Forward-Looking Statements

This Quarterly Report contains forward-looking statements about SEFE's business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized.
If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, SEFE's actual results may differ materially from those indicated by the forward-looking statements.

The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.

There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "believes,""expects," "intends,""plans,""anticipates,""estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.

Overview

We were originally incorporated in the State of Nevada on September 24, 2004 as "Midnight Candle Company." On July 16, 2010, we entered into an Intellectual Property Assignment Agreement by and between SEFE, Inc., a Delaware corporation, Ms. Helen C. Cary, the majority shareholder of our issued and outstanding common stock, and Midnight Candle Company. In accordance with the Assignment, we acquired all of SEFE's right, title and interest in and to various information, inventions, discoveries, writings, expressions, ideas, know-how, concepts, techniques, innovations, systems, processes, procedures, methods, prototypes, designs, and technical data involving or relating to certain atmospheric static electricity collectors, as generally described in four U.S. Patent Applications, which have since become issued patents. In exchange for the assignment of the Patents, we agreed to the following:

1. The assumption of liabilities of SEFE, in the aggregate of $250,000;

2. The issuance of 30,000,000 shares of the Registrant's unregistered common stock; and

3. The cancellation by Ms. Cary of 144,900,000 shares of the Registrant's common stock owned by her.

For a more detailed explanation of the above transactions please see the Company's Form 8-K filed with the SEC on July 19, 2010, and subsequent amendments made thereto.

On July 20, 2010, we amended our articles of incorporation with the Secretary of State of Nevada to change our name from Midnight Candle Company to "SEFE, Inc."

As of October 1, 2011, we entered into Separation Agreements, with Addendums thereto, for the principals of SEFE Delaware to return for cancellation 26,000,000 of the 30,000,000 shares of common stock issued to SEFE Delaware originally issued in connection with the July 13, 2010 Intellectual Property Assignment Agreement. Messrs. Rod and Ogram are each retaining 2,000,000 of the remaining 4,000,000 shares still issued and outstanding.

SEFE was founded to develop and bring to market a renewable source of energy that naturally occurs in the atmosphere. The system is designed to capture static electric energy and convert it to usable electricity with the proprietary methodology developed by our company. SEFE's energy production methodologies and technologies are un-intrusive to existing communities, easily adoptable, aim to have high output and leave a low carbon footprint. This is a renewable source, but also one that is non-polluting and economical.

Our patents will provide barriers to entry and fortify our foundational business construct. In addition, SEFE will continue its forward-looking strategy resulting in additional patent filings and applications with the United States Patent and Trademark Office with the goal of protecting our Inventions through the development of our business model. Through the date of this quarterly report, we have four issued patents, three pending with the USPTO awaiting patent numbers and 19 more at various stages of the filing process:

1. Issued Patent Number:.: 7,855,476 Title: Atmospheric Electrical Generator

2. Issued Patent Number: 8,102,078 Title: Dynamic Electrical Converter System

3. Issued Patent Number: 8,102,082 Title: Atmospheric Electricity Collector

4. Issued Patent Number: 8,102,083 Title: Atmospheric Electrical Generator with Change of State

5. Application No.: 13/103,988 Title: Strain Reduction On A Balloon System In Extreme Weather Conditions

6. Application No.: 13/103,963 Title: Atmospheric Energy Collection

7. Application No.: 13/106,759 Title: Collection of Atmospheric Ions

Management's Discussion and Analysis

Results of operations

Operating Expenses

In the course of our operations, we incur operating expenses composed largely of research and development costs, general and administrative costs and professional fees. General and administrative expenses are essentially the cost of doing business, and encompass, without limitation, the following: licenses; taxes; general office expenses, such as postage, supplies and printing; utilities; bank charges; website costs; and other miscellaneous expenditures not otherwise classified. Accounting fees include: auditing by our independent registered public accountants, bookkeeping, tax preparation fees for filing Federal and State income tax returns and other accounting-specific consulting services. Professional fees include: transfer agent fees for printing stock certificates; consulting costs for marketing and advertising; general business development; and Edgarization fees for the submission of reports and information statements with the U.S. Securities and Exchange Commission. We have also incurred costs that are the result of the development and testing of our proprietary technologies, which aim to harvest atmospheric electricity.

