Company in arriving at its own internal projections and the approaches taken by independent analysts in making their estimates are likely different in many significant respects. Although the Company may presently perceive a given estimate to be reasonable, changes in the Company’s business, market conditions or the general economic climate may have varying effects on the results obtained through the use of differing analyses and assumptions. The Company expressly disclaims any continuing responsibility to advise analysts or the public markets of its view regarding the current accuracy of the published estimates of outside analysts. Persons relying on such estimates should pursue their own independent investigation and analysis of their accuracy and the reasonableness of the assumptions on which they are based.

 

 

PART I

 

ITEM 1. BUSINESS

 

Throughout this Report, Solar Energy Initiatives, Inc. Solar Energy, Inc., SNRY Solar, Inc. and SNRY Power, Inc. may be individually and collectively hereafter referred to as: the “Company”, “Solar Energy”, “we”, or “us”.

 

Company Description and Overview

 

Solar Energy Initiatives, Inc. (OTCBB: SNRY), is a diversified provider of solar solutions focused on large-scale projects and distribution of solar products.

 

The SNRY Power subsidiary as a developer and manager of municipal and commercial scale solar projects.

 

The SNRY Solar Inc subsidiary as a wholesale distributor of branded photovoltaic and thermal (water heating) systems selling via a network of dealers throughout the United States and the Caribbean.

 

Solar Energy Initiatives, Inc. was formed on June 20, 2006 and is a Delaware Corporation. On August 20, 2008, Solar Energy, Inc., a Florida corporation, was formed as a wholly owned subsidiary of Solar Energy Initiatives, Inc. to operate acquired solar assets, which includes the World Wide Web domain name www.solarenergy-us.com , and the relationship management of an independent solar equipment dealer network. In March 2010, Solar Energy Initiatives, Inc. formed SNRY Power, Inc.

 

The Company sold its interests in SolarEnergy.com , a domain name and digital property back to its original owner during the 4th quarter of 2010 for cancellation of $400,000 of debt.

 

In March 2010, Solar Energy Initiatives, Inc. formed SNRY Power, Inc.

 

On January 19, 2011 the Company completed a distribution of 21,326,912 shares it held with Solar Park Initiatives, Inc. (SPI) to the Company’s shareholders, reducing its current ownership in SPI to approximately 22%.

 

The Company sold its business for Solar EOS, dedicated to the education and continuous improvement of solar energy trade professionals, during the 3rd quarter of 2011 for Note of $165,450 over three years annual payments and payment of debts of the Company for a total value of $200,000.

 

The Company continues to experience cash flow difficulties that were exacerbated by the economy, the long development cycle of project development and lack of private capital investment. As a result, the Company has reduced portions of its operations although it continues to pursue its business model.

 

The Company has also pursued plans to acquire the assets of an Internet marketing firm. The company has signed a definitive agreement and the close of the acquisition is contingent upon the Company raising funds sufficient to pay the purchase price. The Company is intending to restructure its debt and attempt to negotiate settlements on all of its debt holders and seek additional capital. There is no guarantee that we will be able to close the acquisition or the restructuring of the debt.

 

Through its diversified portfolio of solar businesses, Solar Energy is committed to restoring the nation’s economy through a grassroots campaign called ‘Renew the Nation’. Renew the Nation brings together a broad alliance of public and private sector interests focused on workforce development, job creation and economic growth through solar energy. For more information please visit www.solarenergy-us.com .

 

We are primarily focusing our sales efforts in regions where electricity prices and government incentives are attractive and have accelerated solar power adoption. The business segments we have identified to pursue can require a significant level of expertise and capital. Currently the Company has found a very good working business model, working with many states and counties and banks that understand how to make the solar projects successful. The executive management has currently been focusing on this working business model to improve profit margins, identify viable and bankable projects of significant size, and too install using all efforts towards those financially viable projects. We have obtained the expertise, and continue to seek the necessary capital to further develop our plan and focus on this improved business model. The management has found the necessary expertise focusing on these strategies, however if we are unable to continue to acquire or develop such expertise or capital, we may not be able to fully develop our planned business and ultimately may be required to cease operations. We anticipate that the end customers of our sales processes will be homeowners, owners of large commercial and industrial buildings and facilities, municipalities and owners of large tracts of undeveloped land.

 

 

Fiscal 2012 Developments

 

On November 1, 2011, the Company executed an Asset Purchase Agreement (the “APA”) with Social Fly Marketing, Inc. (“Seller”) pursuant to which the Company agree to purchase from Seller and Seller agreed to sell to the Company all of Seller’s right, title and interest in certain assets relating to the Seller’s websites and business for a purchase price of $30,000 to be paid within 30 days of closing of the APA and the issuance of 100,000 shares of common stock of the Company on or before the closing date of the APA.

 

During fiscal 2012, the Company continued to experience cash flow difficulties that were exacerbated by the economy, the long development cycle of project development and lack of private capital investment. As a result, the Company has reduced portions of its operations although it continues to pursue its business model.

 

Business Focus

 

Our business is to market and sell solar power products, systems and services. Specifically, we are engaged in the following:

 

1)

Support and continue to expand a dealer network that sells solar components and systems to residential and commercial customers;

2)

Develop commercial projects, as the owner and operator, and sell power to the municipality, building owner or tenant; and

3)

Develop its South Carolina plant facility into a solar assembly, warehouse and distribution facility.

 

We offer solar power products including solar panels, inverters and balance of system which convert sunlight into utility quality electricity, and solar thermal systems which utilizes the sun’s radiation to heat water for homes and commercial applications. Installation and maintenance of these solar power products is performed by either the dealer network or 3rd party vendors identified by us. Our initial solar installation sales efforts are focused on supporting our dealer network’s sales to residential, commercial customers and the sale of solar systems to owner/operators where the energy generated will be sold to municipal customers.

 

In connection with our solar park development business, we intend to provide solar power systems to end customers on a turn-key, whole-solution basis by identifying and developing the project, and procuring financing, permits, equipment, construction and operational resources. As our business matures we may also provide engineering, manage construction, and provide monitoring, operations and maintenance services to the projects.

 

We buy products for our solar sales activities from manufacturers and vendors around the world. We buy products at wholesale prices based on market rates, and have relationships within the distribution and supply trade.

 

The Energy Industry

 

The production of electrical power is one of the world’s largest industries. The demand and cost for electricity is expected to increase in the coming years.

 

Fossil fuels are non-renewable resources, meaning that at some point the world will exhaust all known oil and natural gas reserves. We believe the electrical utility industry and traditional oil and gas companies face many challenges in meeting the growing worldwide demand for energy, including the following:

 

●

Fossil Fuel Supply Constraints: A large portion of the world’s electricity is generated from fossil fuels such as coal, oil and natural gas. Limited fossil fuel supply and escalating demand for electricity should continue to drive up wholesale electricity prices, creating a need to develop new technologies for power generation.

●

Infrastructure Constraints: In many parts of the world, the existing electricity generation and transmission infrastructure is insufficient to meet projected demand. Developing and building a centralized power supply and delivery infrastructure is capital intensive. This has left the electricity supply insufficient to meet demand in some areas, resulting in both scheduled and unscheduled blackouts.

 

 

●

Desire for Energy Security: Given the political and economic instability in the major oil and gas producing regions of the world, governments are trying to reduce their dependence on foreign sources of fossil fuels.

 

An underlying consideration concerning the delivery of electricity is the location of the generation source relative to the location of the end-use consumption. Over the past century, the economics of power plant construction supported larger and larger central station sites linked to transmission lines spanning great distances to reach the ultimate consumer. These economic considerations have been altered by the advent of smaller scale technologies that can provide electricity at competitive prices near the place of consumption. The combination of economic factors and of advances in generation technologies opens the market to an opportunity for “distributed generation” of electricity in combination with traditional grid resources. Distributed generation in its simplest configuration is energy generation at the source of consumption (solar and thermal panels on the roof or contiguous to the user’s location). Our products and services, including solar parks, are directed at this renewable distributed generation environment as well as specific application power solutions.

 

Environmental Issues and Regulations

 

We are subject to a variety of foreign, federal, state and local governmental laws and regulations related to generation and delivery of electricity and the purchase, storage, use and disposal of hazardous materials. In some cases, these laws provide local utilities with “monopoly” rights, adversely constraining our ability to easily penetrate economically attractive markets. In other cases, if we fail to comply with present or future environmental laws and regulations, we could be subject to fines, suspension of production or a cessation of operations. In addition, under some foreign, federal, state and local statutes and regulations, a governmental agency may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for the release or otherwise was not at fault.

 

In addition to those we have identified, we continue to seek markets that allow for the generation and sale of electricity by “third party developers”. We also believe that we will apply for and receive all environmental permits necessary to conduct our business. We are not aware of any pending or threatened environmental investigation, proceeding or action by foreign, federal, state or local agencies, or third parties involving our current facilities. Any failure by us to control the use of or to restrict adequately the discharge of, hazardous substances could subject us to substantial financial liabilities, operational interruptions and adverse publicity, any of which could materially and adversely affect our business, results of operations and financial condition.

 

Dependence on Government Subsidies and Incentives

 

Various subsidies and tax incentive programs exist at the federal, state and local level to encourage the adoption of solar power including capital cost rebates, performance-based incentives, feed-in tariffs, tax credits and net metering. Capital cost rebates provide funds to customers based on the cost or size of a customer’s solar power system. Government policies, in the form of regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers.

 

Performance-based incentives provide funding to a customer based on the energy produced by their solar system. Under a feed-in tariff subsidy, the government sets prices that regulated utilities are required to pay for renewable electricity generated by end-users. The prices are set above market rates and may be differentiated based on system size or application. Feed-in tariffs pay customers for solar power system generation based on kilowatt-hours produced, at a rate generally guaranteed for a period of time. Tax credits reduce a customer’s taxes at the time the taxes are due. Net metering programs allow a customer, who generates more energy than used, to “sell” electricity back to the utility which will spin the meter backwards. During these periods, the customer “lends” electricity to the grid, retrieving an equal amount of power at a later time. Net metering programs enable end-users to sell excess solar electricity to their local utility in exchange for a credit against their utility bills. Net metering programs are usually combined with rebates, and do not provide cash payments if delivered solar electricity exceeds their utility bills.

 

 

Renewable Energy Certificates

 

In addition, several states have adopted renewable portfolio standards (“RPS”), which mandate that a certain portion of electricity delivered to customers come from a set of eligible renewable energy resources. Under a renewable portfolio standard, the government requires regulated utilities to supply a portion of their total electricity in the form of renewable electricity. Some programs further specify that a portion of the renewable energy quota must be from solar electricity. A utility can receive “credit” for renewable energy produced by a 3rd party by either purchasing the electricity directly from the producer or paying a fee to obtain the right to renewable energy generated but used by the generator or sold to another party. This Renewable Energy Credit allows the utility to add this electricity to its RPS requirement total without actually expending the capital for generating facilities.

 

Despite the benefits of solar power, there are also certain risks and challenges faced by solar power. Solar power is currently dependent on government subsidies to promote acceptance by mass markets. We believe that the near-term growth in the solar energy industry depends significantly on the continued availability and size of these government subsidies and on the ability of the industry to reduce the cost of generating solar electricity. The market for solar energy products is, and will continue to be, heavily dependent on public policies that support growth of solar energy. There can be no assurances that such policies will continue. Decrease in the level of rebates, incentives or other governmental support for solar energy would have an adverse affect on our ability to sell our products.

 

Challenges Facing Solar Power

 

The solar power industry must overcome the following challenges to achieve widespread commercialization of its products:

 

●

Decrease Per Kilowatt-hour Cost to Customer. In most cases, the current cost of solar electricity is greater than the cost of retail electricity from the utility network. While government programs and consumer preference have accelerated the use of solar power for on-grid applications, product cost remains one of the largest impediments to growth. To provide an economically attractive alternative to conventional electricity network power, the solar power industry must continually reduce manufacturing and installation costs.

●

Achieve Higher Conversion Efficiencies. Increasing the conversion efficiency of solar cells reduces the material and assembly costs required to build a solar panel with a given generation capacity. Increased conversion efficiency also reduces the amount of roof top space required for a solar power system, thus lowering the cost of installation per consumer.

●

Improve Product Appearance. We believe that aesthetics are a barrier to wider adoption of solar power products particularly among residential consumers. Historically, residential and commercial customers have resisted solar power products, in part, because most solar panels are perceived as unattractive.

 

Ultimately, federal and state government, and locally sponsored, support for the solar industry is expected to reduce or stop. At or before that time, solar technologies must be priced, as a function of purchase price and performance, to compete cost effectively with traditional electricity generating technologies.

 

Competition

 

The market for solar power products is competitive and continually evolving. We expect to face increased competition, which may result in our inability to develop sustaining revenue. We will compete with companies large and small, public and private, and some will be suppliers as well as competitors and well known such as; First Solar, groSolar, Sunpower, Sunwize, BP Solar, Evergreen Solar and GE Solar. Chinese companies have made significant inroads in manufacturing and are the leaders in the production of solar panels or modules. Many of our competitors have established a stronger market position than ours and have larger resources and recognition than we have. In addition, the solar power market in general competes with other sources of renewable energy and conventional power generation.

 

We believe that the key competitive factors in the market for solar products include:

 

●

power efficiency and performance;

●

price;

●

quality, and warranty coverage and length;

 

 

●

aesthetic appearance of solar installations;

●

strength of distribution relationships; and

●

knowledgeable sales and installation personnel.

 

Our Distributed Products

 

Set forth below is a list of the products we have distributed previously. As set forth in our financial statements, we had no revenues in fiscal 2012.

 

Solar Panels

 

Solar panels are solar cells electrically connected together and encapsulated in a weatherproof package. We purchase solar panels from manufacturers that provide excellent component quality, aggressive pricing per watt of output and strong warranties. We purchase panels from Suntech, GE Solar, BP Solar and other vendors in the U.S. and off-shore.

 

One of the important considerations, in addition to price, is the length and terms of the product warranty. Today, typical warranties call for 25-years of performance at a minimum of 80% of the rated, maximum output of the panel. Other additional warranty coverage is also provided by manufacturers including; minimum warranted power, per watt PVUsa Test Conditions rating (“PTC”), efficiency rating of the solar panels, etc.

 

Inverters

 

Inverters transform direct current (“DC”), electricity produced by solar panels into the more common form of alternating current (“AC”), electricity used in homes and businesses. Inverters are used in virtually every on-grid solar power system and typically feed power either directly into the structure’s electrical circuit or into the utility grid. In North America, we will sell branded inverters specifically designed for use in residential and commercial systems. Inverters we will source include models spanning a power range of 2.5 to 500 kilowatts. Our packaged system designs optimize performance through the appropriate combination of these inverters with our solar panels. The units are highly efficient, possessing above-average DC to AC conversion efficiency compared to other commercially available units in their class, according to comparisons of information on other systems provided by the California Energy Commission. Our inverters are manufactured for us by Solectria, Xantrex, SMA Technologies, AG and PV Powered.

 

Solar Thermal Systems

 

Solar thermal systems typically include a solar collector, which gathers solar radiation to heat air or water for domestic, commercial or industrial use, piping and/or pump(s) to move heated water and a tank for storage. The solar panel is usually a flat plate collector that consists of a metal box with a glass or plastic cover and a black absorber plate at the bottom. Absorber plates are usually painted with selective coatings that absorb and retain heat better than ordinary black paint. They are normally made of metal, typically copper or aluminum, because they are good conductors of heat. Copper is more expensive, but it is a better conductor and is less prone to corrosion than aluminum. The sides and bottom of the collector are usually insulated to minimize heat loss. The solar collector is usually mounted on the roof and is usually connected to a circuit that flows heated water by a pump to the main hot water tank. Components for solar thermal systems are typically manufactured, domestically and abroad, by smaller, private companies unlike the large public and recognizable names often associated with solar PV.

 

We provide our dealers and customers with a variety of services, including system design, energy efficiency, financial consulting and analysis, construction management and maintenance and monitoring.

 

System Design

 

Solar electric and solar thermal systems are designed to take into account the customer’s location, site conditions and energy needs. During the preliminary design phase, a site audit and building assessment are conducted for onsite generation feasibility and to identify energy efficiency savings opportunities. Performance of a proposed system design is “modeled” taking into account variables such as local weather patterns, utility rates and other relevant factors at the customer’s location. The necessary permits are identified systems designed to comply with applicable building codes and other regulations.

 

 

Financial Consulting and Analysis

 

The financial attributes of solar systems are calculated using the applicable federal, state and local incentives and the cost of energy currently and expected to be paid by the customer. The anticipated economic benefits of including solar system(s) to a customer’s home or facility are calculated. We are planning to pursue partnerships with one or more financial companies and organizations to provide project development financing, bonding and end financing for residential and commercial customers.

 

Construction Management

 

We intend to offer general contracting services and project management to oversee all aspects of system installation, including securing necessary permits and approvals. Subcontractors, typically electricians, plumbers and roofers, usually provide the construction labor, tools and heavy equipment for solar system installation. We plan to develop relationships with general and subcontractors in many target markets, and will require these contractors to be licensed, carry appropriate insurance and adhere to the local labor and payroll requirements. Our construction management services would include system testing, commissioning and management of utility network interconnection.

 

Maintenance and Monitoring

 

Typically, our dealers will provide post-installation services in support of solar power systems they install to their residential and small commercial customers. As we pursue 3rd party owned and operated solar systems and solar park projects, we intend to provide the on-going system repair, maintenance and monitoring, including:

 

●

Operations and Maintenance: Solar systems have a design life in excess of 25 years. We anticipate offering to our customers a series of maintenance services that can include; continuous remote monitoring of system performance, quick turnaround on-site response to any system problem through a qualified local service technician and periodic preventive maintenance as well as certain forms of system testing

●

Monitoring: We will acquire monitor system performance technology used in most of the commercial systems installed. The monitoring technology continuously scans system performance

 

Sales and Marketing

 

Our sales and marketing program has historically incorporated a mix of print and web as well as participation in industry trade shows and individual consultations with prospective customers. In addition, we have previously relied heavily on the independent dealer network and we intend to work with and grow this network. We have trained many in the dealer network to design a system that best meets a customer’s needs, taking into account the unique installation and economic requirements for each location, and provide technical support to the dealers as necessary and needed. Commercial sales take a more consultative, long-term selling approach to meet the varying needs of larger customers. The sales process typically includes, a determination that a potential customer’s site has the required exposure for solar power, a site visit and a survey with our proprietary software that analyzes current utility rate options, current electric rates, system performance, tax rate scenarios, equipment costs, installation costs, incentives and other factors applicable to a specific customer’s circumstances. Due to our financial restraints, we have been unable to allocated resources to sales and marketing in fiscal 2012.

