form10q.htm
UNITED
STATES
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 June 30, 2008
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
aVINCI
MEDIA CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
75-2193593
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
11781
South Lone Peak Parkway, Suite 270, Draper, UT
|
84020
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (801) 495-5700
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, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer *
|
|
Accelerated
filer *
|
Non-accelerated
filer *
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company T
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes *
No T
The
number of shares of common stock outstanding as of the close of business on July
31, 2008 was 48,737,928.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
TABLE
OF CONTENTS
|
Page
|
|
|
PART I.
FINANCIAL INFORMATION
|
Item
1. Financial Statements
|
|
Unaudited
Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31,
2007
|
3
|
Unaudited
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2008 and 2007
|
4
|
Unaudited
Condensed Consolidated Statement of Stockholders Equity (Deficit) for the
Six Months Ended June 30, 2008
|
5
|
Unaudited
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2008 and 2007
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
|
19
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
27
|
Item
4. Controls and Procedures
|
27
|
|
PART
II. OTHER INFORMATION
|
Item
1. Legal Proceedings
|
28
|
Item
1a. Risk Factors
|
28
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
28
|
Item
3. Defaults Upon Senior Securities
|
28
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
28
|
Item
5. Other Information
|
29
|
Item
6. Exhibits
|
29
|
PART I.
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
June
30, 2008
|
|
|
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,573,375
|
|
|
$
|
859,069
|
|
Accounts
receivable
|
|
|
239,354
|
|
|
|
448,389
|
|
Marketable
securities available-for-sale
|
|
|
221,915
|
|
|
|
—
|
|
Inventory
|
|
|
44,257
|
|
|
|
21,509
|
|
Prepaid
expenses
|
|
|
274,102
|
|
|
|
100,799
|
|
Deferred
costs
|
|
|
234,178
|
|
|
|
294,602
|
|
Deposits
and other current assets
|
|
|
6,803
|
|
|
|
44,201
|
|
Total
current assets
|
|
|
5,593,984
|
|
|
|
1,768,569
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
832,357
|
|
|
|
990,523
|
|
Intangible
assets, net
|
|
|
96,044
|
|
|
|
74,689
|
|
Other
assets
|
|
|
20,408
|
|
|
|
20,408
|
|
Total
assets
|
|
$
|
6,542,793
|
|
|
$
|
2,854,189
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
173,856
|
|
|
$
|
75,118
|
|
Accrued
liabilities
|
|
|
565,869
|
|
|
|
823,772
|
|
Distributions
payable
|
|
|
—
|
|
|
|
308,251
|
|
Current
portion of capital leases
|
|
|
133,680
|
|
|
|
118,288
|
|
Current
portion of deferred rent
|
|
|
44,864
|
|
|
|
38,580
|
|
Notes
payable
|
|
|
—
|
|
|
|
1,000,000
|
|
Deferred
revenue
|
|
|
451,391
|
|
|
|
493,599
|
|
Total
current liabilities
|
|
|
1,369,660
|
|
|
|
2,857,608
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
|
166,488
|
|
|
|
222,611
|
|
Deferred
rent, net of current portion
|
|
|
51,526
|
|
|
|
71,839
|
|
Total
liabilities
|
|
|
1,587,674
|
|
|
|
3,152,058
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B redeemable convertible preferred units, no par value, 12,000,000 units
authorized;
|
|
|
|
|
|
|
|
|
0
and 8,804,984 units outstanding, respectively (liquidation preferences of
$0 and $6,603,182, respectively)
|
|
|
—
|
|
|
|
6,603,182
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Series
A convertible preferred units, no par value, 3,746,485 units authorized; 0
and 3,533,720 units outstanding, respectively (liquidation preference of
$0 and $474,229, respectively)
|
|
|
—
|
|
|
|
474,229
|
|
|
|
|
|
|
|
|
|
|
Common
units, no par value, 90,000,000 units authorized; 0 and 29,070,777 units
outstanding, respectively
|
|
|
—
|
|
|
|
4,211,737
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 250,000,000 shares; issued and
outstanding 48,737,928 and 38,986,114 shares outstanding,
respectively
|
|
|
487,379
|
|
|
|
389,861
|
|
Additional
paid-in capital
|
|
|
22,221,856
|
|
|
|
(389,861
|
)
|
Accumulated
deficit
|
|
|
(17,672,731
|
)
|
|
|
(11,587,017
|
)
|
Accumulated
other comprehensive loss
|
|
|
(81,385
|
)
|
|
|
—
|
|
Total
stockholders’ equity (deficit)
|
|
|
4,955,119
|
|
|
|
(6,901,051
|
)
|
Total
liabilities and stockholders’ equity
|
|
$
|
6,542,793
|
|
|
$
|
2,854,189
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$
|
116,203
|
|
|
$
|
77,169
|
|
|
$
|
189,699
|
|
|
$
|
251,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
260,536
|
|
|
|
1,339
|
|
|
|
433,633
|
|
|
|
22,954
|
|
Research
and development
|
|
|
430,153
|
|
|
|
453,457
|
|
|
|
990,530
|
|
|
|
797,886
|
|
Selling
and marketing
|
|
|
449,635
|
|
|
|
215,177
|
|
|
|
966,796
|
|
|
|
513,994
|
|
General
and administrative
|
|
|
1,324,656
|
|
|
|
731,239
|
|
|
|
2,468,896
|
|
|
|
1,328,359
|
|
Depreciation
and amortization
|
|
|
57,208
|
|
|
|
41,378
|
|
|
|
114,206
|
|
|
|
84,623
|
|
Total
operating expense
|
|
|
2,522,188
|
|
|
|
1,442,590
|
|
|
|
4,974,061
|
|
|
|
2,747,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,405,985
|
)
|
|
|
(1,365,421
|
)
|
|
|
(4,784,362
|
)
|
|
|
(2,496,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
15,404
|
|
|
|
9,355
|
|
|
|
26,533
|
|
|
|
13,901
|
|
Interest
expense
|
|
|
(54,823
|
)
|
|
|
(328,924
|
)
|
|
|
(126,112
|
)
|
|
|
(671,166
|
)
|
Total
other income (expense)
|
|
|
(39,419
|
)
|
|
|
(319,569
|
)
|
|
|
(99,579
|
)
|
|
|
(657,265
|
)
|
Loss
before income taxes
|
|
|
(2,445,404
|
)
|
|
|
(1,684,990
|
)
|
|
|
(4,883,941
|
)
|
|
|
(3,154,001
|
)
|
Income
tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
(2,445,404
|
)
|
|
|
(1,684,990
|
)
|
|
|
(4,883,941
|
)
|
|
|
(3,154,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(976,000
|
)
|
|
|
(190,000
|
)
|
|
|
(976,000
|
)
|
|
|
(190,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable convertible preferred units
|
|
|
(94,420
|
)
|
|
|
(41,931
|
)
|
|
|
(225,773
|
)
|
|
|
(41,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(3,515,824
|
)
|
|
$
|
(1,916,921
|
)
|
|
$
|
(6,085,714
|
)
|
|
$
|
(3,385,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares used to calculate loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
41,585,509
|
|
|
|
38,986,114
|
|
|
|
40,278,631
|
|
|
|
38,986,114
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
AND
COMPREHENSIVE LOSS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Members’/
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
LLC
Common
|
|
|
Accumulated
|
|
|
Other
Comprehensive
|
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Preferred
Units
|
|
|
Units
|
|
|
Deficit
|
|
|
Loss
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
474,229 |
|
|
$ |
4,211,737 |
|
|
$ |
(11,587,017 |
) |
|
$ |
— |
|
|
$ |
(6,901,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retroactive
effect of shares issued in reverse merger dated June 6,
2008
|
|
|
38,986,114 |
|
|
|
389,861 |
|
|
|
(389,861 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series A preferred units to common units
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(474,229 |
) |
|
|
474,229 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series B preferred units to common units
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,603,182 |
|
|
|
— |
|
|
|
— |
|
|
|
6,603,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
common units issued upon conversion of Series B preferred
units
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
976,000 |
|
|
|
(976,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
units issued upon exercise of warrants
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
460,625 |
|
|
|
— |
|
|
|
— |
|
|
|
460,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
equity-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
36,969 |
|
|
|
— |
|
|
|
125,101 |
|
|
|
— |
|
|
|
— |
|
|
|
162,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable convertible preferred units
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(225,773 |
) |
|
|
— |
|
|
|
(225,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of common units to common stock in connection with the reverse
merger
|
|
|
— |
|
|
|
— |
|
|
|
12,850,874 |
|
|
|
— |
|
|
|
(12,850,874 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
shares of Registrant at time of reverse merger dated June 6,
2008
|
|
|
9,742,016 |
|
|
|
97,420 |
|
|
|
9,719,922 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,817,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon exercise of options
|
|
|
9,798 |
|
|
|
98 |
|
|
|
3,952 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities available for sale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(81,385 |
) |
|
|
(81,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,883,941 |
) |
|
|
— |
|
|
|
(4,883,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
|
48,737,928 |
|
|
$ |
487,379 |
|
|
$ |
22,221,856 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(17,672,731 |
) |
|
$ |
(81,385 |
) |
|
$ |
4,955,119 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,883,941
|
)
|
|
$
|
(3,154,001
|
)
|
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash
used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
221,424
|
|
|
|
297,713
|
|
Accretion
of debt discount
|
|
|
—
|
|
|
|
338,593
|
|
Equity-based
compensation
|
|
|
162,070
|
|
|
|
24,429
|
|
(Gain)
loss on disposal of equipment
|
|
|
(38
|
)
|
|
|
1,063
|
|
Decrease
(increase) in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
209,035
|
|
|
|
(78,333
|
)
|
Unbilled
accounts receivable
|
|
|
—
|
|
|
|
245,660
|
|
Inventory
|
|
|
(22,748
|
)
|
|
|
(22,383
|
)
|
Prepaid
expenses
|
|
|
(120,742
|
)
|
|
|
50,511
|
|
Deferred
costs
|
|
|
60,424
|
|
|
|
—
|
|
Deposits
and other current assets
|
|
|
37,398
|
|
|
|
18,985
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
67,839
|
|
|
|
181,748
|
|
Accrued
liabilities
|
|
|
(363,533
|
)
|
|
|
52,182
|
|
Deferred
rent
|
|
|
(14,029
|
)
|
|
|
—
|
|
Deferred
revenue
|
|
|
(42,208
|
)
|
|
|
114,180
|
|
Net
cash used in operating activities
|
|
|
(4,689,049
|
)
|
|
|
(1,929,653
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(38,791
|
)
|
|
|
(360,563
|
)
|
Purchase
of intangible assets
|
|
|
(26,355
|
)
|
|
|
—
|
|
Net
cash used by investing activities
|
|
|
(65,146
|
)
|
|
|
(360,563
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debentures
|
|
|
—
|
|
|
|
1,535,000
|
|
Payment
of loan costs
|
|
|
—
|
|
|
|
(117,080
|
)
|
Payment
on members notes
|
|
|
—
|
|
|
|
(265,783
|
)
|
Proceeds
from issuance of Series B preferred units
|
|
|
—
|
|
|
|
2,050,000
|
|
Net
cash received in reverse merger
|
|
|
7,098,010
|
|
|
|
—
|
|
Proceeds
from notes payable
|
|
|
1,500,000
|
|
|
|
—
|
|
Proceeds
from exercise of warrants
|
|
|
460,625
|
|
|
|
—
|
|
Proceeds
from exercise of stock options
|
|
|
4,050
|
|
|
|
—
|
|
Payment
of accrued dividends
|
|
|
(534,024
|
)
|
|
|
—
|
|
Principal
payments under capital lease obligations
|
|
|
(60,160
|
)
|
|
|
(2,296
|
)
|
Net
cash provided by financing activities
|
|
|
8,468,501
|
|
|
|
3,199,841
|
|
Net
increase in cash and cash equivalents
|
|
|
3,714,306
|
|
|
|
909,625
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
859,069
|
|
|
|
168,692
|
|
Cash
and cash equivalents at end of period
|
|
$
|
4,573,375
|
|
|
$
|
1,078,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
113,028
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
22,277
|
|
|
$
|
12,362
|
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(UNAUDITED)
Supplemental
schedule of non-cash investing and financing activities:
During
the six months ended June 30, 2008:
·
|
The
Company issued 1,525,000 common units to Amerivon Holdings Inc. (Amerivon)
to induce the conversion of preferred units to common units immediately
prior to the closing of the transaction between Secure Alliance Holdings
Corporation (SAH) and Sequoia Media Group (Sequoia). These inducements
units were recorded as a preferential dividend, thus increasing the
accumulated deficit and increasing the loss applicable to common
stockholders by $976,000.
