forms1a.htm
Registration
No. 333 -152869
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
AMENDMENT
NO.1
FORM
S-1
REGISTRATION
STATEMENT UNDERTHE SECURITIES ACT OF 1933
aVINCI
MEDIA CORPORATION
(Exact
name of registrant in its charter)
Delaware
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000-17288
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75-2193593
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(State
or other Jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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Incorporation
or Organization)
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Classification
Code Number)
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Identification
No.)
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11781
South Lone Peak Parkway, Suite 270
Draper,
UT 84020
(801) 495-5700
(Address
and telephone number of principal executive offices and principal place of
business)
Chett
B. Paulsen, Chief Executive Officer
aVINCI
MEDIA CORPORATION
11781
South Lone Peak Parkway, Suite 270
Draper,
UT 84020
(801) 495-5700
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
Ross
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32nd Floor
New
York, New York 10006
(212) 930-9700
(212) 930-9725
(fax)
Approximate
date of proposed sale to the public: From time to time after this Registration
Statement becomes effective.
If any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by a 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 o
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Accelerated
Filer o
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Non-accelerated
Filer o
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Smaller
Reporting Company x
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(Do not
check if a smaller reporting company)
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Proposed
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maximum
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Proposed
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offering
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maximum
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(i) Title of each class of
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Amount to be
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price per
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aggregate
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Amount of
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securities to be registered
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registered
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share
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offering price
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registration fee
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Common
Stock, no par value
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16,929,640 |
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$ |
1.01 |
(1) |
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$ |
17,098,936 |
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$ |
671.99 |
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Common
Stock, no par value, issuable upon exercise of warrants exercisable at
$0.53 per share
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949,350 |
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$ |
0.53 |
(2) |
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$ |
503,156 |
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$ |
19.77 |
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Total
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17,878,990 |
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$ |
17,602,092 |
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$ |
691.76 |
(3) |
(1)
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Estimated
solely for purposes of calculating the registration fee in accordance with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over the
Counter Pink Sheets on July 28, 2008 which was $1.01 per
share.
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(2)
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Pursuant
to Rule 457(g) under the Securities Act, the maximum offering price
per security represents the exercise price of the applicable preferred
stock, warrants or options.
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT
TO COMPLETION, DATED AUGUST 7, 2008
PRELIMINARY
PROSPECTUS
aVINCI
MEDIA CORPORATION
17,878,990
SHARES OF COMMON STOCK
This
prospectus relates to the resale by the selling stockholder of up to 17,878,990
shares of our common stock, consisting of up to 16,929,640 shares of common
stock and 949,350 shares issuable upon the exercise of common stock warrants.
The selling stockholder may sell common stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. We will pay the expenses of registering these shares,
other than any selling stockholder’s legal or accounting costs or
commissions.
Our
common stock is traded on the Over the Counter Pink Sheets (“OTC Pink
Sheets”) under the symbol “AVMC.PK.” The closing sale price on the OTC Pink
Sheets on July 28, 2008, was $1.01 per share.
Investing
in these securities involves significant risks. See “Risk Factors” beginning on
page 3.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is ___________, 2008.
The
information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by aVinci
Media Corporation with the Securities and Exchange Commission. The selling
stockholder may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
Principal
Executive Offices of and mailing address for aVinci Media
Corporation
11781
South Lone Peak Parkway, Suite 270
Draper,
UT 84020
Telephone
Number (801) 495-5700
PROSPECTUS
SUMMARY
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5
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RISK
FACTORS
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7
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SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
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18
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USE
OF PROCEEDS
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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21
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BUSINESS
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34
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MANAGEMENT
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42
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EXECUTIVE
COMPENSATION
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43
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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46
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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48
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SELLING
STOCKHOLDER
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49
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DESCRIPTION
OF SECURITIES
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51
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PLAN
OF DISTRIBUTION
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52
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LEGAL
MATTERS
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54
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EXPERTS
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54
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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54
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AVAILABLE
INFORMATION
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54
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INDEX
TO FINANCIAL STATEMENTS
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57
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PART
II INFORMATION NOT REQUIRED IN PROSPECTUS
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II-1
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SIGNATURES
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II-4
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The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the “Risk Factors” section, the
financial statements and the notes to the financial statements.
aVinci
Media Corporation
aVinci
Media Corporation (formerly known as Secure Alliance Holdings Corporation) is a
Delaware corporation. Between October 2, 2006 and June 6, 2008, we
were a shell public company and conducted no business activities other than
seeking appropriate merger acquisition candidates.
In June
2008 (described in Recent Developments below), these efforts led to the
acquisition of Sequoia Media Group, LC by way of a reverse
merger. Sequoia Media Group, LC changed its name to aVinci Media, LC
in July 2008 following the reverse merger. aVinci Media, LC, is a
Utah limited liability company originally organized on March 28, 2003 under the
name Life Dimensions, LC.
In this
prospectus, Vinci Media Corporation and our wholly owned subsidiary, aVinci
Media, LC. will be referred to as AVI Media. Substantially all of our
business is conducted out of an office in Draper, Utah. We also have
an office in Bentonville, Arkansas to help service Wal-Mart, which is one of our
largest retail customers.
Business
Through
our subsidiary, aVinci Media, LC, we deploy a software technology that employs
“Automated Multimedia Object Models,” its patent-pending way of turning consumer
captured images, video, and audio into complete digital files in the form of
full-motion movies, DVD’s, photo books, posters and streaming media
files. aVinci Media, LC filed its first provisional patent in early
2004 for patent protection on various aspects of its technology with a full
filing occurring in early 2005, and aVinci Media, LC has filed several patents
since that time as part of its intellectual property strategy. Our
technology carries the brand names of “aVinci” and “aVinci
Experience.”
In May
2004 aVinci Media, LC signed its first client agreement with BigPlanet, a
division of NuSkin International, Inc. (“NuSkin”). Under the terms of
the BigPlanet agreement, aVinci Media, LC supplied BigPlanet with its software
technology that BigPlanet marketed, sold, and fulfilled for its
consumers. Revenues from BigPlanet represent substantially all of
aVinci Media, LC’s sales through 2007 at approximately $3.4 million from May
2004 through December 2007. aVinci Media, LC’s agreement with
BigPlanet expired on December 31, 2007. BigPlanet continues to offer
aVinci Media, LC’s DVD products and pays a per-product royalty for products
resulting in a monthly royalty of less than $2,000 per month.
Since
inception aVinci Media, LC has continued to develop and refine its technology to
be able to provide higher quality products through a variety of distribution
models including in-store kiosks, retail kits, and online
downloads. aVinci Media, LC’s business strategy has been to develop a
product solution that provides users with professionally created templates to
automatically create personalized products by simply adding user
images.
aVinci
Media, LC’s business efforts during 2006 and 2007 were directed at developing
relationships with mass retailers. aVinci Media, LC signed an
agreement to provide its technology in Meijer stores at the end of
2006. Due to problems a third party supplier had deploying its kiosk
software in Meijer stores, aVinci Media, LC was delayed in deploying its
software technology that was to be provided through the third party
kiosk. During 2007, Meijer signed Hewlett Packard as its kiosk vendor
and aVinci Media, LC entered into an agreement to provide its software in Meijer
stores on Hewlett Packard kiosks. aVinci Media, LC’s software
integration onto the Hewlett Packard kiosk was completed in 2008 and deployed in
April 2008 in Meijer stores.
During
2007, aVinci Media, LC signed an agreement with Fujicolor to deploy its
technology on their kiosks located in domestic Wal-Mart
stores. aVinci Media, LC s initial integration and deployment with
Fujicolor in domestic Wal-Mart stores took place in the third quarter of 2007,
with a software update scheduled for the third quarter of 2008 to enhance the
user experience and the product offering.
In
January 2008, aVinci Media, LC signed an agreement with Costco.com, to deliver
its DVD product online. aVinci Media, LC’s DVD product began being
offered at Costco.com on the “photo” category at the end of March
2008.
Recent
Developments
Pursuant
to an Agreement and Plan of Merger and Reorganization dated December 6, 2007 and
amended March 31, 2008 (the “Merger Agreement”), by and among aVinci Media
Corporation (then operating as Secure Alliance Holdings Corporation), SMG Utah,
LC, a Utah limited liability company and wholly owned subsidiary of the Secure
Alliance Holdings Corporation (“Merger Sub”), and aVinci Media, LC, Merger Sub
merged with and into aVinci Media, LC, with aVinci Media, LC remaining as the
surviving entity and our wholly owned operating subsidiary (the
“Merger”). The Merger was effective on June 6, 2008, upon the filing
of Articles of Merger with the Utah Division of Corporations. In
connection with the Merger transaction, we amended our Certificate of
Incorporation to (i) change our name from Secure Alliance Holdings
Corporation to aVinci Media Corporation; (ii) increase our authorized
shares of common stock from 100,000,000 to 250,000,000; (iii) authorize a
class of preferred stock consisting of 50,000,000 shares of $.01 per value
preferred stock; and (iv) effect a 1-for-2 reverse stock
split.
In
connection with the Merger, we effected a 1-for-2 reverse split of its issued
and outstanding common stock. Accordingly, the 19,484,032 shares of
our common stock issued and outstanding immediately prior to the Merger were
reduced to approximately 9,742,016 shares (subject to rounding) as a result
of the Merger. We issued 38,986,114 post split shares of our common
stock in the Merger to the holders of aVinci Media, LC membership interests
representing approximately 80% of our common stock outstanding immediately after
the Merger. As a result of the reverse split and the Merger, there
were 48,728,130 shares of our common stock issued and outstanding on June 6,
2008.
Pursuant
to the Merger Agreement, we made a cash distribution of $2,000,000 (the
“Dividend”) to our stockholders of record as of May 20, 2008. The Dividend
was paid on June 4, 2008. The former holders of aVinci Media, LC
membership units did not receive any portion of the Dividend.
The
foregoing description of the Merger Agreement and the transactions contemplated
thereby do not purport to be complete and are qualified in their entireties by
reference to the Merger Agreement. Additional information about the
Merger and related proposals is set forth in the definitive Proxy Statement
filed with the Securities and Exchange Commission on April 29, 2008 and
thereafter distributed to our stockholders.
Common
stock offered by selling stockholder
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Up
to 17,878,990 shares, consisting of the following:
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· 16,929,640
shares of common stock;
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· 949,350
shares issuable upon the exercise of common stock
warrants;
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Use
of proceeds
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We
will not receive any proceeds from the sale of the common
stock.
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OTC Pink Sheets
Symbol
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AVMC
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This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of our
stock could go down. This means you could lose all or a part of your
investment.
Risks
Related to Our Business
All
of AVI Media’s current operations are conducted through aVinci Media, LC, and
since aVinci Media, LC’s inception, it has been spending more than it makes
which has required it to rely upon outside financings to fund
operations. If AVI Media is not able to generate sufficient revenues
to fund its business plans, AVI Media may be required to limit
operations.
aVinci
Media, LC, has operated at a loss since inception and is not currently
generating sufficient revenues to cover the operating expenses of AVI
Media. If our revenues do not begin to grow, or if revenues decline
and our expenses do not decline at a greater rate, we may be unable to generate
positive cash flow. We contemplate raising additional outside capital
within the next 12 months to help fund current growth
plans. If new sources of financing are required, but are insufficient
or unavailable, we will be required to modify our growth and operating plans to
the extent of available funding, which would harm our ability to pursue our
business plans. If we cease or stop operations, our shares could
become valueless. Historically, we have funded our operating,
administrative and development costs through the sale of equity capital or debt
financing. If our plans and/or assumptions change or prove
inaccurate, or we are unable to obtain further financing, or such financing and
other capital resources, in addition to projected cash flow, if any, prove to be
insufficient to fund operations, our continued viability could be at
risk. To the extent that any such financing involves the sale of our
common stock or common stock equivalents, our current stockholders could be
substantially diluted. There is no assurance that we will be
successful in achieving any or all of these objectives over the coming
year.
AVI
Media anticipates its business will become highly seasonal in nature which may
cause its financial results to vary significantly by quarter.
The
photo retail business is very seasonal in nature with a significant proportion
of recurring revenues occurring the fourth quarter of the calendar year,
particularly around the Thanksgiving and Christmas
holidays. Additionally, any disruptions in our operations during
the fourth quarter could greatly impact our annual revenues and have a
significant adverse effect on our relationships with our
customers. Our limited revenue and operating history makes it
difficult for us to assess the impact of seasonal factors on our business or
whether our business is susceptible to cyclical fluctuations in the
economy.
AVI
Media’s technology solutions and business approach are relatively new and if
they are not accepted in the marketplace, its business could be materially and
adversely affected.
Products
created with our technology have only been available in the marketplace since
2005. We have been pursuing a business model that requires retail and
vendor partners to recognize the advantages of our technology to make it
available to end consumers. Having generated limited revenues, there
can be no assurance that our products will receive the widespread market
acceptance necessary to sustain profitable operations. Our operations
may be delayed, halted, or altered for any of the reasons set forth in these
risk factors and other unknown reasons. Such delays or failure would
seriously harm our reputation and future operations. If our products
or our business model are not accepted in the market place, our business could
be materially and adversely affected.
Our
product solution focuses on an aspect of the digital photo industry that we
believe is not being addressed in any meaningful way. We provide a
nearly finished product that takes user images and combines them with stock
images to create context for user images in a themed presentation. We
also offer a unique DVD product that has not been widely sold in the marketplace
in the form we offer. The uniqueness of our product solution results
in our products going to the market with a high level of uncertainty and
risk. As the market for its product technology is new and evolving,
it is difficult to predict the size of the market, the future growth rate, if
any, or the level of premiums the market will pay for our
services. There can be no assurance that the market for our services
will emerge to a profitable level or be sustainable. There can be no
assurance that any increase in marketing and sales efforts will result in a
larger market or increase in market acceptance for our services. If
the market fails to develop, develops more slowly than expected or becomes
saturated with competitors, or if our proposed services do not achieve or
sustain market acceptance, our proposed business, results of operations and
financial condition will continue to be materially and adversely
affected.
Ultimately,
our success will depend upon consumer acceptance of our product delivery model
and our largely pre-configured products. We rely on our retail and
internet vending customers to market our products to end
consumers. While we assist retailers with their marketing programs,
we cannot assure that retailers will continue to market our services or that
their marketing efforts will be successful in attracting and retaining end user
consumers. The failure to attract end user consumers will adversely
affect our business. In addition, if our service does not generate
revenue for the retailer, whether because of failure to market it, we may lose
retailers as customers, which would adversely affect our
revenue.
aVinci
Media, LC has for the past few years depended on a single customer for a
significant portion of its revenue. If we are unable to replace that
customer and add additional customers it could materially harm our operating
results, business, and financial condition.
During
2004, 2005, 2006, and 2007, over 90% of aVinci Media LC’s revenue was derived
from a single customer, BigPlanet. The contract with BigPlanet
expired on December 31, 2007. aVinci Media LC continues to provide
our technology to BigPlanet on a monthly basis resulting in less than $2,000 a
month in royalties. We added several additional customer contracts during 2007,
but they are currently generating less revenue per month than BigPlanet
generated per month over the last few years. If in the event we are
unable to replace the revenue generated from BigPlanet and increase revenue from
current customers, our operations and financial results will significantly
suffer, jeopardizing long-term operations. We may not succeed in
generating additional revenues, and may be faced with intense price competition,
both of which may affect our gross margins and could significantly impact
ongoing operations.
AVI
Media needs to develop and introduce new and enhanced products in a timely
manner to remain competitive.
The
markets in which we operate are characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions and relatively
short product lives. The pursuit of necessary technological advances
and the development of new products require substantial time and
expense. To compete successfully in the markets in which we operate,
we must develop and sell new or enhanced products that provide increasingly
higher levels of performance and reliability. For example, our
business involves new digital audio and video formats, such as DVD-Video and
DVD-Audio, and, more recently, the new recordable DVD formats including DVD-RAM,
DVD-R/RW, and DVD+RW.
Currently,
there is extensive activity in our industry targeting the introduction of new,
high definition formats including Blue Ray®. To the extent that
competing new formats remain incompatible, consumer adoption may be delayed and
we may be required to expend additional resources to support multiple
formats. We expend significant time and effort to develop new
products in compliance with these new formats. To the extent there is
a delay in the implementation or adoption of these formats, our business,
financial condition and results of operations could be adversely
affected. As new industry standards, technologies and formats are
introduced, there may be limited sources for the intellectual property rights
and background technologies necessary for implementation, and the initial prices
that we may negotiate in an effort to bring our products to market may prove to
be higher than those ultimately offered to other licensees, putting us at a
competitive disadvantage. Additionally, if these formats prove to be
unsuccessful or are not accepted for any reason, there will be limited demand
for our products. We cannot assure you that the products it is
currently developing or intend to develop will achieve feasibility or that even
if it is successful, the developed product will be accepted by the
market. We may not be able to recover these costs of existing and
future product development and our failure to do so may materially and adversely
impact its business, financial condition and results of
operations.
If
AVI Media is unable to respond to customer technological demands and improve its
products, its business could be materially and adversely affected.
To
remain competitive, we must continue to enhance and improve the responsiveness,
functionality and features of our solutions and products. The photo
industry is characterized by rapid technological change, changes in user and
customer requirements and preferences and frequent new product and service
introductions. Our success will depend, in part, on our ability to
license leading technologies useful in our business, enhance existing software
offerings, develop new product offerings and technology that address the varied
needs of our existing and prospective customers and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. There can be no assurance that we will successfully
implement new technologies or adapt our solutions, products, proprietary
technology and transaction-processing systems to customer requirements or
emerging industry standards. If we are unable to adapt in a timely
manner in response to changing market conditions or customer requirements for
technical, legal, financial or other reasons, our business could be materially
adversely affected.
AVI
Media expects to experience rapid growth. If it is unable to manage
its growing operations effective, AVI Media’s business could be negatively
impacted.
Expected
rapid growth in all areas of our business may place a significant strain on our
operational, human, and technical resources. We expect that operating
expenses and staffing levels will increase in the future to keep pace with our
customer demands and requirements. To manage our growth, we must
expand our operational and technical capabilities and manage our employee base,
while effectively administering multiple relationships with various third
parties, including business partners and affiliates. We cannot assure
that we will be able to effectively manage our growth. The failure to
effectively manage our growth could result in an inability to meet customer
demands, leading to customer dissatisfaction and loss. Loss of
customers could negatively impact our operating results.
AVI
Media competes with others who provide products comparable to its
products. If AVI Media is unable to compete with current and future
competitors, its business could be materially and adversely
affected.
The
digital photography products and services industries are intensely competitive,
and we expect competition to increase in the future as current competitors
improve their offerings, new participants enter the market or industry
consolidation further develops. Digital
image services are provided by a wide range of companies. Our
competitors consist of professional videographers on the high-cost end and
slideshow software programs on the low-cost end, with varying software tools in
the middle. Software providers who supply consumer tools or solutions
for consumers to make their own DVD productions include Adobe, Microsoft, Ulead,
PhotoShow, Roxio, among others. Specific competitors in the market
for the provision of personalized photo products include MediaClip, Muvee,
Animoto, Slide, Roxio PhotoShow, and One True Media. Internet portals
and search engines such as Yahoo!, AOL and Google also offer digital photography
solutions, and home printing solutions offered by Hewlett Packard, Lexmark,
Epson, Canon and others. .
Competition
may result in pricing pressures, reduced profit margins or loss of market share,
any of which could substantially harm our business and results of
operations. Our success is dependent upon our ability to maintain our
current customers and obtain additional customers. Most of our
competitors have longer operating histories, significantly greater financial,
technical and marketing resources, greater name and product recognition, and
larger existing customer bases. Although we have been able to enter
into relationships with many potential competitors, we cannot provide any
assurance our relationships will continue or that these potential competitors
will not pursue their own product solutions that we currently provide to
them. With large and varied competitors and potential competitors in
the marketplace, we cannot be certain that we will be able to compete
successfully against current and future competitors. If we are unable
to do so, it will have a material adverse effect on our business, results of
operations and financial condition.
AVI
Media relies on its ability to download software and fulfill orders for its
customers. If AVI Media is unable to maintain reliability of its
network solution it may lose both present and potential customers.
Our
ability to attract and retain customers depends on the performance, reliability
and availability of our services and fulfillment network
infrastructure. We may experience periodic service interruptions
caused by temporary problems in our own systems or software or in the systems or
software of third parties upon whom we rely to provide such
service. Fire, floods, earthquakes, power loss, telecommunications
failures, break-ins and similar events could damage these systems and interrupt
our services. Computer viruses, electronic break-ins or other similar
disruptive events also could disrupt our services. System disruptions
could result in the unavailability or slower response times of the websites we
host for our customers, which would lower the quality of the consumers’
experiences. Service disruptions could adversely affect our revenues
and, if the service disruptions were prolonged, would seriously harm our
business and reputation. We do not carry business interruption
insurance to compensate for losses that may occur as a result of these
interruptions. Our customers depend on Internet service providers and
other website operators for access to our systems. These entities
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our
systems. Moreover, the Internet network infrastructure may not be
able to support continued growth. Any of these problems could
adversely affect our business.
The
infrastructure relating to our services are vulnerable to unauthorized access,
physical or electronic computer break-ins, computer viruses and other disruptive
problems. Internet service providers have experienced, and may
continue to experience, interruptions in service as a result of the accidental
or intentional actions of Internet users, current and former employees and
others. Anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our
operations. Security breaches relating to our activities or the
activities of third-party contractors that involve the storage and transmission
of proprietary information could damage our reputation and relationships with
our customers and strategic partners. We could be liable to our
customers for the damages caused by such breaches or we could incur substantial
costs as a result of defending claims for those damages. We may need
to expend significant capital and other resources to protect against such
security breaches or to address problems caused by such
breaches. Security measures we take, however, may not prevent
disruptions or security breaches.
AVI
Media relies on third parties for the development and maintenance of photo
kiosks and backend Internet connections to reach its customers and such
dependence on third parties may impair its ability to generate
revenues.
Our
business relies on the use of third party photo kiosks and Internet systems and
connections as a convenient means of consumer interaction and
commerce. The success of our business will depend on the ability of
our customers to use such third party photo kiosks and Internet systems and
connections without significant delays or aggravation. As such, we
rely on third parties to develop and maintain reliable photo kiosks and to
provide Internet connections having the necessary speed, data capacity and
security, as well as the timely development of complementary products such as
high-speed modems, to ensure our customers have reliable access to our
services. The failure of our customer photo kiosk providers and the
Internet to achieve these goals may reduce our ability to generate significant
revenue.
Our
penetration of a broader consumer market will depend, in part, on continued
proliferation of high speed Internet access for customers using kiosk and
vendors providing its software and products via the Internet. The
Internet has experienced, and is likely to continue to experience, significant
growth in the number of users and amount of traffic. As the Internet
continues to experience increased numbers of users, increased frequency of use
and increased bandwidth requirements, the Internet infrastructure may be unable
to support the demands placed on it. In addition, increased users or
bandwidth requirements may harm the performance of the Internet. The
Internet has experienced a variety of outages and other delays and it could face
outages and delays in the future. These outages and delays could
reduce the level of Internet usage as well as the level of traffic, and could
result in the Internet becoming an inconvenient or uneconomical source of
products and services, which would cause our revenue to decrease. The
infrastructure and complementary products or services necessary to make the
Internet a viable commercial marketplace for the long term may not be developed
successfully or in a timely manner.
AVI
Media has relied upon its ability to produce products with its proprietary
technology to establish customer relationships. If AVI Media is
unable to protect and enforce its intellectual property rights, AVI Media may
suffer a loss of business.
Our
success and ability to compete depends, to a large degree, on our current
technology and, in the future, technology that we might develop or license from
third parties. To protect our technology, we have used the following:
confidentiality agreements, retention and safekeeping of source codes, and
duplication of such for backup. Despite these precautions, it may be
possible for unauthorized third parties to copy or otherwise obtain and use our
technology or proprietary information. In addition, effective
proprietary information protection may be unavailable or limited in certain
foreign countries. Litigation may be necessary in the future to:
enforce our intellectual property rights, protect our trade secrets, or
determine the validity and scope of the proprietary rights of
others. Such misappropriation or litigation could result in
substantial costs and diversion of resources and the potential loss of
intellectual property rights, which could impair our financial and business
condition. Although currently we are not engaged in any form of
litigation proceedings in respect to the foregoing, in the future, we may
receive notice of claims of infringement of other parties' proprietary
rights. Such claims may involve internally developed technology or
technology and enhancements that we may license from third
parties. Moreover, although we sometimes may be indemnified by third
parties against such claims related to technology that we have licensed, such
infringements against the proprietary rights of others and indemnity there from
may be limited, unavailable, or, where the third party lacks sufficient assets
or insurance, ineffectual. Any such claims could require us to spend
time and money defending against them, and, if they were decided against us,
could cause serious injury to our business operations.
The
future success of AVI Media’s business depends on continued consumer adoption of
digital photography.
Our
growth is highly dependent upon the continued adoption by consumers of digital
photography. The digital photography market is rapidly evolving,
characterized by changing technologies, intense price competition, additional
competitors, evolving industry standards, frequent new service announcements and
changing consumer demands and behaviors. To the extent that consumer
adoption of digital photography does not continue to grow as expected, our
revenue growth would likely suffer. Moreover, we face significant
risks that, if the market for digital photography evolves in ways that we are
not able to address due to changing technologies or consumer behaviors, pricing
pressures, or otherwise, our
current products and services may become unattractive, which would likely
result in the loss of customers and a decline in net revenues and/or increased
expenses.
Other
companies’ intellectual property rights may interfere with AVI Media’s current
or future product development and sales.
We
have not conducted routine comprehensive patent search relating to our business
models or the technology we use in our products or services. There
may be issued or pending patents owned by third parties that relate to our
business models, products or services. If so, we could incur
substantial costs defending against patent infringement claims or it could even
be blocked from engaging in certain business endeavors or selling our products
or services. Other companies may succeed in obtaining valid patents
covering one or more of our business models or key techniques we utilize in its
products or services. If so, AVI Media may be forced to obtain
required licenses or implement alternative non-infringing
approaches. Our products are designed to adhere to industry
standards, such as DVD-ROM, DVD-Video, DVD-Audio and MPEG video. A
number of companies and organizations hold various patents that claim to cover
various aspects of DVD, MPEG and other relevant technology. We have
entered into license agreements with certain companies and organizations
relative to some of these technologies. Such license agreements may
not be sufficient in the future to grant us all of the intellectual property
rights necessary to market and sell our products.
AVI
Media’s products rely upon the use of copyrighted materials that it licenses and
its inability to obtain needed licenses, remain compliant with existing license
agreements, or effectively account for and pay royalties to third parties could
substantially limit product development and deployment.