 

Employees

 

At the end of our fiscal year, we have one employee in sales, and administrative positions

 

ITEM 1A. RISK FACTORS

 

Although not required to include risk factors as the Company is a Smaller Reporting Company, the Company is voluntarily providing risk factors. This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could decrease. This means you could lose all or a part of your investment.

 

 

We may be unable to continue as a going concern in which case our securities will have little or no value.

 

Our independent auditor has noted in its report concerning our financial statements as of July 31, 2012 and 2011 that we have incurred recurring losses from operations and have a working capital deficiency, which raises substantial doubt about our ability to continue as a going concern. We have incurred recurring losses from operations in 2012 and 2011, respectively and, we have negative working capital as of July 31, 2012. These conditions raise substantial doubt as to our ability to continue as a going concern. We cannot assure you that we will achieve operating profits in the future.

 

Additional financing is required for us to continue operations.

 

We will require additional equity and/or debt financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that we will be successful in obtaining additional financing. Lack of additional funding could force us to curtail substantially our growth plans. Furthermore, the issuance by us of any additional securities pursuant to any future fundraising activities undertaken by us would dilute the ownership of existing shareholders and may reduce the price of our common stock.

 

Debt and/or project financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business, development of projects and operations. If we do not raise additional capital, we will be required to cease operations.

 

We have a limited operating history, there is no certainty that we will ever generate revenue and achieve profitability.

 

We generated no revenue for our fiscal year ended July 31, 2012. We have incurred significant losses from development and operations. As shown in our financial statements, as of the periods ended July 31, 2012 and July 31, 2011, we have incurred a cumulative net loss of $641,135 and $4,914,514, respectively, from operations. We will continue to incur operating losses in the future, primarily due to the cost of our operations. Negative cash flow from operations may also continue into future. Our ability to achieve profitability depends upon our ability to; continue to restructure our debt and increase our cash flow for our business, significantly expand the solar component and system sell-through to our dealer network, convert opportunities to sell large municipal and commercial projects, and successfully complete development of one or more solar project(s). If we are unable to generate positive cash flows or reduce our debt, we will be required to cease operations.

 

We may be unable to manage our growth or implement our expansion strategy.

 

We may not be able to implement our proposed product and service offerings, develop an active dealer network base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected.

 

We have a significant amount of outstanding debt and if we are unable to restructure this debt we will cease operations.

 

We currently have a significant amount of debt including outstanding payables. If we are unable to restructure such debt/payable, we will cease operations.

 

We have issued a substantial number of securities convertible into shares of our common stock which will result in substantial dilution to the ownership interests of our existing stockholders.

 

As of October 13, 2012, 152,018,019 shares of our common stock were reserved for issuance of outstanding convertible promissory notes. The conversion of these securities will result in a significant increase in the number of outstanding shares and substantially dilute the ownership interests of our existing shareholders. Furthermore, the conversion prices set in many of our convertible securities do not adjust in the event of a stock split or reverse stock split.

 

 

The issuance of shares upon conversion of our convertible securities may cause immediate and substantial dilution to our existing stockholders.

 

The issuance of shares upon conversion of our outstanding convertible notes may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. Although the selling stockholders may not convert their convertible notes if such conversion would cause them to own more than 9.99% of our outstanding common stock, this restriction does not prevent the selling stockholders from converting some of their holdings and then converting the rest of their holdings. In this way, the selling stockholders could sell more than this limit while never holding more than this limit. There only upper limit on the number of shares that may be issued is the number of shares of common stock authorized for issuance under our articles of incorporation. The issuance of shares upon conversion of the convertible notes will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock. Furthermore, the conversion prices set in many of our convertible securities do not adjust in the event of a stock split or reverse stock split.

 

The loss of our current directors and executive officers or our inability to attract and retain the necessary personnel could have a material adverse effect upon our business, financial condition or results of operations

 

Our success is heavily dependent on the continued active participation of our current directors and officers listed under “Directors and Management.” Loss of the services of our directors and officers could have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies in the technology industry is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on us. The inability on our part to attract and retain the necessary personnel and consultants and advisors could have a material adverse effect on our business, financial condition or results of operations. Finally, we need to identify and engage independent directors to join the board and serve on the Audit Committee, including one that qualifies as an “accounting expert” to meet the public company listing qualifications of Sarbanes-Oxley, section 301. Without the addition of directors and an accounting expert, we will not be able to be listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) exchange or other primary stock exchange.

 

Our dependence on a limited number of third party suppliers for components could prevent us from delivering our proposed products to our customers within required time frames, which could result in order cancellations and substantial harm to our business .

 

Historically, we purchased our products using materials and components procured from a limited number of third-party suppliers. If we fail to establish or maintain our relationships with these suppliers, or to secure additional supply sources from other suppliers, we may be unable to provide our products or our products may be available only at a higher cost or after a long delay, which could prevent us from delivering our products to our customers within required time frames, and we may experience order cancellations and our business may fail. We currently have supply agreements with suppliers to allow us to buy products at market rates and procure sufficient product quantities to assemble and sell our products on acceptable commercial terms. The failure of a supplier to supply materials and components in a timely manner, or to supply materials and components that meet our quality, quantity and cost requirements could impair our ability to purchase our products or increase their costs, particularly if we are unable to obtain substitute sources of these materials and components on a timely basis or on terms acceptable to us. In order to obtain required supplies, we may need to make large inventory purchases on short notice, and prior to having purchase orders or deposits from our customers for product using the full amount of silicon required to be purchased. We may not have sufficient financial resources to make these purchases, which may exacerbate supply shortages.

 

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products.

 

The market for electricity generation products is heavily influenced by foreign, U.S. federal, state and local government regulations and policies concerning the electric utility industry, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the U.S. and in a number of other countries, these regulations and policies are being modified and may continue to be modified. Customer purchases of, or further investment in the research and development of, alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for the solar power products of Solar Energy Initiatives, Inc.. For example, without certain major incentive programs and or the regulatory mandated exception for solar power systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility network. These fees could increase the cost to our customers of using our solar power products and make them less desirable, thereby harming our business, prospects, results of operations and financial condition.

 

 

We anticipate that our solar power products and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us and our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar power products.

 

The reduction or elimination of government economic incentives could prevent us from achieving sales and market share.

 

We believe that the near-term growth of the market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, depends in large part on the availability and size of government and economic incentives. Because a significant portion of our sales are expected to involve the on-grid market, the reduction or elimination of government and economic incentives may adversely affect the growth of this market or result in increased price competition, both of which could cause our revenue to decline.

 

Today, the cost of solar power exceeds retail electric rates in many locations. As a result, federal, state and local government bodies in many countries, most notably Canada, Germany, Japan, Spain, Italy, Portugal, South Korea and the United States, have provided incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. These government economic incentives could be reduced or eliminated altogether. For example, Germany has been a strong supporter of solar power products and systems and political changes in Germany could result in significant reductions or eliminations of incentives, including the reduction of feed-in tariffs more rapidly than required by current law. Some solar program incentives expire, decline over time, are limited in total funding or require renewal of authority. Net metering and other operational policies in California, Japan or other markets could limit the amount of solar power installed there. Reductions in, or eliminations or expirations of, governmental incentives could result in decreased demand for and lower revenue from our products. Changes in the level or structure of a renewable portfolio standard could also result in decreased demand for and lower revenue from our products.

 

Problems with product quality or product performance we distribute could result in a decrease in customers and revenue, unexpected expenses and loss of market share.

 

The solar products we plan to purchase are complex and must meet stringent quality requirements. Products this complex may contain undetected errors or defects, especially when first introduced. For example, solar panels may contain defects that are not detected until after they are shipped or are installed because we cannot test for all possible scenarios. These defects could cause us to, or may cause us to request that suppliers incur significant re-engineering costs, divert the attention of our personnel from product selling efforts and significantly affect our customer relations and business reputation. If we deliver solar panels with errors or defects, or if there is a perception that such solar panels contain errors or defects, our credibility and the market acceptance and sales of its solar power systems could be harmed.

 

The possibility of future product failures could cause us to incur substantial expense to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share and cause sales to decline. We may need to indemnify dealers in the network and customers in some circumstances against liability from defects in our solar products. A successful indemnification claim against us could require us to make significant damage payments, which would negatively affect our financial results.

 

 

Since the solar products we plan to purchase and sell cannot be tested for the duration of their standard multi-year warranty period, we may be subject to unexpected warranty expense; if we are subject to installation, warranty and product liability claims, such claims could adversely affect our business and results of operations.

 

The current standard product warranty for the solar products we intend to sell includes a warranty period (up to ten-years) for defects in material and workmanship and a warranty period (up to twenty five-years) for declines in power performance as well as a typically one-year warranty on the functionality of solar cells (for electricity producing solar products). Due to the long warranty period and even though we intend to pass through the warranty from the manufacturer, we may bear the risk of extensive warranty claims long after we have shipped product and recognized revenue. Any warranty claims that the manufacturer does not cover would cause us to increase the amount of warranty reserves and have a corresponding negative impact on our results. Although the manufacturers represent that they conduct accelerated testing of their solar cells, our solar panels have not and cannot be tested in an environment simulating the full warranty period. As a result of the foregoing, we may be subject to unexpected warranty expense, which in turn would harm our financial results.

 

Like other retailers, distributors and manufacturers of products that are used by consumers, we face an inherent risk of exposure to product liability claims in the event that our solar products cause or their use result in injury. Our business may be subject to warranty and product liability claims in the event that its solar power systems fail to perform as expected or if a failure of its solar power systems results, or is alleged to result, in bodily injury, property damage or other damages. Since our planned solar energy products are electricity and heat producing devices, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. Moreover, we may not have adequate resources in the event of a successful claim against us. We have evaluated the potential risks we face and believe that we can obtain appropriate levels of insurance for product liability claims. We will rely on our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. However, a successful warranty or product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation, which could also adversely affect our business and operating results. Our business’ exposure to warranty and product liability claims is expected to increase significantly in connection with its planned expansion into the new home market.

 

Warranty and product liability claims may result from defects or quality issues in certain third party technology and components that we or our suppliers incorporate into their/our solar power systems, particularly solar cells and panels, over which we have no control. While our agreements with our suppliers would generally include warranties, such provisions may not fully compensate us for any loss associated with third-party claims caused by defects or quality issues in such products. In the event we seek recourse through warranties, we will also be dependent on the creditworthiness and continued existence of the suppliers to our business.

 

We anticipate that our current standard warranty will differ by geography and end-customer application and will include such instruments as one-, two- or five-year comprehensive parts and workmanship warranties, after which the customer may typically extend the period covered by its warranty for an additional fee. Due to the warranty period, our business bears the risk of extensive warranty claims long after it has completed a project and recognized revenues. Future product failures could cause our business to incur substantial expenses to repair or replace defective products. While our business generally passes through manufacturer warranties it receives from its suppliers to its customers, it is responsible for repairing or replacing any defective parts during its warranty period, often including those covered by manufacturers warranties. If the manufacturer disputes or otherwise fails to honor its warranty obligations, our business may be required to incur substantial costs before it is compensated, if at all, by the manufacturer. Furthermore, the ‘business’ warranties may exceed the period of any warranties from our suppliers covering components included in its systems, such as inverters.

 

The products we intend to distribute may not gain market acceptance, which would prevent us from achieving sales and market share.

 

The development of a successful market for the products we intend to distribute may be adversely affected by a number of factors, some of which are beyond our control, including:

 

●

our failure to offer products that compete favorably against other solar power products or providers on the basis of cost, quality and performance;

 

 

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our failure to offer products that compete favorably against conventional energy sources and alternative distributed-generation technologies, such as wind, biomass and solar thermal, on the basis of cost, quality and performance;

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our failure to develop and maintain successful relationships with vendors, distributors, systems integrators and other resellers, as well as strategic partners.

 

If the products we intend to distribute fail to gain market acceptance, we will be unable to achieve sales and market share.

 

Technological changes in the solar power industry could render the products we intend to distribute uncompetitive or obsolete, which could prevent us from achieving market share and sales.

 

Our failure to seek new technologies and to be at the forefront of new product offerings could cause us to become uncompetitive promoting less competitive or obsolete systems, which could prevent us from achieving market share and sales. The solar power industry is rapidly evolving and highly competitive. We may need to invest significant financial resources to keep pace with technological advances in the solar power industry and to compete in the future and we may be unable to secure such financing. We believe that a variety of competing solar power technologies may be under development by many companies that could result in lower manufacturing costs or higher product performance than those products selected by us. These development efforts may render obsolete the products we have selected to offer, and other technologies may prove more advantageous for the commercialization of solar power products.

 

If solar power technology is not suitable for widespread adoption or sufficient demand for solar power products does not develop or takes longer to develop than we anticipate, we would be unable to achieve sales and market share.

 

The market for solar power products is emerging and rapidly evolving, and its future success is uncertain. If solar power technology proves unsuitable for widespread commercial deployment or if demand for solar power products fails to develop sufficiently, we would be unable to achieve sales and market share. In addition, demand for solar power products in the markets and geographic regions we target may not develop or may develop more slowly than we anticipate. Many factors will influence the widespread adoption of solar power technology and demand for solar power products, including:

 

●

cost-effectiveness of solar power technologies as compared with conventional and competitive alternative energy technologies;

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performance and reliability of solar power products as compared with conventional and non-solar alternative energy products;

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success of alternative distributed generation technologies such as hydrogen fuel cells, wind turbines, bio-diesel generators and large-scale solar thermal technologies;

●

fluctuations in economic and market conditions that impact the viability of conventional and competitive alternative energy sources;

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increases or decreases in the prices of oil, coal and natural gas;

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capital expenditures by customers, which tend to decrease when the domestic or foreign economies slow;

●

continued deregulation of the electric power industry and broader energy industry; and

●

availability and or effectiveness of government subsidies and incentives.

 

We face intense competition from other companies producing solar power, system integrators and other energy generation products. If we fail to compete effectively, we may be unable to increase our market share and sales.

 

The mainstream power generation market and related product sectors are well established and we are competing with power generation from more traditional process that can generate power at lower costs than most renewable or environmentally driven processes. Further, within the renewable power generation and technologies markets we face competition from other methods of producing renewable or environmentally positive power. Then, the solar power market itself is intensely competitive and rapidly evolving. Our competitors have established market positions more prominent than ours, and if we fail to attract and retain customers and establish a successful distribution network for our solar products, we may be unable to achieve sales and market share. There are a number of major multi-national corporations that produce solar power products, including; Suntech, Sunpower, FirstSolar, BP Solar, Kyocera, Sharp, GE, Mitsubishi, Solar World AG and Sanyo. Also established integrators are growing and consolidating, including groSolar, Sunwize, Sunenergy and Real Goods Solar and we expect that future competition will include new entrants to the solar power market. Further, many of our competitors are developing and are currently producing products based on new solar power technologies that may have costs similar to, or lower than, our projected costs.

 

 

Most of our competitors are substantially larger than we are, have longer operating histories and have substantially greater financial, technical, manufacturing and other resources than we do. Our competitors’ greater sizes in some cases provides them with competitive advantages with respect to manufacturing costs due to their ability to allocate fixed costs across a greater volume of production and purchase raw materials at lower prices. They also have far greater name recognition, an established distribution network and an installed base of customers. In addition, many of our competitors have well-established relationships with current and potential resellers, which have extensive knowledge of our target markets. As a result, our competitors will be able to devote greater resources to the research, development, promotion and sale of their products and may be able to respond more quickly to evolving industry standards and changing customer requirements than we can.

 

We may not address successfully the problems encountered in connection with any potential future acquisitions.

 

We expect to consider future opportunities to acquire or make investments in other technologies, products and businesses that could enhance our capabilities, complement our products, or expand the breadth of our markets or customer base. We have limited experience in acquiring other businesses and technologies. Potential and completed acquisitions and strategic investments involve numerous risks, including:

 

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problems assimilating the purchased technologies, products or business operations;

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problems maintaining uniform standards, procedures, controls and policies;

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problems arising from non-performance of acquired entities or assets;

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problems arising from over valuation or with securing the required financing to close and/or make the acquisition operational;

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unanticipated costs associated with an acquisition;

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diversion of management’s attention from our core business;

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adverse effects on existing business relationships with suppliers and customers;

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risks associated with entering new markets in which we have no or limited prior experience;

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potential loss of key employees of acquired businesses; and

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increased legal and accounting costs as a result of the newly adopted rules and regulations related to the Sarbanes-Oxley Act of 2002 and other such regulation such as increased internal control and reporting requirements.

 

Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we may not be able to compete successfully and we may lose or be unable to gain market share.

 

Our solar business competes with a large number of competitors in the solar power market, including integrators such as groSolar, Sunwize, Sunenergy and Real Goods Solar, and manufacturers that may also directly supply projects at costs we cannot compete with, including Suntech, BP Solar, FirstSolar, SolarWorld AG and others. In addition, alternative technologies such as thin films and concentrators, which may compete with our technology in certain applications, continue to make market penetration. We expect to face increased competition in the future. Further, many of our competitors are developing and are currently producing products based on new solar power technologies that may ultimately have costs similar to, or lower than, our projected costs.

