Cannapowder (CAVG) 10-Q 2009 Q2 Quarterly report

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 quarter ended June 30, 2009

¨           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-26027

SMART ENERGY SOLUTIONS, INC.

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

Nevada	20-3353835
(State of incorporation)	(IRS Employer ID Number)

210 West Parkway, #7, Pompton Plains, NJ 07444

(Address of principal executive offices)

(973) 248-8008

(Issuer's telephone number)

________________________________________________________________

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer                   ¨	Accelerated filer                                                      ¨
Non-accelerated filer                     ¨	Smaller reporting company                                    x
(Do not check if a smaller reporting company)

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

As of August 11, 2009 there are 112,314,095 shares of common stock issued and outstanding.

TABLE OF CONTENTS

	Page
PART I	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis or Plan of Operation	14
Item 3 Quantitative and Qualitative Disclosures About Market Risk	17
Item 4(T) Controls and Procedures	17
PART II	17
Item 1. Legal Proceedings	17
Item IA. Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults Upon Senior Securities	18
Item 4. Submission of Matters to a Vote of Security Holders	19
Item 5. Other Information	19
Item 6. Exhibits	19

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

SMART ENERGY SOLUTIONS, INC.

Balance Sheets

	June 30,			December 31,
	2009			2008
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	23,094		$	132,687
Accounts receivable, net		16,862			68,798
Inventory		366,462			494,269
Prepaid expenses		485			21,269
Total Current Assets		406,903			717,023
PROPERTY AND EQUIPMENT, net		19,673			27,139
OTHER ASSETS
Trademark, net		286			429
Deposits		23,700			23,700
Battery Brain technology, net		7,816			13,027
Total Other Assets		31,802			37,156
TOTAL ASSETS	$	458,378		$	781,318
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	450,074		$	623,626
Deferred revenue		13,636			280,000
Convertible debt		50,000			-
Convertible debt-related party		568,128			-
Total Current Liabilities		1,081,838			903,626
TOTAL LIABILITIES		1,081,838			903,626
COMMITMENTS		-			-
STOCKHOLDERS' (DEFICIT)
Preferred stock:no par value;1,000,000 shares authorized; none outstanding		-			-
Common stock, no par value; 500,000,000 shares  authorized; 112,314,095 and 107,176,595 shares  issued and outstanding, respectively		22,381,701			21,916,986
Prepaid equity		(30,693	)		-
Accumulated deficit		(22,974,468	)		(22,039,294	)
Total Stockholders' (Deficit)		(623,460	)		(122,308	)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	458,378		$	781,318

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

3

SMART ENERGY SOLUTIONS, INC.

Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
REVENUES	$	395,177		$	492,828		$	486,437		$	890,173
COST OF GOODS SOLD		256,865			204,916			316,184			463,190
GROSS PROFIT		138,312			287,912			170,253			426,983
OPERATING EXPENSES
General and administrative		166,696			471,227			405,862			845,183
Marketing and advertising		4,347			40,358			9,034			100,232
Professional fees		38,371			-			65,980			-
Consultation fees		59,623			1,197,681			596,003			1,597,937
Total Operating Expenses		269,037			1,709,266			1,076,879			2,543,352
INCOME (LOSS) FROM OPERATIONS		(130,725	)		(1,421,354	)		(906,626	)		(2,116,369	)
OTHER INCOME (EXPENSES)
Interest income		23			2,205			157			4,214
Loss on extinguishment of debt		-			(768,990	)		-			(768,990	)
Interest expense		(23,116	)		(373,441	)		(28,705	)		(432,038	)
Total Other Income (Expenses)		(23,093	)		(1,140,226	)		(28,548	)		(1,196,814	)
NET INCOME (LOSS) BEFORE INCOME TAXES		(153,818	)		(2,561,580	)		(935,174	)		(3,313,183	)
INCOME TAX EXPENSE		-			-			-			-
NET LOSS	$	(153,818	)	$	(2,561,580	)	$	(935,174	)	$	(3,313,183	)
BASIC AND FULLY DILUTED LOSS PER SHARE	$	(0.00	)	$	(0.03	)	$	(0.01	)	$	(0.04	)
BASIC AND FULLY DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		116,036,595			87,020,861			111,082,428			85,187,914

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

4

SMART ENERGY SOLUTIONS, INC.