Our
products incorporate copyrighted materials in the form of pictures, video,
audio, music, and fonts. We actively monitors the use of all
copyrighted materials and pays up-front and usage royalties as it fulfills
customer orders for products. If we were unable to maintain
appropriate licenses for copyrighted works, we would be required to limit our
product offerings, which would negatively impact our revenues. We
also seek to license popular works to build into our products and the photo
merchandizing market is extremely competitive. In the event we are
unable to license works because our technology is not competitive or we have
inadequate capital to pay royalties, we may not be able to effectively compete
for photo-product production business which would seriously impart our ability
to sell products.
AVI
Media could be liable to some of its customers for damages that they incur in
connection with intellectual property claims.
We have
exposure to potential liability arising from infringement of third-party
intellectual property rights in our license agreements with
customers. If we are required to pay damages to or incur liability on
behalf of our customers, our business could be harmed. Moreover, even
if a particular claim falls outside of our indemnity or warranty obligations to
our customers, our customers may be entitled to additional contractual remedies
against us, which could harm our business. Furthermore, even if we
are not liable to our customers, our customers may attempt to pass on to us the
cost of any license fees or damages owed to third parties by reducing the
amounts they pay for our products. These price reductions could harm
our business.
Legislation
regarding copyright protection or content interdiction could impose complex and
costly constraints on AVI Media’s business model.
Because
of our
focus on automation and high volumes, our operations do not involve, for
the vast majority of our sales, any human-based review of
content. Although use of our software technology terms of use
specifically require customers to represent that they have the right and
authority to reproduce the content they provide and that the content is in full
compliance with all relevant laws and regulations, we do not have the ability to
determine the accuracy of these representations on a case-by-case
basis. There is a risk that a customer may supply an image or other
content that is the property of another party used without permission, that
infringes the copyright or trademark of another party, or that would be
considered to be defamatory, pornographic, hateful, racist, scandalous, obscene
or otherwise offensive, objectionable or illegal under the laws or court
decisions of the jurisdiction where that customer lives. There is,
therefore, a risk that customers may intentionally or inadvertently order and
receive products using our technology that are in violation of the rights of
another party or a law or regulation of a particular jurisdiction. If
we should become legally obligated in the future to perform manual screening and
review for all orders destined for a jurisdiction, we will encounter increased
production costs or may cease accepting orders for shipment to that jurisdiction
which could substantially harm our business and results of
operations.
The
loss of any of AVI Media’s executive officers, key personnel, or contractors
would likely have an adverse effect on its business.
Our
greatest resource in developing and launching our products is the labor of our
executive officers, employees and contractors. We are dependent upon
our management, employees, and contractors for meeting our business
objectives. In particular, the original founders and members of the
senior management team play key roles in our business and technical
development. We do not carry key man insurance coverage to mitigate
the financial effect of losing the services of any of these key
individuals. The loss of any of these key individuals most likely
would have an adverse effect on our business.
If
the collocation facility where much of AVI Media’s Internet computer and
communications hardware is located fails, its business and results of operations
would be harmed. If AVI Media’s Internet service to its primary
business office fails, its business relationships could be damaged.
Our
ability to provide our services depends on the uninterrupted operation of our
computer and communications systems. Much of our computer hardware
necessary to operate the Internet service for downloading software and receiving
customer orders is located at a single third party hosting facility in Salt Lake
City, Utah. Our systems and operations could suffer damage or
interruption from human error, fire, flood, power loss, telecommunications
failure, break-ins, terrorist attacks, acts of war and similar
events. We do have some redundant systems in multiple locations, but
if our primary location suffers interruptions our ability to service customers
quickly and efficiently will suffer.
AVI
Media’s technology may contain undetected errors that could result in limited
capacity or an interruption in service.
The
development of our software and products is a complex process that requires the
services of numerous developers. Our technology may contain
undetected errors or design faults that may cause our services to fail and
result in the loss of, or delay in, acceptance of our services. If
the design fault leads to an interruption in the provision of our services or a
reduction in the capacity of our services, we would lose revenue. In
the future, we may encounter scalability limitations that could seriously harm
our business.
AVI
Media may divert its resources to develop new product lines, which may result in
changes to its business plan and fluctuations in its expenditures.
As we
have developed our technology, customers have required us to develop various
means of deploying our products. In order to remain competitive and
work around deployment issues inherent in working with third party kiosk
providers, we are continually developing new deployments and product
lines. We recently developed a new point-of-scan product to provide
customers with an alternative to getting our products from retail kiosks that
are sometimes busy or out of order. The development of new product
types may result in increased expenditures during the development and
implementation phase, which could negatively impact our results of
operations. In addition, we are a small company with limited
resources and diverting these resources to the development of new product lines
may result in reduced customer service turn around times and delays in deploying
new customers. These delays could adversely affect our business and
results of operations.
AVI
Media may undertake acquisitions to expand its business, which may pose risks to
its business and dilute the ownership of existing stockholders.
The
digital photo industry is undergoing significant changes. As we
pursue our business plans, we may pursue acquisitions of businesses,
technologies, or services. We are unable to predict whether or when
any prospective acquisition will be completed. Integrating newly
acquired businesses, technologies or services is likely to be expensive and time
consuming. To finance any acquisitions, it may be necessary to raise
additional funds through public or private financings. Additional
funds may not be available on favorable terms and, in the case of equity
financings, would result in additional dilution to our existing
stockholders. If we do acquire any businesses and if we are unable to
integrate any newly acquired entities, technologies or services effectively, our
business and results of operations may suffer. The time and expense
associated with finding suitable and compatible businesses, technologies, or
services could also disrupt our ongoing business and divert management’s
attention. Future acquisitions could result in large and immediate
write-offs or assumptions of debt and contingent liabilities, any of which could
substantially harm our business and results of operations.
Requirements
under client agreements and AVI Media’s method of delivering products could
cause the deferral of revenue recognition, which could harm its operating
results and adversely impact its ability to forecast recognition
revenue.
Our
agreements with clients provide for various methods of delivering our technology
capability to end consumers and may include service and development requirements
in some instances. As we provide future point-of-scan products that
require future fulfillment of products, we may be required to defer revenue
recognition until the time the consumer submits an order to have a product
fulfilled rather than at the time our point-of-scan product is
sold. In addition, if we are obligated to provide development and
support services to customers, we may be required to defer certain revenues to
future periods which could harm our short-term operating results and adversely
impact our ability to accurately forecast revenue.
AVI
Media’s pricing model may not be accepted and its product prices may decline,
which could harm its operating results.
Under
our
current business model, we charge a royalty on each product produced
using our technology rather than selling software to our
customers. If our customers are offered software products to purchase
that do not require the payment of royalties, our business could
suffer. Additionally the market for photo products is intensely
competitive. It is likely that prices our customers charge end
consumers will decline due to competitive pricing pressures from other software
providers which will likely affect our product royalties and
revenues.
AVI
Media depends on third-party suppliers for media components of some of its
products and any failure by them to deliver these components could limit its
ability to satisfy customer demand.
We
currently source DVD media and other components for use in our products from
various sources. We do not carry significant inventories of these
components and we have no guaranteed supply agreements for them. We
may in the future experience shortages of some product components, which can
have a significant negative impact on our business. Any interruption
in the operations of our vendors of sole components could affect adversely our
ability to meet our scheduled product deliveries to customers. If we
are unable to obtain a sufficient supply of components from current sources, we
could experience difficulties in obtaining alternative sources or in altering
product designs to use alternative components. Resulting delays or
reductions in product shipments could damage customer relationships and expose
us to potential damages that may arise from our inability to supply our
customers with products. Further, a significant increase in the price
of one or more of these components could harm our gross margins and/or operating
results.
AVI
Media relies on sales representatives and retailers to sell its products, and
disruptions to these channels would affect adversely its ability to generate
revenues from the sale of its products.
A
large portion of our projected revenue is derived from sales of products to
end-users via retail channels that it accesses directly and through a third
party network of sales representatives. If our relationship with such
sales representatives is disrupted for any reason, our relationship with our
retail customers could suffer. If our retail customers do not choose
to market our products in their stores, our sales will likely be significantly
impacted and our
revenues would decrease. Any decrease in revenue coming from
these retailers or sales representatives and our inability to find a
satisfactory replacement in a timely manner could affect our operating results
adversely. Moreover, our failure to maintain favorable arrangements
with our sales representative may impact adversely our
business.
Changes
in financial accounting standards or practices may cause adverse unexpected
financial reporting fluctuations and affect AVI Media’s reported results of
operations.
A
change in accounting standards or practices can have a significant effect on our
reported results and may even affect our reporting of transactions completed
before the change is effective. New accounting pronouncements and
varying interpretations of accounting pronouncements have occurred and may occur
in the future. Changes to existing rules or the questioning of
current practices may adversely affect our reported financial results or the way
we
conduct our business.
Government
regulation of the Internet and e-commerce is evolving, and unfavorable changes
or failure by AVI Media to comply with these regulations could substantially
harm its business and results of operations.
We are
subject to general business regulations and laws as well as regulations and laws
specifically governing the Internet and e-commerce. Existing and
future laws and regulations may impede the growth of the Internet or other
online services. These regulations and laws may cover taxation,
restrictions on imports and exports, customs, tariffs, user privacy, data
protection, pricing, content, copyrights, distribution, electronic contracts and
other communications, consumer protection, the provision of online payment
services, broadband residential Internet access and the characteristics and
quality of products and services. It is not clear how existing laws
governing issues such as property ownership, sales and other taxes, libel and
personal privacy apply to the Internet and e-commerce as the vast majority of
these laws were adopted prior to the advent of the Internet and do not
contemplate or address the unique issues raised by the Internet or
e-commerce. Those laws that do reference the Internet are only
beginning to be interpreted by the courts and their applicability and reach are
therefore uncertain. For example, the Digital Millennium Copyright
Act, or DMCA, is intended, in part, to limit the liability of eligible online
service providers for listing or linking to third-party websites that include
materials that infringe copyrights or other rights of others. Portions of the
Communications Decency Act, or CDA, are intended to provide statutory
protections to online service providers who distribute third-party
content. We rely on the protections provided by both the DMCA and CDA
in conducting our
business. Any changes in these laws or judicial
interpretations narrowing their protections will subject us to greater risk of
liability and may increase our costs of compliance with these regulations or
limit our ability to operate certain lines of business. The
Children’s Online Protection Act and the Children’s Online Privacy Protection
Act are intended to restrict the distribution of certain materials deemed
harmful to children and impose additional restrictions on the ability of online
services to collect user information from minors. In addition, the
Protection of Children From Sexual Predators Act of 1998 requires online service
providers to report evidence of violations of federal child pornography laws
under certain circumstances. The costs of compliance with these
regulations may increase in the future as a result of changes in the regulations
or the interpretation of them. Further, any failures on our part to
comply with these regulations may subject us to significant
liabilities. Those current and future laws and regulations or
unfavorable resolution of these issues may substantially harm our business and
results of operations.
AVI
Media’s failure to protect the confidential information of its customers against
security breaches and the risks associated with credit card fraud could damage
its reputation and brand and substantially harm its business and results of
operations.
A
significant prerequisite to online commerce and communications is the secure
transmission of confidential information over public networks. Our
failure to prevent security breaches could damage our reputation and brand and
substantially harm our
business and results of operations for customers using online
services. We rely on encryption and authentication technology
licensed from third parties to effect the secure transmission of confidential
customer information, including credit card numbers, customer mailing addresses
and email addresses. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments may result in a
compromise or breach of the technology used by us to protect customer
transaction data. In addition, any party who is able to illicitly
obtain a user’s password could access the user’s transaction data or personal
information. Any compromise of our security could damage our
reputation and brand and expose us to a risk of loss or litigation and possible
liability, which would substantially harm our business and results of
operations. In addition, anyone who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. We may need to devote significant
resources to protect against security breaches or to address problems caused by
breaches.
Risks
Related to Our Common Stock
Our
authorized capital consists of 250,000,000 shares of common stock and 50,000,000
shares of preferred stock. Our preferred stock may be designated into
series pursuant to authority granted by our articles of incorporation, and on
approval from our Board of Directors. The Board of Directors, without any action
by our stockholders, may designate and issue shares in such classes or series as
the Board of Directors deems appropriate and establish the rights, preferences
and privileges of such shares, including dividends, liquidation and voting
rights. The rights of holders of other classes or series of stock that may be
issued could be superior to the rights of holders of our common shares. The
designation and issuance of shares of capital stock having preferential rights
could adversely affect other rights appurtenant to shares of our common stock.
Furthermore, any issuances of additional stock (common or preferred) will
dilute the percentage of ownership interest of then-current holders of our
capital stock and may dilute our book value per share.
Because
we acquired aVinci Media, LC by means of a reverse merger, we may not be able to
attract the attention of major brokerage firms.
Additional
risks to our investors may exist as a result of the “reverse merger.” Security
analysts of major brokerage firms may not provide us with coverage. In addition,
because of past abuses and fraud concerns stemming primarily from a lack of
public information about new public businesses, there are many people in the
securities industry and business in general who view reverse merger transactions
with public shell companies with suspicion. Without brokerage firm and analyst
coverage, there may be fewer people aware of our company and our business,
resulting in fewer potential buyers of our securities, less liquidity, and
depressed stock prices for our investors.
We
are subject to Sarbanes-Oxley and the reporting requirements of federal
securities laws, which can be expensive.
As a
public reporting company, we are subject to Sarbanes-Oxley and, accordingly, are
subject to the information and reporting requirements of the Securities Exchange
Act of 1934 and other federal securities laws. The costs of compliance with
Sarbanes-Oxley, of preparing and filing annual and quarterly reports, proxy
statements and other information with the SEC, furnishing audited reports to our
stockholders, and other legal, audit and internal resource costs attendant with
being a public reporting company will cause our expenses to be higher than if we
were privately held.
There
is not now, and there may not ever be an active market for shares of our common
stock.
In
general, there has been very little trading activity in shares of our common
stock. The small trading volume will likely make it difficult for our
stockholders to sell their shares as and when they choose. Furthermore, small
trading volumes are generally understood to depress market prices. As a result,
you may not always be able to resell shares of our common stock publicly at the
time and prices that you feel are fair or appropriate.
Because
it is a “penny stock,” you may have difficulty selling shares of our common
stock.
Our
common stock is a “penny stock” and is therefore subject to the requirements of
Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk-disclosure document prepared by the SEC. Under
applicable regulations, our common stock will generally remain a “penny stock”
for such time as our
per-share price is less than $5.00 (as determined in accordance with SEC
regulations), or until we meet certain net asset or revenue thresholds. These
thresholds include (i) the possession of net tangible assets (i.e., total assets
less intangible assets and liabilities) in excess of $2 million in the event we
have been operating for at least three years or $5 million in the event we have
been operating for fewer than three years, and (ii) the recognition of average
revenues equal to at least $6 million for each of the last three years. We do
not anticipate meeting any of the foregoing thresholds in the foreseeable
future.
The
penny-stock rules severely limit the liquidity of securities in the secondary
market, and many brokers choose not to participate in penny-stock transactions
because of the difficulties in effectuating trades in such securities. As a
result, there is generally less trading in penny stocks than in other stock that
are not penny stocks. If you become a holder of our common stock, you may not
always be able to resell shares of our common stock publicly at the time and
prices that you feel are fair or appropriate.
We
do not intend to pay dividends on our common stock for the foreseeable
future.
In
conjunction with the Merger, we paid a dividend to our stockholders of record
prior to the Merger. We do not anticipate that we will pay any
dividends for the foreseeable future. Accordingly, any return on an investment
in our company will be realized, if at all, only when a stockholder sells his or
her shares of our common stock. Stockholders who received their
shares in exchange for aVinci Media, LC ownership interests, own
restricted shares that can be sold only if an exemption is
available. Because we were a “shell” company, exemptions under Rule
144 will not be available for use by stockholders holding restricted securities
until June 7, 2009.
Our
stock price has been volatile in response to market and other
factors.
The
market price for our common stock has been, and the market price for the our
stock after the Merger may continue to be, volatile and subject to price and
volume fluctuations in response to market and other factors, including the
following, some of which are beyond our control:
·
|
variations
in quarterly operating results from the expectations of securities
analysts or investors;
|
·
|
announcements
of technological innovations or new products or services
by us or
our competitors;
|
·
|
general
technological, market or economic
trends;
|
·
|
investor
perception of the industry our
prospects;
|
·
|
investors
entering into short sale contracts;
|
·
|
regulatory
developments; and
|
·
|
additions
or departures of key personnel.
|
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
We and
our representatives may from time to time make written or oral statements that
are “forward-looking,” including statements contained in this prospectus and
other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements. In addition,
other written or oral statements which constitute forward-looking statements may
be made by us or on our behalf. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,”
“may,” “should,” variations of such words and similar expressions are intended
to identify forward-looking statements. Such
forward-looking statements are subject to a number of risks, assumptions and
uncertainties that could cause our company's actual results to
differ materially from those projected in such forward-looking statements. We
discuss many of these risks, uncertainties and other factors in this prospectus
in greater detail in the section of this prospectus entitled “Risk Factors”.
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.
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholder. We will not receive any proceeds
from the sale of shares of common stock in this offering. However, we will
receive the sale price of any common stock we sell to the selling stockholder
upon exercise of the warrants owned by the selling stockholder. We expect the
proceeds, if any, received from the exercise of the warrants and the options to
be used for general working capital purposes.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock has traded over-the-counter on the OTC Pink Sheets under the symbol
“SAHC.PK” since June 19, 2007. From March 26, 2003 to June 18, 2007,
our common stock traded over-the-counter on the OTC Pink Sheets under the symbol
“ATMS”. From February 1998 to March 25, 2003, our common stock traded
on the NASDAQ stock market under the symbol “ATMS”. As of June 9,
2008, our post-merger, post reverse split trading symbol on the OTC Pink Sheets
is “AVMC.PK”. The following table sets forth the quarterly high and
low bid information for our common stock for the two-year period ended September
30, 2007 and through July 28, 2008:
|
|
High
Bid
|
|
|
Low
Bid
|
|
Fiscal
Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter
|
|
$ |
.82 |
|
|
$ |
.44 |
|
Second
Fiscal Quarter
|
|
|
.78 |
|
|
|
.46 |
|
Third
Fiscal Quarter
|
|
|
.70 |
|
|
|
.52 |
|
Fourth
Fiscal Quarter
|
|
|
.84 |
|
|
|
.62 |
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter
|
|
$ |
1.00 |
|
|
$ |
.70 |
|
Second
Fiscal Quarter
|
|
|
1.38 |
|
|
|
.92 |
|
Third
Fiscal Quarter
|
|
|
2.00 |
|
|
|
1.24 |
|
Fourth
Fiscal Quarter
|
|
|
1.80 |
|
|
|
1.40 |
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter
|
|
$ |
1.74 |
|
|
$ |
1.20 |
|
Second
Fiscal Quarter
|
|
|
1.36 |
|
|
|
1.06 |
|
Third
Fiscal Quarter
|
|
|
2.25 |
|
|
|
.60 |
|
Fourth
Fiscal Quarter (through September 17, 2008)
|
|
|
1.34 |
|
|
|
.81 |
|
Holders
As of
September 17, 2008 there were 48,737,928 shares of common stock outstanding and
approximately 1,032 stockholders of record.
Transfer
Agent and Registrar
Our
transfer agent is Computershare, 350 Indiana Street, Suite 800, Golden, CO
80401; telephone (303) 262-0600.
Dividend
Policy
Except
for the $2,000,000 Dividend that we have paid to our stockholders of record as
of April 16, 2008, we have not paid any cash dividends on our common stock to
date and do not anticipate we will pay dividends in the foreseeable future. The
payment of dividends in the future will be contingent upon revenues and
earnings, if any, capital requirements, and our general financial condition. The
payment of any dividends will be within the discretion of the then Board of
Directors. It is the present intention of the Board of Directors to retain all
earnings, if any, for use in the business operations. Accordingly, the Board
does not anticipate declaring any dividends in the foreseeable
future.
Warrants,
Options and Convertible Debt
There are no outstanding options or
warrants that would entitle any person to purchase our preferred
stock. Currently, there are outstanding options and warrants to
purchase shares of our common stock. Information about outstanding options and
warrants is as follows:
Holder
|
|
Shares
Underlying Option/Warrant (1)
|
|
|
Exercise
Price (1)
|
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerrell
G. Clay
|
|
|
475,000 |
|
|
|
|
$ |
1.24 |
|
|
March
21, 2017
|
|
Stephen
P. Griggs
|
|
|
475,000 |
|
|
|
|
$ |
1.24 |
|
|
March
21, 2017
|
|
Chett
B. Paulsen
|
|
|
870,963 |
|
(2 |
) |
|
$ |
0.71 |
|
|
December
31, 2012
|
|
Richard
B. Paulsen
|
|
|
870,963 |
|
(2 |
) |
|
$ |
0.71 |
|
|
December
31, 2012
|
|
Edward
B. Paulsen
|
|
|
609,674 |
|
(2 |
) |
|
$ |
0.71 |
|
|
December
31, 2012
|
|
Amerivon
Investments LLC.
|
|
|
2,909,016 |
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Terry
Dickerson
|
|
|
705,479 |
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Other
Employees
|
|
|
423,941 |
|
(5 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
(1)
|
The
share amounts and exercise prices reflect the 1-for-2 reverse split
associated with the Merger.
|
(2)
|
Non-vested
options priced at $0.71.
|
(3)
|
Includes
949,350 shares of common stock underlying currently exercisable warrants
priced at $0.53, 653,222 shares of common stock underlying currently
exercisable options priced at $0.18, 653,222 non-vested options priced at
$0.18 and subject to sales performance in 2008, and 653,222 options priced
at $0.71 and subject to sales performance vesting in
2009.
|
(4)
|
Includes
351,651 currently vested options priced at $0.27, 92,540 non-vested
options priced at $0.27, and 261,289 non-vested options priced at
$0.71.
|
(5)
|
Includes
options held by employees that are exercisable at prices ranging from $.41
to $0.71 and which expire at various times from September 10, 2011 to
December 31, 2012.
|
Some
of the information in this filing contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as “may,” “will,” “expect,” “anticipate,”
“believe,” “estimate” and “continue,” or similar words. You should read
statements that contain these words carefully because they:
·
|
discuss
our future expectations;
|
·
|
contain
projections of our future results of operations or of our financial
condition; and
|
·
|
state
other “forward-looking”
information.
|
We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under “Risk Factors,”
“Business” and elsewhere in this prospectus.
Overview
Through our subsidiary, aVinci
Media, LC, we deploy a software technology that employs “Automated Multimedia
Object Models,” its patent-pending way of turning consumer captured images,
video, and audio into complete digital files in the form of full-motion movies,
DVD’s, photo books, posters and streaming media files. We make
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. Under our
business model, our customers are retailers and other vendors. We
enable our customers to sell our products to the end consumer who remain
customers of the vendor. Only a small percentage of our business will
be generated from the ultimate consumer. Through 2007, aVinci Media,
LC generated revenues through the sales of DVD products created using its
technology. During 2008, aVinci Media, LC intends to deploy its technology to
create photo books and posters.
We
will continue to utilize the current revenue model of entering into licensing
agreements and receiving a royalty for each product made using our
technology. Our revenue model generally includes a per product
royalty. With all product deployments, except with respect to our retail kit
product, we receive a royalty from our retailer customer each time an end
customer makes a product utilizing our technology. From the royalties
received, we pay the royalties associated with licensed media and technology. If
we are performing product fulfillment, we also pays the costs of goods
associated with the production of the product. If our customer utilizes in-store
fulfillment, its end consumer pays the cost of goods associated with
production.
aVinci Media, LC 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 Media, LC determined to use the
percentage-of-completion method of accounting to record the revenue for the
entire contract. aVinci Media, LC 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. The BigPlanet agreement expired on its terms at the end of
2007. During the last months of the agreement term, BigPlanet
reassessed and repositioned its photo offering and determined it would not
actively pursue photo archiving which generated the sale of DVD movies as an
ancillary product offering using the our technology. Accordingly the
agreement was not renewed based upon BigPlanet’s business
strategy. Revenues from BigPlanet now generate less than $2,000 per
month.
During 2006, aVinci Media, LC 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 Media, LC signed an
agreement with Fujicolor to deploy its technology on Fujicolor kiosks located in
domestic Wal-Mart stores. aVinci Media, LC has begun generating limited revenues
through Wal-Mart and anticipates generating additional revenues through its
Wal-Mart deployment during 2008.
Future
Model
We plan to continue with a strategy
of focusing on mass retailers to offer our products on kiosks, online and
through software take-home kits. We believe we can capitalize on
consumers trending away from traditional print output for images by offering DVD
photo archiving, DVD photo movies, photobook and poster print
products. We have been approached by several potential technology and
retail partners regarding making our software available on third-party hardware
to allow for in-store DVD burning. Negotiations are ongoing with several
additional large retailers to provide our product through an in-store DVD
burning model in addition to its current deployment platforms of kiosk, online
and retail software kit. We can provide no assurances that our current
negotiations will result in any agreements.
We currently manufacture DVDs for
certain customers in our Draper, Utah facility and use services of local
third-party vendors to produce print DVD covers and inserts and to assemble and
ship final products. Through a services agreement, we began using Qualex Inc. to
manufacture DVD and print product orders for certain customers. Qualex Inc. has
deployed equipment in Allentown, Pennsylvania and Houston, Texas to manufacture
product orders.
Basis
of Presentation
Net Revenues.
We currently generate revenues from licensing the rights to customers to
use our 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 we produce and ship. Customers then pay royalties
to on orders produced. Our 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,
we produce DVDs for the end customer. For other agreements, we provide blank DVD
materials and the customer produces DVDs for the end customer. For other
contracts, we do not provide any materials and our 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 these 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, we 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.
In the
past, we also generated revenue from a licensing agreement with
BigPlanet. Under the BigPlanet Agreement, a minimum guaranteed
royalty of $1 million per year was required. The BigPlanet agreement
expired on its terms at the end of 2007. During the last months of
the agreement term, BigPlanet reassessed and repositioned its photo offering and
determined it would not actively pursue photo archiving which generated the sale
of DVD movies as an ancillary product offering.
As we expand our product offerings
through additional customers, we believe our business and revenues will be
subject to seasonal fluctuations prevalent in the photo industry. A substantial
portion of our revenues (estimated at between 20-40%) will likely occur during
the holiday season in the fourth quarter of the calendar year. we expect to
experience lower net revenues during the first, second and third quarters than
we experiences in the fourth quarter. This trend follows the typical photo and
retail industry patterns.
We have 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 we expand our product
offerings, we expect to increase the average order size in terms of products
ordered and revenue generated per order.
Total Number of
Orders. For each customer, we monitor the total number of orders for a
given period, which provides an indicator of revenue trends for such customer.
Orders are typically processed and shipped within three business days after a
customer order is received.
We believe the analysis of these
metrics provides us with important information on our 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.
Our cost of revenues consist 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.