 

Our solar power products and services compete against other power generation sources including conventional fossil fuels supplied by utilities, other alternative energy sources such as wind, biomass, concentrated solar power “CSP” and emerging distributed generation technologies such as micro-turbines, sterling engines and fuel cells. In the large-scale on-grid solar power systems market, we will face direct competition from a number of companies that manufacture, distribute, or install solar power systems. Our primary competitors in the United States include Arizona Public Service Company, BP Solar International, Inc., a subsidiary of BP p.l.c., Conergy Inc., Dome-Tech Group, Eastwood Energy, EI Solutions, Inc., Florida Power and Light, GE Energy, a subsidiary of General Electric Corporation, Global Solar Energy, Inc., a subsidiary of Solon, groSolar, Power-Fab, Real Goods Solar, Schott Solar, Inc., Solar Integrated Technologies, Inc., SPG Solar, Inc., Sun Edison LLC, Suntech, SunTechnics Installation & Services, Inc., Sunwize, Sunenergy, Thompson Technology Industries, Inc. and WorldWater & Power Corporation. Our primary competitors in Europe include BP Solar, Conergy (through its subsidiaries AET AlternitiveEnergieTechnik GmbH, SunTechnicsSolartechnikGmbH and voltwerk AG), PV-SystemtechnikGbr, SAG Solarstrom AG, Solon AG and Taufer Solar GmbH. Additionally, our business will occasionally compete with distributed generation equipment suppliers such as Caterpillar, Inc. and Cummins Inc. Other existing and potential competitors in the solar power market include universities and research institutions. We also expect that future competition will include new entrants to the solar power market offering new technological solutions. As we enter new markets and pursue additional applications for our products and services, we expect to face increased competition, which may result in price reductions, reduced margins or loss of market share.

 

 

Competition is intense, and many of our competitors have significantly greater access to financial, technical, manufacturing, marketing, management and other resources than we do. Many also have greater name recognition, a more established distribution network and a larger installed base of customers. In addition, many of our competitors have well-established relationships with our potential suppliers, resellers and their customers and have extensive knowledge of our target markets. As a result, these competitors may be able to devote greater resources to the research, development, promotion and sale of their products and respond more quickly to evolving industry standards and changing customer requirements than we will be able to. Consolidation or strategic alliances among such competitors may strengthen these advantages and may provide them greater access to customers or new technologies. To the extent that government funding for research and development grants, customer tax rebates and other programs that promote the use of solar and other renewable forms of energy are limited, we will compete for such funds, both directly and indirectly, with other renewable energy providers and their customers.

 

If we cannot compete successfully in the solar power industry, our operating results and financial condition will be adversely affected. Furthermore, we expect competition in the targeted markets to increase, which could result in lower prices or reduced demand for our product and service offerings and may have a material adverse effect on our business and results of operations.

 

The demand for products requiring significant initial capital expenditures such as our solar power products and services are affected by general economic conditions.

 

The United States and countries world wide have recently experienced a period of declining economies and unprecedented turmoil in financial markets. A sustained economic recovery is uncertain. In particular, terrorist acts and similar events, continued unrest in the Middle East or war in general could contribute to a slowdown of the market demand for products that require significant initial capital expenditures, including demand for solar power systems and new residential and commercial buildings. In addition, increases in interest rates may increase financing costs to customers, which in turn may decrease demand for our solar power products. If an economic recovery is slowed as a result of the recent economic, political and social events, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for our solar power products, which may harm our operating results.

 

We will rely primarily upon copyright and trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate revenue could suffer.

 

We will seek to protect our proprietary supplier and operational processes, documentation and other written materials primarily under trade secret and copyright laws. We also typically require employees and consultants with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our technology. In addition, our proprietary rights may not be adequately protected because:

 

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people may not be deterred from misappropriating our operational assets despite the existence of laws or contracts prohibiting it;

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policing unauthorized use of our intellectual property may be difficult, expensive and time-consuming, and we may be unable to determine the extent of any unauthorized use; and

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the laws of other countries in which we access and or market our solar cells, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies.

 

Unauthorized copying or other misappropriation of our proprietary assets could enable third parties to benefit from our property without paying us for doing so. Any inability to adequately protect our proprietary rights could harm our ability to compete, to generate revenue and to grow our business.

 

 

We rely on suppliers to comply with intellectual property, copy write, hazardous materials and processes and trade secrecy laws and regulations and, if such laws and regulations are not sufficiently followed, our business could suffer substantially.

 

We endeavor to comply with all law and regulation regarding intellectual property law manufacturing process law and regulation, however, in many cases it is our supplier that must comply with such regulations and laws. While we make efforts to ensure that products sourced from third parties comply with required regulation and law and that the operation of our suppliers do as well, our business could suffer if a supplier was, or suppliers were, found to be non compliant with regulation and law in our, our customers’ or our suppliers’ jurisdictions.

 

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines for us.

 

We are required to comply with all foreign, U.S. federal, state and local laws and regulations regarding pollution control and protection of the environment. In addition, under some statutes and regulations, a government agency, or other parties, may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for such release or otherwise at fault. In the course of future business we may use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our operations or related research and development and manufacturing activities. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations. In addition, if more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. If we fail to comply with present or future environmental laws and regulations we may be required to pay substantial fines, suspend production or cease operations.

 

There are restrictions on the transferability of the securities.

 

Until registered for resale, investors must bear the economic risk of an investment in the Shares for an indefinite period of time. Rule 144 promulgated under the Securities Act (“Rule 144”), which provides for an exemption from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, a six month holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act and that the Company is current in its filings. There is no guarantee that we will continue to maintain our public filings.

 

If we violated certain securities laws, we may not now be able to privately offer our equity securities for sale.

 

Any offering of our equity securities in or from the United States must be registered with the SEC or be exempt from registration. If our prior offers and sales were not exempt from registration, it is likely that they would be deemed integrated with future offerings unless we do not offer equity securities for at least six months. In the event of such integration, we would only be permitted to offer and sell equity securities after we file one or more new registration statements with the SEC and the registration statements have become effective. The registration process is both expensive and can be expected to take at least several months and would substantially hinder our efforts to obtain funds.

 

If the Company uses its stock in acquisitions of other entities there may be substantial dilution at the time of a transaction.

 

If the price of our common stock used for an acquisition is less than the amount paid by our shareholders, substantial dilution may be experienced. Additional dilution may be experienced by the sale of additional shares of common stock or other securities, or if the Company’s shares are issued to purchase other entities assets.

 

Our common stock is subject to the “Penny Stock” rules of the SEC.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

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that a broker or dealer approve a person’s account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

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obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

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sets forth the basis on which the broker or dealer made the suitability determination; and

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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Because each of our executive officers may voluntarily terminate his employment with us at any time on at least 30 days prior written notice to us, we can not be sure if any of them will maintain their position with us for the foreseeable future.

 

In the event any of our executive officers terminate their employment with us, we may not be able to find suitable replacements on similar terms, if at all.

 

Although we plan on maintaining commercial insurance to reduce some operating hazard risks, such insurance may not be available to us at economically feasible rates, if at all.

 

In the absence of suitable insurance, we may be exposed to claims and litigation which we will not be financially able to defend or we may be subject to judgments which may be for amounts greater than our ability to pay.

 

Anti-takeover provisions could make a third-party acquisition of us difficult which may adversely affect the market price and the voting and other rights of the holders of our common stock.

 

Certain provisions of the Delaware General Corporation Law may delay, discourage or prevent a change in control. The provisions may discourage bids for our common stock at a premium over the market price. Furthermore, the authorized but unissued shares of our common stock are available for future issuance by us without our stockholders’ approval. These additional shares may be utilized for a variety of corporate purposes including but not limited to future public or direct offerings to raise additional capital, corporate acquisitions and employee incentive plans. The issuance of such shares may also be used to deter a potential takeover of us that may otherwise be beneficial to our stockholders. A takeover may be beneficial to stockholders because, among other reasons, a potential suitor may offer stockholders a premium for their shares above the then market price.

 

The existence of authorized but unissued and unreserved shares may enable the Board of Directors to issue shares to persons friendly to current management which would render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise, and thereby protect the continuity of our management.

 

 

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

The Company, as a smaller reporting company, is not required to provide the information required by this item.

 

ITEM 2.  DESCRIPTION OF PROPERTY

 

In March, 2010 the Company signed a 3-year lease agreement, with option to purchase, with the Williamsburg County Development Corporation for the use of a building in Kingstree, SC. Approximately 6,000 sq. ft. of the building will be used for technical and dealer training of solar applicants. The remaining 230,000 sq. ft. of building space will be used as a distribution and light manufacturing facility. The annual lease rate for the building is $5.00 per year. If the Company creates 200 or more permanent jobs as a result of its activities in South Carolina, it will be able to purchase the building for $1.00 at the end of the 3-year lease term.

 

The Company’s executive offices are located at 2500 Regency Parkway, Cary, NC 27518. This office space is being provided by a former officer of the company, free of charge.

 

ITEM 3.  LEGAL PROCEEDINGS

 

Amy Gustafson Schwab et. al

 

On or about January 17, 2012, Amy Gustafson Schwab, Greg Gustafson, Charlotte Gustafson and Ryan Gustafson filed a complaint in the United States District Court for the District of Minnesota (Civil File No. 12-127 DSD/AJB) against Solar Energy Initiatives, David, W. Fann, Michael J. Dodak, Jack Zwick, Paul Cox and David Surette. The complaint was brought by purchasers of the Company’s common stock and the plaintiffs thereunder allege that they suffered damages due to defendants’ sale of unregistered securities, false statements made in connection with the sale of the securities, fraudulent manipulation of the market and their refusal to allow transfer of the securities. The complaint contains causes of action against all defendants for breach of fiduciary duty, conversion, breach of implied covenants, negligent misrepresentation, violation of Section 10(b) of the Securities Act of 1934 and aiding and abetting, causes of actions against the Company only for failure to register transfers and causes of action against the Company and Mr. Fann only for fraudulent misrepresentation and violation of state securities law. Plaintiffs seek damages for the loss in value and conversion of their shares and attorneys’ fees and costs. The Company has denied the allegations and is defending the matter. Due to the incipient nature of this action, we are unable to provide an opinion as to the likelihood of its outcome.

 

GAEA Holdings, LLC

 

On or about February 4, 2011, GAEA Holdings, LLC filed a complaint in the United States District Court for the District of Minnesota (Case No. 0:11-CV-00635-PJS-AJB) against Solar Energy Initiatives, Inc. Plaintiff sued for breach of an Independent Consulting Agreement with Solar Energy Initiatives, Inc. entered into in November 2009 and unpaid commissions for work thereunder. On March 20, 2012, the Court granted the plaintiff’s motion for summary judgment under which the plaintiff’s motion for summary judgment with respect to plaintiff’s breach of contract claim and that plaintiff is entitled to recover $892,500 in damages for such breach of contract. The Company is currently is continuing discussions with plaintiff to negotiate and settle this judgment. The Company has reserved for the full amount of the judgment pending negotiation of a settlement.

 

There have been judgments on the Company in the amounts of approximately $11,000, which have been reserved for within the financial statements as of July 31, 2012.

 

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

 

None.

 

 

PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES

 

From July 15, 2008 through August 23, 2008, our common stock was quoted on the OTC Bulletin Board under the trading symbol “NPCX,” and since August 24, 2008, our trading symbol has been “SNRY”.

 

The following table sets forth quarterly high and low bid prices of a share of our common stock as reported by the OTC Bulletin Board for the years 2012 and 2011. All share prices have been adjusted to provide for the 1 for 100 reverse stock split effected on March 7, 2012. Some of the bid quotations from the OTC Bulletin Board set forth below may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

		Price
		High				Low
			$				$
2012
Fourth quarter ended July 31, 2012		$	0.10			$	0.0025
Third quarter ended April 30, 2012		$	1.05			$	0.03
Second quarter ended January 31, 2012		$	0.25			$	0.09
First quarter ended October 31, 2011		$	0.25			$	0.15
2011
Fourth quarter ended July 31, 2011		$	0.50			$	0.20
Third quarter ended April 30, 2011		$	3.00			$	0.20
Second quarter ended January 31, 2011		$	13.00			$	3.00
First quarter ended October 31, 2010		$	19.00			$	10.00

 

 

On July 30, 2008, the authorized number of shares of the Company was increased from 15,000,000 to 100,000,000.

 

On March 28, 2011, the authorized number of shares of the Company was increased from 100,000,000 to 750,000,000.

 

The closing price of our common stock on the OTC Bulletin Board on October 29, 2012, was $0.001 per share.

 

As of October 25, 2012 there were approximately 386 record holders of our common stock. This does not include an indeterminate number of shareholders whose shares are held by brokers in street name. 

 

Dividends

 

We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying dividends on our common stock in the foreseeable future. We currently intend to use all available funds to develop our business. We can give no assurances that we will ever have excess funds available to pay dividends.

 

Securities Authorized for Issuance Under Equity Compensation Plans. The following provides information concerning compensation plans under which our equity securities are authorized for issuance as of July 31, 2012:

 

		(a)				(b)				(c)
Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders			—			$	—				—
Equity compensation plans not approved by security holders			—				—				—	(1) (2)
Total			—			$	—				—	(1) (2)

 

 

(1)    2012 Employee and Consultant Stock Compensation Plan. The purpose of this 2012 Employee and Consultant Stock Plan (“Plan”) is to provide compensation in the form of common stock to employees and “eligible consultants” who have previously rendered services to the Company or who will render services to the Company in the future. The total number of shares available for the grant of either stock options or compensation stock under the plan is 2,000,000 shares, subject to adjustment, and as of July 31, 2012, we had issued 2,000,000 shares under this Plan.

 

(2)    2012 Stock Incentive Plan. On August 13, 2012, our board of directors adopted the 2012 Stock Incentive Plan. The purpose of our 2012 Stock Incentive Plan is to advance the best interests of the company by providing those persons who are residents of California and who have a substantial responsibility for our management and growth with additional incentive and by increasing their proprietary interest in the success of the company, thereby encouraging them to maintain their relationships with us. Further, the availability and offering of stock options and common stock under the plan supports and increases our ability to attract and retain individuals of exceptional talent upon whom, in large measure, the sustained progress, growth and profitability which we depend. The total number of shares available for the grant of either stock options or compensation stock under the plan is 9,100,000 shares, subject to adjustment, and as of July 31, 2012, we had issued no shares.

 

Our compensation committee which is appointed by our board of directors administers our plan and has full power to grant stock options and common stock, construe and interpret the plan, establish rules and regulations and perform all other acts, including the delegation of administrative responsibilities, it believes reasonable an proper. Any decision made, or action taken, by the compensation committee or our board of directors arising out of or in connection with the interpretation and administration of the plan is final and conclusive.

 

The compensation committee or our board of directors, in its absolute discretion, may award common stock to employees of, consultants to, and directors of the company, and such other persons as the board of directors or compensation committee may select, and permit holders of common stock options to exercise such options prior to full vesting therein and hold the common stock issued upon exercise of the option as common stock. Stock options may also be granted by our board of directors or compensation committee to non-employee directors of the company or other persons who are performing or who have been engaged to perform services of special importance to the management, operation or development of the company.

 

In the event that our outstanding common stock is changed into or exchanged for a different number or kind of shares or other securities of the company by reason of merger, consolidation, other reorganization, recapitalization, combination of shares, stock split-up or stock dividend, prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to stock options which may be granted under the plan.

 

Our board of directors may at any time, and from time to time, suspend or terminate the plan in whole or in part or amend it from time to time in such respects as our board of directors may deem appropriate and in our best interest.

 

Recent Sales of Unregistered Securities

 

On October 1, 2012, we issued a 12% promissorynote in the aggregate principal amount of $22,500 to a single accredited investor. The note has a maturity date of October 1, 2013. This note is convertible into shares of our common stock at a conversion price of fifty percent (50%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

 

During the quarter ended July 31, 2012, we issued an aggregate of 10,269,371 shares of common stock upon conversions of various convertible notes. The aggregate principal and interest amount of these notes that were converted was $42,000. The issuances were exempt pursuant to Section 3(a)(9) of the Securities Act of 1933 as well as Section 4(2) of the Securities Act of 1933.

 

On July 17, 2012, we issued a 12% convertible promissory note in the aggregate principal amount of $11,500 to a single accredited investor. The note has a maturity date of July 17, 2013. This note is convertible into shares of our common stock at a conversion price of fifty percent (50%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

 

 

On July 17, 2012, we issued a 12% convertible promissory note to a single investor in the aggregate principal amount of $5,500.  The Note is convertible into common stock, at Hanover’s option, at a 50% discount to the average of the lowest closing bid prices of the common stock during the 5 trading day period prior to conversion.  The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and /or Regulation D of the Securities Act of 1933, as amended.

 

On June 9, 2012, we issued an 8% convertible promissory note in the aggregate principal amount of $27,500 to a single accredited investor. The note has a maturity date of March 9, 2013. Beginning December 9, 2013, this note is convertible into shares of our common stock at a conversion price of fifty percent (50%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

 

On July 9, 2012, we issued 3,000,000 shares of our common stock to four consultants for services rendered under consulting agreements. The issuances were exempt under Section 4(2) of the Securities Act of 1933, as amended.

 

On July 30, 2012, we issued 4,500,000 shares of our common stock to four consultants for services rendered under consulting agreements. The issuances were exempt under Section 4(2) of the Securities Act of 1933, as amended.

 

On July 30, 2012, we issued 1,000,000 shares of our common stock to each of our directors for services rendered to the board of directors. The issuances were exempt under Section 4(2) of the Securities Act of 1933, as amended.

 

ITEM 6.  SELECTED FINANCIAL DATA

 

Pursuant to Item 301(c) of Regulation S-K. the Company, as a smaller reporting company, is not required to provide the information required by this item.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This discussion should be read in conjunction with our consolidated financial statements included in this Annual Report on Form 10-K and the notes thereto, as well as the other sections of this Annual Report on Form 10-K , including “Certain Risks and Uncertainties” and “Description of Business” sections thereof. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report. Our actual results may differ materially.

 

Limited Operating History

 

There is limited historical financial information about our Company upon which to base an evaluation of our future performance. Our Company generated no revenues for the fiscal year ended July 31, 2012. We cannot guarantee that we will be successful in our business. We are subject to risks inherent in a fast growing company, including limited capital resources, possible delays in developing our sales channels, and possible margin reductions due to pricing inefficiencies and competition. There is no assurance that future financing will be available to our Company on acceptable terms. Additional equity financing could result in dilution to existing shareholders.

