form10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
T
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
|
For the
quarterly period ended December 31, 2007
or
£
|
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 000-17288
SECURE
ALLIANCE HOLDINGS CORPORATION
Delaware
|
75-2193593
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
5700
Northwest Central Dr, Ste 350, Houston, Texas
|
77092
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (713) 783-8200
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 requirement for
the past 90 days. Yes T No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer £
|
Accelerated
filer £
|
Non-accelerated
filer T
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes T No £
The
number of shares of common stock outstanding as of the close of business on
February 14, 2008 was 19,441,524.
SECURE
ALLIANCE HOLDINGS CORPORATION
|
Page
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
3
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
|
9
|
|
11
|
|
11
|
|
PART
II. OTHER INFORMATION
|
|
11
|
|
11
|
|
11
|
|
12
|
|
12
|
|
12
|
|
12
|
|
13
|
Certification
Pursuant to Section 302
|
|
Certification
Pursuant to Section 906
|
|
PART
I. FINANCIAL INFORMATION
SECURE
ALLIANCE HOLDINGS CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
|
|
December 31,
2007
|
|
|
September 30,
2007
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,232,093 |
|
|
$ |
882,116 |
|
|
|
|
8,900,000 |
|
|
|
11,177,567 |
|
Marketable
securities available-for-sale
|
|
|
363,960 |
|
|
|
505,500 |
|
|
|
|
1,000,000 |
|
|
|
— |
|
Interest
and other receivables
|
|
|
22,029 |
|
|
|
204,113 |
|
Prepaid
expenses and other assets
|
|
|
115,076 |
|
|
|
— |
|
|
|
|
12,633,158 |
|
|
|
12,769,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
|
|
$ |
12,637,158 |
|
|
$ |
12,773,296 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,722 |
|
|
$ |
— |
|
|
|
|
195,901 |
|
|
|
141,401 |
|
|
|
|
247,623 |
|
|
|
141,401 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued
and outstanding 19,441,524 shares
|
|
|
194,415 |
|
|
|
194,415 |
|
Additional
paid-in capital
|
|
|
30,067,790 |
|
|
|
30,008,008 |
|
|
|
|
(17,936,630 |
) |
|
|
(17,776,028 |
) |
Accumulated
other comprehensive income
|
|
|
63,960 |
|
|
|
205,500 |
|
Total
shareholders’ equity
|
|
|
12,389,535 |
|
|
|
12,631,895 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
12,637,158 |
|
|
$ |
12,773,296 |
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
|
|
Three
Months Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$ |
— |
|
|
$ |
— |
|
Selling,
general and administrative
|
|
|
335,285 |
|
|
|
376,071 |
|
|
|
|
(335,285 |
) |
|
|
(376,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,683 |
|
|
|
168,579 |
|
Reorganization
fee paid to Laurus
|
|
|
— |
|
|
|
(6,508,963 |
) |
Total
other income (expense)
|
|
|
174,683 |
|
|
|
(6,340,384 |
) |
Loss
from continuing operations
|
|
|
(160,602 |
) |
|
|
(6,716,455 |
) |
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
|
|
|
|
|
|
Gain
on sale of Cash Security business, net of tax
|
|
|
— |
|
|
|
13,281,116 |
|
|
|
$ |
(160,602 |
) |
|
$ |
6,564,661 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.34 |
) |
Income
from discontinued operations
|
|
|
— |
|
|
|
0.67 |
|
|
|
$ |
(0.01 |
) |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
19,441,524 |
|
|
|
19,847,452 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.34 |
) |
Income
from discontinued operations
|
|
|
— |
|
|
|
0.67 |
|
|
|
$ |
(0.01 |
) |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
19,441,524 |
|
|
|
20,017,456 |
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
|
|
Three
Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$ |
(160,602 |
) |
|
$ |
6,564,661 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on marketable securities
available-for-sale
|
|
|
(141,540 |
) |
|
|
207,709 |
|
Comprehensive
income (loss)
|
|
$ |
(302,142 |
) |
|
$ |
6,772,370 |
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
|
|
Three
Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
$ |
(160,602 |
) |
|
$ |
6,564,661 |
|
Adjustments
to reconcile net income (loss) to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
Amortization