                                        Three Months Ended
                                           September 30,                   Change
                                        2012          2011                      $          %
Operating Expenses:
Advertising and marketing             $ 189,068     $  10,450     $ 178,618        1,709.3 %
Depreciation and amortization             7,133         6,974           159            2.3 %
Executive compensation                   45,000        87,500       (42,500 )        (48.6 %)
General and administrative expenses     107,176        69,866        37,310           53.4 %
Professional fees                       143,356       (11,312 )     154,668       (1,367.3 %)

Total operating expenses              $ 491,733     $ 163,478     $ 328,255          200.8 %

Advertising and marketing expense increased $178,618 from the quarter ended September 30, 2011 to the quarter ended September 30, 2012. The significant increase can be attributed to our efforts to generate greater awareness of our technology and attract potential partnerships or joint research and development alliances. Our advertising and marketing expense is dependent upon our working capital and success in attracting interest in our technology; therefore we expect ongoing investment in advertising and marketing to vary substantially from quarter to quarter.

Depreciation expense increased $159 from $6,974 during the quarter ended September 30, 2011 to $7,133 in the quarter ended September 30, 2012. The slight 2.3% increase during the comparable periods is attributable to the addition of testing equipment and computer software to advance the development of our technology. Any increase in depreciation expense is directly correlated with increases in fixed assets. Due to our continued research and development efforts, we expect to continue to periodically purchase additional fixed assets for the foreseeable future; thus, we expect depreciation expense to increase, the level of which is entirely unpredictable.

Executive compensation expense decreased $42,500 during the quarter ended September 30, 2012 from the comparable year ago period ended September 30, 2011. The decrease is due primarily to our October 1, 2011 decision not to renew the employment of two former officers. We cannot predict future levels of executive compensation at this time.

General and administrative expenses increased 53.4% from the three months ended September 30, 2011 to the comparable period ended September 30, 2012. The significant increase is due, in part to increases in the costs of furthering the research and development of our Harmony technology, including, but not limited to, employee wages, insurance costs, test materials, repairs and other associated expenses. These costs are highly variable and cannot be predicted with any level of certainty.

During the quarter ended September 30, 2012, professional fees increased by $154,668 from the quarter ended September 30, 2011. The increase is difficult to attribute to a single factor, as most of the consultants and other third party professionals are contracted on a per-project or short-term basis, as opposed to a guaranteed long-term engagement. While we expect to continue to incur professional fees for the foreseeable future, we are unable to predict the impact and variability of such fees.

                                          Nine Months Ended
                                            September 30,                    Change
                                         2012           2011                       $         %
Operating Expenses:
Advertising and marketing             $   354,783     $  17,666     $  337,117       1,908.3 %
Depreciation and amortization              21,086        20,181            905           4.5 %
Executive compensation                     75,000       262,500       (187,500 )       (71.4 %)
General and administrative expenses       295,362       148,069        147,293          99.5 %
Professional fees                         431,340       250,528        180,812          72.2 %

Total operating expenses              $ 1,177,571     $ 698,944     $  478,627          68.5 %

As stated previously, our advertising and marketing expense is dependent upon our working capital and success in attracting interest in our technology; therefore we expect ongoing investment in advertising and marketing to vary substantially from quarter to quarter.

The relatively minor 4.5% increase in depreciation expense during the comparable periods is attributable to the addition of testing equipment and computer software to advance the development of our technology. Due to our continued research and development efforts, we expect to continue to periodically purchase additional fixed assets for the foreseeable future; thus, we expect depreciation expense to increase, the level of which is entirely unpredictable.

The significant decrease in executive compensation expense is due primarily to our October 1, 2011 decision not to renew the employment of two former officers. We cannot predict future levels of executive compensation at this time.

General and administrative expenses increased 99.5% during the nine months ended September 30, 2012 compared to the nine month period ended September 30, 2011. These costs are highly variable and cannot be predicted with any level of certainty.

Professional fees increased by $180,812 from the nine months ended September 30, 2011 to the comparable nine months ended September 30, 2012. While we expect to continue to incur professional fees for the foreseeable future, we are unable to predict the impact and variability of such fees.

Other Expenses

During the three months ended September 30, 2012, we recorded interest expense of $39,092, related to debt financing we obtained to fund our expected operational strategies. In the three months ended September 30, 2011, interest expense totaled $53,371. The significant 26.8% decrease is attributable to the conversion of $760,000 of notes payable into 23,750,825 shares of our common stock during the nine months ended September 30, 2012. Similarly, we experienced a 34.2% decrease in interest expense from the nine month period ended September 30, 2011 compared to the nine months ended September 30, 2012.