 

Company Description and Overview

 

The Company was formed on June 20, 2006. We market, sell and design solar power systems for residential and commercial customers, market, sell, design, own and operate solar power systems for municipal and commercial customers and design, develop and manage solar parks. We intend to initially serve customers in states that have high cost of electricity, and/or attractive incentive programs for solar installations. For the fiscal year just ended, we generated more than $1.1 Million in revenues and had a ($2.5 Million) loss from operations.  We source solar components from third party manufacturers for solar electric power products and technologies that directly convert sunlight into electricity and thermal (heat) energy. The originating founders, directors and officers of our company were Paul Cox, David Fann and Michael Dodak who served as the President, Chief Executive Officer/Secretary and Treasurer, respectively.

 

 

In July 2006, we entered into a convertible debenture with a waste to energy development company, Envortus Inc. As such time, we intended to develop a business in the waste to energy market and this was our initial foray in to the market. The officers and board members of The Company had ownership, officer positions and board positions in Envortus Inc. Under the terms of the convertible debenture, the Company could invest $250,000 in Envortus Inc over a period of time. The Company forwarded a total of $134,500 to Envortus Inc before deciding to continue its focus specifically in the solar area of the renewable energy market instead of waste to energy. The Company utilized funds raised from the sale of common stock and convertible debentures in order to fund the loan to Envortus Inc.

 

In March 2007, the Company entered into an agreement to sell the convertible debenture for $152,500, with discounts if paid early, to 0784655 B.C. LTD (“B.C.”), a company controlled by Paul Cox, a shareholder and a former officer and board member of the Company. Mr. Cox remains a shareholder, officer and board member of Envortus Inc. In July 2007, the sale of the convertible debenture was completed with a payment of $55,000 to the Company and the receipt of a promissory note in the amount of $97,500 (the “Note”), from B.C. for the balance. The principal amount of the Note was immediately discounted to $90,800. In addition, if the Note was paid within the first 270 days of issuance, additional discounts could be available.

 

To account for the Note the Company determined the fair value of the Note on a discounted basis to be equal to $68,100, which represented the discounted balance to be paid by B.C. assuming early payments made within 90 days from closing as provided in the Note. Based on the fair value of the note of $68,100, a loss totaling $11,405 was recorded for the year ended July 31, 2008 as reflected in the table below:

 

Consideration for sale of debenture:
Cash		$	55,000
Note receivable			97,500
Total consideration			152,500
Immediate discount			(6,700	)
Bank fee			(5	)
Expected early payment discount			(22,700	)
Total net consideration			123,095
Investment in convertible debenture			134,500
Loss on sale of investment		$	(11,405	)

 

The Company had originally invested $134,500 in a convertible debenture with Envortus. The Company then took back a Note for $97,500 and cash paid back of $55,000. The Company reviewed the fair value of the $97,500 Note, which had an immediate discount of $6,700 and an early expected payment discount of $22,700. The Company decided to take a valuation allowance on the $22,700 and the $6,700 during July 2007, leaving a balance on the Note of $68,100. Comparing the consideration received of $55,000 and the remaining value of the Note at $68,100 or $123,095, net of a $5 fee, this resulted in a loss on sale of the original investment in convertible debenture of $11,405.  The Company has allowed for the remaining balance of the Note and recorded bad debt related to note receivable, related party, in the amount of $68,100, due to concerns of collectability and non-payment of the scheduled payments. Per the terms of the Note, B.C. was required to pay principal in the amount of $10,000 in January 2008 and additional payments of $17,240 in July 2008, $31,780 in January 2009 and $31,780 in July 2009, together with interest, according to the payment schedule as defined by the Note when the early payments are not received. As of the date hereof, B.C. has not made the required principal and interest payment. The Company is pursuing legal action against the Note’s obligor for nonpayment.

 

On August 21, 2008, the Company entered into and closed a Website Purchase Agreement (the “WPA”) with Solar Energy, Inc. (“SEI”) and the shareholders of SEI pursuant to which the Company acquired the Domain Name, www.solarenergy.com , the web site that uses the domain name, the name Solar Energy, Inc. and all trade rights associated with these assets (collectively, the “SEI Assets”). In consideration for the purchased SEI Assets, the Company made a cash payment of $160,000 at closing, issued the seller a secured note collateralized by a lien on the assets referenced in the Website Purchase Agreement in the principal amount of $840,000 with 7.5% interest that is payable over a period of 21 months with principal payments of $40,000 per month and issued the seller 1,000,000 shares of common stock of the Company valued at $650,000.

 

 

In December 2009, the Company filed for arbitration against David H Smith revocable trust, and David Smith regarding potential violations of his website purchase agreement and consulting agreement. Interest has continued to accrue as per the agreement. 

 

As of July 15, 2010 the Company transferred the ownership of the Domain Name back to original seller for full payment of the outstanding principal and accrued interest of the Note in the amount of $400,000 and $28,750, respectfully. The Company settled with the seller and impaired the $1,650,000 value of the Domain Name against the remaining value of the note payable of $400,000, for a net other expense of $1,250,000. Per the terms of the settlement agreements we have returned the website domain name and have impaired the remaining value of the asset of $1,650,000 netting against the remaining value of the loan of $400,000 for a loss of $1,250,000.

 

On September 25, 2009 the Company formed Solar Park Initiatives Inc, (“SPI”) at that time a wholly owned subsidiary. In October 2009, the Company announced that it was planning to spin-off SPI, to its shareholders of record as of October 15, 2009, and that it hired Mr. Michael Gorton as the CEO of the new company. The Company’s shareholders of record, as of October 15, 2009, were to receive one common share of SPI stock for every two common shares of the Company owned. The distribution of such shares was contingent upon SPI making the required filings with the Securities and Exchange Commission.

 

In November 2009 SPI issued a total of 51,133,737 shares of common stock, of which 16,804,889 shares were issued to officers, employees and board members for services valued at $6,040. 34,996,769 shares were issued to the Company for services and cash of the initial share issuance by SPI, which has been eliminated upon consolidation.

 

During the period ended April 30, 2010, SPI closed a private placement for the sale of units at $0.15 per unit made up of one share of common stock and one common stock purchase warrant with an exercise price of $0.40. In December 2009, 667,921 units of common stock were issued in this private placement for $100,000. In addition, in March 2010 SPI closed a second private placement whereby it raised $200,000 on identical terms. During the period as part of an ongoing reverse merger SPI forward split shares of common stock on a 1:1.5812 and increased all shareholders on a pro-rata basis. SPI also granted 1,550,984 stock options exercisable at $0.40 with a five year vesting schedule. Value of these options: using a Black-Scholes valuation, with an exercise price of $0.40, a volatility based on public industry companies of 80% and with an average of a 2.5 year life, was $297,450.

 

On July 13, 2010, (the “Closing Date”), Critical Digital Data, Inc. (“CDD”) acquired SPI pursuant to an Agreement and Plan of Merger and Reorganization (the “Agreement”) with SPI and Solar Park Acquisition Corp., a Nevada corporation (“Acquisition Subsidiary”) (the “Merger”). SPI was organized under the laws of the State of Nevada on September 25, 2009. Acquisition Subsidiary was a wholly-owned subsidiary of SPI and on the Closing Date, merged with and into SPI and CDD acquired the business of SPI pursuant to the Merger and will continue the existing business operations of SPI, as a publicly- traded Nevada corporation under the name “Solar Park Initiatives, Inc.”

 

On the Closing Date, CDD acquired all of the issued and outstanding shares of common stock, $0.001 par value per share, of SPI from the holder’s of SPI (the “Solar Park Shareholders”) in exchange for an aggregate of 53,137,500 (post-split) newly issued shares (the “Exchange or Merger Shares”) of common stock, $0.001 par value per share (the “Common Stock”). As a result of the Merger, SPI Shareholders surrendered all of their issued and outstanding common stock of SPI in consideration for the Merger Shares and SPI became a wholly-owned subsidiary of the Registrant. The Agreement contains customary representations, warranties and covenants of the Registrant, SPI and the Acquisition Subsidiary, for like transactions. Breaches of representations and warranties are secured by customary indemnification provisions.

 

On July 13, 2010 in conjunction with the Exchange and Merger Shares the Registrant was issued 487,500 shares and valued at the then estimated fair value of $0.15 per share and expensed the value of $73,125 in the period ended July 31, 2010.

 

The parties have taken all actions necessary to ensure the Merger is treated as a “tax free exchange” under Section 368 of the Internal Revenue Code of 1986, as amended.

 

 

During 2010 and as of December 1, 2010 the Company announced a distribution of shares of common stock (the “Distribution”) of Solar Park Initiatives, a partially owned subsidiary of the Company (“Solar Park”). The Company held 34,996,769 shares of common stock of Solar Park, representing an estimated 66.8% of Solar Park. Following the Distribution, the Company retained 13,669,857 shares of common stock of Solar Park representing approximately 22% of Solar Park.

 

As of January 31, 2010 due to the Spin-Off and Distribution of Solar Park shares held by the Company, Solar Park is accounted for under the Equity Method and not as a Controlled Interest. As of July 31, 2011 the Company owned 11.5%

 

As of January 26, 2011, the Company initiated distribution of 21,326,911 shares of common stock, par value $0.001 (the “Shares”) of Solar Park and the S-1/A Registration Statement for distribution of shares from the spin-off has been declared effective. All Solar Energy Initiatives (SNRY.OB) shareholders of record as of December 1, 2010 received one share of Solar Park for every two shares they own of Solar Energy Initiatives.

 

On February 15, 2011, the Company entered into and closed an Asset Purchase Agreement (the “APA”) with Solar Park Initiatives, Inc. (“SPI”) pursuant to which the Company sold to SPI certain assets relating to the Solar EOS program including course and instructional materials, vendor contract information, funding information for state programs and a rental agreement in Kingstree, South Carolina (collectively, the “SPI Assets”). Further, SPI has agreed to pay the Company 10% of the adjusted gross profit derived from the operation of the education program for a period of three years ending February 14, 2014.

 

In consideration for the purchase and sale of the SPI Assets, SPI assumed a liability in the amount of approximately $25,000, made a cash payment of $10,000 at closing and issued the Company a Promissory Note in the principal amount of $165,244 with 7.5% interest that is payable over a period of 36 months payable in three equal installments annually.

 

Fiscal Years Ended July 31, 2012 and 2011

 

Results of Operations

 

The following table sets forth our statements of operations data for the years ended July 31, 2012, and 2011.

 

Summary Income Statement

 

		July 31, 2012				July 31, 2011
Revenues, net		$	—			$	1,285,770
Gross profit (loss)			—				243,505
Selling, general and administrative expenses			508,127				3,294,179
Total operating expenses			508,127				3,294,179
Loss from operations			(508,127	)			(3,050,671	)
Other Income (Expense)			(792,000	)			(1,506,431	)
Interest Expense			(133,007	)			(1,863,843	)
Loss from operations before income taxes			(1,433,941	)			(4,914,514	)
Income tax provision			-				-
Net loss			(1,433,941	)			(4,914,514	)
Loss attributable to non-controlling interest			—				165,683
Loss attributable to Solar Energy Initiatives, Inc.		$	(1,433,941	)		$	(4,748,831	)

 

 

Revenues

 

For the years ending July 31, 2012 and 2011, we had revenues of $0 and $1,285,770, respectively. The changes in revenues are due to reduction of the training of our new dealers and the decreased sale of distributed products and no completed projects.

 

Cost of sales

 

For the years ending July 31, 2012 and 2011, we had cost of sales of $0 and $1,042,262, respectively. The changes in cost of sales are due to no revenues or cost of sales during the year ended July 31, 2012.

 

Selling, general and administrative

 

Selling, general and administrative expenses for the year ended July 31, 2012 and July 31, 2011 were $508,127 and $3,294,179, respectively. Cash-based management fees, wages and salaries were $51,772 for fiscal 2012 and $909,624 for fiscal 2011, the decrease is due to the reduction of employees and consultants. Stock based compensation was $207,654 for fiscal 2012 and $1,936,579 for fiscal 2011, travel and entertainment was $4,900 for fiscal 2012 and $38,898 for fiscal 2011, and consulting, legal and professional costs totaled $180,718 for fiscal 2012 and $266,152 for fiscal 2011, of which the increases primarily relate to our acquisition costs, selling activities, financing activities, the preparation of audited and reviewed financial statements and SEC reporting.

 

Other income (expense)

 

In fiscal 2012 other expenses was $925,813 of which $133,813 was interest expense, consisting of interest for the notes payable, loan fees and loans from related parties. In fiscal 2012, the Company increased its reserve for claims made by related parties in the amount of $792,000. In fiscal 2011 other expenses was $1,863,843 of which $346,583 was interest expense, consisting of interest for the note payable, loan fees and loans from related parties. During the 2011 year the Company also settled with shareholders on ratchet pricing increases for $1,271,455; other expenses of $211,307 and gain on sale of Solar EOS assets of $205,000 for a net of other expenses of $1,863,843.

 

Net Loss

 

Our net loss attributable to Solar Energy Initiatives, Inc. was $1,433,941 for the year ended July 31, 2012 compared to $4,748,831 for the year ended July 31, 2011. The net loss primarily reflects our expenses relating to business activities that have been incurred ahead of our ability to recognize material revenues from our business plan.

   

Liquidity and Capital Resources

 

As of July 31, 2012, we had cash of $146, and working capital deficit of $2,130,951 compared with $8,703 and $1,245,096 in cash and working capital, respectively, in 2011. During the years ended July 31, 2012 and 2011, we primarily funded our operations from private sales of equity securities and convertible debt.

 

For the year ended July 31, 2012, we used $129,057 of cash in operations. Investing activities used $0 of cash during the year and financing activities provided $120,500 of net cash during the year, which resulted primarily from conversions of notes payable and notes payable proceeds. For the year ended July 31, 2011, we used $642,668 of cash in operations. During the year ended July 31, 2011, investing activities used $12,782 of cash during the year and financing activities provided $634,000 of net cash during the year, which resulted primarily from private placement subscription and notes payable proceeds.  We had no cash either used in or provided by investing activities in the year ended July 31, 2012. We had $120,500 of cash provided by financing activities for the year ended July 31, 2012, all of which resulting from debt financing.

 

As we continue to review our financial restructuring of the Company, we will need to execute on our business plans, which include positive cash flow operations, and/or acquire additional financing to supplement cash flows. Unless we can attain sufficient levels of revenues, and restructure our current debt, we will need to raise additional funds during the next twelve month period. We may require approximately $1,250,000 of additional capital funding, to allow us to continue the execution of our business plan through July 31, 2013. If we are not successful in raising the required capital, or begin one or more of the projects in our business pipeline, or restructure our debt, we will need to reduce the breadth of our business.

 

 

We have reduced staff throughout the current fiscal year and have curtailed most of the operations of the Company. We are currently restructuring the Company’s debt to work with vendors and ongoing consultants to provide for an ongoing business operation. We need additional capital in order to continue operations.

 

Since inception, our operations have primarily been funded through private equity financing, and convertible debt. We expect to continue to seek additional funding through private or public equity and debt financing as our business expands, and potentially seek a larger funding round to quickly drive the business forward.

 

However, there can be no assurance that our plans discussed above will materialize and/or that we will be successful in funding our estimated cash shortfalls through additional debt or equity capital and/or any cash generated by our operations. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

 

On July 15, 2010, the Company entered into a Securities Purchase Agreement with JDF Capital, Inc. (“JDF”), for the sale of a 12% convertible note in the principal amount of $150,000 (the “Note”). The financing closed on July 16, 2010.

 

The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on July 15, 2011. The Note is convertible into common stock, at JDF’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the twenty (20) trading day period prior to conversion. The Note contains a prepayment option whereby the Company may make a payment to JDF equal to 150% of all amounts owed under the Note during the one hundred fifty (150) day period beginning on the date of issuance of the Note and expiring on the 150 date anniversary.

 

JDF has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering on July 16, 2010 were $145,000 which is the gross proceeds less $5,000 paid to JDF’s counsel.

 

Additionally, the Company recorded a beneficial conversion feature on both the Asher and JDF Capital notes, totaling $250,000 and a discount totaling $121,138, with a remaining note payable net of $144,310. The value of the beneficial conversion feature was recorded as a discount to the convertible debenture and $121,138 and was entered through additional paid-in-capital through July 31, 2009. The discount of $15,448 has been amortized during the period ended July 31, 2010. The remaining $105,690 was amortized during the period ended July 31, 2011. 

 

On August 9, 2010, the Company entered into a Securities Purchase Agreement with Asher for the sale of 8% convertible note in the amount of $53,000.  The financing closed on August 15, 2010.  The value of the beneficial conversion feature was recorded as a discount to the convertible debenture of $25,260 and fully amortized during the year ended July 31, 2011.

 

On October 26, 2010, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), for the sale of an 8% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on October 26, 2010.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Note contains a prepayment option whereby the Company may make a payment to Asher equal to 150% of all amounts owed under the Note during the 90 day period beginning on the date of issuance of the Note and expiring on the 90 date anniversary.

 

Asher has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total gross proceeds the Company received from this Offering on October 26, 2010 was $40,000.  The value of the beneficial conversion feature was recorded as a discount to the convertible debenture of $18,100 and was fully amortized during the year ended July 31, 2010.

 

 

On November 2, 2010 the Company transferred and the related party lender assigned and Asher purchased a related party note payable of $50,000. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On December 2, 2010 the Company transferred and the related party lender assigned and Asher purchased a related party note payable of $50,000. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

The beneficial conversion feature and discount amounted to $34,672 on both transferred notes assigned by related parties to Asher a non-related party of which the total discount was amortized during the period ended July 31, 2011. 

 

During the fiscal year ended July 31, 2011, an additional $100,000 of converted debt was transferred, with an amount of $38,586 representing a discount on the debt the total discount was amortized during the period ended July 31, 2011. 

 

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Asher is an accredited investor, Asher had access to information about the Company and their investment, Asher took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

 

During January 2011 Solar Park Initiatives Inc. entered into a convertible note for $100,000, including fees of $3,000. The note was removed as part of the deconsolidation.

 

During February 2011, the Company also took on an additional $54,000 of debt with 8% annual interest to be paid within 12 months.

 

On May 25, 2011 and July 8, 2011, Solar Energy Initiatives, Inc. (the “Company”) entered into two Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of two 8% convertible notes each in the principal amount of $32,500 (the “Notes”). The Notes bear interest at the rate of 8% per annum. The Notes were convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $34,446, and amortized $14,140 during the year ended July 31, 2010.