|
·
|
The
Company acquired $19,429 of office equipment through capital lease
agreements.
|
·
|
The
Company incurred an unrealized loss on marketable securities
available-for-sale of $81,385.
|
·
|
The
Company converted $474,229 of Series A preferred units to common
units.
|
·
|
The
Company converted $6,603,182 of Series B preferred units to common
units.
|
·
|
The
Company converted $12,850,874 of common units to common stock in
connection with the reverse merger.
|
·
|
The
Company acquired the following balance sheet items as a result of the
reverse merger transaction:
|
|
|
o
|
Marketable
securities available-for-sale -
$303,300
|
o
|
Prepaid
expenses and other assets - $52,561
|
o
|
Note
receivable - $2,500,000 (eliminated against note payable owed to
SAH)
|
o
|
Interest
receivable - $103,834 (eliminated against interest payable to
SAH)
|
o
|
Accounts
payable - $30,899
|
o
|
Accrued
expenses - $209,465
|
During
the six months ended June 30, 2007:
·
|
The
Company issued 3,566,667 Series B redeemable convertible preferred units
in exchange for a subscription receivable of
$2,675,000.
|
·
|
The
Company converted notes payable of $1,558,178 into 2,318,318 Series B
redeemable convertible preferred
units.
|
·
|
The
Company converted $2,602,668 of debentures payable and related accrued
interest into 7,523,355 common
units.
|
·
|
The
Company recorded debt discount associated with convertible debentures
payable of $8,129 as well as beneficial conversion feature of $171,875
both of which were converted to Series B redeemable convertible preferred
units.
|
·
|
The
Company acquired $37,600 of office furniture through capital lease
agreements.
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description
of Organization and Summary of Significant Accounting Policies
Organization
and Nature of Operations
aVinci
Media Corporation (the Company), is the result of a merger transaction between
Sequoia Media Group, LC (Sequoia), a Utah limited liability company, and Secure
Alliance Holdings Corporation (SAH), a publicly held company. The
Company is a Delaware corporation that develops and sells an engaging way for
anyone to tell their “Story” with personal digital expressions. The Company’s
products simplify and automate the process of creating professional-quality
multi-media productions using personal photos and videos.
Sequoia
was originally formed as a Utah limited liability company on March 15,
2003. On June 6, 2008, as discussed below in Note 2, Sequoia
completed a merger transaction with SAH, a publicly held
company. Because the owners of Sequoia obtained approximately 80% of
the common stock of SAH through the merger transaction, the merger has been
accounted for as a reverse merger. The historical financial
statements reflect the operations of Sequoia through the date of the reverse
merger and those of the combined entity from the date of the reverse merger
through the end of the period. In connection with the reverse merger
transaction, SAH changed its name to aVinci Media Corporation.
Basis
of Presentation
The
accompanying condensed consolidated financial statements are presented in
accordance with U.S. generally accepted accounting principles (US
GAAP).
Unaudited
Information
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements as of June 30, 2008 and December 31, 2007 and for the three
and six months ended June 30, 2008 and 2007 reflect all adjustments (consisting
only of normal recurring items) necessary to present fairly the financial
information set forth therein. Certain information and note disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles (US GAAP) have been condensed or omitted pursuant
to SEC rules and regulations, although the Company believes that the following
disclosures, when read in conjunction with the annual financial statements and
the notes included in the Company’s Form 8-K filing on June 11, 2008, are
adequate to make the information presented not misleading. Results for the three
and six-month periods ended June 30, 2008 are not necessarily indicative of the
results to be expected for the year ended December 31, 2008.
Concentration
of Credit Risk and Significant Customer
The
Company maintains its cash in bank demand deposit accounts, which at times may
exceed the federally insured limit or may be maintained in non-insured
institutions. The Company has not experienced any losses in these accounts and
believes it is not exposed to any significant credit risk with respect to
cash.
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of accounts receivable. In the normal course of business,
the Company provides credit terms to its customers and requires no collateral.
Concentrations of accounts receivable and revenue were as follows:
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2008
|
|
|
June
30, 2008
|
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
Customer
A
|
|
|
45 |
% |
|
|
68 |
% |
|
|
47 |
% |
|
|
68 |
% |
Customer
B
|
|
|
32 |
% |
|
|
0 |
% |
|
|
20 |
% |
|
|
0 |
% |
Customer
C
|
|
|
16 |
% |
|
|
2 |
% |
|
|
16 |
% |
|
|
2 |
% |
Customer
D
|
|
|
6 |
% |
|
|
30 |
% |
|
|
8 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
June
30, 2007
|
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
Customer
E
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Net
Loss per Common Share
Basic
earnings (loss) per share (EPS) is calculated by dividing income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during the period. The weighted average shares used in
the computation of EPS for the three and six month periods ended June 30, 2008
and 2007 include the shares issued in connection with the reverse merger on June
6, 2008 (see Note 2). In accordance with US GAAP, these shares are
retroactively reflected as having been issued at the beginning of each reporting
period.
Diluted
EPS is similar to Basic EPS except that the weighted-average number of common
shares outstanding is increased using the treasury stock method to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. Such potentially dilutive
common shares include stock options and warrants. During 2007, potentially
dilutive common units also included convertible preferred units, redeemable
convertible preferred units and convertible notes and debentures. Shares having
an antidilutive effect on periods presented are not included in the computation
of dilutive EPS.
The
average number of shares of all stock options and warrants granted, all
convertible preferred units, redeemable convertible preferred units and
convertible debentures have been omitted from the computation of diluted net
loss per common share because their inclusion would have been anti-dilutive for
the three and six-month periods ended June 30, 2008 and 2007.
As of
June 30, 2008 and 2007, the Company had 6,771,254 and 14,000,126 potentially
dilutive shares of common stock, respectively, not included in the computation
of diluted net loss per common share because it would have decreased the net
loss per common share. These options and warrants could be dilutive in the
future.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Cash
Equivalents
The
Company considers all highly liquid investments with an initial maturity of
three months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable are recorded at net realizable values and are due within 30 days from
the invoice date. The Company maintains allowances for doubtful accounts, when
necessary, for estimated losses resulting from the inability of customers to
make required payments. These allowances are based on specific facts and
circumstances pertaining to individual customers and historical experience.
Provisions for losses on receivables are charged to operations. Receivables are
charged off against the allowances when they are deemed uncollectible. As of
June 30, 2008 and December 31, 2007, there were no allowances for doubtful
accounts required against the Company’s receivables.
Inventories
Inventories
are stated at the lower of cost or market determined using the first-in,
first-out method.
Intangible
Assets
Intangible
assets consist of costs to acquire patents and licenses for use of certain music
tracks. All of the Company’s intangible assets have finite useful
lives.
Intangible
assets with finite useful lives are carried at cost, less accumulated
amortization. Amortization is calculated using the straight-line method over
estimated useful lives. Intangible assets subject to amortization are reviewed
for potential impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. As of June 30, 2008 and December 31, 2007,
management determined that the carrying amounts of the Company’s intangible
assets were not impaired.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Property and equipment consists of computers, software and equipment, and
furniture and fixtures. Depreciation and amortization are calculated using the
straight-line method over the estimated economic useful lives of the assets or
over the related lease terms (if shorter), which are three and five years,
respectively.