Statements of Stockholders' (Deficit)

For the Period January 1, 2008 through June 30, 2009

					Prepaid
	Shares		Amount		Equity			Deficit			Total
Balance, January 1, 2008		82,022,679	$	15,722,872	$	-		$	(16,495,062	)	$	(772,190	)
Common stock issued for cash		3,736,363		775,000		-			-			775,000
Common stock issued for services		1,565,282		242,311		-			-			242,311
Common stock issued for   conversion of debt		19,852,271		2,183,750		-			-			2,183,750
Valuation of options and warrants		-		1,898,591		-			-			1,898,591
Fair value of beneficial conversion   feature of convertible debt		-		325,472		-			-			325,472
Loss on conversion of debt		-		768,990		-			-			768,990
Net loss for the year ended December 31, 2008		-		-		-			(5,544,232	)		(5,544,232	)
Balance, December 31, 2008		107,176,595		21,916,986		-			(22,039,294	)		(122,308	)
Common stock issued for services		5,000,000		55,000		(55,000	)		-			-
Common stock issued for conversion of debt		137,500		15,125		-			-			15,125
Valuation of options and warrants		-		394,590		-			-			394,590
Amortization of prepaid equity		-		-		24,307			-			24,307
Net loss for the six months ended June 30, 2009		-		-		-			(935,174	)		(935,174	)
Balance, June 30, 2009 (unaudited)		112,314,095	$	22,381,701	$	(30,693	)	$	(22,974,468	)	$	(623,460	)

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

5

SMART ENERGY SOLUTIONS, INC.

Statements of Cash Flows

(Unaudited)

	For the Six Months Ended
	June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(935,174	)	$	(3,313,183	)
Adjustments to reconcile net loss to net cash used by operating activities:
Warrants and options granted for services		394,590			997,735
Common stock issued for services		24,307			50,000
Accretion of discount on convertible notes  payable		-			349,859
Depreciation and amortization		12,820			12,821
Loss on conversion of debt		-			768,990
Changes in operating assets and liabilities:
(Increase) decrease in prepaid and expenses and deposits		20,784			-
(Increase) decrease in accounts receivable		51,936			(135,737	)
(Increase) in inventory		127,807			182,541
Increase (decrease) in accounts payable					-
and accrued expenses		309,701			351,548
Increase in deferred revenue		(266,364	)		(140,000	)
Net Cash Used in Operating Activities		(259,593	)		(875,426	)
CASH FLOWS FROM INVESTING ACTIVITIES		-			-
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bank overdraft		-			(52,294	)
Proceeds from notes payable		100,000			500,000
Proceeds from notes payable-related party		50,000			-
Proceeds from issuance of common stock		-			650,000
Net Cash Provided by Financing Activities		150,000			1,097,706
NET INCREASE (DECREASE) IN CASH		(109,593	)		222,280
CASH AT BEGINNING OF YEAR		132,687			70,902
CASH AT END OF YEAR	$	23,094		$	293,182

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

6

SMART ENERGY SOLUTIONS, INC.

Statements of Cash Flows (Continued)

(Unaudited)

	June 30,
	2009		2008
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid for:
Interest	$	-	$	-
Income taxes	$	-	$	-
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued for debt	$	15,125		-
Common stock issued for prepaid services	$	55,000	$	50,000
Warrants and options granted for services	$	394,590	$	997,735
Convertible debt issued in relief of accrued expenses	$	468,128	$	183,750

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

7

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2009, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements.  The results of operations for the periods ended June 30, 2009 and 2008 are not necessarily indicative of the operating results for the full years.