 

On October 17, 2011, the Company entered into two Amendments to the Notes with Asher, pursuant to which the discount of the conversion price was increased to 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On October 24, March 12, May 9, and June 9, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into four Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of four 8% convertible notes each in the principal amount of $27,500, $18,000, $32,500 and $27,500, respectively (the “Notes”). The Notes bear interest at the rate of 8% per annum. The Notes were convertible into common stock, at Asher’s option, at a 50% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $103,160, and amortized $56,500 during the year ended July 31, 2012.

 

On July 17, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into a Securities Purchase Agreements with Magna Group, LLC. (“Magna”), for the sale of debt with a 12% convertible note in the principal amount of $11,000 (the “Notes”). The Note bear interest at the rate of 12% per annum. The Note is convertible into common stock, at Magna’s option, at a 50% discount to the average of the lowest closing bid prices of the common stock during the 5 trading day period prior to conversion.  The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $9,900, and amortized $825 during the year ended July 31, 2012.

 

 

On July 17, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into a Securities Purchase Agreements with Hanover Holdings, LLC. (“Hanover”), for the sale of debt with a 12% convertible note in the principal amount of $5,500 (the “Notes”).The Note bear interest at the rate of 12% per annum. The Note is convertible into common stock, at Hanover’s option, at a 50% discount to the average of the lowest closing bid prices of the common stock during the 5 trading day period prior to conversion. The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $4,950, and amortized $806 during the year ended July 31, 2012.

 

During the fiscal year ended July 31, 2012, an additional $52,500 of converted debt was transferred, with an amount of $93,025 representing a discount on the debt the total discount was amortized during the period ended July 31, 2012.

 

Total Loans as of July 31, 2012:

 

Convertible Debt		$	134,500
Notes			54,000
Total			188,500
Discount			(68,427	)
Net Debt		$	120,073

 

The Company received notice of conversion during the period totaling 10,950,288 shares for conversion prices ranging from $0.0014 to $0.018 per share, for the convertible notes. Total value of the conversions was $53,800.

 

To operate our current business groups, we may need up to $1.25 million in funds over the next twelve months. Part of this funding may be needed as the time required to realize revenues and cash from large commercial projects can be lengthy, with costs to develop these projects incurred up front. As of July 31, 2011 we had approximately $8,703 in cash on hand, which means there will be an anticipated shortfall of $1.25 million as we project our current cash requirements for the next twelve months. To sustain operations and continue development, we expect that will need to raise additional capital. As of our fiscal year end, there were no known demands or commitments, other than the notes to the seller and consulting agreements, that will necessitate liquidation of the Company. The current level of cash is not enough to cover the notes and consulting agreements for the next twelve months.

 

Assuming we are successful in our restructuring debt and new marketing development efforts we believe that we will be able to raise additional funds through the sale of our stock to either current or new shareholders. Of course there is no guarantee that we will be able to raise additional funds or to do so at an advantageous price.

 

Critical Accounting Policies

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make. Estimates that are critical to the accompanying financial statements arise from our belief that we will secure an a d equate amount of cash to continue as a going concern, that our allowance for doubtful accounts is adequate to cover potential losses in our receivable portfolio, that all long-lived assets are recoverable. The markets for our products are characterized by intense competition, rapid technological development, evolving standards, short product life cycles and price competition, all of which could impact the future realization of our assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. It is at least reasonably possible that our estimates could change in the near term with respect to these matters.

 

Revenue Recognition - The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. The Company generates revenue from training, the sale of photovoltaic panels, photovoltaic roofing systems, solar thermal products, balance of system products, and management system products to our dealer network or other parties. The Company anticipates it will not perform any installations. SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Amounts billed or received from customers in advance of performance are recorded as deferred revenue.

 

 

Stock-Based Compensation - The Company issues stock as compensation for services at the current market fair value.

 

We account for equity instruments issued for services based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable. Stock based compensation was determined using the fair value of the services performed due to the lack of historical fair value of the equity instruments.

 

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K. the Company, as a smaller reporting company, is not required to provide the information required by this item.

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our Consolidated Financial Statements and related notes begin on Page F-1 of this Annual Report.

 

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

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Not applicable

 

ITEM 9A(T).  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal accounting officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of July 31, 2012 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a  et seq. ) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

 

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act.

 

The management of the Company assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on this assessment, management determined that, during the year ended July 31, 2012, our internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules, as more fully described below. This was due to deficiencies in the design or operation of the Company’s internal control that adversely affected the Company’s internal controls and that may be considered to be material weaknesses.

 

Management identified the following material weaknesses in internal control over financial reporting:

 

1.     The Company has limited segregation of duties, which is not consistent with good internal control procedures.

 

2.     The Company does not have a written internal control procedurals manual which outlines the duties and reporting requirements of the Directors and any staff to be hired in the future. This lack of a written internal control procedurals manual does not meet the requirements of the SEC or good internal controls.

 

Management believes that the material weaknesses set forth in items 1 and 2 above did not have an affect on the Company’s financial results.

 

The Company and its management will endeavor to correct the above noted weaknesses in internal control once it has adequate funds to do so.

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

 

ITEM 9B.  OTHER INFORMATION

 

No information is required to be disclosed in a report on Form 8-K during the fourth quarter of the fiscal year covered by this Form 10-K which has not been reported.

 

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Significant Employees

 

The following are our directors and executive officers and significant employees.  Each director holds office until the next annual meeting of shareholders and until the director’s successor is elected and qualified or until the director’s resignation or removal.  Each executive officer holds office for the term for which such officer is elected or appointed and until a successor is elected or appointed and qualified or until such officer’s resignation or removal.

 

NAME		AGE		POSITIONS
David Fann		57		CEO and Director
Pierre Besuchet		74		Director

 

 

David Fann, CEO & Director, Mr. Fann is a founder of the Company and earlier served as the Chief Executive Officer, VP of Corporate Communications and Secretary.  Since January 2006, Mr. Fann has served as the President, Secretary and one of the founders and a member of the board of directors of FNDS3000 Corp. (f/k/a Fundstech Corp), a public company. Mr. Fann also served as a director on the board of Envortus, Inc. until July 2007. Mr. Fann also served as President and Director of the Global Axcess Corp, a publicly traded company since January of 2002 until September of 2006. While at Global Axcess Corp Mr. Fann was responsible for equity and debt financings totaling over $17 million and was responsible for investor relations. Prior to joining Global Axcess Corp Mr. Fann was the Chief Executive Officer and Chairman of the Board of TeraGlobal, Inc., a publicly traded company, from September 1998 through September 2000. He was president of TechnoVision Communications, Inc., a subsidiary of TeraGlobal, from November of 1995 to September 2000. He co-founded Totally Automated Systems Communications, a Unix-based communications company, and acted as Vice President of that company.

 

Pierre Besuchet, Director, Mr. Besuchet has filled senior management positions with Geneva Switzerland; a former Director of Fiaisal Private Bank (Switzerland); and former Director of other European and U.S. companies.

 

Audit Committee

 

The Company has appointed the following Board Members on to the Audit Committee:

David Fann

Pierre Besuchet

 

ITEM 11. EXECUTIVE COMPENSATION

 

There were two executives who received annual and/or long-term compensation for more than $100,000 per year at the end of the last completed fiscal year.

 

 

Summary Compensation Table

 

The following table sets forth information with respect to compensation earned by our Chief Executive Officer, Chief Financial Officer and our other most highly compensated executive officers (our “named executive officers”) for the fiscal years ended July 31, 2012 and 2011.

 

										Stock
Name and Position		Year				Salary				Awards ($)(3)				Total ($)
David Fann			2012			$	45,000 (1	)		$	55,375			$	100,375
President and Chief Executive Officer			2011			$	85,000 (2	)		$	196,037			$	281,037
Michael Dodak			2012				N/A				N/A				N/A
Chief Financial Officer (until September 26, 2011)			2011			$	85,000 (4	)		$	196,037			$	281,037

 

---

(1) Mr. Fann provided consulting services for $5,000 per month from June 2011 until April 2012 when he rejoined the Company as an employee. Compensation for salary, consulting services and loan fees were paid in common stock as to various times of the year. Total shares issued are 1,712,500 during the year ended July 31, 2012. Mr. Fann is currently being compensated at an annual salary of $120,000.

(2) During the year ended July 31, 2011, Mr. Fann received a salary of $110,000. Compensation for consulting services and salary was paid in common stock of the Company at various times during the year. Total shares issued were 47,778,807

(3) Stock Awards were Company stock issued to the recipients in lieu of cash compensation for salary or consulting fees and valued at the lower of the bid price of the stock on the day of the award, or at the private placement issuance price of an open private placement at that time. $2,500 of the stock awards received by Mr. Fann were for his services as a director.

(4). During the year ended July 31, 2011, Mr. Dodak received a salary of $110,000. Compensation for consulting services and salary was paid in common stock of the Company at various times during the year. Total shares issued were 47,778,807

 

 

Grants of Plan-Based Awards

 

The following table sets forth information concerning the number of shares of common stock underlying restricted stock awards and stock options granted to the Named Executive Officers in the year ended July 31, 2012:

 

																		All Other Stock Awards:				All Other Option Awards:
Name		Grant Date				Approval Date				Estimated Future Payouts Under Non-Equity Incentive Plan Awards				Estimated Future Payouts Under Equity Incentive Plan Awards				Number of Shares of Stock or Units (#)				Number of Securities Underlying Options  (#)		Exercise or Base Price of Option Awards ($/Sh)				Grant Date Fair Value of Stock and Option Awards (2)
David Fann			(1	)			(1	)			—				—				1,712,500			—			—			$	55,375

 

(1)

On each of November 3, 2011, April 17, 2012 and July 30, 2012, we issued David Fann 112,500, 600,000 and 1,000,000 shares of common stock. The closing price of our common stock on each of those dates was $0.15, $0.06 and $0.0025 respectively.

(2)

Represents the grant date fair value of each equity award calculated in accordance with ASC 718.

 

Outstanding Equity Awards at Fiscal Year-End

 

None.

 

 

Option Exercises and Stock Vested

 

None.

 

Potential Payments upon Termination

 

Under the terms of Mr. Fann’s employment agreement, he is entitled to a severance payment equal to the greater of his then current base compensation in effect through June 30, 2015 or eighteen months. Mr. Fann’s severance payment will equal twenty four months base salary upon consummation of a corporate transaction (as defined in the agreement).

 

Under the terms of Mr. Dodak’s consulting agreement, he is entitled to an 18-month severance if terminated early. Mr. Dodak’s consulting agreement pays him $10,000/month and his consulting agreement runs through December 2012.

 

The following table sets forth quantitative information with respect to potential payments to be made to Mr. Fann upon termination in the circumstances described above. The potential payments are based on the terms of the Employment Agreement discussed above. For a more detailed description of the Employment Agreement, see the “Employment Agreements” section above. 

 

Name		Potential Payment upon Termination
Daniel Fann			$180,000-$320,000 (1)
Michael Dodak			$180,000

 

(1)

For termination without cause, Mr. Fann is entitled to the greater of (i) eighteen months base salary or (ii) the aggregate amount of base salary under the term. Mr. Fann is being compensated at a rate of $10,000 per month. As of October 31, 2012, there were 32 months left in the term. In addition, Mr. Fann is entitled to 24 months compensation upon a corporate change.

 

Compensation of Directors

 

The following table sets forth the compensation paid to each director (other than compensation set forth under Executive Compensation) for services rendered during the fiscal year ended July 31, 2012.

 

		Stock
Name		Awards ($)				Total ($)
David Fann		$	2,500			$	2,500
Pierre Besuchet		$	17,500			$	17,500

 

All directors receive reimbursement for reasonable out-of-pocket expenses in attending Board of Directors meetings and for promoting our business.

 

Employment Agreements

 

The Company has entered into a three year employment agreement with David W. Fann as CEO for the period from July 1, 2012 through June 30, 2015. The terms of the contract include an initial salary of $120,000. In addition, Mr. Fann is entitled to receive a stock grant during each year of the agreement equal to 4.99% of the Company’s outstanding stock. Mr. Fann is entitled to a severance payment equal to the greater of his then current base compensation in effect through June 30, 2015 or eighteen months. Mr. Fann’s severance payment will equal twenty four months base salary upon consummation of a corporate transaction (as defined in the agreement). The agreement has a 1-year non-solicitation provision and a non-compete provision for any period under which Mr. Fann is receiving severance payments.

 

 

The Company entered into a five year employment agreement with Michael Dodak as VP of Corporate Development. The terms of the contract included an initial salary of $120,000 until specific performance measures are met, at which time the salary is to be increased to $150,000. Per the agreement, Mr. Dodak elected to convert his contract to a consulting agreement whereby he was paid $10,000, monthly. The consulting agreement runs thru December 2012. There is an 18-month severance if terminated early.

 

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

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 25, 2012 by the following persons:

 

·

each person who is known to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock;

·

each of our directors and executive officers; and

·

all of our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from October 25, 2012, and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from March 12, 2012.

 

Name and Address (1)		Number of Common Shares Beneficially Owned				Percentage Owned (2)
5% Stockholders :
Asher Enterprises, Inc. (3)			6,902,848 (4)				9.99	%
Directors and Officers:
David Fann			5,117,314				7.34	%
Pierre Besuchet			1,159,000				1.66	%
All directors and officers as a group (2 persons)			6,276,314				9.00	%

 

*Less than 1%

 

(1)

Unless otherwise noted, the address is 2500 Regency Parkway, Cary, NC 27518.

(2)

Based on 69,725,740 common shares issued and outstanding as of October 25, 2012.

(3)

The address is 1 Linden Place, Great Neck, NY 11021

(4)

Includes 5,763,671 shares of common stock and 1,139,177 shares presently issuable under convertible promissory notes. The promissory notes contain a provision prohibiting the issuance of shares in excess of 9.99% of the Company’s common stock.

 

ITEM 13.  CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

We believe that we have executed all of the transactions set forth below on terms no less favorable to us than terms we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, are approved by a majority of the board of directors, including a majority of the independent and disinterested members of the board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.

 

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Accounting Fees

 

The following table shows the aggregate fees billed to us for professional services by L.L. Bradford &Company, LLC, our independent auditors, for the years ended July 31, 2012 and 2011.

 

		2012				2011
Audit Fees		$	41,456			$	34,250
Audit-Related Fees			-				—
Tax Fees			—				4,000
All Other Fees			-				-
Total		$	41,456			$	38,250

 

Audit Fees.  Audit fees billed by L.L. Bradford were for professional services rendered for the annual audit of our consolidated financial statements, quarterly review of our consolidated financial statements, and other fees that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.

 

Audit-Related Fees.  Audit-related fees billed by L.L. Bradford were for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our consolidated financial statements, other than those previously reported under “Audit Fees.”

 

Tax Fees.  This category includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by L.L. Bradford for tax compliance, tax planning and tax advice.  

 

All Other Fees.  L.L. Bradford did not bill us for professional services rendered, other than amounts reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above for the years ended 2012 and 2011.

 

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

(a)  Audited Financial Statements for fiscal year ended July 31, 2012.

 

(b)  Exhibits.

 

Exhibit Number		Description of Exhibit
3.1		Certificate of Incorporation.(1)
3.2		By-Laws. (1)
3.3		Certificate of Amendment dated August 2, 2006(1)
3.4		Certificate of Amendment dated February 2, 2007(1)
3.5		Certificate of Amendment to the Certificate of Incorporation (6)
3.6		Certificate of Amendment to the Certificate of Incorporation (8)
3.7		Certificate of Amendment to Certificate of Incorporation (12)
3.8		Certificate of Correction to Certificate of Amendment (12)
4.1		0784655 B.C. LTD Promissory Note with the Company.(2)
4.2		Amended Convertible Debenture Purchase and Sale Agreement between 0784655 B.C. LTD, Envortus and the Company. (2)
4.3		Agreement for distribution of solar panels between an Asian Solar Photovoltaic Manufacturer and the Company*(9)
4.4		2009 Incentive Stock Plan (10)
4.5		Form of Warrant issued to the April and May 2009 Investors (11)
4.6		Form of Subscription Agreement entered into by the April and May 2009 Investors (11)
4.7		2012 Employee and Consultant Stock Compensation Plan (13)

 

 

4.8		2012 Stock Incentive Plan (14)
10.1		Employment Agreement by and between Brad Holt and the Company(4)
10.2		Employment Agreement by and between Michael Dodak and the Company(4)
10.3		Website Purchase Agreement by and among NP Capital Corp, SEI Acquisition, Inc., Solar Energy, Inc., David H. Smith Revocable Trust dated June 16, 1993 and David Smith (7)
10.4		Asset Purchase Agreement dated as of November 1, 2011 between Solar Energy Initiatives, Inc. and Solar Fly Marketing, Inc., as amended (15)
10.5		Employment Agreement with David Fann and the Company dated June 29, 2012.
23.1		Consent of L.L. Bradford & Company, LLC
31.1		Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension CalculationLinkbase
101.DEF		XBRL Taxonomy Extension DefinitionLinkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

* Portions of this exhibit have been redacted pursuant to a request for confidential treatment submitted to the Securities Exchange Commission.

(1) Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities Exchange Commission on December 17, 2007.

(2) Incorporated by reference to the Form SB-2 Registration Statement filed with the Securities Exchange Commission on February 1, 2008.

(3) Incorporated by reference to the Form S-1 Registration Statement filed with the Securities Exchange Commission on March 6, 2008.

(4) Incorporated by reference to the Form S-1 Registration Statement filed with the Securities Exchange Commission on April 1, 2008.

(5) Incorporated by reference to the Form S-1 Registration Statement filed with the Securities Exchange Commission on April 25, 2008.

(6) Incorporated by reference to the Form 8K Current Report filed with the Securities Exchange Commission on August 1, 2008.

(7) Incorporated by reference to the Form 8K Current Report filed with the Securities Exchange Commission on August 27, 2008.

(8) Incorporated by reference to the Form 8K Current Report filed with the Securities Exchange Commission on September 25, 2008.

(9) Incorporated by reference to the Form S-1 Registration Statement filed with the Securities Exchange Commission on May 21, 2008.

(10) Incorporated by reference to the Form S-8 Registration Statement filed with the Securities Exchange Commission on March 19, 2009.