We capitalize 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. We anticipate that each of
the following categories of operating expenses will increase in absolute dollar
amounts.
Research and development expense
consists of personnel and related costs for employees and contractors engaged in
the development and ongoing maintenance of our 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
our 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. we also anticipate 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
capital lease obligations and for borrowed money.
Income
Taxes. Prior to the Merger, aVinci Media, LC had been a limited liability
company and not subject to entity taxation. Going forward, aVinci Media, LC
anticipates making provision for income taxes depending on the statutory rate in
the countries where it sells its products. Historically, aVinci Media, LC has
only been subject to taxation in the United States. If aVinci Media, LC
continues to sell its products to customers located within the United States,
aVinci Media, LC anticipates that its long-term future effective tax rate will
be between 38% and 45%, without taking into account the use of any of the net
operating loss carry forwards. However, we anticipate that in the future we may
further expand our 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. Our 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, we account
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 our limited sales history, we do not have
VSOE for the different components that may be included in sales
contracts.
We record 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
in advance of revenues earned. Revenue earned but not billed is classified as
unbilled accounts receivable in the balance sheet. We bill customers as payments
become due under the terms of the customer’s contract. We consider current
information and events regarding our customers and their contracts and establish
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. We account 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 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
|
|
Another critical input in the
Black-Scholes option pricing model is the current value of the common stock
underlying the stock options. We use the current trading price as
quoted on the OTC Pink Sheets to determine the value of our common
stock. Prior to becoming a public company, aVinci Media, LC used cash
sales of common and preferred units, conversions of debt instruments into common
units, and the exchange ratio that was estimated to be used in the reverse
merger transaction to determine the value of its common units.
Comparison
of the Six Months Ended June 30, 2008 and 2007
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.
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
229%
|
|
|
|
9%
|
|
Research
and development
|
|
|
522%
|
|
|
|
318%
|
|
Selling
and marketing
|
|
|
510%
|
|
|
|
205%
|
|
General
and administrative
|
|
|
1,301%
|
|
|
|
529%
|
|
Depreciation
and amortization
|
|
|
60%
|
|
|
|
33%
|
|
Total
operating expense
|
|
|
2,622%
|
|
|
|
1,094%
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,522%
|
)
|
|
|
(994%
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
14%
|
|
|
|
5%
|
|
Interest
expense
|
|
|
(67%
|
)
|
|
|
(267%
|
)
|
Total
other income (expense)
|
|
|
(53%
|
)
|
|
|
(262%
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,575%
|
)
|
|
|
(1,256%
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(514%
|
)
|
|
|
(76%
|
)
|
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable convertible preferred units
|
|
|
(119%
|
)
|
|
|
(17%
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
|
(3,208%
|
)
|
|
|
(1,349%
|
)
|
Revenues.
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 the agreement with BigPlanet on December 31,
2007.
Three customers accounted for a
total of 83 percent of our 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 our total revenues for the six
months ended June 30, 2008 or the same period in 2007.
Operating
Expenses.
Cost of Goods
Sold. Our cost of goods sold increased $410,679 to $433,633 for the six
months ended June 30, 2008, compared to $22,954 for the same period in 2007. The
increase in cost of goods sold is due to the change in the type of work being
performed in 2008 versus 2007. In 2007, aVinci Media, LC supplied software
technology to build DVD movies for a single customer – BigPlanet. In 2008,
aVinci Media, LC 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 customer that purchased fulfillment equipment. (Both the revenue and costs
associated with this contract are being recognized over the life of the
contract.) For the six months ended June 30, 2008 cost of goods sold includes
$359,105 in costs associated with fulfillment; and $74,528 for the cost of
hardware.
Research
and Development. Our research and development expense increased $192,644,
or 24% to $990,530 for the six months ended June 30, 2008, compared to $797,886,
for the same period in 2007. The increase in research and development expenses
for the six month period is due to an increase in personnel and related costs of
approximately $230,000 for new employees involved with both the technology
development for deployments and the ongoing maintenance of our products in
Wal-Mart on kiosks, with various retailers online and with various retailers in
the form of hard good kits.
Selling and
Marketing. Our selling and marketing expense increased $452,802, or 88%
to $966,796 for the six months ended June 30, 2008 compared to $513,994, for the
same period in 2007. The increases in selling and marketing expense for the six
months ended June 30, 2008, are due to additional personnel and the related
costs for new employees which increased approximately $279,000; and the costs
for consultants involved with increased marketing efforts directed at mass
retailers, which increased approximately $106,000.
General and
Administrative. Our general and administrative expense increased
$1,140,537, or 86% to $2,468,896 for the six months ended June 30, 2008,
compared to $1,328,359, for the same period in 2007. The increase for the six
months ended June 30, 2008 is due to a 725,000 increase in consulting
and outside services as a result of the consulting agreement with Amerivon
Holdings LLC (see “Related Party Transactions” below, for more information on
this consulting agreement). The increase for the six months ended June 30, 2008
is also attributable to fees incurred as a result of the reverse merger
transaction including legal and accounting fees of approximately $185,000; and
directors and officers’ liability insurance of approximately
$120,000.
Interest
Expense. Our interest expense decreased $545,054 or 81% to $126,112 for
the six months ended June 30, 2008, compared to $671,166 for the same period in
2007. The decrease is due to the conversion of convertible debt into equity in
May 2007. To fund operations, aVinci Media LC undertook in the first quarter of
2006 a large private offering consisting of 12-month convertible debt, bearing
interest at 10%. The offering was taken in its entirety by Amerivon
Investments, LLC, who invested a total of $830,000. In August of 2006, Amerivon
Investments, LLC invested an additional $1,560,000 in a convertible debt
offering, bearing interest at 9%.
In
December 2006, aVinci Media LC entered into various short-term loans from its
members totaling $285,783 to fund operations until the funding transaction with
Amerivon Investments, LLC 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 six months ended June 30, 2008 and 2007, no provisions
for income taxes were required. We accrue income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Prior to June 6, 2008, aVinci Media LC was a
flow-through entity for income tax purposes and did not incur income tax
liabilities.
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, we paid $113,028 in federal income taxes for our September 30, 2007
federal income tax return filed in the name of Secure Alliance Holdings
Corporation. Also in June 2008, we paid $85,434 towards estimated Texas
Franchise Tax in the name of Secure Alliance Holdings Corporation. Both of these
items were accrued for at the time of the merger transaction.
Preferred
Dividends and Deemed Dividends. We recorded a preferred dividend of
$976,000 for the six months ended June 30, 2008, to reflect the conversion of
Series B preferred units to common units immediately prior to the closing of the
Merger with aVinci Media LC. 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.
We recorded a deemed dividend of $190,000 for the 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 $183,842, or 438% to $225,773 for the six months ended June 30,
2008, compared to $41,931 for the same period in 2007. The increase is due to
the distribution accrual beginning in May 2007, and ending (due to the reverse
merger) in June 2008.
Balance
Sheet Items
The
following were changes in our balance sheet accounts. Many of the
changes were as a result of the Merger. See Note 2 of Notes to
Condensed Consolidated Financial Statements for more information on the
Merger.
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 due to the cash received in connection with the
reverse merger.
Marketable Securities-Available-for
Sale. We own 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 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.
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. The amount has been reclassified
to an intercompany account which has been eliminated in
consolidation.
Equity Accounts. As a result
of the reverse merger, the Series A and B convertible preferred units and Common
Units were exchanged for common stock
Comparison
of the Years Ended December 31, 2007 and 2006
Revenues.
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
Revenues
|
|
$ |
541,856 |
|
|
$ |
739,200 |
|
|
|
(27 |
%) |
More
than 90% of all revenues generated in 2007 and 100% in 2006 came from the
agreement with BigPlanet. Under the terms of the agreement, BigPlanet
was obligated to pay aVinci Media LC $1 million in annual minimum guaranteed
royalties, payable in 12 equal monthly installments of
$83,333.33. Big Planet timely paid each monthly installment during
each of the 24 months through 2005 and 2006. The BigPlanet agreement
included software development, software license, post-contract support and
training. Because the contract included the delivery of a software
license, aVinci Media LC 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, aVinci Media LC
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, aVinci Media LC determined to use the
percentage-of-completion method of accounting to record the revenue for the
entire contract. aVinci Media LC 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. aVinci Media LC 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 AVI Media in advance
of revenues earned. The unbilled accounts receivable represents
revenue that has been earned but which has not yet been
billed. aVinci Media LC 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.
As a
result of the use of the stated accounting methods, revenue recognition
recognized income in years other that the year cash was received. The
cash received under the BigPlanet agreement was the same in 2007 and 2006, or $1
million each year. As a result of applying the
percentage-of-completion method, revenue decreased from $739,200 in 2006 to
$541,856 in 2007, a 27% drop. The change in revenue recognition in
2007 from 2006 reflects the relationship between the percentage of total
operating expenses directly associated with the BigPlanet agreement and those
related to other activities during each respective year of the
agreement. During 2006 a much greater percentage of aVinci Media LC’s
resources were dedicated to the BigPlanet agreement than during 2007 because of
the pursuit of and work on additional customer accounts. The
BigPlanet agreement expired on December 31, 2007.
Under
the original BigPlanet agreement, aVinci Media LC provided technology to
BigPlanet for it to use to market and sell customer
products. Accordingly, aVinci Media LC did not have material costs of
goods sold associated with the BigPlanet revenues.
Operating
Expenses.
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
Research
and Development
|
|
$ |
1,890,852 |
|
|
$ |
1,067,687 |
|
|
|
77 |
% |
Selling
and Marketing
|
|
|
1,351,860 |
|
|
|
547,448 |
|
|
|
147 |
% |
General
and Administrative
|
|
|
3,677,326 |
|
|
|
1,755,127 |
|
|
|
110 |
% |
Depreciation
and Amortization
|
|
|
277,458 |
|
|
|
103,160 |
|
|
|
169 |
% |
Interest
Expense
|
|
|
693,217 |
|
|
|
806,439 |
|
|
|
(14 |
%) |
Research
and development expense increased $823,165, or 77%, from 2006 to
2007. The increase is attributable to additional personnel and
related costs for new employees and consultants involved with technology
development for deployments and ongoing maintenance of our products in Wal-Mart
on kiosks, with various retailers online and with various retailers in the form
of hard good kits. In August 2007, a kiosk deployment in Wal-Mart was
launched and aVinci Media LC began selling its first hard good kits for the
Christmas season. aVinci Media LC also developed an online platform
in 2007 for selling products online and introduced this platform in the first
quarter of 2008.
Selling
and marketing expense increased $804,412, or 147%, from 2006 to
2007. The increase was attributable to increased marketing efforts
directed at mass retailers and an increased presence at the Photo Marketing
Association’s (“PMA”) annual trade show in February
2007. Additional personnel were hired to assist with development of
marketing materials resulting in additional personnel and associated costs of
approximately $725,000. An additional $80,000 was incurred in
preparation for the PMA show to pay for floor space, booth rental and set up at
the trade show held in February 2007. Expenses were incurred during
the last quarter of 2006 and the first quarter of 2007 for the PMA
show.
General
and administrative expense increased $1,922,199, or 110%, from 2006 to
2007. New business development and operations personnel and
associated costs and sales materials accounted for approximately $801,000 of the
increase. Other costs associated with additional personnel such as
health care, office furniture, computers, phones and other infrastructure costs
across all departments totaled approximately $235,000. Approximately
$303,000 of the increase was attributable to an increase of contract labor
associated with platform (online and point-of-scan offerings) and product
development. An increase of approximately $115,000 was attributable
to increased professional consulting services provided by accounting, financial
and legal services associated with funding activities and pursuit of the
Merger. Lease payments increased as we took out more space to house
new employee growth by approximately $301,000. Travel and
entertainment costs increased approximately $121,000 as aVinci Media LC pursued
business opportunities. Equipment taxes, licensing and telephone
expenses increased by $56,000, all as a result of added
personnel.
Depreciation
expense increased $174,298, or 169% from 2006 to 2007 as a result of purchasing
computer equipment deployed to fulfill product for new customer accounts and for
office furniture and equipment for new employees which began to be depreciated
in 2007.
Interest
expense decreased from $806,439 in 2006 to $693,217 in 2007 due to the
conversion of its convertible debt into equity during 2007. To fund
operations, aVinci Media LC undertook a large private offering in the first
quarter of 2006 consisting of 12-month convertible debt, bearing interest at
10%. The offering was taken in its entirety by Amerivon Investments
LLC, who invested a total of $830,000. In August of 2006, Amerivon
Investments, LLC invested an additional $1,560,000 in a convertible debt
offering, bearing interest at 9%, intended to bridge before a subsequent
preferred equity offering targeting $5 to $7 million.
In
December 2006, aVinci Media LC entered into various short-term loans from
members of management totaling $285,783 to fund operations until the funding
transaction with Amerivon Investments, LLC 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.
Liquidity
and Capital Resources.
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
December
31,
|
|
Statements
of Cash Flows
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
Cash
Flows from Operating Activities
|
|
$ |
(4,689,049 |
) |
|
$ |
(1,929,653 |
) |
|
$ |
(5,513,316 |
) |
|
$ |
(1,890,640 |
) |
Cash
Flows from Investing Activities
|
|
|
(65,146 |
) |
|
|
(360,563 |
) |
|
|
(577,295 |
) |
|
|
(414,995 |
) |
Cash
Flows from Financing Activities
|
|
|
8,468,501 |
|
|
|
3,199,841 |
|
|
|
6,780,988 |
|
|
|
2,464,288 |
|
Increase
in Cash and Cash Equivalents
|
|
|
3,714,306 |
|
|
|
909,625 |
|
|
|
690,377 |
|
|
|
158,653 |
|
Operating
Activities.
For
the six months ended June 30, 2008, net cash used in operating activities was
$(4,689,049) compared to $(1,929,653) for the same period in 2007. The changes
were due to higher operating expenses for the six months ended June 30, 2008 for
the pursuit of new customers and development of additional delivery methods for
software technology which required substantial additional human, equipment and
property resources. For 2007, net cash used in operating activities was
$(5,513,316) compared to $(1,890,640) in 2006. The changes
were due to higher operating expenses for 2007 as compared with 2006 for the
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, cash flows from investing activities was
$(65,146) compared to $(360,563) for the same period in 2007. The change was 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. For 2007, cash flows from investing activities were
$(577,295) compared to $(414,995) in 2006. The change
resulted as a result of purchasing 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
$8,468,501 of cash compared to $3,199,841 for the same period in 2007. During
the six months ended June 30, 2008, we received approximately $7.1 million in
cash as a result of the reverse merger. During this period, aVinci
Media LC received $460,625 from Amerivon Investments, LLC 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 Investments, LLC for the issuance of the Series B
preferred units, and $1.5 million from issuance of the convertible debentures.
Also during this period aVinci Media LC made payments of $285,783 on loans from
management, and $117,080 in loan costs.
Previously,
aVinci Media LC 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 aVinci
Media LC undertook a private equity offering consisting of 12-month convertible
debt, bearing interest at 10%. The offering was taken in its entirety by
Amerivon Investments, LLC, who invested a total of $829,250. At the time of the
investment, Amerivon Investments, LLC placed a member on aVinci Media LC’s Board
of Managers. In August of 2006, Amerivon Investments, LLC invested an additional
$1,560,000 in a convertible debt offering, bearing interest at
10%. During the first quarter of 2007, Amerivon Investments, LLC
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, Amerivon
Investments, LLC converted approximately $2.4 million in aggregate convertible
debt together with accumulated interest into common units of aVinci Media LC.
Amerivon Investments, LLC 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 Series B preferred stock. Upon the closing of the Series B
preferred stock offering, Amerivon placed a second member on AVI Media’s Board
of Managers.
In
anticipation of closing the Merger Agreement, we, operating as Secure Alliance
Holdings Corporation, entered into a Loan Agreement with aVinci Media LC whereby
we agreed to extend to aVinci Media LC $2.5 million to provide operating capital
through the closing of the transaction. A total of $1 million was loaned to
aVinci Media LC 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,
aVinci Media LC received approximately $7.1 million to fund operations in
addition to the $2.5 million previously loaned by the Secure Alliance Holdings
Corporation to aVinci Media LC. Upon closing of the Merger, the $2.5 million
notes payable by aVinci Media LC was eliminated. Management believes that the
funds received in connection with the Merger will be sufficient to sustain
operations at least through January 31, 2008. Based on the current cash run
rate, the current cash resources are anticipated to fund operations for
approximately eight months. Additional cash of approximately $2.2 million will
be needed to fund operations for an additional four months. As disclosed in the
risk factors, we are presently taking steps to raise additional funds to
continue operations for the next 12 months and beyond.
Our
plan is to pursue a private offering of debt, convertible debt or common stock
to raise approximately $2.5 million to $3.5 million during the fourth quarter of
2008 to help fund operations through 2009. This capital raise will
potentially be dilutive of current shareholders (see Risk Factors
above). Because our business is highly seasonal with as much as 40%
of annual sales coming during the year-end holiday season, the total amount to
be raised will be determined by estimating the total sales upon the close of the
holiday season deployment date of November 1, 2008. We are currently
working with several of our mass retailer customers to finalize several
deployments by November 1, 2008; although, we can provide no assurances the
deployments will occur. In the event additional outside capital
cannot be raised, we plan to take action to cut operating expenses related to
future product enhancements and deployments and continue only with expenses
associated with servicing and selling the products deployed as of December
2008.
Related
Party Transactions
Consulting
Agreement. During the six months ended June 30, 2008, pursuant to an
agreement executed during the year ended December 31, 2007, we recorded expense
of $725,000 for consulting services from Amerivon Holdings, Inc., the parent of
a significant shareholder. During the six months ended June 30, 2008,
we paid Amerivon Holdings, Inc. $745,000 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, $202,696 and $41,931, respectively, was
accrued for distributions due on the Series B redeemable convertible preferred
units held by Amerivon Investments, LLC. We paid Amerivon Investments, LLC
$447,783 for the accrued distributions in June 2008.
Warrant Exercise.
On January 30, 2008, Amerivon Investments, LLC exercised 1,504,680
warrants to purchase common units for cash received of $414,625; and on June 5,
2008, Amerivon Investments, LLC exercised 87,096 warrants to purchase common
units for a total price of $46,000. These exercises, along with Amerivon’s
conversion of convertible preferred units, increased Amerivon Investments, LLC
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, Amerivon Investments, LLC was issued $500,000 of
convertible. 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, aVinci Media LC
entered into various loans from its members 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
by the managers. 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. We believe 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 our 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 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, we 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 our financial statements.
Off-Balance
Sheet Arrangements
We do
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.
Organizational
History
aVinci
Media Corporation (formerly known as Secure Alliance Holdings Corporation) is a
Delaware corporation. Between October 2, 2006 and June 6, 2008, we
were a shell public company and conducted no business activities other than
seeking appropriate merger acquisition candidates. In June 2008
(described in Recent Developments below), these efforts led to the acquisition
of Sequoia Media Group, LC by way of a reverse
merger.
aVinci
Media Corporation (formerly known as Secure Alliance Holdings Corporation) is a
Delaware corporation. Between October 2, 2006 and June 6, 2008, we
were a shell public company and conducted no business activities other than
seeking appropriate merger acquisition candidates. In June 2008
(described in Recent Developments below), these efforts led to the acquisition
of Sequoia Media Group, LC by way of a reverse merger. Sequoia Media
Group, LC changed its name to aVinci Media, LC in July 2008 following the
reverse merger. aVinci Media, LC, is a Utah limited liability company
originally organized on March 28, 2003 under the name Life Dimensions,
LC.
The
Merger was effective on June 6, 2008, upon the filing of Articles of Merger with
the Utah Division of Corporations. In connection with the Merger
transaction, we amended the Certificate of Incorporation to (i) change our
name from Secure Alliance Holdings Corporation to aVinci Media Corporation;
(ii) increase our authorized shares of common stock from 100,000,000 to
250,000,000; (iii) authorize a class of preferred stock consisting of
50,000,000 shares of $.01 per value preferred stock; and (iv) effect a
1-for-2 reverse stock split.
General
Development of AVI Media’s Business
AVI
Media has developed and deployed a software technology that employs “Automated
Multimedia Object Models,” its patent-pending way of turning consumer captured
images, video, and audio into complete digital files in the form of full-motion
movies, DVD’s, photo books, posters and streaming media files. AVI
Media filed its first provisional patent in early 2004 for patent protection on
various aspects of its technology with a full filing occurring in early 2005,
and AVI Media has filed several patents since that time as part of its
intellectual property strategy. All of AVI Media’s patent applications are
pending and have not, as yet, been granted. AVI Media’s technology carries the
brand names of “aVinci” and “aVinci Experience.”
In May
2004 aVinci Media, LC signed its first client agreement with BigPlanet, a
division of NuSkin International, Inc. (“NuSkin”). Under the terms of
the BigPlanet agreement, aVinci Media, LC supplied BigPlanet with its software
technology that BigPlanet marketed, sold, and fulfilled for its
consumers. Revenues from BigPlanet represent substantially all of
aVinci Media, LC’s sales through 2007 at approximately $3.4 million from May
2004 through December 2007. aVinci Media, LC’s agreement with
BigPlanet expired on December 31, 2007. BigPlanet continues to offer
aVinci Media, LC’s DVD products and pays a per-product royalty for products
resulting in a monthly royalty of less than $2,000 per month.
Since
inception aVinci Media, LC has continued to develop and refine its technology to
be able to provide higher quality products through a variety of distribution
models including in-store kiosks, retail kits, and online
downloads. aVinci Media, LC’s business strategy has been to develop a
product solution that provides users with professionally created templates to
automatically create personalized products by simply adding user
images.
aVinci
Media, LC spent approximately $1.0 million, $1.9 million and $1.1 million for
the six months ended June 30, 2008, and the calendar years 2007 and 2006,
respectively, on research and development. The majority of these costs are
salary costs for those involved in research and development
activities.
Business
efforts during 2006 and 2007 were directed at developing relationships with mass
retailers. aVinci Media, LC signed an agreement to provide its
technology in Meijer stores at the end of 2006. Due to problems a
third party supplier had deploying its kiosk software in Meijer stores, aVinci
Media, LC was delayed in deploying its software technology that was to be
provided through the third party kiosk. During 2007, Meijer signed
Hewlett Packard as its kiosk vendor and aVinci Media, LC entered into an
agreement to provide its software in Meijer stores on Hewlett Packard
kiosks. aVinci Media, LC’s software integration onto the Hewlett
Packard kiosk was completed in 2008 and deployed in April 2008 in Meijer
stores. During 2007, AVI Media signed an agreement with Fujicolor to
deploy its technology on their kiosks located in domestic Wal-Mart
stores. AVI Media’s initial integration and deployment with Fujicolor
in domestic Wal-Mart stores took place in the third quarter of 2007, with a
software update scheduled for the third quarter of 2008 to enhance the user
experience and the product offering.
During
2007, aVinci Media, LC signed an agreement with Fujicolor to deploy its
technology on their kiosks located in domestic Wal-Mart
stores. aVinci Media, LC s initial integration and deployment with
Fujicolor in domestic Wal-Mart stores took place in the third quarter of 2007,
with a software update scheduled for the third quarter of 2008 to enhance the
user experience and the product offering. In January 2008, aVinci
Media, LC signed an agreement with Costco.com, to deliver its DVD product
online. aVinci Media, LC’s DVD product began being offered at
Costco.com on the “photo” category at the end of March 2008.
Initial
operations before aVinci Media, LC’s formal entity organization in March 2003
were funded through founder contributions. Operations since May 2004
have been funded by royalty revenue received from BigPlanet, totaling
approximately $3.4 million to date; from outside investment capital, totaling
approximately $9.8 million to date; and from loans from us (associated with the
Merger transaction) totaling approximately $2.5 million.
From
pre-organization through aVinci Media, LC’s initial contract, the founders
contributed approximately $150,000. These initial contributions were
provided in exchange for promissory notes bearing interest at 10%, the principal
and interest of which were converted into convertible debentures bearing
interest at 10% with a term of 13 months through January 31,
2005. The debentures and interest were converted into Series A
preferred membership interests (the “Series A Preferred Units”) in January
2005. The preferences of the Series A Preferred Units was the right
to convert the Series A Preferred Units into an investment in a future financing
if, at anytime within 12 months of receiving the Series A Preferred Units,
aVinci Media, LC raised capital at a lower valuation than such Series A
Preferred Units holders’ initial investment (which did not occur), and the right
to receive distributions upon a liquidating event before common unit holders
receive distributions. All of the Series A Preferred Units were
converted into common units prior to the Merger.
During
the fourth quarter of 2003, aVinci Media, LC initiated a small private offering
that closed in the first quarter of 2004. The offering consisted of
12-month convertible debt, bearing interest at the annual rate of
10%. In January 2005, all but $30,000 of the debt converted into
Series A preferred. In February 2005, aVinci Media, LC closed a
private offering of approximately $150,000 consisting of the sale of common
units, and it followed that offering with another offering in June of 2005,
consisting of the sale of common units through which it raised an additional
$173,000.
Needing
more capital to continue pursuing its business plan through 2006, aVinci Media,
LC undertook a larger private offering consisting of 12-month convertible debt,
bearing interest at 10%. The offering was taken in its entirety by
Amerivon Investments, LLC, who invested a total of $829,250. At the time of the
investment, Amerivon Investments LLC placed a member on aVinci Media LC’s Board
of Managers. In August of 2006, Amerivon Investments LLC invested an additional
$1,560,000 in a convertible debt offering, bearing interest at
10%. During the first quarter of 2007, Amerivon Investments LLC
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, Amerivon
Investments LLC converted approximately $2.4 million in aggregate convertible
debt together with accumulated interest into common units of aVinci Media LC.
Amerivon Investments LLC 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 Series B preferred stock. Upon the closing of the Series B
preferred stock offering, Amerivon placed a second member on AVI Media’s Board
of Managers.
The
Series B preferred entitled its holders to redemption rights after four years,
annual dividends equal to 8% of the principal amount of the investment, and the
right to receive distributions before common and Series A preferred holders
receive distributions upon liquidation. The Series B preferred owners
converted all of their Series B preferred units into common units immediately
prior to the Merger.
Financial
Information about Operating Segments
We
conduct business within one operating segment in the United
States. From 2004 through 2007, aVinci Media LC generated revenues
(except for a few thousand dollars) with one customer, BigPlanet, a division of
NuSkin. Beginning in 2008, AVI Media began diversifying its customer
base and generating revenues through agreements with Fujicolor (in Wal-Mart
stores), Costco.com, Meijer Stores and Qualex Inc.