NOTE 2 - GOING CONCERN

The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  Historically, the Company has incurred significant annual losses, which have resulted in an accumulated deficit of $22,974,468 at June 30, 2009, the Company has negative working capital of $674,935, and negative cash flow from operations of $727,721 which together raises substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company increasing sales to the point it becomes profitable.  The Company may need to raise additional capital for marketing to increase its sales. If the Company is unable to increase sales sufficiently or obtain adequate capital, it could be forced to cease operations.  The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

Management plans to increase sales by increasing its marketing program and to obtain additional capital from the private placement of shares of its common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

NOTE 3 - EQUITY ACTIVITY

During the six months ended June 30, 2009, the Company issued 5,000,000 shares of its common stock at $0.011 per share for services valued at an aggregate of $55,000. Of this amount $30,693 has been recorded as prepaid equity as the services are to be rendered through January 19, 2010. During the quarter ended June 30, 2009, $24,307 was expensed in the Company’s statements of operations. The Company also issued 137,500 shares of its common stock at $0.011 per share in lieu of directors fees accrued in prior periods for an aggregate of $15,125.

8

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 4 - BASIC AND DILUTED LOSS PER SHARE

The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.

	June 30,
	2009			2008
	(unaudited)
NET LOSS	$	(935,174	)	$	(751,603	)
BASIC AND DILUTED
LOSS PER COMMON SHARE	$	(0.01	)	$	(0.01
BASIC WEIGHTED  AVERAGE
NUMBER OF SHARES OUTSTANDING		111,082,428			83,317,261

The computation of loss per common share is based on the weighted average number   of shares outstanding during the year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year.  Common stock equivalents, consisting of 19,472,225 and 10,934,665 in options, 12,899,388 and 19,160,037 in warrants and 12,936,660 and -0- in convertible debt, were considered but were not included in the computation of loss per share at June 30, 2009 and 2008, respectively, because they would have been anti-dilutive.

NOTE 5- COMMON STOCK PURCHASE WARRANTS AND OPTIONS

Warrants

The Company has determined the estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: expected term of 1year, a risk free interest rate of 1.47% in 2009 and 3.25% in 2008, a dividend yield of 0% in both years and volatility of 99% in 2009 and 75% to 78% for the valuation of warrants in 2008. The amount of the expense charged to operations for compensatory warrants granted in exchange for services was $18,316 and $354,583 during the six months ended June 30, 2009 and 2008, respectively.

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These warrants were granted in lieu of cash compensation for services performed or financing expenses. Warrants vest immediately and services are provided during the period granted.

9

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 5- COMMON STOCK PURCHASE WARRANTS AND OPTIONS (Continued)

	Number of Shares			Weighted Average Exercise Price
Outstanding as of January 1, 2008		16,560,037		$	0.46
Granted		7,774,388			0.21
Exercised		-			-
Cancelled		(13,740,000	)		0.75
Outstanding at December 31, 2008		10,594,425			0.28
Granted		5,000,000			0.11
Exercised		-			-
Cancelled		(2,695,037	)		0.45
Outstanding at June 30, 2009 (unaudited)		12,899,388		$	0.17

Common stock warrants outstanding and exercisable as of June 30, 2009 are:

	Warrants Outstanding						Warrants Exercisable
Year	Exercise Price		Number shares outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price
2006	$	0.75		125,000		.25		125,000	$	0.75
2008	$	0.11		4,963,068		4.13		4,963,068	$	0.11
2008	$	0.40		2,600,000		.88		2,600,000	$	0.40
2008	$	0.11		211,320		4.33		211,320	$	0.11
2009	$	0.11		5,000,000		4.79		5,000,000	$	0.11
Total				12,899,388				12,899,388

The aggregate intrinsic value of stock warrants outstanding and exercisable at June 30, 2009 and December 31, 2008 totaled $0 and $0 and $0 and $0, respectively. The weighted average grant date fair value of warrants granted during the six months ended June 30, 2009 and 2008 is $0.00 and $0.05, respectively. The fair value of warrants vested during the six months ended June 30, 2009 and 2008 totaled $18,316 and $677,750, respectively.