of stock options issued to officers
|
|
|
59,782 |
|
|
|
— |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest
and other receivables
|
|
|
182,084 |
|
|
|
147,332 |
|
Prepaid
expenses and other assets
|
|
|
(115,076 |
) |
|
|
(14,875 |
) |
Accounts
payable and accrued liabilities
|
|
|
106,222 |
|
|
|
(1,987,587 |
) |
Net
cash flows used in discontinued operations
|
|
|
— |
|
|
|
(13,552,456 |
) |
Net
cash provided by (used in) operating activities
|
|
|
72,410 |
|
|
|
(8,842,925 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from continuing investing activities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in time deposits
|
|
|
2,277,567 |
|
|
|
(7,000,000 |
) |
Increase
in notes receivable
|
|
|
(1,000,000 |
) |
|
|
— |
|
Decrease
in marketable securities held-to-maturity
|
|
|
— |
|
|
|
1,174,674 |
|
Net
cash flows provided by discontinued investing
activities
|
|
|
— |
|
|
|
16,228,750 |
|
Net
cash provided by investing activities
|
|
|
1,277,567 |
|
|
|
10,403,424 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from continuing financing activities:
|
|
|
|
|
|
|
|
|
Redemption
of shares held by Laurus
|
|
|
— |
|
|
|
(6,545,340 |
) |
Proceeds
from exercise of warrants and options
|
|
|
— |
|
|
|
29,313 |
|
Decrease
in restricted cash
|
|
|
— |
|
|
|
5,400,000 |
|
Net
cash used in financing activities
|
|
|
— |
|
|
|
(1,116,027 |
) |
Net
increase in cash and cash equivalents
|
|
|
1,349,977 |
|
|
|
444,472 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
882,116 |
|
|
|
1,264,463 |
|
Cash
and cash equivalents at end of period
|
|
$ |
2,232,093 |
|
|
$ |
1,708,935 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
90,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on marketable securities
available-for-sale
|
|
$ |
(141,540 |
) |
|
$ |
207,709 |
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
(1)
|
Organization and Summary of
Significant Accounting
Policies
|
Organization
and Nature of Business
Secure
Alliance Holdings Corporation (the “Company,” “we,” “us,” or “our”) is a
Delaware corporation formerly engaged in the development, manufacture, sale and
support of automated teller machines (“ATMs”) and electronic cash security
systems, consisting of the Timed Access Cash Controller (“TACC”) products and
the Sentinel products (together, the “Cash Security” products), which were
designed for the management of cash`
Basis
of Financial Presentation
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, and the disclosure of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. In management’s opinion, all adjustments necessary
for a fair presentation of the results of the interim periods have been
reflected in the interim financials. All adjustments to the financial
statements are of a normal recurring nature.
Significant
Accounting Policies
There has
been no change in our significant accounting policies from those contained in
our Annual Report on Form 10-K for the year ended September 30, 2007, except as
discussed in the following paragraph.
In July
2006, the FASB issued Final Interpretation No. (“FIN”) 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of SFAS 109, which clarifies the
accounting for income taxes by prescribing the minimum recognition threshold an
uncertain tax position is required to meet before tax benefits associated with
such uncertain tax position are recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. In
addition, FIN 48 excludes income taxes from the scope of SFAS 5, Accounting for
Contingencies. FIN 48 is effective for fiscal years beginning after December 15,
2006. Differences between the amounts recognized in the consolidated balance
sheets prior to the adoption of FIN 48 and the amounts reported after adoption
are accounted for as a cumulative-effect adjustment to the beginning balance of
retained earnings upon adoption of FIN 48. FIN 48 also requires that amounts
recognized in the balance sheet related to uncertain tax positions be classified
as a current or non-current liability, based upon the timing of the ultimate
payment to a taxing authority. We adopted FIN 48 as of October 1, 2007 and
management had determined that no tax reserve needs to be recorded during the
quarter ended December 31, 2007.