Description
of Business
Software
Technology and Products
We
make software technology and package it in various forms available to mass
retailers, specialty retailers, Internet portals and websites 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. Our customers are retailers and other vendors and not end
consumers. We enables our customers to sell our products to the end
consumer who remain customers of its vendor and do not become our customers
directly. We currently do, however, deliver our technology to end
consumers through (i) third party photo kiosks at mass and specialty retail
outlets, (ii) retail kit shrink wrapped software at mass and specialty
retail outlets, (iii) simple software downloads through third party
Internet sites, (iv) simple software downloads though its own managed
Internet site to which third party Internet sites are linked, and (v) on
its own managed web servers on the world wide web to which third party Internet
sites are linked.
Generally
all of our products require the end consumer to simply supply digital
images. We supply preformatted templates for an occasion, event, or
style such as a wedding, birthday, or activity that fits a particular
style. A template for a DVD generally includes six to eight different
scenes that incorporate background images related to that particular template
theme. Each scene is built around four to ten digital image frames,
or placeholders, where user supplied images are placed to have the appearance of
being part of the themed contextual images we supply to support the template
theme. We utilize a technique called “layering,” (which is the
subject of its patent) to stitch together its supplied images with the
user-supplied images to produce a themed DVD movie. Scenes may
involve panning over the user images as though they are photographs sitting on a
table, or having user images appear in frames sitting on a mantle as the camera
angle appears to change and move around the mantle piece, to describe a few of
the hundreds of scene effects we utilize. Each template also provides
a pre-designated position and font for a unique title, and in some instances
subtitle and other text, to be added by the end consumer. The scenes
are assembled in an order to give the production a feeling of telling a
story. Each template also comes with a default sound track selected
to match the template theme. In some applications of our software,
the consumer can select from one of several music selections fitted to the
selected theme. All of the images and music we supply with the themed
templates are owned by us or have been fully licensed from the owners of the
rights.
Using
a wedding DVD template that is supplied on a retail kiosk as an example, a
consumer brings a CD or photo storage card containing his or her images to a
kiosk located in a retailer’s store. The consumer inserts the image
storage device into the kiosk reader and the kiosk loads the user images onto
the kiosk. The user then chooses to make a DVD from a menu on the
kiosk at which point our software is launched. The user browses the
categories and selects “wedding” from among four to six categories of templates
and then selects “wedding day” from a few different wedding
templates. The user next selects 40 photos from his or her user
supplied images to be incorporated into the template and can rotate and move the
images into the preferred orientation and order. A title and
subtitle, such as “John and Jessica’s Wedding,” “November 14, 2007,” are typed
into the kiosk by the user and the user specifies the number of copies he or she
wants to purchase. With this, the user has successfully ordered a
wedding DVD.
Upon
completion of an order, we take the order information and images and build the
DVD product remotely at our offices. The user then gets back a DVD
case with the user’s pictures on the cover containing a DVD with the user’s
image printed on the DVD as a label and an insert containing thumbnail sized
images of each user image used to make the DVD. The DVD plays on
standard DVD players and starts with a customer or aVinci branded “spin-up” to
get to a standard navigation screen. The navigation screen shows a
user image in a contextual background consisting of wedding
flowers. By pressing the “Play” button, the movie is launched with
the first scene featuring a wedding announcement with John and Jessica’s name in
a rich stylistic font. The perceived camera angle then pans over to a
digitally created frame containing a picture of the bride supplied by the user,
while soft wedding themed music plays. The scenes transition with
pictures of flowers taking the viewer through the wedding day. The
DVD ends with credits for licensed media and audio used to produce the DVD
production.
Our
photo books are created in the same fashion as described for DVDs, only our
templates are created and laid out to tell the themed story in the form of a ten
to twenty page, eight by eleven inch photo book. Book pages are laid
out by our design experts, printed on a digital press and
hardbound. Posters incorporate one or more user images into themed
art matching DVD and photo book themes. We launched its first photo
book and poster products during the second quarter of 2008.
Product
Delivery Model
Under
our business model, we integrate with retail or other vending customers
according to each customer’s business plan. Our customers maintain
the end consumer relationship and control as much of the image capture, product
creation, and delivery of product as they desire based largely upon the product
delivery method they select. We do the rest and manage whatever our
customers want to pass to us to manage.
With
its kiosk model, we integrate with a third party kiosk provider and integrates
our software onto the kiosk. End consumers using the kiosk load their
images onto the kiosk and can make a variety of products. With our
software on the kiosk, when the consumer chooses to make a DVD product, its
software launches and takes the consumer through the process of selecting a
theme, a specific production type (called a storyboard), the photos to be
integrated into the product, a title, and the order quantity. The
kiosk then generates an order confirmation for the consumer who uses the
confirmation to pick up and pay for the order when complete. Upon
completion the kiosk order goes either to the retailer’s lab to be fulfilled in
store or to central processing to be fulfilled remotely.
Retailers
and vendors can stock our retail kit product which consists of a small box
containing a CD containing a simplified version of its production software for a
specific production type (such as Wedding) and a product
code. The end consumer pays for the product at the store and can then
use the CD at home or work to place their prepaid product order. The
CD loads the software onto the customer’s computer and walks the customer
through the process of selecting his or her digital images to be used in
creating the product, typing any unique consumer information such as a
customized title and subtitle, entering order information for shipping, and
uploading the order information and image files for remote
fulfillment.
With
third party Internet sites, the process is similar to our retail kit product
except for how the consumer loads the simple software on his or her computer and
how he or she pays for the product order. With an Internet vendor
that manages our software through their site, we supply the vendor with its
software download. The consumer then downloads the simple software
from the vendor’s web servers over the Internet. The software loads
and walks the customer through the process of selecting his or her digital
images to be used in creating the product, typing any unique consumer
information such as a customized title and subtitle, entering order information
for shipping, taking the consumer’s credit card information to process the
payment transaction for products ordered via a secure Internet transaction, and
uploading the order for remote fulfillment.
In the
event a retailer or vendor wants us to manage the software download, they simply
provide a link on their website to us and we provide the simple software
download from its web servers over the Internet. The consumer process
then works as outlined for a third party Internet site
deployment. Following the software download, the software loads and
walks the customer through the process of selecting his or her digital images to
be used in creating the product, typing any unique consumer information such as
a customized title and subtitle, entering order information for shipping, taking
the consumers credit card information to process the payment transaction for
products ordered via a secure Internet transaction, and uploading the order for
remote fulfillment.
As a
companion to the retail kit product, we launched in the second quarter of 2008 a
web site that will allow consumers who upload orders using the retail kit
software to order additional copies and additional products on the web
site. Under this business model, the consumer uploads the product
order purchased as a retail kit product. Upon receipt of the order,
we provide the consumer with a dialogue box asking if they would like to add
additional copies of the created product to his or her order, and if he or she
would like to order a companion photo book or poster to the order. If
the customer chooses to order additional products, we process the payment
transaction for the products ordered via a secure Internet
transaction.
To
date our customers have elected to have products fulfilled
remotely. We fulfill all the products either in house or through
third party vending partners. Once a consumer orders a product by
selecting the product and the pictures and his or her images to be used in
creating the product, the order and images are received by our web servers
deployed in-house or, with third party vendors, we contract Qualex Inc. to do
our fulfillment work. The servers process the orders and photos and
pass the electronic files off to computers that build the final product and send
the files to be burned on a DVD or printed on a print media product such as a
photo book or poster. Finished products are shipped to retail
customers for delivery to end customers or directly to end customers depending
on the retail customer’s business model.
Our
revenue model generally includes a per product royalty. With all
product deployments except the retail kit product, each time an end customer
makes a product utilizing our technology, we receives a royalty from our
retailer customers. From the royalty received, we pay the royalties
associated with licensed media and technology. If we are performing
product fulfillment, we also pay the costs of goods associated with production
of the product. If our customer utilizes in-store fulfillment, our
customer pays the cost of goods associated with production.
Our
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, we account 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 on a straight-line basis over the remaining term of the contract.
Because of our limited sales history, we do not have VSOE for the different
components that may be included in sales contracts.
We
record 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 us in advance of revenues
earned. Revenue earned but not billed is classified as unbilled accounts
receivable in the balance sheet. We bill customers as payments become due under
the terms of the customer’s contract. We consider current information and events
regarding our customers and their contracts and establish allowances for
doubtful accounts when it is probable that we will not be able to collect
amounts due under the terms of existing contracts.
As
noted above, we currently deliver our technology to end consumers through
(i) third party photo kiosks at mass and specialty retail outlets,
(ii) retail kit shrink wrapped software at mass and specialty retail
outlets, (iii) simple software downloads through third party Internet
sites, (iv) simple software downloads though its own managed Internet site
to which third party Internet sites are linked, and (v) on its own managed
web servers on the world wide web to which third party Internet sites are
linked.
We
currently have fulfillment hardware deployed in two locations including our
Draper, Utah office and a Qualex Inc. (a subsidiary of Eastman Kodak
Company) facility in Allentown, Pennsylvania that allow for the fulfillment
of DVD products. Both locations have computer server configurations
and DVD burning and printing units. DVD supplies, including DVD media
supplied by Verbatim and Taiyo Yuden, DVD cases, and paper for printing DVD case
covers, are inventoried to be able to meet customer DVD fulfillment
needs. Our photo book and poster product fulfillment operations are
in the implementation stage. We intend to fulfill photo books and
posters with third party fulfillment partners. Currently, we have a
fulfillment agreement with Qualex Inc. to build and ship many of its DVDs, photo
books and posters for select customers. Integration with Qualex Inc.
for creating DVD media was completed in February 2008.
Customers
In May
2004, aVinci Media LC signed its first client agreement with BigPlanet, a
division of NuSkin. NuSkin is a global direct selling
company. NuSkin markets premium-quality personal care products under
the Nu Skin® brand, science-based nutritional supplements under the Pharmanex®
brand, and technology-based products and services under the Big Planet®
brand. BigPlanet, NuSkin’s technology division, offers its customers
ways to easily preserve, organize, share and enjoy photos
online. Under the terms of its BigPlanet agreement, aVinci Media LC
supplied software technology to build DVD movies which BigPlanet marketed, sold,
and fulfilled for their consumers under their brand name
“PhotoMax.” Revenues from BigPlanet represented substantially all of
aVinci Media LC sales through 2007 at approximately $3.4 million to
date. The agreement required an annual minimum guaranteed royalty of
$1 million, which was payable monthly in the amount of
$83,333.33. aVinci Media LC agreement with BigPlanet expired on
December 31, 2007 and aVinci Media LC has been paid current through the end of
the term. BigPlanet continues to offer our DVD products and pays a
per-product royalty for products made on a monthly basis.
On
September 18, 2006, aVinci Media LC signed an agreement to provide its
technology in Meijer stores. Meijer Distribution, Inc.
(“Meijer”) is a Michigan-based retailer that operates 181 super centers
throughout the mid-west. The agreement term with Meijer continues
through a date two years from the date Meijer first makes our software
technology available to end consumers, subject to automatic renewal for
additional 12-month periods after the initial term. Under the terms,
Meijer purchases DVD kits from aVinci Media LC consisting of a pre-labeled DVD,
DVD cover and paper for the case cover, and inserts printed with thumbnail size
images of all the user photographs provided for use in the DVD
production. Meijer placed and paid for an initial purchase order of
DVD kits, for approximately $109,000, but due to problems a third party supplier
had deploying its kiosk software in Meijer stores, aVinci Media, LC was delayed
in deploying its software technology that was to be provided through the third
party kiosk. During 2007, Meijer signed Hewlett Packard as its kiosk
vendor and aVinci Media, LC entered into an agreement to provide its software in
Meijer stores on Hewlett Packard kiosks. aVinci Media, LC’s software
integration onto the Hewlett Packard kiosk was completed in 2008 and deployed in
April 2008 in Meijer stores.
In
January 2006, aVinci Media LC signed an agreement with Storefront, a photo kiosk
company. Storefront anticipated deploying our software on client
kiosks in retailers such as King Soopers, Smith’s, Fred Meyer, Ralph’s and
others. Storefront has not deployed our software to date and we do
not know if they will ever deploy our software with their
customers.
On
September 1, 2007, aVinci Media LC signed an agreement with Qualex, Inc.
(“Qualex”) to allow for the distribution of its software product to Qualex
customers. Qualex, a wholly owned subsidiary of Eastman Kodak, is the
largest wholesale and on-site photofinishing company in the world and it offers
traditional print and digital output solutions by operating a large network of
commercial and in store labs throughout the United States and
Canada. The agreement term is through September 30, 2009, at which
point it is subject to extension for additional 12-month terms at the election
of either party. Qualex will provide the fulfillment services for all
of its customers and we will receive a royalty per product
produced. We also signed a separate agreement with Qualex at the same
time that provides for Qualex to perform fulfillment services for select
customers. As part of the agreement, we have deployed its fulfillment
technology and equipment in Qualex’s Allentown, Pennsylvania fulfillment
center. We processing live orders in February 2008 with
Qualex.
During
2007 at the request of Wal-Mart, aVinci Media LC signed an agreement with
Fujicolor to deploy its technology on Fujicolor kiosks located in domestic
Wal-Mart stores. Wal-Mart is a worldwide retailer with more than
5,000 domestic retail stores. Fujicolor is part of Fujifilm, which is
a world leader in photographic products and technology. Our initial
integration and deployment with Fujicolor in domestic Wal-Mart stores took place
in the third quarter of 2007. Our DVD product offering is currently
deployed throughout domestic Wal-Mart stores on Fujicolor kiosks in more than
3,000 stores. Upon deployment with Fujicolor, we intend to update the
first version of its software within several months. Because of
software updates Fujicolor is making to its kiosks generally, we have not been
able to deploy any updates. We are working with Fujicolor currently
and anticipate updating our software in the third quarter of
2008.
We
also became a Wal-Mart vendor and shipped our retail kit product to 200 Wal-Mart
stores in June 2008, with a wider rollout anticipated based upon initial sales
in the 200 deployed stores.
In
January 2008, we signed an agreement with Costco.com, to deliver our DVD product
online. Our DVD product began being offered at Costco.com on the
“photo” category at the end of March 2008.
Three
customers accounted for a total of 83 percent of our 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 our
total revenues for the six months ended June 30, 2008 or the same period in
2007. In addition to its current customers, we continue to actively
negotiate agreements and relationships with other mass and specialty retailers
and other vending partners.
Competitors
Our
competitors consist of professional videographers on the high-cost end and
slideshow software programs on the low-cost end, with varying software tools in
the middle. Unfamiliar evaluators on the surface may attempt to
compare the low-end slide show creator products with our products, but when
compared side by side differences are readily seen in production quality and
detail. Generally only user images are included in the slide show and
context; graphics, audio, and music are not included. Finished
productions are generally poor quality and lack any meaningful emotional
impact.
Software
providers who supply consumer tools or solutions for consumers to make their own
DVD productions include Adobe, Microsoft, Ulead, PhotoShow, Roxio, among
others. The closest direct competitive products to our technology are
software tools such as iPhoto, iMovie and Final Cut Pro from Apple, each of
which require users to spend a significant sum for the software, devote
extensive time to master software usage, and significant time to create each
individual production. Additional competitors include Simple Star,
MuVee, RocketLife, PhotoDex, and Smilebox all of which offer similar
products.
Specific competitors in the market
for the provision of personalized photo products include MediaClip, Muvee,
Animoto, Slide, Roxio PhotoShow, and One True Media. These
competitors offer similar product lines including photo slideshows (online and
DVD), photo books, and posters which are created through the use of software
applications. Certain competitors also make their products available
for use on social networking sites such as Facebook and
MySpace.
AVI Media’s patent-pending
production technology which automates the creation of multiple photo products
utilizing the same images without further customer input, along with its
proprietary storyboards incorporating licensed content such as popular music and
animation and professional transitions gives it an advantage over its
competitors. AVI Media’s use of licensed content gives it an
additional advantage over its competitors who are still incorporating unlicensed
music and other content into their products in that AVI Media has established
good relationships in the music and film industry and may be able to offer
popular titles its competitors cannot.
Common
to software tools are their lack of automation. The user spends a
vast amount of time mastering software to produce the same sort of automated
results that can otherwise be accomplished very quickly with AVI Media’s
products. A software user must first import media, organize it,
choose timing and effects, edit music to length then render the
production. The rendered production must then be committed to DVD
where the user has to then design a DVD interface before burning to DVD to have
any navigation capabilities.
Employees
As of
July 28, 2008, AVI Media had 34 full-time employees and 7 part-time
employees. Most of its employees work in its primary business office
in Draper, Utah.
Properties
AVI
Media currently leases approximately 13,000 square feet of office space at 11781
Lone Peak Parkway, Suite 270, Draper, Utah 84020. Its current lease
term ends on April 30, 2010. AVI Media has a good relationship with
its landlord, DBSI Draper LeaseCo LLC. AVI Media conducts its
corporate, development, sales, and certain manufacturing operations out of its
Draper office. AVI Media’s main telephone number is
(801) 495-5700 and its facsimile number (801) 495-5701. AVI
Media maintains a web site at www.sequoiamg.com. AVI Media leases
space in a computer hardware collocation facility in Salt Lake City and has a
good relationship with the landlord.
In
Bentonville, Arkansas, AVI Media rents an office, on a month-to-month basis, in
an office suite consisting of one office of about 300 square feet which houses
one employee. AVI Media uses the office when it visits Wal-Mart
corporate offices.
Legal
Proceedings
On
December 17, 2007, Robert L. Bishop, who worked with AVI Media in a limited
capacity in 2004 and is a current member of a limited liability company,
LifeCinema, LLC, that owns an equity interest in AVI Media, filed a legal claim
in the Third Judicial District Court for Salt Lake County, State of Utah,
alleging a right to unpaid wages and/or commissions (with no amount
specified) and company equity. The Complaint was served on AVI
Media on January 7, 2008. AVI Media timely filed an Answer denying
Mr. Bishop’s claims and counterclaiming interference by Mr. Bishop with AVI
Media’s capital raising efforts. AVI Media intends to vigorously
defend against Mr. Bishop’s claims and pursue AVI Media’s
counterclaim.
Intellectual
Property
In
early 2003, through patent counsel, AVI Media performed an initial patent search
for products and processes similar to its software technology. The
patent search did not reveal any conflicting intellectual
property. In January 2004, AVI Media filed initial patent
applications seeking broad patent protection for its ideas, technologies,
point-of-sale business concept, and the system of automating solutions through
the use of pre-constructed templates.
Since
its initial filing, AVI Media has completed additional filings to extend and
broaden its patent protection. In February 2005, AVI Media filed for
international patent protection based on its original patents pending, filings
with the individual countries in Europe and Asia to secure the patents
internationally.
As
part of its product development, AVI Media routinely licenses media content such
as pictures, videos and audio to create products. AVI Media has
numerous license agreements with stock image and music sources that it routinely
reviews and keeps current.
In
accordance with the Merger Agreement, and as a result of the Merger, our Board
of Directors increased the size of the Board from two members to seven
members. The Board filled the five vacancies created by such increase
by appointing as additional directors Chett B. Paulsen, Richard B. Paulsen,
Edward B. Paulsen, John E. Tyson and Tod M. Turley. As a result of the Merger,
our directors and executive officers are as follows:
Name
|
Age
|
Position
|
Chett
B. Paulsen
|
52
|
President,
Chief Executive Officer, Director
|
Richard
B. Paulsen
|
48
|
Vice
President, Chief Technology Officer, Director
|
Edward
B. Paulsen
|
45
|
Secretary/Treasurer,
Chief Operating Officer, Director
|
Terry
Dickson
|
50
|
Vice
President Marketing and Business Development
|
Tod
M. Turley
|
46
|
Director
|
John
E. Tyson
|
65
|
Director
|
Jerrell
G. Clay
|
66
|
Director
|
Stephen
P. Griggs
|
50
|
Director
|
Chett B. Paulsen, President and Chief Executive
Officer, Director. Chett co-founded AVI Media in 2003 and
serves as its President and Chief Executive Officer. From 1998 to
2002, Chett co-founded, served as President and then as Chief Operating Officer
of Assentive Solutions, Inc. (aka, iEngineer.com, Inc.), which developed
visualization and collaboration technologies for rich media content that was
ultimately sold to Oracle in 2002. During his tenure with Assentive,
the company raised more than $25 million in private and venture capital funding
from entities including Intel, Sun Microsystems, J.W. Seligman, and T.L.
Ventures. From 1995 to 1998, Chett founded and managed Digital
Business Resources, Inc., which sold communications technologies to Fortune 100
companies such as American Stores and Walgreens, among others. From
1984 to 1995, Chett worked at Broadcast International (NASDAQ
“BRIN”) playing key management roles including Executive Vice President,
Vice President of Operations and President of the Instore Satellite Network and
Business Television Network divisions of Broadcast where he implemented and
managed technology deployment in thousands of retail locations for Fortune 500
companies. During Chett’s tenure at BI, market capitalization rose to
over $200 million. Chett graduated from the University of Utah in
1982 with a B.S. degree in Film Studies.
Richard B. Paulsen, Vice President and Chief Technology
Officer, Director. Richard co-founded AVI Media in 2003 and
serves as its Vice President and Chief Technology Officer. From 1999
to 2003, Richard worked as a senior member of the technical staff for Wind River
Systems (NASDAQ “WIND”), managing a geographically diverse software development
team and continuing work on software technology Richard pioneered at Zinc
Software from 1990 to 1998 as one of Zinc’s founders. Zinc
subsequently sold to Wind River in 1998. From 1998 to 2000, Richard
enjoyed a sabbatical and served as the Director of Administrative Services for
Pleasant Grove City, Utah, the highest appointed office in the
city. From 1981 through 1990, Richard worked as a software consultant
and programmer working for the University of Utah Department of Computer Science
conducting software analysis, design and coding, and Custom Design Systems
developing custom user interface tools and managing the company’s core library
used by thousands of developers worldwide. Richard graduated with a
MBA degree, with an emphasis in financial and statistical methods, from the
University of Utah in 1987 after receiving a B.S. degree in Computer Science
from the University of Utah in 1985.
Edward “Ted” B. Paulsen, J.D.,
Secretary/Treasurer, Chief
Operating Officer, Director. Ted has served as legal counsel
since co-founding AVI Media in 2003, and joined the company full time as Chief
Operating Officer in September 2006. From 2003 to September 2006, Ted
served as the Chief Operating Officer and Corporate Secretary of Prime Holdings
Insurance Services, Inc. where he helped position the company operationally and
financially to secure outside capital and partner funding to support future
growth beyond the company’s then current annual revenue level. From
1995 through 2003, Ted worked as an associate and then partner with the law firm
of Gibson, Haglund & Paulsen and its predecessor. With a
securities focus, Ted has assisted emerging and growing businesses with
organizational, operational and legal issues and challenges. His
legal practice focused on assisting businesses properly plan and structure
business transactions related to seeking and obtaining
financing. Before moving to Utah and opening the Utah office of his
firm in 1996, Mr. Paulsen worked in Southern California from 1990 to 1995 with
the law firm of Chapman, Fuller & Bollard where he practiced in the areas of
business and employment litigation and business transactions. Ted
graduated from the University of Utah College of Law in 1990 after receiving a
B.S. degree in Accounting from Brigham Young University in
1987.
Terry Dickson, Vice President of Marketing and
Business Development. Terry has served as AVI Media’s Vice
President of Marketing and Business Development since May 2006. Prior
to joining AVI Media, Terry was an advisor to AVI Media from March 2004 through
May 2006. Terry brings over 25 years of relevant software marketing,
sales and management experience to AVI Media. From April 2002 to
April 2006, Terry served as the Chief Executive Officer of Avinti, Inc, a
venture-funded startup company developing email security
software. From September 2001 to April 2002, he served as the Vice
President of Marketing at venture-backed Lane15 Software in Austin,
Texas. Prior to that, Terry was the founding Marketing Vice President
at Vinca Corporation from 1998 to 2000, where he played the point role in
negotiating a $92 million acquisition to Legato Systems (NASDAQ: LGTO) in
1999. From 1993 to 1996, Terry served in several marketing positions
at the LANDesk software operation of Intel Corporation, including serving as the
Business Unit Manager. He also served as Intel’s Director of Platform
Marketing, and was appointed as Chairman of the Distributed Management Task
Force, an industry standards body consisting of the top 200 computer hardware
and software vendors. Terry received a BS Degree in Marketing in 1980
from Brigham Young University, and an MBA degree from the University of
Colorado, Boulder in 1981.
Tod M. Turley, Director. Tod was
appointed to the Board of Managers of AVI Media in March 2006, following an
investment in AVI Media by Amerivon Holdings. Tod has served as the
Chairman and Chief Executive Officer of Amerivon Holdings since
2003. Tod has also served as the Chairman and Chief Executive Officer
of Amerivon Investments LLC, a subsidiary of Amerivon Holdings (“Amerivon
Investments” and, together with Amerivon Holdings, “Amerivon”), since he
co-founded it in April 2007. Amerivon is a significant equity holder
and investor in AVI Media. Through its integrated approach of sales,
consulting and capital, Amerivon accelerates rapid growth plans for emerging
growth companies such as AVI Media. Previously, Mr. Turley served as
the Senior Vice President, Business Development of Amerivon Holdings from June
2001 to July 2003. Prior to Amerivon, Mr. Turley was the co-founder
and Senior Vice President of Encore Wireless, Inc. (private label wireless
service provider with a focus on “big-box” retailers). Earlier, he
served for 13 years as a corporate attorney and executive with emerging growth
companies in the telecommunications industry. He currently serves as
a director on a number of other boards of private companies, including Wireless
Advocates and Smart Pack Solutions. Tod graduated from the University
of Utah in 1985 with a BA in Economics and French, and subsequently graduated
from the University of Southern California with a J.D. in 1988.
John E. Tyson, Director. John
became a member of AVI Media’s Board of Managers in May 2007 as a representative
of Amerivon. John has served as the President of Amerivon Investments
LLC upon its formation in April 2007, and also serves as Executive Vice
President of Amerivon Holdings. John previously served as the
President of Amerivon Holdings from May 2005 through April
2007. Concurrently, from April 2005 through April 2007, John served
as the President of Xplane Corporation, an information design firm using visual
maps to make complex processes easier to understand and Corporate Visions Inc.,
a sales consulting and training company. Prior to that, John founded etNetworks
LLC, an IT training company (broadcasting IBM courses via satellite directly to
the Desktop PC) in 1997 and served as the company’s Chairman, Chief
Executive Officer and President through March 2005. From May 1980
through February 1995, John was the Chairman and Chief Executive Officer of
Compression Labs, Inc. (“CLI”), a NASDAQ company developing Video Communications
Systems. CLI pioneered the development of compressed digital video,
interactive videoconferencing and digital broadcast television, including the
systems used in today’s highly successful Hughes DirecTV® entertainment
network. Prior to CLI, John has held executive management positions
with AT&T, General Electric, and General Telephone &
Electronics. He currently serves as Chairman of the Board of Provant,
Inc., is a director on a number of boards of private companies, including
MicroBlend Technologies, Retail Inkjet Solutions, The Wright Company and
AirTegrity (a wireless networking company) and is an Advisory Board Member
of the University of Nevada-Reno, Engineering School.