Expenditures
that materially increase values or capacities or extend useful lives of property
and equipment are capitalized. Routine maintenance, repairs, and renewal costs
are expensed as incurred. Gains or losses from the sale or retirement of
property and equipment are recorded in the statements of
operations.
The
Company reviews its property and equipment for impairment when events or changes
in circumstances indicate that the carrying amount may be impaired. If it is
determined that the related undiscounted future cash flows are not sufficient to
recover the carrying value, an impairment loss is recognized for the difference
between carrying value and fair value of the asset.
As of
June 30, 2008 and December 31, 2007, management determined the carrying
amounts of the Company’s property and equipment were not impaired.
Revenue
Recognition and Deferred Revenue
Prior to
March 31, 2007, the Company generated the majority of its revenue from one
customer. The contract with this customer included software development,
software license, post-contract support (PCS), and training. Because the
contract included the delivery of a software license, the Company accounted for
the contract in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition,
as modified by SOP 98-9, Modification of SOP 97-2 with
Respect to Certain Transactions. SOP 97-2 applies to activities that
represent licensing, selling, leasing, or other marketing of computer
software.
Because
the contract included services to provide significant production, modification,
or customization of software, in accordance with SOP 97-2, the Company accounted
for the contract based on the provisions of Accounting Research Bulletin (ARB)
No. 45, Long-Term
Construction-Type Contracts and the relevant guidance provided by SOP
81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts.
In accordance with these provisions, the Company determined to use the
percentage-of-completion method of accounting to record the revenue for the
entire contract. The Company utilized the ratio of total actual costs incurred
to total estimated costs to determine the amount of revenue to be recognized at
each reporting date.
As of
December 31, 2007, this contract was completed and all revenue under this
contract had been recognized. The Company has no further obligations under this
contract.
The
Company records billings and cash received in excess of revenue earned as
deferred revenue. The deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to the Company in
advance of revenues earned. Revenue earned but not billed is classified as
unbilled accounts receivable in the balance sheet. The Company bills customers
as payments become due under the terms of the customer’s contract. The Company
considers current information and events regarding its customers and their
contracts and establishes allowances for doubtful accounts when it is probable
that it will not be able to collect amounts due under the terms of existing
contracts.
Under the
current business model, the Company generates revenue from the sale of software,
equipment, software licenses, applications development and implementation
services, support, training services, and product royalties. The Company
continues to apply the guidance provided in SOP 97-2 to recognize revenue on
contracts that include a software component. SOP 97-2 generally provides that
until vendor specific objective evidence (VSOE) of fair value exists for the
various components within the contract, that revenue is deferred until delivery
of all elements except for PCS and training has occurred.
After all
elements are delivered except for PCS and training, deferred revenue is
recognized over the remaining term of the contract. Because of the Company’s
limited sales history, it does not have VSOE for the different components that
may be included in sales contracts.
Once VSOE
is established, the Company will allocate a portion of the contract fee to each
undelivered element based on the relative fair values of the elements and
allocate the fee for delivered software licenses using the residual method. The
Company plans to establish VSOE for the various elements of its contracts based
on the price charged when the same element is sold separately. For consulting
services, the Company plans to base VSOE on the rates charged when the services
are sold separately under time-and-materials contracts. The Company intends to
base VSOE for training on the rates charged when training is sold separately for
supplemental training courses.
For PCS,
VSOE will be determined by reference to the renewal rate charged to the customer
in future periods.
The
Company intends to recognize support revenue from contracts for ongoing
technical support and unspecified product updates ratably over the support
period.
The
Company plans to recognize training revenue as the services are
performed.
The
Company plans to recognize license revenues from software licenses that do not
include services or where the related services are not considered essential to
the functionality of the software, when the following criteria are met: a signed
noncancellable license agreement with nonrefundable fees has been obtained; the
software product has been delivered; there are no uncertainties surrounding
product acceptance; the fees are fixed and determinable; and collection is
considered probable.
For
certain contracts for which reasonably dependable estimates cannot be made or
for which inherent hazards make estimates doubtful, the Company recognizes
revenue under the completed-contract method of contract accounting.
In one
contract entered into during 2007, the Company sold fulfillment equipment,
hardware and software installation, and software licenses. The Company deferred
all revenues related to these contracts as there was no VSOE established for the
software portion of the product. During the quarter ended March 31, 2008, all
elements of the contract were delivered except for PCS and training. In
accordance with SOP 97-2, deferred revenue is being recognized over the
remaining term of the contract on a straight-line basis.
The
Company capitalized the direct cost of the equipment and is amortizing it as the
related revenue is recognized.
The
Company entered into additional contracts during 2007 and 2008 in which the
Company sells its product through a retailer. The product includes both software
and the means to submit data to the Company for fulfillment. As there was no
VSOE for the software portion of the product, the Company deferred all revenues
related to these contracts until the only undelivered element of the contract
was PCS and training in accordance with SOP 97-2. During 2008, the Company
started recognizing revenue under these contracts on a straight-line basis over
the remaining term of the contract.
Software
Development Costs
Costs for
the development of new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs are
capitalized. The costs to develop software have not been capitalized as
management has determined that its software development process is essentially
completed concurrent with the establishment of technological
feasibility.
Accounting
for Equity Based Compensation
The
Company accounts for equity-based compensation in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123(R) (revised 2004), Share-Based Payment which
requires recognition of expense (generally over the vesting period) based on the
estimated fair value of equity-based payments granted. The effect of accounting
for equity-based awards under SFAS No. 123(R) for the three months ended June
30, 2008 and 2007, was to record equity based compensation of $87,825, and
$10,078, respectively; and for the six months ended June 30, 2008 and 2007 was
to record equity based compensation of $162,070, and $24,429, respectively, of
equity-based compensation expense in general and administrative
expense.
The fair
value of each share-based award was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions.
Expected
dividend yield
|
|
|
|
—
|
Expected
share price volatility
|
|
|
|
40%
- 198%
|
Risk-free
interest rate
|
|
|
|
4.06%
- 7.50%
|
Expected
life of options
|
|
|
|
2.5
years – 4.25 years
|
Income
Taxes
For the
three and six months ended June 30, 2008 and 2007, no provisions for income
taxes were required. Prior to June 6, 2008, the Company was a flow-through
entity for income tax purposes and did not incur income tax liabilities. As of
June 6, 2008, the Company became a taxable entity and will accrue income taxes
under the provisions of SFAS No. 109, Accounting for Income
Taxes.
At June
30, 2008, management has recognized a valuation allowance for the net deferred
tax assets related to temporary differences and current operating losses. The
valuation allowance was recorded in accordance with the provisions of SFAS No.
109, Accounting for Income
Taxes, which requires that a valuation allowance be established when
there is significant uncertainty as the realizability of the deferred tax
assets. Based on a number of factors, the currently available, objective
evidence indicates that it is more likely than not that the net deferred tax
assets will not be realized.
In June
2008, following the merger transaction described in Note 2 below, the Company
paid $113,028 in federal income taxes for SAH’s September 30, 2007 federal
income tax return. Also in June 2008, the Company paid $85,434 towards SAH’s
estimated Texas Franchise Tax. Both of these items were accrued for by SAH at
the time of the merger transaction.
Recent
Accounting Pronouncements
In
March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133.” SFAS 161 amends and
expands the disclosure requirements of Statement 133 with the intent to provide
users of financial statements with an enhanced understanding of how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, financial performance, and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company believes that the future requirements of SFAS 161 will
not have a material effect on its consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair
Value Option for Financial Assets and Financial Liabilities. Under
SFAS 159, companies may elect to measure certain financial instruments and
certain other items at fair value. The standard requires that unrealized gains
and losses on items for which the fair value option has been elected be reported
in earnings. SFAS 159 is effective beginning in the first quarter of fiscal
2008. The adoption of the accounting pronouncement had no effect on
the Company’s consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
(SFAS 141R), Business Combinations and SFAS No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51. SFAS 141R will change how
business acquisitions are accounted for and will impact financial statements
both on the acquisition date and in subsequent periods. SFAS 160 will
change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective for us beginning in the
first quarter of fiscal 2010. Early adoption is not permitted. The adoption of
SFAS 141R and SFAS 160 is not expected to have a material impact on
the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair
Value Measurements, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, in February 2008, the FASB issued FSP
FAS 157-b which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This FSP partially defers the effective date of
Statement 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of this
FSP. Effective for fiscal 2008, the Company will adopt SFAS 157 except as
it applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-b. The adoption of SFAS 157 is not expected to have a
material impact on the Company’s financial statements.
Reclassifications
Certain
amounts in the 2007 financial statements have been reclassified to confirm to
the 2008 presentation.
2. Agreement
and Plan of Merger
Effective
December 6, 2007, Secure Alliance Holdings Corporation (SAH) a publicly held
company and the Sequoia Media Group, LC (Sequoia) executed an Agreement and Plan
of Merger, whereby SAH agreed to acquire 100% of the issued and outstanding
equity units of Sequoia. Each issued and outstanding membership interest of
Sequoia would be converted into the right to receive .87096285 post-split shares
of the SAH’s common stock, or approximately 80% of its post-reorganization
outstanding common stock.
On June
6, 2008, the SAH and Sequoia closed the merger transaction described above. In
connection with the merger transaction, the unit holders of Sequoia exchanged
all of their units for shares of common stock of SAH. The number of shares of
SAH stock received in the merger represent approximately 80% of the total
outstanding shares of SAH. Because the unit holders of Sequoia obtained a
majority ownership in SAH through the merger, the transaction has been accounted
for as a reverse merger. Accordingly, the historical financial statements
reflect the operations of Sequoia through June 6, 2008 and reflect the
consolidated operations of SAH and Sequoia from June 6, 2008 through June 30,
2008. As a result of the merger, Sequoia received approximately $7.1
million in cash to fund operations in addition to the $2.5 million previously
loaned to Sequoia by SAH.