Earnings
(Loss) Per Share
Basic
income (loss) per share is computed by dividing the net income (loss)
attributable to the common stockholders (the numerator) by the weighted average
number of shares of common stock outstanding (the denominator) during the
reporting periods. Diluted income (loss) per share is computed by
increasing the denominator by the weighted average number of additional shares
that could have been outstanding from securities convertible into common stock,
such as stock options and warrants.
(2)
|
Merger
Agreement with Sequoia
|
On
December 6, 2007, we entered into a definitive Agreement and Plan of Merger
(“Merger Agreement”) by and among Sequoia Media Group, LC, a private Utah
limited liability company (“Sequoia”), the Company and SMG Utah, LC, a Utah
limited liability company and wholly owned subsidiary of the Company (“Merger
Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with
and into Sequoia (the “Merger”), with Sequoia continuing as the surviving entity
in the Merger and each issued and outstanding Sequoia equity interest will
automatically be converted into the right to receive 0.5806419 shares of the
Company’s common stock, calculated after a 1 for 3 reverse stock split of the
Company’s common stock contemplated to be effected prior to the
Merger. Immediately following the Merger, the members of Sequoia, in
aggregate, will own approximately 80% of the equity interests in the Company and
the stockholders of the Company will own the remaining approximately 20% equity
interests in the combined company.
In
addition, pursuant to a Loan and Security Agreement (“Loan Agreement”) entered
into between the Company and Sequoia on December 6, 2007, the Company has agreed
to extend up to $2.5 million in secured financing to Sequoia. Under
the terms of the Loan Agreement, Sequoia has agreed to pay interest on the loan
at a rate per annum equal to 10%. Interest on the loan is payable on
the scheduled maturity date, December 31, 2008. In addition, if the
loan obligations have not been paid in full on or prior to the scheduled
maturity date, a monthly fee equal to 10% of the outstanding loan obligations is
payable to the Company by Sequoia on the last day of each calendar month for
which the loan obligations remain outstanding.
In
addition, prior to the effectiveness of the Merger, the Company proposes to (i)
form a wholly owned subsidiary, and (ii) contribute to such subsidiary
approximately $2.2 million in cash, 2,022,000 shares of Cashbox, a publicly
listed UK company, and amounts receivable under certain promissory notes not
associated with the Sequoia transaction. The common stock of such
subsidiary will be distributed, to the Company stockholders as of a date prior
to the Merger, at such time as the distribution can be effected in compliance
with applicable law, whether pursuant to an effective registration statement or
a valid exemption from registration.
Our Board
of Directors approved the Merger Agreement and the foregoing transactions at a
special meeting on November 29, 2007. The Merger is subject to
stockholder approval and other customary conditions and is expected to be
completed during the second calendar quarter of 2008. If the Company terminates
the Merger Agreement before the consummation of the Merger in connection with
the Company’s acceptance of a superior proposal, the Company has agreed to pay
Sequoia a termination fee of $1,000,000 in cash under certain circumstances. At
closing of the Merger, outstanding stock options granted to our executive
officers, Jerrell G. Clay and Stephen P. Griggs, to purchase an aggregate
1,900,000 shares of our common stock at exercise prices of $0.62 per share will
fully vest and become immediately exercisable.
Sequoia
is committed to revolutionizing the way life events and memories are shared and
treasured through personal digital expressions. Sequoia developed
aVinci Experience products to simplify and automate the process of creating
professional-quality multi-media productions using personal photos and
videos. The patented technology provides complete, refined products,
including DVD’s, photo books and posters. aVinci distributes products
through leading retailers, photo websites and image service
providers.