Jerrell G. Clay, Director. Jerrell
has served as a Director of Secure Alliance since December 1990, and as our
Chief Executive Officer since October 3, 2006. Concurrently, Jerrell
has served as the co-Founder, Chairman of the Board and Chief Executive Officer
of 3 Mark Financial, Inc., an independent life insurance marketing organization,
since January 1997, and has served as President of Protective Financial
Services, Inc., one of the founding companies of 3 Mark Financial, Inc., since
1985. From 1962-1985, Jerrell held various positions within the
insurance industry, including general agent, branch manager, vice president and
branch agency director with a major life insurance company. Jerrell
currently serves as a member of the Independent Marketing Organization’s
Advisory Committee of Protective Life Insurance Company of Birmingham, Alabama
and is the past President of the Houston Chapter of the Society of Financial
Service Professionals. Jerrell is a Chartered Life Underwriter and a Registered
Securities Principal. Upon consummation of the Merger, Jerrell
resigned as our Chief Executive Officer, but will remain a
director.
Stephen P. Griggs, Director. Stephen
has served as a Director of Secure Alliance since June 2002, and was our
President and Chief Operating Officer from October 3, 2006 to the effective date
of the Merger and as our Principal Financial Officer and Secretary from April
20, 2007 to the effective date of the Merger. Stephen has been
primarily engaged in managing his personal investments since
2000. From 1988 to 2000, Stephen held various positions, including
President and Chief Operating Officer of RoTech Medical Corporation, a
NASDAQ-traded company. He holds a Bachelor of Science degree in
Business Management from East Tennessee State University and a Bachelor of
Science degree in Accounting from the University of Central
Florida. Upon consummation of the Merger, Stephen resigned as our
President and Chief Operating Officer, but will remain a
director.
Chett
B. Paulsen, Richard B. Paulsen and Edward B. Paulsen, the original founders of
AVI Media, are brothers.
Committees
of the Board of Directors
We
have an audit and compensation committee. The compensation committee
is comprised of Chett B. Paulsen, John E. Tyson and Tod M.
Turley. The compensation committee gathers information on industry
salaries to set executive compensation levels. This committee also
reviews all equity grants to employees.
The
audit committee, charged with closely reviewing the audit report received from
the auditors and providing a full report to AVI Media’s Board of Managers, is
comprised of Edward B. Paulsen, Tod M. Turley and Stephen
Griggs.
We
intend to appoint such persons to the Board of Directors and committees of the
Board of Directors as are expected to be required to meet the corporate
governance requirements imposed by a national securities exchange, although we
are not required to comply with such requirements until we elect to seek listing
on a securities exchange. We do not currently have any independent
directors.
Compensation
Committee Interlocks and Insider Participation
None
of our executive officers serves as a member of the Board of Directors or
compensation committee of any other entity that has one or more of its
executive officers serving as a member of our Board of
Directors.
Compensation
Discussion and Analysis
Our
primary objective with respect to executive compensation is to design a reward
system that will align executives’ compensation with our overall business
strategies and attract and retain highly qualified executives. The plan rewards
revenue generation and achievement of revenue opportunities generated by signing
contracts with retailers to carry our products. The principle elements of our
executive compensation are salary, bonus and stock option grants. We stay these
elements of compensation to stay competitive in the marketplace with our
peers.
During
2007, we participated in a Pre-IPO and Private Company Total Compensation Survey
which polled 221 companies and just under 14,800 employees (the
“Survey”). Our compensation committee, consisting of one outside
manager and one executive manager, examined the software companies who
participated in the Survey and determined to compensate our executives at
approximately the 25th percentile because of our relatively small size and the
stage of revenue generation. Each of our executive positions is
represented in the Survey and the data from such positions were used in
determining the executive salary levels for 2008. For years prior to
2008, all executives were working for salaries we determined we could afford and
all were making salaries below market and below prior salary
levels.
The
Survey also assessed bonus and total compensation levels. Our executive bonuses
for 2008 are consistent with the Survey at about the 25th
percentile. For years prior to 2008, bonuses were determined by
assessing revenue generation, contracts signed with customers including large
retailers, value creation through signed contracts and general contribution to
the achievement of company objectives to position the company for revenues and
additional outside capital investment. Our compensation also
considered the number of kiosks on which our products were deployed as a result
of an executive’s efforts, since our products are delivered in one instance on
kiosks located in major retailers.
Additional
incentives in the form of options to purchase equity interests in aVinci Media
LC were granted in 2007. Terry Dickson was granted 510,000 (444,191
post Merger) options as incentive to join aVinci Media LC in 2006 and
additional 300,000 (261,289 post Merger) options in 2007. The
total grant was negotiated between aVinci Media LC and Mr.
Dickson. The remaining executives, Chett B. Paulsen, Richard B.
Paulsen and Edward B. Paulsen have not received any option grants or equity in
the company from its formation until 2007. In September 2007, aVinci
Media LC’s Board of Managers approved stock option grants to the original
founders as recognition of their efforts in generating revenues, signing major
retail accounts, positioning the company for future growth and to provide
additional incentive to continue in their management positions through a
critical time of revenue and operational growth. The options vest
over three years, with 50% vesting upon completion of one year of employment
from the date of grant, or September 28, 2008, with the balance vesting monthly
on a pro-rata basis over the following 24 months.
In
considering the elements of compensation, we consider our current cash position
in determining whether to adjust salaries, bonuses and stock option
grants. We, as a small private company, have used our outside
directors who sit on our Board of Managers (Tod M. Turley and John E.
Tyson) to help guide the executive compensation.
Summary
Compensation Table Narrative and Employment Contracts
The
principle elements of our executive compensation are salary, bonus and stock
option grants. On April 1, 2008, Chett B. Paulsen, Richard
B. Paulsen, Edward B. Paulsen and Terry Dickson signed employment agreements
with aVinci Media, LC. Each agreement expires on March 30, 2010 and
provides for payments to each executive in case the executive is terminated
without cause, terminated as a result of death or disability. Further
the term will be extended and will have a two-year term from the date of any
merger or acquisition in which we are not the surviving entity, the sale of
substantially of our assets or a firm commitment underwritten public offering
pursuant to an effective registration statement covering the offer and sale of
common stock that results in more than a thirty percent increase in the number
or shares to be issued and outstanding.
The
employment agreements provide for the following annual base salaries (subject to
increase by the board of managers) and annual bonus target as a percentage of
the executive’s annual base salary:
|
Annual
Base Salary
|
Annual
Bonus Target
|
Chett
B. Paulsen
|
$235,000
|
40%
|
Richard
B. Paulsen
|
$215,000
|
35%
|
Edward
B. Paulsen,
|
$195,000
|
40%
|
Terry
Dickson
|
$185,000
|
95%
|
Summary
Compensation Table
Name
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Changes
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
Chett
B. Paulsen, CEO, President, Manager
|
2005
|
144,000
|
-
|
-
|
-
|
-
|
-
|
-
|
144,000
|
2006
|
163,167
|
144,400
|
-
|
-
|
-
|
-
|
-
|
307,567
|
2007
|
199,375
|
138,937
|
-
|
27,322
(1)
|
-
|
-
|
-
|
365,634
|
|
|
|
|
|
|
|
|
|
Richard
B. Paulsen, CTO, Manager
|
2005
|
120,000
|
-
|
-
|
-
|
-
|
-
|
-
|
120,000
|
2006
|
142,917
|
129,500
|
-
|
-
|
-
|
-
|
-
|
272,417
|
2007
|
183,333
|
118,125
|
-
|
27,322
(1)
|
-
|
-
|
-
|
328,780
|
|
|
|
|
|
|
|
|
|
Edward
B. Paulsen, CFO, COO, Manager
|
2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2006
|
44,423
|
53,495
|
-
|
-
|
-
|
-
|
-
|
97,918
|
2007
|
173,854
|
88,000
|
-
|
19,125
(2)
|
-
|
-
|
-
|
280,979
|
|
|
|
|
|
|
|
|
|
Terry
Dickson, VP Business Development
|
2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2006
|
103,231
|
131,625
|
-
|
31,250
(3)
|
-
|
-
|
-
|
266,106
|
2007
|
181,042
|
135,000
|
-
|
34,238
(4)
|
-
|
-
|
-
|
350,280
|
|
|
|
|
|
|
|
|
|
Mark
Petersen, VP Sales
|
2005
|
-
|
-
|
-
|
-
|
-
|
-
|
58,040
(5)
|
58,040
|
2006
|
25,000
|
6,250
|
-
|
-
|
-
|
-
|
4,453
|
35,703
|
2007
|
100,000
|
50,000
|
-
|
2,732
(6)
|
-
|
-
|
-
|
152,732
|
(1)
|
Non-qualified
option grant to purchase 870,963 common units at $.71 (determined to be
the fair market value on the date of grant). Option vests 50%
upon completing 12 months of employment on September 28, 2008, with the
balance vesting monthly on a pro rata basis over the next 24 months of
employment.
|
(2)
|
Non-qualified
option grant to purchase 609,674 common units at $.71 (determined to be
the fair market value on the date of grant). The Option vests
50% upon completing of 12 months of employment at September 28, 2008, with
the balance vesting monthly on a pro rata basis over the next 24 months of
employment.
|
(3)
|
Non-qualified
option grant to purchase 444,191 common units at $.28 (determined to be
the fair market value on the date of grant). The Option vests
50% upon completing of 12 months of employment at April 25, 2007, with the
balance vesting monthly on a pro rata basis over the next 24 months of
employment.
|
(4)
|
Non-qualified
option grant to purchase 261,289 common units at $.71 (determined to be
the fair market value on the date of grant). The Option vests
50% upon completing of 12 months of employment at September 28, 2008, with
the balance vesting monthly on a pro rata basis over the next 24 months of
employment.
|
(5)
|
Independent
contractor work.
|
(6)
|
Non-qualified
option grant to purchase 87,096 common units at $.71 (determined to be the
fair market value on the date of grant). Option vests 50% upon
completing of 12 months of employment at September 28, 2008, with the
balance vesting monthly on a pro rata basis over the next 24 months of
employment.
|
|
Outstanding
Equity Awards
|
The
following table sets forth all outstanding equity awards held by our Named
Executive Officers as of June 30, 2008.
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
Grant
Date
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable
(1)
|
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
|
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
|
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested (#)
|
|
|
Equity
Incentive Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chett
B. Paulsen, CEO, President, Manager
|
9/28/2007
|
|
|
- |
|
|
|
- |
|
|
|
870,963 |
|
|
$ |
0.71 |
|
12/31/2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
B. Paulsen, CTO, Manager
|
9/28/2007
|
|
|
- |
|
|
|
- |
|
|
|
870,963 |
|
|
$ |
0.71 |
|
12/31/2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
B. Paulsen, CFO, COO, Manager
|
9/28/2007
|
|
|
- |
|
|
|
- |
|
|
|
609,674 |
|
|
$ |
0.71 |
|
12/31/2012
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
Dickson,
VP
Business Development
|
4/25/2006
|
|
|
351,651 |
|
|
|
- |
|
|
|
92,540 |
(2) |
|
$ |
0.28 |
|
04/24/2011
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
9/28/2007
|
|
|
- |
|
|
|
- |
|
|
|
261,289 |
|
|
$ |
0.71 |
|
12/31/2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Petersen, VP Sales
|
9/28/2007
|
|
|
- |
|
|
|
- |
|
|
|
87,096 |
|
|
$ |
0.71 |
|
12/31/2012
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(1)
|
Unless
otherwise indicated, the non-qualified options vest 50% upon completing 12
months of employment on September 28, 2008, with the balance vesting
monthly on a pro rata basis over the next 24 months of
employment.
|
(2)
|
The
non-qualified options vested 50% upon completing 12 months of employment
at April 25, 2007, with the balance vesting monthly on a pro rata basis
over the next 24 months of
employment.
|
Grants
of Plan-Based Awards
As of the
date hereof, no specific awards have been granted or are contemplated under the
2008 Stock Incentive Plan.
Currently,
directors receive no compensation pursuant to any standard arrangement for their
services as directors. Nevertheless, we may in the future determine
to provide our directors with some form of compensation, either cash or options
or contractually restricted securities.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities following the completion of the Share
Exchange and the closing of the Securities Purchase Agreement by (i) any
person or group owning more than 5% of each class of voting securities,
(ii) each director, (iii) our chief executive officer and each other
executive officer whose cash compensation for the most recent fiscal year
exceeded $100,000 and (iv) all executive officers and directors as a group
as of June 6, 2008. Unless otherwise indicated, the address of the
below-listed persons is our address, 11781 South Lone Peak Parkway,
Draper, UT 84020.
Name
and Address of Beneficial Owner
|
Number
of Shares Beneficially Owned (1)
|
Percent
of Class
|
|
|
|
Chett
B. Paulsen (2) (3)
|
6,411,458
|
13.16%
|
Richard
B. Paulsen (2) (4)
|
4,239,744
|
8.70%
|
Edward
B. Paulsen (2) (5)
|
2,227,691
|
4.57%
|
Tod
M. Turley (2) (6)
|
18,532,212
|
36.82%
|
John
E. Tyson (2) (7)
|
18,590,535
|
36.94%
|
Jerrell
G. Clay (2) (8)
|
566,703
|
1.15%
|
Stephen
B. Griggs (2) (9)
|
475,000
|
<1.00%
|
Terry
Dickson(2) (10)
|
328,705
|
<1.00%
|
Mark
Petersen(2)
|
602,171
|
1.24
|
Amerivon
Investments LLC (11)
|
18,532,212
|
36.82%
|
Directors
and Executive Officers as a group (7 persons)
|
33,527,782
|
64.97%
|
|
|
|
Total
Shares Issued
|
48,737,928
|
100.00%
|
(1)
|
In
determining beneficial ownership of our common stock as of a given date,
the number of shares shown includes shares of common stock which may be
acquired on exercise of warrants or options or conversion of convertible
securities within 60 days of that date. In determining the percent of
common stock owned by a person or entity on June 6, 2008, (a) the
numerator is the number of shares of the class beneficially owned by such
person or entity, including shares which may be acquired within 60 days on
exercise of warrants or options and conversion of convertible securities,
and (b) the denominator is the sum of (i) the total shares of
common stock outstanding on June 4, 2008, and (ii) the total number
of shares that the beneficial owner may acquire upon conversion of the
preferred and on exercise of the warrants and options. Unless otherwise
stated, each beneficial owner has sole power to vote and dispose of its
shares.
|
(2)
|
These
are the officers and directors of our
company .
|
(3)
|
These
shares are owned of record by P&D, LP, a family limited
partnership. In addition, Chett B. Paulsen has an option to
purchase 870,963 shares of stock at $0.27 per share. Such
option is not currently
exercisable.
|
(4)
|
These
shares are owned of record by 5 P’s in a Pod, LP, a family limited
partnership. In addition, Richard B. Paulsen has an option to
purchase 870,973 shares of common stock at $0.71 per
share. Such option is not currently
exercisable.
|
(5)
|
These
shares are owned of record by Family Enrichment, LP, a family limited
partnership. In addition, Edward B. Paulsen has an option to
purchase 609,674 shares of common stock at $0.71 per
share. Such option is not currently
exercisable.
|
(6)
|
Includes
(i) 16,929,640 shares owned of record by Amerivon Investments LLC,
(ii) 949,350 shares of common stock underlying currently exercisable
warrants owned by Amerivon Investments LLC, and (iii) 653,222 shares
of common stock underlying currently exercisable stock options owned by
Amerivon Investments LLC Amerivon Investments LLC is an
affiliate of Mr. Turley.
|
(7)
|
Includes
(i) 58,323 shares owned of record by Mr. Tyson, (ii) 16,929,640
shares owned of record by Amerivon Investments LLC, (iii) 949,350
shares of common stock underlying currently exercisable warrants owned by
Amerivon Investments LLC, and (iv) 653,222 shares of common stock
underlying currently exercisable stock options owned by Amerivon
Investments LLC. Amerivon Investments LLC is an affiliate of
Mr. Tyson.
|
(8)
|
Includes
91,703 shares owned of record and 475,000 shares underlying currently
exercisable stock options.
|
(9)
|
Represents
475,000 shares underlying currently exercisable stock
options.
|
|
|
(10)
|
Includes
88,102 shares owned of record and 240,603 shares underlying currently
exercisable stock options.
|
|
|
(11)
|
Includes
(i) 16,929,640 shares owned of record, (ii) 949,350 shares of
common stock underlying currently exercisable warrants, and
(iii) 653,222 shares of common stock underlying currently exercisable
options. These shares are also attributed to Mr. Turley and Mr.
Tyson as described in footnotes 6 and 7
above.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
December 2006, we received loans with Chett B. Paulsen ($ 158,113 ),
Richard B. Paulsen ($100,000), and Edward B. Paulsen ($7,670). In
January 2007, Chett B. Paulsen loaned an additionaly $20,000. 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 asset to
be amortized over the life of the loans. In April and May 2007, total
outstanding principal and accrued interest, of $285,783
and $10,376, were repaid and the associated asset was fully
amortized.
Tod M.
Turley, a member of our Board of Directors, serves as the Chairman
and Chief Executive Officer of Amerivon Investments LLC and Amerivon Holdings.
LLC. John E. Tyson, who is also a member of our Board of
Directors, serves as the President of Amerivon Investments
LLC. Amerivon Investments LLC is a significant investor and equity
holder in our company and the Selling Stockholder.
During
2006, Amerivon Investments LLC invested a total of $2,390,000 in AVI Media’s
convertible debt. At the time of its initial investment, Amerivon
Investments LLC placed Tod M. Turley on aVinci Media LC’s Board of
Managers. During 2007, Amerivon Investments LLC (i) converted
$2,390,000 of aVinci Media LC’s convertible debt into common units of aVinci
Media LC’s membership interests, (ii) made a $2,000,000 bridge loan that was
later converted in Series B Preferred Units of aVinci Media LC’s membership
interests (the “Series B preferred”) and (iii) purchased an additional
$4,400,000 of Series B preferred. Upon the closing of the Series B
preferred offering, Amerivon placed John E. Tyson on aVinci Media LC’s Board of
Managers. Amerivon Investments LLC converted all of its Series B
preferred units to common units in connection with the consummation of the
Merger. In exchange for the conversion, Amerivon Investments LLC also
received an additional 1,525,000 shares of aVinci Media LC’s common
units.
Additionally,
aVinci Media, LC entered into a consulting agreement with Amerivon Holdings LLC
on August 1, 2007 whereby Amerivon Holdings LLC received $775,000 for advising
aVinci Media, LC with regard to financial transactions and preparing for
entering the public market. The consulting agreement called for
payment of $10,000 per month for six months from August 2007 to January 2008,
with additional payments of $119,166 for the following six
months. Amerivon Holdings LLC agreed to defer receipt of $109,116
each month until such time as aVinci Media, LC had additional cash
available. aVinci Media, LC terminated the Sales Consulting Agreement
entered into on July 1, 2007 and entered into a new Sales Consulting Agreement,
effective as of July 1, 2008. Under the new Sales Consulting
Agreement, aVinci Media LC will pay Amerivon Holdings LLC 1.25% of aVinci
Media’s “Net Sales” generated through “Mass Retail.” “Mass Retail”
means any retailer having more than 100 physical store
locations. “Net Sales” means revenue generated to aVinci Media LC
through product sales in Mass Retail less any discounts, freight, promotional
allowances, returns, non-payments, rebates and other customary
allowances.
On July
1, 2007, aVinci Media, LC finalized a Sales Representative Agreement, which was
amended on November 7, 2007, with Amerivon Holdings LLC whereby Amerivon
Holdings LLC is entitled to receive up to a 10% commission on adjusted sales to
customers brought to us by Amerivon Holdings
LLC. Amerivon Holdings LLC also received an option to purchase a
total of 1,959,666 of our common stock: 653,222 options priced at $0.18 and
subject to sales performance in 2007, 653,222 options priced at $0.18 and
subject to sales performance in 2008, and 653,222 options priced at $0.71 and
subject to sales performance vesting in 2009. The sales goals for the first
group of 653,222 options were met and the options vested at the end of July,
2007, resulting in equity-based compensation expense of $371,955.
Up to
17,878,990 shares of common stock are being offered by this prospectus, all of
which are being registered for sale for the accounts of the selling security
holder, Amerivon Investments LLC, an underwriter for purposes of this
prospectus, and include the following:
· 16,929,640
shares of common stock held by Amerivon Investments LLC;
|
· 949,350
shares issuable upon the exercise of common stock warrants by Amerivon
Investments LLC;
|
Each of
the transactions by which the selling stockholder acquired their securities from
us was exempt under the registration provisions of the Securities
Act.
The
shares of common stock referred to above are being registered to permit public
sales of the shares, and the selling stockholder may offer the shares for resale
from time to time pursuant to this prospectus. The selling stockholder may also
sell, transfer or otherwise dispose of all or a portion of their shares in
transactions exempt from the registration requirements of the Securities
Act or pursuant to another effective registration statement covering those
shares.
Beneficial
ownership is determined in accordance with the rules of the SEC. Each selling
stockholder’s percentage of ownership of our outstanding shares in the table
below is based upon 48,737,928 shares of common stock outstanding as of
July 28, 2008.
|
|
Ownership Before Offering
|
|
|
After Offering(1)
|
|
Selling Stockholder
|
|
Number of
shares of
Common Stock
beneficially
owned
|
|
|
Number of
shares
offered
|
|
|
Number of
shares of
Common
Stock
beneficially
owned
|
|
|
Percentage
of
Common
Stock
Beneficially
owned
|
|
Amerivon
Investments LLC (2)
|
|
|
19,838,656 |
(3) |
|
|
17,878,990 |
(4) |
|
|
1,959,666 |
(5) |
|
|
4.0 |
% |
We will
not receive any proceeds from the resale of the common stock by the selling
stockholder. We will receive proceeds from the exercise of the warrants and
options.
(1)
|
Represents
the amount of shares that will be held by the selling stockholder after
completion of this offering based on the assumptions that (a) all shares
registered for sale by the registration statement of which this prospectus
is part will be sold and (b) no other shares of our common stock are
acquired or sold by the selling stockholder prior to completion of this
offering. However, the selling stockholder may sell all, some or none of
the shares offered pursuant to this prospectus or sell some or all of
their shares pursuant to an exemption from the registration provisions of
the Securities Act, including under Rule 144. To our knowledge there are
currently no agreements, arrangements or understanding with respect to the
sale of any of the shares that may be held by the selling stockholder
after completion of this offering or
otherwise.
|
(2)
|
Amerivon
Investments LLC’s voting and dispositive powers can be exercised by Tod M.
Turley and John E. Tyson, as the company’s CEO and President
respectively. Both Mr. Turley and Mr. Tyson are current members
of AVI Media’s board of directors. Amerivon Investments LLC for
purposes of this registration is an underwriter. Amerivon
Investments LLC is not a broker-dealer or an affiliate of a
broker-dealer.
|
(3)
|
Includes
currently exercisable warrants to purchase 949,350 shares of Common Stock
at $0.53 per share and currently exercisable options to purchase 653,222
shares of Common Stock at $0.18 per share. Also includes
653,222 non-vested options priced at $0.18 and subject to sales
performance in 2008 and 653,222 options priced at $0.71 and subject to
sales performance vesting in 2009.
|
(4)
|
Includes
currently exercisable warrants to purchase 949,350 shares of Common Stock
at $0.53 per share.
|
(5)
|
Includes
653,222 vested options priced at $0.18, 653,222 non-vested options priced
at $0.18, and subject to sales performance in 2008, and 653,222 options
priced at $0.71 and subject to sales performance vesting in
2009.
|
Pursuant
to an Agreement and Plan of Merger and Reorganization dated December 6, 2007 and
amended March 31, 2008 (the “Merger Agreement”), by and among aVinci Media
Corporation (then operating as Secure Alliance Holdings Corporation, SMG Utah,
LC, a Utah limited liability company and wholly owned subsidiary of the Secure
Alliance Holdings Corporation (“Merger Sub”), and aVinci Media,
LC,
Merger Sub merged with and into aVinci Media, LC, with aVinci Media, LC
remaining as the surviving entity and our wholly owned operating subsidiary (the
“Merger”). The Merger was effective on June 6, 2008, upon the filing
of Articles of Merger with the Utah Division of Corporations. In
connection with the Merger transaction, we amended our Certificate of
Incorporation to (i) change our name from Secure Alliance Holdings Corporation
to aVinci Media Corporation; (ii) increase our authorized shares of common stock
from 100,000,000 to 250,000,000; (iii) authorize a class of preferred stock
consisting of 50,000,000 shares of $.01 per value preferred stock; and (iv)
effect a 1-for-2 reverse stock split.
In
connection with the Merger, we effected a 1-for-2 reverse split of our issued
and outstanding common stock. Accordingly, the 19,484,032 shares of
our common stock issued and outstanding immediately prior to the Merger were
reduced to approximately 9,742,016 shares (subject to rounding) as a result of
the Merger. We issued 38,986,114 post split shares of our common
stock in the Merger to the holders of aVinci Media, LC membership interests
representing approximately 80% of our common stock outstanding immediately after
the Merger. As a result of the reverse split and the Merger, there
were 48,728,130 shares of our common stock issued and outstanding on June 6,
2008.
DESCRIPTION
OF SECURITIES
We are
authorized to issue up to 250,000,000 shares of common stock, $.01 par value and
50,000,000 shares of preferred stock, $.01 par value. As of July 28, 2008, there
were 48,737,928 shares of our common stock issued and outstanding and no shares
of preferred stock issued or outstanding. The following is a summary
of the material rights and privileges of our common stock and preferred
stock.
Common
Stock
Subject
to the rights of the holders of any preferred stock that may be outstanding,
each holder of common stock on the applicable record date is entitled to receive
such dividends as may be declared by the Board of Directors out of funds legally
available therefrom, and in the event of liquidation, to share pro rata in any
distribution of our assets after payment, or providing for the payment, of
liabilities and the liquidation preference of any outstanding preferred stock.
Each holder of common stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of common stock have
no cumulative voting rights or preemptive rights to purchase or subscribe for
any stock or other securities. Except as disclosed herein, there are no
conversion rights or redemption or sinking fund provisions with respect to the
common stock. All outstanding shares of common stock are, and the shares of
common stock offered hereby will be, when issued, fully paid and
nonassessable.
Preferred
Stock
We are
authorized to issue 50,000,000 shares of “blank check” preferred stock, none of
which as of the date hereof is designated or outstanding. The Board of Directors
is vested with authority to divide the shares of preferred stock into series and
to fix and determine the relative designation, powers, preferences and rights of
the shares of any such series and the qualifications, limitations, or restrictions or any unissued series of preferred stock.