In
connection with the Agreement and Plan of Merger, Sequoia entered into a Loan
and Security agreement and Secured Note with SAH on December 6, 2007 in order to
ensure adequate funds through the closing date. The agreement provided for SAH
to loan a total of up to $2.5 million to Sequoia through the closing date. A
total of $1 million was received under the Secured Note on December 6,
2007. On January 15, 2008 and February 15, 2008, Sequoia received $1,000,000 and
$500,000, respectively, under the Secured Note (see Note 5). In connection with
the merger closing, the $2.5 million notes payable were eliminated along with
the related interest payable of approximately $104,000.
3. Marketable
Securities Available-for-Sale
The
Company owns 2,022,000 shares of the common stock of Cashbox plc as a result of
the merger transaction (see Note 2). The Company determined the market value of
the shares and pursuant to SFAS No. 115, Accounting for Investments in Equity
and Debt Securities, and 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 loss.
As of
June 30, 2008, the common stock of Cashbox plc was recorded at a fair value of
$221,915. Unrealized losses on these shares of common stock were $81,385, which
were included in stockholders ' equity as of June 30, 2008.
4. Accrued
Liabilities
Accrued
liabilities consisted of the following:
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
Bonuses
payable
|
|
$ |
270,000 |
|
|
$ |
554,000 |
|
Payroll
and payroll taxes payable
|
|
|
267,674 |
|
|
|
229,245 |
|
Other
|
|
|
28,195 |
|
|
|
40,527 |
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
565,869 |
|
|
$ |
823,772 |
|
5. Notes
Payable
In
connection with the Agreement and Plan of Merger (see Note 2), Sequoia entered
into a Loan and Security Agreement and Secured Note with SAH on December 6, 2007
in order to ensure adequate funds through the merger closing date. The agreement
provided for SAH to loan a total of up to $2.5 million to Sequoia through the
merger closing date. A total of $1 million was received under the Secured Note
as of December 31, 2007. An additional $1,500,000 was advanced during the three
months ended March 31, 2008. The amounts advanced under the Secured Note were
secured by all assets of Sequoia, accrued interest at 10% per annum and
principal and interest were due and payable on December 31, 2008. As disclosed
in Note 2, in connection with the merger on June 6, 2008, the balance of notes
payable of $2.5 million and the related accrued interest of approximately
$104,000 were eliminated.
6. Capital
Lease Obligations
The
Company leases certain equipment and fixtures under noncancelable long-term
leases. These leases provide the Company the option to purchase the leased
assets at the end of the initial lease terms at a bargain purchase price. Assets
held under these capital leases included in property and equipment were as
follows:
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
Computers
and equipment
|
|
$ |
368,876 |
|
|
$ |
349,448 |
|
Furniture
and fixtures
|
|
|
37,600 |
|
|
|
37,600 |
|
|
|
|
406,476 |
|
|
|
387,048 |
|
Less
accumulated amortization
|
|
|
(121,345 |
) |
|
|
(53,623 |
) |
|
|
|
|
|
|
|
|
|
Property
and equipment under capital lease
|
|
$ |
285,131 |
|
|
$ |
333,425 |
|
Depreciation
expense for assets held under capital leases during the six months ended June
30, 2008 and 2007 was $65,239 and $8,455, respectively.
Capital
lease obligations have imputed interest rates from approximately 7% to 22% and
are payable in aggregate monthly installments of approximately $14,000, maturing
through 2010. The leases are secured by equipment.
Future
maturities and minimum lease payments on the capital lease obligations are as
follows as of June 30, 2008:
Year
Ending December 31:
|
|
Minimum
Lease Payments
|
|
2008
|
|
$ |
83,081 |
|
2009
|
|
|
166,162 |
|
2010
|
|
|
97,302 |
|
|
|
|
346,545 |
|
Amount
representing interest
|
|
|
(46,377 |
) |
|
|
|
|
|
Total
principal
|
|
|
300,168 |
|
Current
portion
|
|
|
(133,680 |
) |
|
|
|
|
|
Long-term
portion
|
|
$ |
166,488 |
|
7. Related
Party Transactions
Consulting
Agreement
During
the three and six months ended June 30, 2008, pursuant to an agreement executed
during the year ended December 31, 2007, the Company recorded expense of
$476,667 and $725,000, respectively, for consulting services from Amerivon
Holdings, Inc. (Amerivon), a significant shareholder of the Company. During the
three and six months ended June 30, 2008, the Company paid Amerivon $695,000 and
$745,000, respectively, for this agreement.
Distributions
The
former Series B redeemable convertible preferred unit holders were entitled to a
cumulative annual distribution of $.06 per unit. During the six months ended
June 30, 2008 and 2007, the Company accrued $202,696 and $41,931, respectively,
for distributions due on the Series B redeemable convertible preferred units
held by Amerivon. The Company paid Amerivon $447,783 for the accrued
distributions in June 2008.
Warrant
Exercise
On
January 30, 2008, Amerivon exercised 1,504,680 warrants to purchase common units
of Sequoia for cash received of $414,625; and on June 5, 2008, Amerivon
exercised 87,096 warrants to purchase common units of Sequoia for a total price
of $46,000. These exercises, along with Amerivon’s conversion of convertible
preferred units, increased Amerivon’s ownership percentage to 45.4% of all
common units prior to the merger on June 6, 2008.
Notes
Payable and Series B Redeemable Convertible Preferred Units
On
January 19, 2007 and again on February 14, 2007, the Company issued $500,000 of
convertible notes payable to Amerivon. These convertible notes payable accrued
interest at 9% per annum, and had a maturity date of June 30, 2007. A beneficial
conversion feature in the amount of $171,875 was recognized, all of which was
accreted to interest expense as of June 30, 2007.
In
December 2006, the Company entered into various loans with members of the
Company totaling $265,783. These loans bore interest at 10% per annum and were
payable on or before December 31, 2007. Loan origination fees of $20,005 were
recorded as an intangible asset to be amortized over the life of the loans. On
January 5, 2007, an additional $20,000 was loaned to the Company. In April and
May 2007, total outstanding principal, accrued interest, and loan origination
fees of $285,783, $10,376, and $20,005, respectively, were paid and the
associated asset was fully amortized.
8. Common
and Preferred Units
Previous
to the merger (see Note 2), as of December 31, 2007, the Company had authorized
90,000,000 common units and 20,000,000 preferred units, all with no par value.
Previous to the merger, the Company had designated 3,746,485 preferred units as
Series A and 12,000,000 preferred units as Series B.
Series
A Convertible Preferred Units
During
2008, there were no Series A preferred units issued. As of December 31, 2007,
there were 3,533,720 Series A preferred units outstanding. In connection with
the merger disclosed in Note 2 all series A preferred units were converted to
common units and exchanged for common shares of SAH.
Series
B Redeemable Convertible Preferred Units
During
2008, there were no Series B preferred units issued. As of December 31, 2007,
there were 8,804,984 units of Series B preferred units outstanding. In
connection with the merger disclosed in Note 2 all series B preferred units were
converted to common units and exchanged for common shares of SAH.
Common
Units
As of
June 5, 2008 and December 31, 2007, there were 44,762,086 and 29,070,777 common
units outstanding respectively. In connection with the merger disclosed in Note
2, all common units held were exchanged for common shares of SAH.
In
accordance with an executed letter agreement with an institutional investor, on
June 5, 2008, immediately preceding the closing of the merger described in Note
2, the Company issued an additional 1,525,000 common units upon the voluntary
conversion of all outstanding Series B preferred units owned by the
investor.
9. Options
and Warrants
Common
Share Warrants
The
following tables summarize information about common share warrants as of June
30, 2008 and December 31, 2007:
|
|
As
June 30, 2008
Outstanding
|
|
|
As
of June 30, 2008
Exercisable
|
|
Exercise
Price
|
|
Number
of Warrants Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
|
Number
of Warrants
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$ |
0.53 |
|
|
|
949,350 |
|
|
|
1.0 |
|
|
$ |
0.53 |
|
|
|
949,350 |
|
|
$ |
0.53 |
|
|
|
1.16 |
|
|
|
300,000 |
|
|
|
6.0 |
|
|
|
1.16 |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
.53
– 1.16 |
|
|
|
1,249,350 |
|
|
|
2.2 |
|
|
$ |
0.68 |
|
|
|
949,350 |
|
|
$ |
0.53 |
|
|
|
|
As
of December 31, 2007
Outstanding
and Exercisable
|
|
Exercise
Price
|
|
|
Number
of Warrants Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
$ |
0.28 |
|
|
|
1,504,680 |
|
|
|
0.1 |
|
|
$ |
0.28 |
|
|
0.53 |
|
|
|
1,036,446 |
|
|
|
1.5 |
|
|
|
0.53 |
|
$ |
.28
-.53 |
|
|
|
2,541,126 |
|
|
|
0.7 |
|
|
$ |
0.38 |
|
During
the three months ended June 30, 2008, 87,096 warrants with an exercise price of
$0.53 were exercised for a total of $46,000. In January 2008, the Company
received proceeds of $414,625 upon the exercise of 1,504,680 warrants at an
exercise price of $0.28. For the six months ended June 30, 2008, a total of
1,591,776 warrants were exercised. All common unit warrants outstanding as of
the date of the merger (see Note 2) were converted into warrants to purchase the
common stock of SAH.