(3)
|
Marketable
Securities Available- for- Sale
|
We own
2,022,000 shares of the common stock of Cashbox plc pursuant to our exercise of
a warrant in September 2005. On or about March 27, 2006, shares of Cashbox plc
began trading on the AIM Market of the London Stock Exchange. Prior to Cashbox
plc going public, we considered their shares not marketable, thus the shares
were carried at cost. Since the shares are now public and market value is
readily available, we determined the market value of the shares and pursuant to
SFAS No. 115 “Accounting for Investments in Equity and Debt Securities” we
classified these shares as available for sale. Pursuant to the SFAS No. 115 the
unrealized change in fair value was excluded from earnings and recorded net of
tax as other comprehensive income.
As of
December 31, 2007 and September 30, 2007, our common stock in Cashbox plc was
recorded at a fair value of $363,960 and $505,500, respectively. Unrealized
gains on these shares of common stock, which were added to stockholders' equity
as of December 31, 2007 and September 30, 2007, were $63,960 and $205,500,
respectively.
Until
March 28, 2008, we are restricted from selling any shares unless we (i) consult
with Cashbox’s primary broker prior to the disposal of any shares and (ii)
effect the disposal of the shares through Cashbox’s primary broker from time to
time and in such manner as such broker may require with a view to the
maintenance of an orderly market in the shares of Cashbox.
Pursuant
to the Loan Agreement, we loaned $1,000,000 to Sequoia on December 6,
2007. The note bears interest at 10% per annum and is due December
31, 2008. Further, we agreed to loan Sequoia an additional $1,000,000 on
January 15, 2008 and $500,000 on February 15, 2008 on the same terms and
conditions. The loan and any future advances under the Loan Agreement are
secured by a pledge of all of the assets of Sequoia.
(5)
|
Discontinued
Operations
|
Sale
of Cash Security Business and Related Agreements with Laurus
On
September 25, 2006, the holders of a majority of shares of our outstanding
common stock approved the sale of our electronic cash security business,
consisting of (a) timed access cash controllers, (b) the Sentinel products, (c)
the servicing, maintenance and repair of the timed access cash controllers or
Sentinel products and (d) all other assets and business operations associated
with the foregoing (the “Cash Security Business Sale”) to Sentinel Operating,
L.P., a buyer led by a management buyout team that included our former director
and Interim Chief Executive Officer, Mark K. Levenick, and our former director,
Raymond P. Landry. The Cash Security Asset Purchase Agreement provided for a
cash purchase price of $15,500,000, less $100,000 as consideration for the buyer
assuming certain potential liability in connection with ongoing litigation, and
less a working capital deficit adjustment of $1,629,968, resulting in a net
purchase price of $13,770,032. In addition, Sentinel Operating L.P. paid a cash
adjustment of $2,458,718 to the Company at closing. The Cash Security Business
Sale was completed on October 2, 2006. During the year ended
September 30, 2007, we recorded a gain on the sale of the Cash Security business
of $13,605,066.
Pursuant
to the Agreement Regarding the NCR Transaction and Other Asset Sales, dated
November 26, 2004 (the “Asset Sales Agreement”), by and between the Company and
Laurus Master Fund, Ltd. (“Laurus”), the Company agreed to pay to Laurus a
portion of the excess net proceeds from the ATM business sale and the Cash
Security Business Sale.
On June
9, 2006, we and Laurus entered into the Laurus Termination Agreement which,
among other things, provided for the payment of a sale fee of $8,508,963 to
Laurus (the “Sale Fee”) in full satisfaction of all amounts payable to Laurus
under the Asset Sales Agreement, including fees payable in respect of the ATM
Business Sale and the Cash Security Business Sale. The Laurus Termination
Agreement further provided that, upon payment of the Sale Fee and performance by
the Company of its obligations under the Stock Redemption Agreement described
below, neither the Company nor any of its subsidiaries will have any further
obligation to Laurus. Further, each of the Company and Laurus has granted each
other and their respective affiliates and subsidiaries reciprocal releases from
and against any claims and causes of action that may exist.