Adoption
of 2008 Stock Incentive Plan
As a
condition to the Closing of the Merger, we adopted a Stock Incentive
Plan (“2008 Stock Incentive Plan”) that can be used following the Closing
of the Merger. The Board of Directors believes that the adoption and
approval of a long-term stock incentive plan will facilitate the continued use
of long-term equity-based incentives and rewards for the foreseeable future and
is in the best interests of the Company. Stockholder approval of the
2008 Stock Incentive Plan was obtained, among other reasons, to ensure the tax
deductibility of awards under the 2008 Stock Incentive Plan for purposes of
Section 162(m) of the Internal Revenue Code. The Majority Stockholders have
approved the 2008 Stock Incentive Plan.
The
following table provides information regarding the aggregate number of shares of
our common stock to be issued under our 1997 Long-Term Incentive Plan upon the
exercise of outstanding options and the vesting of awards, their
weighted-average exercise price, and the number of securities available for
future issuance as of June 30, 2008. Material features of this plan are
described more fully in Note 10 to the Consolidated Financial Statements filed
as part of our Annual Report on Form 10-K for the year ended September 30,
2007.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
950,000 |
|
|
$ |
1.24 |
|
|
|
16,475 |
|
Equity
compensation plans not approved by security holders
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Total
|
|
|
950,000 |
|
|
$ |
1.24 |
|
|
|
16,475 |
|
The following table
provides information regarding common stock authorized for issuance under our
2008 Incentive Stock Plan as of June 30, 2008:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
– |
|
|
|
– |
|
|
|
2,500,000 |
|
Equity
compensation plans not approved by security holders
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Total
|
|
|
– |
|
|
|
– |
|
|
|
2,500,000 |
|
Securities
issued and outstanding as of June 30, 2008 not under an equity compensation plan
include the following:
·
|
Warrants: 1,249,350
with a weighted average exercise price of $
0.68
|
·
|
Options: 5,521,904
with a weighted average exercise price of $
0.54
|
The
following table provides information regarding common stock authorized for
issuance under our 2008 Incentive Stock Plan as of June 30, 2008:
Transfer
Agent
Our
transfer agent is Computershare, 350 Indiana Street, Suite 800, Golden, CO
80401; telephone (303) 262-0600.
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock previously issued and the shares of
common stock issuable upon exercise of the warrants and options to permit the
resale of these shares of common stock by the holder of the common stock,
warrants and options from time to time after the date of this prospectus.
We will not receive any of the proceeds from the sale by the selling stockholder
of the shares of common stock. We will bear all fees and expenses incident
to our obligation to register the shares of common stock.
The
selling stockholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the over-the-counter market or any other stock exchange,
market or trading facility on which the shares are traded, or in private
transactions. These sales may be at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time of sale or
negotiated prices. The selling stockholder may use any one or more of the
following methods when selling shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
to
cover short sales made after the date that this registration statement is
declared effective by the
Commission;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
·
|
broker-dealers
may agree with a selling stockholder to sell a specified number of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholder may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholder may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated.
The selling stockholder does not expect these commissions and discounts to
exceed what is customary in the types of transactions involved.
The
selling stockholder may from time to time pledge or grant a security interest in
some or all of the shares owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell
shares of common stock from time to time under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholder may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholder may also sell shares of our common stock short and if such short
sale shall take place after the date that this registration statement is
declared effective by the Commission, the selling stockholder may deliver these
securities to close out such short sales, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities. The selling
stockholder may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
Upon us
being notified in writing by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of each such selling stockholder and of the
participating broker-dealer(s), (ii) the number of shares involved,
(iii) the price at which such the shares of common stock were sold, (iv)the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In
addition, upon us being notified in writing by a selling stockholder that a
donee or pledgee intends to sell more than 500 shares of common stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.
The
selling stockholder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholder and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of securities will be paid by the selling stockholder and/or the
purchasers.
We have
advised each selling stockholder that it may not use shares registered on this
registration statement to cover short sales of common stock made prior to the
date on which this registration statement shall have been declared effective by
the Commission. If a selling stockholder uses this prospectus for any sale
of the common stock, it will be subject to the prospectus delivery requirements
of the Securities Act unless an exemption therefrom is available. The
selling stockholder will be responsible to comply with the applicable provisions
of the Securities Act and Exchange Act, and the rules and regulations thereunder
promulgated, including, without limitation, Regulation M, as applicable to such
selling stockholder in connection with resales of their respective shares under
this registration statement.
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
We have
agreed to indemnify the selling stockholder against certain losses, claims,
damages and liabilities, including liabilities under the Securities
Act.
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
The
financial statements as of December 31, 2007 and December 31, 2006 and for the
years then ended included in this prospectus have been audited by Tanner LC,
independent registered public accounting firm, as stated in their report
appearing elsewhere herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Subsequent
to completion of the Merger, the Board of Directors determined that it was in
the best interests of our company to appoint the accounting firm used
by aVinci Media LC prior to the Merger as the independent registered public
accounting firm in place our previous accounting firm.
Effective
June 16, 2008, Hein & Associates, LLP (“Hein”) was notified that it was no
longer our independent registered public accounting firm. The reports
of Hein on our financial statements for the fiscal years ended
September 30, 2007 and 2006 did not contain an adverse opinion or a disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope
or accounting principles.
During
the fiscal years ended September 30, 2007 and 2006 and through June 12, 2008,
there were no disagreements with Hein on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
disagreements, if not resolved to the satisfaction of Hein, would have caused
Hein to make a reference to the subject matter of the disagreement in its
reports on the our financial statements for such periods. There were
no reportable events (as defined in Regulation S-B Item 304(a)(1)(iv)) during
the fiscal years ended September 30, 2007 and 2006 or the subsequent interim
period through June 12, 2008.
On June
16, 2008, upon the authorization and approval of the full Board of Directors
acting as the audit committee, we appointed the accounting firm of Tanner, LC
(“Tanner”) as our independent registered public accounting firm. No
consultations occurred between us and Tanner during the years ended September
30, 2007 and 2006 and through June 12, 2008 regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction, the type of audit opinion that might be rendered on our financial
statements, or other information provided that was an important factor
considered by us in reaching a decision as to an accounting, auditing or
financial reporting issue, or (ii) any matter that was the subject of
disagreement or a reportable event requiring disclosure under Item 304(a)(1)(iv)
of Regulation S-B.
We have
filed a registration statement on Form S-1 under the Securities Act of 1933, as
amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of aVinci Media Corporation, filed as part
of the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange
Commission.
We file
annual, quarterly and current reports and other information with the SEC under
the Securities Exchange Act of 1934, as amended. Our SEC filings are
available to the public over the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document we file at the SEC’s
public reference room located at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms and their copy charges. You may also request a copy of those
filings, excluding exhibits, from us at no cost. Any such request should be
addressed to us at: 11781 South Lone Peak Parkway Suite 22-270, Draper, Utah
84020.
Audited
Financial Statements of Sequoia Media Group, LC as of December 31, 2007
and 2006 and for the years then ended.
|
|
F-1
|
|
|
|
Unaudited
Financial Statements as of June 30, 2008 and for the Six Months Ended June
30, 2008 and 2007
|
|
F-35
|
|
|
|
Unaudited
Proforma Condensed Consolidated Financial Statements
|
|
F-51
|
.
SEQUOIA
MEDIA GROUP, LC
Financial
Statements
As
of December 31, 2007 and 2006 and for the Years Then Ended
Together
with Report of Independent Registered Public Accounting Firm
|
|
215 South
State Street, Suite 800
Salt Lake City, Utah 84111
Telephone (801) 532-7444
Fax
(801) 532-4911
www.tannerco.com
|
|
|
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To
the Members of
Sequoia
Media Group, LC
We have
audited the accompanying balance sheets of Sequoia Media Group, LC (the
Company), as of December 31, 2007 and 2006, and the related statements of
operations, changes in members’ deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sequoia Media Group, LC as of
December 31, 2007 and 2006, and the results of its operations and its cash flows
for the years then ended, in conformity with U.S. generally accepted accounting
principles.
/s/
Tanner LC
Salt Lake
City, Utah
February
22, 2008
(except
for Note 12, which is dated June 6, 2008)
Assets
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
859,069 |
|
|
$ |
168,692 |
|
Accounts
receivable
|
|
|
448,389 |
|
|
|
10,000 |
|
Unbilled
accounts receivable
|
|
|
- |
|
|
|
465,472 |
|
Inventory
|
|
|
21,509 |
|
|
|
4,331 |
|
Prepaid
expenses
|
|
|
100,799 |
|
|
|
53,757 |
|
Deferred
costs
|
|
|
294,602 |
|
|
|
- |
|
Deposits
and other current assets
|
|
|
44,201 |
|
|
|
72,559 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,768,569 |
|
|
|
774,811 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
990,523 |
|
|
|
309,008 |
|
Intangibles,
net
|
|
|
74,689 |
|
|
|
70,381 |
|
Other
Assets
|
|
|
20,408 |
|
|
|
111,011 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,854,189 |
|
|
$ |
1,265,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Member's Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
75,118 |
|
|
$ |
104,832 |
|
Accrued
liabilities
|
|
|
823,772 |
|
|
|
820,143 |
|
Distribution
payable
|
|
|
308,251 |
|
|
|
- |
|
Current
portion of capital leases
|
|
|
118,288 |
|
|
|
- |
|
Current
portion of deferred rent
|
|
|
38,580 |
|
|
|
- |
|
Note
payable
|
|
|
1,000,000 |
|
|
|
- |
|
Convertible
debentures and notes payable
|
|
|
|
|
|
|
2,234,660 |
|
Related
party notes payable
|
|
|
- |
|
|
|
265,783 |
|
Deferred
revenue
|
|
|
493,599 |
|
|
|
11,250 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,857,608 |
|
|
|
3,436,668 |
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
|
222,611 |
|
|
|
- |
|
Deferred
rent, net of current portion
|
|
|
71,839 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,152,058 |
|
|
|
3,436,668 |
|
|
|
|
|
|
|
|
|
|
Series
B redeemable convertible preferred units, no
|
|
|
|
|
|
|
|
|
par
value, 12,000,000 units authorized; 8,804,984 and 0
|
|
|
|
|
|
|
|
|
units
outstanding, respectively (liquidation preference
|
|
|
|
|
|
|
|
|
of
$6,603,182 at December 31, 2007)
|
|
|
6,603,182 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members'
deficit
|
|
|
|
|
|
|
|
|
Series
A convertible preferred units, no par value,
|
|
|
|
|
|
|
|
|
3,746,485
units authorized; 3,533,720 units outstanding
|
|
|
|
|
|
|
|
|
(liquidation
preference of $474,229)
|
|
|
474,229 |
|
|
|
474,229 |
|
Common
units, no par value, 90,000,000 units
|
|
|
|
|
|
|
|
|
authorized;
29,070,777 and 21,547,422 units outstanding,
|
|
|
|
|
|
|
|
|
repectively.
|
|
|
4,211,737 |
|
|
|
1,103,679 |
|
Accumulated
deficit
|
|
|
(11,587,017 |
) |
|
|
(3,749,365 |
) |
|
|
|
|
|
|
|
|
|
Total
members' deficit
|
|
|
(6,901,051 |
) |
|
|
(2,171,457 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and members' deficit
|
|
$ |
2,854,189 |
|
|
$ |
1,265,211 |
|
See accompanying notes to financial
statements.
SEQUOIA
MEDIA GROUP, LC
Statements
of Operations
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
541,856 |
|
|
$ |
739,200 |
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
57,068 |
|
|
|
- |
|
Research
and development
|
|
|
1,890,852 |
|
|
|
1,067,687 |
|
Selling
and marketing
|
|
|
1,351,860 |
|
|
|
547,448 |
|
General
and administrative
|
|
|
3,677,326 |
|
|
|
1,755,127 |
|
Depreciation
and amortization
|
|
|
277,458 |
|
|
|
103,160 |
|
|
|
|
|
|
|
|
|
|
Total
operating expense
|
|
|
7,254,564 |
|
|
|
3,473,422 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(6,712,708 |
) |
|
|
(2,734,222 |
) |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
66,524 |
|
|
|
4,726 |
|
Interest
expense
|
|
|
(693,217 |
) |
|
|
(806,439 |
) |
|
|
|
|
|
|
|
|
|
Net
other income (expense)
|
|
|
(626,693 |
) |
|
|
(801,713 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(7,339,401 |
) |
|
|
(3,535,935 |
) |
|
|
|
|
|
|
|
|
|
Deemed
distribution on Series B redeemable
|
|
|
|
|
|
|
|
|
convertible
preferred units
|
|
|
(190,000 |
) |
|
|
- |
|
Distributions
on Series B redeemable
|
|
|
|
|
|
|
|
|
convertible
preferred units
|
|
|
(308,251 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common units
|
|
$ |
(7,837,652 |
) |
|
$ |
(3,535,935 |
) |
|
|
|
|
|
|
|
|
|
Loss
per common unit - basic and diluted
|
|
$ |
(0.30 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common units - basic
|
|
|
|
|
|
|
|
|
and
diluted
|
|
|
26,453,062 |
|
|
|
21,547,422 |
|
See accompanying notes to financial
statements.
SEQUOIA
MEDIA GROUP, LC
Statements
of Changes in Members’ Deficit
Years
Ended December 31, 2007 and 2006
|
|
Series
A Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Accumulated
|
|
|
Member's
|
|
|
|
Units
|
|
|
Amount
|
|
|
Units
|
|
|
Amount
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
3,533,720 |
|
|
$ |
474,229 |
|
|
|
21,547,422 |
|
|
$ |
325,500 |
|
|
$ |
(213,430 |
) |
|
$ |
586,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of detachable warrants in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with debentures payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
251,552 |
|
|
|
- |
|
|
|
251,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures
payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
489,268 |
|
|
|
- |
|
|
|
489,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based
payments made to employees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
37,359 |
|
|
|
- |
|
|
|
37,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,535,935 |
) |
|
|
(3,535,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
3,533,720 |
|
|
|
474,229 |
|
|
|
21,547,422 |
|
|
|
1,103,679 |
|
|
|
(3,749,365 |
) |
|
|
(2,171,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debentures payable and accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
payable into common units
|
|
|
- |
|
|
|
- |
|
|
|
7,523,355 |
|
|
|
2,602,668 |
|
|
|
- |
|
|
|
2,602,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
equity-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
505,390 |
|
|
|
- |
|
|
|
505,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of Issuance costs on Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable
convertible preferred units
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(190,000 |
) |
|
|
(190,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
preferred units
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(308,251 |
) |
|
|
(308,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,339,401 |
) |
|
|
(7,339,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
3,533,720 |
|
|
$ |
474,229 |
|
|
|
29,070,777 |
|
|
$ |
4,211,737 |
|
|
$ |
(11,587,017 |
) |
|
$ |
(6,901,051 |
) |
See accompanying notes to financial
statements.
SEQUOIA
MEDIA GROUP, LC
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(7,339,401 |
) |
|
$ |
(3,535,935 |
) |
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
490,549 |
|
|
|
201,893 |
|
Accretion
of debt discount
|
|
|
338,594 |
|
|
|
582,230 |
|
Equity-based
compensation
|
|
|
505,390 |
|
|
|
37,359 |
|
Loss
on disposal of equipment
|
|
|
1,063 |
|
|
|
1,668 |
|
Decrease
(increase) in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(438,389 |
) |
|
|
(10,000 |
) |
Unbilled
accounts receivable
|
|
|
465,472 |
|
|
|
260,508 |
|
Inventory
|
|
|
(17,178 |
) |
|
|
(4,331 |
) |
Prepaid
expenses
|
|
|
(47,042 |
) |
|
|
(50,502 |
) |
Deferred
costs
|
|
|
(294,602 |
) |
|
|
- |
|
Other
current assets
|
|
|
28,358 |
|
|
|
(72,559 |
) |
Deposits
|
|
|
(5,409 |
) |
|
|
(14,999 |
) |
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(29,714 |
) |
|
|
5,761 |
|
Accrued
liabilities
|
|
|
236,225 |
|
|
|
775,350 |
|
Deferred
rent
|
|
|
110,419 |
|
|
|
- |
|
Deferred
revenue
|
|
|
482,349 |
|
|
|
(67,083 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(5,513,316 |
) |
|
|
(1,890,640 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(562,987 |
) |
|
|
(344,995 |
) |
Purchase
of intangible assets
|
|
|
(14,308 |
) |
|
|
(70,000 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(577,295 |
) |
|
|
(414,995 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from convertible notes and debentures
|
|
|
1,535,000 |
|
|
|
2,393,250 |
|
Proceeds
from note payable
|
|
|
1,000,000 |
|
|
|
- |
|
Payments
of loan costs
|
|
|
(117,080 |
) |
|
|
(194,745 |
) |
Proceeds
from related party notes payable
|
|
|
20,000 |
|
|
|
265,783 |
|
Payments
on related party notes payable
|
|
|
(285,783 |
) |
|
|
- |
|
Payments
on obligation under capital lease
|
|
|
(46,149 |
) |
|
|
- |
|
Proceeds
from issuance of Series B preferred units
|
|
|
|
|
|
|
|
|
net
of issuance costs of $190,000
|
|
|
4,675,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
6,780,988 |
|
|
|
2,464,288 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
690,377 |
|
|
|
158,653 |
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of year
|
|
|
168,692 |
|
|
|
10,039 |
|
|
|
|
|
|
|
|
|
|
Cash
at end of year
|
|
$ |
859,069 |
|
|
$ |
168,692 |
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest and income taxes
|
|
$ |
- |
|
|
$ |
- |
|
See accompanying notes to financial
statements.
SEQUOIA
MEDIA GROUP, LC
Statements
of Cash Flows
Continued
Supplemental
schedule of non-cash investing and financing activities:
During
the year ended December 31, 2007:
·
|
The
Company converted notes payable of $1,535,000 and $23,178 of related
accrued interest into 2,318,318 Series B redeemable convertible preferred
units.
|
·
|
The
Company converted $2,393,250 of debentures and notes payable and $209,418
of related accrued interest into 7,523,355 common
units.
|
·
|
The
Company recorded a debt discount of $8,129 and a beneficial conversion
feature of $171,875 in connection with the issuance of Series B redeemable
convertible preferred units.
|
·
|
The
Company accrued distributions payable on Series B redeemable convertible
preferred units of $308,251.
|
·
|
The
Company acquired $387,048 of fulfillment equipment and office furniture
through capital lease agreements.
|
·
|
The
Company recorded a deemed distribution of $190,000 due to the accretion of
issuance costs related to the Series B
offering.
|
During
the year ended December 31, 2006:
·
|
The
Company recorded a debt discount of $251,552 and a beneficial
conversion feature of $489,268 in connection with the issuance of
convertible debt.
|
See accompanying notes to financial
statements.
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
1. |
Description of
Organization
and Summary
of
Significant
Accounting
Policies
|
Organization and Nature of
Operations |
|
Sequoia Media
Group, LC (the Company), a Utah limited liability company, was formed on
March 15, 2003. The Company develops os. 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. |
|
|
|
|
|
|
|
|
|
Basis of
Presentation |
|
|
The accompanying
financial statements are presented in accordance with U.S. generally
accepted accounting principles. |
|
|
|
|
|
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. As of December 31, 2007 and December 31, 2006, the
Company had approximately $952,752 and $153,874 respectively, in excess of
the insured limits, primarily in cash equivalents. 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: |
|
|
2007
|
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
Customer
A
|
|
|
97.1 |
% |
|
|
18.6 |
% |
Customer
B
|
|
|
5.9 |
% |
|
|
3.9 |
% |
Customer
C
|
|
|
0 |
% |
|
|
77.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Revenue
|
|
|
Accounts
Receivable
|
|
Customer
A
|
|
|
100.0 |
% |
|
|
100.0 |
% |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description of
Organization
and Summary
of
Significant
Accounting
Policies
Continued
|
Net Loss per Common
Unit |
|
Basic
earnings (loss) per unit (EPS) is calculated by dividing income (loss)
available to common unit holders by the weighted-average number of common
units outstanding during the period.
Diluted
EPS is similar to Basic EPS except that the weighted-average number of
common units outstanding is increased using the treasury stock
method to include the number of additional common units that would have
been outstanding if the dilutive potential common units had
been issued. Such potentially dilutive common units include stock options
and warrants, convertible preferred stock, redeemable
convertible preferred stock and convertible notes and debentures. Units
having an antidilutive effect on periods presented are not included in the
computation of dilutive
EPS.
|
|
|
|
|
|
|
|
|
|
|
The
average number of units of all stock options and warrants granted, all
convertible preferred stock, redeemable convertible preferred stock and
convertible debentures have been omitted from the computation of diluted
net loss per common unit because their inclusion would have been
anti-dilutive for the years ended December 31, 2007 and
2006.
|
|
|
|
|
|
For the years
ended December 31, 2007 and 2006, the Company had 21,749,309 and 7,269,325
potentially dilutive units of common stock, respectively, not included in
the computation of diluted net loss per common unit because it would have
decreased the net loss per common unit. These options and warrants,
convertible preferred stock, redeemable convertible preferred stock and
convertible notes and debentures could be dilutive in the
future. |
|
|
|
|
|
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. Key estimates made by management in the
accompanying financial statements include the economic useful lives
assigned to property and equipment, recoverability of long-lived assets
based on expected future undiscounted cash flows, the fair value of the
Company’s units on the dates of share-based compensation awards and the
assumptions used in the Black-Scholes option-pricing
model.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
|
|
1. |
Description of Organization
and
Summary of
Significant
Accounting
Policies
Continued
|
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 December 31, 2007 and
2006, 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 December 31, 2007 and 2006, 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.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description
of Organization
and
Summary |
Property and
Equipment - Continued |
|
of
Significant Accounting
Policies
Continued |
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
December 31, 2007 and 2006, management determined the carrying
amounts of the Company’s property and equipment were not
impaired. |
|
|
|
|
|
Revenue
Recognition and Deferred Revenue |
|
|
BigPlanet Contract |
|
|
Prior to
March 31, 2007, the Company generated the majority of its revenue from one
customer, BigPlanet, a division of NuSkin International, Inc. The contract
with BigPlanet 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.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description of
Organization
and Summary
of Significant
Accounting
Policies
Continued
|
BigPlanet Contract - Continued |
|
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. |
|
|
|
Integrated
Kiosk Revenue Contracts |
|
Under the
kiosk revenue model, the Company integrates its technology with a kiosk
provided by a third party. The kiosk is placed in retail stores where
the end consumers utilize the kiosk to load their digital images and make
a variety of products. Under this revenue model, the Company enters
into agreements with the retail stores. The agreements provide for
the initial sale of the software license, installation of the
software, training, post contract support (PCS), order fulfillment, and
ongoing royalty payments based on volume of product generated
through the kiosk using the Company’s technology. Because these
contracts involve a significant software component, the Company accounts
for its revenue generated under these contacts in accordance with the
provisions of SOP 97-2 and SOP 98-9. |
|
|
|
|
|
|
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. |
|
|
|
|
|
Because of
the Company’s limited sales history, it does not have VSOE for the
different components that are included in the integrated kiosk revenue
contracts. Therefore, all revenue associated with the sale of
the license, installation, training, PCS, and product fulfillment is
deferred until all elements are delivered except for PCS and training, at
which time deferred revenue is recognized on a straight-line basis over
the remaining term of the contract. |
|
|
|
|
|
Retail Kit Revenue |
|
|
The
Company has developed a retail kit product that retailers and vendors can
stock on their retail store shelves. The retail kit consists of
a small box containing a CD of a simplified version of the Company’s
software and a product code. The end consumer pays for the
product at the store and can then load the CD onto their personal computer
and use the software and their personal digital images to create movies,
photo books, and streaming media files. Once complete, the
software assists the customer in uploading the file for remote
fulfillment. The Company may provide the fulfillment services
or such services may be provided by another fulfillment
provider.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
|
|
|
1. |
Description
of Organization
and
Summary |
Retail Kit Revenue - Continued |
|
of
Significant Accounting
Policies
Continued |
Revenue
from the sale of the retail kits to the retail store is deferred until the
fulfillment services have been provided and the completed product has been
shipped to the consumer or until the Company’s obligation to provide
fulfillment has expired due to the passage of time. |
|
|
|
|
|
Revenue from Third Party Internet Sites |
|
|
The
Company has agreed to provide the simplified version of its software to
certain third party Internet sites that would allow a customer to download
the software from the third party Internet site. The software
loads and walks the customer through the process of selecting his or her
digital images to be used in creating the product, typing any unique
consumer information such as a customized title and subtitle, entering
order information for shipping, taking the consumer’s credit card
information to process the payment transaction for products ordered via a
secure Internet transaction, and uploading the order for remote
fulfillment. If the Company provides the fulfillment services,
revenue is deferred until the order has been fulfilled and shipped to the
consumer. If the fulfillment services are provided by another
supplier, revenue is recognized at the time the credit card transaction is
completed.
|
|
|
|
|
|
Revenue from the Company’s Internet Site |
|
|
As a
companion to the retail kit product, the Company launched a web site that
will allow consumers who upload orders using the retail kit software to
order additional copies and additional products on the Company’s web
site. Revenue from such additional products are recognized upon
shipment of the product. |
|
|
|
|
|
Other Revenue Contracts |
|
|
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 each separate component of the contract. 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. |
|
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description
of Organizationand
Summary
|
Deferred Revenue |
|
of
Significant Accounting
Policies
Continued
|
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 |
|
|
Effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123(R) (revised 2004), Share-Based Payment
which amends SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to
Employees. The Company adopted SFAS No.123(R) using the
modified prospective method. The modified prospective method requires that
compensation cost be recognized beginning with the effective date based on
the requirements of SFAS No. 123(R) for all equity-based payments granted
after the effective date and all non-vested equity-based payments granted
prior to the effective date. The Company did not issue any
employee equity-based payments prior to January 1, 2006. The
effect of accounting for equity-based awards under SFAS No. 123(R) for the
years ended December 31, 2007 and 2006, was to record $505,390, and
$37,359, 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 |
% |
Risk-free
interest rate
|
|
|
4.06%
- 4.89 |
% |
Expected
life of options
|
|
2.5
years – 4.25 years
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description
of Organization
and
Summary
of
Significant Accounting
Policies
Continued
|
Income
Taxes |
|
Under the
provisions of the Internal Revenue Code and applicable state laws, the
Company is taxed similar to a partnership, and as a result, is not
directly subject to income taxes. The results of its operations are
included in the tax returns of its members. Therefore, no provision or
benefit for income taxes has been included in the accompanying financial
statements. |
|
|
|
|
|
Pro forma income tax
expense, as if the Company had been a taxable entity would have
been $0 for each year presented in the statements of
operations
|
|
|
|
|
|
Recent
Accounting Pronouncements |
|
|
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
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. |
|
|
|
|
|
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
|
|
|
|
|
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description
of Organization
and
Summary
of
Significant Accounting
Policies
Continued
|
Recent Accounting
Pronouncements - Continued |
|
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. |
|
|
|
|
|
In
July 2006, the FASB issued Financial Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109.
FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing the recognition threshold a tax position is required to meet
before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2007 and as a
result, is effective our first quarter of fiscal 2008. The cumulative
effects, if any, of applying FIN 48 will be recorded as an adjustment
to retained earnings as of the beginning of the period of adoption.
Additionally, in May 2007, the FASB published FSP No. FIN 48-1
(FSP FIN 48-1),
|
|
|
|
|
|
Definition of Settlement in
FASB Interpretation No. 48. FSP FIN 48-1 is an amendment
to FIN 48. It clarifies how an enterprise should determine whether a
tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. If the Company closes the
merger with Secure Alliance Holdings Corporation as noted in Note 10, the
Company will be required to comply with FIN 48-1 on the merger
date. The actual impact of the adoption of FIN 48 and
FSP FIN 48-1 on our consolidated results of operations and financial
condition will depend on facts and circumstances that exist on the date of
adoption. The Company is currently calculating the impact of the adoption
of FIN 48 and FSP FIN 48-1 but does not expect it to have a
material impact on the financial
statements.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
1. |
Description of
Organization
and
Summary
of Significant
Accounting
Policies
Continued
|
Reclassifications
– Certain amounts in the 2006 financial statements have been reclassified
to confirm to the 2007 presentation. |
|
|
|
2. |
Property and Equipment |
Property
and equipment consisted of the following as of
December 31:
|
|
|
2007
|
|
|
2006
|
|
Computers,
software and equipment
|
|
$ |
1,212,558 |
|
|
$ |
381,391 |
|
Furniture
and fixtures
|
|
|
125,676 |
|
|
|
13,159 |
|
Leasehold
Improvements
|
|
|
4,100 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,342,334 |
|
|
|
394,550 |
|
Less
accumulated depreciation and amortization
|
|
|
(351,811 |
) |
|
|
(85,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
990,523 |
|
|
$ |
309,008 |
|
|
|
Depreciation
of property and equipment for the years ended December 31, 2007 and
2006 was $267,457 and $95,660, respectively. |
|
|
|
3. |
Intangible
Assets
|
Intangible
assets consisted of the following at December
31: |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Patent
costs
|
|
$ |
62,189 |
|
|
$ |
47,881 |
|
License
– music tracks
|
|
|
30,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
92,189 |
|
|
|
77,881 |
|
Accumulated
amortization
|
|
|
(17,500 |
) |
|
|
(7,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
74,689 |
|
|
$ |
70,381 |
|
|
|
Amortization
expense for the years ended December 31, 2007 and 2006 was $10,000 and
$7,500, respectively. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
3. |
Intangible Assets Continued
|
As
of December 31, 2007, the Company had not begun to amortize capitalized
patent costs as the patent had not yet been granted. Amortization related
to the license for music tracks for the years ended December 31, 2008 and
2009 will be $10,000 and $2,500, respectively.
|
|
|
|
4. |
Accrued Liabilities
|
Accrued
liabilities consisted of the following as of December
31: |
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Bonuses
payable
|
|
$ |
554,000 |
|
|
$ |
538,222 |
|
Payroll
and payroll taxes payable
|
|
|
229,245 |
|
|
|
136,318 |
|
Interest
payable
|
|
|
- |
|
|
|
125,476 |
|
Other
|
|
|
40,527 |
|
|
|
20,127 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
823,772 |
|
|
$ |
820,143 |
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
5. |
Notes and Convertible Debentures Payable
|
Notes and
convertible debentures payable consisted of the following as of December
31: |
|
|
2007
|
|
|
2006
|
|
Note
payable to Secure Alliance Holdings Corporation (see Note 10), interest at
10% per annum, due December 31, 2008, secured by all assets of the
Company
|
|
$ |
1,000,000 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable to an institutional investor, interest at 10% per annum, due
June 5, 2007, less debt discount of $44,497 as of December 31,
2006. As noted below, during 2007, these notes were converted
into common units.
|
|
|
- |
|
|
|
1,519,503 |
|
|
|
|
|
|
|
|
|
|
Convertible
debentures payable to an institutional investor, with interest at 10% per
annum, due January 31, 2007, less debt discount of $114,093 as of December
31, 2006. As noted below, during 2007, these debentures were
converted into common units.
|
|
|
- |
|
|
|
715,157 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,000,000 |
|
|
$ |
2,234,660 |
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
5. |
Notes and Convertible Debentures Payable Continued
|
During the
first quarter of 2006, the Company entered into a convertible debenture
financing arrangement with an institutional investor, through which the
Company issued convertible debentures totaling $829,250. This
amount consisted of cash of $775,000 and loan origination fees of $54,250
which were recorded as an asset to be amortized over the life of the
loan. These convertible debentures payable had a stated
interest rate of 10% per annum. On May 8, 2007, these debentures and
accrued interest of $106,832 were converted into 3,900,341 common
units. |
|
|
|
|
|
Detachable
warrants for the purchase of 1,727,605 common units, which expire in 2008,
were granted in connection with these convertible
debentures. The warrants were valued at a total of $178,330 and
were recorded as a discount to debt, with a corresponding increase to
members’ equity. |
|
|
|
|
|
In addition,
at the date of issuance the conversion rate of the convertible debentures
was less than the fair value of the Company’s common
units. Therefore, a beneficial conversion feature valued at
$489,268 was recorded as a discount to debt, with a corresponding increase
recorded as members’ equity. |
|
|
|
|
|
During the
year ended December 31, 2007 and 2006, the Company accreted $114,093 and
$553,505, respectively, of the debt discount arising from the warrants and
the beneficial conversion feature to interest expense using the effective
interest method. |
|
|
|
|
|
During
August, September and October 2006, the Company entered into a convertible
note payable financing arrangement with an institutional investor, through
which the Company issued convertible notes payable totaling
$1,564,000. This amount consisted of cash of $1,443,510 and
loan origination fees of $120,490 which were recorded as an asset to be
amortized over the life of the loan. These convertible
notes payable had a stated interest rate of 10% per annum. On May 8, 2007,
these convertible notes payable of $1,564,000 along with accrued interest
of $102,586 were converted to 3,623,014 common units. The remaining
unamortized loan costs and debt discount were recognized as interest
expense on the conversion date. |
|
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
5. |
Convertible Debentures and Notes Payable
Continued
|
Warrants
for the purchase of 1,190,000 common units were granted in 2006 in
connection with these convertible notes payable and expire in
2009. The warrants were valued at a total of $73,222 and were
recorded as a discount to debt, with a corresponding increase to members’
equity |
|
|
|
|
|
During the
years ended December 31, 2007 and 2006, the Company accreted $44,497 and
$28,725, respectively, of the debt discount related to the warrants to
interest expense using the effective interest method. |
|
|
|
|
|
As of
December 31, 2007, the debt discount had been fully
amortized. As of December 31, 2006, the unamortized debt
discount was $44,497. |
|
|
|
|
|
On January
19, 2007 and again on February 14, 2007, the Company issued $500,000 of
convertible notes payable to an institutional investor. These
convertible notes payable accrued interest at 9% per annum, and were due
on June 30, 2007. These convertible notes payable, plus accrued
interest of $23,178, were converted into 1,604,985 Series B redeemable
convertible preferred units at $.6375 per unit. A beneficial conversion
feature in the amount of $171,875, was accreted to interest expense in
full during the year ended December 31, 2007. |
|
|
|
|
|
On April
9, 2007, the Company issued a convertible note payable to an institutional
investor for $535,000. This amount consisted of cash of
$500,000 and financing costs of $35,000. This convertible note
payable bore no interest, and was due on June 30, 2007. On June
5, 2007, this convertible note payable of $535,000 was converted into
713,333 Series B redeemable convertible preferred units at $.75 per
unit. |
|
|
|
|
|
In
connection with the Agreement and Plan of Merger (see Note 10), the
Company entered into a Loan and Security Agreement and Secured Note with
Secure Alliance Holdings Corporation on December 6, 2007 in order to
ensure adequate funds through the merger closing date. The agreement
provides for Secure to loan a total of up to $2.5 million to the Company
through the merger closing date. A total of $1 million was received under
the Secured Note as of December 31, 2007. The amounts advanced
under the Secured Note are secured by all assets of the Company, accrue
interest at 10% per annum and principal and interest are due and payable
on December 31,
2008.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
5. |
Convertible
Debentures and Notes Payable
Continued
|
If
the Company receives additional capital or conducts any sale of its assets
other than in the ordinary course of business prior to the due date, the
Company is obligated to use said proceeds to reduce the principal and
interest then payable under the Secured Note, up to the amount required to
pay the Secured Note in full.
|
|
|
|
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 at December 31:
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Computers
and equipment
|
|
$ |
349,448 |
|
|
$ |
- |
|
Furniture
and fixtures
|
|
|
37,600 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
387,048 |
|
|
|
- |
|
Less
accumulated amortization
|
|
|
(53,623 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
333,425 |
|
|
$ |
- |
|
|
|
Depreciation expense for assets held under capital leases during
the year ended December 31, 2007 was $53,623. |
|
|
|
|
|
Capital
lease obligations have imputed interest rates from approximately 7% to 22%
and are payable in aggregate monthly installments of approximately
$13,000, maturing through 2010. The leases are secured by
equipment. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
6. |
Capital
Lease
Obligations
Continued |
Future
maturities and minimum lease payments on the capital lease obligations are
as follows as of December 31,
2007:
|
Minimum
Lease Payments:
|
|
|
|
2008
|
|
$ |
156,609 |
|
2009
|
|
|
154,089 |
|
2010
|
|
|
98,416 |
|
|
|
|
|
|
|
|
|
409,114 |
|
Amount
representing interest
|
|
|
(68,215 |
) |
|
|
|
|
|
Total
principle
|
|
|
340,899 |
|
Current
portion
|
|
|
(118,288 |
) |
|
|
|
|
|
Long-term
portion
|
|
$ |
222,611 |
|
7. |
Related
Party
Transactions |
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
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.
|
|
|
|
|
|
The
institutional investor holding the convertible debentures and convertible
notes payable referenced in Note 5 qualifies as a related party based upon
its beneficial ownership. As described in Note 5, as of
December 31, 2006, a related party investor held convertible debentures in
the amount of $2,393,250 (before discount). As described in
Note 5, on May 8, 2007, these debentures and related accrued interest were
converted into 7,523,355 common units, or approximately 26% of the common
units outstanding after conversion.
|
|
|
|
|
|
Additionally, as described in Note 5, in January, February, and
April of 2007, the Company issued $1,535,000 of additional convertible
notes payable to the same institutional investor. In May and June of 2007,
the notes payable and related accrued interest were converted into
2,318,318 Series B redeemable convertible preferred
units. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
7. |
Related Party
Transactions
Continued |
In
May and June of 2007, the Company also issued 6,486,666 Series B
redeemable convertible preferred units to the same institutional investor
in exchange for $2,000,000, net of issuance costs of $190,000, and a
subscription receivable of $2,675,000. The subscription receivable was
received in two installments on August 3, 2007 and September 11,
2007.
|
|
|
|
|
|
The Series
B preferred units vote on an “as converted” to common units basis.
Therefore, when combined with the 8,180,255 common units held, the
institutional investor holds 16,985,239 equivalent votes, equivalent to
41% of the voting units outstanding at December 31, 2007. In
connection with the sale of the Series B preferred units, the
institutional investor appointed two individuals to the Board of
Managers. |
|
|
|
|
|
Additionally, the Company entered into a Consulting Agreement
(see Note 10) with the related party investor on August 1, 2007 whereby
the investor will receive up to $775,000 over the next 12 month period for
advising the Company with regard to financial transactions. The
Company may terminate the agreement upon 30 days notice. |
|
|
|
|
|
On July 1,
2007, the Company finalized a Sales Representative Agreement with the
related party investor whereby such investor is entitled to receive up to
a 10% commission on adjusted sales to customers brought to the Company by
the investor. The investor also received an option to purchase
a total of 2,250,000 common units of the Company. A total of
1,500,000 of these options have an exercise price of $.16 and the
remaining 750,000 options have an exercise price of $.52. The
options vest at the rate of 750,000 per year at year end in 2007, 2008 and
2009 upon the achievement of certain sales levels. A formalized option
agreement was executed on November 20, 2007 changing the exercise price of
750,000 options from $0.52 to $0.62 and the vesting dates to 2008, 2009,
and 2010. The sales goals for the first group of 750,000 options was met
and the options vested at the end of July, 2007, resulting in equity-based
compensation expense of
$371,955. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
8 . |
Common and
Preferred
Units |
As
of December 31, 2006, the Company had authorized 90,000,000 common units
and 10,000,000 preferred units, all with no par value. As of
December 31, 2006, the Company had designated 3,746,485 preferred units as
Series A. On May 1, 2007, the Company modified the operating
agreement, thereby increasing the number of authorized preferred units to
20,000,000 and designating 12,000,000 preferred units as Series
B.
|
|
|
|
|
|
Series
A Convertible Preferred Units |
|
|
During the
years ended December 31, 2007 and 2006, there were no Series A preferred
units issued. As of December 31, 2007 and 2006, there were
3,533,720 Series A preferred units outstanding. |
|
|
|
|
|
Series
B Redeemable Convertible Preferred Units |
|
|
During the
year ended December 31, 2007, there were 8,804,984 Series B preferred
units issued as follows: |
|
|
|
|
|
On
January 19, 2007 and again on February 14, 2007, the Company issued
$500,000 of convertible notes payable to an institutional
investor. These convertible notes payable accrued interest at
9% per annum, and were due on June 30, 2007. These convertible
notes payable, plus accrued interest of $23,178, were converted into
1,604,985 Series B redeemable convertible preferred units at $.6375 per
unit. A beneficial conversion feature in the amount of $171,875, was
accreted to interest expense in full during the year ended December 31,
2007.
|
|
|
|
|
|
On
April 9, 2007, the Company issued a convertible note payable to an
institutional investor for $535,000. This amount consisted of
cash of $500,000 and financing costs of $35,000. This
convertible note payable bore no interest, and was due on June 30,
2007. This convertible note payable of $535,000 was converted
into 713,333 Series B redeemable convertible preferred units at $.75 per
unit.
|
|
|
|
|
|
In May and
June of 2007, the Company issued 6,486,666 Series B redeemable convertible
preferred units at $0.75 per unit to an institutional investor for a
payment of $2,000,000, net of issuance costs of $190,000, and the issuance
of a subscription receivable of $2,675,000. Payment of the subscription
receivable was received in two installments on August 3, 2007 and
September 11, 2007. |
|
|
|
|
|
As
of December 31, 2007, there were 8,804,984 units of Series B preferred
units
outstanding.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
8. |
Common and Preferred
Units Continued |
Rights
and Preferences of Convertible Preferred
Units
The rights, terms, and preferences of the Series A convertible
preferred units and Series B redeemable convertible preferred units are as
follows:
|
|
|
|
|
|
● Voting - The Series A
convertible preferred units and the Series B redeemable convertible
preferred units vote on an “as if converted” to common unit basis together
with the Company’s common units on all matters put to a vote of the
holders of the common units. As long as at least 6.4 million Series B
redeemable convertible preferred units are outstanding, the Board of
Managers shall consist of five managers, two of whom shall be elected by a
majority of the outstanding Series B redeemable convertible preferred unit
holders and the remainder elected by the holders of Series A convertible
preferred units and common units, voting as a single
class.
|
|
|
|
|
|
● Distributions - Series B
redeemable convertible preferred units holders are entitled to a
cumulative annual distribution of $.06 per unit. Series A
convertible preferred unit holders are entitled to receive distributions
from the Company as established by the Board of
Managers.
|
|
|
|
|
|
● Liquidation – The assets
of the Company are distributed as follows in the event of liquidation,
dissolution or winding up of the Company (including the sale of
substantially all of the assets of the Company): i) the Series B
redeemable convertible preferred units are entitled to a liquidation
preference of $0.75 per unit, plus all accrued and unpaid distributions;
ii) the Series A convertible preferred units are entitled to a liquidation
preference in the amount of $0.1335 per unit; iii) the common units are
entitled to $0.1335 per unit; and iv) any remaining assets are distributed
among the holders of Series A convertible preferred units, Series B
redeemable convertible preferred units and common units, pro rata, on an
as-converted to common unit basis.
|
|
|
|
|
|
In
the event that there are not sufficient assets available for the entire
liquidation preference of a given class, the assets of the Company are
distributed ratably among the holders of such class on a pro rata
basis.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
8. |
Common
and Preferred
Units
Continued |
Rights
and Preferences of Convertible Preferred Units - Continued
|
|
|
|
|
|
● Redemption (Series B
only) – The Company has the right to redeem Series B redeemable
convertible preferred units for $.75 per unit plus all accrued and unpaid
distributions, with a written notice of not less than 45 days and not more
than 60 days, subject to holders’ first right to convert Series B
redeemable convertible preferred units to common units. The Series B
redeemable convertible preferred unit holders have at least 45 days from
receiving notice from the Company to decide whether to have Series B
redeemable convertible preferred units redeemed for cash or converted to
common units. At anytime after four years from the date of
issuance, the Series B redeemable convertible preferred unit holders have
the right to have the Company redeem all or a portion of Series B
redeemable convertible preferred units. Within 60 days after
receipt of a written notice, the Company is required to redeem such units
at $.75 per unit plus all accrued and unpaid
distributions.
|
|
|
|
|
|
● Conversion (Series A) -
The Series A convertible preferred units are convertible at any time at
the option of the holder into common units, one for one. Series
A convertible preferred units automatically convert on the earliest of i)
the effective date of the registration statement for the Company’s initial
public offering of the common units, ii) the date on which the common
units are listed or sale on a national stock exchange or have their sales
or bid price quoted on NASDAQ, iii) the merger or consolidation of the
Company with another company, iv) the sales of all of the outstanding
common units, v) the sales of substantially all of the Company’s assets,
or vi) the approval of the holders of a majority of the outstanding Series
A convertible preferred
units.
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
8. |
Common and
Preferred
Units
Continued
|
Rights
and Preferences of Convertible Preferred Units -Continued
|
|
|
|
|
|
● Conversion (Series B) -
The Series B redeemable convertible preferred units are convertible at any
time at the option of the holder into common units, one for
one. However, if the Company subsequently sells common units
(New Issuance) for less than the Series B redeemable convertible preferred
unit purchase price of $.75 (Conversion Price), a broad based, weighted
average adjustment is made to the Conversion Price by multiplying the
Conversion Price by the following fraction: the numerator is
the number of units outstanding prior to a New Issuance plus the number of
units the new consideration would purchase at the conversion price in
effect prior to a New Issuance, and the denominator is the number of units
outstanding prior to a New Issuance plus the number of additional units
issued in the New Issuance. Series B redeemable convertible
preferred units automatically convert to common units on the earliest of
i) the effective date of the registration statement for the Company’s
initial public offering of the common units if a) the per common units
offering price is at least 200% of the redemption price of the Series B
redeemable convertible preferred units, and b) the public offering will
result in gross proceeds of at least $40 million, or ii) thirty days after
written the Company if within ninety days after a merger or consolidation
of the Company with another company all of the following have occurred: a)
the common units issuable upon conversion are registered for resale, b)
the average volume weighted average per common unit price of the common
units for twenty consecutive trading days prior to the date of notice of
conversion is given is not less than 200% of the redemption price of the
Series B redeemable convertible preferred units, and c) the daily average
trading volume for twenty consecutive trading days prior to the date
notice of conversion is given is not less than 5% of the outstanding
common units.
|
|
|
|
|
|
● Common Units Reserved –
The Company must at all times reserve and keep available out of its
authorized but unissued common unites, solely for the purpose of effecting
the conversion of preferred units, the number of units needed to do
so. This totaled 12,338,704 and 3,533,720 as of
December 31, 2007 and December 31, 2006,
respectively.
|
|
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
8. |
Common and
Preferred
Units
Continued
|
Common
Units |
|
|
Subject to
the rights of holders of Series A convertible preferred units and Series B
redeemable convertible preferred units, common unit holders are entitled
to receive distributions when, as and if declared by the Board of
Managers. Common unit holders are entitled to one vote for each
common unit held. |
|
|
|
9. |
Options and Warrants |
Common
Unit Warrants |
|
|
The
following tables summarize information about common unit warrants as of
December 31, 2007 and December 31,
2006: |
|
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
|
Outstanding
and Exercisable
|
|
|
|
|
Exercise
Price
|
|
|
Number
of Warrants Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
1,727,605 |
|
|
|
0.1 |
|
|
$ |
0.24 |
|
|
0.46 |
|
|
|
1,190,000 |
|
|
|
1.5 |
|
|
|
0.46 |
|
$ |
.24-.46 |
|
|
|
2,917,605 |
|
|
|
0.7 |
|
|
$ |
0.33 |
|
|
|
|
As of December
31, 2006
|
|
|
|
|
|
|
|
Outstanding
and Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
Number
of Warrants Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
1,727,605 |
|
|
|
1.1 |
|
|
$ |
0.24 |
|
|
0.46 |
|
|
|
1,190,000 |
|
|
|
2.5 |
|
|
|
0.46 |
|
$ |
.24-.46 |
|
|
|
2,917,605 |
|
|
|
1.7 |
|
|
$ |
0.33 |
|
|
|
Warrants
for the purchase of 2,917,605 common units were granted in 2006 in
connection with convertible debt and expire in 2008, and 2009. The
warrants were valued at a total of $251,552 and are included as a
component of members’ deficit in the accompanying statements of members’
deficit. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
9. |
Options and
Warrants Continued |
Common Unit
Warrants - Continued |
|
|
Subsequent
to December 31, 2007, 1,727,605 warrants with an exercise price of $.24
were exercised for total proceeds of $414,625 received by the Company in
January 2008. |
|
|
|
|
|
Common
Unit Options |
|
|
The
following tables summarize information about common unit
options:
|
|
|
December
31, 2007
|
|
|
December
30, 2006
|
|
|
|
Number
of shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
Number
of Shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
818,000 |
|
|
$ |
0.29 |
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
5,695,000 |
|
|
|
0.50 |
|
|
|
818,000 |
|
|
|
0.29 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
(20,000 |
) |
|
|
0.36 |
|
|
|
- |
|
|
|
- |
|
Outstanding
at end of year
|
|
|
6,493,000 |
|
|
|
0.47 |
|
|
|
818,000 |
|
|
|
0.29 |
|
Exercisable
at year end
|
|
|
1,253,250 |
|
|
|
0.21 |
|
|
|
- |
|
|
|
|
|
Weighted
average fair value of options
granted during the year
|
|
$ |
0.29 |
|
|
|
|
|
|
$ |
0.14 |
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Number
of Options
|
|
|
Remaining
Contractual Weighted Average
Actual Life
|
|
|
Weighted Average
Exercise
|
|
|
Number
of Options
|
|
|
Weighted
Average
Exercise
|
|
|
Weighted
Average Remaining Contractual
|
|
Price
|
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.16 |
|
|
|
1,500,000 |
|
|
|
4.5 |
|
|
$ |
0.16 |
|
|
|
750,000 |
|
|
$ |
0.16 |
|
|
|
4.0 |
|
|
0.24 |
|
|
|
510,000 |
|
|
|
3.3 |
|
|
|
.24 |
|
|
|
340,000 |
|
|
|
.24 |
|
|
|
3.3 |
|
|
0.36 |
|
|
|
288,000 |
|
|
|
3.7 |
|
|
|
.36 |
|
|
|
163,250 |
|
|
|
.36 |
|
|
|
3.7 |
|
|
0.62 |
|
|
|
4,195,000 |
|
|
|
5.2 |
|
|
|
0.62 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
$ |
.16-.62 |
|
|
|
6,493,000 |
|
|
|
4.8 |
|
|
$ |
0.47 |
|
|
|
1,253,250 |
|
|
$ |
0.21 |
|
|
|
3.8 |
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
9. |
Options
andWarrants Continued |
Common Unit
Options -
Continued |
As
of December 31, 2006
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
|
510,000 |
|
|
|
4.3 |
|
|
$ |
0.24 |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
0.36 |
|
|
|
308,000 |
|
|
|
4.7 |
|
|
|
0.36 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
.24–.36 |
|
|
|
818,000 |
|
|
|
4.5 |
|
|
$ |
.24–.36 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
As of
December 31, 2007 and 2006, options outstanding had an aggregate intrinsic
value of $471,864 and $45,900, respectively. |
|
|
|
|
|
As of
December 31, 2007 and 2006, there was approximately $780,636 and $77,015,
respectively, of total unrecognized equity-based compensation cost related
to option grants that will be recognized over a weighted average period of
2.6 and 2.4 years. |
|
|
|
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 against the Company for unpaid wages and/or commissions (with
no amount specified) and promised equity. The complaint was
served on the Company on January 7, 2008. The Company timely
filed an answer denying Mr. Bishop’s claim. Management believes
the demand for payment is without basis, evidence, or meaningful
information and intends to vigorously defend against it. Due to
the early stage of the proceedings, management is unable to estimate the
likelihood of a negative outcome or estimate the potential liability due
to this claim. |
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
10. |
Commitments
and Contingencies
Continued |
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
|
|
$ |
218,300 |
|
2009
|
|
|
211,900 |
|
2010
|
|
|
67,600 |
|
2011
|
|
|
5,400 |
|
2012
|
|
|
3,600 |
|
|
|
|
|
|
|
|
$ |
506,800 |
|
|
|
Rental
expense under operating leases totaled $340,828 and $71,831 for the years
ended December 31, 2007 and 2006, respectively. |
|
|
|
|
|
Agreement
and Plan of Merger |
|
|
Effective
December 6, 2007, Secure Alliance Holdings Corporation (SAH) a publicly
held company and the Company executed an Agreement and Plan of Merger,
whereby SAH agreed to acquire 100% of the issued and outstanding equity
units of the Company. Each issued and outstanding membership interest of
the Company will 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. |
|
|
|
|
|
The
Company is considered the acquirer for accounting purposes; therefore,
this merger will be accounted for as a reverse acquisition. As
a result of the merger, the Company will receive approximately $9.8
million in cash to fund operations. |
|
|
|
|
|
In
connection with the Agreement and Plan of Merger, the Company 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 provides for SAH to loan a total of up to $2.5 million to the
Company 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, the Company received $1,000,000 and $500,000,
respectively, under the Secured Note (see Note 6).
|
|
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
10. |
Commitments
and
Contingencies Continued
|
Contingency
The Company has executed a letter agreement with an
institutional investor which provides for the issuance of an additional
1,525,000 common units upon the voluntary conversion of all outstanding
Series B preferred units owned by the investor. The agreement calls for
the conversion of the Series B preferred units into common units
immediately preceding the closing of the merger described
above.
|
|
|
|
|
|
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
December 31, 2007, these obligations have not been significant. The
Company does not expect these obligations to become significant in the
future and no related liability has been accrued as of December 31, 2007
and 2006.
|
|
|
|
11. |
Retirement
Plan |
On January
1, 2007, the Company established a 401(k) defined contribution plan that
covers eligible employees who have completed a minimum of three months of
service and who are 21 years of age or older. Employees may
elect to contribute to the plan up to 100 percent of their annual
compensation up to a limit of $16,000 in 2008, and increasing by $500 each
year thereafter for inflation or as defined and limited by the Internal
Revenue Code. To date, the Company has not made any employer
contributions to the plan and is not required to do so. |
|
|
|
12. |
Subsequent
Events |
Note
Payable
In
January and February, 2008, the Company received an additional $1,500,000
under the Secured Note (see Note 5).
|
|
|
|
|
|
Warrant
Exercise
On January 31,
2008, an institutional investor exercised warrants to purchase 1,727,605
common equity units of the Company with an exercise price of $.24 per unit
and total proceeds of
$414,625 .
|
SEQUOIA
MEDIA GROUP, LC
Notes
to Financial Statements
Continued
12. |
Subsequent
Events
Continued |
Modification
to Merger Agreement
|
|
|
The
Company agreed to amend its agreement with Secure Alliance Holdings, Inc.
