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 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2012

 

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

EXCHANGE ACT OF 1934

 

For the transition period from _______ to ________

 

COMMISSION FILE NUMBER 000-54837

 

Solar Energy Initiatives, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   3674   20-5241121

(State or other Jurisdiction of
Incorporation
or Organization)

  (Primary Standard Industrial Classification
Code Number)
  (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:

 

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

 

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  [X]    No  [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller Reporting Company [X]

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:as of November 21, 2012 the Company had 75,084,558 shares of its common stock, par value per share $0.001, issued and outstanding.

 

 

 

 
 

  

SOLAR ENERGY INITIATIVES, INC.

Form 10-Q for the Quarter Ended October 31, 2012

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION  
     
ITEM 1. FINANCIAL STATEMENTS (unaudited) F-1
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 4
     
ITEM 3. QUANTITATIVE AND QUALITITATIVE DISCLOSURES ABOUT MARKET RISKS 7
     
ITEM 4. CONTROLS AND PROCEDURES 7
     
PART II OTHER INFORMATION 8
     
ITEM 1. LEGAL PROCEEDINGS 8
     
ITEM 1A RISK FACTORS 8
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
     
ITEM 4. MINE SAFETY DISCLOSURES 15
     
ITEM 5. OTHER INFORMATION 16
     
ITEM 6. EXHIBITS 16
     
  SIGNATURES 18

 

2
 

  

Cautionary Statement Regarding Forward-Looking Statements

 

This Report on Form 10-Q 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 Report on Form 10-Q 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 Report on Form 10-Q 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.

 

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.

 

The following information should be read in conjunction with the condensed consolidated Financial Statements and the accompanying Notes to condensed consolidated Financial Statements included in this Report on Form 10-Q. 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.

 

3
 

   

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Solar Energy Initiatives, Inc.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   October 31, 2012  July 31, 2012
   (Unaudited)   
ASSETS          
Current assets          
Cash and cash equivalents  $140   $146 
Inventory   2,692    2,692 
           
Total current assets   2,832    2,838 
           
Fixed assets, net       138 
Total assets  $2,832   $2,976 
           
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)          
           
Current liabilities          
Accounts payable  $984,421   $985,421 
Due to related parties   892,000    892,000 
Accrued expenses   200.953    136,295 
Convertible debentures, net   142,004    120,073 
           
Total current liabilities   2,219,378    2,133,789 
           
Commitments and contingencies        
           
Stockholders’ deficit          
Preferred stock, $0.001 par; 10,000,000 authorized  0 and 0 issued and outstanding,        
Common stock, $0.001 par; 750,000 authorized 68,319,902 and 26,500,337 issued and outstanding October 31, 2012 and July 31, 2012, respectively    68,320    26,500 
Paid-in capital   15,101,602    15,087,859 
Deferred compensation   (6,874)   (60,066)
Accumulated deficit   (17,379,594)   (17,185,106)
           
Total stockholders’ (deficit)   (2,216,546)   (2,130,813)
Total liabilities and stockholders’ (deficit)  $2,832   $2,976 

 

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

 

F-1
 

  

Solar Energy Initiatives, Inc.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   For the Three Months Ended   For the Three Months Ended 
   October 31, 2012   October 31, 2011 
         
Revenues, net  $-   $- 
Cost of sales   -    - 
Gross profit   -    - 
           
Operating expenses          
Selling, general and administrative   147,642    91,106 
Total operating expenses   147,642    91,106 
           
Loss from operations   (147,642)   (91,106)
           
Other income (expense)   -    - 
Interest expense   (46,846)   (17,996)
Total other income (expense)   (46,846)   (17,996)
           
Loss before provision for income taxes   (194,488)   (109,102)
Provision for income taxes   -    - 
Net loss  $(194,488)  $(109,102)
           
Net loss per share – basic and diluted  $(0.014)  $(0.35)
           
Weighted average shares outstanding – basic and diluted   13,793,110    309,961 

 

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

 

F-2
 

   

Solar Energy Initiatives, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

  

      Additional          Total
   Common Stock  Paid-in Deferred  Accumulated    Stockholders’
   Shares  Amount  Capital  Comp  Deficit   Deficit
Balances July 31, 2012 (audited)   26,500,337   $26,500   $15,087,859   $(60,066)  $(17,185,106)  $(2,130,814)
                               
Shares issued for payment of services   2,100,000    2,100    1,950    (1,800)        2,250 
                               
Shares issued for director & officer compensation   3,000,000    3,000    1,500              4,500 
                               
Cancellation of shares previously issued for compensation   (1,405,838)   (1,405)   (5,721)             (7,126)
                               
Discount on convertible debentures due to beneficial conversion feature             28,024              28,024 
                               