Options

The Company has granted common stock purchase options to certain of its employees, directors and consultants. The options vest according to the terms of the employment contracts with the employees and consulting agreements with directors and consultants (usually 1 to 3 years). The option price is also determined in accordance with the terms of the contracts (between $0.00 to $0.45 per share).

10

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 5- COMMON STOCK PURCHASE WARRANTS AND OPTIONS (Continued)

During the six months ended June 30, 2009, the estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 5 years, a risk free interest rate of 1.875% to 1.90%, a dividend yield of 0% and volatility of 146%. The amount of the expense charged to operations for compensatory options granted in exchange for services was $376,274 and $596,365 for the six months ended June 30, 2009 and 2008, respectively.  The following table summarizes the changes in options outstanding:

	Number of Options			Weighted Average Exercise Price
Outstanding as of January 1, 2008		10,934,665		$	0.15
Granted		400,000			0.26
Exercised		-			-
Cancelled		-			-
Outstanding at December 31, 2008		11,334,665		$	0.18
Granted		12,362,560			0.05
Exercised		-			-
Cancelled		(4,225,000	)		0.11
Outstanding at June 30, 2009 (unaudited)		19,472,225		$	0.11

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These options were granted in lieu of cash compensation for services performed or financing expenses.

	Options Outstanding						Options Exercisable
Year	Exercise Price		Number shares outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price
2005	$	0.15		3,000,000		1.58		3,000,000	$	0.15
2005	$	0.05		1,000,000		1.17		1,000,000	$	0.05
2006	$	0.15		242,000		1.80		242,000	$	0.15
2006	$	0.45		1,046,665		2.53		938,332	$	0.45
2006	$	0.35		270,000		0.58		270,000	$	0.35
2006	$	0.30		50,000		2.17		50,000	$	0.30
2007	$	0.35		990,000		.92		750,000	$	0.35
2007	$	0.35		40,000		3.00		40,000	$	0.35
2007	$	0.15		71,000		2.75		71,000	$	0.15
2008	$	0.25		350,000		4.00		350,000	$	0.25
2008	$	0.15		50,000		1.00		50,000	$	0.15
2009	$	0.05		12,362,560		3.91		12,362,560	$	0.05
	Total			19,472,225				19,123,892

11

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 5- COMMON STOCK PURCHASE WARRANTS AND OPTIONS (CONTINUED)

The aggregate intrinsic value of stock options outstanding and exercisable at June 30, 2009 and December 31, 2008 totaled $0 and $0 and $0 and $0, respectively. The weighted average grant date fair value of options granted during the period ended June 30, 2009 was $0.03. The fair value of options vested during the six months ended June 30, 2009 and 2008 totaled $376,274 and $626,520, respectively.

NOTE 6-        CONVERTIBLE DEBT

During the six months ended June 30, 2008, the Company entered into 6 convertible notes aggregating $618,128.  The principal amount of each Note bears an interest rate of 15% per annum, calculated on a 365 day calendar year. The accrued interest on the outstanding balance is due and payable on August 3, 2009 and the maturity date, which is December 31, 2009. Each Note contains default events which, if triggered and not timely cured the purchaser may declared the outstanding principal and $28,705 of interest accrued thereon due and payable immediately.

All principal and accrued interest on the Notes is convertible into shares of our common stock at the election of the purchasers or the Company at any time at the conversion price of $0.05 per share.  Using the intrinsic value method, the Company determined no beneficial conversion features existed on any of the notes in accordance with EITF 98-5 and EITF 00-27.

Related Party Notes

On March 9, 2009, the Company entered into convertible notes with Aharon Levinas, Edward Braniff and Tamir Levinas (officers and directors of the Company) in the amounts of $291,767, 103,985 and $72,376, respectively.  Amounts represent prior salaries owed that had been accrued pending available funds.  