We and
Laurus entered a Stock Redemption Agreement on January 12, 2006 and as
subsequently amended. Pursuant to the terms of the Stock Redemption Agreement:
we agreed, among other things, (i) to repurchase from Laurus, upon the closing
of the Cash Security Business Sale, all shares of our common stock held by
Laurus, and (ii) Laurus agreed to the cancellation as of the closing date of the
Cash Security Business Sale of warrants it holds to purchase 4,750,000 shares of
our common stock at an exercise price of $.30 per share, and not to exercise
such warrants prior to the earlier to occur of September 30, 2006 and the date
on which the Cash Security Asset Purchase Agreement is terminated.
Following
the Cash Security Business Sale, on October 2, 2006, the Company applied the net
purchase price, the cash adjustment, and $5,400,000 in proceeds (together with
accrued interest of $206,799) from the ATM business sale, to pay the following
amounts to Laurus: (i) $8,508,963 pursuant to the terms of the Laurus
Termination Agreement and (ii) $6,545,340 representing the purchase from Laurus
by the Company of 19,251,000 shares of Company common stock pursuant to the
terms of the Stock Redemption Agreement. Following both such payments to Laurus,
the Company received $6,781,246 in net proceeds from the Cash Security Business
Sale.
On
October 2, 2006, following the foregoing payments to Laurus pursuant to the
terms of the Laurus Termination Agreement and the Stock Redemption Agreement, no
further fees remain payable by the Company to Laurus and, to our knowledge,
Laurus does not own any shares of the Company.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
financial and business analysis below provides information which we believe is
relevant to an assessment and understanding of financial position and results of
operations. This financial and business analysis should be read in conjunction
with the condensed consolidated financial statements and related
notes.
The
following discussion and certain other sections of this Report on Form 10-Q
contain statements reflecting the Company’s views about its future performance
and constitutes "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. These views may involve risks and
uncertainties that are difficult to predict and may cause the Company's actual
results to differ materially from the results discussed in such forward-looking
statements. Readers should consider how various factors may affect the
Company’s performance. The Company undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or other.
Critical
Accounting Policies
The
discussion and analysis of financial condition and results of operations is
based upon the condensed consolidated financial statements contained in Item 1
in this Quarterly Report. The condensed financial statements include the
accounts of the Company and its wholly owned subsidiaries. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses for the
reporting period. Actual results could differ from those
estimates.
The
discussion included in Item 7 of our Annual Report on Form 10-K for the year
ended September 30, 2007 under the subheading "Critical Accounting Policies and
Estimates" is current and applicable, and is hereby incorporated into this
Quarterly Report on Form 10-Q.
Results
of Operations
Following
the sale of our Cash Security business on October 2, 2006, we have had
substantially no operations and the results of continuing operations have
consisted of corporate overhead and investment-related income.
Quarter
Ended December 31, 2007 Compared with the Quarter Ended December 31,
2006
Selling, general and administrative
expenses for the quarter ended December 31, 2007 decreased by
approximately $66,000 due to lower accounting fees as a result of lower levels
of activity after completion of the Cash Security business sale on October 2,
2006.
We
recorded a reorganization fee
paid to Laurus of $6.5 million during the quarter ended December 31, 2006
in connection with closing of the sale of the Cash Security business on October
2, 2006. There was no such fee in 2007.
Interest income was virtually
unchanged from 2006.
Income tax expense (benefit)
was $271,340 for the quarter ended December 31, 2006, and was reversed in the
fourth quarter of 2006 after management assessed that its net operating loss
carryforwards were sufficient to offset the tax liability from gain on sale of
the cash security business. We have established a valuation allowance
for deferred tax assets to the extent such amounts are not utilized to offset
existing deferred tax liabilities reversing in the same periods.
We
recorded a loss from continuing operations of $(160,602) and $(6,716,455) for
the quarters ended December 31, 2007 and December 31, 2006,
respectively. The difference was principally due to the
reorganization fee paid to Laurus of $6.5 million during the quarter ended
December 31, 2006 in connection with closing of the sale of the Cash Security
business on October 2, 2006. There was no such fee in
2007.