Shares issued for convertible debt   38,125,403    38,125    (12,010)             26,115 
                               
Amortization of deferred compensation expense                  54,992         54,992 
                               
Net loss                       (194,488)   (194,488)
                               
Balances October 31, 2012 (unaudited)   68,319,902   $68,320   $15,101,602   $(6,874)  $(17,379,594)  $(2,216,546)

    

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

 

F-3
 

 

Solar Energy Initiatives, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  

   For the Three Months Ended   For the Three Months Ended 
   October 31, 2012   October 31, 2011 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(194,488)  $(109,101)
           
Adjustments to reconcile net loss to net cash used by operating activities:          
Depreciation and amortization   138    1,965 
Amortized discount on note payable   46,071    11,162 
           
Stock based compensation   54,615    35,220 
           
Changes in operating assets and liabilities:          
           
Prepaid expenses and other current assets   -    1,892 
Accounts payable   (1,000)   (3,610)
           
Accrued expenses   64,660    31,335 
           
           
Net cash used by operating activities   (30,006)   (31,139)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from convertible debenture   30,000    27,500 
           
Net cash provided by financing activities   30,000    27,500 
           
Net increase (decrease) in cash and cash equivalents   (6)   (3,639)
           
Restricted cash   -    - 
           
Cash and cash equivalents at beginning of year   146    8,703 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $140   $5,064 

 

F-4
 

   

   For the Three Months Ended   For the Three Months Ended 
   October 31, 2012   October 31, 2011 
SUPPLEMENTAL DISCLOSURES          
Cash operating activities:          
Interest paid  $-   $- 
Taxes paid  $-   $- 
           
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES          
Stock issued for deferred compensation  $1,800   $- 
Discounts from warrants and beneficial conversion feature  $28,024   $29,160 
Stock issued for accounts payable and accrued expenses  $2,250   $- 
Stock issued for conversion of notes payable and convertible debt  $26,115   $- 
Cancellation of shares previously issued for compensation  $7,126   $- 

 

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

 

F-5
 

  

Solar Energy Initiatives, Inc.

Notes to Condensed Consolidated Financial Statements

October 31, 2012

(UNAUDITED)

 

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.

 

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

 

The SNRYSolar 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 assets 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.

 

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.

 

F-6
 

 

Business Focus

 

Our business is to market and sell solar power projects, 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

 

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 2009 we entered into a contract with a Western United States municipality where we agreed to build, own and operate a solar electric system we contracted for installation on buildings identified by the municipality. The successful funding, construction and commissioning of the 800 kilowatt solar electric system has verified this vertical of our business plan. In 2010 we entered into several Letters of Intent to build, own and operate solar arrays on property owned by municipalities in North Carolina, Georgia and Pennsylvania. Although project and term funding were not provided during fiscal year 2010, the Company obtained project funding in October, 2010 to construct 500 KW’s of a 1 MW project in North Carolina for a municipality and sold the project in February 2011. The Company is currently in negotiations with various third parties to provide funding to build out several of its pipeline projects in North Carolina for a combined 2.0 MW’s, as well as, a 1MW project in Pennsylvania and 3.5 MW’s of projects in South Carolina.

 

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 $0 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

 

F-7
 

 

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.

 

Management’s opinion that all adjustments necessary for a fair statement of the results for the interim periods have been made, and all adjustments are of a normal recurring nature or a description of the nature and amount of any adjustments other than normal recurring adjustments have been made.

 

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 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 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. There were no accounts receivable balances at October 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.

 

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. 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 October 31, 2012 and July 31, 2012 inventory was $2,692 and $2,692, respectively.

 

F-8
 

 

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.

 

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability. During the period ended October 31, 2012, the Company reduced the value of fixed assets by full depreciation to $0.

 

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. The Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

  

F-9
 

 

Note 4 – Recent Accounting Pronouncements

 

Management has assessed all 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 – Fixed Assets

  

Fixed assets consisted of the following as of :

 

Category  Useful Lives  October 31 2012   July 31 2011 
            
Furniture fixtures and equipment  5-7 years  $39,414   $39,414 
Less accumulated depreciation      39,414    39,276 
Net fixed assets     $0   $138 

 

During the quarters ended October 31, 2012, and October 31, 2011 depreciation, totaling $138 and $1,965, respectively, was charged to selling, general and administrative expenses.

 

F-10
 

 

Note 6 – Accrued Expenses

 

Accrued expenses consist of the following as of:

 

   October 31 2012   July 31 2012 
Interest for notes and convertible debentures  $5,194   $5,919 
Salaries and taxes payable   42,387    10,526 
Professional and other fees   153,372    119,850 
   $200,953   $136,295 

 

Note 7 – Convertible Debentures

 

On May 25, 2011 and July 8, 2011, 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”), to mature on November 25, 2011 and January 8, 2012, respectively. 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 beneficial conversion feature value accounted for in the discount to notes was $22,526 and $12,421, respectively.