On March 9, 2009, the Company entered into another subscription Agreement with Edward Braniff for the purchase and sale of a Note in the amount of $50,000.  On March 13, 2009, the Company entered into a Subscription Agreement with Aharon Levinas for the purchase and sale of a Note in the amount of $50,000. No shares have been issued yet.

Third Party Notes

On March 13, 2009, the Company entered into a Subscription Agreement with EGFE for the purchase and sale of a Note in the amount of $50,000. No shares have been issued yet.

NOTE 7- SIGNIFICANT EVENTS

On January 13, 2009, the Company accepted resignations from 2 members of its board of directors.

On March 9, 2009, the board of directors of the Company determined that it was in its best interest to raise up to $1,000,000 in fund by effectuating a private placement of the issuance of secured convertible promissory notes. In accordance with the authorization given by the board, the Company entered into subscription agreements with each of Aharon Levinas, Edward Braniff and Tamir Levinas and EGFE, for the purchase and sale of Secured Convertible Promissory Notes of the Company.

12

SMART ENERGY SOLUTIONS, INC.

Notes to the Condensed Financial Statements

June 30, 2009 and December 31, 2008

NOTE 7- SUBSEQUENT EVENTS

On August 31, 2009 the board of directors of the Company determined that it was in its best interest to raise up to $2,000,000 and entered into negotiations with The BlackPool Capital Group LLC for funding and a financial advisory agreement. Currently BlackPool and the Company are proceeding through a due diligence process.

13

Item 2. Management’s Discussion and Analysis or Plan of Operations.

As used in this Form 10-Q, references to the “Company,” “we,” “our” or “us” refer to Smart Energy Solution, Inc. unless the context otherwise indicates.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking information. Forward-looking information includes statements relating to future actions, future performance, costs and expenses, interest rates, the outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other such matters regarding the Company. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation, so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. Forward-looking information may be included in this Quarterly Report on Form 10-Q or may be incorporated by reference from other documents filed with the Securities and Exchange Commission (the “SEC”) by the Company. You can find many of these statements by looking for words including, for example, “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Quarterly Report on Form 10-Q or in documents incorporated by reference in this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.

The Company has based the forward-looking statements relating to the Company’s operations on management’s current expectations, estimates and projections about the Company and the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Any differences could result from a variety of factors, including, but not limited to the following:

· the Company’s ability to manufacture, market, and price the Battery Brain product;

· the Company’s ability to hire and maintain the personnel necessary to run the operations of the Company;

· the level of consumer spending for the Company’s product;

· the success of the Company’s marketing and promotion programs in obtaining market acceptance for its product;

· market conditions affecting the prices of the Company’s product; and

14

· responsiveness of both the trade and consumers to the Company’s new product and marketing and promotion programs.

General

We were incorporated in the State of Utah on February 10, 1999. On August 25, 2005, we changed our state of incorporation from Utah to Nevada, by the merger of our Company with and into our wholly-owned subsidiary, Smart Energy Solutions, Inc., a Nevada corporation. As a result of such merger, our Company’s name was changed to Smart Energy Solutions, Inc. in order to better reflect our business operations.

On March 23, 2005, we purchased inventory, manufacturing molds and technology from Purisys, Inc., whereby we became a producer of an electronic control for vehicle batteries, known as the “Battery Brain”, which is intended to keep batteries from discharging to the point that the vehicle cannot be started. It is also intended to prevent the vehicle from being started without using the ignition system by what is commonly known as hot wiring. We have been selling the Battery Brain since then, on a wholesale basis through distributors and on a retail basis over the internet.

The Battery Brain is manufactured on behalf of the Company by third party manufacturers. The Company has expanded its manufacturing capabilities by adding additional third party manufacturing facilities in China and Israel. The Company is also reviewing opportunities to expand its facilities in Italy and establish manufacturing facilities in North America. Such third party arrangements give the Company access to state of the art manufacturing facilities while maintaining strict protection of our proprietary property. They also enable the Company to meet the strictest regulation, and provide flexibility to meet the growing demands in each market segment.