Liquidity
and Capital Resources
Completion
of the Cash Security Business Sale and Related Agreements with
Laurus
We
completed the Cash Security Business Sale on October 2, 2006 pursuant to the
Cash Security Asset Purchase Agreement. The Cash Security Asset Purchase
Agreement provided for a cash purchase price of $15,500,000, less $100,000 as
consideration for Sentinel Operating, L.P., as buyer, assuming certain potential
liability in connection with ongoing litigation, and less a working capital
deficit adjustment of $1,629,968, resulting in a net purchase price of
$13,770,032. In addition, the buyer paid a cash adjustment of $2,458,718 to the
Company at closing. The Company applied the net purchase price, the cash
adjustment, and $5,400,000 in proceeds (together with accrued interest of
$206,798 from the ATM Business Sale, to pay the following amounts to Laurus: (i)
$8,508,963 pursuant to the terms of the Laurus Termination Agreement and (ii)
$6,545,340 representing the purchase from Laurus by the Company of 19,251,000
shares of Company common stock pursuant to the terms of the Stock Redemption
Agreement. Following both such payments to Laurus, the Company received
$6,781,246 in net proceeds from the Cash Security Business Sale.
On
October 2, 2006, we became a shell public company with approximately $12.9
million in cash, cash equivalents and marketable securities
held-to-maturity.
Following
the foregoing payments to Laurus pursuant to the terms of the Laurus Termination
Agreement and the Stock Redemption Agreement, no further fees remain payable by
the Company to Laurus and, to our knowledge, Laurus does not own any shares of
the Company.
Working
Capital
As of
December 31, 2007, we had working capital of $12.4 million compared with working
capital of $12.6 million at September 30, 2007.
Off-Balance
Sheet Transactions
We had no
off-balance sheet arrangements at December 31, 2007.
Indebtedness
We had no
indebtedness or obligations under operating leases at December 31,
2007.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
At
December 31, 2007, our exposure to market risk for changes in interest rates
relates to our investment portfolio, which consists of taxable, short-term money
market instruments and certificates of deposit and debt securities with
maturities between 90 days and one year. We do not use derivative financial
instruments in our investment portfolio. We place our investments with
high-credit quality issuers and we mitigate default risk by investing in only
safe and high-credit quality securities and by monitoring the credit rating of
investment issuers.
Evaluation
of Disclosure Controls and Procedures
An
evaluation was carried out by the Company’s Chief Executive Officer and
Principal Financial Officer of the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of December 31, 2007, the end of
the period covered by this Form 10-Q. Based upon that evaluation, the
Chief Executive Officer and Principal Financial Officer concluded that these
disclosure controls and procedures were effective at a reasonable
level.
A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations on all control systems, no
evaluation of controls can provide absolute assurance that all errors, control
issues and instances of fraud, if any, with a company have been detected. The
design of any system of controls is also based in part on certain assumptions
regarding the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future
conditions. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and
presentation.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
(as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of
1934, as amended) during the quarter ended December 31, 2007 that have
materially affected, or are reasonably likely to materially affect the Company’s
internal control over financial reporting.
PART
II. OTHER INFORMATION
The
Company had no legal proceedings during the quarter ended December 31,
2007.
The
discussion included in Item 1A of our Annual Report on Form 10-K for the year
ended September 30, 2007 under the heading "Risk Factors" is current and
applicable, and is hereby incorporated into this Quarterly Report on Form
10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
None.
|
Certification
of Chief Executive Officer, Jerrell G. Clay, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Principal Financial Officer, Stephen P. Griggs, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer, Jerrell G. Clay, pursuant to 18 U.S.C. Section
1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
of Principal Financial Officer, Stephen P. Griggs, pursuant to 18 U.S.C.
Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
____________
* - Filed
herewith.
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
SECURE
ALLIANCE HOLDINGS CORPORATION
|
|
|
(Company)
|
|
|
|
|
February
14, 2008
|
/s/
JERRELL G. CLAY
|
|
|
Jerrell
G. Clay
|
|
|
Chief
Executive Officer
|
|
|
|
|
February
14, 2008
|
/s/
STEPHEN P. GRIGGS
|
|
|
Stephen
P. Griggs
|
|
|
Principal
Financial Officer
|
|
13