(11) Incorporated by reference to the Form 8K Current Report filed with the Securities Exchange Commission on May 22, 2009.

(12) Filed as an exhibit to our Current Report on Form 8-K dated December 22, 2011 and filed with the SEC on December 23, 2011 and incorporated herein by reference.

(13) Filed as an exhibit to our Registration Statement on Form S-8 filed with the SEC on April 12, 2012 and incorporated herein by reference.

(14) Filed as an exhibit to our Registration Statement on Form S-8 filed with the SEC on August 21, 2012 and incorporated herein by reference.

(15) Filed as an exhibit to our Current Report on Form 8-K dated July 19, 2012 and filed with the SEC on July 19, 2012 and incorporated herein by reference.

 

 

Signatures

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Solar Energy Initiatives, Inc.
Date: November 19, 2012	By:	/s/ David W. Fann
		David W. Fann
		Chief Executive Officer, Chief Financial Officer and Director
		(Principal Accounting, Financial and Executive Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.

 

Signature		Title		Date
/s/ David W. Fann		Chief Executive Officer (Principal Executive Officer), Director		November 19, 2012
David W. Fann
/s/ Pierre Besuchet		Director		November 19, 2012
Pierre Besuchet

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Solar Energy Initiatives, Inc.

Cary, NC

 

We have audited the accompanying consolidated balance sheets of Solar Energy Initiatives, Inc. as of July 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity(deficit), and cash flows for each of the years in the two-year period ended July 31, 2012. Solar Energy Initiatives, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).   Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solar Energy Initiatives, Inc. as of July 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended July 31, 2012 in conformity with accounting principles generally accepted in the United States.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered losses from operations since inception and need additional capital to maintain operations and execute their business plan, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ L.L. Bradford & Company, LLC
November 19, 2012
Las Vegas, Nevada

 

 

Solar Energy Initiatives, Inc.

CONSOLIDATED BALANCE SHEETS

 

		July 31, 2012				July 31, 2011
ASSETS
Current assets
Cash and cash equivalents		$	146			$	8,703
Inventory			2,692				6,692
Prepaid and other current assets			-				3,781
Total current assets			2,838				19,176
Fixed assets, net			138				17,509
Total assets		$	2,976			$	36,685
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	985,421			$	977,826
Due to related parties			892,000				100,000
Accrued expenses			136,295				87,750
Convertible debentures, net			120,073				98,694
Total current liabilities			2,133,789				1,264,270
Commitments and contingencies			-				-
Stockholders’ equity
Preferred stock, $0.001 par; 10,000,000 authorized 0 and 0 issued and outstanding,			-				-
Common stock, $0.001 par; 750,000,000 authorized 26,500,337 and 5,648,402 issued and outstanding, respectively			26,500				5,648
Paid-in capital			15,087,859				14,765,381
Deferred compensation			(60,066	)			(247,449	)
Accumulated deficit			(17,185,106	)			(15,751,165	)
Total Solar Energy Initiative Inc shareholder’s equity (deficit)			(2,130,813	)			(1,227,585	)
Total stockholders’ equity (deficit)			(2,130,813	)			(1,227,585	)
Total liabilities and stockholders’ equity (deficit)		$	2,976			$	36,685

 

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

 

 

Solar Energy Initiatives, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Audited)

 

		For the Year				For the Year
		Ended				Ended
		July 31, 2012				July 31, 2011
Revenues, net		$	-			$	1,285,770
Cost of sales			-				1,042,262
Gross profit			-				243,508
Operating expenses
Selling, general and administrative			508,127				3,294,179
Total operating expenses			508,127				3,294,179
Loss from operations			(508,127	)			(3,050,671	)
Other income (expense)			(792,000	)			(1,506,431	)
Interest expense			(133,813	)			(357,412	)
Total other income (expense)			(925,813	)			(1,863,843	)
Loss before provision for income taxes			(1,433,941	)			(4,914,514	)
Provision for income taxes			-				-
Net loss			(1,433,941	)			(4,914,514	)
Loss attributable to non-controlling interest			-				(165,683	)
Loss attributable to Solar Energy Initiatives, Inc.		$	(1,433,941	)		$	(4,748,831	)
Net loss attributable to Solar Energy Initiatives, Inc. per share – basic and diluted		$	(0.70	)		$	(2.68	)
Weighted average shares outstanding – basic and diluted			2,054,700				1,769,332

 

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

 

 

Solar Energy Initiatives, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Audited)

 

										Additional								Common												Total
		Common Stock								Paid-in				Deferred				Stock				Accumulated				Non-Controlling				Stockholders’
		Shares				Amount				Capital				Comp				Subscription				Deficit				Interest				Deficit
Balances, July 31, 2010			354,055			$	354			$	10,599,856			$	(582,535	)		$	(20,000	)		$	(11,002,334	)		$	(65,923	)		$	(1,070,583	)
Shares issued for cashless warrants			1,543				2				(2	)			-								-				-				(0	)
Shares issued for payment of services			178,973				179				160,052				-								-				-				160,231
Shares issued for retroactive treatment of share price			14,957				15				179,475				-								-				-				179,490
Shares cancelled			(5,246	)			(5	)			(19,994	)			-				20,000				-				-				-
Shares issued for employee compensation			1,058,576				1,059				504,015				-								-				-				505,074
Shares issued for deferred compensation			112,636				113				251,396				(251,509	)							-				-				-
Amortization of deferred compensation expense			-				-				-				919,384								-				-				919,384
Shares issued for private placement, net of offering costs			34,820				35				324,965				-								-				-				325,000
Discount on notes due to beneficial conversion feature			-				-				151,064				-								-				-				151,064
Acquisition and ownership changes in subsidiary			-				-				436,252				(192,789	)							-				231,606				475,070
Shares issued for dealer incentives			400,000				400				139,600				(140,000	)			-				-				-				-
Shares issued for convertible debt			1,238,263				1,238				628,187				-								-				-				629,425
Rachet provisions and settlement with shareholders			2,259,823				2,260				1,410,514				-								-				-				1,412,774
Net loss			-				-				-				-								(4,748,831	)			(165,683	)			(4,914,514	)
Balances July 31, 2011 (audited)			5,648,402			$	5,648			$	14,765,381			$	(247,449	)		$	-			$	(15,751,165	)		$	-			$	(1,227,586	)
Shares issued for payment of services			7,601,250				7,601				202,986				(141,400	)															69,187
Shares issued for director & officer compensation			2,700,000				2,700				53,300																				56,000
Cancellation of shares previously issued for deferred compensation			(400,000	)			(400	)			(139,600	)			140,000																-
Discount on convertible debentures due to beneficial conversion feature											162,943																				162,943
Shares issued for convertible debt			10,950,288				10,950				42,850																				53,800
Amortization of deferred compensation expense															188,783																188,783
Reverse stock split adjustment			397				1				(1	)																			-
Net loss																						$	(1,433,941	)							(1,433,941	)
Balances July 31, 2012 (audited)			26,500,337			$	26,500			$	15,087,859			$	(60,066	)		$	-			$	(17,185,106	)		$	-			$	(2,130,814	)

 

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

 

 

Solar Energy Initiatives, Inc.

STATEMENTS OF CASH FLOWS

(Audited)

 

		For the Year				For the Year
		Ended				Ended
		July 31, 2012				July 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(1,433,941	)			(4,914,514	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization			17,371				7,860
Stock based compensation			313,970				1,936,579
Provision for anti-dilutive rachet on purchased stock			-				1,271,455
Amortized discount			116,816				236,448
Impairment of intangible assets			-				-
Stock issued for retroactive treatment of common stock			-				179,489
Stock issued for loan fees			-				-
Loss on legal action			792,000				100,000
Changes in operating assets and liabilities:
Accounts receivable			-				26,124
Project costs			-				560,274
Inventory			4,000				201,725
Prepaid expenses and other current assets			3,781				(992	)
Deposits and other assets			-				3,598
Accounts payable			7,593				(79,186	)
Accounts payable, related party			-				(120,352	)
Commissions payable			-				(1,883	)
Accrued expenses			52,545				62,476
Deferred revenue			-				(79,230	)
Due to related party			-				(32,539	)
Net cash used by operating activities			(129,057	)			(642,668	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets			-				(8,178	)
Investment in subsidiary assets			-				(4,604	)
Net cash used by investing activities			-				(12,782	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from private placements			-				325,000
Proceeds from warrant call			-				-
Proceeds received from subsidiary stock sales			-				-
Proceeds from notes			120,500				309,000
Net cash provided by financing activities			120,500				634,000
Net (decrease) in cash and cash equivalents			(8,557	)			(21,450	)
Cash and cash equivalents at beginning of year			8,703				30,153
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	146			$	8,703

 

 

		For the Year				For the Year
		Ended				Ended
		July 31, 2012				July 31, 2011
SUPPLEMENTAL DISCLOSURES
Cash operating activities:
Interest paid		$	-			$	357,412
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Spin off of Solar Park:
Cash		$	-				4,604
Other assets			-				40,204
Property and equipment			-				8,178
Accounts payable			-				(64,738	)
Accrued expenses			-				(53,077	)
Due to Solar Park			-				51,901
Notes payable			-				(97,000	)
Deferred compensation			-				488,251
Stock payable			-				(268	)
Additional paid in capital			-				(378,055	)
Total Spin -Off		$	-			$	-
Stock issued /(cancelled) for deferred compensation		$	(140,000	)		$	1,072,549
Stock issued for loan fees		$	-			$	-
Settlement on note payable		$	-			$	-
Discounts from warrants and beneficial conversion feature		$	157,993			$	151,064
Subsidiary options granted for other assets		$	-			$	40,204
Stock issued for accounts payable		$	68,500			$	36,333
Stock issued for conversion of notes payable and accrued interest		$	10,500			$	629,425
Common stock subscription cancelled		$	-			$	(20,000	)
Due to related parties purchased by third parties		$	-			$	200,000
Capital contribution in form of debt extinguishment		$	-			$	77,533

 

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

 

 

Solar Energy Initiatives, Inc.

Notes to Consolidated Financial Statements

 

Note 1 – Nature of Operations

 

Solar Energy Initiatives, Inc. was formed on June 20, 2006 and is a Delaware Corporation. On August 20, 2008, Solar Energy, Inc., a Florida corporation, was formed as a wholly owned subsidiary of Solar Energy Initiatives, Inc. to operate acquired solar assets, which includes the World Wide Web domain name  www.solarenergy-us.com , and the relationship management of an independent solar equipment dealer network.  In March 2010, Solar Energy Initiatives, Inc. formed SNRY Power, Inc.

 

The Company has also pursued plans to acquire the assets of an Internet marketing firm. The company has signed a definitive agreement and the close of the acquisition is contingent upon the Company raising funds sufficient to pay the purchase price. The Company is intending to restructure its debt and attempt to negotiate settlements on all of its debt holders and seek additional capital. There is no guarantee that we will be able to close the acquisition or the restructuring of the debt.

 

Throughout this Report, Solar Energy Initiatives, Inc., Solar Energy, Inc. and SNRY Solar, Inc and SNRY Power, Inc. may be individually and collectively hereafter referred to as: the “Company”, “Solar Energy”, “we”, or “us”.

 

Business Description

 

Solar Energy Initiatives, Inc. (OTCBB: SNRY), is a diversified provider of solar solutions with two principal wholly owned subsidiaries focused on large-scale projects, solar education and distribution of solar products.

 

The SNRY Power, Inc. subsidiary is a developer and manager of municipal and commercial scale solar projects.

 

The SNRY Solar Inc subsidiary as a wholesale distributor of branded photovoltaic and thermal (water heating) systems selling via a network of dealers throughout the United States and the Caribbean.

 

Solar Energy Initiatives, Inc. (the “Company”) was formed on June 20, 2006 and is a Delaware Corporation. On August 20, 2008, Solar Energy, Inc., a Florida corporation, was formed as a wholly owned subsidiary of the Company to operate acquired solar assets, and the relationship management of an independent solar equipment dealer network. On September 25, 2009, Solar Energy Initiatives, Inc. formed a wholly owned subsidiary Solar Park Initiatives, Inc. (SPI), a Nevada corporation, to develop large utility-scale solar projects.

 

The Company sold its interests in SolarEnergy.com , a domain name and digital property back to its original owner during the 4th quarter of 2010 for cancellation of $400,000 of debt.

 

In March 2010, Solar Energy Initiatives, Inc. formed SNRY Power, Inc.

 

On January 19, 2011 the Company completed a distribution of 21,326,912 shares it held with Solar Park Initiatives, Inc. (SPI) to the Company’s shareholders, reducing its current ownership in SPI to approximately 22%.

 

The Company sold its business for Solar EOS, dedicated to the education and continuous improvement of solar energy trade professionals, during the 3 rd quarter of 2011 for Note of$165,450 over three years annual payments and payment of debts of the Company for a total value of $200,000.

 

The Company continues to experience cash flow difficulties that were exacerbated by the economy, the long development cycle of project development and lack of private capital investment. As a result, the Company has reduced portions of its operations although it continues to pursue its business model.

 

The Company has also pursued plans to acquire the assets of an Internet marketing firm. The company has signed a definitive agreement and the close of the acquisition is contingent upon the Company raising funds sufficient to pay the purchase price. The Company is intending to restructure its debt and attempt to negotiate settlements on all of its debt holders and seek additional capital. There is no guarantee that we will be able to close the acquisition or the restructuring of the debt.

 

 

Through its diversified portfolio of solar businesses, Solar Energy is committed to restoring the nation’s economy through a grassroots campaign called ‘Renew the Nation’. Renew the Nation brings together a broad alliance of public and private sector interests focused on workforce development, job creation and economic growth through solar energy. For more information please visit www.solarenergy-us.com .

 

We are primarily focusing our sales efforts in regions where electricity prices and government incentives are attractive and have accelerated solar power adoption. The business segments we have identified to pursue can require a significant level of expertise and capital. Currently the Company has found a very good working business model, working with many states and counties and banks that understand how to make the solar projects successful. The executive management has currently been focusing on this working business model to improve profit margins, identify viable and bankable projects of significant size, and too install using all efforts towards those financially viable projects. We have obtained the expertise, and continue to seek the necessary capital to further develop our plan and focus on this improved business model. The management has found the necessary expertise focusing on these strategies, however if we are unable to continue to acquire or develop such expertise or capital, we may not be able to fully develop our planned business and ultimately may be required to cease operations. We anticipate that the end customers of our sales processes will be homeowners, owners of large commercial and industrial buildings and facilities, municipalities and owners of large tracts of undeveloped land.

 

Business Focus

 

Our business is to market and sell solar power products, systems and services. Specifically, we are engaged in the following:

 

1)

Support and continue to expand a dealer network that sells solar components and systems to residential and commercial customers, and

2)

Develop commercial projects, as the owner and operator, and sell power to the municipality, building owner or tenant

3)

Develop its South Carolina plant facility into a solar assembly, warehouse and distribution facility.

 

We offer solar power products including solar panels, inverters and balance of system which convert sunlight into utility quality electricity, and solar thermal systems which utilizes the sun’s radiation to heat water for homes and commercial applications. Installation and maintenance of these solar power products is performed by either the dealer network or 3rd party vendors identified by us. Our initial solar installation sales efforts are focused on supporting our dealer network’s sales to residential, commercial customers and the sale of solar systems to owner/operators where the energy generated will be sold to municipal customers.

 

In connection with our solar park development business, we intend to provide solar power systems to end customers on a turn-key, whole-solution basis by identifying and developing the project, and procuring financing, permits, equipment, construction and operational resources. As our business matures we may also provide engineering, manage construction, and provide monitoring, operations and maintenance services to the projects.

 

We buy products for our solar sales activities from manufacturers and vendors around the world. We buy products at wholesale prices based on market rates, and have relationships within the distribution and supply trade.

 

Note 2 – Going Concern

 

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred losses from operations since our inception, and at the present time will need additional capital to maintain operations and execute our business plan. As such, our ability to continue as a going concern is contingent upon us being able to secure an adequate amount of debt or equity capital to enable us to meet our cash requirements. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets, the competitive environment in which we operate and the current credit shortage facing world wide markets.

 

Since inception, our operations have primarily been funded through private equity financing, and we expect to continue to seek additional funding through private or public equity and debt financing.

 

 

However, there can be no assurance that our plans discussed above will materialize and/or that we will be successful in funding our estimated cash shortfalls through additional debt or equity capital and/or any cash generated by our operations. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.

 

We anticipate our operations will be sufficient to provide adequate operating revenue to maintain the business. Adding at least $1,250,000 in funds will allow us to quickly move forward with projects in hand which, if successful, should provide cash flow allowing for advantageous inventory purchases and the securing of additional projects, potentially increasing our growth and profitability. With more capital, we would also add additional staff and start development of other projects. Currently we have approximately $146 in cash on hand. The current level of cash is not enough to cover the fixed and variable obligations of the Company, so increased sales performance and the addition of more capital are critical to our success.

 

Assuming we are successful in our sales/development effort, we believe that we will be able to raise additional funds through the sale of our stock to either current or new shareholders. There is no guarantee that we will be able to raise additional funds or to do so at an advantageous price.

 

Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern

 

Note 3 – Summary of Significant Accounting Policies

 

Basis of Presentation and principles of consolidation - The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions are eliminated in final consolidation.

 

Financial Instruments - The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, and notes receivable and payable. These financial instruments are stated at their respective carrying values, which approximate their fair values.

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions we are required to make. Estimates that are critical to the accompanying financial statements arise from our belief that we will secure an adequate amount of cash to continue as a going concern, that our allowance for doubtful accounts is adequate to cover potential losses in our receivable portfolio, that all long-lived assets are recoverable. The markets for our products are characterized by intense competition, rapid technological development, evolving standards, short product life cycles and price competition, all of which could impact the future realization of our assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. It is at least reasonably possible that our estimates could change in the near term with respect to these matters.

 

Revenue Recognition - The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. The Company generates revenue from the sale of training, photovoltaic panels, photovoltaic roofing systems, solar thermal products, balance of system products, and management system products to our dealer network or other parties. The Company anticipates it will not perform any installations. SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Amounts billed or received from customers in advance of performance are recorded as deferred revenue.

 

Allowance for Doubtful Accounts - The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Management believes there were no uncollectible amounts as of July 31, 2011 and there were no accounts receivable balances at July 31, 2012.