 

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. The beneficial conversion feature value accounted for in the amended discount to notes was $87,637..

 

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 $26,000 for the three months ending October 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 $2,475 for the three months ending October 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 $1,856 for the three months ending October 31, 2012.

 

On August 9, 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 $11,500 (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 $9,274, and amortized $9,274 for the three months ending October 31, 2012.

 

Total Loans as of October 31, 2012:

 

Convertible Debt  $142,385 
Notes   54,000 
Total   196,385 
Discount   (54,381)
Net Debt  $142,004 

 

During the three month ended October 31, 2012, an additional $26,115 of converted debt was transferred, with an amount of $46,071 representing a discount on the debt the total discount was amortized for the three months ending October 31, 2012.

 

F-11
 

 

Note 8 – Stockholders’ Deficit

 

Common Stock - On March 28, 2011, the authorized number of shares of the Company was increased from 100,000,000 to 750,000,000, $0.001 par value per share.

 

During the period August 1, 2012 and October 31, 2012 the following transactions occurred:

 

Discount on notes due to beneficial conversions features were valued at $28,024.

 

Amortization of deferred compensation expense was $54,992.

 

During the period, the Company issued 2,100,000 for payment for services to consultants valued at $4,050 and amortized deferred compensation valued at $1,800.

 

During the period, the Company cancelled 1,405,838 shares issued for compensation valued at $7,127.

 

During the period, the Company issued 3,000,000 shares for officer and director compensation, valued at $4,500.

  

During the period, the Company converted debt of $26,115 into 38,125,403 shares of common stock.

 

During the period, the Board approved an increase in S-8 shares of 9,100,000, to pay for consulting and professional fees.

 

Note 9 – Commitments and Contingencies

 

Operating Leases

 

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 is expected to be used for technical and dealer training of solar applicants. The remaining 230,000 sq. ft. of building space is expected to 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 is continuing its efforts to create the required number of jobs by the end of the lease term. The company is in negotiations with another company to fulfill its obligations.

 

Rent expense was $0, for the year three months ended October 31, 2012 and 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.

 

F-12
 

 

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 10 - Related Party Transactions

 

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

 

Note 11 – Subsequent Events

 

On December 13, 2012, the Company issued an 8% promissory note in the aggregate principal amount of $17,500 to a single accredited investor. The note has a maturity date of September 13, 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.

 

F-13
 

 

Item 2. Management Discussion and Analysis of Financial Condition or Plan of Operation

 

This discussion should be read in conjunction with our consolidated financial statements included in this Report on Form 10-Q and the notes thereto, as well as the other sections of this Report on Form 10-Q, 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 Quarterly 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 $0 in revenues from operations for the quarter ended October 31, 2012. While we have experienced and anticipate future growth in revenues, we cannot guarantee that we will be successful in our business. We are subject to risks inherent in a developing enterprise, including; limited capital resources, possible delays or disruptions in establishing key vendor relationships and difficult financial markets remaining from the world-wide economic recession. In many cases these factors are out of our control. 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

 

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

 

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

 

The SNRYSolar 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.

 

4
 

 

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 assets 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.

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.

 

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.

 

The following table sets forth our statements of operations data for the three and nine months ended October 31, 2012, and October 31, 2011.

 

Summary Statements of Operations

 

   For the Three
Months Ended
   For the Three
Months Ended
 
   October 31, 2012   October 31, 2011 
         
Revenues, net  $-   $- 
Gross profit   -    - 
Selling, general and administrative expenses   147,642    91,106 
Total operating expenses   147,642    91,106 
Other income(expense)   (46,846)   (17,996)
Loss from operations   (194,488)   (109,102)
Net loss  $(194,488)  $(109,102)

 

5
 

 

THREE MONTHS ENDED OCTOBER 31, 2012 AND OCTOBER 31, 2011

 

Results of Operations

 

For the three months ended October 31, 2012, we generated $0 in revenues from operations and we incurred a loss of $194,488 to Solar Energy Initiatives, Inc, of which $61,742 was non-cash stock compensation. Our operating expenses included significant legal, consulting and accounting expenses, as well as business development. We expect to continue to use cash in our operating activities as continue operations. We have financed our operations since inception primarily through private sales of equity and debt securities. As of October 31, 2012, we had $140 in cash, and negative working capital of $(2,246,546).

 

Revenues

 

For the three months ended October 31, 2012, we had revenues of $0 compared to $0 for the three months ended October 31, 2011.

 

Cost of sales and gross profit

 

For the three months ended October 31, 2012 our Cost of Goods Sold were $0 compared to $0 for the three months ended October 31, 2011.