Common
Share Options
The
following tables summarize information about common share options:
|
|
June
30, 2008
|
|
|
Number
of shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of period
|
|
|
6,605,161 |
|
|
$ |
0.64 |
|
Granted
|
|
|
— |
|
|
|
— |
|
Exercised
|
|
|
(9,798 |
) |
|
|
0.41 |
|
Cancelled
|
|
|
(123,459 |
) |
|
|
0.70 |
|
Outstanding
at end of period
|
|
|
6,471,904 |
|
|
|
0.64 |
|
Exercisable
at period end
|
|
|
1,510,430 |
|
|
|
0.46 |
|
Weighted
average fair value of options
granted during the period |
|
$ |
— |
|
|
|
|
|
|
|
|
As
of June 30, 2008
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Price
|
|
|
Number
of Options Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
of Options Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
$ |
0.18 |
|
|
|
1,306,444 |
|
|
|
4.0 |
|
|
$ |
0.18 |
|
|
|
653,222 |
|
|
$ |
0.18 |
|
|
|
3.5 |
|
|
0.28 |
|
|
|
444,191 |
|
|
|
2.8 |
|
|
|
0.28 |
|
|
|
351,651 |
|
|
|
0.28 |
|
|
|
2.8 |
|
|
0.41 |
|
|
|
235,160 |
|
|
|
3.2 |
|
|
|
0.41 |
|
|
|
162,761 |
|
|
|
0.41 |
|
|
|
3.2 |
|
|
0.71 |
|
|
|
3,536,109 |
|
|
|
4.7 |
|
|
|
0.71 |
|
|
|
26,129 |
|
|
|
0.71 |
|
|
|
4.5 |
|
|
1.24 |
|
|
|
950,000 |
|
|
|
2.7 |
|
|
|
1.24 |
|
|
|
316,667 |
|
|
|
1.24 |
|
|
|
2.7 |
|
$ |
.18
- 1.24 |
|
|
|
6,471,904 |
|
|
|
4.1 |
|
|
$ |
0.64 |
|
|
|
1,510,430 |
|
|
$ |
0.46 |
|
|
|
3.2 |
|
As of
June 30, 2008, options outstanding had an aggregate intrinsic value of
$4,452,832.
As of
June 30, 2008, there was approximately $1,299,083 of total unrecognized
equity-based compensation cost related to option grants that will be recognized
over a weighted average period of 1.99 years. All common unit options
outstanding as of the date of the merger (see Note 2) were converted into
options to purchase the common stock of SAH.
10. Commitments
and Contingencies
Litigation
On
December 17, 2007, Robert L. Bishop, who worked with the Company in a limited
capacity in 2004 and is a current member of a limited liability company that
owns an equity interest in the Company, filed a legal claim alleging a right to
unpaid wages and/or commissions (with no amount specified) and Company equity.
The complaint was served on the Company on January 7, 2008. The Company timely
filed an Answer denying Mr. Bishop’s claims and counterclaiming interference by
Mr. Bishop with the Company’s capital raising efforts. The Company intends to
vigorously defend against Mr. Bishop’s claims and pursue its
counterclaim.
Operating
Leases
The
Company has operating leases for office space and co-location services with
terms expiring in 2009, 2010, and 2012. Future minimum lease payments are
approximately as follows:
Years
Ending December 31,
|
|
Amount
|
|
|
|
|
|
2008
|
|
$ |
158,400 |
|
2009
|
|
|
309,100 |
|
2010
|
|
|
139,400 |
|
2011
|
|
|
5,400 |
|
2012
|
|
|
3,600 |
|
|
|
|
|
|
Total
|
|
$ |
615,900 |
|
Rental
expense under operating leases for the six months ended June 30, 2008 and 2007
totaled $102,563 and $142,780, respectively.
Purchase
Commitments
On
November 29, 2007, the Company entered into an agreement which includes a
noncancelable purchase commitment for minimum guaranteed royalties in the amount
of $97,000.
Warranty
Obligations
The
Company provides a 90-day warranty on certain manufactured products. As of June
30, 2008 and December 31, 2007, these obligations were not significant. The
Company does not expect these obligations to become significant in the future
and no related liability has been accrued as of June 30, 2008 and December 31,
2007.
11. Fair
Value
SFAS No.
157 establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. SFAS No. 157 describes three levels of inputs that aVinci
uses to measure fair value:
·
|
Level
1: Quoted prices (unadjusted) for identical assets or liabilities in
active markets that the entity has the ability to access as of the
measurement date.
|
·
|
Level
2: Level 1 inputs for assets or liabilities that are not actively traded.
Also consists of an observable market price for a similar asset or
liability. This includes the use of “matrix pricing” used to value debt
securities absent the exclusive use of quoted
prices.
|
·
|
Level
3: Consists of unobservable inputs that are used to measure fair value
when observable market inputs are not available. This could include the
use of internally developed models, financial forecasting,
etc.
|
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability between market participants at the balance sheet date. When
possible, the Company looks to active and observable markets to price identical
assets or liabilities. When identical assets and liabilities are not traded in
active markets, the Company looks to observable market data for similar assets
and liabilities. However, when certain assets and liabilities are not traded in
observable markets aVinci must use other valuation methods to develop a fair
value.
The
following table presents financial assets and liabilities measured on a
recurring basis:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
Description
|
|
06/30/08
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Available-for-sale
securities
|
|
$ |
221,915 |
|
|
$ |
221,915 |
|
|
|
— |
|
|
|
— |
|
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.” Such forward-looking statements
are subject to a number of risks, assumptions and uncertainties that could cause
the Company's actual results to differ materially from those projected in such
forward-looking statements. In particular, factors that could cause
actual results to differ materially from those in forward looking statements
include, our inability to obtain additional financing on acceptable terms, risk
that our products and services will not gain widespread market acceptance;
continued consumer adoption of digital technology, inability to compete with
others who provide comparable products, the failure of our technology, inability
to respond to consumer and technological demands, inability to replace
significant customers; seasonal nature of our business and other risks detailed
in our filings with the Securities and Exchange Commission. Forward
looking statements speak only as of the date made and are not guarantees of
future performance. We undertake no obligation to publicly update or revise any
forward-looking statements. When used in this document, the words “believe”,
“expect”, “anticipate”, “estimate”, “project”, “plan”, “should”, “intend”,
“may”, “will”, “would”, “potential”, and similar expressions may be used to
identify forward-looking statements.
Overview
aVinci
makes software technology that it packages in various forms available to mass
retailers, specialty retailers, Internet portals and web sites that allow end
consumers to use an automated process to create products such as DVD
productions, photo books, posters, calendars, and other print media products
from consumer photographs, digital pictures, video, and other media. aVinci’s
customers are retailers and other vendors and not end consumers. aVinci enables
its customers to sell its products to the end consumer who remain customers of
the vendor.
aVinci’s
revenue model generally relies on a per product royalty. With all product
deployments except a retail kit product, each time an end customer makes a
product utilizing aVinci’s technology, aVinci receives a royalty from its retail
customer. From the royalties received, aVinci pays the royalties associated with
licensed media and technology. If aVinci is performing product fulfillment,
aVinci also pays the costs of goods associated with the production of the
product. If aVinci’s customer utilizes in-store fulfillment, its customer pays
the cost of goods associated with production.
Through
2007, aVinci generated revenues through the sales of DVD products created using
its technology. During 2008, aVinci intends to deploy its technology to create
photo books and posters. aVinci will continue to utilize its current revenue
model of receiving a royalty for each product made using its
technology.
aVinci
signed its first agreement in 2004 under which it supplied its software
technology to BigPlanet, a company that markets, sells, and fulfilled personal
DVD products for its customers. Through 2006 all of aVinci’s revenues were
generated through BigPlanet. Under the terms of this agreement, BigPlanet was
required to make minimum annual guaranteed payments to aVinci in the amount of
$1 million to be paid in 12 equal monthly installments. The BigPlanet agreement
included software development, software license, post-contract support and
training. As a result of the agreement terms, aVinci determined to use the
percentage-of-completion method of accounting to record the revenue for the
entire contract. aVinci utilized the ratio of total actual costs incurred to
total estimated costs incurred related to BigPlanet to determine the
proportional amount of revenue to be recognized at each reporting
date.
During
2006, aVinci signed an additional agreement to provide its technology in Meijer
stores. The technology began being deployed in Meijer stores in April 2008 and
has begun generating revenues in each store where the technology has been
deployed. Full deployment in all 180 Meijer stores occurred in May
2008.
In 2007,
aVinci signed an agreement with Fujicolor to deploy its technology on Fujicolor
kiosks located in domestic Wal-Mart stores. aVinci has begun generating limited
revenues through Wal-Mart and anticipates generating additional revenues through
its Wal-Mart deployment during 2008.
aVinci
manufactures its DVDs in its Draper, Utah facility and uses services of local
third-party vendors to produce print DVD covers and inserts and to assemble and
ship final products. Through a services agreement, aVinci began using Qualex to
manufacture DVD and print product orders for certain customers. Qualex has
deployed equipment in Allentown, Pennsylvania and Houston, Texas to manufacture
aVinci product orders.
Basis
of Presentation
Net Revenues.
aVinci generates revenues primarily from licensing the rights to
customers to use its technology to create DVD products and from providing
software through retail and online outlets that allow end consumers access to
the technology to generate product orders which aVinci produces and ships.
Customers then pay royalties to aVinci on orders produced. aVinci’s ongoing
revenue agreements are generally multiple element contracts that may include
software licenses, installation and set-up, training and post contract customer
support (PCS). For some of the agreements, aVinci produces DVDs for the end
customer. For other agreements, aVinci provides blank DVD materials and aVinci’s
customer produces DVDs for the end customer. For other contracts, aVinci does
not provide any materials and aVinci’s customer fulfills the orders for the end
consumer. Vendor specific objective evidence of fair value (VSOE) does not exist
for any of the elements of these contracts. Therefore, revenue under the
majority of aVinci’s contracts is deferred until all elements of the contract
have been delivered except for the training and PCS. At that time, the revenue
is recognized over the remaining term of the contract on a straight-line basis.
Beginning in 2008, aVinci will allow customers to place orders via its website
and pay using credit cards. Revenues for orders placed online will be recognized
upon shipment of the product.