(SAH) to provide for a 1 for 2 reverse stock split rather than a 1 for 3
reverse stock split upon consummation of the
merger. Accordingly, each outstanding membership interest in
the Company will be converted into the right to receive .87096285
post-split shares of SAH common stock.
|
|
|
|
|
|
Closing
of Merger Agreement |
|
|
On June 6,
2008, the Company closed the merger transaction with SAH. In
connection with the merger transaction, the unit holders of the Company
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 the Company obtained a majority ownership in SAH
through the merger, the transaction will be accounted for as a reverse
merger. As a result of the merger, the Company received
approximately $7.3 million in cash to fund operations in addition to the
$2.5 million previously loaned to the Company by
SAH. |
aVINCI
MEDIA CORPORATION AND
SUBSIDIARIES
Financial
Statements (Unaudited)
As
of June 30, 2008
and
for the Six Months Ended June 30, 2008 and 2007
aVINCI
MEDIA CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Balance Sheet (Unaudited)
|
|
June
30,
2008
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,573,375 |
|
Accounts
receivable
|
|
|
239,354 |
|
Marketable
securities available-for-sale
|
|
|
221,915 |
|
Prepaid
expenses
|
|
|
274,102 |
|
Other
current assets
|
|
|
285,238 |
|
Total
current assets
|
|
|
5,593,984 |
|
|
|
|
|
|
Property
and equipment, net
|
|
|
832,357 |
|
Intangible
assets, net
|
|
|
96,044 |
|
Other
assets
|
|
|
20,408 |
|
Total
assets
|
|
$ |
6,542,793 |
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$ |
173,856 |
|
Accrued
liabilities
|
|
|
565,869 |
|
Current
portion of capital leases
|
|
|
133,680 |
|
Current
portion of deferred rent
|
|
|
44,864 |
|
Deferred
revenue
|
|
|
451,391 |
|
Total
current liabilities
|
|
|
1,369,660 |
|
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
|
166,488 |
|
Deferred
rent, net of current portion
|
|
|
51,526 |
|
Total
liabilities
|
|
|
1,587,674 |
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 250,000,000 shares; issued and
outstanding 48,737,928 shares
|
|
|
487,379 |
|
Additional
paid-in capital
|
|
|
22,221,856 |
|
Accumulated
deficit
|
|
|
(17,672,731 |
) |
Accumulated
other comprehensive loss
|
|
|
(81,385 |
) |
Total
stockholders’ equity (deficit)
|
|
|
4,955,119 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
6,542,793 |
|
See
accompanying notes to condensed consolidated financial
statements.
aVINCI MEDIA
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations (Unaudited)
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$ |
189,699 |
|
|
$ |
251,080 |
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
433,633 |
|
|
|
22,954 |
|
Research
and development
|
|
|
990,530 |
|
|
|
797,886 |
|
Selling
and marketing
|
|
|
966,796 |
|
|
|
513,994 |
|
General
and administrative
|
|
|
2,468,896 |
|
|
|
1,328,359 |
|
Depreciation
and amortization
|
|
|
114,206 |
|
|
|
84,623 |
|
Total
operating expense
|
|
|
4,974,061 |
|
|
|
2,747,816 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,784,362 |
) |
|
|
(2,496,736 |
) |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
26,533 |
|
|
|
13,901 |
|
Interest
expense
|
|
|
(126,112 |
) |
|
|
(671,166 |
) |
Total
other income (expense)
|
|
|
(99,579 |
) |
|
|
(657,265 |
) |
Loss
before income taxes
|
|
|
(4,883,941 |
) |
|
|
(3,154,001 |
) |
Income
tax benefit
|
|
|
- |
|
|
|
- |
|
Net
loss
|
|
|
(4,883,941 |
) |
|
|
(3,154,001 |
) |
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(976,000 |
) |
|
|
(190,000 |
) |
|
|
|
|
|
|
|
|
|
Distributions
on Series B redeemable convertible preferred units
|
|
|
(225,773 |
) |
|
|
(41,931 |
) |
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$ |
(6,085,714 |
) |
|
$ |
(3,385,932 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.15 |
) |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares used to calculate loss per
share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
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)
Six-Months
Ended June 30, 2008
|
|
Common
Stock
|
|
|
Additional
Paid-
|
|
|
LLC
Series Convertible Preferred
|
|
|
LLC
Common
|
|
|
Accumulated
|
|
|
Accumulated
Other Comprehensive
|
|
|
Members'/
Stockholders'
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in
Capital
|
|
|
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 (Unaudited)
Continued
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
|
aVINCI MEDIA
CORPORATION AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows (Unaudited)
Continued
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.
|
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 for the 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 this registration statement are adequate to make the information presented
not misleading. Results for the six-month period 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
Three
customers accounted for 47%, 20%, and 16% of total revenue during the six months
ended June 30, 2008. One customer accounted for 100% of total revenue
for the six months ended June 30, 2007. As of June 30, 2008, two
customers accounted for 68% and 30% of accounts receivable.
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 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 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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, there were no allowances for doubtful accounts required against
the Company’s receivables.
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 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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 management determined the carrying amounts of the Company’s
property and equipment were not impaired.
Revenue
Recognition and Deferred Revenue
BigPlanet
Contract
Prior
to March 31, 2007, the Company generated the majority of its revenue from one
customer, BigPlanet, a division of NuSkin International, Inc. The contract with
BigPlanet 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.
Integrated Kiosk Revenue
Contracts
Under
the kiosk revenue model, the Company integrates its technology with a kiosk
provided by a third party. The kiosk is placed in retail stores where
the end consumers utilize the kiosk to load their digital images and make a
variety of products. Under this revenue model, the Company enters
into agreements with the retail stores. The agreements provide for
the initial sale of the software license, installation of the software,
training, post contract support (PCS), order fulfillment, and ongoing royalty
payments based on volume of product generated through the kiosk using the
Company’s technology. Because these contracts involve a significant
software component, the Company accounts for its revenue generated under these
contacts in accordance with the provisions of SOP 97-2 and SOP
98-9.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
Because
of the Company’s limited sales history, it does not have VSOE for the different
components that are included in the integrated kiosk revenue
contracts. Therefore, all revenue associated with the sale of the
license, installation, training, PCS, and product fulfillment is deferred until
all elements are delivered except for PCS and training, at which time deferred
revenue is recognized on a straight-line basis over the remaining term of the
contract.
Retail Kit
Revenue
The
Company has developed a retail kit product that retailers and vendors can stock
on their retail store shelves. The retail kit consists of a small box
containing a CD of a simplified version of the Company’s software and a product
code. The end consumer pays for the product at the store and can then
load the CD onto their personal computer and use the software and their personal
digital images to create movies, photo books, and streaming media
files. Once complete, the software assists the customer in uploading
the file for remote fulfillment. The Company may provide the
fulfillment services or such services may be provided by another fulfillment
provider. Revenue from the sale of the retail kits to the retail
store is deferred until the fulfillment services have been provided and the
completed product has been shipped to the consumer or until the Company’s
obligation to provide fulfillment has expired due to the passage of
time.
Revenue from Third Party
Internet Sites
The
Company has agreed to provide the simplified version of its software to certain
third party Internet sites that would allow a customer to download the software
from the third party Internet site. The software loads and walks the
customer through the process of selecting his or her digital images to be used
in creating the product, typing any unique consumer information such as a
customized title and subtitle, entering order information for shipping, taking
the consumer’s credit card information to process the payment transaction for
products ordered via a secure Internet transaction, and uploading the order for
remote fulfillment. If the Company provides the fulfillment services,
revenue is deferred until the order has been fulfilled and shipped to the
consumer. If the fulfillment services are provided by another
supplier, revenue is recognized at the time the credit card transaction is
completed.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Revenue from the Company’s
Internet Site
As a
companion to the retail kit product, the Company launched a web site that will
allow consumers who upload orders using the retail kit software to order
additional copies and additional products on the Company’s web
site. Revenue from such additional products are recognized upon
shipment of the product.
Other Revenue
Contracts
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 each
separate component of the contract. 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.
Deferred
Revenue
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.
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 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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. Related
Party Transactions
Consulting
Agreement
During
the six months ended June 30, 2008, pursuant to an agreement executed during the
year ended December 31, 2007, the Company recorded expense of $725,000, for
consulting services from Amerivon Holdings LLC. (Amerivon), a significant
shareholder of the Company. During the six months ended June 30, 2008, the
Company paid Amerivon $745,000, 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
7. 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
8. 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
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 |
|
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
In
June 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:
|
|
Number
of shares
|
|
|
Weighted-
Average Exercise Price
|
Outstanding
at January 1, 2008
|
|
|
6,605,161 |
|
|
$ |
0.64 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
(9,798 |
) |
|
|
0.41 |
|
Cancelled
|
|
|
(123,459 |
) |
|
|
0.70 |
|
Outstanding
at June 30, 2008
|
|
|
6,471,904 |
|
|
|
0.64 |
|
Exercisable
at June 30, 2008
|
|
|
1,510,430 |
|
|
|
0.46 |
|
Weighted
average fair value of
options
granted during the period
|
|
$ |
- |
|
|
|
|
|
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
As
of June 30, 2008
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
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 1.96 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.
9. 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.
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
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.
10. 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.
|
aVINCI MEDIA CORPORATION AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements (Unaudited)
·
|
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
|
|
Balance
at June 30, 2008
|
|
|
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 |
|
|
|
- |
|
|
|
- |
|
UNAUDITED
PRO FORMA CONDENSED COMBINED
CONSOLIDATED
FINANCIAL STATEMENTS
The
following unaudited proforma condensed combined statements of operations combine
the results of operations of Sequoia Media Group, LC (“Sequoia”) for the six
months ended June 30, 2008 and Secure Alliance Holdings Corporation (“SAH”) for
the period of January 1, 2008 through June 6, 2008, the date of the merger, and
the results of operations of Sequoia for the year ended December 31, 2007 and
SAH for the year ended September 30, 2007 as if the transaction had occurred as
of the October 1, 2006. Subsequent to June 6, 2008, the operations of
SAH are included in the historical operations of Sequoia.
A pro
forma balance sheet has not been provided since the historical unaudited
condensed consolidated balance sheet of aVinci Media Corporation and
Subsidiaries as of June 30, 2008 provided in this registration statement
includes the effects of the merger transaction.
The
proforma condensed combined financial statements should be read in conjunction
with the separate financial statements and related notes thereto of Sequoia and
SAH. These proforma financial statements are not necessarily
indicative of the combined financial position, had the acquisition occurred on
the date indicated above, or the combined results of operations which might have
existed for the periods indicated or the results of operations as they may be in
the future.
Unaudited
Pro Forma Condensed Combined Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Adjustments
|
|
|
Pro
Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
189,699 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
$ |
189,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
433,633 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
433,633 |
|
Research
and development
|
|
|
990,530 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
990,530 |
|
Selling
and marketing
|
|
|
966,796 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
966,796 |
|
General
and administrative
|
|
|
2,468,896 |
|
|
|
730,288 |
|
|
|
|
|
|
|
|
|
3,199,184 |
|
Depreciation
and amortization
|
|
|
114,206 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
114,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expense
|
|
|
4,974,061 |
|
|
|
730,288 |
|
|
|
|
|
|
|
|
|
5,704,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(4,784,362 |
) |
|
|
(730,288 |
) |
|
|
|
|
|
|
|
|
(5,514,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
26,533 |
|
|
|
246,176 |
|
|
[C],[D]
|
|
|
(123,000 |
) |
|
|
149,709 |
|
Interest
expense
|
|
|
(126,112 |
) |
|
|
- |
|
|
|
[D]
|
|
|
|
98,000 |
|
|
|
(28,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(99,579 |
) |
|
|
246,176 |
|
|
|
|
|
|
|
|
|
|
|
121,597 |
|
Loss
before income taxes and discontinued operationsfrom continuing
operations
|
|
|
(4,883,941 |
) |
|
|
(484,112 |
) |
|
|
|
|
|
|
|
|
|
|
(5,393,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(4,883,941 |
) |
|
|
(484,112 |
) |
|
|
|
|
|
|
|
|
|
|
(5,393,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(1,201,773 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(1,201,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common unit/shareholders
|
|
$ |
(6,085,714 |
) |
|
$ |
(484,112 |
) |
|
|
|
|
|
|
|
|
|
$ |
(6,594,826 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
40,278,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,278,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Pro Forma Condensed Combined Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Adjustments
|
|
|
Pro
Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
541,856 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
$ |
541,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
57,068 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
57,068 |
|
Research
and development
|
|
|
1,890,852 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
1,890,852 |
|
Selling
and marketing
|
|
|
1,351,860 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
1,351,860 |
|
General
and administrative
|
|
|
3,677,326 |
|
|
|
1,333,467 |
|
|
|
|
|
|
|
|
|
5,010,793 |
|
Depreciation
and amortization
|
|
|
277,458 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
277,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expense
|
|
|
7,254,564 |
|
|
|
1,333,467 |
|
|
|
|
|
|
|
|
|
8,588,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(6,712,708 |
) |
|
|
(1,333,467 |
) |
|
|
|
|
|
|
|
|
(8,046,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
fee paid to Laurus
|
|
|
- |
|
|
|
(6,508,963 |
) |
|
|
|
|
|
|
|
|
(6,508,963 |
) |
Interest
income
|
|
|
66,524 |
|
|
|
580,861 |
|
|
|
|
|
|
|
|
|
647,385 |
|
Interest
expense
|
|
|
(693,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(693,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(626,693 |
) |
|
|
(5,928,102 |
) |
|
|
|
|
|
|
|
|
(6,554,795 |
) |
Loss
before income taxes and discontinued operations
|
|
|
(7,339,401 |
) |
|
|
(7,261,569 |
) |
|
|
|
|
|
|
|
|
(14,600,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
- |
|
|
|
75,808 |
|
|
|
|
|
|
|
|
|
75,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(7,339,401 |
) |
|
|
(7,337,377 |
) |
|
|
|
|
|
|
|
|
(14,676,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends and deemed dividends
|
|
|
(498,251 |
) |
|
|
- |
|
|
|
[B |
] |
|
|
(976,000 |
) |
|
|
(1,474,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common unit/shareholders
|
|
$ |
(7,837,652 |
) |
|
$ |
(7,337,377 |
) |
|
|
|
|
|
|
|
|
|
$ |
(16,151,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
(0.33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
|
|
|
|
19,563,447 |
|
|
|
[A |
] |
|
|
(9,802,268 |
) |
|
|
48,747,293 |
|
|
|
|
|
|
|
|
|
|
|
|
[E |
] |
|
|
38,986,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE
1 – PROFORMA ADJUSTMENTS
On
December 6, 2007, SAH entered into an Agreement and Plan of Merger wherein SAH
would acquire 100% of Sequoia through the issuance of 38,986,114 shares of
restricted common stock in a transaction wherein Sequoia would become a
wholly-owned subsidiary of SAH. After effectiveness of the
transaction, the former Sequoia unit holders owned approximately 80% of the
issued and outstanding shares of SAH. Because the shares issued in
the transaction represent control of the total shares of the outstanding common
stock immediately following the transaction, the transaction has been accounted
for as a reverse acquisition. The merger became effective on June 6,
2008.
Pro
forma adjustments on the attached financial statements include the
following:
[A] To
record the 1 for 2 reverse stock split of SAH common stock.
[B] To
record the preferential dividend as a result of the issuance of 1,525,000
Sequoia common units to induce the conversion of Sequoia preferred units to Sequoia common units
immediately prior to the closing of the transaction between SAH and
Sequoia.
[C] To
remove interest income related to the $2 million of cash that was paid to SAH
shareholders as a dividend prior to the merger closing on June 6,
2008.
[D] To
eliminate interest income and interest expense on $2.5 million of loans made by
SAH to Sequoia.
[E] To
record the issuance of 38,986,114 shares of SAH’s common stock in connection
with the reverse acquisition. Dilutive earnings per share were not
presented, as the effect was anti-dilutive for the periods
presented.
F-61
PART
II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth the costs and expenses payable by us in connection
with the issuance and distribution of the securities being registered. None of
the following expenses are payable by the selling stockholder. All of the
amounts shown are estimates, except for the SEC registration fee.
SEC
registration fee
|
|
$ |
692 |
|
Accounting
fees and expenses
|
|
|
20,000 |
|
Legal
fees and expenses
|
|
|
50,000 |
|
Miscellaneous
|
|
|
500 |
|
TOTAL
|
|
$ |
71,192 |
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the
Delaware General Corporation Law (the “DGCL”) provides, in general, that a
corporation incorporated under the laws of the State of Delaware, as we are, may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than a
derivative action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
Certificate of Incorporation and Bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the DGCL, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may be
set forth in any stockholders’ or directors’ resolution or by
contract.
Any
repeal or modification of these provisions approved by our stockholders will be
prospective only and will not adversely affect any limitation on the liability
of any of our directors or officers existing as of the time of such repeal or
modification.
We are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or not
the DGCL would permit indemnification.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant
to an Agreement and Plan of Merger and Reorganization dated December 6, 2007 and
amended March 31, 2008 (the “Merger Agreement”), by and among aVinci Media
Corporation (then operating as Secure Alliance Holdings Corporation, SMG Utah,
LC, a Utah limited liability company and wholly owned subsidiary of the Secure
Alliance Holdings Corporation (“Merger Sub”), and aVinci Media,
LC,
Merger Sub merged with and into aVinci Media, LC, with aVinci Media, LC
remaining as the surviving entity and our wholly owned operating subsidiary (the
“Merger”). The Merger was effective on June 6, 2008, upon the filing
of Articles of Merger with the Utah Division of Corporations. In
connection with the Merger transaction, we amended our Certificate of
Incorporation to (i) change our name from Secure Alliance Holdings Corporation
to aVinci Media Corporation; (ii) increase our authorized shares of common stock
from 100,000,000 to 250,000,000; (iii) authorize a class of preferred stock
consisting of 50,000,000 shares of $.01 per value preferred stock; and (iv)
effect a 1-for-2 reverse stock split.
In
connection with the Merger, we effected a 1-for-2 reverse split of our issued
and outstanding common stock. Accordingly, the 19,484,032 shares of
our common stock issued and outstanding immediately prior to the Merger were
reduced to approximately 9,742,016 shares (subject to rounding) as a result of
the Merger. We issued 38,986,114 post split shares of our common
stock in the Merger to the holders of aVinci Media, LC membership interests
representing approximately 80% of our common stock outstanding immediately after
the Merger. As a result of the reverse split and the Merger, there
were 48,728,130 shares of our common stock issued and outstanding on June 6,
2008.
The above mentioned
issuances of the Company's common stock were not registered and were
issued in reliance on Section 4(2) of the Securities and Exchange Act of
1933, as amended.
ITEM
16. EXHIBITS.
The
following exhibits are included as part of this Form S-1. References to “the
Company” in this Exhibit List mean aVinci Media Corporation, a Nevada
corporation.
Exhibit
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger dated December 6, 2007 (incorporated by reference to
exhibit 2.1 to the registrant’s current report on Form 8-K filed on
December 6, 2007).
|
|
|
2.2
|
Amendment
to Agreement and Plan of Merger dated March 31, 2008 (incorporated by
reference to exhibit 2.1 to the registrant’s current report on Form 8-K
filed on April 4, 2008.
|
|
|
3.1
|
Articles
of Merger relating to the merger of Merger Sub. with and into AVI Media,
Inc. (incorporated by reference to exhibit 3.1 to the registrant’s current
report on Form 8-K filed on June 11, 2007).
|
|
|
3.2
|
Certificate
of Incorporation of American Medical Technologies, Inc. (incorporated by
reference to Exhibit 2 of the Form 10 dated November 7, 1988 as amended by
Form 8 dated February 2, 1989), as amended by the Amendment to Certificate
of Incorporation dated July 16, 1997 (incorporated by reference to Exhibit
3 of our Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997) and the Certificate of Amendment to Certificate of Incorporation
regarding name change, increase in authorized shares, authorization of
preferred stock and a reverse split (incorporated by reference to exhibit
3.1 to the registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
5.1
*
|
Legal
Opinion and Consent
|
|
|
10.1
|
Employment
Agreement – Chett B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.2
|
Employment
Agreement – Richard B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.3
|
Employment
Agreement – Edward B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.4
|
Employment
Agreement – Terry Dickson (incorporated by reference to the registrant’s
current report on Form 8-K filed on June 11, 2007).
|
|
|
10.5
|
2008
Stock Incentive Plan (incorporated by reference to the Definitive Proxy
Statement filed April 29, 2008).
|
|
|
10.6
|
Loan
and Security Agreement, dated as of December 6, 2007, between Sequoia
Media Group, LC and Secure Alliance Holdings Corporation (incorporated by
reference to Exhibit 10.18 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2007).
|
|
|
10.7
*
|
Consulting
Agreement between Amerivon Holdings LLC and aVinci Media, LC, effective as
of August 1, 2007
|
|
|
10.8
*
|
Sales
Representation Agreement between Amerivon Holdings LLC and aVinci Media,
LC, effective as of July 1, 2008
|
|
|
10.9
*
|
Sales
Representation Agreement Amendment between Amerivon Holdings LLC and
aVinci Media, LC, as of November 7, 2007 to be effective as of July 1,
2007
|
|
|
10.10
*
|
Sales
Consulting Agreement between Amerivon Holdings LLC and aVinci Media, LC,
effective as of July 1, 2008
|
|
|
23.1
*
|
Consent
of Tanner LC
|
|
|
23.2
*
|
Consent
of Sichenzia Ross Friedman Ference LLP (contained in Exhibit
5.1)
|
* Filed
herewith.
(A) The
undersigned registrant hereby undertakes to:
(1) File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933,
as amended (the “Securities Act”);
(ii) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement,
and
(iii) Include
any additional or changed material information on the plan of
distribution.
(2) For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(B) The registrant is
subject to Rule 430C (ss. 230. 430C of this chapter): Each prospectus filed
pursuant to Rule 424(b)(ss. 230. 424(b) of this chapter) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A (ss. 230. 430A of this chapter), shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized,, in the City of Draper, State of Utah, on September 25,
2008.
|
aVINCI
MEDIA CORPORATION:
|
|
|
|
|
|
|
By:
|
/s/ Chett
B. Paulsen |
|
|
|
Chett
B. Paulsen
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
POWER
OF ATTORNEY
Each
person whose signature appears below constitutes and appoints Chett B. Paulsen
his true and lawful attorney-in-fact and agent, acting alone, with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, any Amendments thereto and any
Registration Statement of the same offering which is effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, each acting alone, full powers and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent,
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
/s/
Chett B. Paulsen
|
|
President,
Chief Executive Officer, Director
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Richard B. Paulsen
|
|
Vice
President, Chief Technology Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Edward B. Paulsen
|
|
Secretary/Treasurer,
Chief Operating Officer, Director
|
|
|
Edward
B. Paulsen
|
|
(Principal
Financial and Accounting Officer)
|
|
|
/s/
Tod M. Turley
|
|
|
|
September
25, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
John E. Tyson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Stephen P. Griggs
|
|
Director
|
|
September
25, 2008
|
Stephen
P. Griggs
|
|
|
|
|
Exhibit
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger dated December 6, 2007 (incorporated by reference to
exhibit 2.1 to the registrant’s current report on Form 8-K filed on
December 6, 2007).
|
|
|
2.2
|
Amendment
to Agreement and Plan of Merger dated March 31, 2008 (incorporated by
reference to exhibit 2.1 to the registrant’s current report on Form 8-K
filed on April 4, 2008.
|
|
|
3.1
|
Articles
of Merger relating to the merger of Merger Sub. with and into AVI Media,
Inc. (incorporated by reference to exhibit 3.1 to the registrant’s current
report on Form 8-K filed on June 11, 2007).
|
|
|
3.2
|
Certificate
of Incorporation of American Medical Technologies, Inc. (incorporated by
reference to Exhibit 2 of the Form 10 dated November 7, 1988 as amended by
Form 8 dated February 2, 1989), as amended by the Amendment to Certificate
of Incorporation dated July 16, 1997 (incorporated by reference to Exhibit
3 of our Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997) and the Certificate of Amendment to Certificate of Incorporation
regarding name change, increase in authorized shares, authorization of
preferred stock and a reverse split (incorporated by reference to exhibit
3.1 to the registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
5.1
*
|
Legal
Opinion and Consent
|
|
|
10.1
|
Employment
Agreement – Chett B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.2
|
Employment
Agreement – Richard B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.3
|
Employment
Agreement – Edward B. Paulsen (incorporated by reference to the
registrant’s current report on Form 8-K filed on June 11,
2007).
|
|
|
10.4
|
Employment
Agreement – Terry Dickson (incorporated by reference to the registrant’s
current report on Form 8-K filed on June 11, 2007).
|
|
|
10.5
|
2008
Stock Incentive Plan (incorporated by reference to the Definitive Proxy
Statement filed April 29, 2008).
|
|
|
10.6
|
Loan
and Security Agreement, dated as of December 6, 2007, between Sequoia
Media Group, LC and Secure Alliance Holdings Corporation (incorporated by
reference to Exhibit 10.18 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2007).
|
|
|
10.7
*
|
Consulting
Agreement between Amerivon Holdings LLC and aVinci Media, LC, effective as
of August 1, 2007
|
|
|
10.8
*
|
Sales
Representation Agreement between Amerivon Holdings LLC and aVinci Media,
LC, effective as of July 1, 2008
|
|
|
10.9
*
|
Sales
Consulting Agreement between Amerivon Holdings LLC and aVinci Media, LC,
effective as of July 1, 2008
|
|
|
23.1
*
|
Consent
of Tanner LC
|
|
|
23.2
*
|
Consent
of Sichenzia Ross Friedman Ference LLP (contained in Exhibit
5.1)
|
* Filed
herewith