In connection with the conversion of debt during 2012, the debt holders forgave all interest accrued thereupon since the creation of the notes. During the three month periods ended September 30, 2012 and 2011, no interest was forgiven; therefore we did not record any income. In the nine months ended September 30, 2012, we realized $39,092 of income on the forgiveness of debt related to the cancelation of accrued interest on notes payable to non-related parties. Accrued interest forgiven by related party note holders in the amount of $57,814 was recorded as additional paid-in capital. Due to the conversion of these notes, we anticipate interest expense to be significantly lower in upcoming reporting periods. During the comparable nine months ended September 30, 2011, we did not record any forgiveness of debt income.

Net Losses

We have experienced net losses in all periods since our inception. Our net losses for the three months ended September 30, 2012 and 2011 were $530,825 and $216,849, respectively. During the nine month periods ended September 30, 2012 and 2011, we incurred net losses of $1,230,188 and $838,277, respectively. Our net loss since September 24, 2004, the date of our inception, through September 30, 2012 was $2,911,664. We anticipate incurring ongoing operating losses and cannot predict when, if at all, we may expect these losses to plateau or narrow.

Liquidity and Capital Resources

Cash used in operations during the nine months ended September 30, 2012 was $1,066,100, compared to $774,268 of cash used in operations during the comparable period ended September 30, 2011. Since inception, we have used $2,243,415 in cash for general operations and developmental activities.

During the nine month period ended September 30, 2012, we purchased fixed assets of $3,201. In comparison, we purchased $12,147 in fixed assets during the nine months ended September 30, 2011. From inception to September 30, 2012, cash used in investing activities was $69,824 related to the purchase and acquisition of fixed assets and intellectual property.

During the nine month period ended September 30, 2012, net cash provided by financing activities totaled $1,007,917. The bulk of cash was provided by the issuances of debt securities, totaling $840,557, during the period. We also sold 558,750 shares of our common stock for $244,000 in cash. In comparison, during the period ended September 30, 2011, financing activities provided $795,237 in cash, primarily from issuances of shares of our common stock for aggregate gross proceeds of $508,000 in cash and notes payable of $307,627. Since our inception through September 30, 2012, $2,313,239 in cash was provided by financing activities.

As of September 30, 2012, we had $0 of cash on hand. Our management believes this amount is not sufficient to maintain our operations for at least the next 12 months. We are continuously engaged in raising additional capital by conducting issuances of our equity and debt securities for cash. We cannot assure you that any financing can be obtained or, if obtained, that it will be on reasonable terms. As such, our principal accountants have expressed doubt about our ability to continue as a going concern because we have limited operations and have not fully commenced planned principal operations.

During the nine months ended September 30, 2012, the period covered by this annual report, our management has made significant attempts to bolster our balance sheet and obtain operating capital. To this end, we have arranged with our note holders to convert $760,000 of our bridge notes, into 23,750,825 shares of our common stock. Additionally, the lenders agreed to forgive accrued interest of $96,906, of which $57,814 was recorded to additional paid in capital and $39,092 was treated as income related to the forgiveness of debt. All interest accrued thereupon, as of the date of conversion, was forgiven.

Our management expects to incur up to, but not in excess of, $425,000 in research and development costs.

We do not have any off-balance sheet arrangements.

We currently do not own any significant plant or equipment that we would seek to sell in the near future.

We have not paid for expenses on behalf of any of our directors. Additionally, we believe that this fact shall not materially change.

Plan of Operation

SEFE has recognized an alternative source of energy that naturally occurs in the atmosphere. SEFE believes this energy can be captured and converted to usable electricity with a proprietary methodology developed or otherwise owned by SEFE. The SEFE system is designed to capture static electricity from the atmosphere and making it usable for utility companies, mining and manufacturing concerns, emergency relief efforts, and others. This is a renewable source, but also one that is non-polluting and economical. The SEFE system is designed to operate in the following manner:

† An electrical lead held aloft by a suspension mechanism

† Static electricity is absorbed by the lead

† The direct current of electricity is converted to an alternating current using our proprietary methods

† The collected electricity is sent to an isolated platform

† The platform sends the current to a converter to do either one of the following:

o Translate the direct current into an alternating current in usable form and

o Convert the electricity back into direct current and stores it in batteries for later use

† Electricity is communicated to existing residential and commercial locations (using the existing power distribution infrastructure from the utility companies)

We currently work with a number of professional firms who provide various consulting, advisory and/or other service essential to our operations:

1. Greenberg Traurig, LLP - securities counsel

2. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC - intellectual property, mergers and acquisitions and general counsel

3. Weaver, Martin & Samyn, LLC - independent registered certified public accounting firm

For additional information about our company and our business, you can visit our corporate website at www.sefelectric.com. It currently contains access to our reporting information and we plan to continue providing access to our reporting information through this corporate website.