As aVinci
expands its product offering through additional customers, aVinci believes its
business and revenues will be subject to seasonal fluctuations prevalent in the
photo industry. A substantial portion of its revenues will likely occur during
the holiday season in the fourth quarter of the calendar year. aVinci expects to
experience lower net revenues during the first, second and third quarters than
it experiences in the fourth quarter. This trend follows the typical photo and
retail industry patterns.
aVinci
has begun tracking key metrics to understand and project revenues and costs in
the future, which include the following:
Average Order
Size. Average order size includes the number of products per order and
the net revenues for a given period of time divided by the total number of
customer orders recorded during that same period. As aVinci expands its product
offerings, it expects to increase the average order size in terms of products
ordered and revenue generated per order.
Total Number of
Orders. For each customer, aVinci monitors the total number of orders for
a given period, which provides an indicator of revenue trends for such customer.
aVinci recognizes the revenues associated with an order when the products have
been shipped. Orders are typically processed and shipped within three business
days after a customer order is received.
aVinci
believes the analysis of these metrics provides it with important information on
its overall revenue trends and operating results. Fluctuations in these metrics
are not unusual and no single factor is determinative of its net revenues and
operating results.
Cost of Revenues.
aVinci’s cost of revenues consist primarily of direct materials including
DVDs, DVD cases, picture sheet inserts, third-party printing, assembly and
packaging costs, payroll and related expenses for direct labor, shipping
charges, packaging supplies, distribution and fulfillment activities, rent for
production facilities and depreciation of production equipment. Cost of revenues
also includes payroll and related expenses for personnel engaged in customer
service. In addition, cost of revenues includes any third-party software or
patents licensed, as well as the amortization of capitalized website development
costs. aVinci capitalizes eligible costs associated with software developed or
obtained for internal use in accordance with the American Institute of Certified
Public Accountants, or AICPA, Statement of Position No. 98-1, “Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use” and
Emerging Issues Task Force, or EITF, Issue No. 00-02, “Accounting for Website
Development Costs.” Costs incurred in the development phase are capitalized and
amortized in cost of revenues over the product’s estimated useful
life.
Operating
Expenses. Operating expenses consist of sales and marketing, research and
development and general and administrative expenses. aVinci anticipates that
each of the following categories of operating expenses will increase in absolute
dollar amounts.
Research
and development expense consists primarily of personnel and related costs for
employees and contractors engaged in the development and ongoing maintenance of
aVinci’s deployment of its products or various delivery platforms including
online, web and shrinkwrap deployments. Research and development expense also
includes co-location and bandwidth costs.
Sales and
marketing expense consists of costs incurred for marketing programs and
personnel and related expenses for aVinci customer acquisition, product
marketing, business development and public relations activities.
General
and administrative expense includes general corporate costs, including rent for
the corporate offices, insurance, depreciation on information technology
equipment and legal and accounting fees. In addition, general and administrative
expense includes personnel expenses of employees involved in executive, finance,
accounting, human resources, information technology and legal roles. Third-party
payment processor and credit card fees will also be included in general and
administrative expense in 2008. aVinci also anticipates both an additional
one-time cost and a continuing cost associated with public reporting
requirements and compliance with the Sarbanes-Oxley Act of 2002, as well as
additional costs such as investor relations and higher insurance
premiums.
Interest
Expense. Interest expense consists of interest costs recognized under
aVinci’s capital lease obligations and for borrowed money.
Income
Taxes. Prior to the reverse merger transaction, aVinci had been a limited
liability company and not subject to entity taxation. Going forward, aVinci
anticipates making provision for income taxes depending on the statutory rate in
the countries where it sells its products. Historically, aVinci has only been
subject to taxation in the United States. If aVinci continues to sell its
products primarily to customers located within the United States, aVinci
anticipates that its long-term future effective tax rate will be between 38% and
45%, without taking into account the use of any of aVinci’s net operating loss
carry forwards. However, aVinci anticipates that in the future it may further
expand its sales of products to customers located outside of the United States,
in which case it would become subject to taxation based on the foreign statutory
rates in the countries where these sales took place and our effective tax rate
could fluctuate accordingly.
Critical
Accounting Policies and Estimates
Use of
Estimates. The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue
Recognition and Deferred Revenue. The Company’s revenue contracts
generally include a software license and post-contract support (PCS), and may
include training, implementation, and other services such as product fulfillment
services. Because the contracts generally include the delivery of a software
license, the Company accounts for the majority of its revenue contracts in
accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition,
as modified by SOP 98-9, Modification of SOP 97-2 with Respect to Certain
Transactions. SOP 97-2 applies to activities that represent licensing, selling,
leasing, or other marketing of computer software. SOP 97-2 generally provides
that until vendor specific objective evidence (VSOE) of fair value exists for
the various components within the contract, that revenue is deferred until
delivery of all elements except for PCS and training has occurred.
After all
elements are delivered except for PCS and training, deferred revenue is
recognized over the remaining term of the contract. Because of the Company’s
limited sales history, it does not have VSOE for the different components that
may be included in sales contracts.
The
Company records billings and cash received in excess of revenue earned as
deferred revenue. The deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to the Company in
advance of revenues earned. Revenue earned but not billed is classified as
unbilled accounts receivable in the balance sheet. The Company bills customers
as payments become due under the terms of the customer’s contract. The Company
considers current information and events regarding its customers and their
contracts and establishes allowances for doubtful accounts when it is probable
that it will not be able to collect amounts due under the terms of existing
contracts.
Accounting for
Equity Based Compensation. The Company accounts for equity-based
compensation in accordance with SFAS No. 123(R) (revised 2004), Share-Based
Payment which requires recognition of expense (generally over the vesting
period) based on the estimated fair value of equity-based payments
granted.
Results
of Operations
For the
first six months of 2008, we had revenues of $189,699, an operating loss of
$4,784,362, a net loss of $4,883,941, and a net loss applicable to common
stockholders of $6,085,714. This compares to revenues of $251,080, an operating
loss of $2,496,736, a net loss of $3,154,001, and a net loss applicable to
common stockholders of $3,385,932 for the same period in 2007.
The
following table sets forth, for the periods indicated, the percentage
relationship of selected items from our statements of operations to total
revenues.
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
224%
|
|
|
|
2%
|
|
|
|
229%
|
|
|
|
9%
|
|
Research
and development
|
|
|
370%
|
|
|
|
588%
|
|
|
|
522%
|
|
|
|
318%
|
|
Selling
and marketing
|
|
|
387%
|
|
|
|
279%
|
|
|
|
510%
|
|
|
|
205%
|
|
General
and administrative
|
|
|
1,140%
|
|
|
|
947%
|
|
|
|
1,301%
|
|
|
|
529%
|
|
Depreciation
and amortization
|
|
|
49%
|
|
|
|
54%
|
|
|
|
60%
|
|
|
|
33%
|
|
Total
operating expense
|
|
|
2,170%
|
|
|
|
1,870%
|
|
|
|
2,622%
|
|
|
|
1,094%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,070%
|
)
|
|
|
(1,770%
|
)
|
|
|
(2,522%
|
)
|
|
|
(994%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
13%
|
|
|
|
12%
|
|
|
|
14%
|
|
|
|
5%
|
|
Interest
expense
|
|
|
(47%
|
)
|
|
|
(426%
|
)
|
|
|
(67%
|
)
|
|
|
(267%
|
)
|
Total
other income (expense)
|
|
|
(34%
|
)
|
|
|
(414%
|
)
|
|
|
(53%
|
)
|
|
|
(262%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,104%
|
)
|
|
|
(2,184%
|
)
|
|
|
(2,575%
|
)
|
|
|
(1,256%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(840%
|
)
|
|
|
(246%
|
)
|
|
|
(514%
|
)
|
|
|
(76%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable convertible preferred units
|
|
|
(82%
|
)
|
|
|
(54%
|
)
|
|
|
(119%
|
)
|
|
|
(17%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
|
(3,026%
|
)
|
|
|
(2,484%
|
)
|
|
|
(3,208%
|
)
|
|
|
(1,349%
|
)
|
Revenues.
Total
revenues increased $39,034, or 51 percent, to $116,203 for the three months
ended June 30, 2008, as compared to $77,169 for the same period in 2007. The
increase in revenue during the three months ended June 30, 2008 over the same
period in 2007 is primarily due to the increase in the number of customers from
year to year. For the six months ended June 30, 2008, total revenues decreased
$61,381, or 24% to $189,699 as compared to $251,080 for the same period in 2007.
The decrease in revenue for the six months ended is due to the expiration of
aVinci’s agreement with BigPlanet on December 31, 2007.
Three
customers accounted for a total of 93 percent of aVinci’s revenues for the three
months ending June 30, 2008 (individually 45 percent, 32 percent, and 16
percent) compared to one customer accounting for all of the revenue for the same
period in 2007. Three customers accounted for a total of 83 percent of aVinci’s
revenues for the six months ending June 30, 2008 (individually 47 percent, 20
percent, and 16 percent) compared to one customer accounting for all of the
revenue for the same period in 2007. No other single customer accounted for more
than 10 percent of aVinci’s total revenues for the three and six months ended
June 30, 2008 or the same periods in 2007.
Operating
Expenses.
Cost of Goods
Sold. aVinci’s cost of goods sold increased $259,197 to $260,536 for the
three months ended June 30, 2008, compared to $1,339 for the same period in
2007. For the six months ended June 30, 2008, cost of goods sold increased
$410,679 to $433,633 compared to $22,954 for the same period in 2007. The
increases in cost of goods sold are primarily due to the change in the type of
work being performed in 2008 versus 2007. In 2007, aVinci primarily supplied
software technology to build DVD movies for a single customer – BigPlanet. In
2008, aVinci has multiple customers and the cost of goods sold includes not only
fulfillment costs, but also includes a portion of the cost of hardware to one of
aVinci’s customers that purchased fulfillment equipment from aVinci. (Both the
revenue and costs associated with this contract are being recognized over the
life of the contract.)