 

Warranty Reserves - The Company purchases its products for sale from third parties. The manufacturer warrants or guarantees the operating integrity, and performance of photovoltaic solar products at certain levels of conversion efficiency for extended periods, up to 25 years. The manufacturer also warrants or guarantees the functionality of inverters and balance of systems up to 10 years.  Therefore, the Company does not recognize warranty expense.

 

 

Shipping and Handling Fees and Costs - Shipping and handling fees, if billed to customers, are included in net sales. Shipping and handling costs associated with inbound freight are expensed as incurred. Shipping and handling costs associated with outbound freight are classified as cost of sales.

 

Cash and Cash Equivalents - Cash and cash equivalents consist primarily of cash on deposit, and money market accounts that are readily convertible into cash.

 

Investments in Companies Accounted for Using the Equity or Cost Method and Non-Controlling Interest - Investments in equity method investees are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company’s ability to exercise significant influence over the operating and financial policies of the investee. Investments of this nature are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. When net losses from and investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company’s share of that net income exceeds the share of the net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. When an investment accounted for using the equity method issues its own shares, the subsequent reduction in the Company’s proportionate interest in the investee is reflected in income as a deemed dilution gain proportionate interest in or loss on disposition. The Company evaluates its investments in companies accounted for the equity or cost method for impairment when there is evidence or indicators that a decrease in value may be other than temporary.

 

The Company’s investments in Solar Park Initiatives, Inc. are accounted for as a non-controlling interest due to the significant influence of the controlling ownership percentage during the year and similar ownership and therefore not accounting and not treating the transfer of assets as a sale (as stated below in Business Combinations and Consolidation).

 

However, due to the common stock distribution as of December 1, 2010, the Company no longer accounts for Solar Park Initiatives, Inc. on a consolidated basis and does not reflect the non-controlling interest amounts as of July 31, 2011. Therefore as of July 31, 2011 the non-controlling interest was $0 and as of July 31, 2010 it was ($65,923)

 

Inventor - Inventories consist of photovoltaic solar panels, solar thermal panels and components, other component materials for specific customer orders and spare parts, and are valued at lower of cost (first-in, first-out) or market. Management provides a reserve to reduce inventory to its net realizable value. Certain factors could impact the realizable value of inventory, so management continually evaluates the recoverability based on assumptions about customer demand and market conditions. The evaluation may take into consideration expected demand, new product development; the effect new products might have on the sale of existing products, product obsolescence, and other factors. The reserve or write - down is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required. If actual market conditions are more favorable, reserves or write-downs may be reversed. As of July 31, 2011 inventory was $6,692. Inventory was not acquired during the four most recent quarters, therefore there is a write down of inventory of $4,000. As of July 31, 2012 inventory was $2,692.

 

Fixed Assets - Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of equipment and improvements are provided over the estimated useful lives of the assets, or the related lease terms if shorter, by the straight-line method. Useful lives range as follows:

 

Category		Useful Lives
Computers and networks		3 years
Machinery and equipment		5-7 years
Furniture and fixtures		5-7 years
Office equipment		3-10 years
Leasehold improvements		Lesser of lease term or useful life of asset

 

Maintenance and repairs are expensed as incurred. Expenditures for significant renewals or betterments are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in current operations.

 

 

Domain Name - The domain name is determined to have an indefinite useful life, is not amortized, but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the domain name might be impaired. The impairment test for indefinite-lived domain name consists of a comparison of their fair value with the carrying amount. During the year the original domain name purchased in August 2008, was transferred back to the original owner. All rights and ownership of the URL www.solarenergy.com was transferred back. See the description of the transaction in the Notes below.

 

Long-Lived Assets and Impairment - Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that long-lived assets, including certain identifiable intangibles, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets in question may not be recoverable. We had Long Lived Assets primarily consisting of the domain name acquired in our recent transaction and we believe that this asset is fairly valued as of July 31, 2012 and 2011. As of July 31, 2012 there were no long lived assets.

 

Stock-Based Compensation - We recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest over the requisite service period of the award.  The Company issues stock as compensation for services at the current market fair value.

 

We account for equity instruments issued for services based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable. Stock based compensation was determined using the fair value of the services performed due to the lack of historical fair value of the equity instruments.

 

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

 

Income Taxes - Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. We must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to our subjective assumptions and judgments which can materially affect amounts recognized in our consolidated financial statements.

 

Foreign Currency - Gains and losses from foreign exchange transactions will be included in the statements of operations. Currently there are none.

 

Basic and Diluted Net Loss per Share - Basic net loss per share is computed by dividing the loss for the period by the weighted average number of common shares outstanding for the period. Fully diluted loss per share reflects the potential dilution of securities by including other potential issuances of common stock, including shares to be issued upon exercise of stock options and warrants, in the weighted average number of shares of common stock outstanding for a period and is not presented where the effect is anti-dilutive.

 

Concentrations of Credit Risk

 

Cash and cash equivalents - The Company maintains cash balances at a financial institution in Ponte Vedra Beach, Florida. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation up to $250,000. At times, balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

 

 

Vendors - The following three vendors make up the majority of our COS in 2011:

 

Sharp			22	%
Solectria			13	%
Suniva			11	%
Unirac			10	%

 

The following vendors make up the majority of our Accounts Payable at July 31, 2012:

 

Canadian Solar			22	%
Sharp			10	%

 

The remaining vendors all account for less than 10% of total Accounts Payable.

 

Customers - 42% of our revenues are from the sale of our 1MW solar project and the other 58% is evenly distributed amongst our dealers in 2011.

 

Note 4 – Recent Accounting Pronouncements

 

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU, however, management does not expect the adoption of this ASU to have a material impact on the financial statements.

 

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The ASU amends FASB Accounting Standards Codification Topic 310, Receivables, to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class of financing receivables, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. This ASU is effective for interim and annual reporting periods ending on or after December 15, 2010. The Company is currently evaluating the impact of this ASU, however, management does not expect the adoption of this ASU to have a material impact on the financial statements.

 

On December 21, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-29, which impacts any public entity that enters into business combinations that are material on an individual or aggregate basis. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenues and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred at the beginning of the prior annual period when preparing the pro forma financial information for both the current and prior reporting periods. The guidance also requires that pro forma disclosures be accompanied by a narrative description regarding the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in reported pro forma revenues and earnings. This guidance is effective for business combinations consummated in periods beginning after December 15, 2010. The Company is currently evaluating the impact of this ASU, however, management does not expect the adoption of this ASU to have a material impact on the financial statements.

 

In July 2012, the Financial Accounting and Standards Board (FASB) issued Accounting Standards Update (“ASU”) ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  ASU 2012-02 addresses valuation of indefinite-lived intangible assets other than goodwill, and allows an entity the option to first assess qualitative factors to determine whether it is more likely than not that impairment has occurred.  If an entity determines it is not likely that impairment has occurred no further action is necessary. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The Company elected early adoption of ASU 2012-02 during the second quarter of 2012 without impact to financial condition, results of operations, or cash flows.

 

Management has assessed all other new pronouncements released during the company’s fiscal year ended July 31, 2012, and has determined them to not be applicable to the Company’s disclosure of its financial condition, results of operations, or cash flows.

 

 

Note 5 – Inventory

 

Inventories consist of photovoltaic solar panels, solar thermal panels and components, other component materials for specific customer orders and spare parts, and are valued at lower of cost (first-in, first-out) or market. Management provides a reserve to reduce inventory to its net realizable value. Inventory consisted of the following as of July 31, 2012 and 2011.

 

		2012				2011
Photovoltaic Solar panels and components		$	-0-			$	-0-
Thermal Solar panels and components			2,692				6,692
Other components and materials			-				-
Total Inventory as of July 31		$	2,692			$	6,692

 

Note 6 – Fixed Assets

 

Fixed assets consisted of the following as of July 31, 2012 and 2011:

 

Category		Useful Lives		2012				2011
Furniture fixtures and equipment		5-7 years		$	39,414			$	39,414
Less accumulated depreciation					39,276				21,905
Net fixed assets				$	138			$	17,509

 

During the years ended July 31, 2012, and July 31, 2011 depreciation and amortization, totaling $17,371 and $7,860, respectively, was charged to selling, general and administrative expenses.

 

Note 7 – Accrued Expenses

 

Accrued expenses consist of the following as of July 31:

 

		2012				2011
Interest for notes and convertible debentures		$	5,919			$	14,291
Salaries and taxes payable			10,526				-
Supplies			119,850				73,459
Capital development costs			-				-
Legal and Professional Expenses			-				-
		$	136,295			$	87,750

 

Note 8 – Convertible Debentures

 

On July 15, 2010, the Company entered into a Securities Purchase Agreement with JDF Capital, Inc. (“JDF”), for the sale of a 12% convertible note in the principal amount of $150,000 (the “Note”). The financing closed on July 16, 2010.

 

The Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on July 15, 2011. The Note is convertible into common stock, at JDF’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the twenty (20) trading day period prior to conversion. The Note contains a prepayment option whereby the Company may make a payment to JDF equal to 150% of all amounts owed under the Note during the one hundred fifty (150) day period beginning on the date of issuance of the Note and expiring on the 150 date anniversary.

 

JDF has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering on July 16, 2010 were $145,000 which is the gross proceeds less $5,000 paid to JDF’s counsel.

 

 

Additionally, the Company recorded a beneficial conversion feature on both the Asher and JDF Capital notes, totaling $250,000 and a discount totaling $121,138, with a remaining note payable net of $144,310. The value of the beneficial conversion feature was recorded as a discount to the convertible debenture and $121,138 and was entered through additional paid-in-capital through July 31, 2009. The discount of $15,448 has been amortized during the period ended July 31, 2010. The remaining $105,690 was amortized during the period ended July 31, 2011.

 

On August 9, 2010, the Company entered into a Securities Purchase Agreement with Asher for the sale of 8% convertible note in the amount of $53,000.  The financing closed on August 15, 2010.  The value of the beneficial conversion feature was recorded as a discount to the convertible debenture of $25,260 and fully amortized during the year ended July 31, 2011.

 

On October 26, 2010, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. (“Asher”), for the sale of an 8% convertible note in the principal amount of $40,000 (the “Note”). The financing closed on October 26, 2010.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Note contains a prepayment option whereby the Company may make a payment to Asher equal to 150% of all amounts owed under the Note during the 90 day period beginning on the date of issuance of the Note and expiring on the 90 date anniversary.

 

Asher has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total gross proceeds the Company received from this Offering on October 26, 2010 was $40,000.  The value of the beneficial conversion feature was recorded as a discount to the convertible debenture of $18,100 and was fully amortized during the year ended July 31, 2010.

 

On November 2, 2010 the Company transferred and the related party lender assigned and Asher purchased a related party note payable of $50,000. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On December 2, 2010 the Company transferred and the related party lender assigned and Asher purchased a related party note payable of $50,000. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 28, 2011. The Note is convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

The beneficial conversion feature and discount amounted to $34,672 on both transferred notes assigned by related parties to Asher a non-related party of which the total discount was amortized during the period ended July 31, 2011.

 

During the fiscal year ended July 31, 2011, an additional $100,000 of converted debt was transferred, with an amount of $38,586 representing a discount on the debt the total discount was amortized during the period ended July 31, 2011.

 

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Asher is an accredited investor, Asher had access to information about the Company and their investment, Asher took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

 

During January 2011 Solar Park Initiatives Inc. entered into a convertible note for $100,000, including fees of $3,000. The note was removed as part of the deconsolidation.

 

During February 2011, the Company also took on an additional $54,000 of debt with 8% annual interest to be paid within 12 months.

 

 

On May 25, 2011 and July 8, 2011, Solar Energy Initiatives, Inc. (the “Company”) entered into two Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of two 8% convertible notes each in the principal amount of $32,500 (the “Notes”). The Notes bear interest at the rate of 8% per annum. The Notes were convertible into common stock, at Asher’s option, at a 39% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $34,446, and amortized $14,140 during the year ended July 31, 2010.

 

On October 17, 2011, the Company entered into two Amendments to the Notes with Asher, pursuant to which the discount of the conversion price was increased to 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

On October 24, March 12, May 9, and June 9, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into four Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of four 8% convertible notes each in the principal amount of $27,500, $18,000, $32,500 and $27,500, respectively (the “Notes”). The Notes bear interest at the rate of 8% per annum. The Notes were convertible into common stock, at Asher’s option, at a 50% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $103,160, and amortized $56,500 during the year ended July 31, 2012.

 

On July 17, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into a Securities Purchase Agreements with Magna Group, LLC. (“Magna”), for the sale of debt with a 12% convertible note in the principal amount of $11,000 (the “Notes”). The Note bear interest at the rate of 12% per annum. The Note is convertible into common stock, at Magna’s option, at a 50% discount to the average of the lowest closing bid prices of the common stock during the 5 trading day period prior to conversion.  The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $9,900, and amortized $825 during the year ended July 31, 2012.

 

On July 17, 2012, Solar Energy Initiatives, Inc. (the “Company”) entered into a Securities Purchase Agreements with Hanover Holdings, LLC. (“Hanover”), for the sale of debt with a 12% convertible note in the principal amount of $5,500 (the “Notes”). The Note bear interest at the rate of 12% per annum. The Note is convertible into common stock, at Hanover’s option, at a 50% discount to the average of the lowest closing bid prices of the common stock during the 5 trading day period prior to conversion.  The value of the beneficial conversions feature was recorded as a discount to the convertible debenture of $4,950, and amortized $806 during the year ended July 31, 2012.

 

During the fiscal year ended July 31, 2012, an additional $52,500 of converted debt was transferred, with an amount of $93,025 representing a discount on the debt the total discount was amortized during the period ended July 31, 2012.

 

Total Loans as of July 31, 2012:

 

Convertible Debt		$	134,500
Notes			54,000
Total			188,500
Discount			(68,427	)
Net Debt		$	120,073

 

The Company received notice of conversion during the period totaling 10,950,288 shares for conversion prices ranging from $0.0014 to $0.018 per share, for the convertible notes. Total value of the conversions was $53,800.

 

Note 9 – Fair Value of Financial Instruments

 

Cash and Equivalents, Receivables, Prepaid and Other Current Assets, Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities

 

 

The carrying amounts of these items approximated fair value.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).

 

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

 

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

 

The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:

 

		Fair Value Measurements
		Level 1				Level 2				Level 3				Total Fair Value
Assets
Cash		$	146			$	-			$	-			$	146
Inventory			-				2,692				-				2,692
Fixed assets			-				138				-				138
Total		$	146			$	2,830			$	-			$	2,976
Liabilities
Accounts payable and accrued expenses		$	2,013,716			$	-			$	-			$	2,013,716
Current debt			120,073				-				-				120,073
Total		$	2,133,789			$	-			$	-			$	2,133,789

   

Stockholders’ Equity

 

Common Stock - On March 28, 2011, the shareholders of the Company voted to increase its authorized capital stock from 100,000,000 common shares to 750,000,000 common shares, $0.001 par value per share.

 

On December 22, 2011, Solar Energy Initiatives Inc. (the “Company”) filed a Certificate of Correction to its Certificate of Amendment to the Certificate of Incorporation (the “Certificate”) to effect a reverse stock split of all outstanding shares of common stock at a ratio of 1 for 100 (the “Reverse Stock Split”). Fractional shares outstanding after the Reverse Stock Split will be rounded up to the next highest number of full shares. The Certificate was approved by the Board of Directors and shareholders holding a majority of the issued and outstanding shares of common stock. The effective date of the Reverse Stock Split is March 7, 2012.

 

 

Business consulting services and other stock transactions

 

In May 2010 the Company entered into a consulting arrangement with one company for business consulting and other services, and issued 500,000 shares of common stock, for a term of 24 months, valued at $125,000, and 300,000 warrants valued at $38,379. The Company recorded the stock issuance as deferred compensation, of which $61,402 has fully amortized for the period ended July 31, 2012.

 

Shares issued on cashless warrants totaled 1,543 during the period ended July 31, 2011.

 

During the fiscal year the Company issued 178,973 shares as compensation valued at $160,321 and the entire amount expensed to stock based services for the period ending July 31, 2011.

 

During August 2010 the Company issued a retroactive anti-dilutive rachet increase per the above securities for 14,957 shares valued at $179,489.

 

During September and November the Company cancelled 5,246 shares attributable to private placement offering of which the funds were never received in the amount of $30,000, of which $20,000 was from a prior period.

 

During the fiscal year, the Company issued 1,058,576 restricted shares as director and officer compensation valued at $505,074 and the entire amount expensed to stock based employee expense for the period ending July 31, 2011.

 

During the fiscal year, the Company issued 112,636 restricted shares valued at $251,509 of deferred compensation for the period ending July 31, 2011.

 

During the fiscal year, the Company amortized an expense for deferred compensation expense valued at $919,384 to stock based consulting services, for the period ending July 31, 2011.

 

From August 2010 through November 2010 Solar Energy Initiatives, Inc. (the “Company”) completed a private equity offering (the “Offering”) of units (the “Units”) pursuant to securities purchase agreements (the “Purchase Agreements”) by and between the Company and various accredited investors. Pursuant to the Offering, the Company sold an aggregate of 34,820 shares of common stock (the “Shares”) and common stock purchase warrants (the “Warrants”) to acquire 3,482,027 shares of common stock with an exercise price of $0.13-$0.16 per share for aggregate net proceeds of $325,000.

 

The Warrants are exercisable on a cash or cashless basis for three years. The investors received, among other rights, full ratchet anti-dilution rights for lower priced issuances of securities. The Shares and the Warrants were issued in accordance with Rule 506 under Regulation D and, as a result, may only be resold in accordance with Rule 144, which provides a minimum holding period of six months. As further discussed below, all rachet provisions were cancelled after settlement.

 

During the fiscal year ended July 31, 2011, the Company added discounts on notes of $151,064 due to beneficial conversion features to those notes for the period ending July 31, 2011.

 

During the fiscal year ended July 31, 2011, the Company had acquisition and ownership changes in subsidiary of $475,070, mainly due to the spin off of Solar Park, for the period ending July 31, 2011. These changes included options granted for assets totaling $40,204, stock issued for deferred compensation totaling $641,040 and stock issued for compensation totaling $430,216 including $192,789 in amortized deferred compensation expense.