The Company has contracted with various distributors for distribution of the Battery Brain products in the United States, Canada, Italy, and Israel. The Company’s marketing activities have been focused on the following nine market segments, each of which have unique requirements: Automotive Retail; Automotive Dealers; Automotive Original Equipment Manufacturers; Automotive Specialty; Fleets; Military; Heavy Truck/Bus; Motor Home/Recreational Vehicle; and Marine.

Results of Operation

For the three and six months ended June 30, 2009, the Company’s sales of the Battery Brain product decreased, resulting in revenues of $395,177 and $486,437, approximately 20% and 45% below revenues of $492,828 and $890,173 for the three and six months ended June 30, 2008. The cost of sales for the Battery Brain was $256,865 and $316,184 in the three and six months ended June 30, 2009, as compared to $204,916 and $463,190 in the three and six months ended June 30, 2008. The Company continues with an aggressive marketing program which includes advertising in trade publications, the internet, marketing in trade shows and direct sales to wholesalers.

For the three and six months ended June 30, 2009 the Company recorded gross profits of $138,312 and $170,253, a decrease of approximately 52% and 60% from gross profits of $287,912 and $426,983 for the three and six months ended June 30, 2008. The decreased gross profits were the result of fewer sales of our products to our automotive customers.

15

Total operating expenses in the three and six months ended June 30, 2009 dropped to $269,037 and 1,076,879, approximately 84% and 58% below total operating expenses of $1,709,266 and $2,543,352 in the three and six months ended June 30, 2008. General and administrative expenses in the three and six months ended June 30, 2009 were $166,696 and $405,862, as compared to $471,227 and $845,183 the three and six months ended June 30, 2008. Marketing and advertising expenses in the three and six months ended June 30, 2009 were $4,347 and $9,034, as compared to $40,358 and $100,232 in the three and six months ended June 30, 2008. Consulting fees in the three and six months ended June 30, 2009 were $59,623 and 596,003, as compared to $1,197,681 and $1,597,937 in the three and six months ended June 30, 2008. These decreases in operating expenses resulted primarily from a reduction in shares issued for services.

Interest expense in the three and six months ended June 30, 2009 was $23,116 and $28,705, as compared to $373,441 and $432,038 in the three and six months ended June 30, 2008. The decrease in interest expense in the three and six months ended June 30, 2009 resulted primarily from termination of the notes to EGFE in 2008.

The Company recorded a net loss of $153,818 and $935,174, or $0.01 and $0.01 per share, for the three and six months ended June 30, 2009, as compared to a net loss of $2,561,580 and $3,313,183, or $0.03 and $0.04 per share, in the same periods in 2008.

Liquidity and Capital

On June 30, 2009 the Company had $23,094 in cash and cash equivalents, a decrease of almost 83% as compared to cash and cash equivalents of $132,687 on December 31, 2008. The decrease resulted primarily from operating costs offset by the receipt of $150,000 and satisfaction of accrued salaries through stock of $468,128, in gross proceeds from the notes payable in the six months ended June 30, 2009 compared to $650,000 in gross proceeds from the sale of securities and net receipts of $447,706 from notes payable in the first two quarters of 2008.

Total current assets on June 30, 2009 were $406,903, a decrease of approximately 43% as compared to total current assets on December 31, 2008 of $717,023. This decrease results primarily from the decrease in cash and cash equivalents described above, a decrease in net accounts receivable, from $68,798 on December 31, 2008 to $ 16,862 on June 30, 2009, and a decrease in inventory, from $494,269 on December 31, 2008 to $366,462 on June 30, 2009.

The Company believes that it will need approximately $3,000,000 for its operations over the next twelve months. The Company intends to raise additional capital from the exercise of the warrants issued during its private placement and from the issuance of additional securities of the Company.