Research and
Development. aVinci’s research and development expense decreased $23,304,
or 5%, to $430,153 for the three months ended June 30, 2008, compared to
$453,457 for the same period in 2007. The decrease is primarily due to the
payment of recruiting fees of approximately $46,000 during the three month ended
June 30, 2007. For the six months ended June 30, 2008, research and development
increased $192,644, or 24% to $990,530 as compared to $797,886, for the same
period in 2007. The increase in research and development expenses for the six
month period is due primarily to an increase in personnel and related costs for
new employees and consultants involved with technology development for
deployments and ongoing maintenance of aVinci’s products in Wal-Mart on kiosks,
with various retailers online and with various retailers in the form of hard
good kits.
Selling and
Marketing. aVinci’s selling and marketing expense increased $234,458, or
109%, to $449,635 for the three months ended June 30, 2008, compared to $215,177
for the same period in 2007. For the six months ended June 30, 2008, selling and
marketing increased $452,802, or 88% to $966,796 compared to $513,994, for the
same period in 2007. The increases are primarily due to additional personnel and
the related costs for new employees and consultants involved with aVinci’s
increased marketing efforts directed at mass retailers.
General and
Administrative. aVinci’s general and administrative expense increased
$593,417, or 81%, to $1,324,656 for the three months ended June 30, 2008,
compared to $731,239 for the same period in 2007. For the six months ended June
30, 2008, general and administrative expenses increased $1,140,537, or 86% to
$2,468,896 compared to $1,328,359, for the same period in 2007. The increases
are primarily due to an increase in consulting and outside services as a result
of the consulting agreement with Amerivon (see “Related Party Transactions”
below, for more information on this consulting agreement). The increases are
also attributable to fees incurred as a result of the reverse merger transaction
(see Note 2, in Notes to Condensed Consolidated Financial Statements); legal and
accounting fees, directors and officers’ liability insurance, and other
fees.
Interest
Expense. aVinci’s interest expense decreased $274,101, or 83%, to $54,823
for the three months ended June 30, 2008, compared to $328,924 for the same
period in 2007. For the six months ended June 30, 2008, interest expense
decreased $545,054 or 81% to $126,112 compared to $671,166 for the same period
in 2007. The decrease is due to the conversion of aVinci’s convertible debt into
equity in May 2007. To fund operations, aVinci undertook a large private
offering consisting of 12-month convertible debt, bearing interest at 10%. The
offering was taken in its entirety by Amerivon, who invested a total of
$830,000. In August of 2006, Amerivon invested an additional $1,560,000 in a
convertible debt offering, bearing interest at 9%, intended to bridge aVinci to
a subsequent preferred equity offering targeting $5 to $7 million.
In
December 2006, aVinci entered into various short-term loans with members of
aVinci totaling $265,783 to fund operations until the funding transaction with
Amerivon closed. These loans bore interest at 10% per annum and were payable on
or before December 31, 2007. In May 2007, these loans were repaid.
Income Tax
Expense. For the three and six months ended June 30, 2008 and 2007, no
provisions for income taxes were required. Prior to June 6, 2008, the Company
was a flow-through entity for income tax purposes and did not incur income tax
liabilities. Subsequent to June 5, 2008, the Company became a taxable entity and
will accrue income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes.
At June
30, 2008, management has recognized a valuation allowance for the net deferred
tax assets related to temporary differences and current operating losses. The
valuation allowance was recorded in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires that a valuation allowance be established when there is
significant uncertainty as the realizability of the deferred tax assets. Based
on a number of factors, the currently available, objective evidence indicates
that is more likely than not that the net deferred tax assets will not be
realized.
In June
2008, following the merger transaction described in Note 2 of Notes to Condensed
Consolidated Financial Statements, the Company paid $113,028 in federal income
taxes for SAH’s September 30, 2007 federal income tax return. Also in June 2008,
the Company paid $85,434 towards SAH’s estimated Texas Franchise Tax. Both of
these items were accrued for at the time of the merger transaction.
Preferred
Dividends and Deemed Dividends. aVinci recorded a preferred dividend of
$976,000 for the three and six months ended June 30, 2008, to reflect the
conversion of Sequoia’s Series B preferred units to Sequoia common units
immediately prior to the closing of the transaction between SAH and Sequoia. The
conversion included an additional 1,525,000 common units that were issued upon
conversion in order to induce conversion. The inducement units were recorded as
a preferential dividend, thus increasing the accumulated deficit and increasing
the loss applicable to common stockholders. Sequoia recorded a deemed dividend
of $190,000 for the three and six months ended June 30, 2007, due to the
accretion of issuance costs related to the Series B offering.
Distributions on
Series B redeemable convertible preferred units. The Series B redeemable
convertible preferred unit holders were entitled to an annual distribution of
$0.06 per unit. The distributions on Series B redeemable convertible preferred
units increased $52,489, or 125%, to $94,420 for the three months ended June 30,
2008, compared to $41,931 for the same period in 2007. For the six months ended
June 30, 2008, distributions on Series B redeemable convertible preferred units
increased $183,842, or 438% to $225,773 compared to $41,931, for the same period
in 2007. The increases are due to the distribution accrual beginning in May
2007, and ending (due to the reverse merger) in June 2008.
Balance
Sheet Items
Cash. Cash increased
$3,714,306, or 432%, to $4,573,375 at June 30, 2008, from $859,069 at December
31, 2007. The increase is primarily due to the cash received in connection with
the reverse merger. See Note 2 of Notes to Condensed Consolidated Financial
Statements for more information on the reverse merger.
Marketable Securities-Available-for
Sale. The Company owns 2,022,000 shares of the common stock of Cashbox
plc. As of June 30, 2008, the common stock in Cashbox plc was recorded at a fair
value of $221,915. Unrealized losses on these shares of common stock, included
in stockholders’ equity, were $81,385 as of June 30, 2008.
Accrued Liabilities. Accrued
liabilities decreased $257,903, or 31%, to $565,869 at June 30, 2008, from
$823,772 at December 31, 2007. The decrease is primarily due to the payment of
accrued bonuses.
Distributions Payable.
Distributions payable decreased $308,251, or 100%, to $0 at June 30, 2008, from
$308,251 at December 31, 2007. The decrease is a result of paying off all
accrued distributions, and the elimination of the Series B convertible preferred
units as a result of the reverse merger. See Note 2 of Notes to Condensed
Consolidated Financial Statements for more information on the reverse
merger.
Notes Payable. Notes payable
decreased $1,000,000, or 100%, to $0 at June 30, 2008, from $1,000,000 at
December 31, 2007. The decrease is due to the notes payable balance being
eliminated as a result of the reverse merger. See Note 2 of Notes to Condensed
Consolidated Financial Statements for more information on the reverse merger.
The amount has been reclassified to an intercompany account which has been
eliminated in consolidation.
Equity Accounts. As a result
of the reverse merger, Sequoia’s Series A and B convertible preferred units and
Common Units were exchanged for common stock of SAH. See Note 2 of Notes to
Condensed Consolidated Financial Statements for more information on the reverse
merger.
Liquidity and
Capital Resources.
|
|
Unaudited
|
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
Statements
of Cash Flows
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
$ |
(4,689,050 |
) |
|
$ |
(1,929,653 |
) |
Cash
Flows from Investing Activities
|
|
|
(65,146 |
) |
|
|
(360,563 |
) |
Cash
Flows from Financing Activities
|
|
|
8,468,502 |
|
|
|
3,199,841 |
|
Increase
in cash and cash equivalents
|
|
|
3,714,306 |
|
|
|
909,625 |
|
Operating
Activities. For the six months ended June 30, 2008, net cash used in
operating activities was $(4,689,050) compared to $(1,929,653) for the same
period in 2007. The changes were due primarily to aVinci’s pursuit of new
customers and development of additional delivery methods for its software
technology which required substantial additional human, equipment and property
resources.
Investing
Activities. For the six months ended June 30, 2008, aVinci’s cash flows
from investing activities was $(65,146) compared to $(360,563) for the same
period in 2007. The change was primarily due to purchasing less property and
equipment in the six months ended June 30, 2008 than in the same period in 2007.
During 2007 we purchased property and equipment to allow for the fulfillment of
products for customers and anticipated customers.
Financing
Activities. For the six months ended June 30, 2008, financing activities
provided a net $8,468,502 of cash compared to $3,199,841 for the same period in
2007. During the six months ended June 30, 208, aVinci received approximately
$7.1 million in cash as a result of the reverse merger; and $1.5 million from
SAH in anticipation of closing the Merger Agreement. During this period, aVinci
received $460,625 from Amerivon as they exercised a portion of their warrants to
purchase additional common units, used $(534,024) for payment of accrued
distributions, and used $(60,160) for principal payments under capital
obligations. During the six months ended June 30, 2007, aVinci received $2
million from Amerivon for the issuance of the Series B preferred units, and $1.5
million from issuance of the convertible debentures. Also during this period
aVinci made payments of $(265,783) on member notes, and $(117,080) in loan
costs.
Previously,
Sequoia had elected to grow its business through the use of outside capital
beyond what had been available from operations to capitalize on the growth in
the digital imaging industry. During the first half of 2006 Sequoia undertook a
private equity offering consisting of 12-month convertible debt, bearing
interest at 10%. The offering was taken in its entirety by Amerivon, who
invested a total of $829,250. At the time of the investment, Amerivon placed a
member on Sequoia’s Board of Managers. In August of 2006, Amerivon invested an
additional $1,560,000 in a convertible debt offering, bearing interest at 10%,
intended to bridge Sequoia to a subsequent preferred equity offering targeting
$5 to $7 million. During the first quarter of 2007, Amerivon provided additional
bridge financing of $1,000,000 and an additional $535,000 of bridge financing
during the second quarter of 2007. In May 2007, Sequoia closed the preferred
equity offering with Amerivon at which time they converted approximately $2.4
million in aggregate convertible debt held by Amerivon, together with
accumulated interest into common units of Sequoia. Amerivon also provided
approximately $4.9 million in additional cash, which, along with $1.5 million of
the bridge financing principle provided during 2007, plus accumulated interest,
was used to purchase a total of $6.4 million worth of Sequoia’s Series B
preferred. Upon the closing of the Series B preferred offering, Amerivon placed
a second member on Sequoia’s Board of Managers.