 

During the fiscal year ended July 31, 2011, the Company issued 400,000 restricted shares for settlement of amounts payable in the amount of $140,000.

 

The Company received notice of conversion during the period totaling 1,238,263 shares for conversion prices ranging from $0.0013 to $0.069 per share, for conversion of $543,000 in principal and $86,427 in accrued interest related to the convertible notes. Total beneficial conversion value accounted for in interest expense was $233,948 during the year ended July 31, 2011.

 

During the fiscal year ended July 31, 2011, the Company issued 2,259,823 restricted shares as settlement of all anti-dilutive ratchet provisions valued at $1,412,774 and the entire amount expensed to other expense for the period ending July 31, 2011.

 

 

During the fiscal year the Company issued 7,601,250 shares as compensation valued at $210,587, of which 141,400 was for deferred compensation, where by$69,187 was expensed to stock based services for the period ending July 31, 2012.

 

During the fiscal year, the Company issued 2,700,000 restricted shares as director and officer compensation valued at $56,000 and the entire amount expensed to stock based employee expense for the period ending July 31, 2012.

 

During the fiscal year, the Company cancelled 400,000 restricted shares for settlement of amounts payable in the amount of $140,000 and deferred compensation for the period ending July 31, 2012.

 

During the fiscal year, the Company added discounts on notes of $157,993 due to beneficial conversion features to those notes for the period ending July 31, 2012.

 

The Company received notice of conversion during the period totaling 10,950,228 shares for conversion prices ranging from $0.0013 to $0.069 per share, for conversion of $52,500 in principal and $1,300 in accrued interest related to the convertible notes. Total beneficial conversion value accounted for in interest expense was $133,007 during the period ended July 31, 2012.

 

During the fiscal year, the Company amortized an expense for deferred compensation expense valued at $188,783 to stock based consulting services, for the period ending July 31, 2012.

 

Private Placement Warrants

 

As of July, 2012, unexpired warrants to purchase 10,000, 43,180, 6,000 and 29,974 respectively, of our common stock were granted in connection with the private placements as discussed above and as follows:

 

Number of Shares of Common Stock			Exercise Price				Expiration Date
10,000			$	100.00			November-12
43,180			$	16.00			March-2013
6,000			$	16.00			June-2013
29,974			$	16.00			Nov-2015

 

Following is a summary of the warrants outstanding as of July 31, 2012 and 2011 and the related activity:

 

		2012				2012 Weighted Average Exercise Price				2011				2011 Weighted Average Exercise Price
Outstanding at beginning of year			194,114			$	88.00				165,683			$	101.00
Warrants issued			-				-				29,974				13.00
Warrants exercised			-				-				(1,543	)			-
Warrants forfeited			-				-				-				-
Warrants expired			(104,960	)			51.36				-				-
Outstanding at end of year			89,154			$	36.63				194,114			$	88.00
Exercisable at end of year			89,154			$	36.63				194,114			$	88.00

 

Stock Options - The Company has estimated the fair value of its option awards granted after January 1, 2008 using a modified Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has no unexpired options as of July 31, 2012.

 

 

Black-Scholes-Based Option Valuation Assumptions		2012				2011
Fair value of options granted during the period		$	-			$	5,897
Expected term (in years)			-				3
Expected volatility			-	%			113.3	%
Weighted average volatility			-	%			113.3	%
Expected dividend yield			-				-
Risk-free rate			-	%			1.5	%

 

Stock Option Plans - The Company adopted the following plans the fiscal years ending July 31, 2009 and July 31, 2010. The Company has no unexpired options as of July 31, 2012.

 

The purpose of these plans is to encourage selected officers and key employees to accept or continue employment with the Company, increase the interest of selected officers, directors, key employees and consultants in the Company’s welfare through the participation in the growth in value of the common stock of the Company. As of August 8, 2008, 3,500,000 shares have been authorized for option grants During March 2009, the Company authorized an additional 2,000,000. During 2009 and 2008, the Company granted 8,900,000 and 0 options, respectively. As of July 31, 2009, outstanding options total 7,800,000. In September 2009, the Company authorized an additional 5,000,000 options. As of July 31, 2011 the outstanding total was 3,743,334.

 

A summary of the status of these plans as of July 31, 2010 and changes during the period is presented in the following table:

 

		Shares Authorized for Grant				Options  Outstanding				Weighted Average Exercise Price
Authorized, August 8, 2008			35,000				-
Authorized, March 19, 2009			(20,000	)
Granted			(103,000	)			103,000			$	37.00
Forfeited			-				-				-
Cancelled			13,000				(13,000	)		$	63.00
Exercised			-				(12,000	)		$	50.00
Balance, July 31, 2009			(35,000	)			78,000			$	35.00
Authorized, September, 2009			50,000
Granted			(25,220	)			25,220			$	37.00
Forfeited
Cancelled			65,787				(65,787	)		$	37.00
Exercised			-				-				-
Balance, July 31, 2010			55,567				37,433			$	33.00
Granted			-				-				-
Exercised			-				-				-
Balance, July 31, 2011			55,567				37,433			$	33.00
Cancelled/Expired			(55,567	)			(37,433	)		$	33.00
Balance, July 31, 2012			-				-				-

 

 

The following table summarizes information about the stock options outstanding as of July 31, 2011:

 

Range of Exercise Prices

Number Outstanding as of 7/31/2012

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable as of 7/31/2012

Weighted Average Exercise Price

-

-

-

-

-

-

 

Total stock compensation expense recognized by the Company during the years ended July 31, 2012 and 2011 under these plans was $207,654 and $1,095,028, respectively.

 

Note 10 – Commitments and Contingencies

 

Operating Leases

 

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year.

 

Fiscal year ending July 31, 2012			-0-
Thereafter			-0-
Total		$	-0-

 

In March, 2010 the Company signed a 3-year lease agreement, with option to purchase, with the Williamsburg County Development Corporation for the use of a building in Kingstree, SC. Approximately 6,000 sq. ft. of the building will be used for technical and dealer training of solar applicants. The remaining 230,000 sq. ft. of building space will be used as a distribution and light manufacturing facility. The annual lease rate for the building is $5.00 per year. If the Company creates 200 or more permanent jobs as a result of its activities in South Carolina, it will be able to purchase the building for $1.00 at the end of the 3-year lease term.

 

Rent expense was $0, and $136,198 for the year ending July 31, 2012 and July 31, 2011, respectively.

 

Management services - The Company has consulting agreements with its CEO, President/CFO.

 

The Company has employment agreements with its CEO, President/CFO, and consulting agreements with former Company officers.  The Company has entered into a four-year employment agreement with David W. Fann as CEO. The terms of the contract include an initial salary of $150,000. The base salary will increase to $220,000 when the company receives a minimum of $1,000,000. This increase took place in July 2008. There is an 18-month severance if terminated early. The Company has negotiated the termination of this employment agreement for a new consulting agreement as of May 30, 2011, with a 12-month term. The monthly consulting fee is $5,000 plus additional work at $200/hr and retainer fee of $7,500. As of July 1, 2012 there is a new employment agreement replacing the consulting contract, including an annual $120,000 salary for a 36 month period until June 30, 2015.

 

The Company entered into a five-year employment agreement with Michael Dodak as VP of Corporate Development. The terms of the contract include an initial salary of $120,000 until specific performance measures are met, at which time the salary is to be increased to $150,000. Per the agreement, Mr. Dodak elected to convert his contract to a consulting agreement whereby he was paid $10,000, monthly. The consulting agreement runs thru December 2013. There is an 18-month severance if terminated early.

 

In August 2009, Mr. Dodak and the Company amended the agreement whereby Mr. Dodak become the “Director of Solar Park Development” and COO of the Company. His compensation increased to $15,416.66 per month. Upon stepping down as COO of the Company, his compensation will revert to the $10,000 per month. Mr. Dodak will receive bonuses for achieving certain milestones in developing Solar Parks and new options in line with the other Company management.  On February 1, 2010, Mr. Dodak was appointed President of the company with a salary of $150,000 per year and then appointed as Interim CFO in March 2010, whereby his annual salary increased to $220,000 per year. The Company has negotiated the termination of this employment agreement for a new consulting agreement as of May 30, 2011, with a 12-month term ending on May 31, 2012. The monthly consulting fee is $5,000 plus additional work at $200/hr and retainer fee of $7,500.

 

 

We have received notice of a claim from a previous employee based on compensation matters in the amount of $892,500 plus interest from 2009. The matter is being reviewed by our legal staff and no determination has been made as to is merits. Offer for settlement has been made for an amount of $100,000 consistent with discussions with claimant. Currently the Company has reserved for these amounts and will continue to work toward a settlement.

 

Supply of Materials - There is currently an abundant supply of solar panels and adequate supply of other components.. Reduced cost of materials may affect planned revenues and could adversely affect gross margins, based on the potential of increased competition and pricing pressures, and results of operations.

 

Dependence on Limited Number of Suppliers - The Company intends to buy the majority of certain components or systems used to install its products from a limited number of suppliers. The loss of one of these suppliers or a significant reduction in product availability from a principal supplier could have a material adverse effect on the Company’s results of operations.

 

Note 11 – Non-Controlling Interest

 

On September 25, 2009 the Company formed Solar Park Initiatives Inc, at that time a wholly owned subsidiary. In October 2009, the Company announced that it was planning to spin-off SPI, to its shareholders of record as of October 15, 2009, and that it hired Mr. Michael Gorton as the CEO of the new company. The Company’s shareholders of record, as of October 15, 2009, were to receive one common share of SPI stock for every two common shares of the Company owned. The distribution of such shares was contingent upon SPI making the required filings with the Securities and Exchange Commission.  The Company is currently evaluating other options with respect to the proposed spin off of SPI. The tax implications for shareholders of the company are uncertain at this time.

 

In November 2009 SPI issued a total of 51,133,737 shares of common stock, of which 16,804,889 shares were issued to officers, employees and board members for services valued at $6,040.   34,996,769 shares were issued to Solar Energy Initiatives, Inc. for services and cash of the initial share issuance by SPI, which has been eliminated upon consolidation.

 

During the period ended April 30, 2010, SPI closed a private placement for the sale of units at $0.15 per unit made up of one share of common stock and one common stock purchase warrant with an exercise price of $0.40. In December 2009, 667,921 units of common stock were issued in this private placement for $100,000. In addition, in March 2010 SPI closed a second private placement whereby it raised $200,000 on identical terms.  During the period as part of an ongoing reverse merger SPI forward split shares of common stock on a [ 1 ]:[ 1.5812 ] and increased all shareholders on a pro-rata basis. SPI also granted 1,550,984 stock options excercisable at $0.40 with a five year vesting schedule. Value of these options:using a Black-Scholes valuation, with an exercise price of $0.40, a volatility based on public industry companies of 80% and with an average of a2.5 year life, was $297,450.

 

On July 13, 2010 (the “Closing Date”), the Critical Digital Data, Inc. (CDD) acquired Solar Park Initiatives, Inc., a privately owned Nevada corporation (“Solar Park”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Agreement”) with Solar Park and Solar Park Acquisition Corp., a Nevada corporation (“Acquisition Subsidiary”) (the “Merger”). Solar Park was organized under the laws of the State of Nevada on September 25, 2009. Acquisition Subsidiary was a wholly-owned subsidiary of Solar Park and on the Closing Date, merged with and into Solar Park and CDD acquired the business of Solar Park pursuant to the Merger and will continue the existing business operations of Solar Park, as a publicly- traded Nevada corporation under the name “Solar Park Initiatives, Inc.”

 

On the Closing Date, the CDD acquired all of the issued and outstanding shares of common stock, $0.001 par value per share, of Solar Park from the holder’s of Solar Park (the “Solar Park Shareholders”) in exchange for an aggregate of 53,137,500 (post-split) newly issued shares (the “Exchange or Merger Shares”) of common stock, $0.001 par value per share (the “Common Stock”). As a result of the Merger, Solar Park Shareholders surrendered all of their issued and outstanding common stock of Solar Park in consideration for the Merger Shares and Solar Park became a wholly-owned subsidiary of the Registrant. The Agreement contains customary representations, warranties and covenants of the Registrant, Solar Park and the Acquisition Subsidiary, for like transactions. Breaches of representations and warranties are secured by customary indemnification provisions.

 

On July 13, 2010 in conjunction with the Exchange and Merger Shares the Registrant (Summerton) was issued 487,500 shares and valued at the then estimated fair value of $0.15 per share and expensed the value of $73,125 in the period ended July 31, 2010.

 

 

The parties have taken all actions necessary to ensure the Merger is treated as a “tax free exchange” under Section 368 of the Internal Revenue Code of 1986, as amended.

 

As of October 31, 2010, the Company retained ownership of 64.8% as the controlling interest in SPI, as reflected in our financials. In addition, SPI negotiated the spin-off of SPI during the three months ended October 31, 2010. During September 2010, SPI renegotiated the stock issuances with shareholders of SPI, including the Company. There were 7,427,972 shares cancelled during the renegotiation.

 

As of July 31, 2012, the Company retains ownership in 11.5% and no longer a controlling interest in SPI.

 

Note 12 – Related Party Transactions

 

In March 2007, NP Capital entered into an agreement to sell the convertible debenture for $152,500, with discounts if paid early, to 0784655 B.C. LTD (“B.C.”), a company controlled by Paul Cox, a shareholder and a former officer and board member of NP Capital. Mr. Cox remains a shareholder, officer and board member of Envortus Inc. In July 2007, the sale of the convertible debenture was completed with a payment of $55,000 to NP Capital and the receipt of a promissory note in the amount of $97,500 (the “Note”), from B.C. for the balance. The principal amount of the Note was immediately discounted to $90,800. In addition, if the Note was paid within the first 270 days of issuance, additional discounts could be available. Further, in the event that we do not commence trading on the OTC BB by January 2009, Paul Cox. may return shares of common stock of our Company for cancellation in lieu of payment of the Note. The price per share shall be the greater of $0.35 or the last price to raise funds from third parties. To account for the Note the Company determined the fair value of the Note on a discounted basis to be equal to $68,100, which represented the discounted balance to be paid by B.C. assuming early payments made within 90 days from closing as provided in the Note. Based on the fair value of the note of $68,100, a loss totaling $11,405 was recorded for the year ended July 31, 2007 as reflected in the table below:

 

Consideration for sale of debenture:
Cash		$	55,000
Note receivable			97,500
Total consideration			152,500
Immediate discount			(6,700	)
Bank fee			(5	)
Expected early payment discount			(22,700	)
Total net consideration			123,095
Investment in convertible debenture			134,500
Loss on sale of investment		$	(11,405	)

 

The Company had originally invested $134,500 in a convertible debenture with Envortus. The Company then took back a Note for $97,500 and cash paid back of $55,000. The Company reviewed the fair value of the $97,500 Note, which had an immediate discount of $6,700 and an early expected payment discount of $22,700. The Company decided to take a valuation allowance on the $22,700 and the $6,700 during July 2007, leaving a balance on the Note of $68,100. Comparing the consideration received of $55,000 and the remaining value of the Note at $68,100 or $123,095, net of a $5 fee, this resulted in a loss on sale of the original investment in convertible debenture of $11,405.  The Company has allowed for the remaining balance of the Note and recorded bad debt related to note receivable, related party, in the amount of $68,100, due to concerns of collectability and non-payment of the scheduled payments. Per the terms of the Note, B.C. was required to pay principal in the amount of $10,000 in January 2008 and additional payments of $17,240 in July 2008, $31,780 in January 2009 and $31,780 in July 2009, together with interest, according to the payment schedule as defined by the Note when the early payments are not received. As of the date hereof, B.C. has not made the required principal and interest payment.

 

The Company is pursuing legal action against the Note’s obligor for non-payment.

 

There is no continuing obligation on the Company under the terms of the Convertible Note.

 

 

As of July 31, 2012 and July 31, 2011, the Company has obligations to related parties for services totaling $892,000 and $100,000, respectively.

 

Note 13 – Income Taxes

 

The Company accounts for income taxes using the liability method, under which deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

As of July 31, 2012, the Company had net operating loss carry forward of approximately $17,185,106, which expire in varying amounts between 2022 and 2027. Realization of this potential future tax benefit is dependent on generating sufficient taxable income prior to expiration of the loss carry forward.

 

At July 31, 2012 and 2011, the Company had a federal operating loss carry forward of $17,185,106 and $15,751,165, respectively.

 

Components of net deferred tax assets, including a valuation allowance, are as follows at July 31:

 

		2012				2011
Deferred tax assets:
Net operating loss carry forward		$	17,185,106			$	15,751,165
Stock based compensation			207,654				96,750
Total deferred tax assets			17,392,760				15,847,915
Less: Valuation Allowance			(17,392,760	)			(15,847,915	)
Net Deferred Tax Assets		$	—			$	—

 

The valuation allowance for deferred tax assets as of July 31, 2012 and 2011 was $17,392,760 and $15,847,915, respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would be realized as of July 31, 2012 and 2011.

 

Reconciliation between the statutory rate and the effective tax rate is as follows at July 31:

 

		2012				2011
Federal statutory tax rate			(34.0	)%			(34.0	)%
State taxes, net of federal tax benefit			(5.0	)%			(5.0	)%
Permanent difference and other			39.0	%			39.0	%
Effective tax rate			0	%			0	%

 

Note 14 – Subsequent Events

 

Form S-8 filed by the Company with the Securities and Exchange Commission on or about August 21, 2012 (the “Registration Statement”) covering the registration under the Securities Act of 1933, as amended, an aggregate of up to 9,100,000 shares of common stock, $0.001 par value (the “Shares”) to be issued pursuant to the 2012 Stock Incentive Plan of the Company (the “Plan”).

 

On October 5, 2012, the Company issued a 12% promissory note in the aggregate principal amount of $22,500 to a single accredited investor. The note has a maturity date of July 10, 2013. This note is convertible into shares of our common stock at a conversion price of fifty percent (55%) of the average of the three (3) lowest per share market values during the ten (10) trading days immediately preceding a conversion date. The proceeds were used for working capital and general corporate purposes. The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

 

Management has evaluated events and transactions that have occurred as of the date the financial statements first became available to the public, and has determined that there are no significant subsequent events that have taken place since that date.