There is no assurance that the warrant holders will exercise the warrants or that the funds needed will be raised. Our plans to deal with this uncertainty include raising additional capital or entering into a strategic arrangement with a third party. There can be no assurance that our plans can be realized. There can be no assurance that we will be able to obtain additional financing if and when needed or that, if available, financing will be on acceptable terms. Additional equity financings may be dilutive to holders of our common stock and debt financing, if available, and may involve significant payment obligations and covenants that restrict how we operate our business.

16

Going Concern Consideration

The financial statements contained herein for the period ending June 30, 2009, have been prepared on a “going concern” basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the reasons discussed herein and in the footnotes to our financial statements included herein, there is a significant risk that we will be unable to continue as a going concern. Our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on April 14, 2009, contain additional note disclosures describing the circumstances that lead to this disclosure.

Off-Balance Sheet Arrangements.

None.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer has reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

Changes in Internal Controls over Financial Reporting

There have been no changes  in the  Company’s  internal  control  over  financial reporting identified in connection with the evaluation required by paragraph (d) of Rule  240.15d-15  that occurred during the Company’s last fiscal quarter that has  materially  affected,  or is reasonable  likely to materially  affect,  the Company internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

17

Item 1A. Risk Factors

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 9, 2009, the board of directors of the Company determined that it was in its best interest to raise up to $1,000,000 in fund by effectuating a private placement of the issuance of secured convertible promissory notes. In accordance with the authorization given by the board, the Company entered into subscription agreements with each of Aharon Levinas, Edward Braniff and Tamir Levinas and EGFE, for the purchase and sale of Secured Convertible Promissory Notes (the “Notes”) of the Company.

The Notes to Aharon Levinas, Edward Braniff and Tamir Levinas for the purchase price of $291,767, 103,985 and $72,376, respectively, represent prior salaries owed that have been deferred pending available funds.  On March 9, 2009, the Company entered into another subscription Agreement with Edward Braniff for the purchase and sale of a Note in the amount of $50,000 and on March 13, 2009, the Company entered into Subscription Agreements with EFGE and Aharon Levinas for each for the purchase and sale of a Note in the amount of $50,000.

The principal amount of each Note bears an interest rate of 15% per annum, calculated on a 365 day calendar year. The accrued interest on the outstanding balance is due and payable on August 3, 2009 and the maturity date, which is December 31, 2009. Each Note contains default events which, if triggered and not timely cured the purchaser may declared the outstanding principal and all accrued interest thereon due and payable immediately.

All principal and accrued interest on the Notes is convertible into shares of our common stock at the election of the purchasers or the Company at any time at the conversion price of $0.05 per share.

On January 18, 2009, the Company issued 2,000,000 shares to consultants for investor relation services to be performed. On January 30, 2009, the Company signed a consulting agreement with Constellation Capital LLC to perform investment banking services for Smart Energy Solutions Inc. The Company issued 3,000,000 shares to Constellation as payment for this agreement.

Purchases of equity securities by the issuer and affiliated purchasers

None

Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

18

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a)/15d14(a) Certification of Chief Executive Officer and Chief Financial Officer (attached hereto)
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (attached hereto)

19

SIGNATURES

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

	SMART ENERGY SOLUTIONS, INC.
Dated: September 9, 2009		By:	/s/ Edward Braniff
		Name:     Edward Braniff
		Title:   Acting Chief Executive Officer, Chief Financial Officer (Principal Financial and Accounting Officer)

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

SIGNATURE	TITLE	DATE
/s/ Edward Braniff	Chief Financial Officer, Acting Chief Executive Officer	September 9, 2009
Edward Braniff
/s/ Aharon Y. Levinas	Chief Technology Officer	September 9, 2009
Aharon Y. Levinas	and Director
/s/ Tamir Levinas	Director	September 9, 2009
Tamir Levinas
/s/ Guy Moshe	Director	September 9, 2009
Guy Moshe
/s/ Michael Ben-Ari	Director	September 9, 2009
Michael Ben-Ari

20