In
anticipation of closing the Merger Agreement, Sequoia entered into a Loan
Agreement with SAH whereby SAH agreed to extend to Sequoia $2.5 million to
provide operating capital through the closing of the transaction. A total of $1
million was loaned to Sequoia during 2007, with an additional $1.5 million being
loaned in 2008. In connection with the closing of the Merger Agreement on June
6, 2008, Sequoia received approximately $7.1 million to fund operations in
addition to the $2.5 million previously loaned to Sequoia by SAH. Upon closing
of the Merger, the $2.5 million notes payable to SAH were eliminated. Management
believes that the funds received in connection with the Merger will be
sufficient to sustain operations at least through the year ending December 31,
2008.
Related Party
Transactions
Consulting
Agreement. During the three and six months ended June 30, 2008, pursuant
to an agreement executed during the year ended December 31, 2007, the Company
recorded expense of $476,667 and $725,000, respectively, for consulting services
from Amerivon Holdings, Inc. (Amerivon), a significant shareholder of the
Company. During the three and six months ended June 30, 2008, the Company paid
Amerivon $695,000 and $745,000, respectively, for this agreement.
Distributions.
The former Series B redeemable convertible preferred unit holders were
entitled to a cumulative annual distribution of $.06 per unit. During the six
months ended June 30, 2008 and 2007, the Company accrued $202,696 and $41,931,
respectively, for distributions due on the Series B redeemable convertible
preferred units held by Amerivon. The Company paid Amerivon $447,783 for the
accrued distributions in June 2008.
Warrant Exercise.
On January 30, 2008, Amerivon exercised 1,504,680 warrants to purchase
common units of Sequoia Media Group for cash received of $414,625; and on June
5, 2008, Amerivon exercised 87,096 warrants to purchase common units of Sequoia
Media Group for a total price of $46,000. These exercises, along with Amerivon’s
conversion of convertible preferred units, increased Amerivon’s ownership
percentage to 45.4% of all common units prior to the merger on June 6,
2008.
Notes Payable and
Series B Redeemable Convertible Preferred Units. On January 19, 2007 and
again on February 14, 2007, the Company issued $500,000 of convertible notes
payable to Amerivon. These convertible notes payable accrued interest at 9% per
annum, and had a maturity date of June 30, 2007. A beneficial conversion feature
in the amount of $171,875 was recognized, $67,375 of which was accreted to
interest expense as of June 30, 2007.
In
December 2006, the Company entered into various loans with members of the
Company totaling $265,783. These loans bore interest at 10% per annum and were
payable on or before December 31, 2007. Loan origination fees of $20,005 were
recorded as an intangible asset to be amortized over the life of the loans. On
January 5, 2007, an additional $20,000 was loaned to the Company. In April and
May 2007, total outstanding principal, accrued interest, and loan origination
fees of $285,783, $10,376, and $20,005, respectively, were paid and the
associated asset was fully amortized.
New
Accounting Pronouncements
In
March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133.” SFAS 161 amends and
expands the disclosure requirements of Statement 133 with the intent to provide
users of financial statements with an enhanced understanding of how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, financial performance, and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company believes that the future requirements of SFAS 161 will
not have a material effect on its consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair
Value Option for Financial Assets and Financial Liabilities. Under
SFAS 159, companies may elect to measure certain financial instruments and
certain other items at fair value. The standard requires that unrealized gains
and losses on items for which the fair value option has been elected be reported
in earnings. SFAS 159 was effective beginning in the first quarter of
fiscal 2008. The adoption of this accounting pronouncement did not
have any effect on the Company’s consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
(SFAS 141R), Business Combinations and SFAS No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51. SFAS 141R will change how
business acquisitions are accounted for and will impact financial statements
both on the acquisition date and in subsequent periods. SFAS 160 will
change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective for us beginning in the
first quarter of fiscal 2010. Early adoption is not permitted. The adoption of
SFAS 141R and SFAS 160 is not expected to have a material impact on
the Company’s financial statements.
In
September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair
Value Measurements, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, in February 2008, the FASB issued FSP
FAS 157-b which delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). This FSP partially defers the effective date of
Statement 157 to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of this
FSP. Effective for fiscal 2008, the Company will adopt SFAS 157 except as
it applies to those nonfinancial assets and nonfinancial liabilities as noted in
FSP FAS 157-b. The adoption of SFAS 157 is not expected to have a
material impact on the Company’s financial statements.
Off-Balance
Sheet Arrangements
aVinci
does not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital resources that is material to investors.
Contractual
Obligations and Commitments
The
following table sets forth certain contractual obligations as of June 30, 2008
in summary form:
|
|
|
|
|
Less
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
than
1
|
|
|
|
1-3
|
|
|
|
4-5
|
|
|
than
5
|
|
Description
|
|
Total
|
|
|
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
Long-term
debt
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capital
lease obligations
|
|
|
346,544 |
|
|
|
124,621 |
|
|
|
221,923 |
|
|
|
— |
|
|
|
— |
|
Operating
lease obligations
|
|
|
615,914 |
|
|
|
319,656 |
|
|
|
289,958 |
|
|
|
6,300 |
|
|
|
— |
|
Notes
payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchase
obligations
|
|
|
97,000 |
|
|
|
97,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
long-term liabilities under GAAP
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Totals
|
|
$ |
1,059,458 |
|
|
|
541,277 |
|
|
|
511,881 |
|
|
|
6,300 |
|
|
|
— |
|
As noted
in Financing Activities
above, under Liquidity and
Capital Resources, $2.5 million of the notes payable outstanding were
eliminated upon the closing of the Merger between Secure Alliance Holdings and
Sequoia Media Group.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable.
ITEM
4. CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”)) designed to provide
reasonable assurance that the information required to be disclosed in our
reports under the Exchange Act is processed, recorded, summarized and reported
within the time periods specified in the SEC’s rules and forms and that such
information is accumulated and communicated to our management, including our
Principal Executive Officer and Principal Financial and Accounting Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, our management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our
Principal Executive Officer and Principal Financial and Accounting Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report. Based
on this evaluation, Chett P. Paulsen, our Principal Executive Officer, and
Edward B. Paulsen, our Principal Financial and Accounting Officer, concluded
that these disclosure controls and procedures were effective at the reasonable
assurance level as of June 30, 2008.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15(d)
under the Exchange Act that occurred during the quarter ended June 30, 2008 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART
II-OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
We are
not aware of any material pending or threatened legal proceedings, other than
ordinary routine litigation incidental to our business, involving our company or
our property.
On
December 17, 2007, Robert L. Bishop, who worked with the Company in a limited
capacity in 2004 and is a current member of a limited liability company that
owns an equity interest in the Company, filed a legal claim alleging a right to
unpaid wages and/or commissions (with no amount specified) and Company equity.
The complaint was served on the Company on January 7, 2008. The Company timely
filed an Answer denying Mr. Bishop’s claims and counterclaiming interference by
Mr. Bishop with the Company’s capital raising efforts. The Company intends to
vigorously defend against Mr. Bishop’s claims and pursue its
counterclaim.
ITEM
1A. RISK
FACTORS
There
have been no material changes from the risk factors disclosed in the “Risk
Factors” section of our Form S-1 as filed with the SEC on August 7,
2008.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not
applicable.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
The
Company held a Special Meeting of Stockholders on April 23,
2008.
|
|
The
stockholders voted on the
following:
|
Proposal
1.
|
The
Agreement and Plan of Merger dated as of December 6, 2007 by and among
Sequoia Media Group, LC, Secure Alliance Holdings Corporation and SMG
Utah, LC, as amended by that certain Amendment No. 1 dated as of March 31,
2008.
|
Proposal
2.
|
An
amendment to the Company’s certificate of incorporation to effect a
1-for-2 reverse stock split of the Company’s common stock, par value $.01
per share, such that holders of the Company’s common stock will receive
one share for each two shares they
own;
|
Proposal
3.
|
An
amendment to the Company’s certificate of incorporation to increase the
number of authorized shares of the Company’s common stock from 100,000,000
to 250,000,000 and to authorize a class of preferred stock consisting of
50,000,000 shares of $.01 par value preferred
stock;
|
Proposal
4.
|
An
amendment to the Company’s certificate of incorporation to change the
Company’s name from “Secure Alliance Holdings Corporation” to “aVinci
Media Corporation”; and
|
Proposal
5.
|
The
Company’s 2008 Stock Incentive
Plan.
|
|
The
results of the voting were as
follows:
|
|
Vote
For
|
Vote
Against
|
Abstentions
|
Broker
Non-Votes
|
Proposal
1
|
11,899,448
|
77,282
|
50,731
|
—
|
Proposal
2
|
17,169,448
|
387,726
|
106,630
|
—
|
Proposal
3
|
11,800,447
|
179,813
|
47,201
|
—
|
Proposal
4
|
17,240,818
|
295,779
|
127,207
|
—
|
Proposal
5
|
11,733,143
|
159,952
|
134,366
|
—
|
ITEM
5. OTHER
INFORMATION
Not
applicable.
ITEM
6. EXHIBITS
(a)
Exhibits
Exhibit
Number
|
|
Description
of Exhibit
|
|
|
|
31.1
|
|
Certification
of the Principal Executive Officer pursuant to Exchange Act Rule
13a-14(a)
|
|
|
|
31.2
|
|
Certification
of the Principal Financial and Accounting Officer pursuant to Exchange Act
Rule 13a-14(a)
|
|
|
|
32
|
|
Certification
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
aVinci
Media Corporation
|
|
|
|
|
|
Date:
August 14, 2008
|
By:
|
/s/ Chett
P. Paulsen |
|
|
|
Chett
P. Paulsen
|
|
|
|
Principal
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Edward
B. Paulsen |
|
|
|
Edward
B. Paulsen
|
|
|
|
Principal
Financial and Accounting Officer
|
|
|
|
|
|
30