Ongoing data collection continues to measure the amount of atmospheric electricity available in various weather conditions, amounts of cloud cover, altitudes, and elevations above sea level. The latest tests occurred in the Q3 2012. We will capitalize on the information gleaned from our most recent and upcoming tests in order to move into fabrication of our commercial grade units.
We have strategically studied topography and weather conditions throughout the United States in order to determine the areas where we might harvest the maximum amount of electricity. In 2012, the Company will continue developing, building, and doing in-lab testing of SEFE's proprietary detection system that begun in 2011. This system will help determine where we might find maximum available atmospheric energy sources in order to best concentrate our sales efforts and an aggressive testing calendar has been formulated. We continue to reach out to potential clients and nurture new relationships into the various needs of mining, manufacturing, and construction concerns across the United States to determine how SEFE's technology could fit into their existing infrastructures and what effects might be had on their costs. In the event that we are unable to receive funding, it may be impossible for us to meet these stated milestones and continue on the path toward the generation of revenue.

We plan on generating revenue by selling the electricity produced by our Harmony III commercial grade units,, as well as by leasing the units themselves, if applicable. The key to our Harmony III unit is its ability to capture and translate the electrical source found in the atmosphere into a usable current.

Milestones to be met on the way to commercializing the Harmony III include:

1. Completing the data collection to determine how much electricity can be generated and stored by each unit over a period of time based on location, altitude, weather, and other factors;

2. Securing contracts with mining organizations and/or utility companies

3. Implementation of the communications, monitoring methodologies, and security for each unit through our Network Operations Center where applicable.

Since the beginning of 2011, we have made the following advancements in our business objectives:

1. Exhaustive research on existing science and previous iterations of electrostatic motors;

2. Initial testing of proprietary Atmospheric Energy Detection System with mechanisms to measure changes in available power in various weather conditions and at a range of altitude, elevation, and humidity levels.

3. The United States Patent and Trademark Organization has issued the following patents:

a. Issued Patent Number: 7,855,476

Title: Atmospheric Electrical Generator

b. Issued Patent Number: 8,102,078

Title: Dynamic Electrical Converter System

c. Issued Patent Number: 8,102,082

Title: Atmospheric Electricity Collector

d. Issued Patent Number: 8,102,083

Title: Atmospheric Electrical Generator with Change of State

4. The USPTO has accepted the applications for the following patents:

Application No.: 13/103,988

Title: Strain Reduction On A Balloon System In Extreme Weather Conditions

Application No.: 13/103,963

Title: Atmospheric Energy Collection

Application No.: 13/106,759

Title: Collection of Atmospheric Ions

5. Expanded our intellectual patent portfolio to 26 patents in various stages.

6. Ongoing development of new technologies to improve the commercial scalability of our technology

7. Formation of capital to move forward with development, testing, and fabrication

8. Research into potential clients across multiple industries which will allow SEFE to generate revenue through several channels (licensing of hardware, maintenance, sale of power, etc.)

9. Development and testing of atmosphereic collection units and electrostatic motors.

We are a small, development stage company attempting to establish ourselves in a relatively new, untapped niche in the energy industry. We are actively engaged in building our infrastructure, upon which we will establish a base of operations. We are also working on partnerships with Atmospheric Sciences departments within universities in order to perfect SEFE's core technology. We anticipate that these relationships will provide us with the manpower to complete the design, testing, and implementation elements for our commercial grade units as well as to build our intellectual property portfolio. We are also interested in acquiring or entering joint ventures in green technology to expand our intellectual property and/or produce revenues for the Company. This strategy will allow the company to have several products to diversify future revenue streams. We anticipate securing equity or debt financing in order to provide the funding for our continued operation and move us into the fabrication of our commercial units.

Anticipated costs of all of the aforementioned efforts are estimated to total about $3,000,000 over the next twelve months. In order to fund our proposed plan of operation, we are currently contemplating conducting an offering of our common stock to raise a minimum of approximately $3,000,000 up to a maximum of $8,000,000 to finance our plan of operations. These funds are expected to be raised through equity financing, which will result in further dilution in the equity ownership of the shares currently issued and outstanding. We are significantly dependent upon obtaining at least the minimum proceeds of this proposed offering in order to pursue the plan of operations set forth herein. We cannot provide investors with any assurance that we will be able to raise any funds and we have no commitments to raise the additional funding. In the event we are unable to locate at least the minimum offering amount contemplated, we may be unable to fully execute our business.

Critical Accounting Policies

Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, recoverability of intangible assets, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily the valuation of intangible assets. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and . . .