 

Selling, general and administrative

 

Selling, general and administrative (“S, G & A”) expenses for the three months ended October 31, 2012 were $147,642 compared with $91,106 for the same period ending October 31, 2011. Major changes in S, G & A expenses were;

 

Salaries and wages increased to $30,000 in 2012 compared to $0 in 2011 primarily related to officers employment agreement.

Cash and stock based consulting and director’s costs increased to $61,742 in 2012 from $58,565 in 2011 resulting primarily of outside consulting firms compensated in stock.

 

Other income (expense)

 

For the three months ended October 31, 2012 interest expense was $46,846, due to interest related to convertible debentures, compared with $17,996 for the same period ending October 31, 2011.

 

Net Loss

 

Our net loss to Solar Energy Initiatives, Inc. was $194,488 for the three months ended October 31, 2012 compared with $109,102 for the period ending October 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 October 31, 2012, we had cash of $140 and working capital deficit of $(2,216,546), compared with $146 in non-restricted cash and working capital, of ($2,130,951) as of July 31, 2012, as restated. During the quarter ended October 31, 2012, we funded our operations from convertible debt on a limited basis. For the same period in 2011, we funded our operations from convertible debt.

 

For the three months ended October 31, 2012, we used $30,006 of cash in operations. Investing activities used $0 of cash during the year and financing activities provided $30,000 of net cash during the year, which resulted primarily from conversions of notes payable and notes payable proceeds. For the three months ended October31, 2011, we used $31,139 of cash in operations. Investing activities used $0 of cash during the year and financing activities provided $27,500 of net cash during the year, which resulted primarily from convertible debt and notes payable proceeds.

 

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. For the fiscal year ended July 31, 2012 we have been able to obtain approximately $0 of capital through equity financing and $116,500 of debt financing. 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.

 

6
 

 

We have reduced staff throughout the previous 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.

 

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 October 31, 2012 we had approximately $140 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 October 31, 2012, 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.

 

Significant Capital Expenditures

 

During the three months ended October 31, 2012, we acquired $0 of business assets, and furniture and equipment for office purposes. We use these assets in our business operations. As we continue to grow it will be necessary to purchase additional equipment.

 

Item 3. 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 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

As of October 31, 2012, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Controls.

 

There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting during the quarter covered by this Report.

 

7
 

  

PART 2. OTHER INFORMATION

 

ITEM 1. 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. As of August 31, 2012 Mr. Zwick, Mr. Cox and Mr. Surette were dismissed from the case. 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 October 31, 2012.

 

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 October 31, 2012 and July 31, 2012, we have incurred a cumulative net loss of $17,379,594 and $17,185,106, 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.

 

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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 November 21, 2012, 146,910,340 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 timeframes, 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 timeframes, 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.

 

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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.

 

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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;
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;
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.

 

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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;
performance and reliability of solar power products as compared with conventional and non-solar alternative energy products;
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;
increases or decreases in the prices of oil, coal and natural gas;
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:

 

problems assimilating the purchased technologies, products or business operations;
problems maintaining uniform standards, procedures, controls and policies;
problems arising from non-performance of acquired entities or assets;
problems arising from over valuation or with securing the required financing to close and/or make the acquisition operational;
unanticipated costs associated with an acquisition;
diversion of management's attention from our core business;
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;
potential loss of key employees of acquired businesses; and
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 Alternitive Energie Technik GmbH, SunTechnics Solartechnik GmbH and voltwerk AG), PV-Systemtechnik Gbr, 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:

 

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
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, copywrite, 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:

 

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:

   

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.

    

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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:

   

sets forth the basis on which the broker or dealer made the suitability determination; and
 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

1. During the quarter ended October 31, 2012, we issued an aggregate of 38,125,403 shares of common stock upon conversions of various convertible notes. The aggregate principal and interest amount of these notes that were converted was $26,115. 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.

 

2. December,13, 2012, we issued an 8% convertible promissory note in the aggregate principal amount of $17,500 to a single accredited investor. The note has a maturity date of September 13, 2013. Beginning June 9, 2013, this note is convertible into shares of our common stock at a conversion price of fifty five 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.

  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

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ITEM 5. OTHER INFORMATION

 

None.

  

ITEM 6. 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 (16).
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 Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
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.

 

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(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.

(16) Filed as an exhibit to our Annual Report on Form 10-K for the year ended July 31, 2012 and incorporated herein by reference.

 

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SIGNATURES

  

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

 

  SOLAR ENERGY INITIATIVES, INC.
     
Dated: December 17, 2012 By: /s/ David Fann
    David Fann
    Chief Executive Officer
    (Principal Executive Officer)
     
Dated: December 17, 2012    
  By: /s/ Pierre Besuchet
    Pierre Besuchet
    Director

 

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